Attached files
file | filename |
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8-K - FORM 8-K - INSIGHT HEALTH SERVICES HOLDINGS CORP | a58497e8vk.htm |
EX-2.1 - EX-2.1 - INSIGHT HEALTH SERVICES HOLDINGS CORP | a58497exv2w1.htm |
EX-2.3 - EX-2.3 - INSIGHT HEALTH SERVICES HOLDINGS CORP | a58497exv2w3.htm |
Exhibit 2.2
SOLICITATION VERSION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
) | ||||||
In re:
|
) | Chapter 11 | ||||
) | ||||||
INSIGHT HEALTH SERVICES
|
) | Case No. 10-[_____] (___) | ||||
HOLDINGS
CORP., et al., 1
|
) | |||||
) | ||||||
Debtors.
|
) | (Joint Administration Requested) | ||||
) |
DEBTORS DISCLOSURE STATEMENT FOR THE DEBTORS PREPACKAGED JOINT
CHAPTER 11 PLAN OF REORGANIZATION
CHAPTER 11 PLAN OF REORGANIZATION
James H.M. Sprayregen, P.C.
|
Ryan Blaine Bennett (pro hac vice pending) | |
Edward O. Sassower
|
Paul Wierbicki (pro hac vice pending) | |
KIRKLAND & ELLIS LLP
|
KIRKLAND & ELLIS LLP | |
601 Lexington Avenue
|
300 North LaSalle Street | |
New York, New York 10022
|
Chicago, Illinois 60654 | |
Telephone: (212) 446-4800
|
Telephone: (312) 862-2000 | |
Facsimile: (212) 446-4900
|
Facsimile: (312) 862-2200 | |
Proposed Counsel to the Debtors and Debtors in Possession | ||
Dated: December 10, 2010 |
1 | The Debtors in these chapter 11 cases, along with the last four digits of each Debtors federal tax identification number, include: InSight Health Services Holdings Corp. (0028); InSight Health Services Corp. (2770); Comprehensive Medical Imaging Centers, Inc. (6946); Comprehensive Medical Imaging, Inc. (2473); InSight Health Corp. (8857); Maxum Health Services Corp. (5957); North Carolina Mobile Imaging I LLC (9930); North Carolina Mobile Imaging II LLC (0165); North Carolina Mobile Imaging III LLC (0251); North Carolina Mobile Imaging IV LLC (0342); North Carolina Mobile Imaging V LLC (0431); North Carolina Mobile Imaging VI LLC (0532); North Carolina Mobile Imaging VII LLC (0607); Open MRI, Inc. (1529); Orange County Regional PET Center Irvine, LLC (0190); Parkway Imaging Center, LLC (2858); and Signal Medical Services, Inc. (2413). The location of the Debtors corporate headquarters and the Debtors service address is: 26250 Enterprise Court, Suite 100, Lake Forest, California 92630. |
InSight Health Services Holdings Corp., InSight Health Services Corp., Comprehensive Medical
Imaging Centers, Inc., Comprehensive Medical Imaging, Inc., InSight Health Corp., Maxum Health
Services Corp., North Carolina Mobile Imaging I LLC , North Carolina Mobile Imaging II LLC, North
Carolina Mobile Imaging III LLC, North Carolina Mobile Imaging IV LLC, North Carolina Mobile
Imaging V LLC, North Carolina Mobile Imaging VI LLC, North Carolina Mobile Imaging VII LLC, Open
MRI, Inc., Orange County Regional PET Center Irvine, LLC, Parkway Imaging Center, LLC and Signal
Medical Services, Inc. (collectively, the Debtors) are sending you this document, and the
accompanying materials (this Disclosure Statement) because you may be a creditor entitled
to vote to approve the Debtors Prepackaged Joint Chapter 11 Plan of Reorganization, as the same
may be amended from time to time (the
Plan).2 The Debtors are commencing the
solicitation of your vote to approve the Plan (the Solicitation) before the Debtors File
voluntary cases under Chapter 11 of Title 11 of the United States Code, as amended (the
Bankruptcy Code).
The Debtors may File voluntary reorganization cases under Chapter 11 of the Bankruptcy Code, to
implement the Plan (the Chapter 11 Cases). Because the Chapter 11 Cases have not yet
been commenced, this Disclosure Statement has not been approved by the Bankruptcy Court as
containing adequate information within the meaning of section 1125(a) of the Bankruptcy Code. If
the Debtors File the Chapter 11 Cases, they will promptly seek an order of the Bankruptcy Court (a)
approving this Disclosure Statement as having contained adequate information, (b) approving the
solicitation of votes as having been in compliance with section 1126(b) of the Bankruptcy Code and
(c) confirming the Plan. The Bankruptcy Court may order additional disclosures.
DISCLOSURE STATEMENT FOR THE DEBTORS JOINT CHAPTER 11 PLAN OF
REORGANIZATION
REORGANIZATION
DATED DECEMBER 10, 2010
SPECIAL NOTICE REGARDING FEDERAL AND STATE SECURITIES LAWS
Neither this Disclosure Statement nor the Plan has been Filed with or reviewed by the Bankruptcy
Court, and the securities to be issued on or after the Effective Date will not have been the
subject of a registration statement filed with the United States Securities and Exchange Commission
(the SEC) under the United States Securities Act of 1933, as amended (the Securities
Act), or any securities regulatory authority of any state under any state securities law
(Blue Sky Law). The Debtors are relying on section 4(2) of the Securities Act, and
similar Blue Sky Law provisions to exempt from registration under the Securities Act and Blue Sky
Law the offer to Holders of Senior Secured Notes Claims of new securities prior to the filing of
the Chapter 11 Cases, including without limitation in connection with the Solicitation. After the
filing of the Chapter 11 Cases, the Debtors are relying on the exemption from the Securities Act,
and equivalent state law registration requirements, provided by section 1145(a) of the Bankruptcy
Code, to exempt from registration under the Securities Act and Blue Sky Law the offer and sale of
New Common Stock and Warrants under the Plan.
Each Holder of a Senior Secured Notes Claim or authorized signatory for the beneficial owner of a
Senior Secured Notes Claim (the Beneficial Holders) will be requested to certify on its
Ballot whether (a) such Holder or Beneficial Holder is an Accredited Investor, as that term is
defined by Rule 501 of Regulation D of the Securities Act or (b) that such holder has sufficient
knowledge and experience in financial and business matters so as to be capable of evaluating the
merits and risks of its participating in the Plan and is capable of bearing the economic risks of
such investment, including a complete loss of its investment.
The Plan has not been approved or disapproved by the SEC or any state securities commission and
neither the SEC nor any state securities commission has passed upon the accuracy or adequacy of the
information contained herein. Any representation to the contrary is a criminal offense. Neither
the Solicitation nor this
2 | Unless otherwise defined in this Disclosure Statement, all capitalized terms used, but not otherwise defined, in this Disclosure Statement shall have the meanings ascribed to them in the Plan. |
Disclosure Statement constitutes an offer to sell or the solicitation of an offer to buy securities
in any state or jurisdiction in which such offer or solicitation is not authorized.
This Disclosure Statement and the information set forth herein is confidential. This Disclosure
Statement contains material non-public information concerning the Debtors and their respective
securities. Each recipient hereby acknowledges that (a) it is aware that the federal securities
laws of the United States prohibit any person who has material non-public information about a
company, which is obtained from the company or its representatives, from purchasing or selling
securities of such company or from communicating the information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell
such securities and (b) is familiar with the United States Securities Exchange Act of 1934, as
amended (the Securities Exchange Act), and the rules and regulations promulgated
thereunder, and agrees that it will not use or communicate to any person under circumstances where
it is reasonably likely that such person is likely to use or cause any person to use, any
confidential information in contravention of the Securities Exchange Act or any of its rules and
regulations, including Rule 10b-5.
The deadline to accept or reject the Plan is 5:00 p.m. (prevailing Eastern
Time) on December 27, 2010 (the Voting Deadline), unless the Debtors, in
their sole discretion, and from time to time, extend the Voting Deadline. To
be counted, the Ballot or Master Ballot indicating acceptance or rejection of
the Plan must be received by BMC Group, Inc., the Debtors notice and claims
agent (BMC or the Notice and Claims Agent), no later than the Voting
Deadline.
The Debtors cannot assure you that the Disclosure Statement, including any
exhibits to the Disclosure Statement, that is ultimately approved by the
Bankruptcy Court in the Chapter 11 Cases (a) will contain any of the terms
described in this Disclosure Statement or (b) will not contain different,
additional or material terms that do not appear in this Disclosure Statement.
The Debtors urge each Holder of a Claim or Interest (i) to read and consider
carefully this entire Disclosure Statement (including the Plan and the matters
described under Article IX of this Disclosure Statement, entitled Plan-Related
Risk Factors And Alternatives To Confirming And Consummating The Plan and (ii)
to consult with its own advisors with respect to reviewing this Disclosure
Statement, the Plan and each of the proposed transactions contemplated thereby
prior to deciding whether to accept or reject the Plan. You should not rely on
this Disclosure Statement for any purpose other than to determine whether to
vote to accept or reject the Plan.
If the Plan is confirmed by the Bankruptcy Court and the Effective Date occurs,
all Holders of Claims against, and Holders of Interests in, the Debtors
(including, without limitation, those Holders of Claims or Interests who do not
submit Ballots to accept or reject the Plan or who are not entitled to vote on
the Plan) will be bound by the terms of the Plan and the transactions
contemplated thereby.
Prepared By:
James H.M. Sprayregen, P.C.
|
Ryan Blaine Bennett (pro hac vice pending) | |
Edward O. Sassower
|
Paul Wierbicki (pro hac vice pending) | |
KIRKLAND & ELLIS LLP
|
KIRKLAND & ELLIS LLP | |
601 Lexington Avenue
|
300 North LaSalle Street | |
New York, New York 10022
|
Chicago, Illinois 60654 | |
Telephone: (212) 446-4800
|
Telephone: (312) 862-2000 | |
Facsimile: (212) 446-4900
|
Facsimile: (312) 862-2200 | |
Proposed Counsel to the Debtors and
Debtors in Possession |
2
TABLE OF CONTENTS
Page | ||||
ARTICLE I INTRODUCTION |
1 | |||
A. PURPOSE AND EFFECT OF THE PLAN |
2 | |||
1. Limited Substantive Consolidation |
2 | |||
2. Class Entitled to Vote |
3 | |||
3. Restructuring Transactions |
3 | |||
4. Warrants |
3 | |||
5. Stockholders Agreement |
4 | |||
6. Management Equity Plan |
4 | |||
B.
OVERVIEW OF CHAPTER 11 |
4 | |||
C. SUMMARY OF CLASSIFICATION AND TREATMENT OF ALLOWED CLAIMS AND INTERESTS UNDER THE PLAN |
5 | |||
D. PARTIES ENTITLED TO VOTE ON THE PLAN |
6 | |||
E. SUMMARY OF SOLICITATION PACKAGE AND VOTING INSTRUCTIONS |
6 | |||
F. THE CONFIRMATION HEARING |
7 | |||
G. CONFIRMING AND CONSUMMATING THE PLAN |
8 | |||
H. RISK FACTORS |
8 | |||
I. RULES OF INTERPRETATION |
8 | |||
ARTICLE II BACKGROUND |
10 | |||
A. THE DEBTORS CORPORATE HISTORY, BUSINESS OPERATIONS AND CAPITAL STRUCTURE |
10 | |||
1. The Debtors Business Operations |
10 | |||
2. Investments and Transactions with Partnerships |
13 | |||
3. Government Regulation |
14 | |||
4. 2007 Reorganization |
14 | |||
5. Debtors Board of Directors |
14 | |||
6. The Debtors Capital Structure |
14 | |||
ARTICLE III CHAPTER 11 CASES |
16 | |||
A. EVENTS LEADING TO THE CHAPTER 11 CASES |
16 | |||
1. Recurring Losses from Operations and Capital Deficiency |
16 | |||
2. Substantial Indebtedness and Inability to Service Debt |
17 | |||
3. Liquidity Reserves and Debt Service Cost Constraints |
17 | |||
4. Inability to Obtain Necessary Capital to Finance Projects and Refinance Indebtedness |
17 | |||
5. Increases in Interest Rates |
18 | |||
B. THE PROPOSED REORGANIZATION OF THE DEBTORS |
18 | |||
C. ANTICIPATED EVENTS OF THE CHAPTER 11 CASES |
19 | |||
1. Voluntary Petitions |
19 | |||
2. Expected Timetable of the Chapter 11 Cases |
20 | |||
3. First Day Relief |
20 | |||
4. Northern California Fixed Site Center Sale |
21 |
3
Page | ||||
D. EXIT FINANCING ARRANGEMENT |
22 | |||
ARTICLE IV THE JOINT PLAN |
22 | |||
A. DIP FACILITY CLAIMS, ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS |
22 | |||
1. DIP Facility Claims |
22 | |||
2. Administrative Claims |
22 | |||
3. Priority Tax Claims |
23 | |||
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS |
23 | |||
1. Summary of Classification |
23 | |||
2. Treatment of Claims and Interests |
24 | |||
3. Special Provision Governing Unimpaired Claims |
27 | |||
4. Acceptance or Rejection of the Plan |
27 | |||
5. Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code |
28 | |||
6. Controversy Concerning Impairment |
28 | |||
C. MEANS FOR IMPLEMENTATION OF THE PLAN |
28 | |||
1. Sources of Consideration for Plan Distribution |
28 | |||
2. Substantive Consolidation |
28 | |||
3. Exit Facility |
29 | |||
4. Issuance of New Common Stock and Other Securities |
30 | |||
5. Warrants |
30 | |||
6. Stockholders Agreement |
30 | |||
7. Section 1145 Exemption |
31 | |||
8. Listing of New Common Stock |
31 | |||
9. New Certificates of Incorporation and New By-Laws |
31 | |||
10. Reorganized Debtors Boards of Directors and Officers |
31 | |||
11. Corporate Existence |
31 | |||
12. Vesting of Assets in the Reorganized Debtors |
32 | |||
13. Cancellation of Securities and Agreements |
32 | |||
14. Restructuring Transactions |
32 | |||
15. Corporate Action |
33 | |||
16. Effectuating Documents; Further Transactions |
33 | |||
17. Exemption from Certain Taxes and Fees |
33 | |||
18. Employee and Retiree Benefits |
34 | |||
19. D&O Liability Insurance Policies |
34 | |||
20. Indemnification Provisions |
34 | |||
21. Preservation of Rights of Action |
34 | |||
22. Priority Tax Claims & Administrative Claims Bar Dates |
35 | |||
D. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES |
35 | |||
1. Assumption and Rejection of Executory Contracts and Unexpired Leases |
35 | |||
2. Payments Related to Assumption of Executory Contracts and Unexpired Leases |
36 | |||
3. Preexisting Obligations to the Debtors Under Executory Contracts and Unexpired Leases |
36 | |||
4. Intercompany Contracts, Contracts and Leases Entered Into After the Petition Date |
36 | |||
5. Modifications, Amendments, Supplements, Restatements or Other Agreements |
36 | |||
6. Reservation of Rights |
36 | |||
7. Nonoccurrence of Effective Date |
36 | |||
8. Rejection Damages Claims Bar Date |
37 | |||
E. PROVISIONS GOVERNING DISTRIBUTIONS |
37 | |||
1. Timing and Calculation of Amounts to Be Distributed |
37 | |||
2. Disbursing Agent |
37 |
4
Page | ||||
3. Rights and Powers of Disbursing Agent |
37 | |||
4. Distributions on Account of Claims Allowed After the Effective Date |
38 | |||
5. Delivery of Distributions and Undeliverable or Unclaimed Distributions |
38 | |||
6. Compliance with Tax Requirements/Allocations |
39 | |||
7. Setoffs |
39 | |||
8. Claims Paid or Payable by Third Parties |
39 | |||
F. PROCEDURES FOR RESOLVING CONTINGENT, UNLIQUIDATED AND DISPUTED CLAIMS |
40 | |||
1. Prosecution of Objections to Claims |
40 | |||
2. Procedures Regarding Disputed Claims |
40 | |||
3. Allowance of Claims and Interests |
41 | |||
4. No Distributions Pending Allowance |
41 | |||
5. Distributions After Allowance |
41 | |||
G. SETTLEMENT, RELEASE, INJUNCTION AND RELATED PROVISIONS |
41 | |||
1. Discharge of Claims and Termination of Interests |
41 | |||
2. Subordinated Claims |
42 | |||
3. Compromise and Settlement of Claims, Interests and Controversies |
42 | |||
4. Debtor Release |
42 | |||
5. Third Party Release |
43 | |||
6. Exculpation |
44 | |||
7. Indemnification |
44 | |||
8. Injunction |
44 | |||
9. Setoffs |
45 | |||
10. Release of Liens |
45 | |||
H. ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS |
45 | |||
1. Professional Fee Escrow Account |
45 | |||
2. Professional Fee Reserve Amount |
45 | |||
3. Post Confirmation Date Fees and Expenses |
46 | |||
4. Payment of Fees and Expenses of the Ad Hoc Noteholders Committee Professionals |
46 | |||
I. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN |
46 | |||
1. Conditions Precedent to Confirmation |
46 | |||
2. Conditions Precedent to Consummation |
46 | |||
3. Waiver of Conditions |
47 | |||
4. Effective Date |
47 | |||
5. Effect of Non-Occurrence of Conditions to Consummation |
47 | |||
J. MODIFICATION, REVOCATION OR WITHDRAWAL OF THE PLAN |
47 | |||
1. Modification and Amendments |
47 | |||
2. Effect of Confirmation on Modifications |
48 | |||
3. Revocation or Withdrawal of the Plan |
48 | |||
K. RETENTION OF JURISDICTION |
48 | |||
L. MISCELLANEOUS PROVISIONS |
50 | |||
1. Immediate Binding Effect |
50 | |||
2. Additional Documents |
50 | |||
3. Payment of Statutory Fees |
50 | |||
4. Dissolution of Committees |
50 | |||
5. Reservation of Rights |
50 | |||
6. Successors and Assigns |
50 | |||
7. Service of Documents |
50 | |||
8. Term of Injunctions or Stays |
51 | |||
9. Entire Agreement |
51 |
5
Page | ||||
10. Nonseverability of Plan Provisions |
51 | |||
11. Conflicts |
51 | |||
ARTICLE V SOLICITATION AND VOTING PROCEDURES |
51 | |||
A. THE SOLICITATION PACKAGE |
52 | |||
B. VOTING DEADLINE |
52 | |||
C. VOTING INSTRUCTIONS |
52 | |||
1. Note to Class 4 Claim Holders |
53 | |||
D. VOTING TABULATION |
55 | |||
ARTICLE VI FINANCIAL PROJECTIONS |
56 | |||
A. DESCRIPTION REGARDING THE FINANCIAL PROJECTIONS |
56 | |||
ARTICLE VII CONFIRMATION PROCEDURES |
57 | |||
A. THE CONFIRMATION HEARING |
57 | |||
B. STATUTORY REQUIREMENTS FOR CONFIRMATION OF THE PLAN |
58 | |||
1. Best Interests of Creditors Test/Liquidation Analysis |
58 | |||
2. Feasibility |
59 | |||
3. Acceptance by Impaired Classes |
60 | |||
4. Confirmation Without Acceptance by All Impaired Classes |
60 | |||
C. RISK FACTORS |
61 | |||
D. IDENTITY OF PERSONS TO CONTACT FOR MORE INFORMATION |
61 | |||
E. DISCLAIMER |
61 | |||
ARTICLE VIII IMPLEMENTATION OF THE PLAN AND POSTPETITION GOVERNANCE OF REORGANIZED DEBTORS |
62 | |||
A. BOARD OF DIRECTORS AND MANAGEMENT |
62 | |||
1. Reorganized Debtors Board of Directors |
62 | |||
2. The Reorganized Debtors Officers |
62 | |||
B. INDEMNIFICATION OF DIRECTORS AND OFFICERS |
62 | |||
C. MANAGEMENT EQUITY PLAN |
62 | |||
D. EXIT FINANCING ARRANGEMENTS |
63 | |||
1. Exit Facility Agreement |
63 | |||
ARTICLE IX PLAN RELATED RISK FACTORS AND ALTERNATIVES TO CONFIRMING AND CONSUMMATING THE PLAN |
63 | |||
A. GENERAL |
63 | |||
B. CERTAIN BANKRUPTCY LAW CONSIDERATIONS |
64 | |||
1. Parties in Interest May Object to Debtors Classification of Claims and Interests |
64 | |||
2. Failure to Satisfy Vote Requirement |
64 | |||
3. The Debtors May Not Be Able to Obtain Confirmation or Consummation of the Plan |
64 | |||
4. The Debtors May Object to the Amount or Classification of a Claim |
64 | |||
5. Risk of Non-Occurrence of the Effective Date |
65 | |||
6. Substantive Consolidation Risks |
65 | |||
7. Contingencies Not to Affect Votes of Impaired Classes to Accept the Plan |
65 | |||
8. Risk of Not Obtaining Exit Financing |
65 |
6
Page | ||||
C. FINANCIAL INFORMATION; DISCLAIMER |
65 | |||
D. FACTORS AFFECTING THE COMPANY |
65 | |||
1. Business-Related Risks |
65 | |||
2. Risks Related to Government Regulation |
70 | |||
3. Risks Related to the New Common Stock and Warrants |
71 | |||
4. Legal Proceedings |
72 | |||
E. CERTAIN TAX MATTERS |
72 | |||
F. RISK THAT THE INFORMATION IN THIS DISCLOSURE STATEMENT MAY BE
INACCURATE |
72 | |||
G.
LIQUIDATION UNDER CHAPTER 7 |
73 | |||
ARTICLE X SECURITIES LAW MATTERS |
73 | |||
A. PLAN SECURITIES |
73 | |||
B. ISSUANCE AND RESALE OF PLAN SECURITIES UNDER THE PLAN |
73 | |||
1. Exemption from Registration. |
73 | |||
2. Resales of Plan Securities; Definition of Underwriter |
74 | |||
C. LISTING OF PLAN SECURITIES |
75 | |||
ARTICLE XI CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES |
75 | |||
A. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS AND THE
REORGANIZED DEBTORS |
76 | |||
1. Reduction of NOLs |
76 | |||
2. Reduction of Tax Basis in Depreciable Assets |
76 | |||
3. Limitation on NOLs and Other Tax Attributes |
76 | |||
4. Pre-Confirmation Measures |
77 | |||
5. Special Bankruptcy Exceptions |
77 | |||
6. Alternative Minimum Tax |
77 | |||
B.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 1 |
||||
OTHER
PRIORITY CLAIMS, CLASS 3 REVOLVING CREDIT FACILITY CLAIMS AND CLASS 5 |
||||
GENERAL UNSECURED CLAIMS |
78 | |||
C.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 4 |
||||
SENIOR SECURED NOTES CLAIMS |
78 | |||
D.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 9 |
||||
EQUITY
INTERESTS IN INSIGHT HEALTH SERVICES HOLDINGS CORP. |
79 | |||
E. ACCRUED INTEREST |
79 | |||
F. MARKET DISCOUNT |
80 | |||
G. INFORMATION REPORTING AND BACK-UP WITHHOLDING |
80 | |||
ARTICLE XII GLOSSARY OF DEFINED TERMS |
82 |
7
Page | ||||
A. DEFINED TERMS |
82 | |||
B. RULES OF INTERPRETATION |
91 | |||
C. COMPUTATION OF TIME |
91 | |||
D. GOVERNING LAW |
91 | |||
E. REFERENCE TO MONETARY FIGURES |
92 | |||
F. REFERENCE TO THE DEBTORS OR THE REORGANIZED DEBTORS |
92 | |||
ARTICLE XIII CONCLUSION AND RECOMMENDATION |
92 |
8
EXHIBITS
Exhibit A
|
Debtors Prepackaged Joint Chapter 11 Plan of Reorganization | |
Exhibit B
|
Debtors Organizational and Prepetition Debt Structure | |
Exhibit C
|
Debtors Financial Projections | |
Exhibit D
|
Liquidation Analysis | |
Exhibit E
|
Form of DIP Credit Agreement | |
Exhibit F
|
Most Recent Filed Annual Report | |
Exhibit G
|
Most Recent Filed Quarterly Report | |
Exhibit H
|
Restructuring Support Agreement (including the Plan Term Sheet, the Warrant Term Sheet and the Stockholders Agreement term sheet) |
9
ARTICLE I
INTRODUCTION3
INTRODUCTION3
The Debtors are sending you this Disclosure Statement because the Debtors are asking you
to vote on approval of the Plan. A copy of the Plan is attached hereto as Exhibit
A.4 This Disclosure Statement describes certain aspects of the Plan, including the
treatment of Holders of Claims and Interests, and also describes certain aspects of the Debtors
operations, financial projection and other related matters.
The Debtors are making the statements and financial information contained in this Disclosure
Statement as of the date hereof, unless otherwise specified. Holders of Senior Secured Notes
Claims reviewing this Disclosure Statement should not infer that, at the time of their review, the
facts set forth herein have not changed since the date set forth on the cover page of this
Disclosure Statement. Holders of Senior Secured Notes Claims entitled to vote to accept the Plan
must rely on their own evaluation of the Debtors and their own analysis of the terms of the Plan,
including, but not limited to, any risk factors cited herein, in deciding whether to vote to accept
or reject the Plan.
The contents of this Disclosure Statement may not be deemed as providing any legal, financial,
securities, tax or business advice. The Debtors urge each Holder of a Claim or Interest to consult
with its own advisors with respect to any such legal, financial, securities, tax or business advice
in reviewing this Disclosure Statement, the Plan and each of the proposed transactions contemplated
thereby. Furthermore, the Bankruptcy Courts approval of the adequacy of disclosure contained in
this Disclosure Statement does not constitute the Bankruptcy Courts approval of the merits of the
Plan.
Moreover, this Disclosure Statement does not constitute, and may not be construed as, an admission
of fact, liability, stipulation or waiver. Rather, Holders of Claims and Interests should construe
this Disclosure Statement as a statement made in settlement negotiations related to contested
matters, adversary proceedings and other pending or threatened litigation or actions.
Holders of Claims and Interests are encouraged to read and carefully consider this entire
Disclosure Statement, including the Plan and the matters described under Article XI of this
Disclosure Statement entitled Plan-Related Risk Factors And Alternatives To Confirming And
Consummating The Plan prior to deciding whether to accept or reject the Plan.
The Debtors have not authorized any party to give any information about or concerning the Plan
other than that which is contained in this Disclosure Statement. The Debtors have not authorized
any representations concerning the Debtors or the value of their property other than as set forth
in this Disclosure Statement. Claimants should not rely upon any information, representations or
other inducements made to obtain acceptance of the Plan that are other than, or inconsistent with,
the information contained herein and in the Plan.
The Debtors management has reviewed the financial information provided in this Disclosure
Statement. Although the Debtors have used their best efforts to ensure the accuracy of this
financial information, the financial information contained in, or incorporated by reference into,
this Disclosure Statement, other than the financial statements included in the Debtors annual
report, has not been audited.
The Debtors recommend that potential recipients of New Common Stock or Warrants consult their own
counsel concerning the securities laws consequences concerning the transferability of the New
Common Stock or Warrants.
3 | This introduction is qualified in its entirety by the more detailed information contained in the Plan and elsewhere in the Disclosure Statement. | |
4 | As set forth in this Disclosure Statement, all Holders of Senior Secured Notes Claims who are entitled to vote on the Plan will receive this Disclosure Statement. All other Holders of Claims and Interests will receive a notice of the Disclosure Statement, which will provide details on how to obtain copies of this Disclosure Statement. |
This Disclosure Statement summarizes certain provisions of the Plan, certain other documents
and certain financial information. The Debtors believe that these summaries are fair and accurate;
however, you should read the Plan in its entirety. In the event of any inconsistency or
discrepancy between a description contained in this Disclosure Statement and the terms and
provisions of the Plan or the other documents or financial information to be incorporated herein by
reference, the Plan, or such other documents, as applicable, shall govern for all purposes.
The Debtors are providing the information in this Disclosure Statement solely for purposes of
soliciting the votes of Holders of Senior Secured Notes Claims entitled to vote to accept or reject
the Plan or object to Confirmation. Nothing in this Disclosure Statement may be used by any Entity
for any other purpose.
All exhibits to this Disclosure Statement are incorporated into and made a part of this Disclosure
Statement as if set forth in full herein.
The Plan constitutes a motion seeking entry of an order substantively consolidating the Chapter 11
Cases as described and for the purposes set forth in the Plan.
A. PURPOSE AND EFFECT OF THE PLAN.
The primary purpose of the Plan is to effectuate the restructuring and substantial
de-leveraging of the Debtors capital structure to bring it into alignment with the Debtors
present and future operating prospects and to provide the Debtors with greater liquidity. The Plan
will allow the Debtors to continue their businesses in the ordinary course and, notably provides
for full payment of the Debtors General Unsecured Claims. Presently, based on the current
outlook, the funds expected to be generated by the Debtors operation of their businesses and other
sources will not be sufficient to meet the Debtors current debt service requirements and satisfy
their current debt obligations unless the restructuring is consummated. The Debtors believe that
the restructuring will reduce uncertainty with respect to its future and better position them to
develop and maintain new customers. The material terms of the Plan have been agreed to by the Ad
Hoc Noteholders Committee pursuant to the Restructuring Support Agreement.
1. Limited Substantive Consolidation.
The Plan shall serve as a motion by the Debtors seeking entry of an order substantively
consolidating all of the Estates into a single consolidated Estate for all purposes associated with
Confirmation and Consummation.
If such limited substantive consolidation of all of the Estates is ordered, then on and after
the Effective Date, all assets and liabilities of the Debtors shall be treated as though they were
merged into the Estate of InSight Health Services Holdings Corp. for all purposes associated with
Confirmation and Consummation, and all guarantees by any Debtor of the obligations of any other
Debtor shall be eliminated so that any Claim and any guarantee thereof by any other Debtor, as well
as any joint and several liability of any Debtor with respect to any other Debtor, shall be treated
as one collective obligation of the Debtors. Such limited substantive consolidation shall not
affect the legal and organizational structure of the Reorganized Debtors or their separate
corporate existences or any prepetition or postpetition guarantees, Liens or security interests
that are required to be maintained under the Bankruptcy Code, under the Plan or in connection with
contracts or leases that were assumed or entered into during the Chapter 11 Cases. Any alleged
defaults under any applicable agreement with the Debtors, the Reorganized Debtors or their
Affiliates arising from substantive consolidation under the Plan shall be deemed cured as of the
Effective Date.
In the event that the Bankruptcy Court does not order limited substantive consolidation of the
Debtors, then except as specifically set forth in the Plan: (1) nothing in the Plan or the
Disclosure Statement shall constitute or be deemed to constitute an admission that one of the
Debtors is subject to or liable for any Claim against any other Debtor; (2) Claims against multiple
Debtors shall be treated as separate Claims with respect to each Debtors Estate for all purposes
(including distributions and voting), and such Claims shall be administered as provided in the
Plan; (3) the Debtors shall not, nor shall they be required to, re-solicit votes with respect to
the Plan, nor will the failure of the Bankruptcy Court to approve limited substantive consolidation
of the Debtors alter the distributions set forth in the Plan; and (4) the Debtors may File Subplans
with terms substantially consistent in all applicable respects with the terms of the Plan, and the
confirmation requirements of section 1129 of the Bankruptcy Code must be satisfied
2
separately with respect to each Subplan; provided that a Holders (a) vote to accept
or reject the Plan; (b) presumed acceptance of the Plan pursuant to section 1126(f) of the
Bankruptcy Code; or (c) deemed rejection of the Plan pursuant to section 1126(g) may be deemed a
vote to accept or reject an applicable Subplan (as the case may be) to the extent that such Subplan
does not provide such Holder with less favorable treatment than such Holder would have received if
the Bankruptcy Court had ordered limited substantive consolidation as set forth in the Plan. The
Debtors inability to confirm any Subplan or the Debtors election to withdraw any Subplan shall
not impair the confirmation of any other Subplan or the consummation of any such Subplan.
2. Class Entitled to Vote.
As set forth in Article III of the Plan, the Class 4 Claims are Impaired and, therefore,
Holders of these Claims are entitled to vote on the Plan. All other Classes of Claims are not
entitled to vote on the Plan. The voting Class is comprised of the following Claims:
| Class 4 Senior Secured Notes Claims consist of the secured Claims arising out of the Debtors Senior Secured Notes. |
3. Restructuring Transactions.
The Plan contemplates the following restructuring transactions (described in greater detail in
Article IV below, The Joint Plan):
| On the Effective Date, Holders of Senior Secured Notes Claims will convert $293.5 million (plus accrued interest thereon) in Senior Secured Notes Claims into all of the New Common Stock in the Reorganized Debtors. | ||
| Holders of General Unsecured Claims will be paid in full in Cash or receive such other treatment as to render such Holder Unimpaired. | ||
| The Reorganized Debtors intend to enter into the Exit Facility. | ||
| Warrants shall be issued by the Reorganized Debtors to the Holders of existing common stock in InSight Health Services Holdings Corp. on the Effective Date (immediately prior to the Consummation of the Plan) as part of the distributions made to Holders of Senior Secured Notes Claims under the Plan. |
In connection with developing the Plan, the Debtors reviewed their current business
operations and compared their prospects as an ongoing business enterprise with the estimated
recoveries of Holders of Allowed Claims and Interests in a liquidation under chapter 7 of the
Bankruptcy Code. As a result, the Debtors concluded that the recovery for Holders of Allowed
Claims and Interests would be maximized by continuing to operate as a going concern. The Debtors
believe that their businesses and assets have significant value that would not be realized in a
liquidation, either in whole or in substantial part. Consistent with the liquidation analysis
described herein, the value of the Debtors assets would be considerably greater if the Debtors
operate as a going concern instead of liquidating. Moreover, the Debtors believe that any
alternative to Confirmation of the Plan, such as liquidation or attempts by another party in
interest to File a plan of reorganization, would not be feasible, or result in significant delays,
litigation and additional costs, and ultimately would lower the recoveries for Holders of Allowed
Claims and Interests. Accordingly, the Debtors strongly recommend that you vote to accept the
Plan, if you are entitled to vote.
4. Warrants.
As part of the distributions made to Holders of Senior Secured Notes Claims, and as described
more fully in Article III.B.4 of the Plan, the Holders of existing common stock in InSight Health
Services Holdings Corp. on the Effective Date (immediately prior to the consummation of the Plan)
shall receive the Warrants from the Reorganized Debtors on the Effective Date. The Warrants are
those certain warrants to acquire shares of New Common Stock representing in the aggregate two
percent (2%) of the New Common Stock, on a fully-diluted basis, as of the Effective Date (but
subject to dilution on or after the Effective Date for awards under the Management
3
Equity Plan), the terms of which shall be consistent in all material respects with and
further provided in the Warrant Agreement, which shall be in form and substance acceptable to the
Requisite Consenting Noteholders. The Warrants shall be exercisable pursuant to a cashless
exercise at any time from the Effective Date until the third anniversary of the Effective Date at a
strike price equal to a Reorganized InSight Health Services Holdings Corp. enterprise value of $215
million; provided, however, that no Warrant shall be exercisable if such exercise would result in a
number of holders of New Common Stock that could cause Reorganized InSight Health Services Holdings
Corp. to be a reporting company under the Exchange Act or would require Reorganized InSight Health
Services Holdings Corp. to register the underlying New Common Stock under the Securities Act, as
determined by the New Board. The Warrants may be subject to certain transfer, exercise and other
restrictions and appropriate legends pursuant to, among other things, the Warrant Agreement.
Reorganized InSight Health Services Holdings Corp. shall not be required to (but may) register
the Warrants or any New Common Stock provided upon exercise of the Warrants with the SEC or other
similar regulatory authority.
The Warrant Agreement shall be included in the Plan Supplement and shall be consistent in all
material respects with the Warrant Term Sheet and shall be in form and substance acceptable to the
Requisite Consenting Noteholders. The Warrant Term Sheet is attached as Annex 2 to the Plan Term
Sheet attached as Exhibit A to the Restructuring Support Agreement attached hereto as Exhibit
H. Notwithstanding anything to the contrary in the Plan, in no event shall the terms of the
Warrants cause Reorganized InSight Health Services Holdings Corp. to be required by the Securities
Act or the Exchange Act, including without limitation Section 12(g) or 15(d) of the Exchange Act,
or any other federal, state or local securities laws, to register with the SEC or other similar
regulatory authority any class of equity securities of InSight Health Services Holdings Corp. or to
file periodic reports under Section 13 or 15(d) of the Exchange Act. The Warrant Agreement shall
contain transfer, exercise and other restrictions and appropriate legends to the satisfaction of
the Requisite Consenting Noteholders and consistent with the Warrant Term Sheet to ensure that the
terms of the Warrants and the Warrant Agreement do not result in such registration or reporting
requirements on the part of Reorganized InSight Health Services Holdings Corp.
5. Stockholders Agreement.
The Debtors plan to execute the Stockholders Agreement, as described in Annex 1 to the Plan
Term Sheet attached as Exhibit A to the Restructuring Support Agreement attached hereto as
Exhibit H. The Stockholders Agreement shall be executed on or before the Effective Date
providing for, among other things, the rights and obligations of the Holders of the New Common
Stock. As of the Effective Date, each person or entity that receives New Common Stock shall be
deemed to be bound by the Stockholders Agreement. All participants in the Management Equity Plan
and each person that receives a Warrant shall execute a joinder to the Stockholders Agreement as a
condition to the receipt of any New Common Stock pursuant to exercise of such Warrant or award
under the Management Equity Plan.
6. Management Equity Plan.
The Plan provides for a post-Effective Date Management Equity Plan, the terms of which and the
amount of New Common Stock to be issued thereunder, if any, shall be determined and implemented on
or as soon as reasonably practicable after the Effective Date by the New Board or any compensation
committee thereof in its discretion. Up to eight percent of fully diluted New Common Stock shall
be reserved for the post-Effective Date Management Equity Plan.
B. OVERVIEW OF CHAPTER 11.
Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. In
addition to permitting debtor rehabilitation, Chapter 11 promotes equality of treatment for
similarly situated creditors and similarly situated Equity Interest Holders, subject to the
priority of distributions prescribed by the Bankruptcy Code.
The commencement of a Chapter 11 case creates an estate that comprises all of the legal and
equitable interests of the debtor as of the bankruptcy commencement date (the Petition
Date). The Bankruptcy Code provides that the debtor may continue to operate its business and
remain in possession of its property as a debtor in possession.
4
Consummating a plan is the principal objective of a Chapter 11 case. The Bankruptcy Courts
confirmation of a plan binds the debtor, any person acquiring property under the plan, any creditor
or Equity Interest Holder of a debtor and any other person or entity as may be ordered by the
Bankruptcy Court, in accordance with the applicable provisions of the Bankruptcy Code. Subject to
certain limited exceptions, the order issued by the Bankruptcy Court confirming a plan provides for
the treatment of the debtors debt in accordance with the terms of the confirmed plan.
A prepackaged plan of reorganization is one in which a debtor seeks approval of a plan of
reorganization from affected creditors before filing for bankruptcy. Because solicitation of
acceptances takes place before the bankruptcy filing, the amount of time required for the
bankruptcy case is often less than in more conventional bankruptcy cases. Greater certainty of
results and reduced costs are other benefits generally associated with prepackaged bankruptcy
cases.
C. SUMMARY OF CLASSIFICATION AND TREATMENT OF ALLOWED CLAIMS AND INTERESTS UNDER THE PLAN.
All Holders of Claims and Interests other than Holders of Class 4 Senior Secured Notes Claims,
Class 8 510(b) Claims and Class 9 Equity Interests in InSight Health Services Holdings Corp. are
Unimpaired under the Plan. Holders of Senior Secured Notes Claims will receive New Common Stock
under the Plan. In addition, as part of the distributions made to Holders of Senior Secured Notes
Claims, and as described more fully in Article III.B.4. of the Plan, the Holders of existing common
stock in InSight Health Services Holdings Corp on the Effective Date (immediately prior to the
consummation of the Plan) shall receive their pro rata share of the Warrants from the Reorganized
Debtors on the Effective Date. The following chart summarizes distributions to Holders of Allowed
Claims and Interests under the Plan.5 The recoveries set forth below are projected
recoveries and may change based upon changes in Allowed Claims and proceeds available.
Estimated Recovery of Allowed | Estimated Recovery of | |||||||||||||
Claims and Interests Under the | Allowed Claims Under | |||||||||||||
Class | Claim/Equity Interest | Status | Plan | Chapter 7 Liquidation | ||||||||||
1 | Other Priority Claims
|
Unimpaired | 100 | % | 100 | % | ||||||||
2 | Other Secured Claims
|
Unimpaired | 100 | % | 100 | % | ||||||||
3 | Revolving Credit Facility Claims
|
Unimpaired | 100 | % | 100 | % | ||||||||
4 | Senior Secured Notes Claims
|
Impaired | 43.0 | % | 22.3 | %6 | ||||||||
5 | General Unsecured Claims
|
Unimpaired | 100 | % | 2.5 | % | ||||||||
6 | Intercompany Claims
|
Unimpaired | 100 | % | 2.5 | % | ||||||||
7 | Intercompany Interests |
Unimpaired | 100 | % | 0 | % | ||||||||
8 | Section 510(b) Claims
|
Impaired | 0 | % | 0 | % | ||||||||
9 | Equity Interests in InSight Health
Services Holdings Corp.
|
Impaired | 0 | % | 0 | % |
5 | This chart is only a summary of the classification and treatment of Allowed Claims and Interests under the Plan. Reference should be made to the entire Disclosure Statement and the Plan for a complete description of the classification and treatment of Allowed Claims and Interests. | |
6 | Projected recoveries set forth in the above chart are based upon an estimated valuation and midpoint of the range of chapter 7 liquidation values provided in the Liquidation Analysis attached hereto as Exhibit D. |
5
D. PARTIES ENTITLED TO VOTE ON THE PLAN.
Under the provisions of the Bankruptcy Code, not all parties in interest are entitled to vote
on a Chapter 11 plan. For example, Holders of Claims and Interests not Impaired by the Plan are
deemed to accept the Plan under section 1126(f) of the Bankruptcy Code and, therefore, are not
entitled to vote on the Plan. Holders of Claims or Interests Impaired by the Plan and receiving no
distribution on account of their Claims or Interests under the Plan are not entitled to vote
because they are deemed to have rejected the Plan under section 1126(g) of the Bankruptcy Code.
The following sets forth the Classes that are entitled to vote on the Plan and the Classes
that are not entitled to vote on the Plan:
Class | Claim/Equity Interest | Status | Voting Rights | |||||
1 | Other Priority Claims
|
Unimpaired | Deemed to Accept | |||||
2 | Other Secured Claims
|
Unimpaired | Deemed to Accept | |||||
3 | Revolving Credit Facility Claims
|
Unimpaired | Deemed to Accept | |||||
4 | Senior Secured Notes Claims
|
Impaired | Entitled to Vote | |||||
5 | General Unsecured Claims
|
Unimpaired | Deemed to Accept | |||||
6 | Intercompany Claims
|
Unimpaired | Deemed to Accept | |||||
7 | Intercompany Interests
|
Unimpaired | Deemed to Accept | |||||
8 | Section 510(b) Claims
|
Impaired | Deemed to Reject | |||||
9 | Equity Interests in InSight
Health Services Holdings Corp.
|
Impaired | Deemed to Reject |
For a detailed description of the Classes of Claims and Interests, as well as their respective
treatment under the Plan, see Article III of the Plan.
E. SUMMARY OF SOLICITATION PACKAGE AND VOTING INSTRUCTIONS.
The following materials constitute the solicitation package (the Solicitation
Package):
| the appropriate Ballot or Master Ballot, as applicable, and applicable voting instructions (the Voting Instructions); | ||
| a pre-addressed, postage pre-paid return envelope; and | ||
| this Disclosure Statement with all exhibits, including the Plan. |
6
The voting Class, Class 4, entitled to vote to accept or reject the Plan was served by
overnight delivery and by facsimile or electronic mail of this Disclosure Statement with all
exhibits, including the Plan
and the Solicitation Package. Additional paper copies of these documents may be requested
from the Notice and Claims Agent by writing to BMC Group, Inc., P.O. Box 3020, Chanhassen, MN
55317-3020, or calling (888) 909-0100. The Solicitation Package is also available at the Debtors
website, www.bmcgroup.com/insight. All parties entitled to vote to accept or reject the Plan shall
receive by electronic mail, facsimile and a paper copy of a Ballot or Master Ballot, as applicable.
The Debtors, have engaged BMC as the Notice and Claims Agent to assist in the balloting and
tabulation process. The Notice and Claims Agent will, among other things, answer questions,
provide additional copies of all Solicitation Package materials and generally oversee the
solicitation process.
Only the Holders of Class 4 Senior Secured Notes Claims are entitled to vote to accept or
reject the Plan. Unless otherwise permitted by the Debtors, to be counted, Ballots or Master
Ballots must be received by the Notice and Claims Agent by 5:00 p.m. (prevailing Eastern Time) on
December 27, 2010, the Voting Deadline; provided, that Holders of Claims who cast a Ballot
prior to the time of filing of any of the Debtors chapter 11 petitions shall not be entitled to
change their vote or cast new Ballots after the Chapter 11 Cases are commenced. VOTING
INSTRUCTIONS ARE ATTACHED TO EACH BALLOT. PLEASE SEE ARTICLE V BELOW ENTITLED SOLICITATION AND
VOTING PROCEDURES FOR ADDITIONAL INFORMATION.
Unless the Debtors, in their discretion decide otherwise, any Ballot or Master Ballot received
after the Voting Deadline shall not be counted. The Notice and Claims Agent will process and
tabulate Ballots or Master Ballots for the Class entitled to vote to accept or reject the Plan and
will File a voting report (the Voting Report) as soon as practicable after the Petition
Date.
For answers to any questions regarding solicitation procedures, parties may contact the Notice
and Claims Agent directly, at (888) 909-0100, with any questions related to the solicitation
procedures applicable to their Claims and Interests.
The Plan Supplement will be Filed by the Debtors at least five (5) business days prior to the
Confirmation Hearing (the Plan Supplement Filing Date). When Filed, the Plan Supplement
will be available in both electronic and hard copy form, although the Debtors will not serve paper
or CD-ROM copies. Details about how to access the Plan Supplement will be provided in the notice
sent to all parties in interest at the commencement of the Chapter 11 Cases.
Any Ballot or Master Ballot that is properly executed, but fails to clearly indicate an acceptance
or rejection, or that indicates both an acceptance and a rejection of the Plan, shall not be
counted.
All Ballots and Master Ballots are accompanied by Voting Instructions. It is important to follow
the specific instructions provided with each Ballot and Master Ballot.
The Debtors are relying on section 4(2) of the Securities Act and similar Blue Sky Law provisions
to exempt from registration under the Securities Act and Blue Sky Law the offer to Holders of
Senior Secured Notes Claims of new securities prior to the filing of the Chapter 11 Cases,
including without limitation, in connection with the Solicitation. After the filing of the Chapter
11 Cases, the Debtors are relying on the exemption from the Securities Act, and equivalent state
law registration requirements, provided by section 1145(a) of the Bankruptcy Code, to exempt from
registration under the Securities Act and Blue Sky Law the offer and sale of New Common Stock and
Warrants under the Plan.
F. THE CONFIRMATION HEARING.
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
hearing on Confirmation of the Plan. Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to Confirmation of the Plan.
7
Following commencement of the Chapter 11 Cases, the Debtors intend to schedule promptly a
Confirmation Hearing and will provide notice of the Confirmation Hearing to all necessary parties.
The Confirmation Hearing may be adjourned from time to time without further notice except for an
announcement of the adjourned date made at the Confirmation Hearing or any adjournment thereof.
G. CONFIRMING AND CONSUMMATING THE PLAN.
It is a condition to Confirmation of the Plan that the Bankruptcy Court shall have entered the
Confirmation Order in form and substance acceptable to the Debtors and the Requisite Consenting
Noteholders. Certain other conditions contained in the Plan must be satisfied or waived pursuant
to the provisions of Article X of the Plan.
Following Confirmation, the Plan will be consummated on the day that is the first Business Day
after the Confirmation Date on which: (1) the Confirmation Order (a) shall have become a Final
Order in form and substance acceptable to the Debtors and the Requisite Consenting Noteholders and
(b) shall include a finding by the Bankruptcy Court that the New Common Stock and Warrants to be
issued on the Effective Date will be authorized and exempt from registration under applicable
securities laws pursuant to section 1145 of the Bankruptcy Code; and (2) all conditions specified
in Article X of the Plan have been (a) satisfied or (b) waived pursuant to Article X.C of the Plan
(the Effective Date).
For further information, see Article X of the Plan, entitled Conditions Precedent to
Confirmation and Consummation of the Plan.
H. RISK FACTORS.
PRIOR TO DECIDING WHETHER AND HOW TO VOTE ON THE PLAN, EACH HOLDER OF A CLASS 4 CLAIM SHOULD
CONSIDER CAREFULLY ALL OF THE INFORMATION IN THIS DISCLOSURE STATEMENT, INCLUDING THE RISK FACTORS
DESCRIBED IN ARTICLE IX, ENTITLED PLAN RELATED RISK FACTORS AND ALTERNATIVES TO CONFIRMING AND
CONSUMMATING THE PLAN.
I. RULES OF INTERPRETATION.
The following rules for interpretation and construction shall apply to this Disclosure
Statement: (1) capitalized terms used in the Disclosure Statement and not otherwise defined shall
have the meanings ascribed to such terms in Article I of the Plan; (2) whenever from the context it
is appropriate, each term, whether stated in the singular or the plural, shall include both the
singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and the neuter gender; (3) unless otherwise specified, any
reference in this Disclosure Statement to a contract, instrument, release, indenture or other
agreement or document being in a particular form or on particular terms and conditions means that
such document shall be substantially in such form or substantially on such terms and conditions;
(4) unless otherwise specified, any reference in this Disclosure Statement to an existing document,
schedule or exhibit, whether or not Filed, shall mean such document, schedule or exhibit, as it may
have been or may be amended, modified or supplemented; (5) any reference to an Entity as a Holder
of a Claim or Interest includes that Entitys successors and assigns; (6) unless otherwise
specified, all references in this Disclosure Statement to Articles are references to Articles of
this Disclosure Statement or to this Disclosure Statement; (7) unless otherwise specified, all
references in this Disclosure Statement to exhibits are references to exhibits in this Disclosure
Statement; (8) the words herein, hereof, and hereto refer to this Disclosure Statement in its
entirety rather than to a particular portion of this Disclosure Statement; (9) captions and
headings to Articles are inserted for convenience of reference only and are not intended to be a
part of or to affect the interpretation of this Disclosure Statement; (10) unless otherwise set
forth in this Disclosure Statement, the rules of construction set forth in Bankruptcy Code § 102
shall apply; (11) any term used in capitalized form in this Disclosure Statement that is not
otherwise defined in this Disclosure Statement or the Plan but that is used in the Bankruptcy Code
or the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules) shall have the
meaning assigned to such term in the Bankruptcy Code or the Bankruptcy Rules, as applicable; (12)
all references to statutes, regulations, orders, rules of courts and the like shall mean as amended
from time to time, unless otherwise stated; (13) in computing any period of time prescribed or
allowed, the provisions of Bankruptcy Rule 9006(a) shall apply, and if the date on which a
transaction may occur pursuant to this Disclosure Statement shall occur on a day that is not a
Business Day, then such transaction shall instead occur on the next succeeding Business Day; and
(14) unless
8
otherwise specified, all references in this Disclosure Statement to monetary figures
shall refer to currency of the United States of America.
9
ARTICLE II
BACKGROUND
BACKGROUND
A. THE DEBTORS CORPORATE HISTORY, BUSINESS OPERATIONS AND CAPITAL STRUCTURE.
1. The Debtors Business Operations.
The Debtors are a provider of diagnostic imaging services through a network of fixed-site
centers and mobile facilities. The Debtors services are noninvasive procedures that generate
representations of internal anatomy on film or digital media, which are used by physicians for the
diagnosis and assessment of diseases and disorders.
The Debtors serve a diverse portfolio of customers, including healthcare providers, such as
hospitals and physicians and payors, such as managed care organizations, Medicare, Medicaid and
insurance companies. The Debtors operate in more than 30 states including the following targeted
regional markets: Arizona, certain markets in California, the Carolinas, Florida, New England and
the Mid-Atlantic states. The Debtors generated approximately 68% of their total revenues from MRI
services during fiscal year 2010, as well as provided a comprehensive offering of diagnostic
imaging services, including PET/CT, CT, mammography, bone densitometry, ultrasound and x-ray.
As of November 15, 2010, the Debtors network consisted of approximately 62 fixed-site centers
and 104 mobile facilities. This combination allows the Debtors to provide a full range of imaging
services to better meet the varying needs of their customers. The Debtors fixed-site centers
include freestanding centers and joint ventures with hospitals and radiology groups. The Debtors
mobile facilities provide hospitals and physician groups access to imaging technologies when such
hospitals lack either the resources or patient volume to provide their own imaging services or
require incremental capacity. The Debtors do not engage in the practice of medicine or provide
medical care services to patients. Instead they contract with radiologists who review the images
produced by the Debtors diagnostic equipment and provide their evaluation to the patients
physicians who provide the patients care. The radiologists are not employees of the Debtors.
The Debtors business is made up of three reportable segments: wholesale services, retail
services and other operations. In the Debtors wholesale services segment the Debtors generate
revenue principally from 98 mobile units and 17 fixed sites. In the Debtors retail services
segment the Debtors generate revenues principally from 49 fixed-site centers and 5 mobile units. In
the Debtors other operations segment, the Debtors generate revenues principally from agreements
with customers to provide management services and technical solutions. During fiscal year 2010,
approximately 49% of the Debtors revenues were generated from retail services, approximately 50%
were generated from wholesale services and approximately 1% was generated from other operations.
The Debtors principal executive offices are located at 26250 Enterprise Court, Suite 100,
Lake Forest, California 92630, and their telephone number is (949) 282-6000. Additionally, the
Debtors internet address is www.insighthealth.com.
The Debtors file annual, quarterly and special reports and other information with the SEC,
including an Annual Report on Form 10-K for the fiscal year ended June 30, 2010 and a Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2010, filed with the SEC on
September 24, 2010 and November 15, 2010, respectively. The Debtors most recently filed annual
report is attached hereto as Exhibit F, and the Debtors most recently filed quarterly
report is attached hereto as Exhibit G. The public may read and copy any materials the
Debtors file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.
Holders are encouraged to carefully consider the information contained in the Debtors filings
with the SEC because they contain important business and financial information regarding the
Debtors. The Annual Report on Form 10-K filed with the SEC on September 24, 2010 contains audited
financial statements of the Debtors for the
10
last three fiscal years. Holders may request a copy of any of the Debtors filings at no cost
by contacting the Debtors Investor Relations Department at the Debtors principal executive
offices.
a. Business Segments.
(i) Wholesale Services.
The Debtors wholesale services consist of centers (primarily mobile units) which generate
revenues from fee-for-service arrangements and fixed-fee contracts billed directly to the Debtors
healthcare provider customers, such as hospitals. Hospitals, physician groups and other healthcare
providers can access the Debtors diagnostic imaging technology through their network of 98 mobile
facilities and 17 fixed-site centers currently serving their wholesale customers. The Debtors
currently have contracts with approximately 200 hospitals, physician groups and other healthcare
providers. The Debtors enable hospitals, physician groups and other healthcare providers to
benefit from their imaging equipment without investing their own capital directly. Interpretation
services are generally provided by the hospitals radiologists or physician groups and not by the
Debtors. The Debtors wholesale services revenue is generated primarily from fee-for-service
arrangements and fixed-fee contracts billed directly to their wholesale customers. The Debtors
handle the billing and collections for their wholesale services internally at a relatively low
cost, and they do not bear the direct risk of collections from third party-payors or patients.
After reviewing the needs of the Debtors customers, route patterns, travel times, fuel costs
and equipment utilization, the Debtors field managers implement planning and route management to
maximize the utilization of their mobile facilities while controlling the costs to transport the
mobile facilities from one location to another. The Debtors generally enter into one to five
year-term contracts with their mobile customers under which the Debtors assume responsibility for
billing directly to patients and payors, and collections. The Debtors mobile customers directly
pay a contracted amount for services, regardless of whether they are reimbursed.
The Debtors mobile facilities provide a significant advantage for establishing long-term
arrangements with hospitals, physician groups and other healthcare providers and expanding their
fixed-site business. The Debtors establish mobile routes in selected markets with the intent of
growing with their customers. Additionally, the Debtors mobile facilities provide the flexibility
to (1) supplement fixed-site centers operating at or near capacity until volume has grown
sufficiently to warrant additional fixed-site equipment or centers and (2) test new markets on a
short-term basis prior to establishing new mobile routes or opening new fixed-site centers.
(ii) Retail Services.
The Debtors retail services consist of centers (primarily fixed-sites) that primarily
generate revenues from services billed, on a fee-for-service basis, directly to patients or
third-party payors, such as Medicare, Medicaid, insurance companies and health maintenance
organizations. As noted above, the Debtors do not provide health services directly to patients.
The Debtors simply provide imaging services that patients physicians use in administering the
patients care. The Debtors retail operations are paid for by the patients or their insurance.
The Debtors have primarily outsourced the billing and collections for their retail services to
Dell Perot Systems, and the Debtors bear the direct risk of collections from third-party payors and
patients. The Debtors retail services centers provide a full range of diagnostic imaging services
to patients, physicians, insurance payors and managed care organizations. Of the Debtors 49
fixed-site retail services centers, approximately 15 offer MRI services. The remaining fixed-site
centers are multi-modality sites typically offering MRI and one or more of CT, PET/CT, x-ray,
mammography, ultrasound, nuclear medicine, bone densitometry and nuclear cardiology. The Debtors
five mobile units within their retail services are single modality units offering MRI services.
Diagnostic services are provided to a patient upon referral by a physician. Physicians refer
patients to the Debtors retail services centers based on the Debtors service reputation,
equipment, breadth of managed care contracts and convenient locations. The Debtors retail
services centers provide the equipment and technologists for the procedures, contract with
radiologists to interpret the procedures and bill payors directly. The Debtors have contracts with
managed care organizations for their retail services centers, which often last for a period of
multiple years because (1) they do not have specific terms or specific termination dates or (2)
they contain annual evergreen provisions that provide for the contract to automatically renew
unless either party terminates the contract. In addition to their independent facilities, the
Debtors enter into joint ventures with hospitals and radiology
11
groups. Such joint ventures allow the Debtors to charge a management and billing fee for
supporting their day-to-day operations.
(iii) Other Operations.
Other operations generate revenues primarily from agreements with customers to provide
management services, which could include field operations, billing and collections and accounting
and other office services. In addition to the Debtors traditional offerings of equipment and
management services, the Debtors believe that they have the ability to offer packaged technology
solutions to hospitals and other medical imaging services providers. Besides the Debtors
traditional offerings, these customers would have a broad spectrum of systems and services,
including, but not limited to, image archiving and Picture Archiving Communication System (PACS)
services, patient registration portals, radiology information systems, receivables and collections
management services and financial and operational tools. The Debtors launched this offering of
solutions in fiscal year 2010 and recently extended a contract with an existing customer,
implemented a new contract and have three additional contracts with implementation dates within the
Debtors first fiscal quarter of 2011.
b. Sales and Marketing.
The Debtors engage in sales and marketing activities to obtain new sources of revenues, expand
business relationships, grow revenues at existing facilities and maintain present business
alliances and contractual relationships. Sales and marketing activities for the Debtors fixed
operations include educating physicians on new applications and uses of the technology and customer
service programs. In addition, the Debtors seek to leverage their core market concentration to
continue to develop contractual relationships with managed care payors to increase patient volume.
Sales and marketing activities for the Debtors mobile business include direct marketing to
hospitals and developing leads through current customers, equipment manufacturers and other
vendors. In addition, marketing activities for the Debtors mobile operations include contacting
referring physicians associated with hospital customers and educating physicians.
c. Customers and Contracts.
The Debtors revenues are primarily generated from retail services and wholesale services.
The Debtors fixed-site centers primarily generate retail services revenues from services billed,
on a fee-for-service basis, directly to patients or third-party payors, which the Debtors refer to
as their retail operations. With respect to the Debtors retail operations they bear the direct
risk of collections from third-party payors and patients. Wholesale services revenues are
generally earned from services billed to a hospital, physician group or other healthcare provider,
which include fee-for-service arrangements in which revenues are based upon a contractual rate per
procedure and fixed fee contracts, which the Debtors refer to as their wholesale operations. With
respect to their wholesale operations the Debtors do not bear direct risk of collections from
third- party payors or patients. Wholesale services revenues are primarily earned through mobile
facilities pursuant to contracts with a term from one to five years. A significant number of the
Debtors mobile contracts will expire each year. The Debtors expect that some high volume customer
accounts will elect not to renew their contracts and instead will purchase or lease their own
diagnostic imaging equipment and some customers may choose an alternative services provider.
d. Diagnostic and Other Equipment.
As of September 23, 2010, the Debtors owned or leased 223 diagnostic imaging systems, with the
following classifications: 3.0 Tesla MRI, 1.5 Tesla MRI, 1.0 Tesla MRI, Open MRI, PET, PET/CT, CT
and other technology. The Debtors are aware of no substantial technological changes; however,
should such changes occur, the Debtors may not be able to acquire the new or improved systems.
The Debtors continue to evaluate the mix of their diagnostic imaging equipment in response to
changes in technology and to any overcapacity in the marketplace. The Debtors improve their
equipment through upgrades, disposal and/or trade-in of older equipment and the purchase or
execution of leases for new equipment in response to market demands.
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Several large companies presently manufacture MRI (including Open MRI), PET/CT, CT and other
diagnostic imaging equipment, including General Electric Healthcare, Hitachi Medical Systems,
Siemens Medical Systems, Toshiba American Medical Systems and Phillips Medical Systems. The
Debtors have acquired systems that were manufactured by each of the foregoing companies. The
Debtors enter into individual purchase orders for each system that they acquire, and do not have
long-term purchase arrangements with any equipment manufacturer. The Debtors maintain good working
relationships with many of the major manufacturers to better ensure adequate supply as well as
access to those types of diagnostic imaging systems which appear most appropriate for the specific
imaging facility to be established.
e. Information Systems.
The Debtors internal information technology systems allow the Debtors to manage their
operations, accounting and finance, human resources, payroll, document imaging and data
warehousing. The Debtors primary operating system is the InSight Radiology Information System, or
IRIS, the Debtors proprietary information system. IRIS provides front-office support for
scheduling and administration of imaging procedures and back office support for billing and
collections. Additional functionality includes workflow, transcription and image management. The
Debtors have recently purchased new billing system software to substantially replace the billing
and collection component of IRIS and they expect to implement the new software in late calendar
year 2010.
f. Employees.
As of November 2010, the Debtors had approximately 1,300 hourly and 270 salaried employees.
None of the Debtors employees is covered by a collective bargaining agreement.
g. Competition.
The market for diagnostic imaging services in which the Debtors operate, is highly competitive
and fragmented, with only a few national providers. The Debtors compete principally on the basis
of service reputation, equipment, breadth of managed care contracts and convenient locations. The
Debtors operations must compete with hospitals, physician groups and certain other independent
organizations, including equipment manufacturers and leasing companies that own and operate imaging
equipment. The Debtors will continue to encounter substantial competition from hospitals and
independent organizations, including Alliance Healthcare Services, Inc., Radnet, Inc., Diagnostic
Health Corporation, MedQuest, Inc., Shared Imaging and Otter Tail Corporation doing business as DMS
Imaging. Some of the Debtors direct competitors may have access to greater financial resources
and have less debt in relation their operating profit.
Certain hospitals, particularly the larger or more financially stable hospitals, have and may
be expected to directly acquire and operate imaging equipment on-site as part of their overall
inpatient servicing capability. Historically, smaller hospitals have been reluctant to purchase
imaging equipment, but some have chosen to do so with attractive financing offered by equipment
manufacturers. Some physician practices have also established diagnostic imaging centers or
purchased imaging equipment for their own offices, and the Debtors anticipate that others will as
well. In addition, attractive financing from equipment manufacturers, as well as attractive gross
margins, have caused hospitals and physician groups who have utilized mobile services from the
Debtors and the Debtors competitors to purchase and operate their own equipment. Although
reimbursement reductions and reduced access to credit may dissuade physician groups from operating
their own equipment, the Debtors expect that some high volume customer accounts will continue to
elect not to renew their contracts and instead acquire their own diagnostic imaging equipment.
2. Investments and Transactions with Partnerships.
The Debtors have a minority ownership interests in six partnerships or limited liability
companies, which they refer to as partnerships. The Debtors own between 24% and 50% of these
partnerships, and provide certain management services pursuant to contracts or as a managing
general partner. These partnerships are accounted for under the equity method. In total, the
Debtors hold interests in 16 joint ventures, of which they hold either a majority or minority
stake.
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3. Government Regulation.
The diagnostic imaging services industry in which the Debtors operate is highly regulated and
changes in laws and regulations can be significant. Changes in the law or new interpretation of
existing laws can have a material effect on the Debtors permissible activities, the relative costs
associated with doing business and the amount of reimbursement by government and other third-party
payors. The federal government and all states in which the Debtors currently operate regulate
various aspects of the Debtors business. Failure to comply with these laws could adversely affect
the Debtors ability to receive reimbursement for their services and subject them and their
officers and agents to civil and criminal penalties.
4. 2007 Reorganization.
On May 29, 2007, InSight Health Services Holdings Corp. and InSight Health Services Corp.
Filed voluntary petitions to reorganize their business under Chapter 11 of the Bankruptcy Code in
the U.S. Bankruptcy Court for the District of Delaware (Case No. 07-10700) (the 2007
Reorganization). The filing was in connection with a prepackaged plan of reorganization and
related exchange offer. On July 10, 2007, the Delaware bankruptcy court confirmed InSight Health
Services Holdings Corp. and InSight Health Services Corp.s Second Amended Joint Plan of
Reorganization pursuant to Chapter 11 of the Bankruptcy Code. The plan of reorganization became
effective and InSight Health Services Holdings Corp. and InSight Health Services Corp. emerged from
bankruptcy protection on August 1, 2007. Pursuant to the confirmed plan of reorganization and the
related exchange offer, (1) all of InSight Health Services Holdings Corp.s then existing common
stock, all options for the common stock and all of InSight Health Services Corp.s 9.875% senior
subordinated notes due 2011, or senior subordinated notes, were cancelled and (2) Holders of
InSight Health Services Corp.s senior subordinated notes and Holders of InSight Health Services
Holdings Corp.s common stock prior to the effective date received 7,780,000 and 864,444 shares of
newly issued common stock, respectively, in each case after giving effect to a one for 6.326392
reverse stock split of such InSight Health Services Holdings Corp.s common stock.
While the reorganization attempted to deleverage InSight Health Services Holdings Corp.s and
InSight Health Services Corp.s balance sheets and improve their projected cash flow after debt
service, both still have a substantial amount of debt, which requires significant interest
payments. As of September 30, 2010, the Debtors had total indebtedness of approximately $298.3
million in aggregate principal amount, including InSight Health Services Corp.s $293.5 million in
principal amount of Senior Secured Notes.
5. Debtors Board of Directors.
The Debtors board of directors consists of seven members, six of which are independent,
outside directors. The President and Chief Executive Officer of the Debtors is the seventh
director. The Chairman of the Board is an independent director, as are the chairs of the boards
Audit and Compensation Committees. The Debtors believe a structure utilizing a majority of
outside, independent directors with extensive experience is the best structure to provide for
effective and objective leadership. The boards Audit Committee is primarily responsible for the
boards risk oversight function, although the board of directors as a whole is also actively
engaged in risk oversight. The Debtors Chief Financial Officer regularly reports to the Audit
Committee and to the board with respect to credit and liquidity risks, and both the committee and
the board are regularly engaged in examining management reports with respect thereto. The Debtors
Chief Executive and Chief Operational Officers report directly to the Audit Committee and the board
of directors with respect to operational risks, and the committee and board are fully engaged in
examining their reports and discussing such risks with them. The Debtors Chief Compliance Officer
also reports on a regular basis to the Audit Committee and to the board with respect to operational
and compliance risks and actions the Debtors are pursuing to remediate such risks. The Chairman of
the Audit Committee has full access to the Debtors Silent Whistle reports which allows employees
as well as customers to report issues seen as operational or financial irregularities.
6. The Debtors Capital Structure.
The Debtors principal capital structure consists of a secured Revolving Credit Facility,
secured trade debt, Senior Secured Notes and equity. As of the date of this Disclosure Statement,
the Debtors total consolidated funded debt was approximately $298.3 million, consisting primarily
of a secured revolver of approximately $1.6 million in principal amount outstanding and $293.5
million in principal amount outstanding of Senior Secured
14
Notes. In addition to the Senior Secured Notes and the Revolving Credit Facility, the Debtors
occasionally incur secured trade debt with equipment finance lenders. As of September 30, 2010,
the Debtors owed approximately $300,000 under such secured financing relationships. The Debtors
anticipate that their post-restructuring capital structure will consist of the Exit Facility,
equity held by current Holders of Senior Secured Notes, the Warrants and any equity that may be
issued pursuant to the Management Equity Plan.
a. Revolving Credit Facility.
The Debtors have an asset-based Revolving Credit Facility with a commitment amount of up to
$20 million, which matures in June 2011, with the lenders named therein and Bank of America, N.A.,
as collateral and administrative agent. As of September 30, 2010, the Debtors had approximately
$13.5 million of availability under the credit facility, based on their borrowing base. As a
result of the Debtors current fixed charge coverage ratio, $7.5 million of the $13.5 million of
availability under the borrowing base would be restricted in the event that the Debtors liquidity,
as defined in the credit facility agreement, falls below the $7.5 million. Borrowings under the
credit facility bear interest at a per annum rate equal to LIBOR plus 2.5%, or, at the Debtors
option, the base rate (which is the Bank of America, N.A. prime rate); however, the applicable
margin will be adjusted in accordance with a pricing grid based on the Debtors fixed charge
coverage ratio, and will range from 2.0% to 2.5% per annum. In addition to paying interest on
outstanding loans under the credit facility, the Debtors are required to pay a commitment fee to
the lenders in respect of unutilized commitments thereunder at a rate equal to 0.50% per annum,
subject to reduction based on a performance grid tied to the Debtors fixed charge coverage ratio,
as well as customary letter-of-credit fees and fees of Bank of America, N.A. At June 30, 2010,
there were no borrowings outstanding under the credit facility; however, there were letters of
credit of approximately $1.6 million outstanding under the credit facility.
On September 10, 2010, the Debtors entered into the First Amendment to the Second Amended and
Restated Loan and Security Agreement. The opinion of the Debtors independent registered public
accounting firm for the Debtors fiscal year ended June 30, 2010 contains an explanatory paragraph
regarding substantial doubt about the Debtors ability to continue as a going concern. The Debtors
Revolving Credit Facility requires them to deliver audited financial statements without such an
explanatory paragraph within 120 days following the end of the fiscal year. The Debtors were not
able to deliver audited financial statements for their fiscal year end without such an explanatory
paragraph, and as a result, were not be in compliance with the Revolving Credit Facility. The
Debtors executed an amendment to their revolving credit agreement with the agent, on behalf of the
lenders, whereby the agent and lender have agreed to forbear from enforcing the default under the
agreement and allow the Debtors full access to the revolver until December 1, 2010. If the Debtors
had not remedied this noncompliance by December 1, 2010, their lenders could terminate their
commitments under the revolver and could cause all amounts outstanding thereunder to become
immediately due and payable and any outstanding letters of credit, currently $1.6 million, would
need to be cash collateralized. The amendment also reduced the total facility size from $30
million to $20 million and reduced the letter of credit limit from $15 million to $5 million and
also increased the Debtors interest rate on outstanding borrowings to prime + 2.75% or Libor +
3.75% at the Debtors discretion. The unused line fee was increased to 0.75%. The Debtors paid a
$50,000 one-time fee upon execution of the amendment.
The Revolving Credit Facility is secured by certain ordinary-course accounts receivables of
the Debtors, which collateral is excluded from the collateral package securing the Senior Secured
Notes. The Senior Secured Notes are not secured by any lien on the Debtors accounts receivables
and related cash accounts and other assets that are collateral for the Debtors revolving loan
lenders under the Revolving Credit Facility. The Revolving Credit Facility will be replaced by the
DIP Facility in the Debtors Chapter 11 Plan.
b. Senior Secured Notes.
As of September 30, 2010, the Debtors have $293.5 million of aggregate principal amount of
Senior Secured Notes outstanding. The Senior Secured Notes mature in November 2011 and bear
interest at three month LIBOR plus 5.25% per annum, payable quarterly. As of September 30, 2010,
the interest rate on the Senior Secured Notes was 5.54%. If prior to the maturity of the Senior
Secured Notes, the Debtors elect to redeem the Senior Secured Notes or are otherwise required to
make a prepayment with respect to the Senior Secured Notes for which a redemption price is not
otherwise specified in the Indenture, regardless of whether such prepayment is made voluntarily or
mandatorily, as a result of acceleration upon the occurrence of an event of default or otherwise,
the
15
Debtors are required to pay 102% of the principal amount plus accrued and unpaid interest. An
open-market
purchase of Senior Secured Notes would not require a prepayment price at the foregoing rates.
In addition, the Indenture provides that if there is a change of control, the Debtors will be
required to make an offer to purchase all outstanding Senior Secured Notes at a price equal to 101%
of their principal amount plus accrued and unpaid interest. The fair value of the Senior Secured
Notes as of November 18, 2010 was approximately $25.0 million based on the quoted market price on
that date.
The Senior Secured Notes are secured by a first priority lien on substantially all of the
Debtors existing and future tangible and intangible personal property including, without
limitation, inventory, investment property, books and records, chattel paper, collateral accounts,
securities accounts, stock instruments, partnership interests, limited liability company interests,
equipment, certain real property, certain contracts and intellectual property and a cash account
and proceeds related to the foregoing. The Senior Secured Notes are not secured by any lien or
security interest on the Debtors accounts receivables and related assets, cash accounts related to
receivables and certain other assets that are collateral provided to the Debtors revolving loan
lender under the Revolving Credit Facility. In addition, the Senior Secured Notes are secured by a
portion of the Debtors stock.
c. Equipment Finance Notes
Pursuant to a secured equipment financing arrangement, the Debtors have secured capital lease
obligations in the outstanding aggregate amount of approximately $1.26 million. This obligation is
secured by the applicable medical imaging equipment and amortized by periodic payments pursuant to
the particular financing arrangement.
d. Equity.
Parent Debtor InSight Health Services Holdings Corp.s common stock is not traded on any stock
exchange but rather is traded on an over-the-counter basis under the symbol ISGT. As of the
Petition Date, the Debtors had approximately 8,644,444 shares of common stock outstanding. The
Debtors do not have any preferred stock outstanding.
ARTICLE III
CHAPTER 11 CASES
The following is a general summary of the Chapter 11 Cases, including the significant events
leading to the Chapter 11 Cases and the anticipated events that will take place during the Chapter
11 Cases.
A. EVENTS LEADING TO THE CHAPTER 11 CASES.
As discussed above, in 2007 the Debtors completed the 2007 Reorganization, whereby both of the
filing companies significantly delevered their respective balance sheets. After the 2007
Reorganization, the Debtors still had a substantial amount of debt, which required significant
interest and principal payments. As of September 30, 2010, the Debtors had total indebtedness of
approximately $298.3 million in aggregate principal amount.
In recent months, a series of events placed strain on the Debtors liquidity and their ability
to satisfy commitments contained in their credit agreements, ultimately leading to the filing of
the Chapter 11 Cases. The events leading to these Chapter 11 Cases are described below.
1. Recurring Losses from Operations and Capital Deficiency.
Since the 2007 Reorganization, the Debtors experienced recurring losses from operations. The
Debtors net cash from operating activities declined from a net gain of approximately $1.5 million
for the three months ended September 30, 2009, to a net loss of approximately $3.3 million for the
same period during 2010. These operating losses were caused by certain variables consisting of:
(a) overcapacity and competition in the markets in which the Debtors compete; (b) reductions,
limitations and delays in reimbursement by third-party payors; (c) financial instability of
customers; (d) changes in the nature of commercial health care insurance arrangements, so that
individuals bear greater financial responsibility through high deductible plans and consequently
choose to forego the
16
Debtors services; and (e) economic, political and competitive forces
affecting the Debtors business and the
economy as a whole. In response, the Debtors evaluated steps to conserve their cash,
including delaying and further restricting their capital projects and selling certain assets.
2. Substantial Indebtedness and Inability to Service Debt.
The Debtors have a substantial amount of debt, which requires significant interest and
principal payments. As of June 30, 2010, the Debtors had total indebtedness of approximately
$298.1 million in aggregate principal amount. Most of this indebtedness is scheduled to come due in
November 2011. In addition, subject to the restrictions contained in the Indenture governing the
Senior Secured Notes and in the Debtors other debt instruments, the Debtors were able to incur
additional indebtedness from time to time to finance working capital, capital projects, investments
or acquisitions. As a result, the risks related to the Debtors high level of debt intensified.
The Debtors high level of debt has important consequences, including: (a) making it difficult for
the Debtors to satisfy their obligations with respect to the Senior Secured Notes and other debt;
(b) limiting the Debtors ability to obtain additional financing to fund future working capital
projects, acquisitions and other general corporate requirements; (c) requiring a substantial
portion of the Debtors cash flows to be dedicated to debt service payments instead of other
purposes; (d) increasing the Debtors vulnerability to general adverse economic and industry
conditions; (e) limiting the Debtors flexibility in planning for, and reacting to, changes in the
Debtors business and the markets in which the Debtors operate; (f) placing the Debtors at a
competitive disadvantage compared to their competitors that have stronger capital structures, more
flexibility in operating their businesses and greater access to capital; and (g) increasing the
Debtors cost of borrowing. The Debtors have not been able to refinance their Senior Secured
Notes.
3. Liquidity Reserves and Debt Service Cost Constraints.
Despite the Debtors prepetition restructuring initiatives, ongoing challenges in the Debtors
operating environment have continued to impose material limitations on the Debtors available
liquidity. The prolonged operational losses have presented ongoing demand and pricing challenges
for the Debtors, thereby reducing their liquidity. Specifically, the Debtors revenue has declined
from approximately $240.7 million in the 11 months ended June 30, 2008 to approximately $190.9
million in the fiscal year ended June 30, 2010. For weeks prior to the Petition Date, the Debtors
actively negotiated with certain Holders of Senior Secured Notes regarding the terms and structure
of a potential restructuring of their obligations under the Senior Secured Notes in an effort to
reduce leverage and debt service costs and improve liquidity. On November 1, 2010, the Debtors
determined not to make an approximately $4.2 million quarterly interest payment on the Senior
Secured Notes to conserve cash for operational expenses. The missed payment began the 30-day grace
period under the Indenture, which time the Debtors used to continue to engage certain of the
Holders of the Senior Secured Notes regarding the Debtors proposed restructuring. After extensive
negotiations throughout November 2010, the Debtors entered into a (i) Forbearance Agreement dated
November 29, 2010 and (ii) Restructuring Support Agreement (together with an attached chapter 11
Plan Term Sheet), with certain of their major Holders of Senior Secured Notes, pursuant to which
the Holders of Senior Secured Notes agreed to refrain from enforcing rights or remedies and from
asserting any claims under or with respect to the Senior Secured Notes or the Indenture while Plan
negotiations continued into December 2010. Ultimately, the Debtors, their Holders of Senior
Secured Notes and the Agent under the Revolving Credit Facility agreed on the terms of a potential
restructuring, which are embodied in the Debtors Plan. The terms of the Plan are materially
consistent with the terms of the Restructuring Support Agreement and Plan Term Sheet. The Debtors
expect that effectuating the terms of the Plan will significantly decrease their debt service
costs, thereby providing the Debtors with enhanced liquidity for other corporate purposes,
including for capital investments necessary to maintain value.
4. Inability to Obtain Necessary Capital to Finance Projects and Refinance Indebtedness.
The Debtors ability to obtain necessary capital was affected by conditions in the financial
markets and economic conditions generally. Slowing growth, contraction of credit, increasing
energy prices, declines in business and investor confidence and risk tolerance, increases in
inflation and higher unemployment reduced investor confidence in capital markets and affected the
financial markets and economic conditions generally. The Debtors were unable to obtain sufficient
capital at commercially reasonable rates, and were unable to fund certain capital projects and
refinance their existing indebtedness, including the Senior Secured Notes, which eroded their
competitive positions in various markets and had a material adverse effect on the Debtors
financial condition.
17
5. Increases in Interest Rates.
An increase in prevailing interest rates had an immediate effect on the interest rates charged
on the Debtors primary debt, the Senior Secured Notes and the Revolving Credit Facility which are
variable rate indebtedness. The Debtors have an interest rate hedging agreement with a notional
amount to which the agreement applies of $190 million, on which the agreement provided for a LIBOR
cap of 3.0%. As a result of this contract the Debtors exposure on variable rate indebtedness was
reduced by $190 million, or to approximately 35% of their indebtedness as of June 30, 2010.
Increases in interest rates impacted the refinancing of the Debtors existing indebtedness,
including the Senior Secured Notes. The increased interest expense adversely affected the Debtors
cash flow and their ability to service their indebtedness.
B. THE PROPOSED REORGANIZATION OF THE DEBTORS.
Prepetition Negotiations with Lenders. In November 2010 after weeks of negotiations, the
Debtors and their advisors engaged in weeks of negotiations with the Revolving Credit Facility
Agent and the major Holders of the Senior Secured Notes. These negotiations resulted in agreement
on the terms of a comprehensive balance-sheet restructuring through the Debtors Plan.
Specifically, the Debtors entered into confidentiality agreements with Holders of Senior
Secured Notes Claims, holding over 75 percent of the outstanding principal amount of the Senior
Secured Notes. For weeks prior to the Petition Date, the Debtors actively negotiated with these
Holders of Senior Secured Notes regarding the terms and structure of a potential restructuring of
their obligations under the Senior Secured Notes. During November 2010, the Debtors engaged in
discussions with certain Holders of Senior Secured Notes and the Revolving Credit Facility Agent
under the Revolving Credit Facility regarding the terms of a potential restructuring and DIP
Facility.
The Debtors determined not to make the November 1, 2010 interest payment on the Senior Secured
Notes to conserve cash for operational expenses. During the 30-day grace period for missing the
November 1, 2010 interest payment, the Debtors intensified negotiations with certain Holders of
Senior Secured Notes in an effort to achieve a successful and consensual restructuring.
Specifically, during November and into December 2010, the Debtors continued to negotiate with
certain Holders of Senior Secured Notes and the Agent under the Revolving Credit Facility regarding
the terms of a potential restructuring and the DIP Facility.
After the Debtors missed interest payment, negotiations with certain Holders of Senior
Secured Notes intensified. In December 2010, after extensive discussions with the Holders of
significant percentages of the Debtors Senior Secured Notes, and after additional discussions with
the Agent regarding a proposed postpetition financing package and Exit Facility, the Debtors agreed
to the terms of a Restructuring Support Agreement and chapter 11 Plan Term Sheet attached hereto as
Exhibit H providing an outline of the chapter 11 Plan. While negotiations were ongoing,
significant Holders of Senior Secured Notes and the Indenture Trustee agreed to forego from
enforcing rights or remedies and from asserting any claims under or with respect to the Senior
Secured Notes or the Indenture. Prior to the Petition Date, the Debtors and subject Holders of
Senior Secured Notes finalized the terms of a chapter 11 Plan that is consistent with the chapter
11 Plan Term Sheet which would convert the Senior Secured Notes to 100 percent of the common equity
in the reorganized Debtors. The agreed-upon Plan also (a) provides for the Reorganized Debtors to
issue the Warrants to the Debtors existing common stockholders as part of the distributions
received by the Holders of Senior Secured Notes Claims and (b) fully satisfies the Allowed Claims
of the Debtors general unsecured creditors. The Debtors believe the Plan is materially consistent
with the terms of the Restructuring Support Agreement.
Warrants. The Warrants enable Holders of existing common stock in InSight Health Services
Holdings Corp. on the Effective Date (immediately prior to the consummation of the Plan) to acquire
shares of New Common Stock representing in the aggregate two percent (2%) of the New Common Stock.
The Warrants shall be issued by the Reorganized Debtors to the Holders of existing Common Stock in
InSight Health Services Holdings Corp. on the Effective Date (immediately prior to the consummation
of the Plan). The Warrants shall be exercisable pursuant to a cashless exercise at any time from
the Effective Date until the third anniversary of the Effective Date at a strike price equal to a
Reorganized InSight Health Services Holdings Corp. enterprise value of $215 million; provided,
however, that no Warrant shall be exercisable if such exercise would result in a number of holders
of New Common Stock that could cause Reorganized InSight Health Services Holdings Corp. to be a
reporting company under the Exchange Act or would require Reorganized InSight Health Services
Holdings Corp. to register the underlying New
18
Common Stock under the Securities Act, as determined by the New Board. The Warrants may be
subject to certain transfer, exercise and other restrictions and appropriate legends pursuant to,
among other things, the Warrant Agreement. Notwithstanding anything to the contrary in the Plan,
in no event shall the terms of the Warrants cause Reorganized InSight Health Services Holdings
Corp. to be required by the Securities Act or the Exchange Act, including without limitation
Section 12(g) or 15(d) of the Exchange Act, or any other federal, state or local securities laws,
to register with the SEC or other similar regulatory authority any class of equity securities of
InSight Health Services Holdings Corp. or to file periodic reports under Section 13 or 15(d) of the
Exchange Act. The Warrant Agreement shall contain transfer, exercise and other restrictions and
appropriate legends to the satisfaction of the Requisite Consenting Noteholders and consistent with
the Warrant Term Sheet, attached as Annex 2 to the Plan Term Sheet, to ensure that the terms of the
Warrants and the Warrant Agreement do not result in such registration or reporting requirements on
the part of Reorganized InSight Health Services Holdings Corp.
Solicitation. On or about December 10, 2010, prior to filing the Chapter 11 Cases, the
Debtors caused a copy of the Plan, this Disclosure Statement and the appropriate Ballots to be
delivered to the Holders of Class 4 Senior Secured Notes Claims. The Debtors established December
27, 2010 at 5:00 p.m. (prevailing Eastern Time) as the deadline for the receipt of votes to accept
or reject the Plan; provided, that Holders of Claims or Equity Interests who cast a Ballot
prior to the time of filing of any of the Debtors chapter 11 petitions shall not be entitled to
change their vote or cast new Ballots. On the Petition Date, along with the Plan and this
Disclosure Statement, the Debtors intend to File a motion seeking approval of the adequacy of this
Disclosure Statement, approval of the Solicitation Package and Confirmation of the Plan.
Summary of the Plan. The Debtors have determined that prolonged Chapter 11 cases would damage
severely their ongoing business operations and threaten their viability as a going concern. The
prepackaged nature of the Plan (as set forth in the Plan and described herein) allows the Debtors
to exit Chapter 11 quickly, while the provisions of the Plan allow the Debtors to meet their
working capital needs and de-lever their balance sheet.
Under the Plan, the Debtors will equitize 100 percent of their obligations under the Senior
Secured Notes-and thereby de-lever the Debtors balance sheet by approximately $293.5 million.
After emergence from Chapter 11, the Debtors only debt obligations will consist the Exit Facility
of approximately $20 million, which the Debtors intend to obtain commitments for prior to
Confirmation of the Plan, and which essentially will replace the prepetition Revolving Credit
Facility.
The Debtors Plan proposes to pay all General Unsecured Claims (classified in Class 5) in
full, in Cash either on the Effective Date or in the ordinary course of business after the Debtors
Chapter 11 emergence. In addition, the Warrants will be issued by the Reorganized Debtors to the
Holders of existing common stock in InSight Health Services Holdings Corp. on the Effective Date
(immediately prior to the consummation of the Plan) as part of the distributions made to Holders of
Senior Secured Notes Claims under the Plan.
C. ANTICIPATED EVENTS OF THE CHAPTER 11 CASES.
In order to facilitate the Chapter 11 Cases and minimize disruption to the Debtors
operations, the Debtors will seek certain relief, including but not limited to, the relief
summarized below. The relief sought will facilitate the administration of the Chapter 11 Cases,
however, there is no guarantee that the Bankruptcy Court will grant any or all of the requested
relief.
1. Voluntary Petitions.
The following entities of the Debtors will File Chapter 11 bankruptcy petitions on the
Petition Date commencing the Chapter 11 Cases: (a) InSight Health Services Holdings Corp.; (b)
InSight Health Services Corp.; (c) Comprehensive Medical Imaging Centers, Inc.; (d) InSight Health
Corp.; (e) Maxum Health Services Corp.; (f) North Carolina Mobile Imaging I LLC; (g) North Carolina
Mobile Imaging II LLC; (h) North Carolina Mobile Imaging III LLC; (i) North Carolina Mobile Imaging
IV LLC; (j) North Carolina Mobile Imaging V LLC; (k) North Carolina Mobile Imaging VI LLC; (l)
North Carolina Mobile Imaging VII LLC; (m) Open MRI, Inc.; (n) Orange County Regional PET Center -
Irvine, LLC; (o) Parkway Imaging Center, LLC; (p) Comprehensive Medical Imaging, Inc.; and (q)
Signal Medical Services, Inc.
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2. Expected Timetable of the Chapter 11 Cases.
The Debtors expect the Chapter 11 Cases to proceed quickly. The Debtors have been in
extensive negotiations with their existing secured bank lenders to deleverage their balance sheet
and complete a balance sheet restructuring.
The Debtors cannot assure you, however, that the Bankruptcy Court will enter various orders on
the timetable anticipated by the Debtors. On the Petition Date, the Debtors will promptly request
the Bankruptcy Court to set a hearing date to approve this Disclosure Statement and to confirm the
Plan. If the Plan is confirmed, the Effective Date of the Plan is projected to be as soon as
practicable after the date the Bankruptcy Court enters the Confirmation Order and the Confirmation
Order becomes a Final Order and the other conditions to consummation of the Plan set forth in
Article X.B. of the Plan are satisfied or waived (to the extent permitted under the Plan and
applicable law). Should these projected timelines prove accurate, the Debtors could emerge from
protection under Chapter 11 within approximately 60 days of the Petition Date.
3. First Day Relief.
The Debtors intend to present certain motions (the First Day Motions) to the
Bankruptcy Court on the Petition Date seeking relief. The First Day Motions may include, but are
not necessarily limited to, the following:
a. Approval of Solicitation Procedures and Scheduling of
Confirmation Hearing.
To expedite the Chapter 11 Cases, the Debtors intend to seek an immediate order setting dates
for hearings to (i) approve the adequacy of the Disclosure Statement, (ii) approve the procedures
for the Solicitation and (ii) confirm the Plan. The Debtors will seek the earliest possible date
permitted by the applicable rules and the Bankruptcy Courts calendar for such hearings.
b. Debtor in Possession Financing.
The Debtors expect to receive debtor in possession financing from their existing prepetition
secured revolver lenders under the DIP Facility. The Debtors will have approximately $15 million
of available funds under the DIP Facility. The Debtors expect that the terms of the DIP Facility
will be consistent to the terms set forth and described in Exhibit E attached hereto.
On the Petition Date, the Debtors will seek interim authority to make immediate borrowings
under the DIP Facility and, as soon as practicable, will seek final Bankruptcy Court approval of
the DIP Facility. The Debtors believe that the committed amount of the DIP Facility will meet the
Debtors financing needs given the Chapter 11 Cases brief duration.
c. Customer Programs and Practices.
The Debtors will seek authority on the Petition Date authorizing, but not directing, the
Debtors to honor certain prepetition obligations to their customers and to otherwise continue
certain customer programs and practices in the ordinary course of business. Under this motion, the
Debtors intend to obtain authority to honor, exercise and perform all their respective rights and
obligations (whether prepetition or postpetition) arising in the ordinary course of business under,
in connection with, and in furtherance of their existing customer programs. The Debtors feel such
relief is necessary to stabilize their customer base at the outset of these Chapter 11 Cases and to
avoid needless disruptions of the Debtors ongoing operations.
d. Cash Management System.
This motion seeks authority for the Debtors to maintain its prepetition cash management
systems after commencement of the Chapter 11 Cases, including inter-company transfers and use of
bank accounts. This facilitates the efficient operation of the Debtors by not requiring it to make
artificial adjustments within its large and complex cash management system.
20
e. Wages.
The Debtors will seek authority to pay all employees their wage Claims in the ordinary course
of business. Additionally, the Debtors intend to continue all their prepetition benefit programs,
including, among others, the medical, dental, 401(k) and severance plans to the extent applicable.
This relief will allow the Debtors to maintain employee morale and prevent costly distractions and
retention issues.
f. Insurance.
The Debtors will seek authority to pay certain liability, property and other insurance in the
ordinary course of business. Failure to maintain certain of these policies could result in
personal liability on the Debtors officers if they are not paid. Thus, in order to prevent costly
distractions to key management employees, the Debtors will seek authority to pay those insurance
premiums in the ordinary course of business.
g. Taxes.
The Debtors will seek authority to pay certain sales, use, franchise and other taxes in the
ordinary course of business. Certain of these taxes impose personal liability on the Debtors
officers if they are not paid. Thus, in order to prevent costly distractions to key management
employees, the Debtors will seek authority to pay those taxes in the ordinary course of business.
h. Utilities.
The Debtors will move the Bankruptcy Court on the Petition Date to enter orders approving
procedures for, among other things, determining adequate assurance for utility providers,
prohibiting utility providers from altering, refusing or discontinuing services and determining
that the Debtors are not required to provide any additional adequate assurance pending entry of a
Final Order. The Debtors believe that uninterrupted utility services are essential to the Debtors
ongoing operations and, therefore, to the success of the Debtors reorganization.
i. Interim Compensation Procedures.
The Debtors will seek authority on the Petition Date to establish procedures for the interim
compensation and reimbursement of retained Professionals in the Chapter 11 Cases. The Debtors
believe that the efficient administration of the Chapter 11 Cases will be significantly aided by
establishing the interim compensation and expense reimbursement procedures.
j. Ordinary Course Professionals.
The Debtors will seek authority on the Petition Date to retain and compensate certain
Professionals utilized in the ordinary course of the Debtors business (each, an OCP).
Due to the number of OCPs that are regularly retained by the Debtors, it would be unwieldy and
burdensome to both the Debtors and this Bankruptcy Court to request each such OCP to apply
separately for approval of its employment and compensation.
k. Other Procedural Motions and Professional Retention
Applications.
The Debtors also plan to File several procedural motions that are standard in Chapter 11
Cases, as well as applications to retain the various Professionals who will be assisting the
Debtors during these Chapter 11 Cases.
4. Northern California Fixed Site Center Sale.
To the extent not consummated on or before the Petition Date or authorized by prior order of
the Court, the Debtors will seek to sell certain of the Debtors assets related to the Debtors
Northern California business upon terms satisfactory to the Debtors and the Requisite Consenting
Noteholders. Specifically, the Debtors intend to sell most of the assets relating to four of the
Debtors fixed site magnetic resonance imaging centers for approximately $6.8 million to SMI
Imaging, LLC. The fixed site centers to be sold are located in Los Gatos, San Francisco, Hayward,
and San Ramon, California. Prior to arriving at an agreement with SMI Imaging, LLC, the Debtors
engaged in a marketing process in order to properly value the assets to be sold. The Debtors
received and evaluated four other asset purchase offers. After careful consideration, the Debtors
believe that SMI Imaging, LLC made the
21
best offer, particularly given that SMI Imaging, LLCs offer allows the Debtors to collect
currently outstanding accounts receivable from the fixed cite centers whose assets are subject to
sale. The Debtors believe that SMI Imaging, LLC is providing fair, if not better than fair, value
for the assets. The Debtors expect close the asset sale transaction in the near-term, most likely
after the Confirmation Date.
D. EXIT FINANCING ARRANGEMENT.
The Debtors intend to obtain exit financing to (a) satisfy obligations under the DIP Facility
on the Effective Date or convert the DIP Facility into the Exit Facility and (b) fund working
capital. The Debtors are currently negotiating the terms of the Exit Facility with the Revolving
Credit Facility Agent and certain of the Holders of Senior Secured Notes Claims and will File the
terms of the Exit Facility as part of the Plan Supplement prior to Confirmation.
ARTICLE IV
THE JOINT PLAN
This section provides a summary of the structure and means for implementation of the Plan and the
classification and treatment of Claims and Interests under the Plan, and is qualified in its
entirety by reference to the Plan (as well as the exhibits thereto and definitions therein).
The statements contained in this Disclosure Statement include summaries of the provisions contained
in the Plan and in the documents referred to therein. The statements contained in this Disclosure
Statement do not purport to be precise or complete statements of all the terms and provisions of
the Plan or documents referred to therein, and reference is made to the Plan and to such documents
for the full and complete statement of such terms and provisions of the Plan or documents referred
to therein.
The Plan itself and the documents therein control the actual treatment of Claims against, and
Interests in, the Debtors under the Plan and will, upon the occurrence of the Effective Date, be
binding upon all Holders of Claims against and Interests in the Debtors, the Debtors Estates, the
Reorganized Debtors, all parties receiving property under the Plan and other parties in interest.
In the event of any conflict between this Disclosure Statement and the Plan or any other operative
document, the terms of the Plan and/or such other operative document shall control.
A. DIP FACILITY CLAIMS, ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS.
In accordance with section 1123(a)(1) of the Bankruptcy Code, DIP Facility Claims,
Administrative Claims and Priority Tax Claims have not been classified and thus are excluded from
the Classes of Claims and Interests set forth in Article IV of the Plan.
1. DIP Facility Claims.
a. DIP Facility Claims.
Subject to the terms of the DIP Credit Agreement, in full and final satisfaction, settlement,
release and discharge of and in exchange for each DIP Facility Claim, on the Effective Date, DIP
Facility Claims shall be paid in full, in Cash with proceeds from the Exit Facility or shall be
converted into obligations of the Debtors under the Exit Facility on a dollar-for-dollar basis.
2. Administrative Claims.
a. Administrative Claims Other Than Fee Claims.
Subject to the provisions of sections 328, 330(a) and 331 of the Bankruptcy Code, in full and
final satisfaction, settlement, release and discharge of and in exchange for each Allowed
Administrative Claim, each Holder of such Allowed Administrative Claim shall be paid in full, in
Cash the unpaid portion of such Allowed Administrative Claim (a) in the ordinary course of business
in accordance with applicable law or the terms
22
of any
agreement that governs such Allowed Administrative Claim or (b) in accordance with the course
of practice or dealing between the Debtors and such Holder with respect to such Allowed
Administrative Claim.
b. Fee Claims.
Professionals or other Entities asserting a Fee Claim for services rendered before the
Confirmation Date must File and serve on the Debtors and such other Entities who are designated by
the Bankruptcy Rules, the Confirmation Order, or other order of the Bankruptcy Court an application
for final allowance of such Fee Claim no later than 45 days after the Effective Date. Objections
to any Fee Claim must be Filed and served on the Reorganized Debtors and the requesting party by
the later of (a) 45 days after the Effective Date and (b) 30 days after the Filing of the
applicable request for payment of the Fee Claim. To the extent necessary, the Plan and the
Confirmation Order shall amend and supersede any previously entered order regarding the payment of
Fee Claims.
3. Priority Tax Claims.
Subject to the requirements of Article IV.S of the Plan, except to the extent that a Holder of
an Allowed Priority Tax Claim agrees to a less favorable treatment or has been paid by the Debtors
prior to the Effective Date, in full and final satisfaction, settlement, release and discharge of
and in exchange for each Allowed Priority Tax Claim, each Holder of such Allowed Priority Tax Claim
shall receive on account of such Claim payment in accordance with section 1129(a)(9)(C) of the
Bankruptcy Code, regular installment payments in Cash: (1) of a total value, as of the Effective
Date, equal to the Allowed amount of such Claim; (2) which total value shall include simple
interest to accrue on any outstanding balance of such Allowed Priority Tax Claim starting on the
Effective Date at the rate of interest determined under applicable nonbankruptcy law pursuant to
section 511 of the Bankruptcy Code; and (3) over a period ending not later than 5 years after the
Petition Date. Subject to the Priority Tax Claims Bar Date, a Priority Tax Claim that is not due
and payable on or before the Effective Date shall be reinstated and/or paid thereafter without
regard to any acceleration caused by the Filing of the Chapter 11 Cases (i) in the ordinary course
of business in accordance with applicable law or the terms of any agreement that governs such
Priority Tax Claim or (ii) in accordance with the course of practice or dealing between the Debtors
and such Holder with respect to such Priority Tax Claim.
B. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.
1. Summary of Classification.
All Claims and Interests, other than DIP Facility Claims, Administrative Claims and Priority
Tax Claims, are classified in the Classes set forth in Article III of the Plan for all purposes,
including voting, Confirmation and distributions pursuant to the Plan and pursuant to sections 1122
and 1123(a)(1) of the Bankruptcy Code. A Claim or Interest is classified in a particular Class
only to the extent that the Claim or Interest qualifies within the description of that Class and is
classified in other Classes to the extent that any portion of the Claim or Interest qualifies
within the description of such other Classes. A Claim or Interest is also classified in a
particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent
that such Claim or Interest is an Allowed Claim or Allowed Interest in that Class and has not been
paid, released, or otherwise satisfied prior to the Effective Date.
a. Substantive Consolidation of the Debtors.
Pursuant to Article IV.B of the Plan, the Plan provides for the limited substantive
consolidation of the Estates into a single Estate for all purposes associated with Confirmation and
Consummation. As a result of the limited substantive consolidation of the Estates, each Class of
Claims and Interests will be treated as against a single consolidated Estate without regard to the
separate identification of the Debtors.
b. Class Identification.
The classification of Claims and Interests against the Debtors pursuant to the Plan is as
follows:
23
Class | Claim/Equity Interest | Status | Voting Rights | |||||
1 | Other Priority Claims
|
Unimpaired | Deemed to Accept | |||||
2 | Other Secured Claims
|
Unimpaired | Deemed to Accept | |||||
3 | Revolving Credit Facility Claims
|
Unimpaired | Deemed to Accept | |||||
4 | Senior Secured Notes Claims
|
Impaired | Entitled to Vote | |||||
5 | General Unsecured Claims
|
Unimpaired | Deemed to Accept | |||||
6 | Intercompany Claims
|
Unimpaired | Deemed to Accept | |||||
7 | Intercompany Interests
|
Unimpaired | Deemed to Accept | |||||
8 | Section 510(b) Claims
|
Impaired | Deemed to Reject | |||||
9 | Equity Interests in InSight
Health Services Holdings Corp.
|
Impaired | Deemed to Reject |
2. Treatment of Claims and Interests.
To the extent a Class contains Allowed Claims or Allowed Interests with respect to a
particular Debtor, the treatment provided to each Class for distribution purposes is specified
below:
a. Class 1 Other Priority Claims.
(i) | Classification: Class 1 consists of all Other Priority Claims. | ||
(ii) | Treatment: Except to the extent that a Holder of an Allowed Other Priority Claim agrees to a less favorable treatment for such Holder, in full and final satisfaction, settlement, release and discharge of and in exchange for each Allowed Other Priority Claim, each Holder of such Allowed Other Priority Claim shall be paid in full, in Cash or otherwise receive such treatment as to render such Holder Unimpaired. An Other Priority Claim that is not due and payable on or before the Effective Date shall be reinstated and/or paid thereafter without regard to any acceleration caused by the Filing of the Chapter 11 Cases (A) in the ordinary course of business in accordance with applicable law or the terms of any agreement that governs such Other Priority Claim or (B) in accordance with the course of practice or dealing between the Debtors and such Holder with respect to such Other Priority Claim. | ||
(iii) | Voting: Class 1 is Unimpaired, and Holders of Class 1 Other Priority Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Class 1 Other Priority Claims are not entitled to vote to accept or reject the Plan. |
b. Class 2 Other Secured Claims.
(i) | Classification: Class 2 consists of all Other Secured Claims. | ||
(ii) | Treatment: Except to the extent that a Holder of an Allowed Other Secured Claim and the Debtors agree to less favorable treatment for such Holder, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Other Secured Claim, each Allowed Other Secured Claim shall be reinstated and rendered Unimpaired in accordance with section 1124 of the Bankruptcy Code. | ||
(iii) | Voting: Class 2 is Unimpaired, and Holders of Class 2 Other Secured Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) |
24
of the Bankruptcy Code. Therefore, Holders of Class 2 Other Secured Claims are not entitled to vote to accept or reject the Plan. |
c. Class 3 Revolving Credit Facility Claims.
(iv) | Classification: Class 3 consists of all Revolving Credit Facility Claims. | ||
(v) | Allowance: To the extent not refinanced by the DIP Facility as of the Effective Date, the Revolving Credit Facility Claims shall be Allowed and deemed to be Allowed Claims in the amount of $1,652,825.00, plus interest and fees due and owing under the Revolving Credit Facility, which Allowed Claims shall not be subject to any avoidance, reductions, setoff, recharacterization, subordination, counterclaims, cross-claims, defenses, disallowance, impairment or any other challenges under applicable law by any Entity. | ||
(vi) | Treatment: To the extent Revolving Credit Facility Claims are not refinanced by the DIP Facility or otherwise paid in full as of the Effective Date and except to the extent that a Holder of an Allowed Revolving Credit Facility Claim and the Debtors agree to less favorable treatment for such Holder, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Revolving Credit Facility Claim, each Holder of an Allowed Revolving Credit Facility Claim shall be paid in full, in Cash with the proceeds of the Exit Facility or otherwise receive such treatment as to render such Holder Unimpaired. | ||
(vii) | Voting: Class 3 is Unimpaired, and Holders of Class 3 Revolving Credit Facility Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Class 3 Revolving Credit Facility Claims are not entitled to vote to accept or reject the Plan. |
d. Class 4 Senior Secured Notes Claims.
(viii) | Classification: Class 4 consists of all Senior Secured Notes Claims. | ||
(ix) | Allowance: The Senior Secured Notes Claims shall be Allowed and deemed to be Allowed Claims in the amount of $293,500,000.00, plus interest and fees due and owing with respect to the Senior Secured Notes under the Indenture, which Allowed Claims shall not be subject to any avoidance, reductions, setoff, recharacterization, subordination, counterclaims, cross-claims, defenses, disallowance, impairment or any other challenges under applicable law by any Entity. | ||
(x) | Treatment: Except to the extent that a Holder of an Allowed Senior Secured Notes Claim and the Debtors agree to less favorable treatment for such Holder, in full and final satisfaction, settlement, release, and discharge of and in exchange for each Allowed Senior Secured Notes Claim, each Holder of such Allowed Senior Secured Notes Claim shall receive on or as soon as reasonably practicable after the Effective Date its Pro Rata share of 100 percent of the New Common Stock, provided that such distribution shall be subject to dilution by (i) the Management Equity Plan and (ii) the Warrants which shall be issued by the Reorganized Debtors to the Holders of existing common stock in InSight Health Services Holdings Corp. on the Effective Date (immediately prior to the Consummation of the Plan) as part of the distributions made to such Holders of Senior Secured Notes Claims under the Plan. |
25
(xi) | Voting: Class 4 is Impaired. Therefore, Holders of Class 4 Senior Secured Notes Claims as of the Record Date are entitled to vote to accept or reject the Plan. |
e. | Class 5 General Unsecured Claims. |
(xii) | Classification: Class 5 consists of all General Unsecured Claims. | ||
(xiii) | Treatment: Except to the extent that a Holder of a General Unsecured Claim agrees to a less favorable treatment, in full and final satisfaction, settlement, release and discharge of and in exchange for each General Unsecured Claim, each Holder of such General Unsecured Claim shall be paid in full, in Cash, or otherwise receive such treatment as to render such Holder Unimpaired. A General Unsecured Claim that is not due and payable on or before the Effective Date shall be reinstated and/or paid thereafter without regard to any acceleration caused by the Filing of the Chapter 11 Cases (i) in the ordinary course of business in accordance with applicable law or the terms of any agreement that governs such General Unsecured Claim or (ii) in accordance with the course of practice or dealing between the Debtors and such Holder with respect to such General Unsecured Claim. | ||
(xiv) | Voting: Class 5 is Unimpaired, and Holders of Class 5 General Unsecured Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Class 5 General Unsecured Claims are not entitled to vote to accept or reject the Plan. |
f. | Class 6 Intercompany Claims. |
(xv) | Classification: Class 6 consists of all Intercompany Claims. | ||
(xvi) | Treatment: Intercompany Claims shall be reinstated and rendered Unimpaired in accordance with section 1124 of the Bankruptcy Code. | ||
(xvii) | Voting: Class 6 is Unimpaired, and Holders of Class 6 Intercompany Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Class 6 Intercompany Claims are not entitled to vote to accept or reject the Plan. |
g. | Class 7 Intercompany Interests. |
(xviii) | Classification: Class 7 consists of all Intercompany Interests. | ||
(xix) | Treatment: Although Intercompany Interests shall not receive any distribution on account of such Intercompany Interests, Intercompany Interests will not be cancelled and, solely to implement the Plan, will be addressed as set forth in Article IV.K of the Plan. | ||
(xx) | Voting: Class 7 is Unimpaired, and Holders of Class 7 Intercompany Interests are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Therefore, Holders of Class 7 Intercompany Interests are not entitled to vote to accept or reject the Plan. |
h. | Class 8 Section 510(b) Claims. |
(xxi) | Classification: Class 8 consists of all Section 510(b) Claims. |
26
(xxii) | Treatment: Holders of Section 510(b) Claims will not receive any distribution on account of such Claims, and Section 510(b) Claims shall be discharged, cancelled, released and extinguished as of the Effective Date. | ||
(xxiii) | Voting: Class 8 is Impaired, and Holders of Class 8 Section 510(b) Claims are not entitled to receive or retain any property under the Plan on account of Class 8 Section 510(b) Claims. Therefore, Holders of Class 8 Section 510(b) Claims are deemed not to have accepted the Plan pursuant to section 1126(g) of the Bankruptcy Code, and Holders of Class 8 Section 510(b) Claims are not entitled to vote to accept or reject the Plan. |
i. | Class 9 Equity Interests in InSight Health Services Holdings Corp. |
(xxiv) | Classification: Class 9 consists of all Equity Interests in InSight Health Services Holdings Corp. | ||
(xxv) | Treatment: Holders of Equity Interests in InSight Health Services Holdings Corp. will not receive any distribution on account of such Interests, and Equity Interests in InSight Health Services Holdings Corp. shall be discharged, cancelled, released and extinguished as of the Effective Date; provided that, as set forth in Article IV.E in the Plan, the Holders of existing common stock in InSight Health Services Holdings Corp. on the Effective Date (immediately prior to the consummation of the Plan) shall receive the Warrants from the Reorganized Debtors on the Effective Date. | ||
(xxvi) | Voting: Class 9 is Impaired, and Holders of Class 9 Equity Interests in InSight Health Services Holdings Corp. are not entitled to receive or retain any property under the Plan on account of Class 9 Equity Interests in InSight Health Services Holdings Corp. Therefore, Holders of Class 9 Equity Interests in InSight Health Services Holdings Corp. are deemed not to have accepted the Plan pursuant to section 1126(g) of the Bankruptcy Code, and Holders of Class 9 Equity Interests in InSight Health Services Holdings Corp. are not entitled to vote to accept or reject the Plan. |
3. | Special Provision Governing Unimpaired Claims. |
Except as otherwise provided in the Plan, nothing under the Plan shall affect the Debtors
rights in respect of any Unimpaired Claims, including all rights in respect of legal and equitable
defenses to or setoffs or recoupments against any such Unimpaired Claims.
4. | Acceptance or Rejection of the Plan. |
a. | Voting Class. |
Class 4 is Impaired under the Plan, and Holders, as of the Record Date, of Claims in Class 4
are entitled to vote to accept or reject the Plan.
b. | Presumed Acceptance of the Plan. |
Classes 1, 2, 3, 5, 6 and 7 are Unimpaired under the Plan and are conclusively presumed to
have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.
c. | Deemed Rejection of the Plan. |
Classes 8 and 9 are Impaired and shall receive no distribution under the Plan and are deemed
to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code.
27
5. | Confirmation Pursuant to Sections 1129(a)(10) and 1129(b) of the Bankruptcy Code. |
Section 1129(a)(10) of the Bankruptcy Code shall be satisfied for purposes of Confirmation by
acceptance of the Plan by an Impaired Class of Claims. The Debtors shall seek Confirmation of the
Plan pursuant to section 1129(b) of the Bankruptcy Code with respect to any rejecting Class of
Claims or Interests. The Debtors reserve the right to modify the Plan in accordance with Article
XI of the Plan to the extent, if any, that Confirmation pursuant to section 1129(b) of the
Bankruptcy Code requires modification; provided that such modifications shall in each case
be reasonably acceptable to the Requisite Consenting Noteholders.
6. | Controversy Concerning Impairment. |
If a controversy arises as to whether any Claims or Interests or any Class of Claims or
Interests is Impaired, the Bankruptcy Court shall, after notice and a hearing, determine such
controversy on or before the Confirmation Date.
C. MEANS FOR IMPLEMENTATION OF THE PLAN.
1. | Sources of Consideration for Plan Distribution. |
All consideration necessary for the Reorganized Debtors to make payments or distributions
pursuant to the Plan shall be obtained from the Exit Facility, the issuance of the New Common Stock
or other Cash from the Debtors, including Cash from operations.
2. | Substantive Consolidation. |
a. | Limited Substantive Consolidation Is Warranted by the Facts and Circumstances of the Chapter 11 Cases. |
The Plan is premised upon substantively consolidating the Debtors, on the terms set forth in
Article IV of the Plan, for the limited purposes of Confirming and Consummating the Plan, primarily
to facilitate making distributions to creditors in satisfaction of their Claims. Creditors in the
Voting Class will vote in consolidated Classes with notice on the Ballots that the Plan
contemplates a limited substantive consolidation. The Debtors believe that the Plan, with its
contemplated limited substantive consolidation of the Debtors Estates, is the best option
currently available for the Debtors and their creditors as a whole.
The Debtors believe that the facts and circumstances in the Chapter 11 Cases strongly favor
this Bankruptcy Court substantively consolidating their Estates for the limited purposes
contemplated by the Plan:
| The Debtors core business operations operate as a single business enterprise. | ||
| The Debtors are a publicly reporting company that files consolidated reports with the SEC. The Debtors also files consolidated group income tax returns. | ||
| The Debtors operate a single, integrated cash management system, with integrated payroll and accounting systems. | ||
| The Debtors operate under a common management team, with interlocking and overlapping boards of directors. The board of directors for InSight Health Services Holdings Corp. continues to make all major decisions for the Debtors. The officers and management are vertically integrated and corporate policy is dictated by InSight Health Services Holdings Corp. | ||
| This unified corporate Entity has resulted in creditors generally relying on the Debtors consolidated credit. |
The Debtors going concern value arises from the Debtors businesses continuing to operate as
a single going concern enterprise. Indeed, it would be impossible to allocate the New Common Stock
to different Debtors based upon the relative values of those entities. In any case, most of the
individual Debtors and their assets do not
28
have significant individual value outside of their integration and relationships with the rest
of the Debtors, even if they operated independently.
b. | The Plan Contemplates a Very Limited Substantive Consolidation Solely for Purposes of Efficiently and Effectively Confirming and Consummating the Plan. |
Under the contemplated substantive consolidation scheme:
| the assets and liabilities of all consolidated Debtors will be pooled for purposes of Plan distributions in satisfaction of Claims; | ||
| the Plan will deem the Debtors to be one consolidated Estate for voting and distribution purposes; | ||
| all guarantees of any consolidated Debtor of the obligations of any other consolidated Debtor will be eliminated for all purposes associated with Confirmation and Consummation, so that any Claim against a consolidated Debtor and any guarantee thereof will be a Claim against the consolidated Estate; and | ||
| each and every Claim will be deemed Filed against the consolidated Estate. |
Substantive consolidation, however, will not affect transfers or commingling of any assets of
any of the Debtors, and all assets will continue to be owned by the respective Reorganized Debtors.
Substantive consolidation also will not affect the Debtors legal and organizational structure or
any pre- and post-Petition Date guarantees, liens and security interests that are required to be
maintained.
3. | Exit Facility. |
Confirmation shall be deemed approval of the Exit Facility (including any and all transactions
contemplated thereby, such as any supplementation or additional syndication of the Exit Facility,
and all actions to be taken, undertakings to be made and obligations to be incurred by the
Reorganized Debtors in connection therewith, including the payment of all fees, indemnities and
expenses provided for therein) and authorization for the Reorganized Debtors to enter into and
execute the Exit Facility Agreement and such other documents as may be required or appropriate to
effectuate the treatment afforded to such lenders pursuant to the Exit Facility Agreement, the
terms, conditions and covenants of which shall be acceptable to the Requisite Consenting
Noteholders. The Reorganized Debtors may use the Exit Facility for any purpose permitted
thereunder, including the funding of obligations under the Plan and satisfaction of ongoing working
capital needs. To the extent Revolving Credit Facility Claims are not refinanced by the DIP
Facility as of the Effective Date, Revolving Credit Facility Claims shall be paid in full, in Cash
with the proceeds from the Exit Facility.
Upon the satisfaction or waiver of the conditions precedent to effectiveness set forth in the
Exit Facility Agreement, the DIP Facility and the Revolving Credit Facility shall be refinanced and
the Revolving Credit Agreement and the DIP Credit Agreement shall be deemed to have been
terminated. Notwithstanding the foregoing, all obligations of the Debtors to the DIP Agent and the
DIP Lenders under the DIP Credit Agreement which are expressly stated in the DIP Credit Agreement
as surviving such agreements termination shall, as so specified, survive without prejudice and
remain in full force and effect.
Upon the date the Exit Facility Agreement becomes effective, (1) the Debtors and the
Reorganized Debtors are authorized to execute and deliver the Exit Facility Agreement and perform
their obligations thereunder including, without limitation, the payment or reimbursement of any
fees, expenses, losses, damages or indemnities, (2) the Exit Facility Agreement shall constitute
the legal, valid and binding obligations of the Reorganized Debtors which are parties thereto,
enforceable in accordance with their respective terms, and (3) no obligation, payment, transfer or
grant of security under the Exit Facility Agreement shall be stayed, restrained, voidable or
recoverable under the Bankruptcy Code or under any applicable law or subject to any defense,
reduction, recoupment, setoff or counterclaim.
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The Debtors and the Reorganized Debtors, as applicable, and any other Entities granting any
Liens and security interests to secure the obligations under the Exit Facility Agreement are
authorized to make all filings and recordings, and to obtain all governmental approvals and
consents necessary or desirable to establish and further evidence perfection of such liens and
security interests under the provisions of any applicable federal, state, provincial or other law
(whether domestic or foreign) (it being understood that perfection shall occur automatically by
virtue of the entry of the Confirmation Order and any such filings, recordings, approvals and
consents shall not be required), and will thereafter cooperate to make all other filings and
recordings that otherwise would be necessary under applicable law to give notice of such liens and
security interests to third parties.
4. | Issuance of New Common Stock and Other Securities. |
The issuance of the New Common Stock, including the shares of the New Common Stock, Warrants,
options or other equity awards reserved for the Management Equity Plan (if any), is authorized
without the need for any further corporate action or without any further action by a Holder of
Claims or Interests. On the Effective Date, or as soon as reasonably practicable thereafter, the
New Common Stock shall be issued to the Holders of Senior Secured Notes Claims. The Management
Equity Plan will provide for a certain percentage of New Common Stock, not to exceed eight percent
(8%) of the fully diluted New Common Stock, to be reserved for issuance as options, equity or
equity-based grants in connection with the Reorganized Debtors management equity incentive program
and/or director equity incentive program. The amount of New Common Stock, if any, to be issued
pursuant to the Management Equity Plan, and the terms thereof shall be determined by the New Board
on or as soon as reasonably practicable after the Effective Date.
All of the shares of New Common Stock issued pursuant to the Plan and the Stockholders
Agreement shall be duly authorized, validly issued and fully paid and non-assessable. Each
distribution and issuance referred to in Article VI of the Plan shall be governed by the terms and
conditions set forth herein applicable to such distribution or issuance and by the terms and
conditions of the instruments evidencing or relating to such distribution or issuance, including,
but not limited to, the Stockholders Agreement, which terms and conditions shall bind each Entity
receiving such distribution or issuance.
The New Common Stock may be subject to certain transfer and other restrictions and appropriate
legends pursuant to, among other things, the Stockholders Agreement and the New Certificates of
Incorporation.
5. | Warrants. |
As described in Article III.B.4 of the Plan, the Holders of existing common stock in InSight
Health Services Holdings Corp. on the Effective Date (immediately prior to the consummation of the
Plan) shall receive the Warrants from the Reorganized Debtors on the Effective Date. The Warrants
may be subject to certain transfer, exercise and other restrictions and appropriate legends
pursuant to, among other things, the Warrant Agreement. Notwithstanding anything to the contrary
in the Plan, in no event shall the terms of the Warrants cause Reorganized InSight Health Services
Holdings Corp. to be required by the Securities Act or the Exchange Act, including without
limitation Section 12(g) or 15(d) of the Exchange Act, or any other federal, state or local
securities laws, to register with the SEC or other similar regulatory authority any class of equity
securities of InSight Health Services Holdings Corp. or to file periodic reports under Section 13
or 15(d) of the Exchange Act. The Warrant Agreement shall contain transfer, exercise and other
restrictions and appropriate legends to the satisfaction of the Requisite Consenting Noteholders
and consistent with the Warrant Term Sheet to ensure that the terms of the Warrants and the Warrant
Agreement do not result in such registration or reporting requirements on the part of Reorganized
InSight Health Services Holdings Corp.
6. | Stockholders Agreement. |
As of the Effective Date, each person or entity that receives New Common Stock shall be deemed
to be bound by the Stockholders Agreement. All participants in the Management Equity Plan and each
person that receives a Warrant shall execute a joinder to the Stockholders Agreement as a condition
to the receipt of any New Common Stock pursuant to exercise of such Warrant or award under the
Management Equity Plan.
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7. | Section 1145 Exemption. |
Pursuant to section 1145 of the Bankruptcy Code, the offering, issuance and distribution of
any Securities contemplated by the Plan and all agreements incorporated of the Plan, including the
New Common Stock and the Warrants, shall be exempt from, among other things, the registration
requirements of section 5 of the Securities Act and any other applicable law requiring registration
prior to the offering, issuance, distribution or sale of securities and the Confirmation Order
shall so provide. In addition, under section 1145 of the Bankruptcy Code, any securities
contemplated by the Plan and any and all agreements incorporated therein, including the New Common
Stock and the Warrants, will be freely tradable by the recipients thereof, subject to (1) the
provisions of section 1145(b)(1) of the Bankruptcy Code relating to the definition of an
underwriter in section 2(a)(11) of the Securities Act; (2) compliance with any rules and
regulations of the Securities and Exchange Commission, if any, applicable at the time of any future
transfer of such securities or instruments; (3) the restrictions, if any, on the transferability of
such securities and instruments, including, without limitation, those set forth in Article IV.D ,
Article IV.E and Article IV.H of the Plan; and (4) applicable regulatory approval.
8. | Listing of New Common Stock. |
Other than as provided in the Registration Rights Agreement, the Reorganized Debtors shall not
be obligated to list the New Common Stock or the Warrants on a national securities exchange and
shall not be required to (but may in their discretion) register with the SEC or other similar
regulatory authority any class of equity securities of InSight Health Services Holdings Corp. or to
file periodic reports under Section 13 or 15(d) of the Exchange Act. On the Effective Date,
Reorganized Insight Health Services Holdings Corp. will enter into the Registration Rights
Agreement.
9. | New Certificates of Incorporation and New By-Laws. |
On or immediately before the Effective Date, the Reorganized Debtors will file their
respective New Certificates of Incorporation with the applicable Secretaries of State and/or other
applicable authorities in their respective states of incorporation or formation in accordance with
the corporate or other business entity laws of the respective states of incorporation or formation.
After the Effective Date, the Reorganized Debtors may amend and restate their respective New
Certificates of Incorporation and New By-Laws and other constituent documents as permitted by the
laws of their respective states of incorporation or formation and their respective New Certificates
of Incorporation and New By-Laws or other constituent documents.
10. | Reorganized Debtors Boards of Directors and Officers. |
On the Effective Date, the term of each member of the current board of directors of the
Debtors shall automatically expire. The initial members of the New Board shall consist of
Reorganized InSight Health Services Holdings Corp.s Chief Executive Officer and those individuals
appointed in accordance with the Stockholders Agreement and the New By-Laws. The Debtors shall
identify the individuals proposed to serve in accordance with the preceding sentence prior to the
Effective Date and, to the extent known, members of the New Board and the nature and compensation
for any member of the New Board who is an insider under Section 101(31) of the Bankruptcy Code
will be identified in the Plan Supplement. The board of directors for each of the Reorganized
Debtors other than Reorganized InSight Health Services Holdings Corp. and the officers for each of
the Reorganized Debtors shall be identified prior to the Effective Date.
11. | Corporate Existence. |
Except as otherwise provided in the Plan and notwithstanding Article IV.B of the Plan, each
Reorganized Debtor shall continue to exist after the Effective Date as a separate corporate entity,
limited liability company, partnership or other form, as the case may be, with all the powers of a
corporation, limited liability company, partnership or other form, as the case may be, pursuant to
the applicable law in the jurisdiction in which each applicable Reorganized Debtor is incorporated
or formed and pursuant to the respective certificate of incorporation and bylaws (or other
formation documents) in effect prior to the Effective Date, except to the extent such certificate
of incorporation and bylaws (or other formation documents) are amended by the Plan and to the
extent such documents are amended, such documents are deemed to be amended pursuant to the Plan and
require no further action or approval. On the Effective Date, without any further corporate
action, the Reorganized Debtors
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organizational documents shall be amended as necessary to satisfy the provisions of the Plan
and the Bankruptcy Code and shall include, pursuant to Section 1123(a)(6) of the Bankruptcy Code, a
provision prohibiting the issuance of non-voting equity securities. Consequently, Intercompany
Interests shall be retained, and the legal, equitable and contractual rights to which Holders of
Intercompany Interests are entitled shall remain unaltered to the extent necessary to implement the
Plan. Notwithstanding anything to the contrary in the Plan, each non-debtor corporate entity,
limited liability company, partnership or other entity, as the case may be, in which the any of the
Debtors owned or controlled an equity interest as of the Petition Date shall exist after the
Effective Date as a separate corporate entity, limited liability company, partnership or other
form, as the case may be, with all the powers of a corporation, limited liability company,
partnership or other form, as the case may be, pursuant to the applicable law in the jurisdiction
in which each applicable Debtor is incorporated or formed and pursuant to the respective
certificate of incorporation and bylaws (or other formation documents) in effect prior to the
Petition Date. All of the actions related to the continued corporate existence of the Reorganized
Debtors set forth in this Article IV.K shall be reasonably acceptable to the Requisite Consenting
Noteholders.
12. | Vesting of Assets in the Reorganized Debtors. |
Except as otherwise provided in the Plan or any agreement, instrument or other document
incorporated therein, on the Effective Date, all property in each Estate, all Causes of Action
(except those released pursuant to the Debtor Release) and any property acquired by any of the
Debtors pursuant to the Plan shall vest in each respective Reorganized Debtor, free and clear of
all Liens, Claims, charges or other encumbrances (except for Liens granted to secure the Exit
Facility and Claims pursuant to the DIP Facility that by their terms survive termination of the DIP
Facility). On and after the Effective Date, except as otherwise provided in the Plan, each
Reorganized Debtor may operate its business and may use, acquire or dispose of property and
compromise or settle any Claims, Interests or Causes of Action without supervision or approval by
the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules.
13. | Cancellation of Securities and Agreements. |
On the Effective Date, except as otherwise specifically provided for in the Plan: (1) the
obligations of the Debtors under the Indenture, and any other Certificate, share, note, bond,
indenture, purchase right, option, warrant or other instrument or document directly or indirectly
evidencing or creating any indebtedness or obligation of or ownership interest in the Debtors
giving rise to any Claim or Interest (except such agreements, Certificates, notes or other
instruments or documents evidencing indebtedness or obligations of the Debtors that are
specifically reinstated pursuant to the Plan), shall be cancelled as to the Debtors, and the
Reorganized Debtors shall not have any continuing obligations thereunder; and (2) the obligations
of the Debtors pursuant, relating or pertaining to any agreements, indentures, certificates of
designation, bylaws or certificate or articles of incorporation or similar documents governing the
shares, Certificates, notes, bonds, indentures, purchase rights, options, warrants or other
instruments or documents evidencing or creating any indebtedness or obligation of the Debtors
(except such agreements, Certificates, notes, or other instruments or documents evidencing
indebtedness or obligations of the Debtors that are specifically reinstated pursuant to the Plan)
shall be released and discharged; provided that, notwithstanding Confirmation or the
occurrence of the Effective Date, any such indenture or agreement that governs the rights of the
Holder of a Claim or Interest shall continue in effect solely for purposes of allowing Holders to
receive distributions under the Plan as provided therein.
On the Effective Date, except to the extent otherwise provided in the Plan, any indenture
relating to any of the foregoing, including the Indenture, shall be deemed to be canceled, as
permitted by section 1123(a)(5)(F) of the Bankruptcy Code and the obligations of the Debtors
thereunder shall be fully released and discharged.
14. | Restructuring Transactions. |
Subject to the consent of the Requisite Consenting Noteholders on the form of the
restructuring transactions contemplated herein, on the Effective Date or as soon as reasonably
practicable thereafter, the Reorganized Debtors may take all actions as may be necessary or
appropriate to effect any transaction described in, approved by, contemplated by, or necessary to
effectuate the Plan, including: (1) the execution and delivery of appropriate agreements or other
documents of merger, consolidation, certificates of incorporation, operating agreements, bylaws or
other documents containing terms that are consistent with or reasonably necessary to implement the
terms of the Plan and that satisfy the requirements of applicable law; (2) the execution and
delivery of appropriate instruments of
32
transfer, assignment, assumption or delegation of any property, right, liability, duty or
obligation on terms consistent with the terms of the Plan; (3) the filing of appropriate
certificates or articles of incorporation, reincorporation, merger, consolidation, conversion or
dissolution pursuant to applicable state law; and (4) all other actions that the Reorganized
Debtors determine are necessary or appropriate, including any filings that may be required by
applicable law.
Immediately upon and after entry of the Confirmation Order, the Debtors or the Reorganized
Debtors, as the case may be, may (and shall be authorized to) consummate, and take all actions as
may be necessary or appropriate to effect and consummate, the sale of certain of the Debtors
assets related to the Debtors Northern California business (as described in the Disclosure
Statement), upon terms reasonably satisfactory to the Debtors and the Requisite Consenting
Noteholders, to the extent not consummated on or before the Confirmation Date or authorized by
prior order of the Bankruptcy Court.
15. | Corporate Action. |
Upon the Effective Date, all actions contemplated by the Plan shall be deemed authorized and
approved in all respects, including: (1) adoption or assumption, as applicable, of Executory
Contracts and Unexpired Leases; (2) selection of the New Board and all other directors and officers
for the Reorganized Debtors; (3) the execution of and entry into the Exit Facility Agreement; (4)
the distribution of the New Common Stock and Warrants as provided in the Plan; (5) adoption and
implementation of the Management Equity Plan; and (6) all other actions contemplated by the Plan
(whether to occur before, on or after the Effective Date). All matters provided for in the Plan
involving the corporate structure of the Debtors or the Reorganized Debtors and any corporate
action required by the Debtors or the Reorganized Debtors in connection with the Plan shall be
deemed to have occurred and shall be in effect, without any requirement of further action by the
security holders, directors or officers of the Debtors or the Reorganized Debtors.
On or (as applicable) prior to the Effective Date, the appropriate officers of the Debtors or
the Reorganized Debtors (including, any vice-president, president, chief executive officer,
treasurer or chief financial officer thereof), as applicable, shall be authorized and directed to
issue, execute and deliver the agreements, documents, securities, certificates of incorporation,
operating agreements and instruments contemplated by the Plan (or necessary or desirable to effect
the transactions contemplated by the Plan) in the name of and on behalf of the Reorganized Debtors,
including: (1) the Exit Facility; (2) the issuance of the New Common Stock and Warrants; and (3)
any and all other agreements, documents, securities and instruments relating to the foregoing. The
authorizations and approvals contemplated by Article IV.L of the Plan shall be effective
notwithstanding any requirements under nonbankruptcy law. All of the foregoing corporate actions
set forth in Article IV.O of the Plan shall be acceptable to the Requisite Consenting Noteholders.
16. | Effectuating Documents; Further Transactions. |
On and after the Effective Date, the Reorganized Debtors and the managers, officers and
members of the boards of directors thereof, including, without limitation, the New Board, are
authorized to and may issue, execute, deliver, file or record such contracts, securities,
instruments, releases and other agreements or documents and take such actions as may be necessary
or appropriate to effectuate, implement and further evidence the terms and conditions of the Plan
and the securities issued pursuant to the Plan in the name of and on behalf of the Reorganized
Debtors, without the need for any approvals, authorization or consents except for those expressly
required pursuant to the Plan.
17. | Exemption from Certain Taxes and Fees. |
Pursuant to section 1146(a) of the Bankruptcy Code, any transfers of property pursuant to the
Plan shall not be subject to any stamp tax or other similar tax or governmental assessment in the
United States, and the Confirmation Order shall direct and be deemed to direct the appropriate
state or local governmental officials or agents to forgo the collection of any such tax or
governmental assessment and to accept for filing and recordation instruments or other documents
pursuant to such transfers of property without the payment of any such tax or governmental
assessment. Such exemption specifically applies, without limitation, to (1) the creation of any
mortgage, deed of trust, lien or other security interest; (2) the making or assignment of any lease
or sublease; (3) any restructuring transaction authorized by Article IV.K of the Plan; or (4) the
making or delivery of any deed or other
33
instrument of transfer under, in furtherance of or in connection with the Plan, including:
(a) any merger agreements; (b) agreements of consolidation, restructuring, disposition, liquidation
or dissolution; (c) deeds; (d) bills of sale; or (e) assignments executed in connection with any
Restructuring Transaction occurring under the Plan.
18. | Employee and Retiree Benefits. |
Except as otherwise provided in the Plan, on and after the Effective Date, the Reorganized
Debtors may: (1) honor, in the ordinary course of business, any contracts, agreements, policies,
programs and plans for, among other things, compensation (other than equity-based compensation
related to Equity Interests in InSight Health Services Holdings Corp.), health care benefits,
disability benefits, deferred compensation benefits, travel benefits, savings, severance benefits,
retirement benefits, welfare benefits, workers compensation insurance and accidental death and
dismemberment insurance for the directors, officers and employees of any of the Debtors who served
in such capacity at any time; and (2) honor, in the ordinary course of business, Claims of
employees employed as of the Effective Date for accrued vacation time arising prior to the Petition
Date; provided, however, that the Debtors or Reorganized Debtors performance
under any employment agreement will not entitle any person to any benefit or alleged entitlement
under any policy, program or plan that has expired or been terminated before the Effective Date.
Nothing in the Plan shall limit, diminish or otherwise alter the Reorganized Debtors defenses,
claims, Causes of Action or other rights with respect to any such contracts, agreements, policies,
programs and plans. Notwithstanding the foregoing, pursuant to section 1129(a)(13) of the
Bankruptcy Code, on and after the Effective Date, all retiree benefits (as that term is defined in
section 1114 of the Bankruptcy Code), if any, shall continue to be paid in accordance with
applicable law.
19. | D&O Liability Insurance Policies. |
Notwithstanding anything in the Plan to the contrary, as of the Effective Date, the Debtors
shall assume and assign to the Reorganized Debtors all of the D&O Liability Insurance Policies
pursuant to section 365(a) of the Bankruptcy Code. Entry of the Confirmation Order shall
constitute the Bankruptcy Courts approval of the Debtors foregoing assumption of each of the D&O
Liability Insurance Policies. Notwithstanding anything to the contrary contained in the Plan,
Confirmation of the Plan shall not discharge, impair or otherwise modify any obligations assumed by
the foregoing assumption of the D&O Liability Insurance Policies, and each such obligation shall be
deemed and treated as an Executory Contract that has been assumed by the Debtors under the Plan as
to which no Proof of Claim need be Filed. On or before the Effective Date, the Reorganized Debtors
may obtain tail coverage (i.e., D&O insurance coverage that extends beyond the end of the policy
period) under a directors and officers liability insurance policy for the current and former
directors, officers and managers upon terms reasonably acceptable to the Reorganized Debtors and
the Requisite Consenting Noteholders.
20. | Indemnification Provisions. |
Notwithstanding anything in the Plan to the contrary, the Reorganized Debtors, as of the
Effective Date, shall assume all Indemnification Provisions. All Indemnification Provisions in
place on and prior to the Effective Date for current and former officers, directors, managers and
employees of the Debtors and their subsidiaries and such current and former directors, officers,
managers and employees respective Affiliates shall survive the Effective Date for all Claims
related to or in connection with, without limitation, any actions, omissions or transactions
occurring prior to the Effective Date.
21. | Preservation of Rights of Action. |
In accordance with section 1123(b) of the Bankruptcy Code, and except where such Causes of
Action have been expressly released (including, for the avoidance of doubt, pursuant to the Debtor
Release provided by Article VIII.D of the Plan), the Reorganized Debtors shall retain and may
enforce all rights to commence and pursue, as appropriate, any and all Causes of Action, whether
arising before or after the Petition Date, including any actions specifically enumerated in the
Plan Supplement, and the Reorganized Debtors rights to commence, prosecute or settle such Causes
of Action shall be preserved notwithstanding the occurrence of the Effective Date. The Reorganized
Debtors may pursue such Causes of Action, as appropriate, in accordance with the best interests of
the Reorganized Debtors. No Entity may rely on the absence of a specific reference in the Plan,
the Plan Supplement or the Disclosure Statement to any Cause of Action against them as any
indication that the Debtors or Reorganized Debtors, as applicable, will not pursue any and all
available Causes of Action against them. Except
34
with
respect to Causes of Action as to which the Debtors or Reorganized Debtors have released any Person or
Entity on or prior to the Effective Date (pursuant to the Debtor Release or otherwise), the Debtors
or Reorganized Debtors, as applicable, expressly reserve all rights to prosecute any and all Causes
of Action against any Entity, except as otherwise expressly provided in the Plan. Unless any
Causes of Action against an Entity are expressly waived, relinquished, exculpated, released,
compromised or settled in the Plan or a Bankruptcy Court order, the Reorganized Debtors expressly
reserve all Causes of Action, for later adjudication, and, therefore, no preclusion doctrine,
including the doctrines of res judicata, collateral estoppel, issue preclusion, claim preclusion,
estoppel (judicial, equitable or otherwise) or laches, shall apply to such Causes of Action upon,
after or as a consequence of the Confirmation or Consummation.
22. | Priority Tax Claims & Administrative Claims Bar Dates. |
Priority Tax Claims Bar Date. Notwithstanding anything in the Plan to the contrary, any
Creditor holding (1) a Priority Tax Claim or (2) a Claim that may otherwise be a Priority Tax Claim
or Claim for escheatment or unclaimed property but for the fact that such Claim arose prior to the
applicable statutory period set forth by section 507(a)(8) of the Bankruptcy Code must File a Proof
of Claim on account of such Claim, and such Proof of Claim must be Filed with the Bankruptcy Court
on or before the Priority Tax Claims Bar Date. All (1) Priority Tax Claims or (2) Claims that may
otherwise be Priority Tax Claims or Claim for escheatment or unclaimed property but for the fact
that such Claims arose prior to the applicable statutory period set forth by section 507(a)(8) of
the Bankruptcy Code for which a Proof of Claim is not timely Filed will be forever barred from
assertion against the Debtors or the Reorganized Debtors, their Estates and their property unless
otherwise ordered by the Bankruptcy Court or as otherwise provided in the Plan. All such Priority
Tax Claims or Claims that would otherwise be Priority Tax Claims but for the fact that such Claims
arose prior to the applicable statutory period set forth by section 507(a)(8) of the Bankruptcy
Code shall, as of the Effective Date, be subject to the discharge and permanent injunction set
forth in Article VIII.A and Article VIII.H of the Plan.
Administrative Claims Bar Date. All requests for payment of an Administrative Claim must
be Filed with the Notice, Claims and Solicitation Agent and served upon counsel to the Debtors or
Reorganized Debtors, as applicable, on or before the date that is 30 days after the Effective Date.
The Reorganized Debtors may settle and pay any Administrative Claim in the ordinary course of
business without any further notice to or action, order, or approval of the Bankruptcy Court. In
the event that any party with standing objects to an Administrative Claim, the Bankruptcy Court
shall determine the Allowed amount of such Administrative Claim. Notwithstanding the foregoing, no
request for payment of an Administrative Claim need be Filed with respect to an Administrative
Claim previously Allowed by Final Order.
D. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
1. | Assumption and Rejection of Executory Contracts and Unexpired Leases. |
Except as otherwise provided in the Plan or in any contract, instrument, release, indenture or
other agreement or document entered into in connection with the Plan, as of the Effective Date,
each Debtor shall be deemed to have assumed each Executory Contract and Unexpired Lease to which it
is a party (including all D&O Liability Insurance Policies), unless such Executory Contract or
Unexpired Lease: (1) was assumed or rejected previously by the Debtors; (2) previously expired or
terminated pursuant to its own terms; (3) is the subject of a motion to reject filed on or before
the Effective Date; or (4) is identified as an Executory Contract or Unexpired Lease to be rejected
pursuant to the Plan Supplement, which shall be reasonably acceptable to the Requisite Consenting
Noteholders. The Confirmation Order shall constitute an order of the Bankruptcy Court under
sections 365 and 1123(b) of the Bankruptcy Code approving the assumptions or rejections described
above as of the Effective Date.
Notwithstanding the foregoing paragraph, after the Effective Date, the Reorganized Debtors
shall have the right to terminate, amend or modify any Intercompany Contracts, leases, or other
agreements without approval of the Bankruptcy Court.
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2. | Payments Related to Assumption of Executory Contracts and Unexpired Leases. |
With respect to any Executory Contracts and Unexpired Leases to be assumed by the Debtors
pursuant to the Plan (including pursuant to Article V.A of the Plan) or otherwise, Cure Claims
shall be satisfied, pursuant to section 365(b) of the Bankruptcy Code, by payment of the Cure
Claims in Cash on the Effective Date or as soon as reasonably practicable thereafter or on such
other terms as the parties to each such Executory Contract or Unexpired Lease may otherwise agree.
In the event of a dispute regarding: (1) the amount of any Cure Claim; (2) the ability of the
Reorganized Debtors to provide adequate assurance of future performance (within the meaning of
section 365(b) of the Bankruptcy Code), if applicable, under the Executory Contract or the
Unexpired Lease to be assumed; or (3) any other matter pertaining to assumption, the Cure Claims
shall be paid following the entry of a Final Order resolving the dispute and approving the
assumption of such Executory Contracts or Unexpired Leases; provided, however, that
the Debtors or the Reorganized Debtors may settle any dispute regarding the amount of any Cure
Claim without any further notice to or action, order or approval of the Bankruptcy Court.
3. | Preexisting Obligations to the Debtors Under Executory Contracts and Unexpired Leases. |
Rejection or repudiation of any Executory Contract or Unexpired Lease pursuant to the Plan or
otherwise shall not constitute a termination of preexisting obligations owed to the Debtors under
such contracts or leases. In particular, notwithstanding any nonbankruptcy law to the contrary,
the Reorganized Debtors expressly reserve and do not waive any right to receive or any continuing
obligation of a counterparty to provide warranties or continued maintenance obligations on goods
previously purchased by the contracting Debtors or Reorganized Debtors, as applicable, from
counterparties to rejected or repudiated Executory Contracts or Unexpired Leases.
4. | Intercompany Contracts, Contracts and Leases Entered Into After the Petition Date. |
On and after the Effective Date, the Debtors may continue to perform under Intercompany
Contracts, contracts and leases entered into after the Petition Date by any Debtor in the ordinary
course of business.
5. | Modifications, Amendments, Supplements, Restatements or Other Agreements. |
Unless otherwise provided in the Plan, each assumed Executory Contract or Unexpired Lease
shall include all modifications, amendments, supplements, restatements or other agreements that in
any manner affect such Executory Contract or Unexpired Lease, and all Executory Contracts and
Unexpired Leases related thereto, if any, including all easements, licenses, permits, rights,
privileges, immunities, options, rights of first refusal and any other interests, unless any of the
foregoing agreements has been previously rejected or repudiated or is rejected or repudiated under
the Plan.
Modifications, amendments, supplements and restatements to prepetition Executory Contracts and
Unexpired Leases that have been executed by the Debtors during the Chapter 11 Cases shall not be
deemed to alter the prepetition nature of the Executory Contract or Unexpired Lease or the
validity, priority or amount of any Claims that may arise in connection therewith.
6. | Reservation of Rights. |
Neither the exclusion nor inclusion of any contract or lease in the Plan Supplement, nor
anything contained in the Plan, shall constitute an admission by the Debtors that any such contract
or lease is in fact an Executory Contract or Unexpired Lease or that any Reorganized Debtor has any
liability thereunder. In the event of a dispute regarding whether a contract or lease is or was
executory or unexpired at the time of assumption or rejection, the Debtors or the Reorganized
Debtors, as applicable, shall have 90 days following entry of a Final Order resolving such dispute
to alter the treatment of such contract or lease as otherwise provided in the Plan.
7. | Nonoccurrence of Effective Date. |
In the event that the Effective Date does not occur, the Bankruptcy Court shall retain
jurisdiction with respect to any consensual request to extend the deadline for assuming or
rejecting Unexpired Leases pursuant to section 365(d)(4) of the Bankruptcy Code.
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8. | Rejection Damages Claims Bar Date. |
Notwithstanding anything in the Plan to the contrary, any Creditor holding a Rejection
Damages Claim must File a Proof of Claim on account of such Claim, and such Proofs of Claim must be
Filed with the Bankruptcy Court on or before the Rejection Damages Claims Bar Date. All Rejection
Damages Claims for which a Proof of Claim is not timely Filed will be forever barred from assertion
against the Debtors or the Reorganized Debtors, their Estates and their property unless otherwise
ordered by the Bankruptcy Court or as otherwise provided in the Plan. All such Rejection Damages
Claims shall, as of the Effective Date, be subject to the discharge and permanent injunction set
forth in Article VIII.A and Article VIII.H of the Plan.
E. PROVISIONS GOVERNING DISTRIBUTIONS.
1. | Timing and Calculation of Amounts to Be Distributed. |
Except as otherwise provided in the Plan, on the Effective Date or as soon as reasonably
practicable thereafter (or, if a Claim is not an Allowed Claim on the Effective Date, on a date
determined by the Reorganized Debtors, in their sole discretion, after such a Claim becomes an
Allowed Claim), each Holder of an Allowed Claim against the Debtors shall receive the full amount
of the distributions that the Plan provides for Allowed Claims in the applicable Class and in the
manner provided therein. In the event that any payment or act under the Plan is required to be
made or performed on a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day, but shall be deemed
to have been completed as of the required date. If and to the extent that there are Disputed
Claims, distributions on account of any such Disputed Claims shall be made pursuant to the
provisions set forth in Article VII of the Plan. Except as otherwise provided therein, Holders of
Claims shall not be entitled to interest, dividends or accruals on the distributions provided for
therein, regardless of whether such distributions are delivered on or at any time after the
Effective Date.
2. | Disbursing Agent. |
Except as otherwise provided in the Plan, all distributions under the Plan shall be made by
the Reorganized Debtors as Distribution Agent or by such other Entity designated by the Reorganized
Debtors as a Distribution Agent on the Effective Date. A Distribution Agent shall not be required
to give any bond or surety or other security for the performance of its duties unless otherwise
ordered by the Bankruptcy Court. In the event that a Distribution Agent is so ordered, all costs
and expenses of procuring any such bond or surety shall be borne by the Distribution Agent.
3. | Rights and Powers of Disbursing Agent. |
a. | Powers of the Disbursing Agent. |
The Distribution Agent shall be empowered to: (a) effect all actions and execute all
agreements, instruments and other documents necessary to perform its duties under the Plan; (b)
make all distributions contemplated thereby; (c) employ professionals to represent it with respect
to its responsibilities; and (d) exercise such other powers as may be vested in the Distribution
Agent by order of the Bankruptcy Court, pursuant to the Plan or as deemed by the Distribution Agent
to be necessary and proper to implement the provisions thereof.
In addition to the services authorized by any order of the Bankruptcy Court authorizing the
retention and employment of BMC Group, Inc. as Notice and Claims Agent for the Debtors, BMC Group,
Inc. is authorized and empowered to perform the following services: (a) assist the Debtors and
their advisors with the administrative management, reconciliation and resolution of claims; (b)
facilitate or perform distributions; and (c) assist the Debtors with all analyses and/or
collections of avoidance actions pursuant to chapter 5 of the Bankruptcy Code.
b. | Expenses Incurred On or After the Effective Date. |
Except as otherwise ordered by the Bankruptcy Court, the amount of any reasonable fees and
expenses incurred by the Distribution Agent on or after the Effective Date (including taxes) and
any reasonable compensation and expense reimbursement claims (including reasonable attorney fees
and expenses) made by the Distribution Agent shall be paid in Cash by the Reorganized Debtors.
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4. | Distributions on Account of Claims Allowed After the Effective Date. |
a. | Payments and Distributions on Disputed Claims. |
Distributions made after the Effective Date to Holders of Disputed Claims that are not Allowed
Claims as of the Effective Date but which later become Allowed Claims shall be made on a date
determined by the Reorganized Debtors, in their sole discretion, after such a Claim becomes an
Allowed Claim and shall be deemed to have been made on the Effective Date.
Notwithstanding the foregoing paragraph: (a) Disputed Administrative Claims with respect to
liabilities or obligations incurred by the Debtors in the ordinary course of business during the
Chapter 11 Cases or assumed by the Debtors prior to the Effective Date that become Allowed
Administrative Claims after the Effective Date shall be paid or performed (i) in the ordinary
course of business in accordance with applicable law or the terms of any agreement that governs
such Allowed Administrative Claim or (ii) in accordance with the course of practice or dealing
between the Debtors and such Holder with respect to such Allowed Administrative Claim; and (b)
Disputed Priority Tax Claims for which valid Proofs of Claim have been Filed on or before the
Priority Tax Claims Bar Date that become Allowed Priority Tax Claims after the Effective Date,
unless otherwise agreed, shall be paid in accordance with Article II.C of the Plan.
b. | Special Rules for Distributions to Holders of Disputed Claims. |
Notwithstanding any provision otherwise in the Plan and except as may be agreed to by the
Debtors or the Reorganized Debtors, on the one hand, and the Holder of a Disputed Claim, on the
other hand, no partial payments and no partial distributions shall be made with respect to any
Disputed Claim until all Disputed Claims held by the Holder of such Disputed Claim have become
Allowed Claims or have otherwise been resolved by settlement or Final Order.
5. | Delivery of Distributions and Undeliverable or Unclaimed Distributions. |
a. | Delivery of Distributions in General. |
Except as otherwise provided in the Plan, the Reorganized Debtors or the Distribution Agent,
as the case may be, shall make distributions to Holders of Allowed Claims at the address for each
such Holder as indicated on the Debtors books and records as of the date of any such distribution;
provided, however, that the manner of such distributions shall be determined at the
discretion of the Reorganized Debtors and the Distribution Agent; and provided,
further, that the address for each Holder of an Allowed Claim shall be deemed to be the
address set forth in any Proof of Claim Filed by that Holder.
Distributions of any notes, certificates or other instruments, if any, evidencing the
obligations of the Reorganized Debtors under the Revolving Credit Facility shall be made to the
Revolving Credit Facility Agent for the benefit of the Revolving Credit Facility Lenders, in
accordance with the terms in the Plan. Such distributions shall be deemed completed when made to
the Revolving Credit Facility Agent, and neither the Debtors nor the Reorganized Debtors shall have
any additional or further obligations to make distributions under the Plan to the Revolving Credit
Facility Lenders.
Distributions of the New Common Stock shall be made to the Indenture Trustee for the benefit
of the Holders of Senior Secured Notes Claims, in accordance with the terms of the Plan. Such
distributions shall be deemed completed when made to the Indenture Trustee, and neither the Debtors
nor the Reorganized Debtors shall have any additional or further obligations to make distributions
under the Plan to the Holders of Senior Secured Notes Claims.
b. | Minimum Distributions. |
The Reorganized Debtors shall not be required to make partial distributions or payments of
fractions of shares of New Common Stock, and such fractions shall be deemed to be zero.
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c. | Undeliverable Distributions and Unclaimed Property. |
In the event that any distribution to any Holder is returned as undeliverable, no distribution
to such Holder shall be made unless and until the Distribution Agent has determined the then
current address of such Holder, at which time such distribution shall be made to such Holder
without interest; provided, however, such distributions shall be deemed unclaimed
property under section 347(b) of the Bankruptcy Code at the expiration of six months from the
Effective Date. After such date, all unclaimed property or interests in property shall revert to
the Reorganized Debtors (notwithstanding any applicable federal or state escheat, abandoned or
unclaimed property laws to the contrary), and the Claim of any Holder to such property or Interest
in property shall be discharged and forever barred.
6. | Compliance with Tax Requirements/Allocations. |
In connection with the Plan, to the extent applicable, the Reorganized Debtors shall comply
with all tax withholding and reporting requirements imposed on them by any governmental unit, and
all distributions pursuant to the Plan shall be subject to such withholding and reporting
requirements. Notwithstanding any provision in the Plan to the contrary, the Reorganized Debtors
and the Distribution Agent shall be authorized to take all actions necessary or appropriate to
comply with such withholding and reporting requirements, including reserving sufficient cash or
taking necessary draws under the DIP Facility to generate sufficient funds to pay applicable
withholding taxes, withholding distributions pending receipt of information necessary to facilitate
such distributions or establishing any other mechanisms they believe are reasonable and
appropriate. The Reorganized Debtors reserve the right to allocate all distributions made under
the Plan in compliance with all applicable wage garnishments, alimony, child support and other
spousal awards, liens and encumbrances.
Distributions in respect of Allowed Claims shall be allocated first to the principal amount of
such Claims (as determined for federal income tax purposes) and then, to the extent the
consideration exceeds the principal amount of the Claims, to any portion of such Claims for accrued
but unpaid interest.
7. | Setoffs. |
The Debtors and the Reorganized Debtors may withhold (but may not set off except as set forth
in Article VI.G or as provided by Article VIII.I of the Plan) from the distributions called for
under the Plan on account of any Allowed Claim an amount equal to any claims, equity interests,
rights and Causes of Action of any nature that the Debtors or the Reorganized Debtors may hold
against the Holder of any such Allowed Claim. In the event that any such claims, equity interests,
rights and Causes of Action of any nature that the Debtors or the Reorganized Debtors may hold
against the Holder of any such Allowed Claim are adjudicated by Final Order or otherwise resolved,
the Debtors may, pursuant to section 553 of the Bankruptcy Code or applicable non-bankruptcy law,
set off against any Allowed Claim and the distributions to be made pursuant to the Plan on account
of such Allowed Claim (before any distribution is made on account of such Allowed Claim) the amount
of any adjudicated or resolved claims, equity interests, rights and Causes of Action of any nature
that the Debtors or the Reorganized Debtors may hold against the Holder of any such Allowed Claim,
but only to the extent of such adjudicated or resolved amount. Neither the failure to effect such
a setoff nor the allowance of any Claim under the Plan shall constitute a waiver or release by the
Debtors or the Reorganized Debtors of any such claims, equity interests, rights, and Causes of
Action that the Debtors or the Reorganized Debtors may possess against any such Holder, except as
specifically provided in the Plan.
8. | Claims Paid or Payable by Third Parties. |
a. | Claims Paid by Third Parties. |
The Debtors or the Reorganized Debtors, as applicable, shall reduce in full a Claim, and such
Claim shall be disallowed without a Claims objection having to be Filed and without any further
notice to or action, order or approval of the Bankruptcy Court, to the extent that the Holder of
such Claim receives payment in full on account of such Claim from a party that is not a Debtor or
Reorganized Debtor. To the extent a Holder of a Claim receives a distribution on account of such
Claim and receives payment from a party that is not a Debtor or a Reorganized Debtor on account of
such Claim, such Holder shall, within 14 days of receipt thereof, repay or return the distribution
to the applicable Reorganized Debtor, to the extent the Holders total recovery on account of such
Claim
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(i.e., from the third party and under the Plan) exceeds the amount of such Claim as of the
date of any such distribution under the Plan.
b. | Claims Payable by Third Parties. |
No distributions under the Plan shall be made on account of an Allowed Claim that is payable
pursuant to one of the Debtors insurance policies until the Holder of such Allowed Claim has
exhausted all remedies with respect to such insurance policy. To the extent that one or more of
the Debtors insurers agrees to satisfy in full a Claim (if and to the extent adjudicated by a
court of competent jurisdiction), then immediately upon such insurers agreement, such Claim may be
expunged without a Claims objection having to be Filed and without any further notice to or action,
order or approval of the Bankruptcy Court.
c. | Applicability of Insurance Policies. |
Except as otherwise provided in the Plan, distributions to Holders of Allowed Claims shall be
in accordance with the provisions of any applicable insurance policy. Nothing contained in the
Plan shall constitute or be deemed a waiver of any Cause of Action that the Debtors or any Entity
may hold against any other Entity, including insurers under any policies of insurance, nor shall
anything contained in the Plan constitute or be deemed a waiver by such insurers of any defenses,
including coverage defenses, held by such insurers.
F. PROCEDURES FOR RESOLVING CONTINGENT, UNLIQUIDATED AND DISPUTED CLAIMS.
1. | Prosecution of Objections to Claims. |
The Debtors, subject to the reasonable consent of the Requisite Consenting Noteholders, or the
Reorganized Debtors, as applicable, shall have the exclusive authority to File, settle, compromise,
withdraw or litigate to judgment any objections to Claims, other than Fee Claims, as permitted
under the Plan. From and after the Effective Date, the Debtors and the Reorganized Debtors may
settle or compromise any Disputed Claim without notice to or action, order or approval of the
Bankruptcy Court. The Debtors reserve all rights to resolve any Disputed Claim outside the
Bankruptcy Court under applicable governing law.
2. | Procedures Regarding Disputed Claims. |
Except as otherwise provided in the Plan (including, without limitation, by Article IV.V and
Article V.J of the Plan), Holders of Claims shall not be required to File a Proof of Claim, and no
parties should File a Proof of Claim. Instead, the Debtors intend to make distributions, as
required by the Plan, in accordance with the books and records of the Debtors; provided
that the Debtors and the Reorganized Debtors, as applicable, reserve all rights to object to any
Claim for which a Proof of Claim is Filed by the Claims Objection Bar Date.
For the avoidance of doubt, in accordance with by Article IV.V and Article V.J of the Plan:
(1) Holders of Rejection Damages Claims must File a Proof of Claim with respect to such Claims by
the Rejection Damages Claims Bar Date; and (2) Holders of Priority Tax Claims or Claims that would
otherwise be Priority Tax Claims but for the fact that such Claims arose prior to the applicable
statutory period set forth by section 507(a)(8) of the Bankruptcy Code must File a Proof of Claim
with respect to such Claims by the Priority Tax Claims Bar Date.
Unless disputed by a Holder of a Claim or otherwise provided in the Plan, the amount set forth
in the books and records of the Debtors shall constitute the amount of the Allowed Claim of such
Holder. If any such Holder of a Claim disagrees with the Debtors books and records with respect
to the Allowed amount of such Holders Claim, such Holder must so advise the Debtors in writing, in
which event the Claim will become a Disputed Claim. The Debtors intend to attempt to resolve any
such disputes consensually or through judicial means outside the Bankruptcy Court. Nevertheless,
the Debtors may, in their discretion, File with the Bankruptcy Court (or any other court of
competent jurisdiction) an objection to the allowance of any Claim or any other appropriate motion
or adversary proceeding with respect thereto, and the Debtors reserve the right to compromise,
settle, withdraw or litigate to judgment any objections to Claims for which a Proof of Claim is
Filed.
Any Debtor or Reorganized Debtor, as applicable, may, at any time, request that the Bankruptcy
Court estimate any contingent or unliquidated Claim pursuant to section 502(c) of the Bankruptcy
Code, regardless of
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whether such Debtor has previously objected to such Claim or whether the Bankruptcy Court has
ruled on any objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim at
any time during litigation concerning any objection to any Claim, including during the pendency of
any appeal related to any such objection. In the event the Bankruptcy Court estimates any
contingent or unliquidated Claim, that estimated amount will constitute either the Allowed amount
of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court. If the
estimated amount constitutes a maximum limitation on such Claim, the Debtors or the Reorganized
Debtors, as applicable, may elect to pursue any supplemental proceedings to object to any ultimate
payment on such Claim. Each of the aforementioned objection, estimation and resolution procedures
are cumulative and are not exclusive of one another.
3. | Allowance of Claims and Interests. |
Except as expressly provided in the Plan, no Claim shall be deemed Allowed unless and until
such Claim is deemed Allowed under the Bankruptcy Code and under the Plan or unless and until the
Bankruptcy Court enters a Final Order in the Chapter 11 Cases allowing such Claim under section 502
of the Bankruptcy Code. Except as expressly provided in any order entered in the Chapter 11 Cases
prior to the Effective Date (including the Confirmation Order), the Reorganized Debtors after the
Effective Date will have and retain any and all rights and defenses held by the Debtors with
respect to any Claim as of the Petition Date.
4. | No Distributions Pending Allowance. |
Notwithstanding any other provision in the Plan to the contrary, if any portion of a Claim is
a Disputed Claim, no payment or distribution provided under the Plan shall be made on account of
such Disputed Claim unless and until such Disputed Claim becomes an Allowed Claim.
5. | Distributions After Allowance. |
To the extent that a Disputed Claim ultimately becomes an Allowed Claim, distributions (if
any) shall be made to the Holder of such Allowed Claim in accordance with the provisions of the
Plan, including, without limitation, Article VI.D. The Distribution Agent shall provide to the
Holder of such Claim the distribution (if any) to which such Holder is entitled under the Plan on a
date determined by the Reorganized Debtors, in their sole discretion, after such a Claim becomes an
Allowed Claim and shall be deemed to have been made on the Effective Date, without any interest to
be paid on account of such Claim.
G. SETTLEMENT, RELEASE, INJUNCTION AND RELATED PROVISIONS.
1. | Discharge of Claims and Termination of Interests. |
Pursuant to section 1141(d) of the Bankruptcy Code, and except as otherwise specifically
provided in the Plan, the distributions, rights and treatment that are provided in the Plan shall
be in full and final satisfaction, settlement, release and discharge, effective as of the Effective
Date, of all Claims, Interests and Causes of Action of any nature whatsoever, including any
interest accrued on Claims or Interests from and after the Petition Date, whether known or unknown,
against, liabilities of, Liens on, obligations of, rights against and Interests in the Debtors or
any of their assets or properties, regardless of whether any property shall have been distributed
or retained pursuant to the Plan on account of such Claims and Interests, including demands,
liabilities and Causes of Action that arose before the Effective Date, any contingent or
non-contingent liability on account of representations or warranties issued on or before the
Effective Date and all debts of the kind specified in sections 502(g), 502(h) or 502(i) of the
Bankruptcy Code, in each case whether or not: (a) a Proof of Claim or Interest based upon such
Claim, debt, right or Interest is Filed or deemed Filed pursuant to section 501 of the Bankruptcy
Code; (b) a Claim or Interest based upon such Claim, debt, right or Interest is Allowed pursuant to
section 502 of the Bankruptcy Code; or (c) the Holder of such a Claim or Interest has accepted the
Plan. Except as otherwise provided in the Plan, any default by the Debtors or their Affiliates
with respect to any Claim or Interest that existed immediately prior to or on account of the filing
of the Chapter 11 Cases shall be deemed cured on the Effective Date. The Confirmation Order shall
be a judicial determination of the discharge of all Claims and Interests subject to the Effective
Date occurring, except as otherwise expressly provided in the Plan.
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2. | Subordinated Claims. |
The allowance, classification, and treatment of all Allowed Claims and Interests and the
respective distributions and treatments under the Plan take into account and conform to the
relative priority and rights of the Claims and Interests in each Class in connection with any
contractual, legal and equitable subordination rights relating thereto, whether arising under
general principles of equitable subordination, section 510(b) of the Bankruptcy Code or otherwise.
Pursuant to section 510 of the Bankruptcy Code, the Reorganized Debtors reserve the right to
re-classify any Allowed Claim or Interest in accordance with any contractual, legal or equitable
subordination relating thereto. Subject to the requirements of section 1129(b) of the Bankruptcy
Code (as applicable), no Holder of a Section 510(b) Claim shall receive any distribution on account
of such Section 510(b) Claim, and all Section 510(b) Claims shall be extinguished.
3. | Compromise and Settlement of Claims, Interests and Controversies. |
Pursuant to section 363 of the Bankruptcy Code and Bankruptcy Rule 9019 and in consideration
for the distributions and other benefits provided pursuant to the Plan, the provisions of the Plan
shall constitute a good faith compromise of all Claims, Interests and controversies relating to the
contractual, legal and subordination rights that a Holder of a Claim may have with respect to any
Allowed Claim or Interest or any distribution to be made on account of such Allowed Claim or
Interest. The entry of the Confirmation Order shall constitute the Bankruptcy Courts approval of
the compromise or settlement of all such Claims, Interests and controversies, as well as a finding
by the Bankruptcy Court that such compromise or settlement is in the best interests of the Debtors,
their Estates and Holders of Claims and Interests and is fair, equitable and reasonable. In
accordance with the provisions of the Plan, pursuant to section 363 of the Bankruptcy Code and
Bankruptcy Rule 9019(a), without any further notice to or action, order or approval of the
Bankruptcy Court, after the Effective Date, the Reorganized Debtors may compromise and settle
Claims against them and Causes of Action against other Entities.
4. | Debtor Release. |
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, ON THE EFFECTIVE DATE AND EFFECTIVE
AS OF THE EFFECTIVE DATE (SUCH THAT THE REORGANIZED DEBTORS WILL NOT RECEIVE ANY CLAIM OR CAUSE OF
ACTION RELEASED HEREUNDER), FOR THE GOOD AND VALUABLE CONSIDERATION PROVIDED BY EACH OF THE DEBTOR
RELEASEES AND THE THIRD PARTY RELEASEES, THE ADEQUACY OF WHICH IS HEREBY CONFIRMED, INCLUDING: (1)
THE DISCHARGE OF DEBT AND ALL OTHER GOOD AND VALUABLE CONSIDERATION PAID PURSUANT HERETO; AND (2)
THE SERVICES OF THE DEBTORS PRESENT AND FORMER OFFICERS, DIRECTORS, MANAGERS AND ADVISORS IN
FACILITATING THE EXPEDITIOUS IMPLEMENTATION OF THE RESTRUCTURING CONTEMPLATED HEREBY, EACH OF THE
DEBTORS DISCHARGE AND RELEASE AND SHALL BE DEEMED TO HAVE PROVIDED A FULL DISCHARGE AND RELEASE TO
EACH DEBTOR RELEASEE AND TO EACH THIRD PARTY RELEASEE (AND EACH SUCH DEBTOR RELEASEE AND THIRD
PARTY RELEASEE SO RELEASED SHALL BE DEEMED FULLY RELEASED AND DISCHARGED BY THE DEBTORS) AND THEIR
RESPECTIVE PROPERTY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, FROM ANY AND ALL CAUSES OF
ACTION, WHETHER KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, LIQUIDATED OR UNLIQUIDATED, CONTINGENT OR
NON-CONTINGENT, EXISTING AS OF THE EFFECTIVE DATE IN LAW, AT EQUITY, WHETHER FOR TORT, FRAUD,
CONTRACT, VIOLATIONS OF FEDERAL OR STATE SECURITIES LAWS OR OTHERWISE, ARISING FROM OR RELATED IN
ANY WAY TO THE DEBTORS, INCLUDING (1) THOSE IN ANY WAY RELATED TO THE CHAPTER 11 CASES, THE
PURCHASE, SALE, OR RESCISSION OF THE PURCHASE OR SALE OF ANY SECURITY OF THE DEBTORS OR THE
REORGANIZED DEBTORS, THE SUBJECT MATTER OF, OR THE TRANSACTIONS OR EVENTS GIVING RISE TO, ANY CLAIM
OR INTEREST THAT IS TREATED IN THE PLAN, THE BUSINESS OR CONTRACTUAL ARRANGEMENTS BETWEEN ANY
DEBTOR AND ANY THIRD PARTY RELEASEE OR DEBTOR RELEASEE, THE RESTRUCTURING OF CLAIMS AND INTERESTS
BEFORE OR DURING THE CHAPTER 11 CASES, THE NEGOTIATION, FORMULATION, OR PREPARATION OF THE PLAN AND
DISCLOSURE STATEMENT, OR RELATED AGREEMENTS, INSTRUMENT OR OTHER DOCUMENTS AND (2) THOSE THAT ANY
OF THE DEBTORS OR THE REORGANIZED DEBTORS WOULD HAVE BEEN LEGALLY ENTITLED TO
42
ASSERT IN THEIR OWN RIGHT (WHETHER INDIVIDUALLY OR COLLECTIVELY) OR THAT ANY HOLDER OF A CLAIM
OR AN EQUITY INTEREST OR OTHER ENTITY WOULD HAVE BEEN LEGALLY ENTITLED TO ASSERT ON BEHALF OF ANY
OF THE DEBTORS OR ANY OF THEIR ESTATES; PROVIDED, THAT THE FOREGOING DEBTOR RELEASE SHALL NOT
OPERATE TO WAIVE OR RELEASE ANY CAUSES OF ACTION OF ANY DEBTOR: (1) ARISING UNDER THE EXIT
FACILITY; OR (2) EXPRESSLY SET FORTH IN AND PRESERVED BY THE PLAN, THE PLAN SUPPLEMENT OR RELATED
DOCUMENTS.
ENTRY OF THE CONFIRMATION ORDER SHALL CONSTITUTE THE BANKRUPTCY COURTS APPROVAL, PURSUANT TO
BANKRUPTCY RULE 9019, OF THE DEBTOR RELEASE, WHICH INCLUDES BY REFERENCE EACH OF THE RELATED
PROVISIONS AND DEFINITIONS CONTAINED IN THE PLAN, AND FURTHER, SHALL CONSTITUTE THE
BANKRUPTCY COURTS FINDING THAT THE DEBTOR RELEASE IS: (1) IN EXCHANGE FOR THE GOOD AND VALUABLE
CONSIDERATION PROVIDED BY THE DEBTOR RELEASEES AND THE THIRD PARTY RELEASEES; (2) A GOOD FAITH
SETTLEMENT AND COMPROMISE OF THE CLAIMS RELEASED BY THE DEBTOR RELEASE; (3) IN THE BEST INTERESTS
OF THE DEBTORS AND ALL HOLDERS OF CLAIMS AND INTERESTS; (4) FAIR, EQUITABLE AND REASONABLE; (5)
GIVEN AND MADE AFTER DUE NOTICE AND OPPORTUNITY FOR HEARING; AND (6) A BAR TO ANY OF THE DEBTORS OR
THE REORGANIZED DEBTORS ASSERTING ANY CLAIM OR CAUSE OF ACTION RELEASED PURSUANT TO THE DEBTOR
RELEASE.
5. | Third Party Release. |
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, ON THE EFFECTIVE DATE AND EFFECTIVE
AS OF THE EFFECTIVE DATE, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, AS SUCH LAW MAY BE
EXTENDED OR INTERPRETED SUBSEQUENT TO THE EFFECTIVE DATE, EACH OF THE RELEASING PARTIES (REGARDLESS
OF WHETHER A RELEASING PARTY IS A THIRD PARTY RELEASEE) SHALL PROVIDE A FULL DISCHARGE AND RELEASE
(AND EACH ENTITY SO RELEASED SHALL BE DEEMED RELEASED BY THE RELEASING PARTIES) TO THE THIRD PARTY
RELEASEES AND THE DEBTOR RELEASEES AND THEIR RESPECTIVE PROPERTY FROM ANY AND ALL CLAIMS,
OBLIGATIONS, SUITS, DEMANDS, RIGHTS, AND CAUSES OF ACTION (OTHER THAN UNIMPAIRED CLAIMS, CLAIMS
RELATING TO UNIMPAIRED CLAIMS, AND THE RIGHTS TO ENFORCE THE PLAN AND THE CONTRACTS, INSTRUMENTS,
RELEASES, AND OTHER AGREEMENTS DELIVERED THEREUNDER), WHETHER KNOWN OR UNKNOWN, FORESEEN OR
UNFORESEEN, LIQUIDATED OR UNLIQUIDATED, CONTINGENT OR NON-CONTINGENT, EXISTING AS OF THE EFFECTIVE
DATE IN LAW, AT EQUITY, WHETHER FOR TORT, FRAUD, CONTRACT, VIOLATIONS OF FEDERAL OR STATE
SECURITIES LAWS OR OTHERWISE, ARISING FROM OR RELATED IN ANY WAY TO THE DEBTORS, INCLUDING THOSE IN
ANY WAY RELATED TO THE CHAPTER 11 CASES OR THE PLAN; PROVIDED, HOWEVER, THAT THE FOREGOING THIRD
PARTY RELEASE SHALL NOT OPERATE TO WAIVE OR RELEASE ANY CLAIMS OR CAUSES OF ACTION OF ANY
RELEASING PARTY: (1) ARISING UNDER THE EXIT FACILITY; OR (2) EXPRESSLY SET FORTH IN AND REINSTATED
OR PRESERVED BY THE PLAN, THE PLAN SUPPLEMENT OR RELATED DOCUMENTS.
ENTRY OF THE CONFIRMATION ORDER SHALL CONSTITUTE THE BANKRUPTCY COURTS APPROVAL, PURSUANT TO
BANKRUPTCY RULE 9019, OF THE THIRD PARTY RELEASE, WHICH INCLUDES BY REFERENCE EACH OF THE RELATED
PROVISIONS AND DEFINITIONS CONTAINED IN THE PLAN, AND, FURTHER, SHALL CONSTITUTE
THE BANKRUPTCY COURTS FINDING THAT THE THIRD PARTY RELEASE IS: (1) IN EXCHANGE FOR THE GOOD AND
VALUABLE CONSIDERATION PROVIDED BY THE DEBTOR RELEASEES AND THE THIRD PARTY RELEASEES; (2) A GOOD
FAITH SETTLEMENT AND COMPROMISE OF THE CLAIMS RELEASED BY THE THIRD PARTY RELEASE; (3) IN THE BEST
INTERESTS OF THE DEBTORS AND ALL HOLDERS OF CLAIMS AND INTERESTS; (4) FAIR, EQUITABLE AND
REASONABLE; (5) GIVEN AND MADE AFTER DUE NOTICE AND OPPORTUNITY FOR HEARING;
43
AND (6) A BAR TO ANY OF THE RELEASING PARTIES ASSERTING ANY CLAIM RELEASED PURSUANT TO THE
THIRD PARTY RELEASE.
6. | Exculpation. |
The Exculpated Parties shall neither have nor incur any liability to any Entity for any
prepetition or postpetition act taken or omitted to be taken in connection with, or related to
formulating, negotiating, preparing, disseminating, implementing, administering, confirming or
effecting the Consummation of the Plan or any contract, instrument, release or other agreement or
document created or entered into in connection with the Plan or any other prepetition or
postpetition act taken or omitted to be taken in connection with or in contemplation of the
restructuring of the Debtors; provided, however, that the foregoing Exculpation
shall have no effect on the liability of any Entity that results from any such act or omission that
is determined in a Final Order to have constituted gross negligence or willful misconduct;
provided, further, that each Exculpated Party shall be entitled to rely upon the
reasonable advice of counsel concerning his, her or its duties pursuant to or in connection with
the Plan or any other related document, instrument or agreement.
7. | Indemnification. |
Subject to the occurrence of the Effective Date, the obligations of the Debtors and
Reorganized Debtors, as the case may be, to indemnify, defend, reimburse or limit the liability of
directors, managers, officers, employees, attorneys, other professionals and agents who were
directors, managers, officers, employees, attorneys, other professionals and agents of the Debtors
or the Reorganized Debtors, as the case may be, on or after the Petition Date against any claims or
causes of action as provided in the certificates of incorporation, bylaws or other organizational
documents, each in place as of the Petition Date, or applicable state law, shall survive
confirmation of the Plan, remain unaffected thereby and not be discharged, irrespective of whether
such indemnification, defense, reimbursement or limitation is owed in connection with an event
occurring before or after the Petition Date.
8. | Injunction. |
EXCEPT AS OTHERWISE PROVIDED IN THE PLAN, ALL ENTITIES WHO HAVE HELD, HOLD OR MAY HOLD CLAIMS,
EQUITY INTERESTS, CAUSES OF ACTION OR LIABILITIES THAT: (1) HAVE BEEN DISCHARGED PURSUANT TO
ARTICLE VIII.A OF THE PLAN; (2) HAVE BEEN RELEASED PURSUANT TO ARTICLE VIII.D OF THE PLAN; (3) HAVE
BEEN RELEASED PURSUANT TO ARTICLE VIII.E OF THE PLAN; OR (4) ARE SUBJECT TO EXCULPATION PURSUANT TO
ARTICLE VIII.F OF THE PLAN, ARE PERMANENTLY ENJOINED AND PRECLUDED, FROM AND AFTER THE EFFECTIVE
DATE, FROM: (A) COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND
AGAINST ANY ENTITY SO RELEASED, DISCHARGED OR EXCULPATED (OR THE PROPERTY OR ESTATE OF ANY ENTITY
SO RELEASED, DISCHARGED OR EXCULPATED) ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY
SUCH RELEASED, DISCHARGED OR EXCULPATED CLAIMS, EQUITY INTERESTS, CAUSES OF ACTION OR LIABILITIES;
(B) ENFORCING, ATTACHING, COLLECTING OR RECOVERING BY ANY MANNER OR MEANS ANY JUDGMENT, AWARD,
DECREE OR ORDER AGAINST ANY ENTITY SO RELEASED, DISCHARGED OR EXCULPATED (OR THE PROPERTY OR ESTATE
OF ANY ENTITY SO RELEASED, DISCHARGED OR EXCULPATED) ON ACCOUNT OF OR IN CONNECTION WITH OR WITH
RESPECT TO ANY SUCH RELEASED, DISCHARGED OR EXCULPATED CLAIMS, EQUITY INTERESTS, CAUSES OF ACTION,
OR LIABILITIES; (C) CREATING, PERFECTING OR ENFORCING ANY LIEN, CLAIM OR ENCUMBRANCE OF ANY KIND
AGAINST ANY ENTITY SO RELEASED, DISCHARGED OR EXCULPATED (OR THE PROPERTY OR ESTATE OF ANY ENTITY
SO RELEASED, DISCHARGED OR EXCULPATED) ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY
SUCH RELEASED, DISCHARGED OR EXCULPATED CLAIMS, EQUITY INTERESTS, CAUSES OF ACTION OR LIABILITIES;
(D) ASSERTING ANY RIGHT OF SETOFF OR SUBROGATION OF ANY KIND AGAINST ANY OBLIGATION DUE FROM ANY
ENTITY SO RELEASED, DISCHARGED OR EXCULPATED (OR THE PROPERTY OR ESTATE OF ANY ENTITY SO RELEASED,
DISCHARGED OR EXCULPATED) ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT TO ANY SUCH RELEASED,
DISCHARGED OR EXCULPATED CLAIMS,
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EQUITY INTERESTS, CAUSES OF ACTION OR LIABILITIES UNLESS SUCH HOLDER HAS FILED A MOTION
REQUESTING THE RIGHT TO PERFORM SUCH SETOFF ON OR BEFORE THE CONFIRMATION DATE, AND NOTWITHSTANDING
ANY INDICATION IN A PROOF OF CLAIM OR INTEREST OR OTHERWISE THAT SUCH HOLDER ASSERTS, HAS OR
INTENDS TO PRESERVE ANY RIGHT OF SETOFF PURSUANT TO SECTION 553 OF THE BANKRUPTCY CODE OR
OTHERWISE; AND (E) COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING OF ANY
KIND AGAINST ANY ENTITY SO RELEASED, DISCHARGED OR EXCULPATED (OR THE PROPERTY OR ESTATE OF ANY
ENTITY SO RELEASED, DISCHARGED OR EXCULPATED) ON ACCOUNT OF OR IN CONNECTION WITH OR WITH RESPECT
TO ANY SUCH RELEASED, DISCHARGED OR EXCULPATED CLAIMS, EQUITY INTERESTS, CAUSES OF ACTION OR
LIABILITIES RELEASED OR SETTLED PURSUANT TO THE PLAN.
9. | Setoffs. |
Except as otherwise provided in the Plan, each Reorganized Debtor pursuant to the Bankruptcy
Code (including section 553 of the Bankruptcy Code), applicable non-bankruptcy law or as may be
agreed to by the Holder of a Claim or Interest, may set off against any Allowed Claim (other than
DIP Facility Claims) or Interest and the distributions to be made pursuant to the Plan on account
of such Allowed Claim or Interest (before any distribution is made on account of such Allowed Claim
or Interest), any Claims, rights and Causes of Action of any nature that such Debtor or Reorganized
Debtor, as applicable, may hold against the Holder of such Allowed Claim or Interest, to the extent
such Claims, rights or Causes of Action against such Holder have not been otherwise compromised or
settled on or prior to the Effective Date (whether pursuant to the Plan or otherwise);
provided, however, that neither the failure to effect such a setoff nor the
allowance of any Claim or Interest pursuant to the Plan shall constitute a waiver or release by
such Reorganized Debtor of any such Claims, rights and Causes of Action that such Reorganized
Debtor may possess against such Holder.
10. | Release of Liens. |
Except as otherwise provided in the Plan or in any contract, instrument, release or other
agreement or document created pursuant to the Plan, on the Effective Date and concurrently with the
applicable distributions made pursuant to the Plan and, in the case of a Secured Claim,
satisfaction in full of the portion of the Secured Claim that is Allowed as of the Effective Date,
all mortgages, deeds of trust, Liens, pledges or other security interests against any property of
the Estates shall be fully released and discharged, and all of the right, title and interest of any
Holder of such mortgages, deeds of trust, Liens, pledges or other security interests shall revert
to the Reorganized Debtor and its successors and assigns.
H. ALLOWANCE AND PAYMENT OF CERTAIN ADMINISTRATIVE CLAIMS.
1. | Professional Fee Escrow Account. |
On the Effective Date, the Reorganized Debtors shall fund the Professional Fee Escrow Account
with Cash equal to the Professional Fee Reserve Amount for all Professionals. The Professional Fee
Escrow Account shall be maintained in trust solely for the Professionals with respect to unpaid
fees or expenses or for whom fees or expenses have been held back pursuant to the Interim
Compensation Order. Such funds shall not be property or be deemed property of the Reorganized
Debtors. The Reorganized Debtors shall cause Accrued Professional Compensation to be paid in Cash
to such Professionals from the Professional Fee Escrow Account when such Claims are Allowed by a
Bankruptcy Court order; provided that the Debtors or the Reorganized Debtors liability
for Accrued Professional Compensation shall not be limited nor be deemed to be limited to the funds
available from the Professional Fee Escrow Account. When all Allowed Fee Claims have been paid in
full, amounts remaining in the Professional Fee Escrow Account, if any, shall be paid to the
Reorganized Debtors.
2. | Professional Fee Reserve Amount. |
On or before the Effective Date, the Professionals shall estimate their Accrued Professional
Compensation prior to and as of the Confirmation Date and shall deliver such estimate to the
Debtors and the Requisite Consenting Noteholders. If a Professional does not provide an estimate,
the Reorganized Debtors may estimate the unpaid fees and expenses of such Professional. The total
amount so estimated as of the Confirmation Date shall comprise the
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Professional Fee Reserve Amount; provided, however, that such estimate shall
not be considered an admission or limitation with respect to the fees and expenses of such
Professional.
3. | Post Confirmation Date Fees and Expenses. |
Except as otherwise specifically provided in the Plan, from and after the Confirmation Date,
the Reorganized Debtors shall, in the ordinary course of business and without any further notice to
or action, order or approval of the Bankruptcy Court, pay in Cash the reasonable legal,
professional or other fees and expenses related to implementation and Consummation of the Plan
incurred by the Debtors or the Reorganized Debtors, as the case may be. Upon the Confirmation
Date, any requirement that Professionals comply with sections 327 through 331 and 1103 of the
Bankruptcy Code in seeking retention or compensation for services rendered after such date shall
terminate, and the Reorganized Debtors may employ and pay any Professional for services rendered or
expenses incurred after the Confirmation Date in the ordinary course of business without any
further notice to any party or action, order, or approval of the Bankruptcy Court;
provided, however, that counsel to the Ad Hoc Noteholders Committee shall receive
notice before any payments being made to Professionals for services rendered or expenses incurred
after the Confirmation Date through the Effective Date.
4. | Payment of Fees and Expenses of the Ad Hoc Noteholders Committee Professionals. |
Notwithstanding any provision in the Plan to the contrary, Debtors or Reorganized Debtors
shall promptly pay in Cash in full the Noteholders Professional Fees including the reasonable and
documented fees and expenses of Skadden, Arps, Slate, Meagher & Flom LLP and FocalPoint Securities,
LLC in their capacities as professional advisors to the Ad Hoc Noteholders Committee, and the legal
counsel and financial advisor of the Indenture Trustee and the Collateral Agent, whether or not the
Plan is ultimately consummated. All amounts distributed and paid to the foregoing parties pursuant
to the Plan shall not be subject to setoff, recoupment, reduction or allocation of any kind.
I. CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN.
1. | Conditions Precedent to Confirmation. |
It shall be a condition to Confirmation of the Plan that the following conditions shall have
been satisfied or waived pursuant to the provisions of Article X.C of the Plan:
| the Disclosure Statement in form and substance acceptable to the Debtors and the Requisite Consenting Noteholders shall have been approved by the Bankruptcy Court; and | ||
| the Bankruptcy Court shall have entered the Confirmation Order in form and substance acceptable to the Debtors and the Requisite Consenting Noteholders. |
2. | Conditions Precedent to Consummation. |
It shall be a condition to Consummation of the Plan that the following conditions shall have
been satisfied or waived pursuant to the provisions of Article X.C of the Plan:
| the Confirmation Order (a) shall have become a Final Order in form and substance acceptable to the Debtors and the Requisite Consenting Noteholders and (b) shall include a finding by the Bankruptcy Court that the New Common Stock and Warrants to be issued on the Effective Date will be authorized and exempt from registration under applicable securities laws pursuant to section 1145 of the Bankruptcy Code, and there shall have been no entry of any other Bankruptcy Court order prohibiting any transactions contemplated by the Plan from occurring; | ||
| the Exit Facility Agreement, which shall be in form and substance acceptable to the Debtors and the Requisite Consenting Noteholders, shall have been executed and delivered by all of the Entities that are parties thereto, and all conditions precedent to the consummation thereof shall have been waived or satisfied in accordance with the terms thereof; |
46
| the Plan, including any amendments, modifications, or supplements thereto shall be acceptable to the Debtors and the Requisite Consenting Noteholders; | ||
| the Plan Supplement, including any amendments, modifications, or supplements thereto shall be acceptable to the Debtors and the Requisite Consenting Noteholders; | ||
| all actions, documents, certificates and agreements necessary to implement this Plan shall be in form and substance acceptable to the Debtors and the Requisite Consenting Noteholders and shall have been effected or executed and delivered to the required parties and, to the extent required, Filed with the applicable governmental units in accordance with applicable laws; | ||
| the Bankruptcy Court shall have entered the Confirmation Order, which shall authorize the rejection by the Debtors of the Unexpired Leases and Executory Contracts set forth in the Plan Supplement; and | ||
| all conditions precedent in the Restructuring Support Agreement shall have been satisfied or waived in accordance with the terms thereof. |
3. | Waiver of Conditions. |
The conditions to Confirmation of the Plan and to Consummation of the Plan set forth in
Article X of the Plan may be waived by the Debtors (with the consent of the Requisite Consenting
Noteholders) without notice to or action, approval or order of the Bankruptcy Court.
4. | Effective Date. |
The Effective Date shall be the first Business Day upon which all of the conditions specified
in Article X.B of the Plan have been satisfied or waived.
5. | Effect of Non-Occurrence of Conditions to Consummation. |
If the Consummation of the Plan does not occur, the Plan shall be null and void in all
respects, and nothing contained in the Plan or the Disclosure Statement shall: (1) constitute a
waiver or release of any Claims by or Claims against or Equity Interests in the Debtors; (2)
prejudice in any manner the rights of the Debtors, any Holders or any other Entity; or (3)
constitute an admission, acknowledgment, offer or undertaking by the Debtors, any Holders or any
other Entity in any respect.
J. MODIFICATION, REVOCATION OR WITHDRAWAL OF THE PLAN.
1. | Modification and Amendments. |
Except as otherwise specifically provided in the Plan, the Debtors reserve the right to modify
the Plan as to material terms and seek Confirmation consistent with the Bankruptcy Code and, as
appropriate, not re-solicit votes on such modified Plan; provided, however, that such modifications
shall be acceptable to the Requisite Consenting Noteholders. Subject to certain restrictions and
requirements set forth in section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019 and those
restrictions on modifications set forth in the Plan, the Debtors expressly reserve their rights to
alter, amend or modify materially the Plan with respect to such Debtor, one or more times, after
Confirmation and, to the extent necessary, may initiate proceedings in the Bankruptcy Court to so
alter, amend or modify the Plan, remedy any defect or omission or reconcile any inconsistencies in
the Plan, the Disclosure Statement or the Confirmation Order, in such matters as may be necessary
to carry out the purposes and intent of the Plan; provided, however, that such alterations,
amendments, modifications, remedies or reconciliations shall be reasonably acceptable to the
Requisite Consenting Noteholders. Any such modification or supplement shall be considered a
modification of the Plan and shall be made in accordance with Article XI of the Plan.
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2. | Effect of Confirmation on Modifications. |
Entry of a Confirmation Order shall mean that all modifications or amendments to the Plan
occurring after the solicitation thereof are approved pursuant to section 1127(a) of the Bankruptcy
Code and do not require additional disclosure or re-solicitation under Bankruptcy Rule 3019.
3. | Revocation or Withdrawal of the Plan. |
The Debtors reserve the right to revoke or withdraw the Plan prior to the Confirmation Date,
subject to the consent of the Requisite Consenting Noteholders; provided, that such consent
shall not be required if the Debtors determine that proceeding with Confirmation of the Plan would
be inconsistent with the exercise of their fiduciary duties under applicable law. If the Debtors
revoke or withdraw the Plan, or if Confirmation or Consummation does not occur, then: (1) the Plan
shall be null and void in all respects; (2) any settlement or compromise embodied in the Plan
(including the fixing or limiting to an amount certain of any Claim or Interest or Class of Claims
or Interests), assumption or rejection of Executory Contracts or Unexpired Leases effected by the
Plan and any document or agreement executed pursuant to the Plan shall be deemed null and void; and
(3) nothing contained in the Plan shall: (a) constitute a waiver or release of any Claims or
Interests; (b) prejudice in any manner the rights of such Debtor or any other Entity; or (c)
constitute an admission, acknowledgement, offer or undertaking of any sort by such Debtor or any
other Entity.
K. RETENTION OF JURISDICTION.
Notwithstanding the entry of the Confirmation Order and the occurrence of the Effective Date,
on and after the Effective Date, the Bankruptcy Court shall retain such jurisdiction over the
Chapter 11 Cases and all matters, arising out of or related to the Chapter 11 Cases and the Plan
including jurisdiction to:
1. | allow, disallow, determine, liquidate, classify, estimate or establish the priority, Secured or unsecured status or amount of any Claim or Interest, including the resolution of any request for payment of any Administrative Claim and the resolution of any and all objections to the Secured or unsecured status, priority, amount or allowance of Claims or Interests; | ||
2. | decide and resolve all matters related to the granting and denying, in whole or in part, any applications for allowance of compensation or reimbursement of expenses to Professionals authorized pursuant to the Bankruptcy Code or the Plan; | ||
3. | resolve any matters related to: (a) the assumption, assumption and assignment or rejection of any Executory Contract or Unexpired Lease to which a Debtor is party or with respect to which a Debtor may be liable in any manner and to hear, determine and, if necessary, liquidate any Claims arising therefrom, including Rejection Damages Claims, Cure Claims pursuant to section 365 of the Bankruptcy Code or any other matter related to such Executory Contract or Unexpired Lease; (b) any potential contractual obligation under any Executory Contract or Unexpired Lease that is assumed; (c) the Reorganized Debtors amending, modifying or supplementing, after the Effective Date, pursuant to Article V of the Plan, any Executory Contracts or Unexpired Leases to the list of Executory Contracts and Unexpired Leases to be assumed or rejected or otherwise; and (d) any dispute regarding whether a contract or lease is or was executory or expired. | ||
4. | ensure that distributions to Holders of Allowed Claims and Interests are accomplished pursuant to the provisions of the Plan; | ||
5. | adjudicate, decide or resolve any motions, adversary proceedings, contested or litigated matters and any other matters, and grant or deny any applications involving a Debtor that may be pending on the Effective Date; | ||
6. | adjudicate, decide or resolve any and all matters related to Causes of Action; | ||
7. | adjudicate, decide or resolve any and all matters related to section 1141 of the Bankruptcy Code; |
48
8. | enter and implement such orders as may be necessary or appropriate to execute, implement or consummate the provisions of the Plan and all contracts, instruments, releases, indentures and other agreements or documents created in connection with the Plan or the Disclosure Statement, except as otherwise provided in the Confirmation Order; | ||
9. | enter and enforce any order for the sale of property pursuant to sections 363, 1123 or 1146(a) of the Bankruptcy Code; | ||
10. | resolve any cases, controversies, suits, disputes or Causes of Action that may arise in connection with the Consummation, interpretation or enforcement of the Plan or any Entitys obligations incurred in connection with the Plan; | ||
11. | issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any Entity with Consummation or enforcement of the Plan; | ||
12. | resolve any cases, controversies, suits, disputes or Causes of Action with respect to the discharge, releases, injunctions, exculpations and other provisions contained in Article VIII of the Plan and enter such orders as may be necessary or appropriate to implement such releases, injunctions and other provisions; | ||
13. | resolve any cases, controversies, suits, disputes or Causes of Action with respect to the repayment or return of distributions and the recovery of additional amounts owed by the Holder of a Claim or Interest for amounts not timely repaid pursuant to Article VI.H.1 of the Plan; | ||
14. | enter and implement such orders as are necessary or appropriate if the Confirmation Order is for any reason modified, stayed, reversed, revoked or vacated; | ||
15. | determine any other matters that may arise in connection with or relate to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, indenture or other agreement or document created in connection with the Plan or the Disclosure Statement; | ||
16. | adjudicate any and all disputes arising from or relating to distributions under the Plan; | ||
17. | consider any modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any Bankruptcy Court order, including the Confirmation Order; | ||
18. | determine requests for the payment of Claims and Interests entitled to priority pursuant to section 507 of the Bankruptcy Code; | ||
19. | hear and determine disputes arising in connection with the interpretation, implementation or enforcement of the Plan, or the Confirmation Order, including disputes arising under agreements, documents or instruments executed in connection with the Plan; | ||
20. | hear and determine matters concerning state, local and federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy Code; | ||
21. | hear and determine all disputes involving the existence, nature or scope of the Debtors discharge, including any dispute relating to any liability arising out of the termination of employment or the termination of any employee or retiree benefit program, regardless of whether such termination occurred prior to or after the Effective Date; | ||
22. | enforce all orders previously entered by the Bankruptcy Court; | ||
23. | hear any other matter not inconsistent with the Bankruptcy Code; and | ||
24. | enter an order concluding or closing the Chapter 11 Cases. |
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L. MISCELLANEOUS PROVISIONS.
1. | Immediate Binding Effect. |
Subject to Article X.B of the Plan and notwithstanding Bankruptcy Rules 3020(e), 6004(h) or
7062 or otherwise, upon the occurrence of the Effective Date, the terms of the Plan and the Plan
Supplement shall be immediately effective and enforceable and deemed binding upon the Debtors, the
Reorganized Debtors, any and all Holders of Claims or Interests (irrespective of whether such
Claims or Interests are deemed to have accepted the Plan), all Entities that are parties to or are
subject to the settlements, compromises, releases, discharges and injunctions described in the
Plan, each Entity acquiring property under the Plan and any and all non-Debtor parties to Executory
Contracts and Unexpired Leases with the Debtors.
2. | Additional Documents. |
On or before the Effective Date, the Debtors may File with the Bankruptcy Court such
agreements and other documents, which shall be in form and substance acceptable to the Requisite
Consenting Noteholders, as may be necessary or appropriate to effectuate and further evidence the
terms and conditions of the Plan. The Debtors or Reorganized Debtors, as applicable, and all
Holders of Claims or Interests receiving distributions pursuant to the Plan and all other parties
in interest shall, from time to time, prepare, execute and deliver any agreements or documents and
take any other actions as the Debtors or the Reorganized Debtors, as applicable, may deem necessary
or advisable to effectuate the provisions and intent of the Plan.
3. | Payment of Statutory Fees. |
All fees payable pursuant to section 1930(a) of the Judicial Code shall be paid for each
quarter (including any fraction thereof) until the Chapter 11 Cases are converted, dismissed or
closed, whichever occurs first.
4. | Dissolution of Committees. |
On the Effective Date, the Creditors Committee (if any) and any and all other Committees (if
any) shall dissolve, and members thereof shall be released and discharged from all rights and
duties from or related to the Chapter 11 Cases.
5. | Reservation of Rights. |
Except as expressly set forth in the Plan, the Plan shall have no force or effect unless the
Bankruptcy Court shall enter the Confirmation Order. Neither the Plan, any statement or provision
contained in the Plan nor any action taken or not taken by any Debtor with respect to the Plan, the
Disclosure Statement or the Plan Supplement shall be or shall be deemed to be an admission or
waiver of any rights of any Debtor with respect to the Holders of Claims or Interests prior to the
Effective Date.
6. | Successors and Assigns. |
The rights, benefits and obligations of any Entity named or referred to in the Plan shall be
binding on, and shall inure to the benefit of any heir, executor, administrator, successor or
assign, affiliate, officer, director, manager, agent, representative, attorney, beneficiaries or
guardian, if any, of each Entity.
7. | Service of Documents. |
After the Effective Date, any pleading, notice or other document required by the Plan to be
served on or delivered to the Reorganized Debtors shall be served on:
Reorganized Debtors | Counsel to the Reorganized Debtors | |
InSight Health Services Holdings Corp.
|
Kirkland & Ellis LLP | |
26250 Enterprise Court, Suite 100
|
300 North LaSalle Street | |
Lake Forest, California 92630
|
Chicago, Illinois | |
Attn: Legal Department
|
Attn: James H.M. Sprayregen, P.C.; | |
Ryan Blaine Bennett; and | ||
Paul Wierbicki |
50
After the Effective Date, the Debtors may, in their sole discretion, notify Entities that, in
order to continue to receiving documents pursuant to Bankruptcy Rule 2002, such Entities must File
a renewed request to receive documents pursuant to Bankruptcy Rule 2002. After the Effective Date,
the Reorganized Debtors are authorized to limit the list of Entities receiving documents pursuant
to Bankruptcy Rule 2002 to those Entities who have Filed such renewed requests.
8. | Term of Injunctions or Stays. |
Unless otherwise provided in the Plan or in the Confirmation Order, all injunctions or stays
in effect in the Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy Code or any
order of the Bankruptcy Court, and extant on the Confirmation Date (excluding any injunctions or
stays contained in the Plan or the Confirmation Order) shall remain in full force and effect until
the Effective Date. All injunctions or stays contained in the Plan or the Confirmation Order shall
remain in full force and effect in accordance with their terms.
9. | Entire Agreement. |
Except as otherwise indicated, the Plan and the Plan Supplement supersede all previous and
contemporaneous negotiations, promises, covenants, agreements, understandings and representations
on such subjects, all of which have become merged and integrated into the Plan.
10. | Nonseverability of Plan Provisions. |
If, prior to Confirmation, any term or provision of the Plan is held by the Bankruptcy Court
or otherwise to be invalid, void or unenforceable, the Bankruptcy Court shall have the power to
alter and interpret such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held to be invalid, void
or unenforceable, and such term or provision shall then be applicable as altered or interpreted.
Notwithstanding any such holding, alteration or interpretation, the remainder of the terms and
provisions of the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order
shall constitute a judicial determination and shall provide that each term and provision of the
Plan, as it may have been altered or interpreted in accordance with the foregoing, is: (1) valid
and enforceable pursuant to its terms; (2) integral to the Plan and may not be deleted or modified
without the Debtors or Reorganized Debtors consent and the reasonable consent of the Requisite
Consenting Noteholders; and (3) nonseverable and mutually dependent.
11. | Conflicts. |
Except as set forth in the Plan, to the extent that any provision of the Disclosure Statement
or any other order (other than the Confirmation Order) referenced in the Plan (or any exhibits,
schedules, appendices, supplements, or amendments to any of the foregoing), conflict with or are in
any way inconsistent with any provision of the Plan, the Plan shall govern and control; provided,
however, that if there is a conflict between this Plan and a Plan Supplement document, the Plan
Supplement document shall govern and control.
ARTICLE V
SOLICITATION AND VOTING PROCEDURES
The following summarizes briefly the procedures to accept or reject the Plan. Holders of
Claims and Interests are encouraged to review the relevant provisions of the Bankruptcy Code and/or
to consult their own attorneys.
51
A. | THE SOLICITATION PACKAGE. |
The following materials constitute the Solicitation Package:
| the appropriate Ballots or Master Ballots and applicable Voting Instructions; | ||
| a pre-addressed, postage pre-paid return envelope; and | ||
| this Disclosure Statement with all exhibits, including the Plan, and any other supplements or amendments to these documents. |
The voting Class, Class 4, entitled to vote to accept or reject the Plan shall be served by
electronic mail or with paper copies of this Disclosure Statement with all exhibits, including the
Plan. Any party who desires additional paper copies of these documents may request copies from
the Notice and Claims Agent by writing to BMC Group, Inc., P.O. Box 3020, Chanhassen, MN
55317-3020, or calling (888) 909-0100. All parties entitled to vote to accept or reject the
Plan shall receive by electronic mail, or a paper copy of, each appropriate Ballot or Master
Ballot.
The Plan Supplement will be Filed no later than five (5) business days prior to the
Confirmation Hearing or such later date as may be approved by the Bankruptcy Court. The Plan
Supplement will include the following: (a) to the extent known, the identity of the members of the
New Board and the nature and compensation for any member of the New Board who is an insider under
section 101(31) of the Bankruptcy Code; (b) a list of Executory Contracts and Unexpired Leases to
be rejected; (c) a schedule of Causes of Action to be retained by the Reorganized Debtors; (d) the
Corporate Governance Documents; (e) the Exit Facility Agreement or a description of the materials
terms of the Exit Facility; and (f) the Warrant Agreement. The Debtors, subject to the consent of
the Requisite Consenting Noteholders, may subsequently amend, supplement, modify or add additional
items to the Plan Supplement, which will also be Filed.
B. | VOTING DEADLINE. |
The period during which Ballots and Master Ballots with respect to the Plan will be accepted
by the Debtors will terminate at 5:00 p.m. (prevailing Eastern Time) on December 27, 2010, unless
the Debtors, in their sole discretion, extends the date until which Ballots and Master Ballots will
be accepted; provided, that Holders of Claims or Equity Interests who cast a Ballot prior to
the time of filing of any of the Debtors chapter 11 petitions shall not be entitled to change
their vote or cast new Ballots after the Chapter 11 Cases are commenced. Except to the extent
the Debtors so determine or as permitted by the Bankruptcy Court, Ballots and Master Ballots that
are received after the Voting Deadline will not be counted or otherwise used by the Debtor in
connection with the Debtors request for Confirmation of the Plan (or any permitted modification
thereof).
The Debtors reserve the absolute right, in consultation with the Requisite Consenting
Noteholders, at any time or from time to time, to extend the period of time (on a daily basis, if
necessary) during which Ballots and Master Ballots will be accepted for any reason, including
determining whether or not the requisite number of acceptances have been received, by making a
public announcement of such extension no later than the first Business Day next succeeding the
previously announced Voting Deadline. The Debtors will give notice of any such extension in a
manner deemed reasonable to the Debtors in its discretion. There can be no assurance that the
Debtors will exercise its right to extend the Voting Deadline.
C. | VOTING INSTRUCTIONS. |
Only the Holders of Allowed Class 4 Senior Secured Notes Claims are entitled to vote to accept
or reject the Plan, and they may do so by completing the appropriate Ballots or Master Ballots and
returning them by facsimile, electronic mail, or in the envelope provided. The Ballots and Master
Ballots will clearly indicate the appropriate return address (or, in the case of the Beneficial
Holders of the Debtors Senior Secured Notes who hold their position through a nominee (the
Nominee) and received the Ballots from Nominees, such Beneficial Holders will be
instructed to comply with the return instructions provided by the Nominee). It is important to
follow the specific instructions provided on each Ballot or Master Ballot. Ballots and Master
Ballots should be sent to the Notice and Claims Agent on or before the Voting Deadline as indicated
in the chart below.
52
The Debtors are providing the Solicitation Package to Holders of Senior Secured Notes Claims
or Nominees whose names appear as of the Voting Record Date in the records maintained by the
Debtors.
The Debtors, have engaged BMC as the Notice and Claims Agent to assist in the balloting and
tabulation process. The Notice and Claims Agent will process and tabulate Ballots and Master
Ballots for each Class entitled to vote to accept or reject the Plan and will File the Voting
Report as soon as practicable after the Petition Date.
The deadline by which the Notice and Claims Agent must receive your Ballot or Master Ballot is
5:00 p.m. (prevailing Eastern Time) on December 27, 2010.
BALLOTS AND MASTER BALLOTS
1. | Ballots and Master Ballots must be actually received by the Notice and Claims Agent by the Voting Deadline. | ||
2. | Sign and return the Ballot or Master Ballot by facsimile to (310) 640-8071 or by electronic mail to insightballots@bmcgroup.com. | ||
3. | Please also send your original, completed Ballot or Master Ballot in the return envelope provided via overnight delivery. | ||
4. | Ballots to be returned directly to the Notice and Claims Agent may also be sent by First Class Mail, Overnight Courier or Personal Delivery to: |
BMC Group, Inc.,
P.O. Box 3020, Chanhassen, MN 55317-3020
P.O. Box 3020, Chanhassen, MN 55317-3020
If you have any questions on the procedures for voting on the Plan, please call
the Notice and Claims Agent at the following telephone number:
(888) 909-0100
Any Ballot or Master Ballot that is properly executed, but which does not clearly indicate an
acceptance or rejection of the Plan or which indicates both an acceptance and a rejection of the
Plan, shall not be counted.
All Ballots are accompanied by return envelopes. It is important to follow the specific
instructions provided on each Ballot.
1. | Note to Class 4 Claim Holders. |
a. | Certification. |
By signing and returning a Ballot or Master Ballot, each Holder of a Senior Secured Notes
Claim in Class 4 will be certifying to the Bankruptcy Court and the Debtors that, among other
things:
| the Holder has received and reviewed a copy of the Disclosure Statement and Solicitation Package and acknowledges that the solicitation is being made pursuant to the terms and conditions set forth therein; | ||
| the Holder is (i) an Accredited Investor, as that term is defined by Rule 501 of Regulation D of the Securities Act; or (ii) that such Holder has sufficient knowledge and experience in |
53
financial business matters so as to be capable of evaluating the merits and risks of participating in the Plan and is capable of bearing the economic risks of such investment, including a complete loss of its investment; |
| (i) such Holder and/or legal and financial advisors acting on its behalf has had the opportunity to ask questions of, and receive answers from, the Debtors concerning the terms of the Plan, the businesses of the Debtors and other related matters, (ii) to the best of the Holders knowledge, the Debtors have made available to such Holder or its agents all documents and information relating to the Plan and related matters reasonably requested by or on behalf of such Holder and (iii) except for information provided by the Debtors in the Disclosure Statement and the Plan, such Holder has not relied on any statements made or other information received from any person with respect to the Plan; and (iv) acknowledging that the New Common Stock being offered pursuant to the Plan is not being offered pursuant to a registration statement filed with the SEC and representing that any such securities will be acquired for its own account and not with a view to any distribution of such securities in violation of the Securities Act; | ||
| the Holder has cast the same vote with respect to all Claims in Class 4; and | ||
| no other Ballots or Master Ballots with respect to the same Claim have been cast, or, if any other Ballots or Master Ballots have been cast with respect to such Claim, then any such Ballots or Master Ballots are thereby revoked. |
b. | Beneficial Holders. |
A Beneficial Holder holding Senior Secured Notes Claims as a record Holder in its own name or
who has directly received a Ballot from the Notice and Claims Agent should vote on the Plan by
completing and signing the enclosed applicable Ballot and returning it directly to the Notice and
Claims Agent on or before the Voting Deadline using the enclosed self-addressed, post pre-paid
return envelope.
Any Beneficial Holder holding Senior Secured Notes Claims in a street name through a Nominee
and who has not directly received the Ballot from the Notice and Claims Agent may vote on the Plan
by one of the following two methods (as selected by such Beneficial Holders Nominee):
| Complete and sign the enclosed Beneficial Holder Ballot. Return the Ballot to the Nominee as promptly as possible and in sufficient time to allow such Nominee to process the Ballot and return it to BMC on a Master Ballot by the Voting Deadline. If no self-addressed, postage pre-paid envelope was enclosed for this purpose, the Nominee must be contacted for instructions. | ||
| Complete and sign the pre-validated Ballot (as described below) provided to the Holder by the Nominee. The Holder will then return the pre-validated Ballot to BMC by the Voting Deadline using the enclosed self-addressed, postage pre-paid envelope. |
Any Ballot returned to a Nominee by a Beneficial Holder described in this section will not be
counted for purposes of acceptance or rejection of the Plan until such Nominee properly completes
and delivers to BMC that Ballot (properly validated) or a Master Ballot that reflects the vote of
such Beneficial Holder.
If any Beneficial Holder owns Senior Secured Notes through more than one Nominee, such
Beneficial Holder should execute a separate Ballot for those Senior Secured Notes Claims held
through any one Nominee, unless otherwise approved by the Debtors. Each such separate Ballot must
indicate the name of the particular Nominee through which Senior Secured Notes Claims being voted
by that Ballot are held, the amount of Senior Secured Notes Claims held through such Nominee and be
returned to the Notice and Claims Agent. The Notice and Claims Agent may validate the Ballot with
the Nominee and by returning an executed Ballot, the Beneficial Holder directs the Nominee to
provide any information requested to make such validation.
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c. | Nominees. |
A Nominee that on the Voting Record Date is the registered Holder of Senior Secured Notes
Claims for a Beneficial Holder should obtain the vote of such Beneficial Holder of such Senior
Secured Notes unless the Notice and Claims Agent distributes the Ballot for any such Holder
directly to such Holder.
(i) | Pre-validated Ballots. |
A Nominee may pre-validate a Ballot by: (a) signing the Ballot; (b) indicating on the Ballot
the name of the registered Holder and the amount of Senior Secured Notes Claims held by the
Nominee; and (c) forwarding such Ballot together with the Solicitation Package and other materials
requested to be forwarded, to such Beneficial Holder for voting. The Beneficial Holder must then
review and complete the information requested in the Ballot, and return the Ballot directly to BMC
in the pre-addressed, postage pre-paid envelope so that it is received by BMC before the Voting
Deadline. A list of the Beneficial Holders to whom pre-validated Ballots were delivered should
be maintained by the Nominee for inspection for at least one year from the Voting Deadline.
(ii) | Master Ballots. |
A Nominee may obtain the votes of Beneficial Holders by forwarding to the Beneficial Holders
the unsigned Ballots, together with the Disclosure Statement, a return envelope provided by, and
addressed to, the Nominee, and other materials requested to be forwarded. Each such Beneficial
Holder must then indicate its vote on the Ballot, review and complete the information requested in
the Ballot, execute the Ballot, and return the Ballot to the Nominee. After collecting the
Ballots, the Nominee should, in turn, complete a Master Ballot compiling the votes and other
information from the Ballot, execute the Master Ballot, and deliver the Master Ballot to BMC so
that it is received by BMC before the Voting Deadline. All Ballots returned by Beneficial Holders
should either be forwarded to BMC (along with the Master Ballot) or be retained by Nominees for
inspection for at least one year from the Voting Deadline.
Each Nominee should advise its Beneficial Holders to return their Ballots to the Nominee by a
date calculated by the Nominee to allow it to prepare and return the Master Ballot to BMC so that
it is received by BMC before the Voting Deadline.
D. | VOTING TABULATION. |
The Ballot and/or Master Ballot does not constitute, and shall not be deemed to be, a Proof of
Claim or an assertion or admission of a Claim or Equity Interest. Only Holders of Claims in the
voting Class shall be entitled to vote with regard to such Claims.
Unless the Debtors decide otherwise, Ballots and Master Ballots received after the Voting
Deadline may not be counted. Except as otherwise provided in the Solicitation Procedures, a Ballot
or Master Ballot will be deemed delivered only when the Notice and Claims Agent actually receives
the original executed Ballot or Master Ballot actually receives the executed Ballot or Master
Ballot by facsimile or electronic mail as instructed in the Voting Instructions. No Ballot or
Master Ballot should be sent to the Debtors, the Debtors agents (other than the Notice and Claims
Agent) or the Debtors financial or legal advisors. The Debtors expressly reserve the right to
amend from time to time the terms of the Plan (subject to compliance with the requirements of
section 1127 of the Bankruptcy Code and the terms of the Plan regarding modifications). The
Bankruptcy Code may require the Debtors to disseminate additional solicitation materials if the
Debtors make material changes to the terms of the Plan or if the Debtors waive a material condition
to Plan Confirmation. In that event, the solicitation will be extended to the extent directed by
the Bankruptcy Court. To the extent there are multiple Senior Secured Notes Claims within Class 4,
the Debtors may, in their discretion, and to the extent possible, aggregate the Senior Secured
Notes Claims of any particular Holder within Class 4 for the purpose of counting votes.
In the event a designation of lack of good faith is requested by a party in interest under
section 1126(e) of the Bankruptcy Code, the Bankruptcy Court will determine whether any vote to
accept and/or reject the Plan cast with respect to that Claim will be counted for purposes of
determining whether the Plan has been accepted and/or rejected.
55
The Debtors will File with the Bankruptcy Court as soon as practicable after the Petition
Date, the Voting Report prepared by the Notice and Claims Agent. The Voting Report shall, among
other things, delineate every Ballot or Master Ballot that does not conform to the Voting
Instructions or that contains any form of irregularity (each an Irregular Ballot)
including, but not limited to, those Ballots or Master Ballots that are late or (in whole or in
material part) illegible, unidentifiable, lacking signatures or lacking necessary information, or
damaged. The Notice and Claims Agent will attempt to reconcile the amount of any Class 4 Senior
Secured Notes Claim reported on a Ballot or Master Ballot with the records of the applicable
Nominee, if applicable, or in the alternative with the Debtors records, but in the event such
amount cannot be timely reconciled without undue effort on the part of the Notice and Claims Agent,
the amount shown in the records of the Nominee, if applicable, or the Debtors records shall
govern. The Voting Report also shall indicate the Debtors intentions with regard to such
Irregular Ballots. Neither the Debtors nor any other Person or Entity will be under any duty to
provide notification of defects or irregularities with respect to delivered Ballots or Master
Ballots other than as provided in the Voting Report, nor will any of them incur any liability for
failure to provide such notification.
ARTICLE VI
FINANCIAL PROJECTIONS
A. | DESCRIPTION REGARDING THE FINANCIAL PROJECTIONS. |
As a condition to plan confirmation, the Bankruptcy Code requires, among other things, the
Bankruptcy Court to find that Confirmation is not likely to be followed by either a liquidation or
the need to further reorganize the debtor. In connection with developing the Plan, and for purposes
of determining whether the Plan satisfies feasibility standards, the Debtors management has,
through the development of certain financial projections as attached hereto as Exhibit C
(the Projections), analyzed the Reorganized Debtors ability to meet their obligations
under the Plan and to maintain sufficient liquidity and capital resources to conduct their
businesses. The Projections will also assist each Holder of a Senior Secured Notes Claim in
determining whether to accept or reject the Plan.
The Debtors believe the Plan meets the feasibility requirement set forth in section
1129(a)(11) of the Bankruptcy Code, as Confirmation is not likely to be followed by liquidation or
the need for further financial reorganization of the Reorganized Debtors. In general, as
illustrated by the Projections, the Debtors believe that with a significantly de-leveraged capital
structure, the Reorganized Debtors will be viable. The Debtors believe that the Reorganized
Debtors will have sufficient liquidity to fund obligations as they arise, thereby maintaining
value. Accordingly, the Debtors believe the Plan satisfies the feasibility requirement of section
1129(a)(11) of the Bankruptcy Code. The Debtors prepared the Projections in good faith, based upon
estimates and assumptions made by the Debtors management.
The estimates and assumptions in the Projections, while considered reasonable by management,
may not be realized, and are inherently subject to uncertainties and contingencies. They also are
based on factors such as industry performance, general business, economic, competitive, regulatory,
market and financial conditions, all of which are difficult to predict and generally beyond the
Debtors control. Because future events and circumstances may well differ from those assumed and
unanticipated events or circumstances may occur, the Debtors expect that the actual and projected
results will differ and the actual results may be materially greater or less than those contained
in the Projections. No representations can be made as to the accuracy of the Projections or the
Reorganized Debtors ability to achieve the projected results. Therefore, the Projections may not
be relied upon as a guaranty or other assurance of the actual results that will occur. The
inclusion of the Projections herein should not be regarded as an indication that the Debtors
considered or consider the Projections to reliably predict future performance. The Projections are
subjective in many respects, and thus are susceptible to interpretations and periodic revisions
based on actual experience and recent developments. The Debtors do not intend to update or
otherwise revise the Projections to reflect the occurrence of future events, even in the event that
assumptions underlying the Projections are not borne out. The Projections should be read in
conjunction with the assumptions and qualifications set forth herein.
The Debtors did not prepare the Projections with a view towards complying with the guidelines
for prospective financial statements published by the American Institute of Certified Public
Accountants. The Debtors independent auditor has neither compiled nor examined the accompanying
prospective financial
56
information to determine the reasonableness thereof and, accordingly, has not expressed an
opinion or any other form of assurance with respect thereto.
Neither the Debtors nor the Reorganized Debtors intend to, and each disclaims any obligation
to: (a) furnish updated projections to Holders of Allowed Claims prior to the Effective Date or to
Holders of New Common Stock or Warrants, or to any other party after the Effective Date; (b)
include any such updated information in any documents that may be required to be filed with the
SEC; or (c) otherwise make such updated information publicly available. The Debtors historical
financial filings are available free of charge at the Debtors website,
http://www.insighthealth.com/Corporate_Releases.asp. A copy of the Debtors most recent annual
report is attached hereto as Exhibit F. Additionally, a copy of the Debtors most recent
quarterly report is attached hereto as Exhibit G.
The Debtors periodically issue press releases reporting financial results and Holders of
Claims and Equity Interests are urged to review any such press releases when, and as, issued.
The Debtors prepared the Projections based on, among other things, the anticipated future
financial condition and results of operations of the Reorganized Debtors.
Although the forecasts represent the best estimates of the Debtors, for which the Debtors
believe they have a reasonable basis as of the date hereof, of the results of operations and
financial position of the Debtors after giving effect to the reorganization contemplated under the
Plan, they are only estimates and actual results may vary considerably from forecasts.
Consequently, the inclusion of the forecast information herein should not be regarded as a
representation by the Debtors, the Debtors advisors or any other person that the forecast results
will be achieved.
While, after the Effective Date, the Debtors do not intend to update or otherwise revise the
Projections to reflect circumstances existing since their preparation in December 2010, or to
reflect the occurrence of unanticipated events, even in the event that any or all of the underlying
assumptions are shown to be in error.
The Projections were not prepared with a view toward general use, but rather for the limited
purpose of providing information in conjunction with the Plan. Also they have been presented in
lieu of pro forma historical financial information. Reference should be made to Article IX,
entitled Plan Related Risk Factors And Alternatives To Confirming And Consummating The Plan for a
discussion of the risks related to the Plan.
The Projections assume that the Plan will be consummated in accordance with its terms and that
all transactions contemplated by the Plan will be consummated by the assumed Effective Date. Any
significant delay in the assumed Effective Date of the Plan may have a significant negative impact
on the operations and financial performance of the Debtors including, but not limited to, an
increased risk of inability to meet sales forecasts and higher reorganization expenses.
ARTICLE VII
CONFIRMATION PROCEDURES
A. | THE CONFIRMATION HEARING. |
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after notice, to hold
the Confirmation Hearing. Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to Confirmation of the Plan. On or about the Petition Date, the Debtors will
promptly seek an order of the Bankruptcy Court scheduling a hearing to consider the approval of the
prepetition procedures for the Solicitation, including this Disclosure Statement and Confirmation
of the Plan. Notice of the Confirmation Hearing will be provided in the manner prescribed by the
Bankruptcy Court, and will also be available at Debtors Notice and Claims Agents website,
www.bmcgroup.com/insight. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the adjourned date made at
the Confirmation Hearing or any subsequent adjourned Confirmation Hearing.
57
B. | STATUTORY REQUIREMENTS FOR CONFIRMATION OF THE PLAN. |
At the Confirmation Hearing, the Bankruptcy Court shall determine whether the requirements of
section 1129 of the Bankruptcy Code have been satisfied. If so, the Bankruptcy Court shall enter
the Confirmation Order. The Debtors believe that the Plan satisfies or will satisfy the applicable
requirements, as follows:
| The Plan complies with the applicable provisions of the Bankruptcy Code. | ||
| The Debtors, as Plan proponents, will have complied with the applicable provisions of the Bankruptcy Code. | ||
| The Plan has been proposed in good faith and not by any means forbidden by law. | ||
| Any payment made or promised under the Plan for services or for costs and expenses in, or in connection with, the Chapter 11 Cases, or in connection with the Plan and incident to the case, has been disclosed to the Bankruptcy Court, and any such payment: (1) made before the Confirmation of the Plan is reasonable; or (2) subject to the approval of the Bankruptcy Court as reasonable if it is to be fixed after the Confirmation of the Plan. | ||
| Either each Holder of an Impaired Claim or Equity Interest has accepted the Plan, or will receive or retain under the Plan on account of that Claim or Equity Interest, property of a value, as of the Effective Date of the Plan, that is not less than the amount that the Holder would receive or retain if the Debtors were liquidated on that date under Chapter 7 of the Bankruptcy Code. | ||
| Each Class of Claims and Equity Interests that is entitled to vote on the Plan has either accepted the Plan or is not Impaired under the Plan, or the Plan can be confirmed without the approval of each voting Class pursuant to section 1129(b) of the Bankruptcy Code. | ||
| Except to the extent that the Holder of a particular Claim will agree to a different treatment of its Claim, the Plan provides that Administrative Claims, Priority Tax Claims and the Revolving Credit Facility Claims (to the extent any such Claims have not been indefeasibly repaid in full in Cash from the proceeds of the DIP Facility prior to the Effective Date) will be paid in full on the Effective Date, or as soon as reasonably practicable thereafter. | ||
| At least one Class of Impaired Claims and Equity Interests will accept the Plan, determined without including any acceptance of the Plan by any insider holding a Claim or Equity Interest of that Class. | ||
| Confirmation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtors or any successors thereto under the Plan unless such a liquidation or reorganization is proposed in the Plan. | ||
| All fees of the type described in 28 U.S.C. § 1930, including the fees of the United States Trustee, will be paid as of the Effective Date. |
The Debtors believe that: (1) the Plan satisfies or will satisfy all of the statutory
requirements of Chapter 11 of the Bankruptcy Code; (2) it has complied or will have complied with
all of the requirements of Chapter 11; and (3) the Plan has been proposed in good faith.
1. | Best Interests of Creditors Test/Liquidation Analysis. |
Under the Bankruptcy Code, Confirmation of a plan also requires a finding that the plan is in
the best interests of creditors. Under the best interests test, the Bankruptcy Court must find
(subject to certain exceptions) that the Plan provides, with respect to each Impaired Class, that
each Holder of an Allowed Claim or Interest in such Impaired Class has accepted the Plan, or will
receive or retain under the Plan property of a value, as of the Effective Date, that is not less
than the amount that such Holder would receive or retain if the Debtors were liquidated under
Chapter 7 of the Bankruptcy Code.
58
The analysis under the best interests test requires that the Bankruptcy Court determine what
Holders of Allowed Claims and Interests in each Impaired Class would receive if the Chapter 11
Cases were converted to liquidation cases under Chapter 7 of the Bankruptcy Code, and the
Bankruptcy Court appointed a Chapter 7 trustee to liquidate all of the assets into Cash. The
Debtors liquidation value would consist primarily of unencumbered and unrestricted Cash held by
the Debtors at the time of the conversion to Chapter 7 cases, and the proceeds resulting from the
Chapter 7 trustees sale of the Debtors remaining unencumbered assets. The gross Cash available
for distribution would be reduced by the costs and expenses incurred in effectuating the Chapter 7
liquidation and any additional Administrative Claims incurred during the Chapter 7 cases.
The Bankruptcy Court then must compare the value of the distributions from the proceeds of the
hypothetical Chapter 7 liquidation of the Debtors (after subtracting the Chapter 7-specific claims
and administrative costs) with the value to be distributed to the Holders of Allowed Claims and
Interests under the Plan. It is possible that in a Chapter 7 liquidation, Claims and Interests may
not be classified in the same manner as set forth in the Plan. In a hypothetical Chapter 7
liquidation of the Debtors assets, the rule of absolute priority of distribution would apply,
i.e., no junior creditor would receive any distribution until payment in full of all senior
creditors, and no Holder of an Interest would receive any distribution until all creditors have
been paid in full. Further, in Chapter 7 cases, creditors and interest holders of a debtor are
paid from available assets generally in the following order: (a) Holders of Secured Claims (to the
extent of the value of their collateral); (b) Holder of priority Claims; (c) Holders of unsecured
Claims; (d) Holders of Claims expressly subordinated by its terms or Bankruptcy Court order; and
(e) Holders of Equity Interests.
Of the foregoing groups of Claims, the Other Priority Claims, Other Secured Claims, Revolving
Credit Facility Claims, General Unsecured Claims, Administrative Claims, Intercompany Claims and
Intercompany Interests are either unclassified or Unimpaired under the Plan, meaning that the
Plan generally leaves their legal, equitable and contractual rights unaltered. As a result,
Holders of such Claims and Interests are deemed to accept the Plan. Senior Secured Notes Claims
are Impaired under the Plan and are entitled to vote on the Plan. The Section 510(b) Claims and
Equity Interests in InSight Health Services Holding Corp. are to receive no distribution on account
of their Claims or Interests under the Plan and, therefore, are deemed to reject the Plan. Because
the Bankruptcy Code requires that impaired creditors either accept the Plan or receive at least as
much under the Plan as they would in a hypothetical Chapter 7 liquidation, the operative best
interests inquiry in the context of the Plan is whether in a Chapter 7 liquidation, after
accounting for recoveries by Secured, Administrative and Priority creditors, the impaired creditors
and interest holders will receive more or less than under the Plan. If the probable distribution
to impaired creditors and interest holders under a hypothetical Chapter 7 liquidation is greater
than the distributions to be received by such Holders under the Plan, then the Plan is not in the
best interests of impaired creditors and interest holders.
As described in more detail in the liquidation analysis set forth in Exhibit D hereto
(the Liquidation Analysis), the Debtors believe that the value of any distributions in a
Chapter 7 case would be less than the value of distributions under the Plan. In particular,
proceeds received in a Chapter 7 liquidation are likely to be significantly discounted due to the
distressed nature of the sale, and the fees and expenses of a Chapter 7 trustee would likely
further reduce Cash available for distribution. Additionally, prior to the date hereof, in
connection with discussions with their major creditor constituents regarding a comprehensive debt
restructuring, the Debtors, in conjunction with their advisors, prepared an analysis using
customary valuation methodologies that demonstrated a framework for the distribution of value among
the Debtors stakeholders. The Debtors analysis was prepared, in part, by using the Debtors
post-emergence operating performance projections, estimated discounted expected future cash flows
and estimated enterprise value multiples. As reflected in Article I.C hereof, the Debtors believe
that the value of any distributions if the Chapter 11 Cases were converted to cases under Chapter 7
of the Bankruptcy Code would not be greater than the value of distributions under the Plan. The
Debtors and their advisors will establish the appropriate evidentiary record regarding valuation
should it be necessary in connection with Confirmation of the Plan.
2. | Feasibility. |
Section 1129(a)(11) of the Bankruptcy Code requires the Bankruptcy Court to find, as a
condition to Confirmation, that Confirmation is not likely to be followed by the debtors
liquidation or the need for further financial reorganization, unless that liquidation or
reorganization is contemplated by the Plan. The Plan contemplates a Plan in which virtually all
creditors (other than Holders of the Senior Secured Notes)
59
will be paid in full, and the Reorganized Debtors balance sheet will be substantially de-leveraged. In
addition, the Plan also contemplates that the DIP Credit Agreement Claims will be paid in full
in Cash with the proceeds of the Exit Facility or converted into obligations of the Debtors under
the Exit Facility on a dollar for dollar basis. Therefore, sufficient funds will exist to make all
payments required by the Plan. The Debtors overall enterprise value will accrue directly to
stakeholders of the Reorganized Debtors. For these reasons, the Debtors believe that the Plan
satisfies the financial feasibility requirements of section 1129(a)(11).
3. | Acceptance by Impaired Classes. |
The Bankruptcy Code requires, as a condition to Confirmation, that except as described in the
following section, each Class of Claims and Equity Interests that is impaired under the Plan accept
the Plan. A class that is not impaired under a plan is deemed to have accepted the plan and,
therefore, solicitation of acceptances with respect to such Class is not required. A class is
impaired unless the plan: (a) leaves unaltered the legal, equitable and contractual rights to
which the claim or Equity Interest entitles the Holder of that claim or Equity Interest; (b) cures
any default and reinstates the original terms of the obligation; or (c) provides that, on the
consummation date, the Holder of the claim or Equity Interest receives cash equal to the allowed
amount of that claim or, with respect to any interest, any fixed liquidation preference to which
the Equity Interest Holder is entitled or any fixed price at which the debtor may redeem the
security.
Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class of impaired
claims as acceptance by Holders of at least two thirds in dollar amount and more than one half in
number of claims in that class, but for that purpose counts only those who actually vote to accept
or to reject the plan. Thus, a class of claims will have voted to accept the plan only if two
thirds in amount and a majority in number actually voting cast their ballots in favor of
acceptance. Under section 1126(d) of the Bankruptcy Code, a class of Equity Interests has accepted
the plan if Holders of such Equity Interests holding at least two thirds in amount actually voting
have voted to accept the plan.
The Claims and Interests in Classes 1, 2, 3, 5 and 6 are not Impaired under the Plan, and as a
result the Holders of such Claims and Interests are deemed to have accepted the Plan.
Senior Secured Notes Claims in Class 4 are Impaired under the Plan. The voting Class will
have accepted the Plan if the Plan is accepted by at least two thirds in amount and a majority in
number of the Claims and Equity Interests of such Classes (other than any Claims of Creditors
designated under section 1126(e) of the Bankruptcy Code) that have voted to accept or reject the
Plan.
The members of Classes 8 and 9 will not receive a distribution on account of their Claims or
Interests under the Plan and are deemed to reject the Plan and are not entitled to vote on the
Plan.
4. | Confirmation Without Acceptance by All Impaired Classes. |
Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to confirm a plan, even if
all Impaired Classes entitled to vote on the plan have not accepted it, provided that the plan has
been accepted by at least one Impaired Class.
Section 1129(b) of the Bankruptcy Code states that, notwithstanding an impaired classs
failure to accept a plan, the plan shall be confirmed, at the plan proponents request, in a
procedure commonly known as cram down, so long as the plan does not discriminate unfairly and
is fair and equitable with respect to each class of claims and equity interests that is impaired
under, and has not accepted, the plan.
In general, a plan does not discriminate unfairly if it treats a class substantially
equivalent to the treatment of other classes of equal rank. Courts will take into account a number
of factors in determining whether a plan discriminates unfairly, including whether the
discrimination has a reasonable basis, whether the debtor can carry out a plan without such
discrimination, whether such discrimination is proposed in good faith, and the treatment of the
class discriminated against. Courts have also held that it is appropriate to classify unsecured
creditors separately if the differences in classification are in the best interest of the
creditors, foster reorganization efforts, do not violate the absolute priority rule, and do not
needlessly increase the number of classes.
60
The condition that a plan be fair and equitable to a non-accepting Class of Secured Claims
includes the requirements that: (a) the Holders of such Secured Claims retain the liens securing
such Claims to the extent of the Allowed amount of the Claims, whether the property subject to the
liens is retained by the debtors or transferred to another entity under the plan; and (b) each
Holder of a Secured Claim in the Class receives deferred Cash payments totaling at least the
Allowed amount of such Claim with a present value, as of the Effective Date of the Plan, at least
equivalent to the value of the Secured Claimants interest in the Debtors property subject to the
liens.
The condition that a plan be fair and equitable with respect to a non-accepting Class of
unsecured Claims includes the requirement that either: (a) the plan provides that each Holder of a
Claim of such Class receive or retain on account of such Claim property of a value, as of the
Effective Date of the plan, equal to the allowed amount of such Claim; or (b) the Holder of any
Claim or Interest that is junior to the Claims of such Class will not receive or retain under the
plan on account of such junior Claim or Interest any property.
The condition that a plan be fair and equitable to a non accepting Class of Equity Interests
includes the requirements that either: (a) the plan provides that each Holder of an Equity
Interest in that Class receives or retains under the plan, on account of that Equity Interest,
property of a value, as of the Effective Date of the plan, equal to the greater of (i) the allowed
amount of any fixed liquidation preference to which such Holder is entitled, (ii) any fixed
redemption price to which such Holder is entitled or (iii) the value of such interest; or (b) if
the Class does not receive such an amount as required under (a), no Class of Equity Interests
junior to the non-accepting Class may receive a distribution under the plan.
The Plan provides that if any Impaired Class rejects the Plan, the Debtors reserve the right
to seek to confirm the Plan utilizing the cram down provisions of section 1129(b) of the
Bankruptcy Code. To the extent that any Impaired Class rejects the Plan or is deemed to have
rejected the Plan, the Debtors will request Confirmation of the Plan, as it may be modified from
time to time, under section 1129(b) of the Bankruptcy Code. The Debtors reserve the right, subject
to the terms of the Plan, to alter, amend, modify, revoke or withdraw the Plan or any exhibit or
schedule to the Plan, including to amend or modify it to satisfy the requirements of section
1129(b) of the Bankruptcy Code, if necessary.
The Debtors submit that if the Debtors cram down the Plan pursuant to section 1129(b) of the
Bankruptcy Code, the Plan is structured such that it does not discriminate unfairly and satisfies
the fair and equitable requirement.
C. | RISK FACTORS. |
Prior to deciding whether and how to vote on the Plan, each Holder of a Class 4 Claim should
consider carefully all of the information in this Disclosure Statement, and should particularly
consider the Risk Factors described in Article IX, entitled Plan Related Risk Factors And
Alternatives To Confirming And Consummating The Plan.
D. | IDENTITY OF PERSONS TO CONTACT FOR MORE INFORMATION. |
Any interested party desiring further information about the Plan should contact: Counsel for
the Debtors: Ryan B. Bennett and Paul Wierbicki, Kirkland & Ellis LLP, 300 North LaSalle Street,
Chicago, Illinois 60654 or by phone at (312) 862-2000.
E. | DISCLAIMER. |
In formulating the Plan, the Debtors have relied on financial data derived from their books
and records. The Debtors, therefore, represents that everything stated in this Disclosure
Statement is true to the best of their knowledge. The Debtors nonetheless cannot, and do not,
confirm the current accuracy of all statements appearing in this Disclosure Statement. Moreover,
the Bankruptcy Court has not yet determined whether the Plan is confirmable and, therefore, does
not recommend whether you should accept or reject the Plan.
The discussion in this Disclosure Statement regarding the Debtors may contain forward looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements consist of any statement other than a recitation of historical fact and can be
identified by the use of forward looking
61
terminology such as may, expect, anticipate, estimate, or continue or the negative
thereof or other variations thereon or comparable terminology. The reader is cautioned that all
forward looking statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially from those referred to
in such forward looking statements. The liquidation analyses, distribution projections and other
information are estimates only, and the timing and amount of actual distributions to creditors may
be affected by many factors that cannot be predicted. Therefore, any analyses, estimates or
recovery projections may or may not turn out to be accurate.
Nothing contained in this Disclosure Statement is, or shall be deemed to be, an admission or
statement against interest by the Debtors for purposes of any pending or future litigation matter
or proceeding.
Although the attorneys, accountants, advisors and other professionals employed by the Debtors have
assisted in preparing this Disclosure Statement based upon factual information and assumptions
respecting financial, business and accounting data found in the books and records of the Debtors,
they have not independently verified such information and make no representations as to the
accuracy thereof. The attorneys, accountants, advisors and other professionals employed by the
Debtors shall have no liability for the information in this Disclosure Statement.
The Debtors and their professionals also have made a diligent effort to identify in this Disclosure
Statement pending litigation Claims and projected objections to Claims. However, no reliance
should be placed on the fact that a particular litigation Claim or projected objection to Claim is,
or is not, identified in this Disclosure Statement.
ARTICLE VIII
IMPLEMENTATION OF THE PLAN AND POSTPETITION
GOVERNANCE OF REORGANIZED DEBTORS
GOVERNANCE OF REORGANIZED DEBTORS
A. | BOARD OF DIRECTORS AND MANAGEMENT. |
1. | Reorganized Debtors Board of Directors. |
On the Effective Date, the New Board of the Reorganized Debtors shall take office. The
Debtors will disclose the identities of the individuals comprising the New Board, to the extent
known, in an exhibit to the Plan Supplement. Each such director shall serve from and after the
Effective Date pursuant to applicable law and the terms of the New By-Laws and the Stockholders
Agreement. Unless otherwise indicated in the Plan Supplement, the term of each member of the
existing board of directors of InSight Health Services Holdings Corp. will be deemed to have
automatically expired on and as of the Effective Date.
2. | The Reorganized Debtors Officers. |
The Debtors will disclose the identities of the individuals comprising the officers of the
Reorganized Debtors prior to the Effective Date.
B. | INDEMNIFICATION OF DIRECTORS AND OFFICERS. |
The Reorganized Debtors articles of incorporation or formation, as applicable, will authorize
the Reorganized Debtors to indemnify and exculpate their respective officers, directors or managers
and agents to the fullest extent permitted under the applicable state law.
C. | MANAGEMENT EQUITY PLAN. |
The Plan provides for a post-Effective Date Management Equity Plan, the terms of which plan
and the amount of New Common Stock to be issued thereunder, if any, shall be determined and
implemented on or as soon as reasonably practicable after the Effective Date by the New Board or
any compensation committee thereof in its discretion. Up to eight percent of New Common Stock
shall be reserved for the post-Effective Date Management Equity Plan.
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D. | EXIT FINANCING ARRANGEMENTS. |
On or prior to the Effective Date, the Debtors will enter into the Exit Facility Agreement.
1. | Exit Facility Agreement. |
To the extent the Debtors enter into the Exit Facility, Confirmation shall be deemed approval
of the Exit Facility (including the transactions contemplated thereby, such as any supplementation
or additional syndication of the Exit Facility and authorization for the Reorganized Debtors to
enter into and execute the Exit Facility Agreement and such other documents as may be required or
appropriate to effectuate the treatment afforded to such lenders pursuant to the Exit Facility
Agreement, the terms, conditions and covenants shall be acceptable to the Requisite Consenting
Noteholders. The Reorganized Debtors may use the Exit Facility for any purpose permitted
thereunder, including the funding of obligations under the Plan and satisfaction of ongoing working
capital needs. To the extent Revolving Credit Facility Claims are not refinanced by the DIP
Revolving Credit Facility as of the Effective Date, Revolving Credit Facility Claims shall be paid
in full in Cash with the proceeds of the Exit Facility.
Upon the satisfaction or waiver of the conditions precedent to effectiveness set forth in the
Exit Facility Agreement, DIP Revolving Credit Facility and the Revolving Credit Facility shall be
refinanced and the Revolving Credit Agreement and the DIP Credit Agreement shall be deemed to have
been terminated and extinguished. Notwithstanding the foregoing, all obligations of the Debtors to
the DIP Revolving Credit Facility Agent and the DIP Revolving Credit Facility Lenders under the DIP
Credit Agreement which are expressly stated in the DIP Credit Agreement as surviving such
agreements termination shall, as so specified, survive without prejudice and remain in full force
and effect. For purposes of any Trade Intercreditor Agreement, the Exit Facility shall be deemed
an amendment, modification or refinancing of the Revolving Credit Facility.
Upon the date the Exit Facility Agreement becomes effective, (1) the Debtors and the
Reorganized Debtors are authorized to execute and deliver the Exit Facility Agreement and perform
their obligations thereunder including, without limitation, the payment or reimbursement of any
fees, expenses, losses, damages or indemnities, (2) the Exit Facility Documents shall constitute
the legal, valid and binding obligations of the Reorganized Debtors which are parties thereto,
enforceable in accordance with their respective terms and (3) no obligation, payment, transfer or
grant of security under the Exit Facility Documents shall be stayed, restrained, voidable or
recoverable under the Bankruptcy Code or under any applicable law or subject to any defense,
reduction, recoupment, setoff or counterclaim.
The Debtors and the Reorganized Debtors, as applicable, and any other Entities granting any
Liens and security interests to secure the obligations under the Exit Facility Documents are
authorized to make all filings and recordings, and to obtain all governmental approvals and
consents necessary or desirable to establish and further evidence perfection of such liens and
security interests under the provisions of any applicable federal, state, provincial or other law
(whether domestic or foreign) (it being understood that perfection shall occur automatically by
virtue of the entry of the Confirmation Order and any such filings, recordings, approvals and
consents shall not be required), and will thereafter cooperate to make all other filings and
recordings that otherwise would be necessary under applicable law to give notice of such liens and
security interests to third parties.
ARTICLE IX
PLAN RELATED RISK FACTORS AND ALTERNATIVES
TO CONFIRMING AND CONSUMMATING THE PLAN
TO CONFIRMING AND CONSUMMATING THE PLAN
Prior to voting to accept or reject the Plan, all Impaired Holders of Claims should read and
carefully consider the factors set forth below, as well as all other information set forth or
otherwise referenced in this Disclosure Statement.
A. | GENERAL. |
The following provides a summary of various important considerations and risk factors
associated with the Plan. However, it is not exhaustive. In considering whether to vote for or
against the Plan, Holders of Claims entitled to vote should read and carefully consider the factors
set forth below, as well as all other information set
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forth or otherwise referenced or incorporated by reference in this Disclosure Statement,
including the various risks and other factors described in the Debtors various SEC filings, all of
which are incorporated herein.
B. | CERTAIN BANKRUPTCY LAW CONSIDERATIONS. |
1. | Parties in Interest May Object to Debtors Classification of Claims and Interests. |
Section 1122 of the Bankruptcy Code provides that a plan may place a class or an interest in a
particular class only if such claim or interest is substantially similar to the other claims and
interests in such class. The Debtors believe that the classification of Claims and Interests under
the Plan complies with the requirements set forth in the Bankruptcy Code because the Debtors
created nine Classes of Claims and Interests, each encompassing Claims or Interests that are
substantially similar to the other Claims or Interests in each such Class. Nevertheless, there can
be no assurance that the Bankruptcy Court will reach the same conclusion.
2. | Failure to Satisfy Vote Requirement. |
If votes are received in number and amount sufficient to enable the Bankruptcy Court to
confirm the Plan, the Debtors intend to seek, as promptly as practicable thereafter, Confirmation
of the Plan. If the Plan does not receive the required support from the one voting Class, the
Debtors may elect not to File the Chapter 11 Cases or to amend the Plan.
3. | The Debtors May Not Be Able to Obtain Confirmation or Consummation of the Plan. |
The Debtors cannot ensure that they will receive the requisite acceptances to confirm the
Plan. Even if the Debtors receive the requisite acceptances, the Debtors cannot ensure that the
Bankruptcy Court will confirm the Plan. A non-accepting creditor or Interest Holder might
challenge the adequacy of this Disclosure Statement or the Solicitation Procedures and results as
not being in compliance with the Bankruptcy Code or Bankruptcy Rules. Even if the Bankruptcy Court
determined that this Disclosure Statement and the balloting procedures and results were
appropriate, the Bankruptcy Court could still decline to confirm the Plan if it found that any of
the statutory requirements for Confirmation had not been met. As discussed in further detail above
in Article VII.B.4, section 1129 of the Bankruptcy Code sets forth the requirements for
confirmation of a plan of reorganization and requires, among other things: a finding by a
bankruptcy court that the plan does not unfairly discriminate and is fair and equitable with
respect to any non-accepting classes; Confirmation is not likely to be followed by a liquidation or
a need for further financial reorganization; and the value of distributions to non-accepting
Holders of claims and interests within a particular class under the plan will not be less than the
value of distributions such Holders would receive if the debtors were liquidated under Chapter 7 of
the Bankruptcy Code. While the Debtors believe that the Plan complies with section 1129 of the
Bankruptcy Code, there can be no assurance that these requirements will be met.
The Confirmation of the Plan is also subject to certain conditions as described in Article X
of the Plan. If the Plan is not confirmed, it is unclear what distributions Holders of Claims and
Interests ultimately would receive with respect to their Claims and Interests.
The Debtors, subject to the terms and conditions of the Plan, reserve the right to modify the
terms of the Plan as necessary for Confirmation. Any such modification could result in a less
favorable treatment of any non-accepting Class or Classes, as well as of any Classes junior to such
non-accepting Classes, than the treatment currently provided in the Plan. Such a less favorable
treatment could include a distribution of property to the Class affected by the modification of a
lesser value than currently provided in the Plan or no distribution of property whatsoever under
the Plan.
4. | The Debtors May Object to the Amount or Classification of a Claim. |
Except as otherwise provided in the Plan and the final DIP financing order, the Debtors
reserve the right to object to the amount or classification of any Claim or Interest deemed Allowed
under the Plan other than the Allowed amount of the Senior Secured Notes Claims. The estimates set
forth in this Disclosure Statement cannot be relied on by any Holder of a Claim where such Claim is
subject to an objection. Any Holder of a Claim or Interest may not receive its specified share of
the estimated distributions described in this Disclosure Statement.
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5. | Risk of Non-Occurrence of the Effective Date. |
Although the Debtors believe that the Effective Date will occur very quickly after the
Confirmation Date, there can be no assurance as to such timing.
6. | Substantive Consolidation Risks. |
The Plan is premised upon substantively consolidating certain of the Debtors as set forth in
Article IV of the Plan for purposes associated with confirming and consummating the Plan, including
but not limited to voting, Confirmation, distribution and streamlining the Debtors corporate
structure to more properly reflect their operations. The Debtors can provide no assurance,
however, that: (a) the Bankruptcy Court will enter an order granting the Debtors motion for
substantive consolidation contemplated by the Plan; or (b) the Bankruptcy Court will overrule any
objection that a party in interest might have to such substantive consolidation.
7. | Contingencies Not to Affect Votes of Impaired Classes to Accept the Plan. |
The distributions available to Holders of Allowed Claims and Interests under the Plan can be
affected by a variety of contingencies, including, without limitation, whether or not the Debtors
are consolidated and whether the Bankruptcy Court orders certain Claims to be subordinated to other
Claims. The occurrence of any and all such contingencies which could affect distributions
available to Holders of Allowed Claims and Interests under the Plan, however, will not affect the
validity of the vote taken by the Impaired Classes to accept or reject the Plan or require any sort
of revote by the Impaired Classes.
8. | Risk of Not Obtaining Exit Financing. |
The Plan is contemplates the Debtors obtaining the Exit Facility. The Debtors have not yet
received a commitment with respect to the Exit Facility and there can be no assurance that the
Debtors will be able to obtain the Exit Facility.
C. | FINANCIAL INFORMATION; DISCLAIMER. |
Although the Debtors have used their reasonable best efforts to ensure the accuracy of the
financial information provided in this Disclosure Statement, some of the financial information
contained in this Disclosure Statement has not been audited and is based upon an analysis of data
available at the time of the preparation of the Plan and this Disclosure Statement. While the
Debtors believe that such financial information fairly reflects the financial condition of the
Debtors, the Debtors are unable to warrant or represent that the information contained herein and
attached hereto is without inaccuracies.
D. | FACTORS AFFECTING THE COMPANY. |
The Debtors are exposed to various factors and risks which include but are not limited to the
following. Holders should carefully consider the risk factors set forth below, as well as the risk
factors found in the Part 1A of the Debtors Annual Report on Form 10-K for the fiscal year ended
June 30, 2010 and Part 1A of the Debtors Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2010.
1. | Business-Related Risks. |
a. | Initiatives to Enhance Revenues and Reduce Costs. |
The Debtors implemented steps to improve their financial performance, including, adopting a
core market strategy, optimizing their mobile route, converting mobile to fixed sites, as well as
various operations and cash flow initiatives in response to losses. The Debtors have focused on
implementing, and will continue to develop and implement, various revenue enhancement, receivables
and collections management and cost reduction initiatives. Revenue enhancement initiatives have
and will continue to focus on the Debtors sales and marketing efforts to maintain or improve their
procedural volume and contractual rates, and their solutions initiative. Receivables and
collections management initiatives have and will continue to focus on collections at point of
service, technology improvements to create greater efficiency in the gathering of patient and Claim
information when a procedure is scheduled or completed.
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Cost reduction initiatives have and will continue to focus on streamlining the Debtors
organizational structure and expenses including enhancing and leveraging their technology to create
greater efficiencies, and leveraging relationships with strategic vendors. While the Debtors have
experienced some improvements through their receivables and collections management and cost
reduction initiatives, benefits from their revenue enhancement initiatives have yet to materialize
and their revenues have continued to decline. Moreover, future revenue enhancement initiatives may
face significant challenges because of the continued overcapacity in the diagnostic imaging
industry, reimbursement reductions and the effects of the countrys recession, including higher
unemployment. The Debtors can give no assurance that these steps taken will be adequate to improve
their financial performance.
b. | High Fixed Operating Expenses. |
A high percentage of the Debtors expenses are fixed, meaning they do not vary significantly
with the increase or decrease in revenues. Such expenses include, but are not limited to, lease
payments, depreciation and amortization, salaries and benefit obligations, equipment maintenance
expenses, insurance and vehicle operations costs. As a result, a relatively small reduction in the
prices the Debtors charge for their services or procedural volume could have a disproportionate
negative effect on the Debtors financial condition and results of operations.
c. | Technological Changes. |
The Debtors operate in a competitive, capital intensive, high fixed-cost industry. The
development of new technologies or refinements of existing ones have made and continue to make the
Debtors existing systems technologically or economically obsolete, or reduce the need for their
systems. Competition among manufacturers has resulted in and likely will continue to result in
technological advances in the speed and imaging capacity of new systems. Consequently, the
obsolescence of the Debtors systems may be accelerated. Other than ultra-high field MRI systems
and 256-slice CT systems, the Debtors are aware of no substantial technological changes; however,
should such changes occur, the Debtors may not be able to acquire the new or improved systems. In
the future, to the extent the Debtors are unable to generate sufficient cash from their operations
or obtain additional funds through bank or equipment vendor financing, the issuance of equity or
debt securities and operating leases, the Debtors may be unable to maintain a competitive equipment
base. In addition, advancing technology may enable hospitals, physicians or other diagnostic
imaging service providers to perform procedures without the assistance of diagnostic imaging
service providers such as the Debtors. As a result of the age of their imaging equipment, the
Debtors may not be able to maintain their competitive position in their core markets or expand
their business.
d. | Changes in the Rates or Methods of Third-Party Reimbursements. |
For fiscal year 2010, the Debtors derived approximately 49% of their revenues from direct
billings to patients and third-party payors such as Medicare, Medicaid, managed care and private
health insurance companies. Certain third-party payors have proposed and implemented changes in the
methods and rates of reimbursement that have had the effect of substantially decreasing
reimbursement for diagnostic imaging services that the Debtors provide. Moreover, the Debtors
healthcare provider customers, which provided approximately 50% of the Debtors revenues during
fiscal year 2010, generally rely on reimbursement from third-party payors. To the extent the
Debtors healthcare provider customers reimbursement from third-party payors is reduced, it will
likely have an adverse impact on the rates they pay the Debtors as they would seek to offset such
decreased reimbursement rates. Furthermore, many commercial health care insurance arrangements are
changing, so that individuals bear greater financial responsibility through high deductible plans,
co-insurance and higher co-payments, which may result in patients delaying or foregoing medical
procedures. The Debtors expect that any further changes to the rates or methods of reimbursement
for their services, whether directly through billings to third-party payors or indirectly through
their healthcare provider customers, will result in a further decline in their revenues and
adversely affect their financial condition and results of operations.
e. | Inability to Renew Existing Customer Contracts. |
The Debtors financial condition and results of operations depend on their ability to sustain
and grow their revenues from existing customers. The Debtors revenues would decline if they are
unable to renew their existing customer contracts on favorable terms. For the Debtors mobile
facilities, they generally enter into contracts with hospitals having one to five year terms. A
significant number of the Debtors mobile contracts will expire each year.
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To the extent the Debtors do not renew a customer contract it is not always possible to
immediately obtain replacement customers. Historically, many replacement customers have been
smaller, with lower procedural volumes. Recently, there has been an increase in the amount of
available equipment for lease within the industry. This increase in availability has caused a
decline in demand for the Debtors wholesale services mobile systems, which has resulted in (1) a
lower than normal success rate in replacing lost revenues, (2) lower contractual reimbursement as
compared to prior periods and (3) an increase in the number of idle mobile systems. In addition,
attractive gross margins have caused hospitals and physician groups who have utilized mobile
services from the Debtors and their competitors to purchase and operate their own equipment.
Although reimbursement reductions may dissuade physician groups from operating their own equipment,
the Debtors expect that some high volume customer accounts will continue to elect not to renew
their contracts with the Debtors and instead acquire their own diagnostic imaging equipment. As a
result of the age of the Debtors imaging equipment, they may not be able to renew contracts of
existing customers or attract new customers on favorable terms. This would adversely affect the
Debtors financial condition and results of operations.
f. | Competition. |
The diagnostic imaging services industry in general and the market for diagnostic imaging
services in particular, is highly competitive and fragmented, with only a few national providers.
The Debtors compete principally on the basis of their service reputation, equipment, breadth of
managed care contracts and convenient locations. The Debtors operations must compete with
hospitals, physician groups and certain other independent organizations, including equipment
manufacturers and leasing companies that own and operate imaging equipment. The Debtors have
encountered and will continue to encounter competition from hospitals and physician groups that
purchase their own diagnostic imaging equipment. Some of their direct competitors may have access
to greater financial resources than the Debtors do. If the Debtors are unable to successfully
compete, their customer base would decline and their financial condition and results of operations
would be adversely affected.
g. | Consolidation in the Diagnostic Imaging Industry. |
The Debtors compete with several national and regional providers of diagnostic imaging
services, as well as local providers. As a result of the reimbursement reductions by Medicare and
other third-party payors, some of these competitors may consolidate their operations in order to
obtain certain cost structure advantages and improve equipment utilization. In response to any
such consolidation, the Debtors may be forced to exit certain markets, reduce prices or provide
state-of-the-art equipment in order to retain and attract customers. These pressures could
adversely affect the Debtors financial condition and results of operations.
h. | Managed Care Organizations May Limit Healthcare Providers from Using the Debtors Services, Resulting in a Loss of Procedural Volume. |
The Debtors fixed-site centers are dependent, in part, on the Debtors ability to attract
referrals from physicians and other healthcare providers representing a variety of specialties.
The Debtors eligibility to provide services in response to a referral is often dependent, among
other things, on the existence of a contractual arrangement with the referred patients managed
care organization. Despite having a large number of contracts with managed care organizations,
healthcare providers may be inhibited from referring patients to the Debtors in cases where the
patient is not associated with one of the managed care organizations with which the Debtors have
contracted. A significant decline in referrals would have a material adverse effect on the
Debtors financial condition and results of operations. Moreover, the Debtors aging equipment and
declining financial performance may increase the likelihood of managed care organizations opting
not to renew existing contracts or enter into new contracts with the Debtors centers.
i. | The Debtors Failure to Effectively Integrate Acquisitions and Establish Joint Venture Arrangements Through Partnerships with Hospitals and Other Healthcare Providers Could Impair the Debtors Business. |
As part of the Debtors core market strategy, the Debtors have pursued, and may continue to
pursue, selective acquisitions and arrangements through partnerships and joint ventures with
hospitals and other healthcare providers. Acquisitions and joint ventures require substantial
capital which may exceed the funds available to the Debtors from internally generated funds and
available financing arrangements. The Debtors may not be able to raise
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any necessary additional funds through bank or equipment vendor financing or through the
issuance of equity or debt securities on terms acceptable to the Debtors, if at all.
Additionally, acquisitions involve the integration of acquired operations with the Debtors
operations. Integration involves a number of risks, including:
| demands on management related to the increase in the Debtors size after an acquisition; | ||
| the diversion of the Debtors managements attention from daily operations to the integration of operations; | ||
| integration of information systems; | ||
| risks associated with unanticipated events or liabilities; | ||
| difficulties in the assimilation and retention of employees; | ||
| potential adverse effects on operating results; | ||
| challenges in retaining customers and referral sources; and | ||
| amoritization or write-offs of acquired intangible assets. |
If the Debtors do not successfully identify, complete and integrate their acquisitions, the
Debtors may not realize anticipated operating advantages, economies of scale and cost savings.
Also, the Debtors may not be able to maintain the levels of operating efficiency that the acquired
companies would have achieved or might have achieved separately. Successful integration of
acquisitions will depend upon the Debtors ability to manage their operations and to eliminate
excess costs.
j. | The Debtors May Not Receive Payment From Some of the Debtors Healthcare Provider Customers Due to their Financial Circumstances. |
Some of the Debtors healthcare provider customers do not have significant financial
resources, liquidity or access to capital. If these customers experience financial difficulties,
they may be unable to pay Debtors for the equipment and services that Debtors provide. The Debtors
have experienced, and may continue to experience write-offs of accounts receivables from healthcare
provider customers that become insolvent, file for bankruptcy or are otherwise unable to pay
amounts owed to the Debtors. A significant deterioration in general or local economic conditions
could have a material adverse affect on the financial health of certain of the Debtors healthcare
provider customers, potentially leading to an increase in the amounts of accounts receivables that
the Debtors may have to write-off.
k. | High Fuel Costs Would Adversely Affect the Debtors Financial Condition and Result of Operations. |
Fuel costs constitute a significant portion of the Debtors mobile operating expenses.
Historically, fuel costs have been subject to wide price fluctuations based on geopolitical issues
and supply and demand. Fuel availability is also affected by demand for home heating oil, diesel,
gasoline and other petroleum products. Because of the effect of these events on the price and
availability of fuel, the cost and future availability of fuel cannot be predicted with certainty.
In the event of a fuel supply shortage or further increases in fuel prices, the Debtors may need to
reduce certain mobile routes or redeploy their mobile facilities.
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l. | If the Debtors Fail to Comply with Various Licensure, Certification and Accreditation Standards, the Debtors May Be Subject to Loss of Licensure, Certification or Accreditation. |
All of the states in which the Debtors operate require that technologists who operate the
Debtors CT and PET systems be licensed or certified. Also, each of the Debtors fixed-site
centers must continue to meet various requirements in order to receive payments from Medicare. In
addition, the Debtors mobile facilities are currently accredited by The Joint Commission, formerly
the Joint Commission on Accreditation of Healthcare Organizations, an independent, non-profit
organization that accredits various types of healthcare providers, such as hospitals, nursing
homes, outpatient ambulatory care centers and diagnostic imaging providers. If the Debtors were to
lose such accreditation for their mobile facilities, it could adversely affect the Debtors mobile
operations because some of their mobile customer contracts require accreditation by The Joint
Commission and one of the Debtors primary competitors has such accreditation.
Managed care providers prefer to contract with accredited organizations. Any lapse in the
Debtors licenses, certifications or accreditations, or those of the Debtors technologists, or the
failure of any of the Debtors fixed-site centers to satisfy the necessary requirements under
Medicare could adversely affect the Debtors financial condition and results of operations.
m. | Government Regulation. |
The diagnostic imaging services industry in which the Debtors operate is highly regulated and
changes in laws and regulations can be significant. Changes in the law or new interpretation of
existing laws can have a material effect on the Debtors permissible activities, the relative costs
associated with doing business and the amount of reimbursement by government and other third-party
payors. The federal government and all states in which the Debtors currently operate regulate
various aspects of the Debtors business. Failure to comply with these laws could adversely affect
the Debtors ability to receive reimbursement for their services and subject them and their
officers and agents to civil and criminal penalties.
n. | The Debtors Depend on Access to Credit. |
The Debtors ability to comply with covenants or maintain sufficient eligible assets under
their credit facilities may be affected by events beyond their control, including prevailing
economic, financial and industry conditions. If the Debtors default, their lenders may no longer
be obligated to extend loans to the Debtor and could declare all amounts outstanding under the
credit facilities, together with accrued interest, to be immediately due and payable. If the
Debtors are unable to repay those amounts, its lenders could proceed against the collateral
interest granted to them to secure that indebtedness. The results of such actions would have a
significant negative impact on the Debtors result of operations and financial condition.
o. | The Debtors May Not be Able to Achieve Their Projected Financial Results. |
The financial projections set forth on Exhibit C to this Disclosure Statement
represent Debtors managements best estimate of the Debtors future financial performance based on
currently known facts and assumptions about the Debtors future operations as well as the U.S. and
world economy in general and the industry segments in which the Debtors operate in particular. The
Debtors actual financial results may differ significantly from the projections. If the Debtors do
not achieve its projected financial results, the value of the New Common Stock or Warrants may be
negatively affected and the Debtors may lack sufficient liquidity to continue operating as planned
after the Effective Date.
p. | The Debtors Depend Upon Key Personnel. |
The Debtors future success depends upon the knowledge, ability and experience of its
personnel including the Debtors continuing ability to identify, hire or contract with, develop,
motivate and retain highly skilled persons for all areas of their organization, including senior
executives and contracted radiologists. Competition in the Debtors industry for qualified
employees is intense. Failure to attract and retain key personnel responsible for managing the
Debtors or for advancing their business strategies could adversely affect the Debtors business and
financial condition.
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q. | The Debtors Business Could be Materially Harmed or Disrupted by Natural Disasters and Public Disturbances. |
The Debtors corporate headquarters, including their information technology center, and a
material number of their fixed-site centers are located in California, which has a high risk for
natural disasters, including earthquakes and wildfires. Depending upon its severity, a natural
disaster could severely damage the Debtors facilities or their information technology system,
interrupt their business or prevent potential patients from traveling to their centers, each of
which would adversely affect the Debtors financial condition and results of operations. The
Debtors currently do not maintain a secondary disaster recovery facility for their information
technology system. In addition, while the Debtors presently carry earthquake and business
interruption insurance in amounts they believe are appropriate in light of the risks, the amount of
their earthquake insurance coverage may not be sufficient to cover losses from earthquakes. The
Debtors may discontinue some or all of this insurance coverage on some or all of their centers in
the future if the cost of premiums exceeds the value of the coverage discounted for the risk of
loss. If the Debtors experience a loss which is uninsured or which exceeds policy limits, the
Debtors could lose the capital invested in the damaged centers as well as the anticipated future
cash flows from those centers.
To the extent severe weather patterns affect the regions in which the Debtors operate (e.g.,
hurricanes and snow storms), potential patients may find it difficult to travel to their centers
and they may have difficulty moving their mobile facilities along their scheduled routes. As a
result, the Debtors would experience a decrease in procedural volume during that period.
Accordingly, harsh weather conditions could adversely impact the Debtors financial condition and
results of operations.
2. | Risks Related to Government Regulation. |
Complying with federal and state regulations pertaining to the Debtors business is an
expensive and time consuming process, and any failure to comply could result in substantial
penalties and adversely affect the Debtors ability to operate their business and their financial
condition and results of operations. Such regulations include, without limitation:
| the federal False Claims Act; | ||
| the federal Medicare and Medicaid Anti-kickback Law, and state anti-kickback prohibitions; | ||
| the federal Civil Money Penalty law; | ||
| the Health Insurance Portability and Accountability Act of 1996 and other state and federal legislation dealing with patient privacy; | ||
| the federal physician self-referral prohibition commonly known as the Stark Law and the state law equivalents of the Stark Law; | ||
| state laws that prohibit the practice of medicine by non-physicians, and prohibit fee-splitting arrangements involving physicians; | ||
| Food and Drug Administration requirements; | ||
| state licensing and certification requirements, including certificates of need; and | ||
| federal and state laws governing the diagnostic imaging equipment used in the Debtors business concerning patient safety, equipment operating specifications and radiation exposure levels. |
If the Debtors operations are found to be in violation of any of the laws and regulations to
which they or their customers are subject, the Debtors may be subject to the applicable penalty
associated with the violation, including civil and criminal penalties, damages, fines, exclusion
from Medicare, Medicaid or other governmental programs and the curtailment of their operations.
Any penalties, damages, fines or curtailment of operations, individually or in the aggregate, could
adversely affect the Debtors ability to operate their business and their
70
financial condition and results of operations. The risks of the Debtors being found in
violation of these laws and regulations is increased by the fact that many of such laws have not
been fully interpreted by the regulatory authorities or the courts, and the provisions of such laws
are open to a variety of interpretations. Any action brought against the Debtors for violation of
these laws or regulations, even if the Debtor successfully defend against it, could cause the
Debtors to incur significant legal expenses and divert managements attention from the operation of
their business. Moreover, if the Debtors are unsuccessful in defending against such action, the
imposition of certain penalties would adversely affect their financial condition and results of
operations. If the Debtors were excluded from Medicare, Medicaid or other governmental programs,
not only would they lose the revenues associated with such payors, but the Debtors anticipate that
their other customers and partners would terminate their contracts or relationships.
Diagnostic imaging services laws and regulations may change significantly in the future. The
Debtors continuously monitor these developments and modify their operations from time to time as
the regulatory environment changes. However, the Debtors may not be able to adapt their operations
to address new regulations, which could adversely affect their financial condition and results of
operations. In addition, although the Debtors believe that they are operating in compliance with
applicable federal and state laws, neither their current or anticipated business operations nor the
operations of their contracted radiology groups have been the subject of judicial or regulatory
interpretation. A review of the Debtors business by courts or regulatory authorities may result
in a determination that could adversely affect or restrict their operations.
On March 23, 2010, President Obama signed into law healthcare reform legislation in the
form of PPACA. The implementation of this law will likely have a profound impact on the diagnostic
imaging services industry. Most of the provisions of PPACA will be phased in over the next four
years and can be conceptualized as a broad framework not only to provide health insurance coverage
to millions of Americans, but to fundamentally change the delivery of care by bringing together
elements of health information technology, evidence-based medicine, chronic disease management,
medical homes, care collaboration and shared financial risk in a way that will accelerate
industry adoption and change. There are also many provisions addressing cost containment,
reductions of Medicare and other payments and heightened compliance requirements and additional
penalties, which will create further challenges for providers. The Debtors are unable to predict
the full impact of PPACA at this time due to the laws complexity and current lack of implementing
regulations or interpretive guidance. Moving forward, the Debtors believe that the federal
government will likely have greater involvement in the diagnostic imaging services industry than in
prior years, and such greater involvement may adversely affect the Debtors financial condition and
results of operations.
3. | Risks Related to the New Common Stock and Warrants. |
a. | There is Currently No Trading Market for the Shares of New Common Stock or the Warrants, and an Active Liquid Trading Market for the New Common Stock or the Warrants May Not Develop. |
There is currently no existing trading market for the shares of New Common Stock or the
Warrants. The Debtors do not currently intend to apply for listing of the shares of New Common
Stock or the Warrants on any securities exchange or for quotation of such securities on any
automated dealer quotation system. An active public trading market may not develop for the shares
of New Common Stock or the Warrants and, even if one develops, such public trading market may not
be maintained. If an active public trading market for the shares of New Common Stock or the
Warrants does not develop or is not maintained, the market price and liquidity of such securities
is likely to be adversely affected and Holders may not be able to sell such securities at desired
times and prices or at all. If any shares of New Common Stock or the Warrants are traded after
their issuance, they may trade at a discount from the price at which such securities were acquired.
The liquidity of the trading market, if any, and future trading prices of the shares of New
Common Stock or the Warrants will depend on and may be adversely affected by unfavorable changes in
many factors, including, without limitation:
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| prevailing interest rates, increases in which may have an adverse effect on the share price of the New Common Stock or the trading price of the Warrants; | ||
| the Debtors business, financial condition, results of operations, prospects and credit quality; | ||
| the market for similar securities and the overall securities market; and | ||
| general economic and financial market conditions. |
Many of these factors are beyond the Debtors control. Historically, the market for equity
securities has been volatile. Market volatility could materially and adversely affect the shares
of New Common Stock or the Warrants, regardless of the Debtors business, financial condition,
results of operations, prospects or credit quality.
Neither the shares of New Common Stock nor the Warrants have been registered under the
Securities Act, which could effect the liquidity and price of the New Common Stock and the
Warrants. The shares of New Common Stock or the Warrants may be transferred by Holders of such
shares and such warrants to the extent that there is an available exemption from the registration
requirements of the Securities Act to the extent such transfers would not cause Reorganized InSight
Health Services Holdings Corp. to be required to file public reports with the SEC and to the extent
permitted by the Stockholders Agreement, the Warrant Agreement and the New Certificates of
Incorporation, as applicable. This could substantially and adversely impact both the liquidity and
the share price of New Common Stock and the liquidity and trading price of the Warrants.
4. | Legal Proceedings. |
In the normal course of business, the Debtors are subject to various legal proceedings and
Claims. Accordingly, although the Debtors believe it has made adequate provisions for all current
and threatened legal disputes, the Debtors may in the future become involved in legal disputes
arising from their relationships with their employees, shareholders, business partners and
creditors or from other sources. Such legal disputes could result in large settlements and/or
judgments which could materially impair the Debtors financial condition. In addition, the defense
of such proceedings could result in significant expense and the diversion of managements time and
attention from the operation of the business, which could impede the Debtors ability to achieve
their business objectives. Some or all of the amount the Debtors may be required to pay to defend
or to satisfy a judgment or settlement of any or all of these proceedings may not be covered by
insurance.
On January 5, 2010, certain of the Debtors were served with a complaint filed in the Los
Angeles County Superior Court alleging claims on behalf of current and former employees. In Kevin
Harold and Denise Langhoff, on their own behalf and on behalf of others similarly situated v.
InSight Health Services Holdings Corp., et al., the plaintiffs allege violations of Californias
wage, overtime, meal period, break time and business practice laws and regulations. Plaintiffs
seek recovery of unspecified economic damages, statutory penalties, punitive damages, interest,
attorneys fees and costs of suit. The Debtors are currently evaluating the allegations of the
complaint and are unable to predict the likely timing or outcome of the lawsuit. In the meantime,
the Debtors intend to vigorously defend the lawsuit. The Debtors are engaged from time to time in
the defense of other lawsuits arising out of the ordinary course and conduct of their business and
have insurance policies covering certain potential insurable losses where such coverage is
cost-effective.
E. | CERTAIN TAX MATTERS. |
For a summary of certain federal income tax consequences of the Plan to certain Holders of
Claims and to the Debtors, see Article XI below, entitled Certain Federal Income Tax
Consequences.
F. | RISK THAT THE INFORMATION IN THIS DISCLOSURE STATEMENT MAY BE INACCURATE. |
The statements contained in this Disclosure Statement are made by the Debtors as of the date
hereof, unless otherwise specified herein, and the delivery of this Disclosure Statement after that
date does not imply that there has not been a change since that date in the information set forth
herein. The Debtors may subsequently update the
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information in this Disclosure Statement, but it has no duty to update this Disclosure
Statement unless ordered to do so by the Bankruptcy Court. Further, the performance and
prospective financial information contained herein, unless otherwise expressly indicated, is
unaudited. Finally, neither the SEC nor any other governmental authority has passed upon the
accuracy or adequacy of this Disclosure Statement, the Plan or any Exhibits thereto.
G. | LIQUIDATION UNDER CHAPTER 7. |
If no plan can be confirmed, the Debtors Chapter 11 Cases may be converted to cases under
Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be elected or appointed to
liquidate the assets of the Debtors for distribution in accordance with the priorities established
by the Bankruptcy Code. A discussion of the effects that a Chapter 7 liquidation would have on the
recoveries of Holders of Claims and Equity Interests and the Debtors liquidation analysis is set
forth in Article VII above and Exhibit D.
These risk factors contain certain statements that are forward looking statements within the
meaning of Section 21E of the Securities Exchange Act and are made pursuant the safe harbor
provisions thereof. These statements are subject to a number of assumptions, risks and
uncertainties, many of which are beyond the control of the Debtors, including the implementation of
the Plan, the continuing availability of sufficient borrowing capacity, or other financing to fund
operations, currency exchange rate fluctuations, terrorist actions or acts of war, operating
efficiencies, labor relations, actions of governmental bodies and other market and competitive
conditions. Holders of Claims and Equity Interests are cautioned that the forward looking
statements speak as of the date made and are not guarantees of future performance. Actual results
or developments may differ materially from the expectations expressed or implied in the forward
looking statements and the Debtors undertake no obligation to update any such statements.
ARTICLE X
SECURITIES LAW MATTERS
SECURITIES LAW MATTERS
A. | PLAN SECURITIES. |
The Plan provides for the Debtors to issue to Holders of Senior Secured Notes Claims in Class
4 the New Common Stock. The Plan also provides that, as part of the distributions made to the
Holders of Senior Secured Notes Claims, and as described more fully in Article III.B.4. of the
Plan, the Holders of existing common stock in Insight Health Services Holdings Corp. on the
Effective Date (immediately prior to consummation of the Plan) shall receive the Warrants issued by
the Reorganized Debtors on the Effective Date (the New Common Stock and the Warrants, collectively,
the Plan Securities).
The Debtors believe that the Plan Securities constitute securities, as defined in Section
2(a)(1) of the Securities Act, Section 101 of the Bankruptcy Code, and applicable Blue Sky Law.
The Debtors further believe that the offer and sale of the Plan Securities pursuant to the Plan
are, and subsequent transfers of the Plan Securities by the Holders thereof that are not
underwriters, as defined in Section 2(a)(11) of the Securities Act and in the Bankruptcy Code,
will be exempt from federal and state securities registration requirements under various provisions
of the Securities Act, the Bankruptcy Code and state securities laws.
B. | ISSUANCE AND RESALE OF PLAN SECURITIES UNDER THE PLAN. |
1. | Exemption from Registration. |
Section 4(2) of the Securities Act provides that the registration requirements of section 5 of
the Securities Act shall not apply to the offer and sale of a security in connection with
transactions not involving any public offering. By virtue of section 18 of the Securities Act,
section 4(2) also provides that any state Blue Sky Law requirements shall not apply to such offer
or sale. Each Holder of a Claim that is entitled to vote will be requested to make representations
that are set forth in the Ballot regarding such Holders qualifications to be an offeree in a
private offering exempt from registration from the Securities Act by virtue of Section 4(2) or that
such Holder is an Accredited Investor. The Debtors are relying on Section 4(2) of the Securities
Act, and similar Blue Sky Law provisions, to exempt from registration under the Securities Act and
Blue Sky Law the offer to the Holders of Senior Secured Notes Claims of Plan Securities prior to
the filing of the Chapter 11 Cases, including without limitation in connection with the
Solicitation.
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Section 1145 of the Bankruptcy Code provides that the registration requirements of section 5
of the Securities Act (and any state Blue Sky Law requirements) shall not apply to the offer or
sale of stock, options, warrants or other securities by a debtor if (a) the offer or sale occurs
under a plan of reorganization; (b) the recipients of the securities hold a claim against, an
interest in, or claim for administrative expense against, the debtor; and (c) the securities are
issued in exchange for a claim against or interest in a debtor or are issued principally in such
exchange and partly for cash and property. After the filing of the Chapter 11 Cases, the Debtors
are relying on the exemption from the Securities Act, and equivalent state law registration
requirements, provided by section 1145(a) of the Bankruptcy Code, to exempt from registration under
the Securities Act and Blue Sky Law the offer and sale of the Plan Securities under the Plan.
In reliance upon these exemptions, the offer and sale of the Plan Securities will not be
registered under the Securities Act or any state Blue Sky Law.
Because the issuance of the Plan Securities under the Plan are covered by section 1145 of the
Bankruptcy Code, the Plan Securities may be resold without registration under the Securities Act or
other federal securities laws, unless the Holder is an underwriter (as discussed below) with
respect to such securities, as that term is defined in section 2(a)(11) of the Securities Act and
in the Bankruptcy Code. In addition, the Plan Securities generally may be able to be resold
without registration under state securities laws pursuant to various exemptions provided by the
respective Blue Sky Law of those states; however, the availability of such exemptions cannot be
known unless individual state Blue Sky Laws are examined. Therefore, recipients of the Plan
Securities are advised to consult with their own legal advisors as to the availability of any such
exemption from registration under state Blue Sky Law in any given instance and as to any applicable
requirements or conditions to such availability.
2. | Resales of Plan Securities; Definition of Underwriter. |
Section 1145(b)(1) of the Bankruptcy Code defines an underwriter as one who, except with
respect to ordinary trading transactions of an entity that is not an issuer, (a) purchases a
claim against, interest in, or claim for an administrative expense in the case concerning, the
debtor, if such purchase is with a view to distribution of any security received or to be received
in exchange for such claim or interest; or (b) offers to sell securities offered or sold under a
plan for the Holders of such securities; or (c) offers to buy securities offered or sold under a
plan from the Holders of such securities, if such offer to buy is (i) with a view to distribution
of such securities and (ii) under an agreement made in connection with the plan, with the
consummation of the plan, or with the offer or sale of securities under the plan; or (d) is an
issuer of the securities within the meaning of section 2(a)(11) of the Securities Act. In
addition, a Person who receives a fee in exchange for purchasing an issuers securities could also
be considered an underwriter within the meaning of section 2(a)(11) of the Securities Act.
The definition of an issuer for purposes of whether a Person is an underwriter under Section
1145(b)(1)(D) of the Bankruptcy Code, by reference to section 2(a)(11) of the Securities Act,
includes as statutory underwriters all persons who, directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control with, an issuer of
securities. The reference to issuer, as used in the definition of underwriter contained in
section 2(a)(11) of the Securities Act, is intended to cover controlling persons of the issuer of
the securities. Control, as defined in Rule 405 of the Securities Act, means the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by contract, or
otherwise. Accordingly, an officer or director of a reorganized debtor or its successor under a
plan of reorganization may be deemed to be a controlling Person of such debtor or successor,
particularly if the management position or directorship is coupled with ownership of a significant
percentage of the reorganized debtors or its successors voting securities. Moreover, the
legislative history of section 1145 of the Bankruptcy Code suggests that a creditor who owns ten
percent (10%) or more of a class of securities of a reorganized debtor may be presumed to be a
controlling Person and, therefore, an underwriter.
Resales of the Plan Securities by Persons deemed to be underwriters (which definition
includes controlling Persons) are not exempted by section 1145 of the Bankruptcy Code from
registration under the Securities Act or other applicable law. Under certain circumstances,
Holders of Plan Securities who are deemed to be underwriters may be entitled to resell their Plan
Securities pursuant to the limited safe harbor resale provisions of Rule 144. However, the Debtors
do not presently intend to make publicly available the requisite current information regarding the
Debtors, and as a result, Rule 144 may not be available for resales of Plan Securities by persons
deemed to be underwriters. Whether any particular Person would be deemed to be an underwriter
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(including whether such Person is a controlling Person) with respect to the Plan Securities
would depend upon various facts and circumstances applicable to that Person. Accordingly, the
Debtors express no view as to whether any Person would be deemed an underwriter with respect to
the Plan Securities. In view of the complex nature of the question of whether a particular Person
may be an underwriter, the Debtors make no representations concerning the right of any Person to
freely resell Plan Securities. Accordingly, the Debtors recommend that potential recipients of
Plan Securities consult their own counsel concerning their ability to freely trade such securities
without compliance with the federal and state securities laws.
C. | LISTING OF PLAN SECURITIES. |
The Debtors will not be required to report to the SEC upon emergence. Moreover, the Debtors
will not seek to list the New Common Stock or the Warrants on a national securities exchange. In
order to ensure that the Debtors will not become subject to the reporting requirements of the
Securities Exchange Act except in connection with a public offering, the New Common Stock and the
Warrants will be subject to certain trading and exercise restrictions, among other transfer and
exercise restrictions, to limit the number of record holders thereof.
ARTICLE XI
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. federal income tax consequences of the
implementation of the Plan to the Debtors and the Reorganized Debtors and certain Holders of Claims
and Equity Interests. The following summary is based on the Internal Revenue Code of 1986, as
amended (the Tax Code), Treasury Regulations promulgated thereunder (the
Regulations), judicial decisions and published administrative rules and pronouncements of
the Internal Revenue Service as in effect on the date hereof. Changes in such rules or new
interpretations thereof may have retroactive effect and could significantly affect the U.S. federal
income tax consequences described below.
The U.S. federal income tax consequences of the Plan are complex and are subject to
significant uncertainties. The Debtors have not requested and will not request a ruling from the
Internal Revenue Service or an opinion of counsel with respect to any of the tax aspects of the
Plan. Thus, no assurance can be given as to the interpretation that the Internal Revenue Service
will adopt. In addition, this summary does not address foreign, state or local tax consequences of
the Plan. This summary does not purport to address the U.S. federal income tax consequences of the
Plan to special classes of taxpayers (such as Persons who are related to the Debtors within the
meaning of the Tax Code, foreign taxpayers, broker-dealers, banks, mutual funds, insurance
companies, financial institutions, small business investment companies, regulated investment
companies, tax exempt organizations, investors in pass-through entities, subchapter S corporations,
persons who hold Claims or Equity Interests or who will hold the New Common Stock as part of a
straddle, hedge, conversion transaction or other integrated investment, persons using a mark to
market method of accounting, and Holders of Claims who are themselves in bankruptcy). This
discussion assumes that Holders of Claims or Equity Interests hold such Claims or Equity Interests
as capital assets within the meaning of section 1221 of the Tax Code. Furthermore, except as
specifically discussed below, this discussion assumes that Holders of Claims or Equity Interests
hold only Claims or Equity Interests in a single Class. Holders of Claims or Equity Interests
should consult their tax advisors as to the effect such ownership may have on the U.S. federal
income tax consequences described below.
This summary is not intended to constitute a complete analysis of all tax considerations
relevant to a particular Holder of a Claim or Equity Interest. Each Holder of a Claim or Equity
Interest should seek advice from its independent tax advisors concerning the United States federal,
state, local, foreign income and other tax consequences of the Plan in light of its particular
circumstances.
This discussion assumes that the various debt and other arrangements to which the Debtors are
a party will be respected for U.S. federal income tax purposes in accordance with their form.
Accordingly, the following summary of certain U.S. federal income tax consequences is for
informational purposes only and is not a substitute for careful tax planning and advice based upon
the individual circumstances pertaining to a Holder of a Claim or Equity Interest. All Holders of
Claims and Equity Interests are urged to consult their tax advisors for the federal, state, local
and other tax consequences applicable under the Plan.
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INTERNAL REVENUE SERVICE CIRCULAR 230 DISCLOSURE: TO ENSURE COMPLIANCE WITH
REQUIREMENTS IMPOSED BY THE UNITED STATES INTERNAL REVENUE SERVICE, ANY TAX ADVICE CONTAINED IN
THIS DISCLOSURE STATEMENT (INCLUDING ANY ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND
CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING TAX-RELATED PENALTIES UNDER THE TAX
CODE. TAX ADVICE CONTAINED IN THIS DISCLOSURE STATEMENT (INCLUDING ANY ATTACHMENTS) IS WRITTEN TO
SUPPORT THE PROMOTION, MARKETING OR PROMOTION OF THE PLAN. EACH TAXPAYER SHOULD SEEK ADVICE BASED
ON THE TAXPAYERS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
A. | CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTORS AND THE REORGANIZED DEBTORS. |
The Debtors expects to report consolidated net operating loss carryforwards for U.S. federal
income tax purposes of approximately $162 million. As discussed below, the amount of the Debtors
consolidated current year net operating losses and net operating loss carryforwards (collectively,
NOLs) may be significantly reduced or eliminated upon implementation of the Plan. In
addition, the Reorganized Debtors subsequent utilization of any remaining NOLs and possibly
certain other tax attributes may be restricted as a result of and upon the implementation of the
Plan.
1. | Reduction of NOLs. |
The Tax Code provides that a debtor in a bankruptcy case must reduce certain of its tax
attributes, such as NOLs, tax credits and tax basis in assets, by the amount of any cancellation of
indebtedness income (COD) realized upon consummation of the debtors plan of
reorganization. COD is the amount by which the indebtedness discharged (reduced by any unamortized
discount) exceeds any consideration given in exchange therefore, subject to certain statutory or
judicial exceptions that can apply to limit the amount of COD (such as where the payment of the
cancelled debt would have given rise to a tax deduction).
As a result of Consummation of the Plan, and in particular the exchange of the Class 4 Senior
Secured Notes Claims for New Common Stock, the Debtors expect to realize substantial COD. The
extent of such COD and resulting tax attribute reduction will depend on the value of the New Common
Stock. Subject to the next paragraph, based on the estimated reorganization value of the
Reorganized Debtors, it is anticipated that the amount of COD may exceed the amount of the NOLs,
which would eliminate the NOLs and reduce the Reorganized Debtors tax basis in its assets. Absent
an election under section 108(b)(5) of the Tax Code, discussed below, the Reorganized Debtors tax
basis in their assets cannot be reduced below the total amount of its liabilities outstanding
immediately after Consummation of the Plan.
2. | Reduction of Tax Basis in Depreciable Assets. |
Under section 108(b)(5) of the Tax Code, a taxpayer may elect to first apply the reduction to
the basis of the taxpayers depreciable assets, with any remaining balance applied to reduce NOLs
and other tax attributes. The Debtors have not yet determined whether they will make the election
under the Tax Code to apply any required tax attribute reduction first to depreciable property,
with any excess next applied to reduce NOLs and other tax attributes. If such election were made,
all or a portion of the Reorganized Debtors NOLs would survive post emergence, subject to the
limitations described herein, but the basis of the Reorganized Debtors depreciable property could
be reduced below the total amount of their liabilities outstanding immediately after Consummation
of the Plan.
3. | Limitation on NOLs and Other Tax Attributes. |
Following the implementation of the Plan, the Debtors anticipate that any remaining NOLs, tax
credit carryforwards, net unrealized built-in losses, and, possibly, certain other tax attributes
of the Reorganized Debtors allocable to periods prior to the Effective Date (collectively,
Pre-Change Losses) may be subject to limitation under Section 382 of the Tax Code as a
result of an ownership change of the Debtors by reason of the transactions pursuant to the Plan.
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In general, the amount of the annual limitation to which a corporation that undergoes an
ownership change would be subject is equal to the product of (a) the fair market value of the stock
of the loss corporation immediately before the ownership change (with certain adjustments)
multiplied by (b) the long-term tax-exempt rate in effect for the month in which the ownership
change occurs (currently, 3.67 percent). The annual limitation under section 382 represents the
amount of pre-change NOLs, as well as certain built-in losses recognized within the five-year
period following the ownership change, that may be used each year to offset income. Section 383 of
the Tax Code applies a similar limitation to capital loss carryforwards and tax credits. The
annual limitation may be increased to the extent that the Reorganized Debtors recognize certain
built-in gains in its assets during the five-year period following the ownership change, including,
pursuant to Notice 2003-65, any hypothetical increase in their depreciation or amortization as a
result of any anticipated net unrealized built-in gain on the Effective Date. Any unused limitation
may be carried forward, thereby increasing the annual limitation in the subsequent taxable year.
4. | Pre-Confirmation Measures. |
To ensure that no ownership change occurs prior to Confirmation of the Plan, on the Petition
Date, the Debtors will File a motion requesting an order restricting trading in the equity
securities of the Debtors by certain substantial shareholders who hold 4.5% or more of the value
of such securities or who have an intention to become a substantial shareholder. These
restrictions will become irrelevant once the Plan is confirmed and the Equity Interests are
cancelled.
5. | Special Bankruptcy Exceptions. |
An exception to the foregoing annual limitation rules generally applies when former
stockholders and so called qualified creditors of a company in bankruptcy receive, in respect of
their claims, at least 50% of the vote and value of the stock of the reorganized debtor (or a
controlling corporation if also in bankruptcy) pursuant to a confirmed Chapter 11 plan (the
382(l)(5) Exception). Under the 382(l)(5) Exception, a debtors pre-change losses are
not limited on an annual basis but, instead, are required to be reduced by the amount of any
interest deductions claimed during the three taxable years preceding the Effective Date, and during
the part of the taxable year prior to and including the plan of reorganization, in respect of all
debt converted into stock in the reorganization. If the 382(l)(5) Exception applies and the
Reorganized Debtors undergo another ownership change within two years after Consummation of the
Plan, then the Reorganized Debtors Section 382 annual limitation will generally be reduced to
zero, which would effectively preclude utilization of its Pre-Change Losses.
Where the 382(l)(5) Exception is not applicable (either because the debtor company does not
qualify for it or the debtor otherwise elects not to utilize the 382(l)(5) Exception), a second
special rule will generally apply (the 382(l)(6) Exception). When the 382(l)(6)
Exception applies, a corporation in bankruptcy that undergoes an ownership change generally is
permitted to determine the fair market value of its stock after taking into account the increase in
value resulting from any surrender or cancellation of creditors claims in the bankruptcy. This
differs from the ordinary rule that requires the fair market value of a corporation that undergoes
an ownership change to be determined before the events giving rise to the change. The 382(l)(6)
Exception also differs from the 382(l)(5) Exception in that under it the Reorganized Debtors would
not be required to reduce its NOLs by the amount of any interest deductions claimed by the Debtors
within the prior three year period and the Reorganized Debtors may undergo a change of ownership
within two years without triggering any reduction in their Section 382 annual limitation.
The Debtors have not yet determined whether they will elect to utilize the 382(l)(5)
Exception. In the event that the Debtors do not use the 382(l)(5) Exception, the Debtors expect
that the Reorganized Debtors use of Pre-Change Losses after the Effective Date will be subject to
limitation based on the rules discussed above, but taking into account the 382(l)(6) Exception.
6. | Alternative Minimum Tax. |
In general, an alternative minimum tax (AMT) is imposed on a corporations
alternative minimum taxable income at a 20% rate to the extent such tax exceeds the corporations
regular U.S. federal income tax. For purposes of computing taxable income for AMT purposes,
certain tax deductions and other beneficial allowances are modified or eliminated. For example,
except for certain alternative tax NOLs generated in taxable years beginning or ending in 2008 or
2009, which can offset 100% of a corporations AMT income, generally only 90% of
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a corporations taxable income for AMT purposes may be offset by available NOLs (as computed
for AMT purposes). The effect of this rule could cause the Reorganized Debtors to owe some amount
of federal and state income tax on taxable income in future years even though NOL carryforwards are
available to offset that taxable income.
In addition, if a corporation undergoes an ownership change, within the meaning of section 382
of the Tax Code and is in a net unrealized built-in loss position (as determined for AMT purposes)
on the date of the ownership change, the corporations aggregate tax basis in its assets will be
reduced for certain AMT purposes to reflect the fair market value of such assets as of the change
date.
B. | CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 1 OTHER PRIORITY CLAIMS, CLASS 3 REVOLVING CREDIT FACILITY CLAIMS AND CLASS 5 GENERAL UNSECURED CLAIMS. |
Pursuant to the Plan, Holders of Allowed Class 1 Other Priority Claims, Class 3 Revolving
Credit Facility Claims and Class 5 General Unsecured Claims will either receive Cash in full
payment of their Claims or have their Claims reinstated and rendered Unimpaired. A Holder who
receives Cash in exchange for its Claim pursuant to the Plan generally will recognize income, gain
or loss for U.S. federal income tax purposes in an amount equal to the difference between (1) the
amount of Cash received in exchange for its Claim and (2) the Holders adjusted tax basis in its
Claim. The character of such gain or loss as capital gain or loss or as ordinary income or loss
will be determined by a number of factors, including the tax status of the Holder, the nature of
the Claim in such Holders hands, whether the Claim constitutes a capital asset in the hands of the
Holder, whether the Claim was purchased at a discount and whether and to what extent the Holder has
previously claimed a bad debt deduction with respect to its Claim. See the discussions of accrued
interest and market discount below.
C. | CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 4 SENIOR SECURED NOTES CLAIMS. |
Pursuant to the Plan, in full satisfaction and discharge of their Claims, Holders of Allowed
Class 4 Senior Secured Notes Claims will receive New Common Stock. The U.S. federal income tax
consequences of the Plan to such Holders of Claims will depend, in part, on whether the Claims
surrender constitute securities for U.S. federal income tax purposes.
Whether a debt instrument constitutes a security is determined based on all the facts and
circumstances, but most authorities have held that the length of the term of a debt instrument at
initial issuance is an important factor in determining whether such instrument is a security for
U.S. federal income tax purposes. These authorities have indicated that a term of less than five
years is evidence that the instrument is not a security, whereas a term of ten years or more is
evidence that it is a security. There are numerous other factors that could be taken into account
in determining whether a debt instrument is a security, including the security for payment, the
creditworthiness of the obligor, the subordination or lack thereof with respect to other creditors,
the right to vote or otherwise participate in the management of the obligor, convertibility of the
instrument into an Equity Interest of the obligor, whether payments of interest are fixed, variable
or contingent and whether such payments are made on a current basis or accrued. While not free from
doubt, the Debtors intend to take the position that the Class 4 Senior Secured Notes Claims
constitute securities for federal income tax purposes.
If the Class 4 Senior Secured Notes Claims do qualify as securities, then the exchange of such
Allowed Class 4 Senior Secured Notes Claims for New Common Stock pursuant to the Plan should be
treated as a recapitalization and, therefore, a tax-free reorganization. In such case, each Holder
of Allowed Class 4 Senior Secured Notes Claims that receives New Common Stock should not recognize
any gain or loss on the exchange, except that a Holder of such Allowed Class 4 Senior Secured Notes
Claims may recognize ordinary income to the extent that New Common Stock is treated as received in
satisfaction of accrued but untaxed interest on such Allowed Class 4 Senior Secured Notes Claims.
See section XI.D below for further information. Such Holder should obtain a tax basis in the New
Common Stock equal to the tax basis of the Allowed Class 4 Senior Secured Notes Claims surrendered
for the New Common Stock and should have a holding period for the New Common Stock that includes
the holding period for the Allowed Class 4 Senior Secured Notes Claims exchanged for the New Common
Stock; provided, however, that the tax basis of any share of New Common Stock (or
portion thereof) treated as received in satisfaction of accrued interest should equal the fair
value of such New Common Stock, and
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the holding period for such New Common Stock (or portion thereof) should not include the
holding period of the Allowed Class 4 Senior Secured Notes Claims exchanged for New Common Stock.
To the extent that the Class 4 Senior Secured Notes Claims are not treated as securities, a
Holder of such Allowed Class 4 Senior Secured Notes Claims will be treated as exchanging such
Allowed Class 4 Senior Secured Notes Claims for New Common Stock in a taxable exchange under
section 1001 of the Tax Code. Accordingly, each Holder of such Allowed Class 4 Senior Secured
Notes Claims should recognize gain or loss equal to the difference between: (1) the fair market
value of New Common Stock (as of the date the stock is distributed to the Holder) received in
exchange for the Allowed Class 4 Senior Secured Notes Claims; and (2) such Holders adjusted basis,
if any, in such Allowed Class 4 Senior Secured Notes Claims. Such gain or loss should be capital
in nature so long as the Allowed Class 4 Senior Secured Notes Claims are held as capital assets
(subject to the market discount rules described below) and should be long-term capital gain or
loss if the Holder has a holding period for such Allowed Class 4 Senior Secured Notes Claims of
more than one year. To the extent that a portion of the New Common Stock received in exchange for
the Allowed Class 4 Senior Secured Notes Claims is allocable to accrued but untaxed interest, the
Holder may recognize ordinary income. See section XI.D below for further information. A Holders
tax basis in New Common Stock received should equal the fair market value of the New Common Stock
as of the date such stock is distributed to the Holder. A Holders holding period for New Common
Stock should begin on the day following the Effective Date.
Holders of Class 4 Senior Secured Notes Claims should also consult their tax advisors
regarding whether such Claims could be treated as securities for U.S. federal income tax
purposes.
D. | CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF CLASS 9 EQUITY INTERESTS IN INSIGHT HEALTH SERVICES HOLDINGS CORP. |
Pursuant to the Plan, Class 9 Equity Interests in InSight Health Services Holdings Corp. will
be cancelled and Holders of existing common stock of InSight Health Services Holdings Corp. on the
Effective Date (immediately prior to the consummation of the Plan) will receive Warrants. The
treatment of a Holder of existing common stock that receives Warrants will depend on whether or not
the Holder of such existing common stock also holds Allowed Class 4 Senior Secured Notes Claims
treated as securities (see discussion above).
If a Holder of such existing common stock holds both such existing common stock and Allowed
Class 4 Senior Secured Notes Claims treated as securities then the exchange of such existing common
stock for Warrants pursuant to the Plan should be treated as a recapitalization and, therefore, a
tax-free reorganization. Each such Holder of existing common stock should not recognize any gain
or loss on the exchange. Such Holder should obtain a tax basis in the Warrants equal to the tax
basis of the existing common stock surrendered and should have a holding period for the Warrants
that includes the holding period for such existing common stock.
If a Holder of such existing common stock does not also hold Allowed Class 4 Senior Secured
Notes Claims treated as securities then the exchange of such existing common stock for Warrants
pursuant to the Plan should be treated as a taxable exchange. Accordingly, each such Holder of
existing common stock should recognize gain or loss equal to the difference between: (a) the
fair market value of Warrants (as of the date the warrants are distributed to the Holder) received
in exchange for the existing common stock; and (b) such Holders adjusted basis, if any, in such
existing common stock. Such gain or loss should be capital in nature so long as the such existing
common stock is held as capital assets (subject to the market discount rules described below) and
should be long-term capital gain or loss if the Holder has a holding period for such existing
common stock of more than one year. A Holders tax basis in Warrants received should equal the
fair market value of the Warrants as of the date such warrants are distributed to the Holder. A
Holders holding period for Warrants should begin on the day following the Effective Date.
E. | ACCRUED INTEREST. |
A portion of the consideration received by Holders of Claims may be attributable to interest
that has accumulated since the principal investment or since the previous interest payment that has
not been paid or taxed (Accrued but Untaxed Interest). Such amount should be taxable to
that Holder as interest income if such accrued interest has not been previously included in the
Holders gross income for U.S. federal income tax purposes. Conversely, a Holder of a Claim may be
able to recognize a deductible loss (or, possibly, a write off against a
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reserve for worthless debts) to the extent that any accrued interest on the Claims was
previously included in the Holders gross income but was not paid in full by the Debtors. Such
loss may be ordinary, but the tax law is unclear on this point.
If the fair market value of the consideration is not sufficient to fully satisfy all principal
and interest on an Allowed Claim, the extent to which such consideration will be attributable to
Accrued but Untaxed Interest is unclear. Under the Plan, the aggregate consideration to be
distributed to Holders of Allowed Claims in each Class will be allocated first to the principal
amount of Allowed Claims, with any excess allocated to unpaid interest that accrued on such Claims,
if any. Certain legislative history indicates that an allocation of consideration as between
principal and interest provided in a Chapter 11 plan of reorganization is binding for U.S. federal
income tax purposes. The IRS could take the position, however, that the consideration received by
the Holder should be allocated in some way other than as provided in the Plan, in which case the
Holder could recognize interest income. Holders of Claims should consult their tax advisors
regarding the proper allocation of the consideration received by them under the Plan.
F. | MARKET DISCOUNT. |
Under the market discount provisions of sections 1276 through 1278 of the Tax Code, some or
all of any gain realized by a Holder of a Claim who exchanges the Claim for New Common Stock on the
Effective Date may be treated as ordinary income (instead of capital gain), to the extent of the
amount of market discount on the Claim. In general, a debt instrument is considered to have been
acquired with market discount if its holders adjusted tax basis in the debt instrument is less
than the sum of all remaining payments to be made on the debt instrument, excluding qualified
stated interest, by at least a de minimis amount (equal to 0.25% of the sum of all remaining
payments to be made on the Claim, excluding qualified stated interest, multiplied by the number of
remaining whole years to maturity).
Any gain recognized by a Holder on the taxable disposition of Claims acquired with market
discount should be treated as ordinary income to the extent of the market discount that accrued
thereon while such Claims were considered to be held by the Holder (unless the Holder had elected
to include market discount in income as it accrued). To the extent that the surrendered Claims
acquired with market discount are deemed to be exchanged for New Common Stock in a tax free
recapitalization, any market discount that accrued on such debt but was not recognized by the
Holder may cause any gain recognized on the subsequent sale, exchange, redemption or other taxable
disposition of the New Common Stock to be treated as ordinary income to the extent of the accrued
but unrecognized market discount with respect to the exchanged Claim.
G. | INFORMATION REPORTING AND BACK-UP WITHHOLDING. |
In general, information reporting requirements may apply to distributions or payments under
the Plan. Additionally, under the backup withholding rules, a Holder of a Claim may be subject to
backup withholding (currently at a rate of 28%) with respect to distributions or payments made
pursuant to the Plan unless that Holder: (a) comes within certain exempt categories (which
generally include corporations) and, when required, demonstrates that fact; or (b) provides a
correct taxpayer identification number and certifies under penalty of perjury that the taxpayer
identification number is correct and that the Holder is not subject to backup withholding because
of a failure to report all dividend and interest income. Backup withholding is not an additional
tax but is, instead, an advance payment that may be refunded to the extent it results in an
overpayment of tax; provided, however, that the required information is provided to the Internal
Revenue Service.
The Reorganized Debtors will withhold all amounts required by law to be withheld from payments
of interest. The Reorganized Debtors will comply with all applicable reporting requirements of the
Internal Revenue Service.
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ARE COMPLEX. THE FOREGOING SUMMARY DOES
NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER
IN LIGHT OF SUCH HOLDERS CIRCUMSTANCES AND INCOME TAX SITUATION. ALL HOLDERS OF CLAIMS AND
INTERESTS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE TRANSACTIONS CONTEMPLATED BY THE PLAN, INCLUDING THE APPLICABILITY
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AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND OF ANY CHANGE IN APPLICABLE TAX LAWS.
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ARTICLE XII
GLOSSARY OF DEFINED TERMS
For purposes herein: (a) in the appropriate context, each term, whether stated in the singular
or the plural, shall include both the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and the neuter gender;
(b) any reference herein to a contract, lease, instrument, release, indenture or other agreement or
document being in a particular form or on particular terms and conditions means that the referenced
document shall be substantially in that form or substantially on those terms and conditions; (c)
any reference herein to an existing document or exhibit having been Filed or to be Filed shall mean
that document or exhibit, as it may thereafter be amended, modified or supplemented; (d) unless
otherwise specified, all references herein to Articles are references to Articles hereof or
hereto; (e) unless otherwise stated, the words herein, hereof and hereto refer to the Plan
in its entirety rather than to a particular portion of the Plan; (f) captions and headings to
Articles are inserted for convenience of reference only and are not intended to be a part of or to
affect the interpretation hereof; (g) the rules of construction set forth in section 102 of the
Bankruptcy Code shall apply; and (h) any term used in capitalized form herein that is not otherwise
defined but that is used in the Bankruptcy Code or the Bankruptcy Rules shall have the meaning
assigned to that term in the Bankruptcy Code or the Bankruptcy Rules, as the case may be.
Unless the context otherwise requires, the following terms will have the following meanings
when used in capitalized form herein.
A. | DEFINED TERMS. |
Accrued Professional Compensation means, at any given moment, all accrued fees and expenses
(including success fees) for services rendered by a Professional through and including the
Confirmation Date, to the extent such fees and expenses have not been paid pursuant to the Interim
Compensation Order or other order of the Bankruptcy Court and regardless of whether a fee
application has been Filed for such fees and expenses. To the extent the Bankruptcy Court or any
higher court denies or reduces by a Final Order any amount of a Professionals fees or expenses,
then the amount by which such fees or expenses are reduced or denied shall no longer constitute
Accrued Professional Compensation.
Ad Hoc Noteholders Committee means that certain committee of Holders of Senior Secured Notes
Claims represented by the Ad Hoc Noteholders Committee Professionals.
Ad Hoc Noteholders Committee Professionals means Skadden, Arps, Slate, Meagher & Flom LLP,
as counsel to the Ad Hoc Noteholders Committee, and FocalPoint Securities, LLC, as financial
advisor to the Ad Hoc Noteholders Committee.
Administrative Claim means a Claim for costs and expenses of administration pursuant to
sections 503(b), 507(a)(2), 507(b) or 1114(e)(2) of the Bankruptcy Code, including: (a) the actual
and necessary costs and expenses incurred after the Petition Date and through the Effective Date of
preserving the Estates and operating the businesses of the Debtors; (b) compensation for legal,
financial advisory, accounting and other services and reimbursement of expenses Allowed pursuant to
sections 328, 330(a) or 331 of the Bankruptcy Code or otherwise for the period commencing on the
Petition Date; (c) all fees and charges assessed against the Estates pursuant to chapter 123 of the
Judicial Code; (d) all requests for compensation or expense reimbursement for making a substantial
contribution in the Chapter 11 Cases pursuant to section 503(b)(3), (4) and (5) of the Bankruptcy
Code; and (e) the Noteholder Professional Fees.
Affiliate has the meaning set forth in section 101(2) of the Bankruptcy Code.
Allowed means with respect to Claims: (a) any Claim proof of which is timely Filed (or for
which Claim under the Plan, the Bankruptcy Code or Final Order of the Bankruptcy Court a Proof of
Claim is or shall not be
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required to be Filed); (b) any Claim that is listed in the Schedules as not contingent, not
unliquidated and not disputed and for which no Proof of Claim has been timely Filed; or (c) any
Claim Allowed pursuant to the Plan; provided, however, that with respect to any
Claim described in clauses (a) and (b) above, such Claim shall be considered Allowed only if and to
the extent that with respect to any Claim no objection to the allowance thereof has been brought
within the applicable period of time fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules
or the Bankruptcy Court, or such an objection is so brought, and the Claim shall have been Allowed
for voting purposes only by a Final Order pursuant to the terms of the Plan. Any Claim that has
been or is hereafter listed in the Schedules as contingent, unliquidated or disputed and for which
no Proof of Claim is or has been timely Filed is not considered Allowed and shall be expunged
without further action by the Debtors and without further notice to any party or action, approval
or order of the Bankruptcy Court.
Ballots means the ballots accompanying the Disclosure Statement, upon which certain Holders
of Impaired Claims entitled to vote shall, among other things, indicate their acceptance or
rejection of the Plan in accordance with the Plan and the procedures governing the solicitation
process, and which must be actually received on or before the Voting Deadline.
Bankruptcy Code means title 11 of the United States Code, 11 U.S.C. §§ 1011532, as
applicable to the Chapter 11 Cases.
Bankruptcy Court means the United States Bankruptcy Court for the Southern District of New
York having jurisdiction over the Chapter 11 Cases and, to the extent of the withdrawal of any
reference under 28 U.S.C. § 157 and/or the order of the United States District Court for the
Southern District of New York, the United States District Court for the Southern District of New
York.
Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as applicable to the
Chapter 11 Cases, promulgated under section 2075 of the Judicial Code and the general, local and
chambers rules of the Bankruptcy Court.
Business Day means any day, other than a Saturday, Sunday or legal holiday (as defined in
Bankruptcy Rule 9006(a)).
Cash means the legal tender of the United States of America or the equivalent thereof,
including, without limitation, bank deposits, wire transfers and checks or similar negotiable
instruments.
Causes of Action means any claim, cause of action, controversy, demand, right, action, Lien,
indemnity, guaranty, suit, obligation, liability, damage, judgment, account, defense, offset,
power, privilege, license or franchise of any kind or character whatsoever, known, unknown,
contingent or non-contingent, matured or unmatured, suspected or unsuspected, liquidated or
unliquidated, disputed or undisputed, secured or unsecured, assertable directly or derivatively,
whether arising before, on or after the Petition Date, in contract or in tort, in law or in equity
or pursuant to any other theory of law. Cause of Action also includes: (a) any right of setoff,
counterclaim or recoupment and any claim on contracts or for breaches of duties imposed by law or
in equity; (b) the right to object to Claims or Interests; (c) any claim pursuant to sections 362
or chapter 5 of the Bankruptcy Code; (d) any claim or defense including fraud, mistake, duress and
usury and any other defenses set forth in section 558 of the Bankruptcy Code; (e) any state law
fraudulent transfer claim; and (f) any claim listed in the Plan Supplement.
Certificate means any instrument evidencing a Claim or an Interest.
Chapter 11 Cases means (a) when used with reference to a particular Debtor, the chapter 11
case pending for that Debtor under chapter 11 of the Bankruptcy Code in the Bankruptcy Court and
(b) when used with reference to all Debtors, the procedurally consolidated chapter 11 cases pending
for the Debtors in the Bankruptcy Court.
Claim means any claim against a Debtor as defined in section 101(5) of the Bankruptcy Code.
Claims Objection Bar Date means, as applicable, the latest of: (x) the Effective Date; (y)
180 days after the relevant Proof of Claim is Filed; or (z) such later period of limitation as may
be specifically fixed by the Debtors or the Reorganized Debtors.
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Class means a category of Holders of Claims or Interests as set forth in Article III of the
Plan pursuant to section 1122(a) of the Bankruptcy Code.
Collateral Agent means U.S. Bank National Association, in its capacity as collateral agent
for the Senior Secured Notes.
Committee or Committees means any official committee (and any and all subcommittees
thereof) appointed in the Chapter 11 Cases pursuant to section 1102 of the Bankruptcy Code.
Compensation and Benefit Claims means any and all Claims arising on account of, or relating
to, the Compensation and Benefits Programs assumed pursuant to Article V.D of the Plan.
Compensation and Benefits Programs means all employment and severance agreements and
policies, and all compensation and benefit plans, policies, and programs of the Debtors, and all
amendments and modifications thereto, applicable to the Debtors employees, former employees,
retirees and non-employee directors and the employees, former employees and retirees of their
subsidiaries, including, without limitation, all savings plans, retirement plans, health care
plans, disability plans, severance benefit agreements and plans, incentive plans, deferred
compensation plans and life, accidental death and dismemberment insurance plans.
Confirmation means the entry of the Confirmation Order on the docket of the Chapter 11
Cases, subject to all conditions specified in Article X.A of the Plan having been: (a) satisfied;
or (b) waived pursuant to Article X.C of the Plan.
Confirmation Date means the date upon which the Bankruptcy Court enters the Confirmation
Order on the docket of the Chapter 11 Cases, within the meaning of Bankruptcy Rules 5003 and 9021.
Confirmation Hearing means the hearing held by the Bankruptcy Court on Confirmation of the
Plan pursuant to section 1129 of the Bankruptcy Code, as such hearing may be continued from time to
time.
Confirmation Order means the order of the Bankruptcy Court confirming the Plan pursuant to
section 1129 of the Bankruptcy Code.
Consenting Noteholders means the Holders of Senior Secured Notes Claims that are parties to
the Restructuring Support Agreement.
Consummation means the occurrence of the Effective Date.
Corporate Governance Documents means the (a) New Certificates of Incorporation, (b) New
By-Laws, (c) Stockholders Agreement and (d) Registration Rights Agreement, each of which shall be
Filed with the Bankruptcy Court pursuant to the Plan Supplement.
Creditors Committee means the official committee of unsecured creditors (including any and
all subcommittees thereof) appointed in the Chapter 11 Cases pursuant to section 1102 of the
Bankruptcy Code, if any.
Cure Claim means a Claim based upon the Debtors defaults, if any, on an Executory Contract
or Unexpired Lease at the time such contract or lease is assumed by the Debtors pursuant to
sections 365 or 1123 of the Bankruptcy Code.
D&O Liability Insurance Policies means all insurance policies for directors, managers and
officers liability maintained by the Debtors as of the Petition Date.
Debtor means one of the Debtors, in its individual capacity as a debtor in the Chapter 11
Cases.
Debtor Release means the release given by the Debtors to the Debtor Releasees as set forth
in Article VIII.D of the Plan.
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Debtor Releasees means, collectively, all current and former affiliates, subsidiaries,
managed accounts or funds, officers, directors, partners, principals, employees, agents, financial
advisors, attorneys, accountants, investment bankers, consultants, representatives, management
companies and officers, directors, partners, principals, employees and agents thereof, fund
advisors and other professionals of the Debtors, in each case in their capacity as such.
Debtors means, collectively, the Debtors in the Chapter 11 Cases: (a) InSight Health
Services Holdings Corp.; (b) InSight Health Services Corp.; (c) Comprehensive Medical Imaging
Centers, Inc.; (d) InSight Health Corp.; (e) Maxum Health Services Corp.; (f) North Carolina Mobile
Imaging I LLC; (g) North Carolina Mobile Imaging II LLC; (h) North Carolina Mobile Imaging III LLC;
(i) North Carolina Mobile Imaging IV LLC; (j) North Carolina Mobile Imaging V LLC; (k) North
Carolina Mobile Imaging VI LLC; (l) North Carolina Mobile Imaging VII LLC; (m) Open MRI, Inc.; (n)
Orange County Regional PET Center Irvine, LLC; (o) Parkway Imaging Center, LLC; (p)
Comprehensive Medical Imaging, Inc.; and (q) Signal Medical Services, Inc.
Debtors in Possession means, collectively, the Debtors, as debtors in possession in the
Chapter 11 Cases, pursuant to sections 1107 and 1108 of the Bankruptcy Code.
DIP Agent means the administrative agent under the DIP Credit Agreement or any successor
agent appointed in accordance thereof, as applicable.
DIP Credit Agreement means that certain debtor in possession credit agreement to be executed
on or prior to the Petition Date by and among the Debtors, the DIP Agent, the DIP Lenders named
therein and the other parties thereto, as the same may be subsequently modified, amended or
supplemented, together with all instruments and agreements related thereto.
DIP Facility means that certain debtor in possession credit facility entered into pursuant
to the DIP Credit Agreement.
DIP Facility Claims means any and all Claims arising under or related to the DIP Facility.
DIP Lenders means the DIP Agent and the banks, financial institutions and other lender
parties to the DIP Credit Agreement from time to time, each in their capacity as such.
Disclosure Statement means this Disclosure Statement for the Debtors Prepackaged Joint
Chapter 11 Plan of Reorganization as further amended, supplemented or modified from time to time,
including all exhibits and schedules thereto and references therein that relate to the Plan, which
shall have been prepared and distributed in accordance with the Bankruptcy Code, the Bankruptcy
Rules and any other applicable law.
Disputed means, with respect to any Claim or Interest, any Claim or Interest that is not yet
Allowed.
Distribution Agent means the Reorganized Debtors, or the Entity or Entities chosen by the
Reorganized Debtors to make or facilitate distributions pursuant to the Plan.
Effective Date means the date selected by the Debtors that is a Business Day after the
Confirmation Date on which the conditions as specified in the Plan, including Article X.B of the
Plan, have been satisfied or waived. Unless otherwise specifically provided in the Plan, anything
required to be done by the Debtors on the Effective Date may be done on the Effective Date or as
soon as reasonably practicable thereafter.
Entity means an entity as defined in section 101(15) of the Bankruptcy Code.
Equity Interest means any share of common stock, preferred stock or other instrument
evidencing an ownership interest in any of the Debtors, whether or not transferable, and any
option, warrant or right, contractual or otherwise, to acquire any such interest in a Debtor that
existed immediately prior to the Effective Date, including any Claim subject to subordination
pursuant to section 510(b) of the Bankruptcy Code arising therefrom; provided,
however, that Equity Interest does not include any Intercompany Interest.
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Estate means, as to each Debtor, the estate created for the Debtor in its Chapter 11 Case
pursuant to section 541 of the Bankruptcy Code.
Exchange Act means the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a78oo, as amended,
the rules and regulations promulgated thereunder, and any similar federal, state or local law.
Exculpated Parties means, collectively: (a) the Debtors; (b) the Reorganized Debtors; (c)
the Debtor Releasees; (d) the Indenture Trustee; (e) the Third Party Releasees; and (f) all of the
current and former affiliates, subsidiaries, managed accounts or funds, officers, directors,
partners, principals, employees, agents, financial advisors, attorneys, accountants, investment
bankers, consultants, representatives, management companies and officers, directors, partners,
principals, employees and agents thereof, fund advisors and other professionals of each of the
foregoing Entities (whether current or former, in each case in their capacity as such).
Exculpation means the exculpation provision set forth in Article VIII.F of the Plan.
Executory Contract means a contract to which one or more than one of the Debtors are a party
that is subject to assumption or rejection under section 365 of the Bankruptcy Code.
Exit Facility means the new revolving credit facility to be entered into by the Debtors
pursuant to the Exit Facility Agreement.
Exit Facility Agent means Bank of America, N.A., or such other party as identified in the
Exit Facility Agreement in its capacity as administrative agent under the Exit Facility.
Exit Facility Agreement means that certain credit agreement to be executed on or before the
Effective Date, including and incorporating any agreements, amendments, documents or supplements
related thereto, all in form and substance acceptable to the Requisite Consenting Noteholders and
on commercially reasonable terms for similar transactions acceptable to the Debtors and the Exit
Facility Agent.
Fee Claim means a Claim for Accrued Professional Compensation.
File, Filed or Filing means file, filed, or filing with the Bankruptcy Court or its
authorized designee in the Chapter 11 Cases.
Final Order means, as applicable, an order or judgment of the Bankruptcy Court or other
court of competent jurisdiction with respect to the relevant subject matter, which has not been
reversed, stayed, modified, or amended, and as to which the time to appeal or seek certiorari has
expired and no appeal or petition for certiorari has been timely taken, or as to which any appeal
that has been taken or any petition for certiorari that has been or may be Filed has been resolved
by the highest court to which the order or judgment was appealed or from which certiorari was
sought.
General Unsecured Claim means any unsecured Claim against any of the Debtors that is not:
(a) an Administrative Claim; (b) a Priority Tax Claim; (c) an Other Priority Claim; (d) a Section
510(b) Claim; or (e) an Intercompany Claim.
Governmental Unit means a governmental unit as defined in section 101(27) of the Bankruptcy
Code.
Holder means any Entity holding a Claim or an Interest.
Impaired means any Claim or Interest in an Impaired Class.
Impaired Class means an impaired Class within the meaning of section 1124 of the Bankruptcy
Code.
Indemnification means the indemnification provision set forth in Article VIII.G of the Plan.
86
Indemnification Provision means each of the Debtors indemnification provisions currently in
place whether in the bylaws, certificates of incorporation, other formation documents, board
resolutions or employment contracts for the current and former directors, officers, managers,
employees, attorneys, other professionals and agents of the Debtors and such current and former
directors, officers and managers respective Affiliates.
Indemnified Parties means, collectively, the Debtors and each of their respective current
and former officers, directors, managers and employees, each in their respective capacities as
such.
Indenture means that certain indenture by and among InSight Health Services Corp., certain
Affiliates thereof, as guarantors, and U.S. Bank National Association, as trustee, dated September
22, 2005, as the same may have been amended from time to time.
Indenture Trustee means U.S. Bank National Association, in its capacity as trustee under the
Indenture.
Intercompany Claim means any Claim held by a Debtor against another Debtor or any Claim held
by an Affiliate against a Debtor.
Intercompany Contracts means any Executory Contract, Unexpired Lease, agreement, contract or
lease the counterparty or counterparties to which are Debtors.
Intercompany Interest means any share of common stock, preferred stock or other instrument
evidencing an ownership interest in any of the Debtors, whether or not transferable, and any
option, warrant or right, contractual or otherwise, to acquire any such interest in a Debtor, which
is held by another Debtor or an Affiliate of a Debtor. For the avoidance of doubt, Intercompany
Interests excludes Equity Interests in InSight Health Services Holdings Corp.
Interests means, collectively, Equity Interests and Intercompany Interests.
Interim Compensation Order means an order of the Bankruptcy Court allowing Professionals to
seek interim compensation in accordance with the procedures approved therein, as the same may be
modified by a Bankruptcy Court order approving the retention of a specific Professional or
otherwise.
Judicial Code means title 28 of the United States Code, 28 U.S.C. §§ 14001.
Lien means a lien as defined in section 101(37) of the Bankruptcy Code.
Management Equity Plan means that certain post-Effective Date Management Equity Plan, for
which up to eight percent (8%) of the fully diluted New Common Stock shall be reserved, and the
terms of which plan and equity grants thereunder shall be determined and implemented on or as soon
as reasonably practicable after the Effective Date by the New Board or any compensation committee
thereof in its discretion.
New Board means the board of directors of Reorganized InSight Health Services Holdings Corp.
The members of the New Board shall be appointed in accordance with the New By-Laws and the
Stockholders Agreement.
New By-Laws means the form of by-laws of each of the Reorganized Debtors, consistent with
Annex 1 to the Plan Term Sheet, which form will be Filed pursuant to the Plan Supplement and which
shall be in form and substance reasonably acceptable to the Requisite Consenting Noteholders.
New Certificates of Incorporation means the form of the certificates of incorporation or
formation of each of the Reorganized Debtors, which form will be Filed pursuant to the Plan
Supplement and which shall be in form and substance consistent with Annex 1 to the Plan Term Sheet
and reasonably acceptable to the Requisite Consenting Noteholders.
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New Common Stock means newly issued shares of common stock of Reorganized InSight Health
Services Holdings Corp., issued on the Effective Date with a par value of $.01 per share.
Noteholder Professional Fees means those fees including, but not limited to, all reasonable
fees and out-of-pocket expenses incurred by each of the Indenture Trustee, the Collateral Agent and
the Ad Hoc Noteholders Committee, including but not limited to the reasonable professional fees and
expenses of Skadden, Arps, Slate, Meagher & Flom, LLP and FocalPoint Securities, LLC in their
capacities as professional advisors to the Ad Hoc Noteholders Committee, and the professional
advisors of the Indenture Trustee and the Collateral Agent, whether or not the Plan is ultimately
consummated.
Other Priority Claim means any Claim accorded priority in right of payment under section
507(a) of the Bankruptcy Code, other than: (a) an Administrative Claim; or (b) a Priority Tax
Claim.
Other Secured Claim means any Secured Claim that is not: (a) a Revolving Credit Facility
Claim; (b) a Senior Secured Notes Claim; or (c) a DIP Facility Claim.
Person means a person as defined in section 101(41) of the Bankruptcy Code.
Petition Date means the date of commencement of the Chapter 11 Cases, which is intended to
occur on or about December 10, 2010, but, in any case, after solicitation of the Plan has
commenced.
Plan means this Debtors Prepackaged Joint Chapter 11 Plan of Reorganization, as may be
amended, supplemented or modified from time to time, including the Plan Supplement and all annexes,
appendices, attachments, exhibits and/or schedules thereto or to the Plan Supplement, all of which
are incorporated in the Plan by reference.
Plan Supplement means the compilation of documents and forms of documents, schedules and
exhibits to the Plan, to be Filed on or before the Plan Supplement Filing Date, as amended,
supplemented, or modified from time to time in accordance with the terms of the Plan, the
Bankruptcy Code, and the Bankruptcy Rules, including: (a) to the extent known, the identity of the
members of the New Board and the nature and compensation for any member of the New Board who is an
insider under section 101(31) of the Bankruptcy Code; (b) a list of Executory Contracts and
Unexpired Leases to be rejected; (c) a schedule of Causes of Action to be retained by the
Reorganized Debtors; (d) the Corporate Governance Documents; (e) the Exit Facility Agreement or a
description of the material terms of the Exit Facility; and (f) the Warrant Agreement.
Plan Supplement Filing Date means the date that is at least five (5) business days prior to
the Confirmation Hearing.
Plan Term Sheet means that certain Chapter 11 Plan Term Sheet attached as Exhibit A to the
Restructuring Support Agreement.
Priority Tax Claim means any Claim of a Governmental Unit of the kind specified in section
507(a)(8) of the Bankruptcy Code.
Priority Tax Claims Bar Date means the first Business Day that is 180 days after the
Effective Date.
Pro Rata means the proportion that an Allowed Claim in a particular Class bears to the
aggregate amount of Allowed Claims in that Class, or the proportion that Allowed Claims in a
particular Class bear to the aggregate amount of Allowed Claims in a particular Class and other
Classes entitled to share in the same recovery as such Allowed Claim under the Plan.
Professional means an Entity: (a) retained pursuant to a Final Order in accordance with
sections 327, 363 or 1103 of the Bankruptcy Code and to be compensated for services rendered prior
to or on the Confirmation Date, pursuant to sections 327, 328, 329, 330, 363 and 331 of the
Bankruptcy Code; or (b) awarded compensation and reimbursement by the Bankruptcy Court pursuant to
section 503(b)(4) of the Bankruptcy Code.
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Professional Fee Escrow Account means an interest-bearing account in an amount equal to the
Professional Fee Reserve Amount funded and maintained by the Reorganized Debtors on and after the
Effective Date solely for the purpose of paying all Allowed and unpaid Fee Claims.
Professional Fee Reserve Amount means the aggregate Accrued Professional Compensation
through the Confirmation Date as estimated by the Professionals in accordance with Article IX.B of
the Plan.
Proof of Claim means a proof of Claim Filed against any of the Debtors in the Chapter 11
Cases.
Record Date means the close of business on November 15, 2010.
Registration Rights Agreement means that certain agreement, as described in Annex 1 to the
Plan Term Sheet, to be executed on or before the Effective Date among Reorganized Insight Health
Services Holdings Corp. and the Holders of the New Common Stock, the form of which shall be Filed
pursuant to the Plan Supplement and which shall be in form and substance reasonably acceptable to
the Requisite Consenting Noteholders.
Rejection Damages Claim means a Claim arising from the rejection of an Executory Contract or
Unexpired Lease.
Rejection Damages Claims Bar Date means the first Business Day that is 30 days after the
latest of: (x) the date of entry of an order of the Bankruptcy Court approving the rejection of the
relevant Executory Contract or Unexpired Lease (which such order may include the Confirmation
Order); (y) the Effective Date; and (z) the effective date of rejection for the relevant Executory
Contract or Unexpired Lease.
Releasing Parties means, collectively: (a) the Revolving Credit Facility Agent; (b) the
Revolving Credit Facility Lenders; (c) the Indenture Trustee; (d) the Holders of the Senior Secured
Notes; (e) the DIP Agent; (f) the DIP Lenders; (g) any and all other Holders of Claims or Equity
Interests; and (h) with respect to each of the foregoing entities in clauses (a) through (f), and
in clause (g) to the fullest extent permitted by law, such entitys current and former affiliates,
subsidiaries, managed accounts or funds, officers, directors, partners, principals, employees,
agents, financial advisors, attorneys, accountants, investment bankers, consultants,
representatives, management companies and officers, directors, partners, principals, employees and
agents thereof, fund advisors and other professionals, in each case in their capacity as such.
Reorganized Debtor or Reorganized Debtors means the Debtors, in each case, or any
successor thereto, by merger, consolidation or otherwise, on or after the Effective Date.
Requisite Consenting Noteholders means the Consenting Noteholders holding at least two
thirds in amount of the Senior Secured Notes Claims.
Restructuring Support Agreement means that certain Restructuring Support Agreement, dated as
of December 2, 2010, by and among the Debtors and certain Holders of Senior Secured Notes Claims,
as may be amended from time to time in accordance with terms thereof.
Revolving Credit Agreement means that certain Second Amended and Restated Loan and Security
Agreement, by and among InSight Health Corp. and certain of its Affiliates, as borrowers, InSight
Health Services Holdings Corp. and InSight Health Services Corp., as guarantors, the Revolving
Credit Facility Agent, and the Revolving Credit Facility Lenders, dated as of August 1, 2007, as
the same may have been amended from time to time.
Revolving Credit Facility means the $20 million secured credit facility provided under the
Revolving Credit Agreement, as amended.
Revolving Credit Facility Agent means Bank of America, N.A., in its capacity as
administrative agent under the Revolving Credit Facility.
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Revolving Credit Facility Claim means any Claim arising under or related to upon the
Revolving Credit Facility.
Revolving Credit Facility Lenders means those banks, financial institutions and other lender
parties to the Revolving Credit Facility from time to time, each in their capacity as such.
SEC means the United States Securities and Exchange Commission.
Schedules means, collectively, the schedules of assets and liabilities, schedules of
Executory Contracts and Unexpired Leases and statements of financial affairs Filed by the Debtors
pursuant to section 521 of the Bankruptcy Code and in substantial accordance with the Official
Bankruptcy Forms, as the same may have been amended, modified or supplemented from time to time.
Section 510(b) Claims means any Claim subject to subordination under section 510(b) of the
Bankruptcy Code.
Secured means, when referring to a Claim: (a) secured by a Lien on property in which the
Estate has an interest, which Lien is valid, perfected and enforceable pursuant to applicable law
or by reason of a Bankruptcy Court order, or which is subject to setoff pursuant to section 553 of
the Bankruptcy Code to the extent of the value of the creditors interest in the Estates interest
in such property or to the extent of the amount subject to setoff, as applicable, as determined
pursuant to section 506(a) of the Bankruptcy Code; or (b) otherwise Allowed pursuant to the Plan as
a Secured Claim.
Secured Claim means a Claim that is Secured.
Securities Act means the Securities Act of 1933, 15 U.S.C. §§ 77a77aa, as amended, the
rules and regulations promulgated thereunder, and any similar federal, state or local law.
Securities Exchange Act means the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a78nn,
as amended.
Senior Secured Notes means those Senior Secured Floating Rate Notes due 2011 issued under
the Indenture.
Senior Secured Notes Claim means any Claim derived from or based upon the Indenture with
respect to the Senior Secured Notes; provided that Senior Secured Notes Claims shall not
include any Section 510(b) Claims.
Stockholders Agreement means that certain agreement, as described in Annex 1 to the Plan
Term Sheet, to be executed on or before the Effective Date providing for, among other things, the
rights and obligations of the Holders of the New Common Stock, the form of which shall be Filed
pursuant to the Plan Supplement and which shall be in form and substance acceptable to the
Requisite Consenting Noteholders.
Subplan means a subplan of reorganization that would be Filed by each of the Debtors in the
event the Bankruptcy Court does not substantively consolidate the Debtors Estates.
Third Party Release means the release provision set forth in Article VIII.E of the Plan.
Third Party Releasees means, collectively, (a) the Debtors; (b) the Revolving Credit
Facility Agent; (c) the Revolving Credit Facility Lenders; (d) the Indenture Trustee; (e) the
Holders of the Senior Secured Notes; (f) the DIP Agent; (g) the DIP Lenders; and (h) with respect
to each of the foregoing entities in clauses (a) through (g), such entitys current and former
affiliates, subsidiaries, managed accounts or funds, officers, directors, partners, principals,
employees, agents, financial advisors, attorneys, accountants, investment bankers, consultants,
representatives, management companies and officers, directors, partners, principals, employees and
agents thereof, fund advisors and other professionals, in each case in their capacity as such.
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Unexpired Lease means a lease to which one or more of the Debtors is a party that is subject
to assumption or rejection under section 365 of the Bankruptcy Code.
Unimpaired means, with respect to a Class of Claims or Interests, a Claim or an Interest
that is unimpaired within the meaning of section 1124 of the Bankruptcy Code.
Voting Deadline means December 27, 2010 at 5:00 p.m. (Eastern Time).
Warrants means those certain warrants to acquire shares of New Common Stock representing two
percent (2%), in the aggregate, of the New Common Stock, on a fully-diluted basis, as of the
Effective Date (but subject to dilution on or after the Effective Date for awards under the
Management Equity Plan), the terms of which shall be consistent in all material respects with the
Warrant Term Sheet and further provided in the Warrant Agreement.
Warrant Agreement means that certain agreement providing for, among other things, the
issuance and terms of the Warrants, the form and of which shall be Filed pursuant to the Plan
Supplement and consistent in all material respects with the Warrant Term Sheet, and which shall be
in form and substance acceptable to the Requisite Consenting Noteholders.
Warrant Term Sheet means that certain term sheet providing for, among other things, the
issuance of the Warrants, which is attached as Annex 2 to the Plan Term Sheet attached as Exhibit A
to the Restructuring Support Agreement.
B. | RULES OF INTERPRETATION. |
For purposes herein: (a) in the appropriate context, each term, whether stated in the
singular or the plural, shall include both the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and the neuter gender;
(b) any reference herein to a contract, lease, instrument, release, indenture or other agreement or
document being in a particular form or on particular terms and conditions means that the referenced
document shall be substantially in that form or substantially on those terms and conditions; (c)
any reference herein to an existing document or exhibit having been Filed or to be Filed shall mean
that document or exhibit, as it may thereafter be amended, modified or supplemented; (d) unless
otherwise specified, all references herein to Articles are references to Articles hereof or
hereto; (e) unless otherwise stated, the words herein, hereof and hereto refer to the
Disclosure Statement in its entirety rather than to a particular portion of the Disclosure
Statement; (f) captions and headings to Articles are inserted for convenience of reference only and
are not intended to be a part of or to affect the interpretation hereof; (g) the rules of
construction set forth in section 102 of the Bankruptcy Code shall apply; and (h) any term used in
capitalized form herein that is not otherwise defined but that is used in the Bankruptcy Code or
the Bankruptcy Rules shall have the meaning assigned to that term in the Bankruptcy Code or the
Bankruptcy Rules, as the case may be.
C. | COMPUTATION OF TIME. |
The provisions of Bankruptcy Rule 9006(a) shall apply in computing any period of time
prescribed or allowed herein.
D. | GOVERNING LAW. |
Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code
and Bankruptcy Rules) or unless otherwise specifically stated, the laws of the State of New York,
without giving effect to the principles of conflict of laws, shall govern the construction of the
Disclosure Statement, any agreements, documents, instruments or contracts executed or entered into
in connection with the Disclosure Statement (except as otherwise set forth in those agreements, in
which case the governing law of such agreement shall control), and corporate governance matters;
provided, that corporate governance matters relating to the Debtors or the Reorganized
Debtors, as applicable, not incorporated in New York shall be governed by the laws of the state of
incorporation of the applicable Debtor or Reorganized Debtor, as applicable.
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E. | REFERENCE TO MONETARY FIGURES. |
All references in the Disclosure Statement to monetary figures shall refer to currency of the
United States of America, unless otherwise expressly provided.
F. | REFERENCE TO THE DEBTORS OR THE REORGANIZED DEBTORS. |
Except as otherwise specifically provided herein to the contrary, references in the Disclosure
Statement to the Debtors or to the Reorganized Debtors shall mean the Debtors and the Reorganized
Debtors, as applicable, to the extent the context requires.
ARTICLE XIII
CONCLUSION AND RECOMMENDATION
The Debtors believe the Plan is in the best interests of all creditors and urges the Holders
of Senior Secured Notes Claims to vote to accept the Plan and to evidence such acceptance by
returning their Ballots so they will be received by the Notice and Claims Agent no later than 5:00
p.m. (prevailing Eastern Time) on December 27, 2010.
New York, New York
Dated: December 10, 2010
Dated: December 10, 2010
InSight Health Services Corp. (for itself and all other Debtors) | ||||||
By: | /s/ Keith S. Kelson | |||||
Name: | ||||||
Title: | Executive Vice President and Chief Financial Officer |
|||||
Prepared By: |
James H.M. Sprayregen, P.C.
|
Ryan Blaine Bennett (pro hac vice pending) | |
Edward O. Sassower
|
Paul Wierbicki (pro hac vice pending) | |
KIRKLAND & ELLIS LLP
|
KIRKLAND & ELLIS LLP | |
601 Lexington Avenue
|
300 North LaSalle Street | |
New York, New York 10022
|
Chicago, Illinois 60654 | |
Telephone: (212) 446-4800
|
Telephone: (312) 862-2000 | |
Facsimile: (212) 446-4900
|
Facsimile: (312) 862-2200 | |
Proposed Counsel to the Debtors
and Debtors in Possession |
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