Edgar Filing: ALLIANCE IMAGING INC /DE/

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2001
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ALLIANCE IMAGING, INC.
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 8071 33-0239910
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)

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1065 PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CA 92806
(714) 688-7100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
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RUSSELL D. PHILLIPS, JR.
GENERAL COUNSEL AND SECRETARY
ALLIANCE IMAGING, INC.
1065 PACIFICENTER DRIVE, SUITE 200
ANAHEIM, CA 92806
(714) 688-7100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:

JAMES BEAUBIEN JOHN WHITE
LATHAM & WATKINS CRAVATH, SWAINE & MOORE
633 WEST 5TH STREET, SUITE 4000 825 EIGHTH AVENUE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10019
(213) 485-1234 (212) 474-1000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1)(2) AMOUNT OF REGISTRATION FEE(3)

Common Stock, par value $0.01 per
share.................................. $183,281,250 $45,821

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.

(2) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.

(3) Computed in accordance with Section 6(b) of the Securities Act by
multiplying 0.00025 by the proposed maximum aggregate offering price.
Pursuant to Rule 457(p), the Registrant is applying $15,624 of the filing
fees which were previously paid in connection with the filing of its
Registration Statement No. 333-56398, filed on March 1, 2001, which
registration statement was withdrawn pursuant to Rule 477, in partial
satisfaction of the fee payable hereunder.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.

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SUBJECT TO COMPLETION, DATED JULY 2, 2001
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS

[LOGO]

9,375,000 SHARES

COMMON STOCK
$ PER SHARE

---------

We are selling 9,375,000 shares of our common stock. We have granted the
underwriters an option to purchase up to 1,406,250 additional shares of common
stock to cover over-allotments.

This is the initial public offering of our common stock. We currently expect
the initial public offering price to be between $15.00 and $17.00 per share.
Application will be made for quotation of the common stock on the New York Stock
Exchange.

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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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PER SHARE TOTAL
--------- ------------

Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Alliance (before expenses) $ $

The underwriters expect to deliver the shares to purchasers on or about
, 2001.

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Deutsche Banc Alex. Brown Salomon Smith Barney
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JPMorgan UBS Warburg
, 2001.

INSIDE FRONT COVER ARTWORK DESCRIPTION

[Picture of an Alliance Imaging trailer with two technologists loading a
stretcher into it.]

[Picture of the inside of an Alliance trailer showing examination facilities.]

[Picture of an MRI scan of a human brain.]

[Picture of a man receiving an MRI scan with the assistance of an Alliance
technologist.]

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.

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TABLE OF CONTENTS

PAGE
--------

Summary..................................................... 1
Risk Factors................................................ 6
Forward Looking Statements.................................. 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 32
Management.................................................. 46
Certain Transactions........................................ 55
Principal Stockholders...................................... 57
Description of Capital Stock................................ 59
Description of Certain Indebtedness......................... 63
Shares Eligible for Future Sale............................. 67
United States Tax Consequences to Non-U.S. Holders.......... 69
Underwriting................................................ 72
Legal Matters............................................... 74
Experts..................................................... 74
Change of Accountants....................................... 75
Where You Can Find More Information......................... 75
Index to Consolidated Financial Statements.................. F-1

Until , 2001 (25 days after the date of this prospectus), all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.

SUMMARY

THE FOLLOWING SUMMARIZES INFORMATION IN OTHER SECTIONS OF OUR PROSPECTUS,
INCLUDING OUR FINANCIAL STATEMENTS, THE NOTES TO THOSE FINANCIAL STATEMENTS AND
THE OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.

OUR BUSINESS

We are a leading national provider of outsourced diagnostic imaging
services, with 91% of our 2000 revenues and 90% of our revenues for the first
quarter of 2001 derived from magnetic resonance imaging, or MRI. We provide
imaging and therapeutic services primarily to hospitals and other healthcare
providers on a mobile, shared-service basis. Our mobile, shared-service systems
are located in trailers which we move among our clients' locations. We also
provide systems that are located full-time at particular hospitals and clinics.
Our services normally include the use of our imaging or therapeutic systems,
technologists to operate the systems, equipment maintenance and upgrades and
management of day-to-day operations. We had 392 diagnostic imaging and
therapeutic systems, including 325 MRI systems, and 1,218 clients in 43 states
at March 31, 2001.

Our typical contract is a three-to-five year arrangement with a hospital or
other healthcare provider, under which fees are payable to us regardless of
reimbursement by health insurers or other third-party payors. Our clients
contract with us to use our outsourced imaging services in order to:

- avoid the capital investment and financial risk associated with the
purchase of their own systems;

- provide access to MRI and other services for their patients when the
demand for these services does not justify the purchase of a system;

- make use of our ancillary services which include marketing support,
education and training and billing assistance; and

- gain access to imaging services under our regulatory and licensing
approvals when they do not have these approvals.

Our MRI systems are among the most advanced in the industry. Our advanced
systems are able to perform high quality scans more rapidly and can be used for
a wider variety of imaging applications than less advanced systems. We are able
to upgrade most of our MRI systems through software and hardware enhancements,
which we believe reduces the potential for technological obsolescence.

OUR INDUSTRY

MRI services constituted $6.7 billion of the approximately $66 billion
diagnostic imaging industry in 1999. MRI's growth has been driven by its
recognition as a cost-effective, noninvasive diagnostic tool, increasing
physician acceptance and growth in the number of MRI applications. As a result,
we believe MRI will continue to capture a larger portion of the diagnostic
imaging market. The number of MRI scans grew at a compound annual rate of 10.5%
from 1990 to 2000 and is projected to grow at approximately this rate through
2006.

OUR COMPETITIVE STRENGTHS

We believe we benefit from the following competitive strengths:

- our position as the largest national provider of outsourced MRI services;

- exclusive, long-term contracts with limited customer concentration;

- reduced reimbursement risk because we generate 90% of our revenues by
billing hospitals and clinics rather than health insurers or other
third-party payors;

- our ability to provide comprehensive outsourcing solutions; and

- our experienced executive management team.

OUR GROWTH STRATEGY

We intend to capitalize upon these competitive strengths and grow our
business by:

- increasing the number of scans we perform for our existing clients;

- establishing new client relationships;

- improving efficiency by increasing the number of scans we perform each day
with our existing MRI systems;

- offering new MRI applications;

- offering new imaging services; and

- pursuing selected strategic acquisitions.

Despite the competitive strengths discussed above, we face a number of
challenges in growing our business. We currently have a substantial amount of
indebtedness, which places financial and other limitations on our business. Our
business is also subject to a number of other risks described in "Risk Factors."

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We are a Delaware corporation with our principal executive offices located
at 1065 PacifiCenter Drive, Suite 200, Anaheim, CA 92806. Our telephone number
at that location is (714) 688-7100.

THE OFFERING

Common stock offered......................... 9,375,000 shares

Common stock to be outstanding after this
offering................................... 47,437,180 shares

Use of proceeds.............................. We plan to use the aggregate proceeds of this
offering to repay indebtedness under our
credit agreement and for general corporate
purposes, including the repayment of other
indebtedness.

Proposed New York Stock Exchange symbol...... AIQ

Unless otherwise noted, all information in this prospectus:

- assumes no exercise of the underwriters' option to purchase up to
1,406,250 additional shares of our common stock to cover over-allotments;

- reflects a 10-for-1 split of our common stock to be effected prior to
completion of this offering; and

- assumes the filing of our amended and restated certificate of
incorporation concurrently with the completion of this offering.

The number of shares of common stock to be outstanding immediately after
this offering:

- is based upon 38,062,180 shares of common stock outstanding as of
June 13, 2001;

- does not take into account 6,953,840 shares of common stock issuable upon
the exercise of options outstanding as of June 13, 2001 at a weighted
average exercise price of $4.25 per share; and

- does not take into account 1,642,200 shares of common stock reserved for
future issuance under our 1999 Equity Plan.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary historical consolidated financial information with
respect to each year in the three-year period ended December 31, 2000 is derived
from our consolidated financial statements, which have been audited by Ernst &
Young LLP, with respect to the year ended December 31, 1998, and Deloitte &
Touche LLP, with respect to the years ended December 31, 1999 and 2000. The
consolidated statements of operations data for the three months ended March 31,
2000 and 2001 and the consolidated balance sheet data as of March 31, 2001 are
derived from our unaudited consolidated financial statements. The summary
historical consolidated financial information provided below should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this prospectus.

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------------
1998 1999 2000 2000 2001
--------- --------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues............................................... $ 243,297 $ 318,106 $345,287 $ 84,322 $ 91,257
Costs and expenses:
Operating expenses, excluding depreciation........... 111,875 143,238 151,722 36,647 39,853
Depreciation expense................................. 33,493 47,055 54,924 12,721 15,406
Selling, general and administrative expenses......... 24,446 31,097 38,338 9,240 11,068
Amortization expense, primarily goodwill............. 11,289 14,565 14,390 3,598 3,607
Termination and related costs........................ -- -- 4,573 -- --
Recapitalization, merger integration, and regulatory
costs.............................................. 2,818 52,581 4,523 336 --
Interest expense, net................................ 41,772 51,958 77,051 18,933 18,849
--------- --------- -------- --------- ---------
Total costs and expenses............................. 225,693 340,494 345,521 81,475 88,783
--------- --------- -------- --------- ---------
Income (loss) before income taxes and extraordinary
loss................................................. 17,604 (22,388) (234) 2,847 2,474
Provision for income taxes............................. 8,736 3,297 1,969 1,423 1,237
--------- --------- -------- --------- ---------
Income (loss) before extraordinary loss................ 8,868 (25,685) (2,203) 1,424 1,237
Extraordinary loss, net of taxes....................... (2,271) (17,766) -- -- --
--------- --------- -------- --------- ---------
Net income (loss)...................................... 6,597 (43,451) (2,203) 1,424 1,237
Less: Preferred stock dividends and financing fee
accretion............................................ (2,186) (2,081) -- -- --
Less: Excess of consideration paid over carrying amount
of preferred stock repurchased....................... -- (2,796) -- -- --
--------- --------- -------- --------- ---------
Net income (loss) applicable to common stock........... $ 4,411 $ (48,328) $ (2,203) $ 1,424 $ 1,237
========= ========= ======== ========= =========
Earnings (loss) per common share--assuming dilution:
Income (loss) before extraordinary loss.............. $ 0.11 $ (0.56) $ (0.06) $ 0.04 $ 0.03
Extraordinary loss, net of taxes..................... (0.04) (0.33) -- -- --
--------- --------- -------- --------- ---------
Net income (loss) per common share--assuming
dilution........................................... $ 0.07 $ (0.89) $ (0.06) $ 0.04 $ 0.03
========= ========= ======== ========= =========

OTHER DATA:
Adjusted EBITDA(1)..................................... $ 107,076 $ 143,771 $155,560 $ 38,435 $ 40,465
Adjusted EBITDA margin(2).............................. 44.0% 45.2% 45.1% 45.6% 44.3%
Cash flows provided by (used in):
Operating activities................................. 46,855 38,197 92,044 21,263 8,284
Investing activities................................. (245,104) (104,072) (90,995) (25,897) (18,836)
Financing activities................................. 189,077 67,596 7,118 4,323 7,215
Capital expenditures................................... 72,321 95,914 101,554 34,010 21,152

AT MARCH 31, 2001
-----------------
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
------------ ------------ ------------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,634 $ 9,634 $ 9,634
Total assets................................................ 654,785 660,051 660,051
Long-term debt, including current maturities................ 774,124 783,124 646,124
Stockholders' deficit....................................... (202,443) (204,683) (67,683)

------------------------------

EBITDA and adjusted EBITDA are included in this prospectus to provide
additional information with respect to our ability to satisfy our debt
service, capital expenditure and working capital requirements and because
certain covenants in our debt instruments are based on similar measures.
While EBITDA and adjusted EBITDA are used as measures of operations and the
ability to meet debt service requirements, they are not necessarily
comparable to other similarly titled captions of other companies due to
differences in methods of calculations. The calculations of EBITDA and
adjusted EBITDA are shown below:

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------------
1998 1999 2000 2000 2001
-------- -------- -------- ----------- -----------
(IN THOUSANDS)

Net income (loss)..................................... $ 6,597 $(43,451) $ (2,203) $ 1,424 $ 1,237
Depreciation expense................................ 33,493 47,055 54,924 12,721 15,406
Amortization expense, primarily goodwill............ 11,289 14,565 14,390 3,598 3,607
Interest expense, net............................... 41,772 51,958 77,051 18,933 18,849
Provision for income taxes.......................... 8,736 3,297 1,969 1,423 1,237
-------- -------- -------- ------- -------
EBITDA................................................ 101,887 73,424 146,131 38,099 40,336
Termination and related costs(a).................... -- -- 4,573 -- --
Recapitalization, merger integration, and regulatory
costs(b).......................................... 2,818 52,581 4,523 336 --
Stock-based compensation(c)......................... 100 -- 333 -- 129
Extraordinary loss, net of taxes.................... 2,271 17,766 -- -- --
-------- -------- -------- ------- -------
Adjusted EBITDA....................................... $107,076 $143,771 $155,560 $38,435 $40,465
======== ======== ======== ======= =======

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(a) Termination and related costs for the year ended December 31, 2000
represent $4,232 associated with termination costs and the cash-out of
stock options for an executive officer who resigned due to health-related
issues and $341 associated with the recruitment of his replacement.

(b) Recapitalization, merger integration and regulatory costs for the year
ended December 31, 2000, represent $704 of professional fees paid in
connection with the KKR acquisition, $570 of compensatory costs related
to stock option buy-backs and severance payments resulting from change in
control provisions triggered by the KKR acquisition, $154 related to
additional severance for employees of SMT, $123 of integration costs to
migrate acquired entities to a common systems platform for direct patient
billing, and $850 for assessments and $2,122 for costs and related
professional fees to settle regulatory matters associated with the direct
patient billing process of one of our acquired entities.
Recapitalization, merger integration and regulatory costs for the year
ended December 31, 1999, represent $19,640 in professional fees paid in
connection with the KKR acquisition, $17,082 related to the purchase of
outstanding stock options in connection with the KKR acquisition, $6,003
in bonus payments paid in connection with the KKR acquisition, $1,088 in
provisions to conform the accounting policies with respect to accounts
receivable reserves, as well as employee vacation and sick pay reserves
in connection with the SMT merger, $2,164 in employee severance costs in
connection with the SMT merger, $3,075 in professional fees and other
merger integration costs associated with the SMT merger and other
acquired entities, and $3,529 for assessments to settle regulatory
matters associated with the direct patient billing process of one of our
acquired entities. Recapitalization, merger integration and regulatory
costs for the year ended December 31, 1998, represents $1,846 in special
non-recurring bonuses paid in connection with the MTI acquisition, $722
of professional fees associated with accounting and billing systems
conversions of acquired companies, and a $250 provision for doubtful
accounts conforming accounting adjustment made in connection with the
American Shared acquisition.

(c) Stock-based compensation of $333 for the year ended December 31, 2000,
represents $55 for options issued to certain employees at exercise prices
below the fair value of our common stock, $68 for shares of Phantom stock
issued to four non-employee directors below fair market value, and $210
for common stock issued to one of our executive officers below fair
market value. Stock-based compensation of $100 for the year ended
December 31, 1998, represents options issued to certain employees at
exercise prices below the fair value of the Company's common stock.

(2) Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by
revenues.

(3) The Pro Forma balance sheet data gives effect to the offering of our 10 3/8%
senior subordinated notes and the application of net proceeds from the
offering.

(4) The as adjusted balance sheet reflects the value of 9,375,000 shares of
common stock in this offering at an assumed initial public offering price of
$16.00, after deducting estimated underwriting discounts, commissions and
offering expenses.

RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS DESCRIBED BELOW AND THE OTHER INFORMATION
IN THIS PROSPECTUS INCLUDING OUR FINANCIAL STATEMENTS AND RELATED NOTES BEFORE
YOU DECIDE TO BUY OUR COMMON STOCK. THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.

RISKS RELATED TO OUR INDEBTEDNESS

OUR SUBSTANTIAL INDEBTEDNESS COULD RESTRICT OUR OPERATIONS AND MAKE US MORE
VULNERABLE TO ADVERSE ECONOMIC CONDITIONS.

We are a highly leveraged company and our liabilities exceed our assets by a
substantial amount. As of June 13, 2001, we had $769.2 million of outstanding
debt, excluding letters of credit and guarantees. Of our total debt,
$491.0 million consisted of borrowings under our credit facility,
$260.0 million consisted of our 10 3/8% senior subordinated notes due 2011, and
$18.2 million consisted of equipment debt and capitalized lease obligations.

Our substantial indebtedness could have important consequences for our
stockholders. For example, it could:

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and acquisitions and for other general corporate purposes;

- increase our vulnerability to economic downturns and competitive pressures
in our industry;

- increase our vulnerability to interest rate fluctuations because a
substantial amount of our debt is at variable interest rates; as of
June 13, 2001, $491.0 million of our debt was at variable interest rates;

- place us at a competitive disadvantage compared to our competitors that
have less debt in relation to cash flow; and

- limit our flexibility in planning for, or reacting to, changes in our
business and our industry.

DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES MAY STILL BE ABLE
TO INCUR SUBSTANTIALLY MORE INDEBTEDNESS WHICH COULD INCREASE THE RISKS
DESCRIBED ABOVE.

We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture that govern our 10 3/8%
senior subordinated notes due 2011 permit us or our subsidiaries to incur
additional indebtedness, subject to certain restrictions. In addition, as of
June 13, 2001, our revolving credit facility permitted additional borrowings of
up to approximately $125 million subject to the covenants contained in the
credit facility. If new debt is added to our and our subsidiaries' current debt
levels, the risks discussed above could intensify.

IF WE ARE UNABLE TO GENERATE OR BORROW SUFFICIENT CASH TO MAKE PAYMENTS ON OUR
INDEBTEDNESS OR TO REFINANCE OUR INDEBTEDNESS ON ACCEPTABLE TERMS, OUR FINANCIAL
CONDITION WOULD BE MATERIALLY HARMED, OUR BUSINESS MAY FAIL AND YOU MAY LOSE ALL
OF YOUR INVESTMENT.

Our ability to make payments on our indebtedness will depend on our ability
to generate cash flow in the future which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. In addition, future borrowings may not be
available to us under our credit facility in an amount sufficient to enable us
to pay our indebtedness or to fund our other cash needs. We may need to
refinance all or a portion of our indebtedness on or before maturity. We may not
be able to refinance any of our indebtedness,

including our credit facility and our 10 3/8% senior subordinated notes due
2011, on commercially reasonable terms or at all. Any refinancing of our debt
could be at higher interest rates and may require us to comply with more onerous
covenants which could further restrict our business operations. If we are not
able to refinance our debt, we could become subject to bankruptcy proceedings,
and you may lose all of your investment because the claims of our creditors on
our assets are prior to the claims of our stockholders.

WE MAY NOT BE ABLE TO FINANCE FUTURE NEEDS OR ADAPT OUR BUSINESS PLAN TO CHANGES
BECAUSE OF RESTRICTIONS PLACED ON US BY OUR CREDIT FACILITY, THE INDENTURE
GOVERNING OUR 10 3/8% SENIOR SUBORDINATED NOTES DUE 2011 AND INSTRUMENTS
GOVERNING OUR OTHER INDEBTEDNESS.

The indenture for our 10 3/8% senior subordinated notes due 2011 and our
credit facility contain affirmative and negative covenants which restrict, among
other things, our ability to:

- incur additional debt;

- sell assets;

- create liens or other encumbrances;

- make certain payments and dividends; or

- merge or consolidate.

All of these restrictions could affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities
as they arise. A failure to comply with these covenants and restrictions would
permit the relevant creditors to declare all amounts borrowed under the relevant
facility, together with accrued interest and fees, to be immediately due and
payable. If the indebtedness under the credit facility or our 10 3/8% senior
subordinated notes due 2011 is accelerated, we may not have sufficient assets to
repay amounts due under the credit facility, the notes or on other indebtedness
then outstanding. If we are not able to refinance our debt, we could become
subject to bankruptcy proceedings, and you may lose all or a portion of your
investment because the claims of our creditors on our assets are prior to the
claims of our stockholders.

RISKS RELATED TO GOVERNMENT REGULATION OF OUR BUSINESS

COMPLYING WITH FEDERAL AND STATE REGULATIONS IS AN EXPENSIVE AND TIME-CONSUMING
PROCESS, AND ANY FAILURE TO COMPLY COULD RESULT IN SUBSTANTIAL PENALTIES.

We are directly or indirectly through our clients subject to extensive
regulation by both the federal government and the states in which we conduct our
business.

If our operations are found to be in violation of any of the laws and
regulations to which we or our clients are subject, we may be subject to the
applicable penalty associated with the violation, including civil and criminal
penalties, damages, fines and the curtailment of our operations. Any penalties,
damages, fines or curtailment of our operations, individually or in the
aggregate, could adversely affect our ability to operate our business and our
financial results. The risk of our being found in violation of these laws and
regulations is increased by the fact that many of them have not been fully
interpreted by the regulatory authorities or the courts, and their provisions
are open to a variety of interpretations. Any action against us for violation of
these laws or regulations, even if we successfully defend against it, could
cause us to incur significant legal expenses and divert our management's
attention from the operation of our business. For a more detailed discussion of
the various state and federal regulations to which we are subject see
"Business--Regulation."

AN UNEXPECTED ADVERSE OUTCOME FROM ANY OF OUR ONGOING ADMINISTRATIVE AUDITS AND
PROCEEDING COULD RESULT IN DAMAGES, FINES OR THE CURTAILMENT OF OUR OPERATIONS.

We currently have the following administrative proceedings pending:

- a review by the National Heritage Insurance Company, our Medicare Part B
contractor, of our Medicare billing claims in Massachusetts; and

- an action by MassPRO stemming from an audit of Medicaid claims submitted
by one of our wholly-owned subsidiaries.

Each of the proceedings listed above is described in greater detail in
"Business--Legal and Administrative Proceedings." We have accrued $4,350,000 for
probable settlement of these proceedings. While actual results could vary from
this estimate, we believe that the resolution of any deficient billing process
will not have a material adverse effect on our business. If this assessment is
incorrect, however, then additional amounts required to settle these issues may
have an adverse effect on our financial condition and our operations.

HEALTHCARE REFORM LEGISLATION COULD LIMIT THE PRICES WE CAN CHARGE FOR OUR
SERVICES, WHICH WOULD REDUCE OUR REVENUES AND HARM OUR OPERATING RESULTS.

In addition to extensive existing government healthcare regulation, there
are numerous initiatives at the federal and state levels for comprehensive
reforms affecting the payment for and availability of healthcare services,
including a number of proposals that would significantly limit reimbursement
under the Medicare and Medicaid Programs. Limitations on reimbursement amounts
and other cost containment pressures have in the past resulted in a decrease in
the revenue we receive for each scan we perform. It is not clear at this time
what proposals, if any, will be adopted or, if adopted, what effect these
proposals would have on our business. Aspects of certain of these healthcare
proposals, such as reductions in the Medicare and Medicaid Programs, containment
of healthcare costs on an interim basis by means that could include a short-term
freeze on prices charged by healthcare providers, and permitting greater state
flexibility in the administration of Medicaid, could limit the demand for our
services or affect the revenue per procedure that we can collect which would
harm our business and results of operations.

THE APPLICATION OR REPEAL OF STATE CERTIFICATE OF NEED REGULATIONS COULD HARM
OUR BUSINESS AND FINANCIAL RESULTS.

Some states require a certificate of need or similar regulatory approval
prior to the acquisition of high-cost capital items including diagnostic imaging
systems or provision of diagnostic imaging services by us or our clients.
Seventeen of the 43 states in which we operate require a certificate of need and
more states may adopt similar licensure frameworks in the future. In many cases,
a limited number of these certificates are available in a given state. If we are
unable to obtain the applicable certificate or approval or additional
certificates or approvals necessary to expand our operations, these regulations
may limit or preclude our operations in the relevant jurisdictions.

Conversely, states in which we have obtained a certificate of need may
repeal existing certificate of need regulations or liberalize exemptions from
the regulations. For example, Pennsylvania, Nebraska, New York, Ohio and
Tennessee have liberalized exemptions from certificate of need programs. The
repeal of certificate of need regulations in states in which we have obtained a
certificate of need or a certificate of need exemption would lower barriers to
entry for competition in those states and could adversely affect our business.

IF WE FAIL TO COMPLY WITH VARIOUS LICENSURE, CERTIFICATION AND ACCREDITATION
STANDARDS WE MAY BE SUBJECT TO LOSS OF LICENSURE, CERTIFICATION OR ACCREDITATION
WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS.

All of the states in which we operate require that the imaging technologists
that operate our computed tomography, single photon emission computed
tomography, and positron emission tomography systems be licensed or certified.
Also, each of our retail sites must continue to meet various requirements in
order to receive payments from the Medicare Program. In addition, we are
currently accredited by 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 and providers of
diagnostic imaging services. In the healthcare industry, various types of
organizations are accredited to meet certain Medicare certification
requirements, expedite third-party payment, and fulfill state licensure
requirements. Some managed care providers prefer to contract with accredited
organizations. Any lapse in our licenses, certifications or accreditations, or
those of our technologists, or the failure of any of our retail sites to satisfy
the necessary requirements under Medicare could adversely affect our operations
and financial results.

RISKS RELATED TO OUR BUSINESS

CHANGES IN THE RATES OR METHODS OF THIRD-PARTY REIMBURSEMENTS FOR DIAGNOSTIC
IMAGING AND THERAPEUTIC SERVICES COULD RESULT IN REDUCED DEMAND FOR OUR SERVICES
OR CREATE DOWNWARD PRICING PRESSURE, WHICH WOULD RESULT IN A DECLINE IN OUR
REVENUES AND HARM TO OUR FINANCIAL POSITION.

We derive a small portion of our revenues from direct billings to patients
and third-party payors such as Medicare, Medicaid or private health insurance
companies, and changes in the rates or methods of reimbursement for the services
we provide could have a significant negative impact on those revenues. Moreover,
our healthcare provider clients on whom we depend for the majority of our
revenues generally rely on reimbursement from third-party payors. In the past,
initiatives have been proposed which, if implemented, would have had the effect
of substantially decreasing reimbursement rates for diagnostic imaging services.
Similar initiatives enacted in the future may have an adverse impact on our
financial condition and our operations. Any change in the rates of or conditions
for reimbursement could substantially reduce the number of procedures for which
we or these healthcare providers can obtain reimbursement or the amounts
reimbursed to us or our clients for services provided by us. Because unfavorable
reimbursement policies have constricted and may continue to constrict the profit
margins of the hospitals and clinics we bill directly, we have and may continue
to need to lower our fees to retain existing clients and attract new ones. These
reductions could have a significant adverse effect on our revenues and financial
results by decreasing demand for our services or creating downward pricing
pressure.

Recently promulgated federal regulations affect the ability of a Medicare
provider, such as a hospital, to include a service or facility as
provider-based, as opposed to treating the service as if it were offered offsite
from the hospital, for purposes of Medicare reimbursement. Historically,
provider-based status has allowed a provider to obtain more favorable Medicare
reimbursement for services like the ones we provide. While the Medicare,
Medicaid and SCHIP Benefits and Improvement Act of 2000 offers some relief for
facilities recognized as provider-based on October 1, 2000, under these new
regulations, some of our clients may have difficulty qualifying our services for
provider-based status. If a client cannot obtain provider-based status for our
services, then the provider might decide not to contract with us, which would
result in a decline in our operating results.

OUR REVENUES MAY FLUCTUATE OR BE UNPREDICTABLE AND THIS MAY HARM OUR FINANCIAL
RESULTS.

The amount and timing of revenues that we may derive from our business will
fluctuate based on:

- variations in the rate at which clients renew their contracts;

- the extent to which our mobile shared-service clients become full-time
clients;

- changes in the number of days of service we can offer with respect to a
given diagnostic imaging or therapeutic system due to equipment
malfunctions or the seasonal factors discussed below; and

- the mix of wholesale and retail billing for our services.

In addition, we experience seasonality in the sale of our services. For
example, our sales typically decline from our third fiscal quarter to our fourth
fiscal quarter. First and fourth quarter revenues are typically lower than those
from the second and third quarters. First quarter revenue is affected primarily
by fewer calendar days and inclement weather, the results of which are fewer
patient scans during the period. Fourth quarter revenue is affected primarily by
holiday and client and patient vacation schedules and inclement weather, the
results of which are fewer patient scans during the period. As a result, our
revenues may significantly vary from quarter to quarter, and our quarterly
results may be below market expectations. We may not be able to reduce our
expenses, including our debt service obligations, quickly enough to respond to
these declines in revenue, which would make our business difficult to operate
and would harm our financial results. If this happens, the price of our common
stock may decline.

WE MAY EXPERIENCE COMPETITION FROM OTHER MEDICAL DIAGNOSTIC COMPANIES AND THIS
COMPETITION COULD ADVERSELY AFFECT OUR REVENUES AND OUR BUSINESS.

The market for diagnostic imaging services and systems is competitive. Our
major competitors include InSight Health Services Corp., Medical Resources,
Inc., Shared Medical Services, Kings Medical Company Inc., Otter Tail Power
Company, U.S. Diagnostic Inc., and Syncor International Corporation. In addition
to direct competition from other mobile providers, we compete with independent
imaging centers and healthcare providers that have their own diagnostic imaging
systems as well as with equipment manufacturers that sell or lease imaging
systems to healthcare providers for full-time installation. Some of our direct
competitors which provide diagnostic imaging services may now or in the future
have access to greater financial resources than we do and may have access to
newer, more advanced equipment. In addition, some clients have in the past
elected to provide imaging services to their patients directly rather than
renewing their contacts with us. Finally, we face competition from providers of
competing technologies such as ultrasound and may face competition from
providers of new technologies in the future. If we are unable to successfully
compete, our client base would decline and our business and financial condition
would be harmed.

MANAGED CARE ORGANIZATIONS MAY PREVENT HEALTHCARE PROVIDERS FROM USING OUR
SERVICES WHICH WOULD CAUSE US TO LOSE CURRENT AND PROSPECTIVE CLIENTS.

Healthcare providers participating as providers under managed care plans may
be required to refer diagnostic imaging tests to specific imaging service
providers depending on the plan in which each covered patient is enrolled. These
requirements currently inhibit healthcare providers from using our diagnostic
imaging services in some cases. The proliferation of managed care may prevent an
increasing number of healthcare providers from using our services in the future
which would cause our revenues to decline.

TECHNOLOGICAL CHANGE IN OUR INDUSTRY COULD REDUCE THE DEMAND FOR OUR SERVICES
AND REQUIRE US TO INCUR SIGNIFICANT COSTS TO UPGRADE OUR EQUIPMENT.

Technological change in the MRI industry has been gradual since the last
major technological advancements were made in 1994. However, technological
changes in the MRI industry may accelerate in the future. The effect of
technological change could significantly impact our business. The development of
new scanning technology or new diagnostic applications for existing technology
may

require us to adapt our existing technology or acquire new or technologically
improved systems in order to successfully compete. In the future, however, we
may not have the financial resources to do so, particularly given our
indebtedness. In addition, advancing technology may enable hospitals, physicians
or other diagnostic service providers to perform tests without the assistance of
diagnostic service providers such as ourselves. The development of new
technologies or refinements of existing ones might make our existing systems
technologically or economically obsolete, or cause a reduction in the value of,
or reduce the need for, our systems.

WE MAY BE UNABLE TO EFFECTIVELY MAINTAIN OUR IMAGING AND THERAPEUTIC SYSTEMS OR
GENERATE REVENUE WHEN OUR SYSTEMS ARE NOT WORKING.

Timely, effective service is essential to maintaining our reputation and
high utilization rates on our imaging systems. Repairs to one of our systems can
take up to two weeks and result in a loss of revenue. Our warranties and
maintenance contracts do not fully compensate us for loss of revenue when our
systems are not working. The principal components of our operating costs include
depreciation, salaries paid to technologists and drivers, annual system
maintenance costs, insurance and transportation costs. Because the majority of
these expenses is fixed, a reduction in the number of scans performed due to
out-of-service equipment will result in lower revenues and margins. Repairs of
our equipment are performed for us by the equipment manufacturers. These
manufacturers may not be able to perform repairs or supply needed parts in a
timely manner. Thus, if we experience greater than anticipated system
malfunctions or if we are unable to promptly obtain the service necessary to
keep our systems functioning effectively, our revenues could decline and our
ability to provide services would be harmed.

WE MAY BE UNABLE TO RENEW OR MAINTAIN OUR CLIENT CONTRACTS WHICH WOULD HARM OUR
BUSINESS AND FINANCIAL RESULTS.

Upon expiration of our clients' contracts, we are subject to the risk that
clients will cease using our imaging services and purchase or lease their own
imaging systems or use our competitors' imaging systems. Thirty-three percent of
our MRI contracts will expire in 2001 and an additional twenty-four percent will
expire in 2002. If these contracts are not renewed, it could result in a
significant negative impact on our business. In particular, renewal rates for
contracts inherited from our acquired companies have historically been lower
than those for our own contracts. For example, in 2000, the retention rate on
contracts originated by us was approximately 87% compared with an average
retention rate of approximately 83% for contracts originated by companies we
acquired in the last three years. Our overall contract renewal rate for the
first quarter of 2001 was 81%. It is not always possible to immediately obtain
replacement clients, and historically many replacement clients have been smaller
facilities which have a lower number of scans than lost clients.

WE MAY BE SUBJECT TO PROFESSIONAL LIABILITY RISKS WHICH COULD BE COSTLY AND
NEGATIVELY IMPACT OUR BUSINESS AND FINANCIAL RESULTS.

We may be subject to professional liability claims. Although there currently
are no known hazards associated with MRI or our other scanning technologies when
used properly, hazards may be discovered in the future. Furthermore, there is a
risk of harm to a patient during an MRI if the patient has certain types of
metal implants or cardiac pacemakers within his or her body. Patients are
carefully screened to safeguard against this risk, but screening may
nevertheless fail to identify the hazard. To protect against possible
professional liability, we maintain professional liability insurance. However,
if we are unable to maintain insurance in the future at an acceptable cost or at
all or if our insurance does not fully cover us, and a successful claim was made
against us, we could be exposed. Any claim made against us not fully covered by
insurance could be costly to defend against, result in a substantial

damage award against us and divert the attention of our management from our
operations, which could have an adverse effect on our financial performance.

LOSS OF KEY EXECUTIVES AND FAILURE TO ATTRACT QUALIFIED MANAGERS, TECHNOLOGISTS
AND SALES PERSONS COULD LIMIT OUR GROWTH AND NEGATIVELY IMPACT OUR OPERATIONS.

We depend upon our management team to a substantial extent. In 2000, we
added 216 employees. As we grow, we will increasingly require field managers and
sales persons with experience in our industry and skilled technologists to
operate our diagnostic equipment. It is impossible to predict the availability
of qualified field managers, sales persons and technologists or the compensation
levels that will be required to hire them. In particular, there is a very high
demand for qualified technologists who are necessary to operate our systems. We
may not be able to hire and retain a sufficient number of technologists, and we
may be required to pay bonuses and higher salaries to our technologists, which
would increase our expenses. The loss of the services of any member of our
senior management or our inability to hire qualified field managers, sales
persons and skilled technologists at economically reasonable compensation levels
could adversely affect our ability to operate and grow our business.

In addition, our inability to retain employees who have received options
under our 1999 Equity Plan could have a material adverse effect on our net
income in a future period. On June 20, 2001, our compensation committee
authorized us to enter into the amended option agreements to reduce the
performance targets that trigger the acceleration of the vesting of
performance-based options granted under the plan. As discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations," if we
achieve the new reduced performance vesting targets specified in the amended
option agreements but do not achieve the original performance vesting targets,
and an option holder terminates employment prior to the eighth anniversary of
the option grant date, we would be required to record a non-cash compensation
charge equal to the amount by which the actual value of the shares subject to
the performance vesting option on the date of the amendment exceeded the
option's exercise price. We note that the executive officers listed in
"Management--Executive Officers and Directors" in the aggregate hold
approximately 81% of the outstanding options under the 1999 Equity Plan. If a
substantial number of senior managers were to leave in future periods under
these circumstances, the non-cash compensation charges that we would be required
to record would have a material adverse effect on our net income in those
periods.

OUR POSITRON EMISSION TOMOGRAPHY, OR PET, SERVICE AND SOME OF OUR OTHER IMAGING
SERVICES REQUIRE THE USE OF RADIOACTIVE MATERIALS, WHICH COULD SUBJECT US TO
REGULATION, RELATED COSTS AND DELAYS AND POTENTIAL LIABILITIES FOR INJURIES OR
VIOLATIONS OF ENVIRONMENTAL, HEALTH AND SAFETY LAWS.

Our PET service and some of our other imaging and therapeutic services
require radioactive materials. While this radioactive material has a short
half-life, meaning it quickly breaks down into inert, or non-radioactive
substances, storage, use and disposal of these materials presents the risk of
accidental environmental contamination and physical injury. We are subject to
federal, state and local regulations governing storage, handling and disposal of
these materials and waste products. Although we believe that our safety
procedures for storing, handling and disposing of these hazardous materials
comply with the standards prescribed by law and regulation, we cannot completely
eliminate the risk of accidental contamination or injury from those hazardous
materials. In the event of an accident, we could be held liable for any damages
that result, and any liability could exceed the limits or fall outside the
coverage of our insurance. We may not be able to maintain insurance on
acceptable terms, or at all. We could incur significant costs and the diversion
of our management's attention in order to comply with current or future
environmental, health and safety laws and regulations.

WE MAY NOT BE ABLE TO ACHIEVE THE EXPECTED BENEFITS FROM ANY PAST OR FUTURE
ACQUISITIONS WHICH WOULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS.

We have historically relied on acquisitions as a method of expanding our
business. In the past five years we have, directly or indirectly through our
subsidiaries, completed seven significant acquisitions. In addition, although we
have not presently identified any potential future acquisition candidates, we
will consider future acquisitions as opportunities arise. If we do not
successfully integrate acquisitions, we may not realize anticipated operating
advantages and cost savings. The integration of companies that have previously
operated separately involves a number of risks, including:

- demands on management related to the increase in our size after an
acquisition;

- the diversion of our management's attention from the management of daily
operations to the integration of operations;

- difficulties in the assimilation and retention of employees;

- potential adverse effects on operating results; and

- challenges in retaining clients.

With regard to the last item noted above, our client contract renewal rates
for contracts inherited from our acquired companies have historically been lower
than those for our own contracts. We may not be able to maintain the levels of
operating efficiency acquired companies will have achieved or might achieve
separately. Successful integration of each of their operations will depend upon
our ability to manage those operations and to eliminate redundant and excess
costs. Because of difficulties in combining operations, we may not be able to
achieve the cost savings and other size related benefits that we hoped to
achieve after these acquisitions which would harm our financial condition and
results.

RISKS RELATED TO THIS OFFERING

INVESTORS WILL BE SUBJECT TO MARKET RISKS TYPICALLY ASSOCIATED WITH INITIAL
PUBLIC OFFERINGS WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

Prior to this offering there has not been a public market for our common
stock. We cannot predict the extent to which a trading market will develop or
how liquid that market might become. If you purchase shares of common stock in
this offering, you will pay a price that was not established in the public
trading markets. The initial public offering price will be determined by
negotiations between the underwriters and us. You may not be able to resell your
shares at or above the initial public offering price and may suffer a loss on
your investment.

The market price of our common stock is likely to be highly volatile, in
part as a result of factors which are beyond our control. These factors may
cause the market price of our common stock to decline, regardless of our
operating performance. If our future quarterly operating results are below the
expectations of securities analysts or investors, the price of our common stock
would likely decline. Stock price fluctuations may be exaggerated if the trading
volume of our common stock is low. Securities class action litigation is often
brought against a company after a period of volatility in the market price of
its stock. Any securities litigation claims brought against us could result in
substantial expense and divert management's attention from our core business.

WE ARE CONTROLLED BY A SINGLE STOCKHOLDER WHICH WILL BE ABLE TO EXERT
SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER APPROVAL, INCLUDING
CHANGE OF CONTROL TRANSACTIONS.

Following this offering, an affiliate of Kohlberg Kravis Roberts & Co.,
L.P., or KKR, will own approximately 65% of our common equity, after giving
effect to outstanding options. Accordingly, the KKR affiliate will control us
and have the power to elect all of our directors, appoint new management

and approve any action requiring the approval of the holders of shares of our
common stock, including adopting amendments to our certificate of incorporation
and approving mergers, consolidations or sales of all or substantially all of
our assets. This concentration of ownership may also delay or prevent a change
of control of our company or reduce the price investors might be willing to pay
for our common stock. The interests of KKR may conflict with the interests of
other holders of our common stock.

FUTURE SALES BY OUR CURRENT SHAREHOLDERS MAY ADVERSELY AFFECT THE MARKET PRICE
OF OUR COMMON STOCK.

The market price of our common stock could decline as a result of sales of a
large number of shares in the market after this offering or the perception that
these sales could occur. These factors also could make it more difficult for us
to raise funds through future offerings of our common stock. For a discussion of
the shares of our common stock available for future sale, see "Shares Eligible
for Future Sale."

YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price per share significantly exceeds our net
tangible book value per share immediately after the offering. If you purchase
common stock in this offering, you will incur dilution of $22.26 per share from
the price per share you paid based on our adjusted net book value at March 31,
2001. See "Dilution."

WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY BE UNAVAILABLE
OR WHICH MAY RESULT IN DILUTION TO OUR STOCKHOLDERS AND RESTRICT OUR OPERATIONS.

We may seek to sell additional equity or debt securities or obtain an
additional credit facility in order to finance our operations, which we may not
be able to do on favorable terms, or at all. Our ability to obtain additional
debt and equity financing is limited by the agreements governing our current
indebtedness. The sale of additional equity or convertible debt securities could
result in additional dilution to our stockholders. If additional funds are
raised through the issuance of debt securities or preferred stock, these
securities could have rights that are senior to holders of common stock and any
debt securities could contain covenants that would restrict our operations.

FORWARD LOOKING STATEMENTS

We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
prospectus that are forward looking statements. In some cases you can identify
these statements by forward looking words such as "may", "will", "should",
"expect", "plans", "anticipate", "believe", "estimate", "predict", "seek",
"intend" and "continue" or similar words. Forward looking statements may also
use different phrases. Forward looking statements address, among other things
our future expectations, projections of our future results of operations or of
our financial condition and other forward looking information.

We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or which we do not fully control that could cause actual results to
differ materially from those expressed or implied by our forward looking
statements, including:

- our high degree of leverage and our ability to service our debt;

- factors affecting our leverage, including, interest rates;

- our ability to incur more indebtedness;

- the effect of operating and financial restrictions in our debt agreements;

- our estimates regarding our capital requirements;

- intense levels of competition in the diagnostic imaging services and
imaging systems industry;

- changes in healthcare regulation, including changes in Medicare and
Medicaid reimbursement policies, adverse to our services;

- our ability to keep pace with technological developments within our
industry;

- the growth in the market for MRI and other services;

- our ability to successfully integrate any future acquisitions; and

- other factors discussed under "Risk Factors."

This prospectus contains statistical data that we obtained from public
industry publications. These publications generally indicate that they have
obtained their information from sources believed to be reliable, but do not
guarantee the accuracy and completeness of their information. Although we
believe that the publications are reliable, we have not independently verified
their data.

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of 9,375,000 shares of
our common stock in this offering will be $137 million, at an assumed initial
public offering price of $16.00 per share, after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses. If
the underwriters exercise their over-allotment option in full, we estimate that
the net proceeds from this offering will be $158 million. We estimate that the
total net proceeds of the offering will be used to repay indebtedness under our
credit facility currently bearing interest ranging from 6.625% to 7.0625% per
annum with maturity dates ranging from 2006 to 2008.

DIVIDEND POLICY

We have never declared or paid any dividends on our common stock. We
currently intend to retain our future earnings, if any, to finance the expansion
of our business and do not expect to pay any dividends in the foreseeable
future.

Payment of future cash dividends, if any, will be at the discretion of our
board of directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs,
restrictions imposed on us by our borrowing arrangements and plans for
expansion.

The terms of our indebtedness, including our credit agreement and our
10 3/8% senior subordinated notes due 2011, contain restrictions on our ability
to make dividends. For example, under the terms of the indenture governing our
10 3/8% senior subordinated notes due 2011, subject to specified exceptions, we
may not declare or pay any dividends unless, at the time of the declaration and
payment, no default or event of default has occurred and is continuing under the
indenture or would occur as a consequence of the dividend, we meet a debt
coverage ratio test specified in the indenture and the amount of the dividend
does not exceed an amount set by a formula specified in the indenture. Subject
to the restrictions described above, including the restriction on the size of
the dividend, and even though we do not currently intend to declare or pay any
dividends on our common stock as noted above, we are currently able to pay
dividends despite the restrictions imposed by our 10 3/8% senior subordinated
notes due 2011.

CAPITALIZATION

You should read this table together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and the related notes included elsewhere in this prospectus. The
following table describes our capitalization as of March 31, 2001:

- on an actual basis;

- on a pro forma basis giving effect to the offering of our 10 3/8% senior
subordinated notes and the application of the net proceeds thereof; and

- as adjusted to give effect to this offering and the application of the
estimated net proceeds thereof at an assumed initial public offering price
of $16.00.

AT MARCH 31, 2001
-----------------------------------------
AS ADJUSTED
ACTUAL PRO FORMA FOR THIS OFFERING
--------- --------- -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)

Cash and cash equivalents............................ $ 9,634 $ 9,634 $ 9,634
========= ========= ========
Long-term debt, including current portion:
Term loan facility under our credit agreement...... $ 466,000 $ 466,000 $366,000
Senior subordinated credit facility................ 260,000 -- --
Revolving loan facility under our credit
agreement........................................ 28,000 37,000 --
Equipment loans.................................... 20,124 20,124 20,124
10 3/8% senior subordinated notes due 2011......... -- 260,000 260,000
--------- --------- --------
Total long-term debt............................. 774,124 783,124 646,124
--------- --------- --------
Stockholders' deficit:
Common stock, $0.01 par value: 100,000,000 shares
authorized, 38,068,360 shares issued and
outstanding, actual and pro forma; 47,443,360
shares issued and outstanding as adjusted........ 381 381 474
Additional paid-in deficit......................... (137,446) (137,446) (539)
Note receivable from officer....................... (300) (300) (300)
Accumulated deficit................................ (65,078) (67,318) (67,318)
--------- --------- --------
Total stockholders' deficit.......................... (202,443) (204,683) (67,683)
--------- --------- --------
Total capitalization............................. $ 571,681 $ 578,441 $578,441
========= ========= ========

DILUTION

Our net tangible book value as of March 31, 2001 was approximately
$(433.9) million, or $(11.40) per share of common stock. Net tangible book value
per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding. Net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the net tangible book value per share of common stock immediately after
completion of this offering on an as adjusted basis. After giving effect to the
sale of the 9,375,000 shares of common stock by us at the assumed initial public
offering price of $16.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our net
tangible book value as of March 31, 2001 would have been $(296.9) million, or
$(6.26) per share of common stock. This represents an immediate increase in net
tangible book value of $5.14 per share of common stock to existing common
stockholders and an immediate dilution in net tangible book value of $(22.26)
per share to new investors purchasing shares of common stock in this offering.
The following table illustrates this per share dilution:

Initial public offering price per share..................... $ 16.00
Net tangible book value per share before this offering.... $(11.40)
Increase per share attributable to this offering.......... $ 5.14
Tangible book value per share after this offering........... $ (6.26)
Dilution per share to new investors......................... $(22.26)

The following table summarizes, as of March 31, 2001, the number of shares
of common stock purchased from us, the total consideration paid assuming an
initial public offering price of $16.00, and the average price per share paid by
existing and new investors purchasing shares of common stock in this offering,
before deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.

SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------

Existing shareholders................ 38,068,360 80.2% $200,161,367 57.2% $ 5.26
New investors........................ 9,375,000 19.8% $150,000,000 42.8% $16.00
---------- ----- ------------ ----- ------
Total.............................. 47,443,360 100.0% $350,161,367 100.0% $ 7.38
========== ===== ============ ===== ======

The tables and calculations above assume no exercise of the underwriter's
over-allotment option to purchase up to an additional 1,406,250 shares of common
stock. If the underwriters' overallotment option is exercised in full, the
number of shares of common stock held by existing stockholders would be reduced
to 77.9% of the total number of shares of common stock outstanding after this
offering and the number of shares of common stock held by new investors would be
increased to 10,781,250, or 22.1% of the total number of shares of common stock
outstanding after this offering.

The table also excludes:

- 6,953,840 shares of common stock issuable upon exercise of stock options
that are currently issued, outstanding and exercisable at June 13, 2001 at
a weighted average exercise price of $4.25 per share; and

- 1,642,200 shares of common stock reserved for future issuance under our
1999 Equity Plan as of June 13, 2001.

To the extent these shares are issued, there will be further dilution to new
investors.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data shown below for, and as of the end of, each of
the years in the five-year period ended December 31, 2000 and for the three
months ended March 31, 2000 and 2001 have been derived from our financial
statements. The income statement data for the years ended December 31, 1998,
1999 and 2000 and the balance sheet data at December 31, 1999 and 2000 have been
derived from financial statements, which have been audited and which are
included in this prospectus. The income statement data for the years ended
December 31, 1996 and 1997 and the balance sheet data at December 31, 1996, 1997
and 1998 have been derived from our audited financial statements, which are not
included in this prospectus. The income statement data for the three months
ended March 31, 2000 and 2001 and the balance sheet data at March 31, 2001 have
been derived from our unaudited financial statements which are included in this
prospectus. The balance sheet data at March 31, 2000 has been derived from our
unaudited financial statements which are not included in this prospectus. The
summary financial data should be read in conjunction with "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this prospectus.

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- -------------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- --------- --------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................... $ 68,482 $ 86,474 $ 243,297 $ 318,106 $ 345,287 $ 84,322 $ 91,257
Costs and expenses:
Operating expenses, excluding
depreciation............................ 32,344 38,997 111,875 143,238 151,722 36,647 39,853
Depreciation expense...................... 12,737 15,993 33,493 47,055 54,924 12,721 15,406
Selling, general and administrative
expenses................................ 8,130 8,857 24,446 31,097 38,338 9,240 11,068
Amortization expense, primarily
goodwill................................ 1,952 2,426 11,289 14,565 14,390 3,598 3,607
Termination and related costs............. -- -- -- -- 4,573 -- --
Recapitalization, merger integration, and
regulatory costs........................ -- 16,350 2,818 52,581 4,523 336 --
Interest expense, net..................... 5,758 7,808 41,772 51,958 77,051 18,933 18,849
-------- -------- --------- --------- --------- --------- ---------
Total costs and expenses.................. 60,921 90,431 225,693 340,494 345,521 81,475 88,783
-------- -------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary gain (loss)................. 7,561 (3,957) 17,604 (22,388) (234) 2,847 2,474
Provision for income taxes.................. 1,060 1,700 8,736 3,297 1,969 1,423 1,237
-------- -------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary gain
(loss).................................... 6,501 (5,657) 8,868 (25,685) (2,203) 1,424 1,237
Extraordinary gain (loss), net of taxes..... 6,300 1,849 (2,271) (17,766) -- -- --
-------- -------- --------- --------- --------- --------- ---------
Net income (loss)........................... 12,801 (3,808) 6,597 (43,451) (2,203) 1,424 1,237
Less: Preferred stock dividends and
financing fee accretion................... (943) (626) (2,186) (2,081) -- -- --
Less: Excess of consideration paid over
carrying amount of preferred stock
repurchased............................... -- -- -- (2,796) -- -- --
Add: Excess of carrying amount of preferred
stock repurchased over consideration
paid...................................... 1,764 1,906 -- -- -- -- --
-------- -------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock..................................... $ 13,622 $ (2,528) $ 4,411 $ (48,328) $ (2,203) $ 1,424 $ 1,237
======== ======== ========= ========= ========= ========= =========
Earnings (loss) per common share:
Income (loss) before extraordinary gain
(loss).................................. $ 0.07 $ (0.04) $ 0.12 $ (0.56) $ (0.06) $ 0.04 $ 0.03
Extraordinary gain (loss), net of taxes... 0.06 0.02 (0.04) (0.33) -- -- --
-------- -------- --------- --------- --------- --------- ---------
Net income (loss) per common share........ $ 0.13 $ (0.02) $ 0.08 $ (0.89) $ (0.06) $ 0.04 $ 0.03
======== ======== ========= ========= ========= ========= =========
Earnings (loss) per common share--assuming
dilution:
Income (loss) before extraordinary gain
(loss).................................. $ 0.06 $ (0.04) $ 0.11 $ (0.56) $ (0.06) $ 0.04 $ 0.03
Extraordinary gain (loss), net of taxes... 0.06 0.02 (0.04) (0.33) -- -- --
-------- -------- --------- --------- --------- --------- ---------
Net income (loss) per common
share--assuming dilution................ $ 0.12 $ (0.02) $ 0.07 $ (0.89) $ (0.06) $ 0.04 $ 0.03
======== ======== ========= ========= ========= ========= =========
Weighted average number of shares of common
stock and common stock equivalents:
Basic..................................... 108,640 107,430 57,110 54,210 38,000 37,990 38,070
Fully diluted............................. 114,940 107,430 59,210 54,210 38,000 39,480 40,400

CONSOLIDATED BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents................... $ 10,867 $ 12,255 $ 3,083 $ 4,804 $ 12,971 $ 4,493 $ 9,634
Total assets................................ 128,510 284,815 567,932 625,510 646,160 637,556 654,785
Long-term debt, including current
maturities................................ 89,025 290,270 518,423 751,849 758,989 756,172 774,124
Redeemable preferred stock.................. 4,694 14,487 16,673 -- -- -- --
Stockholders' equity (deficit).............. 16,360 (47,904) (43,327) (201,899) (203,809) (200,475) (202,443)
OTHER DATA:
Adjusted EBITDA(1).......................... $ 28,008 $ 38,620 $ 107,076 $ 143,771 $ 155,560 $ 38,435 $ 40,465
Adjusted EBITDA margin(2)................... 40.9% 44.7% 44.0% 45.2% 45.1% 45.6% 44.3%
Cash flows provided by (used in):
Operating activities...................... 21,731 12,864 46,855 38,197 92,044 21,263 8,284
Investing activities...................... (27,936) (56,963) (245,104) (104,072) (90,995) (25,897) (18,836)
Financing activities...................... 5,944 45,487 189,077 67,596 7,118 4,323 7,215
Capital expenditures........................ 26,510 45,122 72,321 95,914 101,554 34,010 21,152

------------------------------

(1) EBITDA represents earnings before interest expense, net, income taxes,
depreciation and amortization expense. Adjusted EBITDA represents EBITDA
adjusted for recapitalization costs, merger integration costs, regulatory
costs, termination and related costs, stock-based compensation, and
extraordinary items. EBITDA and adjusted EBITDA are not presentations made
in accordance with generally accepted accounting principles. EBITDA and
adjusted EBITDA should not be considered in isolation or as substitutes for
net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with generally accepted
accounting principles or as measures of profitability or liquidity. EBITDA
and adjusted EBITDA are included in this prospectus to provide additional
information with respect to our ability to satisfy our debt service, capital
expenditure and working capital requirements and because certain covenants
in our debt instruments are based on similar measures. While EBITDA and
adjusted EBITDA are used as measures of operations and the ability to meet
debt service requirements, they are not necessarily comparable to other
similarly titled captions of other companies due to differences in methods
of calculations. The calculations of EBITDA and adjusted EBITDA are shown
below:

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- ----------- -----------
(IN THOUSANDS)

Net income (loss)................ $12,801 $(3,808) $ 6,597 $(43,451) $ (2,203) $ 1,424 $ 1,237
Depreciation expense........... 12,737 15,993 33,493 47,055 54,924 12,721 15,406
Amortization expense, primarily
goodwill..................... 1,952 2,426 11,289 14,565 14,390 3,598 3,607
Interest expense, net.......... 5,758 7,808 41,772 51,958 77,051 18,933 18,849
Provision for income taxes..... 1,060 1,700 8,736 3,297 1,969 1,423 1,237
------- ------- -------- -------- -------- ------- -------
EBITDA........................... 34,308 24,119 101,887 73,424 146,131 38,099 40,336
Termination and related
costs(a)..................... -- -- -- -- 4,573 -- --
Recapitalization, merger
integration, and regulatory
costs(b)..................... -- 16,350 2,818 52,581 4,523 336 --
Stock-based compensation(c).... -- -- 100 -- 333 -- 129
Extraordinary (gain) loss, net
of taxes..................... (6,300) (1,849) 2,271 17,766 -- -- --
------- ------- -------- -------- -------- ------- -------
Adjusted EBITDA.................. $28,008 $38,620 $107,076 $143,771 $155,560 $38,435 $40,465
======= ======= ======== ======== ======== ======= =======

----------------------------------

as employee vacation and sick pay reserves in connection with the SMT
merger, $2,164 in employee severance costs in connection with the SMT
merger, $3,075 in professional fees and other merger integration costs
associated with the SMT merger and other acquired entities, and $3,529
for assessments to settle regulatory matters associated with the direct
patient billing process of one of our acquired entities.
Recapitalization, merger integration and regulatory costs for the year
ended December 31, 1998, represents $1,846 in special non-recurring
bonuses paid in connection with the MTI acquisition, $722 of professional
fees associated with accounting and billing systems conversions of
acquired companies, and a $250 provision for bad debt conforming
accounting adjustment made in connection with the American Shared
acquisition. Recapitalization, merger integration and regulatory costs
for the year ended December 31, 1997, represents $16,350 in professional
fees and other costs paid in connection with the acquisition of
substantially all of our company by Apollo Investment Fund III, L.P. and
its related entities.

(c) Stock-based compensation of $333 for the year ended December 31, 2000,
represents $55 for options issued to certain employees at exercise prices
below the fair value of our common stock, $68 for Phantom Shares issued
to four non-employee directors below fair market value, and $210 for
common stock issued to one of our executive officers at below fair market
value. Stock-based compensation of $100 for the year ended December 31,
1998, represents options issued to certain employees at exercise prices
below the fair value of our common stock.

(2) Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by
revenues.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a leading national provider of outsourced diagnostic imaging
services, with 91% of our 2000 revenues and 90% of our revenues for the first
quarter of 2001 derived from MRI. We provide imaging and therapeutic services
primarily to hospitals and other healthcare providers on a mobile,
shared-service basis. Our services normally include the use of our imaging or
therapeutic systems, technologists to operate the systems, equipment maintenance
and upgrades and management of day-to-day operations. We had 392 diagnostic
imaging and therapeutic systems, including 325 MRI systems, and 1,218 clients in
43 states at March 31, 2001.

Approximately 90% of our revenues for the year ended December 31, 2000 were
generated by providing services to hospitals and other healthcare providers,
which we refer to as wholesale revenues. Our wholesale revenues are typically
generated from contracts that require our clients to pay us based on the number
of scans we perform, although some pay us a flat fee for a period of time
regardless of the number of scans we perform. These payments are due to us
independent of our clients' receipt of reimbursement from third-party payors. We
typically deliver our services for a set number of days per week through
exclusive, long-term contracts with hospitals and other healthcare providers.
These contracts, which are usually three to five years in length, are typically
non-cancelable by our clients and often contain automatic renewal provisions. We
price our contracts based on the type of system used, the scan volume, and the
number of ancillary services provided.

Approximately 10% of our revenues for the year ended December 31, 2000 and
for the quarter ended March 31, 2001 were generated by providing services
directly to patients from our sites located at or near hospital or other
healthcare provider facilities, which we refer to as retail revenues. Our
revenue from these sites is generated from direct billings to patients or their
third-party payors, which are recorded net of contractual discounts and other
arrangements for providing services at discounted prices. We typically charge a
higher price per scan under retail billing than we do under wholesale billing.

The principal components of our operating costs, excluding depreciation, are
compensation paid to technologists and drivers, annual system maintenance costs,
transportation and travel costs, and system rental costs. Because a majority of
these expenses are fixed, increased revenue as a result of higher scan volumes
per system significantly improves our margins while lower scan volumes result in
lower margins.

The principal components of selling, general and administrative expenses are
sales force compensation, marketing costs, business development expenses,
corporate overhead costs and our provision for doubtful accounts. In addition,
charges for non-cash stock-based compensation are also included in selling,
general and administrative expenses. In 2000, we recorded $0.3 million in stock-
based compensation as a result of grants of options to purchase our common stock
at an exercise price below its deemed value. For the quarter ended March 31,
2001, we recorded $0.1 million in stock-based compensation as a result of these
grants and will record an additional $3.0 million in charges over the next eight
years as a result of these grants.

Additionally, one-half of the options granted under our 1999 Equity Plan are
"performance options." These options vest on the eighth anniversary of the grant
date if the option holder is still our employee, but the vesting accelerates if
we meet the operating performance targets specified in the option agreements. On
June 20, 2001, our compensation committee authorized us to enter into amended
option agreements to reduce the performance targets for the performance options.
As a result, if we achieve the reduced performance targets but do not achieve
the original performance targets, and an option holder terminates employment
prior to the eighth anniversary of the option

grant date, we would be required to record a non-cash compensation charge equal
to the amount by which the actual value of the shares subject to the performance
option on the date of the amendment exceeded the option's exercise price. We
estimate that we could incur between $4 million and $7 million in the aggregate
of these non-cash compensation charges over the next four years. These charges,
however, may not be evenly distributed over each of those four years or over the
four quarters in any one year, depending upon the timing of employee turnover
and the number of shares subject to the options held by departing employees.

Over the past five years, we have increased revenue through acquisitions,
increased scan volumes at existing client sites, and added new clients. During
this same period, the growth rate of our adjusted EBITDA (income before income
taxes, depreciation, amortization, net interest expense, recapitalization costs,
merger integration costs, regulatory costs, termination and related costs,
stock-based compensation, and extraordinary items) has exceeded the growth rate
of revenue primarily as a result of spreading our fixed costs over a larger
revenue base, implementing cost reduction and containment measures, and
converting leased MRI systems obtained through acquisitions to owned MRI
systems. In the second half of 2000, we added a substantial amount of
infrastructure and upgraded our information systems in anticipation of
supporting our future growth rate which increased our selling, general and
administrative expenses as a percentage of revenue in the first quarter of 2001
compared to the first quarter of 2000.

We have historically focused on attempting to maximize cash flow and return
on invested capital nationwide and effectively deploying assets to maximize
utilization. In both 1999 and 2000, we made significant investments in adding to
and upgrading our MRI systems to improve service to our clients and add capacity
for future growth. These additions to our MRI systems had the effect of slowing
our growth rate in average daily scan volume per MRI system in 2000. Average
daily scan volume per MRI system increased by 0.5 and 0.1 scans per day in 1999
and 2000, as compared to each preceding year.

At December 31, 2000, we had $167.7 million of net operating losses
available for federal tax purposes to offset future taxable income, subject to
certain limitations. These net operating losses begin to expire in 2003.

SEASONALITY

We experience seasonality in the revenues and margins generated for our
services. First and fourth quarter revenues are typically lower than those from
the second and third quarters. First quarter revenue is affected primarily by
fewer calendar days and inclement weather, the results of which are fewer
patient scans during the period. Fourth quarter revenue is affected primarily by
holiday and client and patient vacation schedules and inclement weather, the
results of which are fewer patient scans during the period. The variability in
margins is higher than the variability in revenues due to the fixed nature of
our costs.

SIGNIFICANT ACQUISITIONS AND OTHER TRANSACTIONS

On November 1, 2000, we acquired all of the outstanding common stock of
Southeast Arizona, Inc. as well as a mobile MRI system from one of its
affiliates. The purchase price was $4.1 million. The acquisition has been
accounted for as a purchase and, accordingly, the results of operations of
Southeast Arizona have been included in our consolidated financial statements
from the date of acquisition.

On November 2, 1999, we merged with an affiliate of Kohlberg Kravis
Roberts & Co., L.P., or KKR, who acquired control of Alliance from existing
shareholders in a leveraged recapitalization transaction. The total value of the
transaction, including fees and expenses, was approximately $980 million. The
transaction was funded with senior secured credit facilities, a senior
subordinated credit facility, and common equity.

On May 13, 1999, we acquired all the outstanding common stock of Three
Rivers Holding Corp., the parent corporation of SMT Health Services, Inc., in a
stock-for-stock merger. We exchanged approximately 16.4 million shares of common
stock for all the outstanding common shares of Three Rivers. At the time of the
merger, Three Rivers was wholly owned by affiliates of Apollo Management, L.P.,
which held approximately 82.6% of our outstanding common stock. Accordingly, the
merger has been accounted for as a reorganization of entities under common
control in a manner similar to a pooling of interests. As such, our accompanying
financial statements, footnotes, and management's discussion and analysis of
financial condition and results of operations have been restated to include the
assets, liabilities and operations of SMT from the date when both entities were
under Apollo's control, which was December 18, 1997.

On November 13, 1998, two of our wholly owned subsidiaries acquired all of
the outstanding common stock of CuraCare, Inc. and all of the partnership
interests in American Shared-CuraCare. The purchase price consisted of
approximately $13.4 million in cash plus the assumption of approximately
$12.2 million in financing arrangements. The transaction has been accounted for
as a purchase and, accordingly, the results of operations of CuraCare and
American Shared have been included in our consolidated financial statements from
the date of acquisition.

On August 17, 1998, SMT acquired all of the outstanding common stock of RIA
Management Services, Inc. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of RIA have been included in our
consolidated financial statements from the date of acquisition. The purchase
price consisted of approximately $2.1 million in cash plus the assumption of
approximately $1.1 million in financing arrangements.

On May 19, 1998, we acquired Medical Diagnostics, Inc., a subsidiary of U.
S. Diagnostic, Inc. The purchase price consisted of approximately $31.0 million
plus the assumption of approximately $7.4 million in financing arrangements. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations of Medical Diagnostics have been included in our consolidated
financial statements from the date of acquisition.

On March 12, 1998, we acquired Mobile Technology Inc., a provider of mobile
MRI services in the United States, in a transaction accounted for as a purchase.
We have included the operations of Mobile Technology in our consolidated
financial statements from the date of acquisition. The purchase price consisted
of $58.3 million for all of the equity interests in Mobile Technology plus
direct acquisition costs of approximately $2.0 million. In connection with the
acquisition, we also refinanced $37.4 million of Mobile Technology's outstanding
debt and paid Mobile Technology's direct transaction costs of $3.5 million.

On January 2, 1998, Canton Holding Corp., a wholly owned subsidiary of SMT,
acquired all of the outstanding common stock of Mid American Imaging, Inc. and
Dimensions Medical Group, Inc. The acquisition was accounted for as a purchase
and accordingly, the results of operations of Mid American Imaging and
Dimensions Medical Group have been included in our consolidated financial
statements from the date of acquisition. The purchase price consisted of
approximately $10.4 million in cash plus the assumption of approximately
$5.1 million in financing arrangements.

RESULTS OF OPERATIONS

QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED MARCH 31, 2000

Revenue increased $7.0 million, or 8.3%, to $91.3 million in the first
quarter of 2001 compared to $84.3 million in the first quarter of 2000 primarily
due to higher scan-based MRI revenue and higher MRI revenue under fixed-fee
contracts. Overall, scan-based MRI revenue for the quarter ended March 31, 2001
increased $5.2 million, or 7.4%, compared to the quarter ended March 31, 2000
primarily as a result of a 10.4% increase in our MRI scan volume. We attribute
this increase to the

increase in the number of scans for existing clients primarily as a result of
our continuing MRI systems upgrade program, and to additional scan-based systems
in operation. The average daily scan volume per MRI system increased to 9.5 in
the first quarter of 2001 from 9.4 in the first quarter of 2000. The increase in
scan-based revenue was partially offset by a 2.8% decrease in average price per
MRI scan. The decrease in average price realized per scan is primarily the
result of an increase in wholesale revenue compared to retail revenue, which has
a higher per-scan price, as a percentage of total MRI revenue, granting price
reductions to certain clients, and clients achieving discounted price levels on
incremental scan volume. Fixed-fee MRI revenue increased $0.2 million, or 4.0%,
due to an increase in short and long-term fixed-fee system rental contracts.
Additionally, other revenue increased $1.6 million, or 19.1%, primarily due to
an increase in positron emission tomography, or PET, revenue.

We had 325 MRI systems at March 31, 2001 compared to 296 MRI systems at
March 31, 2000. The increase was primarily a result of planned system additions
to satisfy client demand.

Operating expenses, excluding depreciation, increased $3.3 million, or 9.0%,
to $39.9 million in the first quarter of 2001 compared to $36.6 million in the
first quarter of 2000. Payroll and related employee expenses increased
$2.0 million, or 10.8%, primarily as a result of an increase in the number of
employees necessary to support new systems in operation and an increase in
technologists' wages. System maintenance expense increased $1.0 million, or
12.7%, primarily due to an increase in the number of systems in service. Medical
supplies increased $0.4 million, or 30.4%, primarily as a result of an increase
in radiopharmaceutical expenses associated with PET. Rental expense decreased
$1.0 million, or 24.3%, resulting from a lower number of leased MRI systems and
transportation units in operation. Expenses incurred under management agreements
increased $0.3 million, or 28.7%. All other operating expenses, excluding
depreciation, increased $0.6 million, or 13.3%, primarily due to an increase in
the number of systems in operation and an increase in average daily scan volume.
Operating expenses, excluding depreciation, as a percentage of revenue,
increased from 43.4% in the first quarter of 2000 to 43.7% in the first quarter
of 2001 as a result of the factors described above.

Depreciation expense increased $2.7 million, or 21.3%, to $15.4 million in
the first quarter of 2001 compared to $12.7 million in the first quarter of 2000
principally due to a higher amount of depreciable assets associated with system
additions and upgrades.

Selling, general and administrative expenses increased $1.9 million, or
20.7%, to $11.1 million in the first quarter of 2001 compared to $9.2 million in
the first quarter of 2000. Payroll and related employee expenses increased
$1.1 million, or 21.1%, primarily due to increased staffing levels primarily in
the areas of patient billing and scheduling, information services, corporate
development, human resources and legal. Professional service expenses increased
$0.4 million, or 130%, primarily as a result of increased consulting costs for
information services, sales, and finance. Also, we recorded a $0.1 million
charge for stock-based compensation in the first quarter of 2001. All other
selling, general and administrative expenses increased $0.3 million. Selling,
general and administrative expenses as a percentage of revenue increased from
10.9% in the first quarter of 2000, to 12.2% in the first quarter of 2001 as a
result of the factors described above.

Amortization expense, primarily related to goodwill, totaled $3.6 million in
the first quarter of 2001 and 2000.

Interest expense, net, decreased $0.1 million, or 0.1%, to $18.8 million in
the first quarter of 2001 compared to $18.9 million in the first quarter of
2000, primarily as a result of a decrease in amortization of deferred financing
costs and a decrease due to one less day in the first quarter of 2001 compared
to the corresponding quarter in 2000. These factors were partially offset by
higher average interest rates and higher average outstanding debt balances
during the first quarter of 2001 as compared to the first quarter of 2000. The
interest rate on substantially all of our long-term debt is variable.

Provision for income taxes in the first quarter of 2001 was $1.2 million,
resulting in an effective tax rate of 50.0%, primarily as a result of
non-deductible goodwill and state income taxes. Provision for income taxes in
the first quarter of 2000 was $1.4 million, resulting in an effective tax rate
of 50.0%, primarily as a result of non-deductible goodwill and state income
taxes.

Our net income was $1.2 million in the first quarter of 2001 compared to net
income of $1.4 million in the first quarter of 2000.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Revenue increased $27.2 million, or 8.6%, to $345.3 million in 2000 compared
to $318.1 million in 1999 primarily due to higher scan-based MRI revenue and
higher MRI revenue under fixed-fee contracts. Overall, scan-based MRI revenue in
2000 increased $18.7 million, or 6.8%, compared to 1999 primarily as a result of
an 11.5% increase in our MRI scan volume. We attribute this increase to the
increase in the number of scans for existing clients primarily as a result of
our continuing MRI systems upgrade program, and to additional scan-based systems
in operation. The average daily scan volume per MRI system increased to 9.4 in
2000 from an estimated 9.3 in 1999. The increase in scan-based revenue was
partially offset by a decrease in scan volume from clients who did not renew
their contracts and an estimated 4.3% decrease in average price per MRI scan.
The decrease in average price realized per scan is primarily the result of an
increase in wholesale revenue compared to retail revenue, which has a higher
per-scan price, as a percentage of total MRI revenue, granting price reductions
to certain clients, and clients achieving discounted price levels on incremental
scan volume. Fixed-fee MRI revenue increased $7.8 million, or 61.3%, due to an
increase in short and long-term fixed-fee system rental contracts. Additionally,
revenue associated with management agreements increased $1.6 million, or 23.8%,
and other revenue decreased $0.9 million, or 3.8%.

We had 319 MRI systems at December 31, 2000 compared to 283 MRI systems at
December 31, 1999. The increase was primarily a result of planned system
additions to satisfy client demand.

Operating expenses, excluding depreciation, increased $8.5 million, or 5.9%,
to $151.7 million in 2000 compared to $143.2 million in 1999. Payroll and
related employee expenses increased $8.2 million, or 13.0%, primarily as a
result of an increase in the number of employees necessary to support new
systems in operation and an increase in technologists' wages. Fuel expense
increased $1.1 million, or 36.6%, primarily as a result of an increase in fuel
prices as well as an increase in the number of shared-use MRI systems in
operation. System rental expense decreased $2.3 million, or 20.3%, resulting
from a lower number of leased MRI systems in operation. Expenses incurred under
management agreements increased $1.1 million, or 29.7%. All other operating
expenses, excluding depreciation, increased $0.4 million. Operating expenses,
excluding depreciation, as a percentage of revenue, decreased from 45.0% in 1999
to 43.9% in 2000 as a result of spreading our fixed costs over a larger revenue
base and a conversion of leased systems to owned systems upon the expiration of
operating leases.

Depreciation expense increased $7.8 million, or 16.6%, to $54.9 million in
2000 compared to $47.1 million in 1999 principally due to a higher amount of
depreciable assets associated with system additions and upgrades.

Selling, general and administrative expenses increased $7.2 million, or
23.2%, to $38.3 million in 2000 compared to $31.1 million in 1999. Payroll and
related employee related expenses increased $2.3 million, or 11.9%, primarily
due to increased staffing levels primarily in the areas of retail billing and
collections, information systems, corporate development and legal. Professional
service expenses increased $1.0 million, or 101%, primarily as a result of
increased information services costs associated with training for the
implementation of our retail billing system as well as increased costs incurred
to support our financial, marketing and operations functions. Marketing and
business development expenses increased $0.4 million, or 78.7%, primarily as a
result of our sales and marketing efforts associated with positron emission
tomography, or PET, services. The provision for doubtful accounts

increased by $1.5 million primarily as a result of the growth in revenue. Also,
we recorded $0.8 million in expenses associated with a compliance review and a
$0.3 million charge for stock-based compensation in 2000. All other selling,
general and administrative expenses increased $0.9 million. Selling, general and
administrative expenses as a percentage of revenue increased from 9.8% in 1999,
to 11.1% in 2000 as a result of the factors described above.

Amortization expense, primarily related to goodwill, totaled $14.4 million
in 2000 and $14.6 million in 1999.

Termination and related costs of $4.6 million for the year ended
December 31, 2000 represent $4.3 million associated with termination costs and
the repurchase of stock options for an executive officer who resigned his
management duties due to health-related issues and $0.3 million associated with
the recruitment of his replacement.

Recapitalization, merger integration and regulatory costs of $4.5 million
for the year ended December 31, 2000 represent $0.7 million of professional fees
paid in connection with the KKR acquisition, $0.6 million of compensatory costs
related to stock option buy-backs and severance payments resulting from change
in control provisions triggered by the KKR acquisition, $0.1 million related to
additional severance for employees of SMT, $0.1 million of integration costs to
migrate acquired entities to a common systems platform for direct patient
billing, and $0.9 million for assessments and $2.1 million for costs and related
professional fees to settle regulatory matters associated with the direct
patient billing process of one of our acquired entities.

Recapitalization, merger integration and regulatory costs of $52.6 million
for the year ended December 31, 1999 represent $19.6 million in professional
fees paid in connection with the KKR acquisition, $17.1 million related to the
purchase of outstanding stock options in connection with the KKR acquisition,
$6.0 million in bonus payments paid in connection with the KKR acquisition,
$1.1 million in provisions to conform the accounting policies with respect to
accounts receivable reserves, as well as employee vacation and sick pay reserves
in connection with the SMT Merger, $2.2 million in employee severance costs in
connection with the SMT Merger, $3.1 million in professional fees and other
merger integration costs associated with the SMT Merger and other acquired
entities, and $3.5 million for assessments to settle regulatory matters
associated with the direct patient billing process of one of the Company's
acquired entities.

Interest expense, net, increased $25.1 million, or 48.3%, to $77.1 million
in 2000 compared to $52.0 million in 1999, as a result of higher average
outstanding debt balances during 2000 as compared to 1999. This increase was
primarily related to debt incurred in connection with the KKR acquisition and
increases in average interest rates in 2000 compared to 1999. The interest rate
on substantially all of our long-term debt is variable.

Although we had a pre-tax loss in 2000, provision for income taxes in 2000
was $2.0 million, primarily as a result of non-deductible goodwill,
non-deductible KKR acquisition expenses and state income taxes. Although we had
a pre-tax loss in 1999, the provision for income taxes in 1999 was
$3.3 million, primarily as a result of non-deductible KKR acquisition expenses
and also non-deductible goodwill and state income taxes.

In 1999, we recorded a $17.8 million extraordinary loss on the early
extinguishment of debt related to the KKR acquisition and SMT debt refinancing.

We recorded a net loss in 2000 of $2.2 million, or $0.06 per share, compared
to a net loss in 1999 of $43.5 million, or $0.89 per share. The net loss per
common share calculation in 1999 reflects preferred stock dividends and
financing fee accretion of $2.1 million and excess of consideration paid over
carrying amount of preferred stock purchased of $2.8 million.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Revenue increased $74.8 million, or 30.7%, to $318.1 million in 1999
compared to $243.3 million in 1998, primarily due to acquisitions. The remaining
increase was due to higher scan-based MRI revenue, higher fixed-fee MRI revenue
and an increase in other revenue, including revenue for other imaging and
therapeutic services. Overall, scan-based MRI revenue increased $65.0 million,
or 31.1%, compared to 1998 primarily as a result of a 35.7% increase in our MRI
scan volume primarily related to acquisitions. We attribute the non-acquisition
MRI scan volume increase to the increase in the number of scans for existing
clients primarily as a result of our continuing MRI systems upgrade program. The
average daily scan volume per MRI system (adjusted to include acquisitions) was
an estimated 9.3 in 1999. We experienced an estimated 3.4% decrease in the
average revenue realized per MRI scan as compared to 1998. The decrease in
average revenue realized per scan is primarily the result of clients achieving
discount price levels on incremental scan volume and granting price reductions
to certain clients. Fixed-fee MRI revenue increased $5.7 million, or 80.9%, in
1999 compared to 1998 due to an increase in short- and long-term fixed-fee
system rental contracts. Other revenue increased $4.1 million, or 14.9%,
primarily due to an increase in revenues from all other imaging and therapeutic
services.

We had 283 MRI systems at December 31, 1999 compared to 273 MRI systems at
December 31, 1998. The increase was primarily a result of planned system
additions due to a growth in our client base.

Operating expenses, excluding depreciation, increased $31.3 million, or
28.0%, to $143.2 million in 1999 compared to $111.9 million in 1998. Payroll and
related employee expenses increased $15.7 million, or 33.7%, primarily as a
result of the American Shared, Mobile Technology, and Medical Diagnostics
acquisitions as well as an increase in the number of employees necessary to
support new MRI systems in operation and increased scans per MRI system. System
maintenance expense increased $6.3 million, or 31.1%, due to an increase in the
number of systems in service and the expiration of warranties on an increased
number of MRI systems. All other operating expenses, excluding depreciation,
increased $9.3 million, or 20.6%, primarily as a result of increased costs
associated with revenue growth. Operating expenses, excluding depreciation, as a
percentage of revenue, decreased from 46.0% in 1998 to 45.0% in 1999 as a result
of spreading costs over a larger revenue base and a conversion of leased systems
to owned systems upon the expiration of operating leases.

Depreciation expense increased $13.6 million, or 40.6%, to $47.1 million in
1999 compared to $33.5 million in 1998 principally due to a higher amount of
depreciable assets associated with system additions and upgrades and systems
acquired through acquisitions.

Selling, general and administrative expenses increased $6.7 million, or
27.5%, to $31.1 million in 1999 compared to $24.4 million in 1998. Payroll and
related expenses increased $4.3 million, or 32.7%, primarily as a result of
increased staffing levels necessary to support our increased level of operations
and increased employee compensation related to increased sales commissions. The
provision for doubtful accounts increased $0.4 million primarily as a result of
our growth in revenue. All other selling, general and administrative expenses
increased $2.0 million, or 26.4%, primarily as a result of increased costs
associated with revenue growth. Selling, general and administrative expenses, as
a percentage of revenue, decreased from 10.0% in 1998 to 9.8% in 1999.

Amortization expense, primarily related to goodwill, increased
$3.3 million, or 29.2%, to $14.6 million in 1999 compared to $11.3 million in
1998 as a result of acquisitions made during 1998.

Recapitalization, merger integration and regulatory costs of $52.6 million
for the year ended December 31, 1999 represents $19.6 million in professional
fees paid in connection with the KKR acquisition, $17.1 million related to the
purchase of outstanding stock options in connection with the KKR acquisition,
$6.0 million in bonus payments paid in connection with the KKR acquisition, $1.1

million in provisions to conform the accounting policies with respect to
accounts receivable reserves, as well as employee vacation and sick pay reserves
in connection with the SMT Merger, $2.2 million in employee severance costs in
connection with the SMT Merger, $3.1 million in professional fees and other
merger integration costs associated with the SMT Merger and other acquired
entities, and $3.5 million for assessments to settle regulatory matters
associated with the direct patient billing process of one of the Company's
acquired entities.

Recapitalization, merger integration and regulatory costs of $2.8 million in
1998 represent $1.8 million in special non-recurring bonuses paid in connection
with the Mobile Technology acquisition, $0.7 million in professional fees
associated with accounting and billing systems conversions of acquired
companies, and a $0.3 million provision for doubtful accounts conforming
accounting adjustment made in connection with the American Shared acquisition.

Interest expense, net, increased $10.2 million, or 24.4%, to $52.0 million
in 1999 compared to $41.8 million in 1998. This increase was primarily related
to debt incurred in connection with the KKR acquisition merger as well as
acquisitions made during this period. The interest rate on substantially all of
our long-term debt as of December 31, 1999 was variable.

Although we had a pre-tax loss in 1999, provision for income taxes in 1999
was $3.3 million, primarily as a result of non-deductible KKR acquisition
expenses, and also non-deductible goodwill and state income taxes. Provision for
income taxes in 1998 was $8.7 million, resulting in an effective tax rate of
49.6% which differed from the statutory tax rate primarily as a result of
non-deductible goodwill.

In 1999, we recorded a $17.8 million extraordinary loss on the early
extinguishments of debt related to the KKR acquisition and acquisitions. In
1998, we recorded a $2.3 million extraordinary loss on early extinguishments of
debt related to acquisitions.

We recorded a net loss in 1999 of $43.5 million, or $0.89 per share,
compared to net income in 1998 of $6.6 million, or $0.08 per share. The net loss
per common share calculation in 1999 reflects preferred stock dividends and
financing fee accretion of $2.1 million and excess of consideration paid over
carrying amount of preferred stock purchased of $2.8 million. In 1998, the net
loss per common share calculation reflects preferred stock dividends and
financing fee accretion of $2.2 million.

LIQUIDITY AND CAPITAL RESOURCES

We generated cash of $92.0 million and $38.2 million from operating
activities in 2000 and 1999, respectively and $8.3 million for the first quarter
of 2001. We used cash of $91.0 million and $104.1 million for investing
activities in 2000 and 1999, respectively and $18.8 million for the first
quarter of 2001. We incur capital expenditures for the purposes of:

- providing upgrades of our MRI systems and upgrading our corporate
infrastructure for future growth;

- purchasing systems upon termination of operating leases;

- replacing less advanced systems with new systems; and

- purchasing new systems.

Capital expenditures totaled $101.6 million during the year ended
December 31, 2000. Capital expenditures totaled $95.9 million during the year
ended December 31, 1999. Capital expenditures totaled $21.2 million during the
quarter ended March 31, 2001. During the year ended December 31, 2000, we
purchased 55 MRI systems, including replacement systems. During the quarter
ended March 31, 2001, we purchased 10 MRI systems, including replacement
systems. Our decision to purchase a new system is typically predicated on
obtaining new or extending existing client contracts, which serve as the basis
of demand for the new system. We expect to purchase additional systems in

2001 and finance substantially all of these purchases with our available cash,
cash from operating activities and our revolving line of credit. We expect
capital expenditures to total approximately $75 million in 2001, which shall
consist primarily of equipment purchases and upgrades.

In connection with the KKR acquisition, we entered into a $616.0 million
credit agreement and also entered into a $260.0 million senior subordinated
credit facility agreement with KKR. The credit agreement contains restrictive
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, liens and encumbrances, capital
expenditures and prepayments of other indebtedness. Additionally, the credit
agreement contains financial covenants which require a minimum interest coverage
ratio of 1.5 to 1.0, as well as a maximum leverage ratio of 6.0 to 1.0. As of
March 31, 2001, we are in compliance with all of the material covenants
contained in our credit agreement and other indebtedness.

We used the aggregate proceeds from the offering of our 10 3/8% senior
subordinated notes due 2011 to repay our senior subordinated credit facility.

The maturities of our existing long-term debt total $15.9 million in 2001,
$18.0 million in 2002, $28.4 million in 2003, $28.8 million in 2004 and
$35.6 million in 2005.

We believe that, based on current levels of operations and anticipated
growth, our cash from operations, together with other available sources of
liquidity, including borrowings available under our revolving loan facility,
will be sufficient over the next year to fund anticipated capital expenditures
and make required payments of principal and interest on our debt, including
payments due under our credit agreement. Neither the KKR acquisition nor our
current level of debt has altered our practice of making capital expenditures.

Our expansion and acquisition strategy may require substantial capital, and
no assurance can be given that we will be able to raise any necessary additional
funds through bank financing or the issuance of equity or debt securities on
terms acceptable to us, if at all.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We sell our services exclusively in the United States and receive payment
for our services exclusively in United States dollars. As a result, our
financial results are unlikely to be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.

Our interest expense is sensitive to changes in the general level of
interest rates in the United States, particularly because the majority of our
indebtedness has interest rates which are variable. The recorded carrying amount
of our long-term debt approximates fair value as these borrowings have variable
rates that reflect currently available terms and conditions for similar debt.

Our interest income is sensitive to changes in the general level of interest
rates in the United States, particularly because the majority of our investments
are in short-term instruments.

The recorded carrying amounts of cash and cash equivalents approximate fair
value due to their short-term maturities.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The adoption
of SAB 101 had no impact on our results of operations or financial position.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation". FIN 44 clarifies the application of Accounting Principles
Board ("APB") Opinion No. 25 regarding (a) the definition of employee for
purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a stock option plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occurred after either
December 15, 1998, or January 12, 2000. The adoption of FIN 44 did not have a
material effect on our consolidated results of operations or financial position.

Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative and Hedging Activities", as
amended. This statement establishes a new model for accounting for derivatives
and hedging activities. Under SFAS 133, all derivatives must be recognized as
assets and liabilities and measured at fair value. We currently do not have any
derivative instruments, which require fair value measurement under SFAS 133 and,
accordingly, the effect of the adoption did not have a material impact on our
results of operations or financial position.

BUSINESS

We are a leading national provider of outsourced diagnostic imaging
services, with 91% of our 2000 revenues and 90% of our revenues for the first
quarter of 2001 derived from MRI. We provide imaging and therapeutic services
primarily to hospitals and other healthcare providers on a mobile,
shared-service basis. Our services normally include the use of our imaging or
therapeutic systems, technologists to operate the systems, equipment maintenance
and upgrades and management of day-to-day operations. We also offer ancillary
services including marketing support, education and training and billing
assistance. We had 392 diagnostic imaging and therapeutic systems, including 325
MRI systems, and 1,218 clients in 43 states at March 31, 2001.

We typically deliver our services through exclusive, long-term contracts
with hospitals and other healthcare providers which generally require them to
pay us monthly, based on the number of scans we perform. These contracts are
usually three to five years in length, are typically non-cancelable by our
clients and often contain automatic renewal provisions. For the year ended
December 31, 2000 and the quarter ended March 31, 2001, we received
approximately 90% of our revenues from direct billing of our clients.

Our clients, primarily small-to-mid-sized hospitals, contract with us to
provide outsourced diagnostic imaging systems and therapeutic services in order
to:

- avoid capital investment and financial risk associated with the purchase
of their own systems;

- provide access to MRI and other services for their patients when the
demand for these services does not justify the purchase of a system;

- benefit from upgraded imaging systems without direct capital expenditures;

- eliminate the need to recruit, train and manage qualified technologists;

- make use of our ancillary services; and

- gain access to services under our regulatory and licensing approvals when
they do not have these approvals.

On November 2, 1999, we merged with an affiliate of Kohlberg Kravis
Roberts & Co., L.P., or KKR, who acquired control of Alliance from existing
shareholders in a leveraged recapitalization transaction. We refer to this
transaction as the KKR acquisition throughout this prospectus. The total value
of the transaction, including fees and expenses, was approximately
$980 million. The transaction was funded with senior secured credit facilities,
a senior subordinated credit facility, and common equity. The KKR acquisition
did not result in any material changes in the nature of our business other than
the before-mentioned increase in our indebtedness.

INDUSTRY OVERVIEW

Diagnostic imaging services are noninvasive procedures that generate
representations of the internal anatomy and convert them to film or digital
media. Diagnostic imaging systems facilitate the early diagnosis of diseases and
disorders, often minimizing the cost and amount of care required and reducing
the need for costly and invasive diagnostic procedures. The market for
diagnostic imaging services in the United States was estimated to be
approximately $66 billion in 1999.

MRI

The market for MRI services in the United States was estimated to be
$6.7 billion in 1999. Of the approximately 14.6 million MRI scans in 2000, 44%
were performed by hospitals with their own equipment, 33% were performed by
independent imaging centers and 23% were performed by mobile MRI providers.

MRI involves the use of high-strength magnetic fields to produce
computer-processed cross-sectional images of the body. Due to its superior image
quality, MRI is the preferred imaging technology for evaluating soft tissue and
organs, including the brain, spinal cord and other internal anatomy. With
advances in MRI technology, MRI is increasingly being used for new applications
such as imaging of the heart, chest and abdomen. Conditions that can be detected
by MRI include multiple sclerosis, tumors, strokes, infections, and injuries to
the spine, joints, ligaments, and tendons. Unlike x-rays and computed
tomography, which are other diagnostic imaging technologies, MRI does not expose
patients to potentially harmful radiation.

MRI technology was first patented in 1974, and MRI systems first became
commercially available in 1983. Since then, manufacturers have offered
increasingly sophisticated MRI systems and related software to increase the
speed of each scan and improve image quality. Magnet strengths are measured in
tesla, and MRI systems typically use magnets with strengths ranging from 0.2 to
1.5 tesla. The 1.0 and 1.5 tesla strengths are generally considered optimal
because they are strong enough to produce relatively fast scans but are not so
strong as to create discomfort for most patients. Manufacturers have worked to
gradually enhance other components of the machines to make them more versatile.
Many of the hardware and software systems in recently manufactured machines are
modular and can be upgraded for much lower costs than purchasing new systems.

MRI has gradually captured a larger portion of the diagnostic imaging
market. The total number of MRI scans has increased at an estimated compound
annual growth rate of 10.5% from 5.4 million in 1990 to approximately
14.6 million in 2000. The number of MRI scans is projected to grow at
approximately the same rate through 2006.

The MRI industry has experienced growth as a result of:

- recognition of MRI as a cost-effective, noninvasive diagnostic tool;

- superior soft-tissue image quality of MRI versus that of other diagnostic
imaging technologies;

- wider physician acceptance and availability of MRI technology;

- growth in the number of MRI applications;

- MRI's safety when compared to other diagnostic imaging technologies,
because it does not use potentially harmful radiation; and

- increased overall demand for healthcare services, including diagnostic
services, for the aging population.

OTHER DIAGNOSTIC IMAGING SERVICES

- POSITRON EMISSION TOMOGRAPHY, OR PET. PET is a nuclear medicine procedure
that produces pictures of the body's metabolic and biologic functions. PET
can provide earlier detection of certain cancers, coronary diseases or
neurologic problems than other diagnostic imaging systems. It is also
useful for the monitoring of these conditions.

- COMPUTED TOMOGRAPHY, OR CT. In CT imaging, a computer analyzes the
information received from an x-ray beam to produce multiple
cross-sectional images of a particular organ or area of the body. CT
imaging is used to detect tumors and other conditions affecting bones and
internal organs.

- OTHER SERVICES. Other diagnostic imaging technologies include x-ray,
single photon emission computed tomography, and ultrasound.

IMAGING SETTINGS

MRI and other imaging services are typically provided in one of the
following settings:

- HOSPITALS AND CLINICS. Imaging systems are located in and owned and
operated by a hospital or clinic. These systems are primarily used by
patients of the hospital or clinic, and the hospital or clinic bills
third-party payors, such as health insurers, Medicare or Medicaid.

- INDEPENDENT IMAGING CENTERS. Imaging systems are located in permanent
facilities not generally owned by hospitals or clinics. These centers
depend upon physician referrals for their patients and generally do not
maintain dedicated, contractual relationships with hospitals or clinics.
In fact, these centers may compete with hospitals or clinics that have
their own systems to provide imaging services to these patients. Like
hospitals and clinics, these centers bill third-party payors for their
services.

- OUTSOURCED. Imaging systems, largely located in mobile trailers but also
provided in fixed facilities, provide services to a hospital or clinic on
a shared-service or full-time basis. Generally, the hospital or clinic
contracts with the imaging service provider to perform scans of its
patients, and the imaging service provider is paid directly by that
hospital or clinic instead of by a third-party payor.

OUR COMPETITIVE STRENGTHS

LARGEST NATIONAL PROVIDER OF OUTSOURCED MRI SERVICES

We believe we are the largest national provider of outsourced MRI services,
based on systems deployed, with 325 MRI systems in operation in 42 states at
March 31, 2001. We believe our size allows us to achieve operating, purchasing
and administrative efficiencies, including:

- the ability to maximize equipment utilization through efficient deployment
of our mobile systems;

- equipment purchasing savings from equipment manufacturers;

- favorable service and maintenance contracts from equipment manufacturers;
and

- the ability to minimize the time our systems are unavailable to our
clients as a result of our flexibility in system deployment.

We also believe our size has enabled us to establish a well-recognized brand
name and an experienced management team with a detailed knowledge of the
competitive and regulatory environments within the diagnostic imaging services
industry.

EXCLUSIVE, LONG-TERM CONTRACTS WITH A DIVERSE CLIENT BASE

We generate substantially all of our revenues from exclusive, long-term
contracts with hospitals and other healthcare providers. These contracts are
usually three to five years in length, are typically non-cancelable by our
clients and often have automatic renewal provisions. We believe we have
developed strong relationships with our clients, as evidenced by our contract
renewal rate of 85% in 2000 and 81% for the first quarter of 2001. During 2000
and for the first quarter of 2001, no single client accounted for more than 3%
of our revenue.

REDUCED REIMBURSEMENT RISK

Generally, hospitals, clinics and independent imaging centers bill patients
or third-party payors, such as health insurers, for their imaging services. In
contrast, for the year ended December 31, 2000 and for the quarter ended
March 31, 2001, approximately 90% of our revenues were generated by providing
services to hospitals and clinics that are obligated to pay us regardless of
their receipt of reimbursement from third-party payors. Accordingly, our
exposure to uncollectible patient receivables is

minimized, as evidenced by our bad debt expense of only 1.6% of net revenues for
the year ended December 31, 2000 and for the quarter ended March 31, 2001. In
addition, we believe that the number of days outstanding for our receivables,
which averaged 55 days for the year ended December 31, 2000 and 57 days for the
quarter ended March 31, 2001, is among the most favorable in the healthcare
services industry.

COMPREHENSIVE OUTSOURCING SOLUTION

We offer our clients a comprehensive outsourcing solution which includes our
imaging services and ancillary services, such as marketing support, education
and training and billing assistance. In some cases, we provide services under
our regulatory and licensing approvals for clients when they do not have these
approvals. We believe that a comprehensive outsourcing solution is an important
factor when potential clients select an outsourcing provider. We also believe
that some clients recognize the benefits of our solution and will continue to
contract for our outsourcing services even if their scan volume may justify the
purchase of their own imaging system.

ADVANCED MRI SYSTEMS

Our MRI systems are among the newest and most advanced in the industry due
to the significant resources we have invested over the last three years to
replace and upgrade existing systems and to purchase new systems. Our
technologically advanced systems can perform high quality scans more rapidly and
can be used for a wider variety of imaging applications than less advanced
systems. Approximately 58% of our MRI systems have been purchased in the last
three years and approximately 88% of our MRI systems are equipped with
high-strength magnets that allow high-speed imaging. Moreover, technological
change in this field is gradual and most of our systems can be upgraded with
software and hardware enhancements, which should allow us to continue to provide
advanced technology without purchasing entire new systems.

EXPERIENCED EXECUTIVE MANAGEMENT TEAM

We have an experienced team of executives who have worked in the healthcare
industry an average of 19 years. Our executive management team currently owns
approximately 12% of our common equity on a fully diluted basis.

OUR GROWTH STRATEGIES

INCREASE THE NUMBER OF SCANS AT EXISTING CLIENTS

We intend to continue to increase the overall number of scans we perform for
our existing clients. We have invested in advanced MRI systems which are faster
and capable of scanning for a broad range and increasing number of medical
conditions. We believe these capabilities will result in an increase in the
number of scans performed for our clients. Furthermore, we attempt to educate
physicians about the advantages of MRI and new imaging procedures and
applications, which we believe will also lead to increased number of scans.

ESTABLISH NEW CLIENT RELATIONSHIPS

We primarily target small-to-mid-sized hospitals and other healthcare
providers as potential new clients for our services. As of December 31, 1999,
the small-to-mid-sized hospital market was estimated to include 4,956 hospitals.
Additionally, we intend to pursue relationships with physician groups, clinics
and other healthcare providers that could benefit from our shared-service
outsourcing solution. Providers in these markets are under increasing pressure
to offer a full range of services and must remain technologically competitive.
Because of this pressure, we believe this market represents an attractive target
for our outsourcing services. Additionally, we believe new client growth will
continue to come from healthcare providers requesting our other outsourced
imaging services.

INCREASE MRI SYSTEM UTILIZATION

The average number of scans performed for each of our MRI systems on a given
day was 9.4 in 2000 and 9.5 for the first quarter of 2001. We believe we can
increase this figure through efficient deployment of our mobile MRI systems to
existing and new clients. We believe we can further improve utilization of our
systems by working with our clients to improve patient scheduling and ensure
patient presence at these appointments. We also believe that our size and
geographic diversity positions us to benefit from increased demand for MRI
services.

EXPAND MRI APPLICATIONS

We intend to use our existing national presence and client service
capabilities to introduce new MRI applications, including cardiac evaluation and
advanced chest and abdomen imaging. Most of these applications can be performed
by existing MRI systems, which may require some upgraded software and hardware
enhancements.

OFFER NEW IMAGING SERVICES

We also intend to use our existing nationwide sales and operational
infrastructure and our client relationships to expand our outsourcing services
to include other imaging services. For example, we recently began expanding our
offering of positron emission tomography, or PET, services which are utilized in
the detection of certain cancers, coronary diseases or neurologic problems. Due
to recent approval of reimbursement for selected PET procedures by the Health
Care Financing Administration, we believe PET services present growth
opportunities.

PURSUE SELECTED STRATEGIC ACQUISITIONS

We have been an active acquirer of imaging businesses, having acquired 141
MRI systems in five separate acquisitions since 1997. We believe our scale and
geographic diversity allows us to realize synergies from the acquisition of
imaging providers. We expect to continue to identify and evaluate opportunities
for acquisitions within our industry, although currently there are no agreements
or negotiations with respect to any specific transaction.

OUR SERVICES

As of March 31, 2001, we provided our outsourcing services on the following
bases:

- SHARED SERVICE. We offered 78% of our diagnostic imaging systems on a
part-time basis. These systems are located in mobile trailers which are
transported to our clients' locations. We schedule deployment of these
mobile systems so that multiple clients can share use of the same system.
The typical shared-service contract is three to five years in length.

- FULL-TIME SERVICE. We offered 17% of our diagnostic imaging systems on a
full-time, long-term basis. These systems are located in either mobile
units or buildings located at or near a hospital or clinic. Full-time
service systems are provided for the exclusive use of a particular
hospital or clinic. We typically offer full-time services under contracts
that range from five to ten years in length. Our relationships with our
higher-volume shared-service clients have, from time to time, evolved into
full-time arrangements.

- INTERIM AND RENTAL SERVICES. We offered 5% of our diagnostic imaging
systems to clients on a full-time, temporary basis. These systems are
located in mobile trailers which are transported to our clients'
locations. These clients may be unable to maintain the extra capacity to
accommodate periods of peak demand for imaging services or may require
temporary assistance until they can develop permanent imaging service
centers at or near their facilities. Generally, we do not provide
technologists to operate our systems in these arrangements.

CONTRACTS AND PAYMENT

Our typical contract is exclusive, three to five years in length,
non-cancelable by our clients and often subject to automatic renewal. Most of
our contracts require a fee for each scan we perform. With other contracts,
clients are billed on a fixed-fee basis for a period of time, regardless of the
number of scans performed. These fee levels are affected primarily by the number
of scans performed, the type of imaging system provided and the length of the
contract. To a lesser extent, our revenues are generated from direct billings to
patients or their medical payors. We typically reserve the right to reduce a
client's number of service days or terminate an unprofitable contract. In
addition, our sales representatives have been successful in renewing and
extending contracts prior to expiration, achieving an 85% contract renewal rate
in 2000 and an 81% contract renewal rate for the first quarter of 2001.

IMAGING SYSTEMS

As of March 31, 2001, we operated 373 diagnostic imaging systems, comprising
325 MRI systems, 26 computed tomography systems, six positron emission
tomography systems and 16 other systems, substantially all of which we own. We
have made significant investments in our systems in an effort to ensure that we
maintain the newest, most advanced imaging systems that meet our clients' needs.
As of March 31, 2001, over 58% of our MRI systems had been purchased in the last
three years. Moreover, because we can upgrade most of our current MRI systems,
we believe we have reduced the potential for technological obsolescence.

We purchase our imaging systems from major medical equipment manufacturers,
primarily General Electric Medical Systems, Siemens Medical Systems and Philips
Medical Systems. Generally, we contract with clients for new or expanded
services prior to ordering new imaging systems in order to reduce our system
utilization risk. As one of the largest commercial purchasers of MRI systems in
the world, we believe we receive relatively attractive pricing for equipment and
service contracts from these equipment manufacturers.

THERAPEUTIC SERVICES

In addition to diagnostic imaging, we also offer our clients therapeutic
services including lithotripsy and brachytherapy. Lithotripsy is a minimally
invasive therapeutic procedure for the treatment of kidney stones, typically
performed on an outpatient basis. Brachytherapy is a localized radiation
treatment for cancer. As of March 31, 2001, we owned 19 therapeutic systems.

SYSTEM MANAGEMENT AND MAINTENANCE

We have divided the country into nine geographic regions. We have a local
presence in each region, none of which accounts for more than 17% of our
revenues. We believe we benefit from our regional managers' direct contact with
and knowledge of the markets we serve, which allows us to address the specific
needs of each local operating environment. Each region markets, manages, and
staffs the operation of its imaging systems and is run as a separate profit
center responsible for its own revenues, expenses and overhead. To complement
this regional arrangement, we have developed standardized contracts, operating
policies, and other procedures, which are implemented nationwide in an effort to
ensure quality, consistency and efficiency across all regions.

We actively manage deployment of our imaging systems to increase their
utilization through the coordinated transportation of our mobile systems using
238 tractors. We examine client requirements, route patterns, travel times, fuel
costs and system availability in our deployment process. Our mobile
shared-service MRI systems are currently scheduled for as little as one-half day
and up to seven days per week at any particular client, with an average usage of
1.7 days per week per client. Drivers typically move the systems at night and
activate them upon arrival at each client location so that the systems are
operational when our technologists arrive.

Timely, effective maintenance is essential for achieving high utilization
rates of our MRI systems. We contract with the original equipment manufacturers
for comprehensive maintenance programs on our systems to minimize the period of
time the equipment is unavailable. System repair typically takes less than one
day but could take longer, depending upon the nature of the repair. During the
warranty period and maintenance contract term, we receive guarantees related to
equipment operation and availability.

SALES AND MARKETING

Our national sales force consists of 32 members who identify and contact
potential clients. We also have 57 marketing representatives who are focused on
increasing the number of scans performed with our systems by educating
physicians about our new imaging applications and service capabilities. The
sales force is organized regionally under the oversight of regional vice
presidents and senior management. Furthermore, certain of our executive officers
and regional vice presidents also spend a portion of their time participating in
contract negotiations.

COMPETITION

The market for diagnostic imaging services is highly fragmented and has few
national imaging service providers. We believe that the key competitive factors
affecting our business include:

- the quality and reliability of service;

- the quality and type of equipment available;

- the availability of types of imaging and ancillary services;

- the availability of imaging center locations and flexibility of
scheduling;

- pricing;

- the knowledge and service quality of technologists;

- the ability to obtain regulatory approvals; and

- the ability to establish and maintain relationships with healthcare
providers and referring physicians.

We are, and expect to continue to be, subject to competition in our targeted
markets from businesses offering diagnostic imaging services, including existing
and developing technologies. There are many companies engaged in this market,
including one national competitor and many smaller regional competitors. Some of
our competitors may now or in the future have access to greater resources than
we do. We compete with other mobile providers, independent imaging centers,
physicians, hospitals, and other healthcare providers that have their own
diagnostic imaging systems, and equipment manufacturers that sell or lease
imaging systems to healthcare providers for mobile or full-time use. We may also
experience greater competition in states that currently have certificates of
need laws should these laws be repealed, thereby reducing barriers to entry in
that state.

EMPLOYEES

As of May 31, 2001, we had 1,958 employees, of whom 1,479 were trained
diagnostic imaging technologists, patient coordinators or other technical
support staff. None of our employees are represented by a labor organization and
we are not aware of any activity seeking such organization. We believe we have
good relationships with our employees.

PROPERTIES

We lease approximately 43,400 square feet of space in four office buildings
in Anaheim, California for our executive and principal administrative offices.
We also lease a 15,600 square foot operations warehouse in Orange, California
and a 9,000 square foot operations warehouse in Childs, Pennsylvania, as well as
space for our regional offices.

REGULATION

Our business is subject to extensive federal and state government
regulation. Although we believe that our operations comply with the laws
governing our industry, it is possible that new laws or interpretations of
existing laws will adversely affect our financial performance.

FRAUD AND ABUSE LAWS; PHYSICIAN REFERRAL PROHIBITIONS

The healthcare industry is subject to extensive federal and state regulation
relating to licensure, conduct of operations, ownership of facilities, addition
of facilities and services and payment for services.

In particular, the federal Anti-Kickback Law prohibits persons from
knowingly and willfully soliciting, receiving, offering or providing
remuneration, directly or indirectly, to induce either the referral of an
individual, or the furnishing, recommending, or arranging for a good or service,
for which payment may be made under a federal healthcare program such as the
Medicare and Medicaid Programs. The definition of "remuneration" has been
broadly interpreted to include anything of value, including for example gifts,
discounts, the furnishing of supplies or equipment, credit arrangements,
payments of cash, waivers of payments, ownership interests, and providing
anything at less than its fair market value. In addition, there is no one
generally accepted definition of intent for purposes of finding a violation of
the Anti-Kickback Law. For instance, one court has stated that an arrangement
will violate the Anti-Kickback Law where any party has the intent to unlawfully
induce referrals. In contrast, another court has opined that a party must engage
in the proscribed conduct with the specific intent to disobey the law in order
to be found in violation of the Anti-Kickback Law. The lack of uniform
interpretation of the Anti-Kickback Law makes compliance with the law difficult.
The penalties for violating the Anti-Kickback Law can be severe. These sanctions
include criminal penalties and civil sanctions, including fines, imprisonment
and possible exclusion from the Medicare and Medicaid programs.

The Anti-Kickback Law is broad, and it prohibits many arrangements and
practices that are lawful in businesses outside of the healthcare industry.
Recognizing that the Anti-Kickback Law is broad and may technically prohibit
many innocuous or beneficial arrangements within the healthcare industry, the
U.S. Department of Health and Human Services issued regulations in July of 1991,
which the Department has referred to as "safe harbors." These safe harbor
regulations set forth certain provisions which, if met, will assure healthcare
providers and other parties that they will not be prosecuted under the federal
Anti-Kickback Law. Additional safe harbor provisions providing similar
protections have been published intermittently since 1991. Our arrangements with
physicians, physician practice groups, hospitals, and other persons or entities
who are in a position to refer may not fully meet the stringent criteria
specified in the various safe harbors. Although full compliance with these
provisions ensures against prosecution under the federal Anti-Kickback Law, the
failure of a transaction or arrangement to fit within a specific safe harbor
does not necessarily mean that the transaction or arrangement is illegal or that
prosecution under the federal Anti-Kickback Law will be pursued. Although our
arrangements may not fall within a safe harbor, we believe that our business
arrangements do not violate the Anti-Kickback Law because we are careful to
structure our arrangements to reflect fair market value and ensure that the
reasons underlying our decision to enter into a business arrangement comport
with the Anti-Kickback Law. However, even though we continuously strive to
comply with the

requirements of the Anti-Kickback Law, liability under the Anti-Kickback Law may
still arise because of the intentions of the parties with whom we do business.
In addition, we may have Anti-Kickback Law liability based on arrangements
established by the entities we have acquired if any of those arrangements
involved an intention to exchange remuneration for referrals covered by the
Anti-Kickback Law. While we are not aware of any such intentions, we have only
limited knowledge regarding the intentions underlying those arrangements.
Conduct and business arrangements that do not fully satisfy one of these safe
harbor provisions may result in increased scrutiny by government enforcement
authorities such as the Office of the Inspector General of the U.S. Department
of Health and Human Services, or OIG.

Many states have adopted laws similar to the federal Anti-Kickback Law. Some
of these state prohibitions apply to referral of patients for healthcare
services reimbursed by any source, not only the Medicare and Medicaid Programs.
Although we believe that we comply with both federal and state anti-kickback
laws, any finding of a violation of these laws could subject us to criminal and
civil penalties or possible exclusion from federal or state healthcare programs.
Such penalties would adversely affect our financial performance and our ability
to operate our business.

In addition, the Ethics in Patient Referral Act of 1989, commonly referred
to as the federal physician self-referral prohibition or Stark Law, prohibits
physician referrals of Medicare and Medicaid patients to an entity providing
certain designated health services (including MRI and other diagnostic imaging
services) if the physician or an immediate family member has any financial
arrangement with the entity and no statutory or regulatory exception applies.
The Stark Law also prohibits the entity from billing for any such prohibited
referral. Initially, the Stark Law applied only to clinical laboratory services
and regulations applicable to clinical laboratory services were issued in 1995.
Earlier that same year, the Stark Law's self-referral prohibition expanded to
additional goods and services, including MRI and other imaging services. In
1998, the Health Care Financing Administration, or HCFA, published proposed
rules for the remaining designated health services, including MRI and other
imaging services, and in January of 2001, HCFA published a final rule which it
characterized as the first phase of what will be a two-phase final rule.
Although HCFA has stated that it intends to publish phase two shortly, it is
unclear when this will occur. Based on HCFA commentary and recent presidential
action, phase one of these final Stark Law regulations will likely become
effective in early 2002.

A person who engages in a scheme to circumvent the Stark Law's referral
prohibition may be fined up to $100,000 for each such arrangement or scheme. In
addition, any person who presents or causes to be presented a claim to the
Medicare or Medicaid Program in violation of the Stark Law is subject to civil
monetary penalties of up to $15,000 per bill submission, an assessment of up to
three times the amount claimed, and possible exclusion from participation in
federal healthcare programs. Bills submitted in violation of the Stark Law may
not be paid by Medicare or Medicaid, and any person collecting any amounts with
respect to any such prohibited bill is obligated to refund such amounts.

Several states in which we operate have enacted or are considering
legislation that prohibits physician self-referral arrangements or requires
physicians to disclose any financial interest they may have with a healthcare
provider to their patients when referring patients to that provider. Possible
sanctions for violating these state law physician self-referral and disclosure
requirements include loss of license and civil and criminal sanctions. State
laws vary from jurisdiction to jurisdiction and have been interpreted by the
courts or regulatory agencies infrequently.

We believe our operations comply with these federal and state physician
self-referral prohibition laws. We do not believe we or anyone else has
established any arrangements or schemes involving any service of ours which
would violate the Stark Law prohibition against schemes designed to circumvent
the Stark Law, or any similar state law prohibitions. Because we have financial
arrangements with physicians and possibly their immediate family members, and
because we may not be aware of all those

financial arrangements, we rely on physicians and their immediate family members
to avoid making referrals to us in violation of the Stark law and similar state
laws. If we receive such a prohibited referral which is not covered by
exceptions under the Stark law and applicable state law, our submission of a
bill for the referral could subject us to sanctions under the Stark law and
applicable state law. Any sanctions imposed on us under the Stark Law or any
similar state laws could adversely affect our financial results and our ability
to operate our business.

The Health Insurance Portability and Accountability Act of 1996 created two
new federal crimes: healthcare fraud and false statements relating to healthcare
matters. The healthcare fraud statute prohibits knowingly and willfully
executing a scheme to defraud any healthcare benefit program, including private
payors. A violation of this statute is a felony and may result in fines,
imprisonment or exclusion from government sponsored programs such as the
Medicare and Medicaid Programs. The false statements statute prohibits knowingly
and willfully falsifying, concealing or covering up a material fact or making
any materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services. A violation
of this statute is a felony and may result in fines or imprisonment. The Health
Insurance Portability and Accountability Act of 1996 also will require us to
follow federal privacy standards for individually identifiable health
information and computer security standards for all health information. The
government recently published regulations to implement the privacy standards
under the Act. We are beginning to address compliance with the Act and
applicable regulations. At this time we have not projected the financial impact
of compliance, which may be significant. A violation of the Act's health fraud,
privacy or security provisions may result in criminal and civil penalties, which
may adversely affect our financial performance and our ability to operate our
business.

Both federal and state government agencies are continuing heightened and
coordinated civil and criminal enforcement efforts. As part of announced
enforcement agency work plans, the federal government will continue to
scrutinize, among other things, the billing practices of hospitals and other
providers of healthcare services. The federal government also has increased
funding to fight healthcare fraud, and it is coordinating its enforcement
efforts among various agencies, such as the U.S. Department of Justice, the U.S.
Department of Health and Human Services Office of Inspector General, and state
Medicaid fraud control units. We believe that the healthcare industry will
continue to be subject to increased government scrutiny and investigations.

FEDERAL FALSE CLAIMS ACT

Another trend affecting the healthcare industry is the increased use of the
federal False Claims Act and, in particular, actions under the False Claims
Act's "whistleblower" provisions. Those provisions allow a private individual to
bring actions on behalf of the government alleging that the defendant has
defrauded the federal government. After the individual has initiated the
lawsuit, the government must decide whether to intervene in the lawsuit and to
become the primary prosecutor. If the government declines to join the lawsuit,
then the individual may choose to pursue the case alone, in which case the
individual's counsel will have primary control over the prosecution, although
the government must be kept apprised of the progress of the lawsuit. Whether or
not the federal government intervenes in the case, it will receive the majority
of any recovery. If the litigation is successful, the individual is entitled to
no less than 15%, but no more than 30%, of whatever amount the government
recovers. The percentage of the individual's recovery varies, depending on
whether the government intervened in the case and other factors. Recently, the
number of suits brought against healthcare providers by private individuals has
increased dramatically. In addition, various states are considering or have
enacted laws modeled after the federal False Claims Act. Even in instances when
a whistleblower action is dismissed with no judgment or settlement, we may incur
substantial legal fees and other costs relating to an investigation. We are
currently subject to a whistleblower action. See "Business--Legal and
Administrative Proceedings." Future actions under the False Claims Act may

result in significant fines and legal fees, which would adversely affect our
financial performance and our ability to operate our business.

When an entity is determined to have violated the federal False Claims Act,
it must pay three times the actual damages sustained by the government, plus
mandatory civil penalties of between $5,000 to $10,000 for each separate false
claim. Liability arises, primarily, when an entity knowingly submits a false
claim for reimbursement to the federal government. Simple negligence should not
give rise to liability, but submitting a claim with reckless disregard of its
truth or falsity could result in substantial civil liability.

Although simple negligence should not give rise to liability, the government
or a whistleblower may attempt and could succeed in imposing liability on us for
a variety of previous or current failures, including for example:

- Failure to comply with the many technical billing requirements applicable
to our Medicare and Medicaid business.

- Failure to comply with Medicare requirements concerning the circumstances
in which a hospital, rather than we, must bill Medicare for diagnostic
imaging services we provide to outpatients treated by the hospital.

- Failure of our hospital clients to accurately identify and report our
reimbursable and allowable services to Medicare.

- Failure to comply with the prohibition against billing for services
ordered or supervised by a physician who is excluded from any federal
healthcare programs, or the prohibition against employing or contracting
with any person or entity excluded from any federal healthcare programs.

- Failure to comply with the Medicare physician supervision requirements for
the services we provide, or the Medicare documentation requirements
concerning such physician supervision.

- The past conduct of the companies we have acquired.

We strive to ensure that we meet applicable billing requirements. However,
the costs of defending claims under the False Claims Act, as well as sanctions
imposed under the Act, could significantly affect our financial performance.

UNLAWFUL PRACTICE OF MEDICINE AND FEE SPLITTING

The marketing and operation of our diagnostic imaging and therapeutic
systems are subject to state laws prohibiting the practice of medicine by
non-physicians. We believe that our operations do not involve the practice of
medicine because all professional medical services relating to our operations,
including the interpretation of scans and related diagnoses, are separately
provided by licensed physicians not employed by us. Some states have laws that
prohibit any fee-splitting arrangement between a physician and a referring
person or entity that would provide for remuneration paid to the referral source
on the basis of revenues generated from referrals by the referral source. We
believe that our operations do not violate these state laws with respect to fee
splitting.

CERTIFICATE OF NEED LAWS

In some states, a certificate of need or similar regulatory approval is
required prior to the acquisition of high-cost capital items or services,
including diagnostic imaging systems or provision of diagnostic imaging services
by us or our clients. Certificate of need regulations may limit or preclude us
from providing diagnostic imaging services or systems. At present, 17 states in
which we operate have certificate of need laws that restrict the supply of MRI
machines and other types of advanced medical

equipment to certain incumbent providers. Revenue from states with certificate
of need regulations represents approximately 50% of our total revenue in 2000
and the first quarter of 2001.

Certificate of need laws were enacted to contain rising healthcare costs,
prevent the unnecessary duplication of health resources, and increase patient
access for health services. In practice, certificate of need laws have prevented
hospitals and other providers who have been unable to obtain a certificate of
need from acquiring new machines or offering new services. In the past
17 years, some states have liberalized exemptions from certificate of need laws,
including, for example, Pennsylvania, Nebraska, New York, Ohio and Tennessee.
However, this liberalization of certificate of need restrictions has had little
impact on our performance. Our current contracts will remain in effect even if
the certificate-of-need states in which we operate modify their certificate of
need programs. However, a significant increase in the number of states
regulating our business through certificate of need or similar programs could
adversely affect us. Conversely, repeal of existing certificate of need
regulations in jurisdictions where we have obtained a certificate of need, or
certificate of need exemption, also could adversely affect us by allowing
competitors to enter our markets. Certificate of need laws are the subject of
continuing legislative activity.

REIMBURSEMENT

We derive most of our revenues directly from healthcare providers rather
than third-party payors, including government programs such as the Medicare
Program. We derive a small percentage of our revenues from direct billings to
patients or their third-party payors. Services for which we submit direct
billings for Medicare and Medicaid patients typically are reimbursed by
contractors on a fee schedule basis. Net revenues from direct patient billing
amounted to approximately 10% of our revenue in 2000 and for the first quarter
of 2001.

As a result of federal cost-containment legislation currently in effect,
Medicare generally pays for inpatient services under a prospective payment
system based upon a fixed amount for each Medicare patient discharge. Each
discharge is classified into one of many diagnosis related groups, or DRGs. A
pre-determined amount covers all inpatient operating costs, regardless of the
services actually provided or the length of the patient's stay. Because Medicare
reimburses a hospital for all services rendered to a Medicare patient on the
basis of a pre-determined amount based on the DRG, a hospital or free-standing
facility cannot be separately reimbursed for an MRI scan or other procedure
performed on the hospital inpatient. Many state Medicaid Programs have adopted
comparable payment policies.

On August 1, 2000, the Health Care Financing Administration implemented a
Medicare outpatient prospective payment system under which services and items
furnished in hospital outpatient departments are reimbursed using a
pre-determined amount for each ambulatory payment classification, or APC. Each
APC is based on the specific procedures performed and items furnished during a
patient visit. Certain items and services are paid on a fee schedule, and for
certain drugs, biologics and new technologies, hospitals are reimbursed
additional amounts. This new development in reimbursement may significantly
affect our financial performance.

In order for our hospital customers to receive payment from Medicare with
respect to our services, our services must be furnished in a "provider-based"
department or be a covered service furnished "under arrangements." On April 7,
2000, Medicare published new rules establishing criteria for being a
"provider-based" department. Our services to hospitals possibly may not meet
Medicare's new standards for being a "provider-based" service, although that is
uncertain because at this time very little guidance exists regarding the proper
interpretation of this new Medicare regulation. If our services to hospital
customers are not furnished in a "provider-based" setting, the services would
not be covered by Medicare unless they are found to be a service furnished
"under arrangements" to a hospital. The extent to which "under arrangements"
services may be covered by Medicare when they do not meet the "provider-based"
standards is unclear. In the Benefits Improvement and Protection Act of 2000,

Congress postponed the effective date of the new regulations until October 1,
2002. In addition, Congress "grandfathered" until October 1, 2002 all sites that
were paid as provider-based sites as of October 1, 2000. As the Medicare rules
are clarified and as October 1, 2002 approaches, it may be necessary for us to
modify the contracts we have with hospital customers or to take other steps that
may affect our cost for our wholesale business or the manner in which we furnish
wholesale services to hospital customers.

Payments to us by third-party payors depend substantially upon each payor's
reimbursement policies. Third-party payors may impose limits on reimbursement
for diagnostic imaging services or deny reimbursement for tests that do not
follow recommended diagnostic procedures. Because unfavorable reimbursement
policies have and may continue to constrict the profit margins of the hospitals
and clinics we bill directly, we have and may continue to need to lower our fees
to retain existing clients and attract new ones. Alternatively, at lower
reimbursement rates, a healthcare provider might find it financially
unattractive to own an MRI or other diagnostic imaging system, but could benefit
from purchasing our services. It is possible that third-party reimbursement
policies will affect the need or price for our services in the future, which
could significantly affect our financial performance and our ability to conduct
our business.

ENVIRONMENTAL, HEALTH AND SAFETY LAWS

Our PET service and some of our other imaging and therapeutic services
require the use of radioactive materials. While this material has a short
half-life, meaning it quickly breaks down into inert, or non-radioactive
substances, using such materials presents the risk of accidental environmental
contamination and physical injury. We are subject to federal, state and local
regulations governing the storage, use and disposal of materials and waste
products. Although we believe that our safety procedures for storing, handling
and disposing of these hazardous materials comply with the standards prescribed
by law and regulation, we cannot completely eliminate the risk of accidental
contamination or injury from those hazardous materials. In the event of an
accident, we could be held liable for any damages that result, and any liability
could exceed the limits or fall outside the coverage of our insurance. We may
not be able to maintain insurance on acceptable terms, or at all. We could incur
significant costs and the diversion of our management's attention in order to
comply with current or future environmental laws and regulations. We have not
had material expenses related to environmental, health and safety laws or
regulations to date.

LEGAL AND ADMINISTRATIVE PROCEEDINGS

In late 1999, we identified through a self-audit possible errors in billing
Medicare claims in Massachusetts, and we conducted a Medicare claims audit of
our Massachusetts retail billing operations for the preceding five-year period.
Upon completion of that audit and in the first part of 2000, we disclosed the
audit results to our Medicare Part B contractor, National Heritage Insurance
Company, or NHIC. NHIC reviewed the Medicare audit results and also reviewed
claims information with respect to a random sample of 30 claims that were
supplied to them in November 2000. On March 2, 2001, the Medicare carrier sent a
letter to us indicating its completion of its assessment and verification of our
comprehensive review of Medicare claims in Massachusetts. The letter assessed an
overpayment of $2.2 million and advised us of administrative appeals procedures
applicable to this overpayment. We have since remitted this amount to NHIC.
Also, related to the NHIC Audit, we expect to pay approximately $713,000 to the
Massachusetts MassHealth Program, approximately $35,000 to the federal
Department of Defense TRICARE Program, and approximately $475,000 pertaining to
coinsurance payments from patients. These amounts have been accrued and are
reflected in our statements of operations presented in this prospectus.

An administrative action is pending, stemming from an audit of Medicaid
claims by MassPRO for outpatient MRI services provided during a twelve-month
period ending January 31, 1999. MassPRO is

a Massachusetts not-for-profit organization that has contracted with the
Massachusetts Division of Medical Assistance and the Massachusetts Medicaid
Fraud Control Unit to oversee utilization management and billing compliance for
the State's Medicaid Program, which is part of a Massachusetts program called
MassHealth. The Division of Medical Assistance is the agency responsible for
implementing the State's MassHealth Program and the Massachusetts Medical Fraud
Control Unit is the agency responsible for ensuring legal compliance with the
Massachusetts Medicaid Program. The case involves an audit of Greater Boston
MRI, a limited partnership wholly owned by us. MassPRO alleged deficiencies in
documentation and billing requirements for MRI claims made by Greater Boston
MRI. The Massachusetts Division of Medical Assistance has revised its initial
determination by lowering the amount to be recovered in this matter based on our
administrative appeal; the Massachusetts Division of Medical Assistance is now
seeking approximately a $212,000 recovery related to the alleged deficiencies in
this case. Based on the audit, the Massachusetts Division of Medical Assistance
also sent a notice of proposed suspension from the program. At the present time,
Massachusetts is not seeking suspension of Greater Boston MRI, but may require
post-settlement reporting by the provider for some period of time to ensure
compliance with the Massachusetts MassHealth Program. This matter is in the
final stages of administrative settlement.

We had accrued $4,350,000 as of December 31, 2000 for probable settlement of
all of these issues. While actual results could vary from this estimate, we
believe that the resolution of any deficient billing process will not have a
material adverse effect on our business.

From time to time we are involved in routine litigation incidental to the
conduct of our business. We believe that none of this litigation pending against
us will have a material adverse effect on our business.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors, and their ages and positions, are as
follows:

NAME AGE POSITION
---- -------- ------------------------------------------------

Richard N. Zehner............................ 48 Chairman of the Board of Directors and Chief
Executive Officer

Jamie E. Hopping............................. 47 Director, President and Chief Operating Officer

Kenneth S. Ord............................... 55 Executive Vice President and Chief Financial
Officer

Cheryl A. Ford............................... 45 Executive Vice President

Terry A. Andrues............................. 50 Executive Vice President

Jay A. Mericle............................... 46 Executive Vice President

Russell D. Phillips, Jr...................... 38 General Counsel and Secretary

Howard K. Aihara............................. 38 Vice President and Corporate Controller

Henry R. Kravis.............................. 57 Director

Michael W. Michelson......................... 49 Director

George R. Roberts............................ 57 Director

David H.S. Chung............................. 33 Director

RICHARD N. ZEHNER has served as our chairman and chief executive officer
since November 1988. Mr. Zehner was our founder and also served as our president
from 1983 through February 1998. He has served as a director since 1987. Prior
to founding the company, Mr. Zehner managed the diagnostic shared-services
division of National Medical Enterprises, the predecessor of Tenet Corporation,
a nationwide provider of healthcare services. Mr. Zehner began his career as an
x-ray technician and subsequently became a radiology department manager.

JAMIE E. HOPPING has served as our president and chief operating officer
since November 2000 and has been a director since November 2000. Prior to
joining us, Ms. Hopping was an independent consultant to various healthcare
providers including Catholic Health East and Quorum Health from 1997 to 1999.
She was employed by Columbia/HCA Healthcare Corporation as the Western Group
president from 1996 to 1997, president of the South Florida Division from 1994
to 1996, chief operating officer of South Florida Division from 1993 to 1994 and
chief executive officer of Deering Hospital and Grant Center from 1990 to 1993.

KENNETH S. ORD has served as our executive vice president and chief
financial officer since November 1998. From January 1998 to November 1998, he
served as our senior vice president, chief financial officer and secretary. From
February 1997 to September 1997 he served as executive vice president and chief
financial officer of Talbert Medical Management Corporation and from
February 1994 to February 1997 he served as senior vice president and chief
financial officer of FHP International Corporation, a publicly traded health
maintenance organization.

CHERYL A. FORD has served as our executive vice president, Eastern United
States since November 1998. She is responsible for managing the Eastern,
Mid-Atlantic, New England and Southern regions. From February 1995 to
November 1998, she was our senior vice president, Eastern Region.

TERRY A. ANDRUES has served as our executive vice president, Western United
States since November 1998. He is responsible for managing the Pacific,
Northwestern, Western, Central and Great Lakes regions. From 1991 to
November 1998, he served as our senior vice president of the Central and

Pacific Regions and from May 1987 to November 1991, he was our customer support
manager with responsibilities in technical education and marketing. Prior to
joining us, Mr. Andrues worked as a technologist at Pasadena's Huntington
Medical Research Institute, site of the nation's first clinical MRI system.
Mr. Andrues maintains his credential as a registered MRI technologist.

JAY A. MERICLE has served as our executive vice president, equipment and
services since February 1999. Mr. Mericle was our senior vice president from
1991 to 1999 and our vice president of operations from 1988 to 1991.

RUSSELL D. PHILLIPS, JR. has served as our general counsel and secretary
since March 1998. Prior to joining us, Mr. Phillips served as chief legal
officer of Talbert Medical Management Corporation, a publicly traded physician
practice management corporation from May 1997 to September 1997, and corporate
counsel to FHP International Corporation, a publicly traded health maintenance
organization from June 1992 to April 1997. Mr. Phillips was an associate with
Skadden, Arps, Slate, Meagher & Flom, LLP from 1987 through 1992.

HOWARD K. AIHARA has served as our vice president, corporate controller
since September 2000. From 1997 until September 2000, Mr. Aihara was vice
president, finance, for UniMed Management Company, a physician practice
management company in Burbank, California. From 1995 through 1997, he was
executive director and corporate controller for AHI Healthcare Systems, Inc. of
Downey, California. AHI was a publicly traded physician practice management
company.

HENRY R. KRAVIS has been a director since November 1999. Mr. Kravis has been
a founding partner of Kohlberg Kravis Roberts & Co., L.P. since its inception in
1976, and is a managing member of the limited liability company which serves as
the general partner of Kohlberg Kravis Roberts & Co., L.P. Mr. Kravis is also a
director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds
Collection, Ltd., Evenflo Company Inc., The Gillette Company, IDEX Corporation,
KinderCare Learning Centers, Inc., KSL Recreation Corporation, MedCath Inc.,
Owens-Illinois, Inc., PRIMEDIA Inc., Regal Cinemas, Inc., Sotheby's
Holdings, Inc., Spalding Holdings Corporation and Trinity Acquisition plc
(Willis Corroon). Messrs. Kravis and Roberts are first cousins.

MICHAEL W. MICHELSON has been a director since November 1999. Mr. Michelson
is a member of the limited liability company which serves as the general partner
of Kohlberg Kravis Roberts & Co., L.P. Mr. Michelson is also a director of
Amphenol Corporation, AutoZone, Inc., Owens-Illinois, Inc., and KinderCare
Learning Centers, Inc.

GEORGE R. ROBERTS has been a director since November 1999. Mr. Roberts has
been a founding partner of Kohlberg Kravis Roberts & Co. L.P. since its
inception in 1976, and is a managing member of the limited liability company
which serves as the general partner of Kohlberg Kravis Roberts & Co., L.P.
Mr. Roberts is also a director of Accuride Corporation, Amphenol Corporation,
Borden, Inc., The Boyd Collection, Ltd., DPL Inc. (The Dayton Power & Light
Company), Evenflo Company Inc., IDEX Corporation, KinderCare Learning
Centers, Inc., KSL Recreation Corporation, Owens-Illinois, Inc.,
PRIMEDIA, Inc., Safeway Inc., Spalding Holdings Corporation and Trinity
Acquisition plc (Willis Corroon). Messrs. Roberts and Kravis are first cousins.

DAVID H.S. CHUNG has been a director since November 1999. Mr. Chung has been
an executive of Kohlberg Kravis Roberts & Co. since 1995. From 1993 to 1995,
Mr. Chung was a management consultant at McKinsey & Co. Mr. Chung is also a
director of Centric Software, Inc., MedCath Inc. and WorldCrest Group, Inc.

BOARD COMMITTEES

We have an audit committee, a compensation committee and an executive
committee. The audit committee is responsible for recommending to the board of
directors the engagement of our outside

auditors and reviewing our accounting controls and the results and scope of
audits and other services provided by our auditors. The members of the audit
committee upon completion of this offering will not be independent directors. We
intend for the audit committee to comply with applicable New York Stock Exchange
regulations regarding the composition of audit committees of listed companies in
accordance with the time periods prescribed by such regulations.

The compensation committee is responsible for reviewing and recommending to
the board of directors the amount and type of non-stock compensation to be paid
to senior management and establishing, reviewing general policies relating to
compensation and benefits of employees and administering our stock option plan.
No interlocking relationship will exist between any member of our compensation
committee and any member of any other company's board of directors or
compensation committee.

The executive committee exercises all powers and authority of the board of
directors with some exceptions as provided under Delaware law. The purpose of
the executive committee is to allow for decisions to be made on our behalf
between regular meetings of the board of directors.

DIRECTOR COMPENSATION

Our non-employee directors receive an annual fee of $25,000 and
reimbursement of travel expenses. Effective January 1, 2000, we established a
directors' deferred compensation plan for all non-employee directors. Each of
the four non-employee directors has elected to participate in the director plan
and have their annual fee of $25,000 deferred into a stock account and converted
quarterly into phantom shares. Upon retirement, separation from the board of
directors, or the occurrence of a change of control, each director has the
option of being paid cash or issued common stock for their phantom shares. Upon
issuance of the phantom shares, we recorded non-cash compensation of an
additional $68,000 for the difference between the fair market value and the
issuance price of the phantom shares.

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned including salary,
bonuses, commissions, stock options and other compensation during the three
fiscal years ended December 31, 1998, 1999 and 2000 by our chief executive
officer and our four next most highly compensated executive officers, each of
whose total annual compensation exceeded $100,000 in 2000 and Mr. Vincent Pino,
who would have been of one of our most highly compensated executive officers for
the year ended December 31, 2000 but for his retirement earlier that year. We
refer to these officers as our named executive officers elsewhere in this
prospectus.

LONG-TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------------------
------------------------------------------ SECURITIES
OTHER UNDERLYING
ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION(2) OPTIONS(3) PAYOUTS(4) COMPENSATION(5)
------------------ -------- -------- ---------- --------------- ---------- ---------- ---------------

Richard N. Zehner ............ 2000 $369,900 $ 160,624 -- -- -- $ 16,520
Chief Executive Officer, 1999 351,300 2,746,090(6) -- 1,247,500 -- 1,968,830
Chairman of the Board of 1998 350,000 727,738(7) -- 250,000 $31,250 755,978
Directors

Vincent S. Pino(8) ........... 2000 $315,100 $ 428,776(9) -- -- -- $ 22,174
Former President, Chief 1999 299,100 2,095,786(6) -- 1,148,000 -- 774,277
Operating Officer and 1998 275,000 537,435(7) -- 200,000 $25,000 451,776
Director

Kenneth S. Ord ............... 2000 $285,500 $ 212,561(9) -- -- -- $ 414
Executive Vice President and 1999 271,000 847,825(6) -- 838,500 -- 506,571
Chief Financial Officer 1998 247,981 179,875 -- 450,000 -- 320

Cheryl A. Ford ............... 2000 $173,200 $ 61,000 -- -- -- $ 3,999
Executive Vice President 1999 165,500 92,194 -- 300,000 -- 215,152
1998 145,000 70,035 -- 135,000 $12,500 3,595

Terry A. Andrues ............. 2000 $173,200 $ 60,292 -- -- -- $ 3,979
Executive Vice President 1999 165,500 87,244 -- 300,000 -- 215,271
1998 145,000 70,035 -- 135,000 $12,500 3,595

Jay A. Mericle ............... 2000 $163,800 $ 47,415 -- -- -- $ 7,146
Executive Vice President 1999 155,500 76,376 -- 300,000 -- 1,004,224
1998 145,000 70,035 -- 135,000 $12,500 6,191

------------------------------

(1) Rows specified "2000," "1999" and "1998" represent fiscal years ended
December 31, 2000, 1999 and 1998, respectively.

(2) With respect to each named officer for each fiscal year this table excludes
perquisites which did not exceed the lesser of $50,000 or 10% of the named
officer's salary and bonus for the fiscal year.

(3) Stock options were granted under our 1999 Equity Plan and 1997 Option Plan.

(4) We made our final payments made under our 1995 long-term executive
incentive plan in 1998.

(5) Includes:

- $736,525 and $426,900 in change in control payments which were paid in
1998 to Messrs. Zehner and Pino, respectively, pursuant to their prior
employment agreements.

- 401(k) matching contributions (for 2000, 1999 and 1998, respectively):
Mr. Zehner--$4,250, $4,443 and $3,330; Mr. Pino--$4,250, $4,522 and
$3,330; Ms. Ford--$3,777, $3,603 and $3,330; Mr. Andrues--$3,757,
$3,603, $3,330 and Mr. Mericle--$3,797, 3,576, and 3,330.

- Cash payments in lieu of accrued vacation (for 2000, 1999 and 1998,
respectively): Mr. Zehner--$0, $15,313 and $6,731; Mr. Pino--$17,510,
$11,462 and $21,154; and Mr. Mericle--$3,144, $2,981 and $2,596.

- Cash payments for options tendered pursuant to our recapitalization in
1999. Amounts paid in 1999 were as follows: Mr. Zehner--$1,930,196;
Mr. Pino--$757,621; Mr. Ord--$505,899, Ms. Ford--$211,353;
Mr. Andrues--$211,353 and Mr. Mericle--$997,448.

- The balance for each named officer represents life insurance premiums
paid by us.

(6) Includes $2,458,651, $1,900,000 and $700,000 in bonus payments paid to
Messrs. Zehner, Pino and Ord, respectively, upon closing of our
recapitalization in 1999.

(7) Includes $350,000 and $300,000 in bonus payments paid to Messrs. Zehner and
Pino, respectively, upon the closing of the Mobile Technology Inc.
acquisition in 1998.

(8) Mr. Pino retired in 2000.

(9) Includes $310,209 and $129,911 in bonus payments to Messrs. Pino and Ord in
2000, respectively, pursuant to retention bonus agreements.

OPTION GRANTS IN LAST FISCAL YEAR

We did not grant stock options to the named executive officers during the
2000 fiscal year. No stock appreciation rights have ever been granted to the
named executive officers.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table presents information with respect to options exercised
by each of the named executive officers in 2000 or cancelled in exchange for
payment in cash, as well as the unexercised options to purchase our common stock
granted under the 1999 Equity Plan and the 1997 Option Plan to the named
executive officers and held by them as of December 31, 2000.

NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME AND PRINCIPAL POSITION ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------- ----------- ---------- ----------- ------------- ----------- -------------

Richard N. Zehner ................ -- -- 1,145,520 1,122,750 $9,086,569 $4,406,794
Chief Executive Officer and
Chairman of the Board of
Directors

Vincent S. Pino .................. 853,500 $3,084,000(2) 114,800 1,033,200(3) 450,590 4,055,310
Former President, Chief
Operating Officer and Director

Kenneth S. Ord ................... 67,500 303,539(2) 241,350 867,150 1,655,576 3,909,476
Executive Vice President and
Chief Financial Officer

Cheryl A. Ford ................... -- -- 118,000 270,000 858,886 1,059,750
Executive Vice President

Terry A. Andrues ................. -- -- 118,000 270,000 858,886 1,059,750
Executive Vice President

Jay A. Mericle ................... -- -- 118,000 270,000 858,886 1,059,750
Executive Vice President

------------------------------

(1) There was no public trading market for our common stock as of December 31,
2000. Accordingly, these values have been calculated based on our board of
directors' determination of the fair market value of the underlying shares
as of December 31, 2000 of $9.52 per share, less the applicable exercise
price per share, multiplied by the number of underlying shares.

(2) Represents cash payments in exchange for cancellation of options.

(3) Unexercisable options were forfeited and cancelled as of January 1, 2001 by
mutual agreement between us and Mr. Pino.

EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS

We have entered into employment agreements with Mr. Zehner, Ms. Hopping and
Mr. Ord. Base compensation under the employment agreement for each of these
executives is subject to adjustment by the board of directors each year. In
addition, Mr. Zehner, Ms. Hopping and Mr. Ord are entitled to receive an annual
cash bonus based upon our achievement of certain operating and financial goals,
with

an annual target bonus amount equal to a specified percentage of their
then-current annual base salary (75% in the case of Mr. Zehner, 70% in the case
of Ms. Hopping and 50% in the case of Mr. Ord). Ms. Hopping's cash bonus for
2001 will not be less than 46.2% of her base salary notwithstanding the
achievement of these goals. This bonus plan has been adopted and will be
administered by the compensation committee of the board of directors.

The employment agreements have terms of two years in the case of
Messrs. Zehner and Ord and one year in the case of Ms. Hopping. The terms of the
employment agreements of Mr. Zehner, Ms. Hopping and Mr. Ord automatically
extend by three months on the last day of each quarterly period and will
continue to be so extended unless either we or the executive give notice of a
desire to modify or terminate the agreement at least thirty days prior to the
quarterly extension date. We may terminate Mr. Zehner's, Ms. Hopping's or
Mr. Ord's employment at any time and for any reason and Mr. Zehner, Ms. Hopping
and Mr. Ord may resign at any time and for any reason. If we terminate the
employment of Mr. Zehner, Ms. Hopping or Mr. Ord without cause, or any of them
resigns with good cause, the employment agreements obligate us to:

- pay any earned but unpaid salary, benefits or bonuses, including a
prorated bonus for the year in which the severance occurred;

- continue to provide for periods of two years in the case of
Messrs. Zehner and Ord, and one year in the case of Ms. Hopping, benefits
at least equal to those received prior to severance; and

- provide the executive with outplacement services at a cost not to exceed
$25,000.

Additionally, each of Messrs. Zehner and Ord would receive, over time, an amount
equal to at least two times his combined then-current annual salary and bonus
for the prior year and Ms. Hopping would receive, over time, an amount equal to
her combined then-current annual salary and bonus for the prior year.

We have also entered into employment agreements with Ms. Ford and
Messrs. Andrues and Mericle. Each employment agreement remains in effect until
notice of termination is given by either party. Each contract provides that the
officer will continue to receive his or her base salary and be entitled to earn
bonuses and participate in all benefit plans and programs at levels and pursuant
to terms that are substantially consistent with current levels and terms,
subject to periodic review and possible increases by our board of directors or
compensation committee. In addition, each contract provides that if the officer
is terminated by us other than for just cause, as defined in the agreement, or
if the officer terminates his or her employment as a result of a constructive
discharge, as defined in the agreement, then the officer will be entitled to a
cash severance benefit equal to six months of salary at his or her then current
rate of salary, payment of a cash amount based on the officer's historical
incentive compensation, acceleration of the vesting of stock options and
extension of the officer's participation in our benefits plan and receipt of a
car allowance for six months. If severance were to occur within one year prior
to or following a change of control or the officer elects to terminate his or
her employment for any reason within one year after a change in control, then
each employment agreement provides for a doubled cash severance benefit and
further extension of the officer's benefits and car allowance. For the purposes
of these employment agreements, a change of control has occurred if:

- we transfer all or substantially all of our assets to any person or group;

- any person or group becomes the beneficial owner, directly or indirectly,
of 35% or more of the total voting power represented by all of our voting
stock; or

- any person or group obtains the right or power to elect or designate a
majority of our board of directors.

401(k) PLAN

We established a tax deferred 401(k) savings plan in January 1990. Effective
January 1, 2001, the 401(k) plan was amended and restated in its entirety.
Currently, all employees who are over 21 years of age are eligible to
participate after attaining three months of service. Employees may contribute
between 1% and 15% of their annual compensation. We match 50 cents for every
dollar of employee contributions up to 5% of their compensation, subject to
statutory limitations. The rates of pre-tax and matching contributions may be
reduced with respect to highly compensated employees, as defined in the Internal
Revenue Code of 1986, as amended, so that the 401(k) plan will comply with
Sections 401(k) and 401(m) of the Code. Pre-tax and matching contributions are
allocated to each employee's individual account, which are invested in selected
fixed income or stock managed accounts according to the directions of the
employee. An employee's pre-tax contributions are fully vested and
nonforfeitable at all times. Matching contributions vest over four years of
service. An employee may forfeit unvested amounts upon termination of
employment, unless the termination is because of death, disability or
retirement, in which case matching contributions vest in their entirety.

Matching contributions made by us pursuant to the 401(k) plan to the named
executive officers for the 2000 fiscal year are included under "All Other
Compensation" in the Summary Compensation Table.

STOCK OPTION PLANS

We have issued stock option to our employees under the following three
plans:

- The 1999 Equity Plan for Employees of Alliance Imaging, Inc. and
Subsidiaries dated November 2, 1999, or the 1999 Equity Plan;

- The Alliance Imaging, Inc. 1997 Stock Option Plan dated December 18, 1997,
as amended, or the 1997 Option Plan; and

- The Three Rivers Holding Corp. 1997 Stock Option Plan dated October 14,
1997, as amended, or the Three Rivers Plan.

The 1999 Equity Plan, the 1997 Option Plan and the Three Rivers Plan are
collectively referred to in this registration statement as the plans. The plans
are designed to promote our interests by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in us as an incentive for them to remain in our service.

TYPES OF OPTIONS. The Three Rivers Plan provides for the grant of
options to our employees that are qualified as incentive stock options as
defined by Section 422 of the Internal Revenue Code. The 1997 Option Plan
provides for the grant of options to employees that are either incentive
stock options or non-qualified options. The 1999 Equity Plan provides for
the grant of options to employees, consultants or other persons with a
unique relationship to us or our subsidiaries, and that are non-qualified
options.

OPTIONS AVAILABLE AND OUTSTANDING. A total of 6,325,000 shares are
reserved for issuance under the 1999 Equity Plan, of which 4,682,800 are
currently subject to outstanding options. Currently there are options
outstanding to purchase 1,823,270 shares under the 1997 Option Plan and
447,770 shares under the Three Rivers Plan. The 1997 Option Plan and the
Three Rivers Plan were amended upon completion of the KKR acquisition to
provide that no further options would be granted under those plans after
November 2, 1999, and there are no additional shares reserved for issuance
under those plans. Options under the 1997 Option Plan and the Three Rivers
Plan that were not cancelled as part of the KKR acquisition remain
outstanding subject to the terms and conditions of the 1997 Option Plan, the
Three Rivers Plan and the option agreements under which they were granted,
as they have been amended. Upon completion of the KKR acquisition,

most options granted under the 1997 Option Plan and the Three Rivers Plan
became fully vested and exercisable. Certain individuals, including
Messrs. Pino and Ord, waived immediate vesting of their options under the
1997 Option Plan upon completion of the KKR acquisition. Except for options
for 112,500 shares issued under the 1997 Option Plan that will vest on
December 31, 2001 according to the terms of that plan, all options issued
under the 1997 Option Plan and the Three Rivers Plan are fully vested.

ADMINISTRATION. The compensation committee administers each of the
plans. After the completion of this offering, the committee will consist of
independent directors. The compensation committee has authority to select
the employees, consultants or others to whom options will be granted under
the plans, the number of shares to be subject to those options, and the
terms and conditions of the options. In addition, the compensation committee
has the authority to construe and interpret the plans and to adopt rules for
the administration, interpretation and application of the plans that are
consistent with the terms of the plans. Options granted under the 1999
Equity Plan become vested and exercisable as determined by the compensation
committee at the time of the grant, at a price determined by the committee.
However, options granted under the 1999 Equity Plan may not have an exercise
price less than 85% of the fair market value of a share of common stock on
the date of the grant.

STOCKHOLDERS' AGREEMENT. The options and shares acquired upon exercise
of the options are subject to the terms and conditions of stockholders'
agreements entered into by the option holders. The stockholders' agreements
provide that except for limited exceptions, the option holder may not
transfer, sell or otherwise dispose of any shares prior to the fifth
anniversary of the purchase date. The restricted period for options granted
under the 1997 Option Plan and the Three Rivers Plan that were not cancelled
upon completion of the KKR acquisition began on November 2, 1999.

AMENDMENT. The 1997 Stock Option Plan and the Three Rivers Plan may be
amended or modified by the board of directors. The 1999 Equity Plan may be
amended or modified by the compensation committee, and may be terminated by
the board of directors.

EXERCISE. Options granted under the plans may be exercised in cash or,
at the discretion of the compensation committee, through the delivery of
previously owned shares, through the surrender of shares which would
otherwise be issuable upon exercise of the option, or any combination of the
foregoing. In order to use previously owned shares to exercise an option
granted under the Three Rivers Plan, the option holder must have owned the
shares used for at least six months prior to the exercise of the option.

CHANGE OF CONTROL. Options granted under the 1997 Option Plan that have
not vested will become fully vested and exercisable upon a change of
control. A change of control is defined in the 1997 Option Plan as the
occurrence of any of the following:

- a sale to any person other than an affiliate of all our substantially
all of our assets;

- a sale by us of shares, by merger or otherwise, to a person other than
an affiliate which would result in the person owning more than 50% of
our outstanding capital stock; or

- a sale by one of our stockholders of shares to a person other than an
affiliate which would result in the person owning more than 50% of our
outstanding capital stock.

Under the 1999 Equity Plan, the compensation committee may, in its sole
discretion, provide that options granted under the plan cannot be exercised
after a change of control, in which case they will become fully vested and
exercisable prior to the completion of the change of control. The committee
may also provide that options remaining exercisable after the change of
control may

only be exercised for the consideration received by stockholders in the
change of control, or its cash equivalent. A change of control is defined in
the 1999 Equity Plan as the:

- merger or consolidation of our corporation into another corporation;

- exchange of all or substantially all of our assets for the securities
of another corporation;

- acquisition by another corporation of 80% or more of our then
outstanding shares of voting stock; or

- recapitalization, reclassification, liquidation or dissolution of our
corporation, or other adjustment or event which results in shares of
our common stock being exchanged for or converted into cash, securities
or other property.

LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation limits the liability of our directors and
executive officers for monetary damages for breach of their fiduciary duties to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:

- any breach of their duty of loyalty to our company or our stockholders;

- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
Law; or

- any transaction from which the director derived an improper personal
benefit.

The limits on a director or officer's liability in our certificate of
incorporation do not apply to liabilities arising under the federal securities
laws and do not affect the availability of equitable remedies such as injunctive
relief or rescission.

Our certificate of incorporation together with our bylaws provide that we
must indemnify our directors and executive officers and may indemnify our other
officers and employees and other agents to the fullest extent permitted by law.
We believe that indemnification under our bylaws covers at least negligence and
gross negligence on the part of indemnified parties. Our bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in that capacity, regardless
of whether our bylaws would otherwise permit indemnification. We believe that
the indemnification provisions of our certificate of incorporation and bylaws
are necessary to attract and retain qualified persons as directors and officers.
We also maintain directors' and officers' liability insurance.

Prior to the effective time of this offering, we expect to enter into
agreements to indemnify our directors, executive officers and other employees as
determined by the board of directors. These agreements will provide for
indemnification for related expenses including attorneys' fees, judgments, fines
and settlement amounts incurred by any of these individuals in any action or
proceeding. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as our directors and executive officers.

At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of our company where
indemnification will be required or permitted. Nor are we aware of any
threatened litigation or proceeding that might result in a claim for
indemnification.

CERTAIN TRANSACTIONS

We believe that we have executed all of the transactions set forth below on
terms no less favorable to us than we could have obtained from unaffiliated
third parties. It is our intention to ensure that all future transactions,
including loans, between us and our officers, directors and principal
stockholders and their affiliates, are on terms no less favorable to us than
those that we could obtain from unaffiliated third parties.

On November 27, 2000 in connection with the purchase of 53,600 shares of our
common stock, Jamie E. Hopping, our president, chief operating officer and
director issued a full recourse promissory note to us in the amount of
approximately $300,000 plus interest at an annual rate of 6%. Payment of the
note is secured by the shares of common stock purchased. Principal in the amount
of $200,000 and the interest on that amount will be due upon the sale of
Ms. Hopping's Texas residence, and the remaining principal and interest will be
due upon the earlier of November 27, 2007 or Ms. Hopping's sale of the purchased
common stock.

On August 8, 2000, in connection with the termination of Vincent S. Pino,
our former president, chief operating officer and director, management duties,
we purchased all of his options under the 1997 Stock Option Plan at a price in
the aggregate of approximately $3.8 million.

On November 2, 1999, after obtaining the approval of our stockholders, we
were acquired by Kohlberg Kravis Roberts & Co., or KKR, in a leveraged
recapitalization merger transaction. As a result of the KKR acquisition, we
experienced an approximate 92% ownership change and Viewer Holdings LLC, which
was formed and is wholly owned by affiliates of KKR, obtained ownership of
approximately 92% of our outstanding common stock, and we refinanced
substantially all of our long-term debt. We paid $12,140,000 to KKR for
professional services rendered in connection with the KKR acquisition. In
addition, some of our executive officers agreed to indemnify us for breaches of
representations and warranties made on our behalf in the transaction
documentation.

In connection with the KKR acquisition, we entered into an agreement for a
$260 million senior subordinated facility with KKR. The aggregate proceeds of
the offering of the old notes were used to repay the senior subordinated credit
facility. Pursuant to an agreement that was entered into in connection with the
KKR acquisition, KKR provides management, consulting and financial services to
us, including its service on our board of directors, and we paid KKR an annual
fee of $650,000 in 2000, and $122,000 in 1999 in quarterly installments in
arrears at the end of each calendar quarter, for these services. In addition, we
reimburse KKR and its affiliates for all reasonable costs and expenses incurred
in connection with:

- the management, consulting and financial services provided by KKR; and

- the ownership of our shares of common stock by KKR's affiliates.

Pursuant to a purchase agreement dated as of September 1, 1999 with Alliance
Imaging Management, Inc., Acclaim Medical LLC and certain other individuals, we
completed the acquisition of Acclaim Medical LLC for the sum of $500,000 plus
warrants to purchase 20% of the equity interest in Acclaim Medical LLC as of
August 31, 2001. One of the former members of Acclaim Medical LLC is a child of
one of our named executive officers. One of the former members of Acclaim
Medical LLC is a child of one of our former executive officers.

In 1999 and 1998, we paid Apollo Management, L.P. $628,000 and $750,000,
respectively, which represented a pro rata portion of its annual management fee.
Additionally, in 1998 we paid Apollo fees of $1,000,000 and $460,000 as
consideration for services rendered in structuring and negotiating the
acquisition of Mobile Technology and American Shared, respectively, and also
reimbursed Apollo for expenses of approximately $275,000 associated with these
acquisitions.

On May 13, 1999, we acquired all the outstanding common stock of Three
Rivers Holding Corp., the parent corporation of SMT Health Services, Inc. in a
stock-for-stock merger. We exchanged approximately 16.4 million shares of common
stock for all the outstanding common shares of Three Rivers. At the time of the
merger, Three Rivers was wholly owned by affiliates of Apollo, which held
approximately 82.6% of our outstanding common stock.

Ten members of our current and former management have agreed to indemnify us
for designated costs, fees and expenses incurred by us in connection with
possible errors in billing Medicare claims in Massachusetts as described in
"Business--Legal and Administration Proceedings."

From January 1998 to December 31, 2000, we have granted options to our
directors and current executive officers, including the named executive officers
as follows:

NAME NUMBER OF SHARES GRANT DATE EXERCISE PRICE
---- ---------------- ------------------ --------------

Richard N. Zehner........................... 250,000 February 6, 1998 $1.10

1,247,500 November 2, 1999 5.60

Jamie E. Hopping............................ 700,000 November 27, 2000 5.60

Vincent S. Pino............................. 200,000 February 6, 1998 1.10

1,148,000 November 2, 1999 5.60

Kenneth S. Ord.............................. 450,000 January 19, 1998 1.10

838,500 November 2, 1999 5.60

Cheryl A. Ford.............................. 135,000 January 2, 1998 1.10

300,000 November 2, 1999 5.60

Terry A. Andrues............................ 135,000 January 2, 1998 1.10

300,000 November 2, 1999 5.60

Jay A. Mericle.............................. 135,000 January 2, 1998 1.10

300,000 November 2, 1999 5.60

Russell D. Phillips, Jr..................... 50,000 April 28, 1998 1.65

50,000 March 1, 1999 2.20

55,000 November 2, 1999 5.60

Howard K. Aihara............................ 35,000 November 1, 2000 5.60

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of the date hereof by each person or group that
we are aware owns 5% or more of our common stock, each of our named executive
officers and directors and our executive officers and directors as a group.

PERCENTAGE OF SHARES
BENEFICIALLY OWNED
COMMON STOCK ---------------------
OWNED BEFORE AFTER
NAME BENEFICIALLY(1) OFFERING OFFERING
---- --------------- --------- ---------

KKR 1996 GP L.L.C.(2)....................................... 34,617,400 90.9% 73.0%
Strata L.L.C.(3)............................................ 527,170 1.4% 1.1%
Apollo Capital Management II, Inc. related entities(4)...... 2,722,570 7.2% 5.7%
Richard N. Zehner(5)........................................ 1,145,520 2.9% 2.4%
Jamie E. Hopping............................................ 53,600 * *
Vincent S. Pino(6).......................................... 114,800 * *
Kenneth S. Ord(7)........................................... 241,350 * *
Cheryl A. Ford(8)........................................... 118,000 * *
Terry A. Andrues(9)......................................... 118,000 * *
Jay A. Mericle(10).......................................... 118,000 * *
Henry R. Kravis(2)(3)....................................... 35,144,570 92.3% 74.1%
Michael W. Michelson(2)(3).................................. 35,144,570 92.3% 74.1%
George R. Roberts(2)(3)..................................... 35,144,570 92.3% 74.1%
David H.S. Chung(2)(3)...................................... -- 92.3% 74.1%
All Present Executive Officers and Directors
(12 persons)(11).......................................... 36,987,040 92.8% 75.1%

------------------------------

* Less than 1%

(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of common stock
shown as beneficially owned by them. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. The percentages are based upon
38,062,180 shares outstanding as of June 13, 2001, except for certain
parties who hold options that are presently exercisable or exercisable
within 60 days of June 13, 2001. The percentages for those parties who hold
options that are presently exercisable or exercisable within 60 days of
June 13, 2001 are based upon the sum of 38,062,180 shares outstanding plus
the number of shares subject to options that are presently exercisable or
exercisable within 60 days of June 13, 2001 held by them, as indicated in
the following notes.

(2) Shares of Common Stock shown as beneficially owned by KKR 1996 GP L.L.C.
are held by Viewer Holdings L.L.C. KKR 1996 GP L.L.C. is the sole general
partner of KKR Associates 1996 L.P., which is the sole general partner of
KKR 1996 Fund L.P. As of the date hereof, KKR 1996 Fund L.P. is the senior
member of Viewer Holdings L.L.C. KKR 1996 GP L.L.C. is a limited liability
company, the managing members of which are Messrs. Henry R. Kravis and
George R. Roberts, and the other members of which are Messrs. Paul E.
Raether, Michael W. Michelson, James H. Greene, Jr., Michael. T. Tokarz,
Edward A. Gilhuly, Perry Golkin, Scott M. Stuart, Robert I. Macdonell,
Johannes Huth, Todd A. Fisher, Alexander Navab and Neil A. Richardson.
Messrs. Kravis, Roberts and Michelson are members of our board of
directors. Each of such individuals may be deemed to share beneficial
ownership of any shares beneficially owned by KKR 1996 GP L.L.C. Each of
such individuals disclaims beneficial ownership. Mr. Chung is a member of
our board of directors and is also an executive of KKR and a limited
partner of KKR Associates 1996 L.P. Mr. Chung disclaims that he is the
beneficial owner of any shares beneficially owned by KKR Associates 1996
L.P. The address of KKR 1996 GP L.L.C. and Messrs. Henry R. Kravis,
Michael W. Michelson and George R. Roberts is: c/o Kohlberg Kravis
Roberts & Co., 9 West 57th Street, New York, NY 10019.

(3) Shares of Common Stock shown as beneficially owned by Strata L.L.C. are
held by Viewer Holdings L.L.C. Strata L.L.C. is the sole general partner of
KKR Associates (Strata) L.P., which is a general partner of KKR Partners II
L.P. As of the date hereof, KKR Partners II L.P. is a member of Viewer
Holdings L.L.C. Strata L.L.C. is a limited liability company, the managing
members of which are Messrs. Henry R. Kravis and George R. Roberts, and the
other members of which are Messrs. Paul E. Raether, Michael W. Michelson,
James H. Greene, Jr., Michael. T. Tokarz, Edward A. Gilhuly, Perry Golkin,
Scott M. Stuart and Robert I. Macdonell. Messrs. Kravis, Roberts and
Michelson are members of our board of directors. Each of such individuals
may be deemed to share beneficial ownership of any shares beneficially
owned by Strata L.L.C.

Each of such individuals disclaims beneficial ownership. Mr. Chung is a
member of our board of directors and a limited partner of KKR Associated
(Strata) L.P. Mr. Chung disclaims that he is the beneficial owner of any
shares beneficially owned by Strata L.L.C.

(4) This amount includes 2,482,440 shares owned by Apollo Investment Fund III,
L.P., 148,380 shares owned by Apollo Overseas Partners III. L.P. and 91,750
shares owned by Apollo (U.K) Partners III, L.P. Apollo Capital Management
II, Inc., a Delaware Corporation, is the general partner of Apollo Advisor
II L.P., a Delaware limited partnership, which is the general partner of
Apollo Investment Fund III, L.P., and Apollo Overseas Partners III, L.P.
and Apollo (U.K.) Partners III, L.P. The address of Apollo Capital
Management II, Inc. related entities is: 1301 Avenue of the Americas, 38th
Floor, New York, New York 10019.

(5) This amount represents 1,145,520 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

(6) This amount represents 114,800 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

(7) This amount represents 241,350 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

(8) This amount represents 118,000 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

(9) This amount represents 118,000 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

(10) This amount represents 118,000 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

(11) This amount includes 1,788,870 shares issuable upon exercise of stock
options that are currently exercisable or exercisable within 60 days.

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.01 par value, and undesignated preferred
stock. The following description of our capital stock does not purport to be
complete and is qualified in its entirety by our amended and restated
certificate of incorporation and bylaws, which are included as exhibits to the
registration statement of which this prospectus forms a part.

COMMON STOCK

As of June 13, 2001, we had 38,062,180 shares of common stock outstanding
held by seven stockholders of record. The holders of common stock are entitled
to one vote per share on all matters to be voted upon by the stockholders.
Subject to preferences that may be applicable to any outstanding preferred
stock, the holders of common stock are entitled to receive ratably any dividends
that may be declared from time to time by the board of directors out of funds
legally available for that purpose. In the event of our liquidation, dissolution
or winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock then outstanding. The common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be issued upon the closing of this offering will be fully paid and
nonassessable.

PREFERRED STOCK

After the closing of this offering, our board of directors will have the
authority, without further action by the stockholders, to designate and issue
preferred stock in one or more series in order to provide us with flexibility in
connection with possible acquisitions and other corporate purposes. The board of
directors may also designate the rights, preferences and privileges of each
series of preferred stock, any or all of which may be superior to the rights of
the common stock. It is not possible to state the actual effect of the issuance
of any shares of preferred stock upon the rights of holders of the common stock
until the board of directors determines the specific rights of the holders of
the preferred stock. However, these effects might include:

- restricting dividends on the common stock;

- diluting the voting power of the common stock;

- impairing the liquidation rights of the common stock; and

- delaying or preventing a change in control of our company without further
action by the stockholders.

We have no present plans to issue any shares of preferred stock.

REGISTRATION RIGHTS

Under a registration rights agreement dated November 2, 1999 among us,
Viewer Holdings L.L.C., which is an affiliate of KKR, Apollo Investment
Fund III, L.P. and two of Apollo's affiliates, the holders of approximately
37,867,140 shares of our common stock are entitled to certain rights with
respect to the registration of the shares under the Securities Act.

Under the registration rights agreement, our largest stockholder, Viewer
Holdings, L.L.C. and its affiliates, or Viewer, may request us to register all
or part of Viewer's shares under the Securities Act. If Viewer requests a
registration, the Apollo entities will generally be entitled to participate in
that registration. If the registration relates to an underwritten offering, we
may reduce the number of shares

being registered to the number of shares which, in the opinion of the managing
underwriters, may be sold without an adverse effect on the price, timing or
distribution of the shares being offered.

If we file a registration statement under the Securities Act other than on
Forms S-4 or S-8 relating to shares of our common stock, Viewer will be entitled
to include in that registration statement all or part of Viewer's shares. If
Viewer elects to include any of its shares in the registration statement, then
the Apollo entities will be entitled to include their shares in the registration
statement. If, however, the registration statement relates to our initial public
offering, as the registration statement relating to this prospectus does, the
Apollo entities will be entitled to include their shares in the registration
statement. We may reduce the number of shares to be included in the registration
statement by Viewer and the Apollo entities to that number which, in the opinion
of the managing underwriter, would not be reasonably likely to affect the price,
timing or distribution of the shares being offered. Viewer does not intend to
include any of its securities in the registration statement of which this
prospectus is a part.

All registration rights terminate at the time the shares of our common stock
covered by the registration rights have been registered and sold in accordance
with the plan of distribution described in the registration statement or sold in
transactions exempt from registration under Rule 144 of the Securities Act.

The registration rights in the registration rights agreement are assignable
to subsequent holders of the shares of Viewer and Apollo, except that Apollo may
only transfer its rights under the registration rights agreement to its
affiliates.

The holders of shares of our common stock as a result of their exercise of
options granted under the 1997 Option Plan, the Three Rivers Plan or the 1999
Equity Plan have certain rights, under the stockholder agreements entered into
or to be entered into between us and each of our employees, with respect to the
registration of the shares under the Securities Act. These holders are entitled
to register their shares in the public offering relating to the sale of shares
of our common stock held by any or all of Viewer and its affiliates if the
proceeds of the public offering exceed $50 million.

ANTI-TAKEOVER EFFECTS OF SOME PROVISIONS OF DELAWARE LAW AND OUR CHARTER
DOCUMENTS

A number of the provisions of Delaware law and our amended and restated
certificate of incorporation and bylaws could make the acquisition of our
company through a tender offer, a proxy contest or other means more difficult
and could also make the removal of incumbent officers and directors more
difficult. These provisions include the protections of Section 203 of the
Delaware Code, as described below, as well as our reservation of blank check
preferred stock and our staggered board of directors. We expect these provisions
to discourage coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of our company to first negotiate
with our board of directors. We believe that the benefits provided by our
ability to negotiate with a proponent of an unfriendly or unsolicited proposal
outweigh the disadvantages of discouraging these proposals. We believe the
negotiation of an unfriendly or unsolicited proposal could result in an
improvement of its terms.

DELAWARE LAW

We will be subject to Section 203 of the Delaware General Corporation Law,
an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the time the person became an
interested stockholder, unless:

- prior to the time of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;

- the stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding those shares owned by
persons who are directors and also officers, and shares owned by employee
stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or

- at or subsequent to the time of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.

Generally, a "business combination" includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, owned 15% or more of a
corporation's outstanding voting securities. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions our board
of directors does not approve in advance. Section 203 may also discourage
transactions that might result in a premium over the market price for the shares
of common stock held by stockholders.

CHARTER DOCUMENTS

Upon completion of this offering, our certificate of incorporation will
provide for our board of directors to be divided into three classes serving
staggered terms. Approximately one-third of the board of directors will be
elected each year. The provision for a classified board could prevent a party
who acquires control of a majority of the outstanding voting stock from
obtaining control of the board of directors until the second annual stockholders
meeting following the date the acquirer obtains the controlling stock interest.
The classified board provision could discourage a potential acquirer from making
a tender offer or otherwise attempting to obtain control of our company and
could increase the likelihood that incumbent directors will retain their
positions.

Our bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors. At an annual
meeting, stockholders may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting by or at the direction of
the board of directors. Stockholders may also consider a proposal or nomination
by a person who:

- was a stockholder of record on the record date for the meeting;

- is entitled to vote at the meeting; and

- has given to our corporate secretary timely written notice, in proper
form, of his or her intention to bring that business before the meeting.

The bylaws do not give the board of directors the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting of the stockholders.
However, our bylaws may have the effect of precluding the conduct of that item
of business at a meeting if the proper procedures are not followed. These
provisions may also discourage or deter a potential acquirer from conducting a
solicitation of proxies to elect the acquirer's own slate of directors or
otherwise attempting to obtain control of our company. Under Delaware law, a
special meeting of stockholders may be called by the board of directors or by
any other person authorized to do so in our certificate of incorporation or
bylaws. The following persons are authorized to call a special meeting of
stockholders:

- a majority of our board of directors;

- the chairman of the board; or

- the chief executive officer.

The inability of our stockholders to call a special meeting will make it
more difficult for a stockholder to force stockholder consideration of a
proposal over the opposition of the board of directors by calling a special
meeting of stockholders, and also will make it more difficult to replace the
board until the next annual meeting.

TRANSFER AGENT AND REGISTRAR

Upon the closing of this offering, the transfer agent and registrar for our
common stock will be American Stock Transfer & Trust Company, which is located
at 40 Wall Street, New York, New York 10005. American Stock Transfer & Trust
Company's telephone number is (212) 936-5100.

NEW YORK STOCK EXCHANGE LISTING

We will apply to have our common stock listed for quotation on the New York
Stock Exchange.

DESCRIPTION OF CERTAIN INDEBTEDNESS

THE FOLLOWING SUMMARY OF OUR CREDIT FACILITY AND OTHER DEBT DOES NOT PURPORT
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENTS
DESCRIBED, INCLUDING THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS USED IN THIS
SECTION, COPIES OF WHICH ARE AVAILABLE UPON REQUEST. ANY TERMS NOT DEFINED IN
THIS SECTION ARE DEFINED IN THE DOCUMENTATION FOR OUR CREDIT FACILITY. SEE
"AVAILABLE INFORMATION."

CREDIT AGREEMENT

GENERAL

Pursuant to a credit agreement dated as of November 2, 1999, as amended,
among Alliance, Bankers Trust Company, as administrative agent, and certain
other lenders, we received commitments for up to $616 million in financing. The
credit facility consists of:

- a $131 million seven-year Tranche A Term Loan facility;

- a $150 million eight-year Tranche B Term Loan facility;

- a $185 million nine-year Tranche C Term Loan facility; and

- a $150 million seven-year Revolving Loan facility including a $10 million
seven-year Swing Line facility.

AMORTIZATION

The following schedule of amortization for the term loans indicates: the
amounts to be paid at each installment for the Tranche A Term loan, Tranche B
Term loan and Tranche C Term loan, and the maturity date represented by the
number of years after the closing date upon which any principal amounts
remaining outstanding:

TERM LOAN TERM LOAN TRANCHE C
DATE TRANCHE A TRANCHE B TERM LOAN
---- ----------- ------------ ------------

November 2, 2001.................... $ 5,000,000 $ 1,500,000 $ 1,850,000
November 2, 2002.................... 10,000,000 1,500,000 1,850,000
November 2, 2003.................... 23,000,000 1,500,000 1,850,000
November 2, 2004.................... 25,000,000 1,500,000 1,850,000
November 2, 2005.................... 32,000,000 1,500,000 1,850,000
November 2, 2006.................... 36,000,000 1,500,000 1,850,000
November 2, 2007.................... -- 141,000,000 1,850,000
November 2, 2008.................... -- -- 172,050,000

PREPAYMENTS

Loans are required to be prepaid with:

- 100% of the net proceeds of all non-ordinary course asset sales or other
dispositions of the property by us and our subsidiaries which we have not
reinvested in our business within one year after receipt of the proceeds,
subject to limited exceptions;

- 50% of annual excess cash flow; and

- the amount by which the outstanding amounts under the revolving facility
exceed the total amount committed under the revolving facility.

INTEREST

The Tranche A Term loan and the revolving loan facilities will bear interest
through maturity: (1) if a Base Rate (as defined below) loan, then at the sum of
the Base Rate plus the Applicable Tranche A Base Rate Margin (as defined below),
or (2) if a LIBOR loan, then at the sum of LIBOR plus the Applicable Tranche A
LIBOR Margin (as defined below). The Swing Line Loan facility will bear interest
at the sum of the Base Rate plus the Applicable Tranche A Base Rate Margin minus
the Applicable Commitment Fee Percentage.

The Base Rate is the higher of: (1) the administrative agent's prime rate or
(2) the rate which is 0.5% in excess of the Federal Funds Effective Rate
(defined as a fluctuating interest rate equal for each day during any period to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published for such day by the Federal Reserve Bank of New York, or, if such rate
is not so published, the average of the quotations for such day on such
transactions received by the administrative agent from three Federal funds
brokers of recognized standing selected by the administrative agent).

The Tranche B Term Loan and the Tranche C Term Loan will bear interest
through maturity: (1) if a Base Rate loan, then at the sum of the Base Rate plus
the Applicable Tranche B Base Rate Margin or the Applicable Tranche C Base Rate
Margin (as defined below), as applicable, or (2) if a LIBOR loan, then at the
sum of LIBOR plus the Applicable Tranche B LIBOR Margin or the Applicable
Tranche C LIBOR Margin (as defined below), as applicable.

The Applicable Tranche A Base Rate Margin will range, based on the
Applicable Leverage Ratio, from 0.125% to 1.500%. The Applicable Tranche B Base
Rate Margin will range, based on the Applicable Leverage Ratio, from 1.500% to
2.000%. The Applicable Tranche C Base Rate Margin will range, based on the
Applicable Leverage Ratio, from 1.750% to 2.250%.

The Applicable Tranche A LIBOR Margin will range, based on the Applicable
Leverage Ratio, from 1.375% to 2.750%. The Applicable Tranche B LIBOR Margin
will range, based on the Applicable Leverage Ratio, from 2.750% to 3.250%. The
Applicable Tranche C LIBOR Margin will range, based on the Applicable Leverage
Ratio, from 3.000% to 3.500%.

COLLATERAL

The loans under the credit agreement are secured by a lien on substantially
all of our tangible and intangible property, including accounts receivable,
inventory, equipment and intellectual property, and by a pledge of all of the
shares of stock, partnership interests and limited liability company interests
of our direct and indirect domestic subsidiaries, of which we now own or later
acquire more than a 50% interest, except for subsidiaries which own assets or
have annual revenues of less than $100,000 individually and $1,000,000
collectively.

COVENANTS

In addition to certain customary covenants, the credit agreement restricts,
among other things, our ability and our subsidiaries' ability to:

- declare dividends or redeem or repurchase capital stock;

- prepay, redeem or purchase debt;

- incur liens and engage in sale-leaseback transactions;

- make loans and investments;

- incur additional indebtedness;

- amend or otherwise alter debt and other material agreements;

- make capital expenditures;

- engage in mergers, acquisitions and asset sales;

- transact with affiliates; and

- alter the business we conduct.

FINANCIAL COVENANTS

The credit facility contains financial covenants including a minimum ratio
of consolidated adjusted EBITDA to consolidated cash interest expense and a
maximum ratio of consolidated total debt to consolidated adjusted EBITDA.

EVENTS OF DEFAULT

Events of default under the credit agreement include:

- our failure to pay principal or interest when due;

- our material breach of any representation or warranty contained in the
loan documents;

- covenant defaults;

- events of bankruptcy; and

- a change of control.

10 3/8% SENIOR SUBORDINATED NOTES DUE 2011

In April 2001, we sold $260 million aggregate principal amount of our
10 3/8% senior subordinated notes due 2011 in an offering that was not
registered under the Securities Act of 1933. We are in the process of offering
to exchange the April 2001 senior subordinated notes for registered notes having
the same financial terms and covenants as the April 2001 senior subordinated
notes.

The senior subordinated notes:

- are subject to the provisions of an indenture;

- are senior subordinated obligations of ours;

- will mature on April 15, 2011; and

- bear interest at the rate of 10 3/8% per annum, which interest is to be
paid semi-annually on April 15 and October 15 of each year, commencing
October 15, 2001.

We may redeem the senior subordinated notes, in whole or in part, at any
time on or after April 15, 2006. If we choose this optional redemption, we are
required to redeem the senior subordinated notes at the redemption prices set
forth below, plus an amount in each case equal to all accrued and unpaid
interest and liquidated damages, if any, to the redemption date:

REDEMPTION PRICE (EXPRESSED AS
PERCENTAGES OF THE PRINCIPAL AMOUNT
YEAR AT MATURITY OF THE NOTES)
---- -----------------------------------

2006.................................... 105.188%
2007.................................... 103.458%
2008.................................... 101.729%
2009 and thereafter..................... 100.000%

In addition, at any time on or prior to April 15, 2004, we may redeem up to 40%
of the original aggregate principal amount of the senior subordinated notes with
the net proceeds of one or more equity offerings, at a redemption price equal to
110.375% of the aggregate principal amount to be redeemed, together with accrued
and unpaid interest, if any to the date of redemption; provided that at least
60% of the original aggregate principal amount of the senior subordinated notes
remains outstanding after each redemption.

Upon the occurrence of a change of control, we will have the option, at any
time prior to April 15, 2006, to redeem the notes, in whole but not in part, at
a redemption price equal to 100% of the aggregate principal amount of the notes
plus the applicable premium, together with accrued and unpaid interest, if any,
to the date of redemption. Upon the occurrence of a change of control, if we do
not elect to redeem the notes, we will be required to make an offer to purchase
the notes at a price equal to 101% of the aggregate principal amount of the
notes, together with accrued and unpaid interest, if any, to the date of
repurchase.

In the indenture relating to the senior subordinated notes, we agreed to
certain restrictions that limit, among other things, our and our subsidiaries'
ability to:

- pay dividends or make certain other restricted payments or investments;

- incur additional indebtedness and issue disqualified stock;

- create liens on assets;

- merge, consolidate, or sell all or substantially all of our and our
restricted subsidiaries' assets;

- enter into certain transactions with affiliates;

- create restrictions on dividends or other payments by our restricted
subsidiaries;

- create guarantees of indebtedness by restricted subsidiaries; and

- incur subordinated indebtedness that is senior to the notes.

In addition, in the event of a change of control, as defined in the
indenture relating to the senior subordinated notes, each holder of senior
subordinated notes will have the right to require us to repurchase all or part
of such holder's senior subordinated notes at a price equal to 101% of the
principal amount of the senior subordinated notes, plus accrued and unpaid
interest and any liquidated damages.

Events of default under the indenture relating to the senior subordinated
notes include but are not limited to:

- the failure to pay principal of or premium, if any, on any senior
subordinated note when due;

- the failure to pay any interest on any senior subordinated note when due,
such failure continuing for 30 days;

- the failure to comply with any of our other agreements in the indenture or
the notes;

- the default in the payment of principal and interest on senior
subordinated notes required to be purchased;

- certain defaults under the terms of our other indebtedness, whether the
indebtedness existed before the issuance of the notes or is created after;
and

- certain events of bankruptcy, insolvency or reorganization.

If an event of default, other than events of bankruptcy, insolvency or
reorganization, occurs and is continuing, the maturity date of all of the senior
subordinated notes may be accelerated. If a bankruptcy, insolvency or
reorganization occurs, the outstanding senior subordinated notes will
automatically become immediately due and payable.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for our common stock,
and no predictions can be made regarding the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Sales of substantial amounts of common stock in
the public market following the offering could adversely affect the market price
of the common stock and adversely affect our ability to raise capital at a time
and on terms favorable to us.

SALE OF RESTRICTED SHARES AND LOCK-UP AGREEMENTS

Upon completion of this offering, we will have an aggregate of 47,437,180
shares of common stock outstanding, assuming no exercise of the 1,406,250 share
underwriters' over-allotment option. If the underwriters' over-allotment option
is exercised in full, we will have an aggregate of 48,843,430 shares of common
stock outstanding. All of the 9,375,000 shares of common stock sold in this
offering, plus any shares sold if the over-allotment option is exercised, will
be freely tradable without restriction in the public market unless these shares
are held by "affiliates," as that term is defined in Rule 144(a) under the
Securities Act. For purposes of Rule 144, an "affiliate" of an issuer is a
person that, directly or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, such issuer.

The remaining 38,062,180 shares of common stock outstanding after the
offering will be held by existing stockholders and are "restricted securities"
under the Securities Act. Those shares may be sold in the public market only if
registered under the Securities Act or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.

We have agreed not to sell or otherwise dispose of any shares of our common
stock for a period of 180 days after the date of this prospectus. Our executive
officers and directors and our principal stockholders, which collectively hold
35,319,610 shares of our common stock, have also agreed not to sell or otherwise
dispose of any shares of common stock for a period of 180 days. One other
stockholder and its affiliates which collectively hold 2,722,570 shares of our
common stock have agreed not to sell or otherwise dispose of any shares of
common stock for a period of 90 days. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) or 701, shares
subject to lock-up agreements will not be saleable until such agreements expire
or are waived by Deutsche Banc Alex. Brown Inc. and Salomon Smith Barney Inc.

In addition, employees, executive officers and directors, which collectively
hold, or have options exercisable for, 6,953,840 shares of our common stock, are
each party to a stockholder agreement which prohibits, except in limited
circumstances, any transfers of our common stock for a period of five years.
November 2004 is the earliest time upon which any of the five year transfer
restrictions will begin to expire. Prior to the expiration of the five year
transfer restrictions, however, our executive officers and directors will be
entitled to include their shares in a registered public offering in which Viewer
or any of its affiliates is selling shares of our common stock.

RULE 144

In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

- one percent of the number of shares of common stock then outstanding; or

- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.

Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at
anytime during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

RULE 701

Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.

OPTION GRANTS

As of June 13, 2001, there were options issued and outstanding to purchase
6,953,840 shares of common stock. An additional 1,642,200 shares were reserved
for issuance under our option plans.

REGISTRATION RIGHTS

Holders of 37,867,140 shares of common stock are entitled to registration
rights with respect to such shares for resale under the Securities Act. If these
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, these sales could have an
adverse effect on the market price for the common stock.

UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS

OVERVIEW

The following general discussion summarizes the material U.S. federal income
and estate tax aspects of the ownership and disposition of our common stock
applicable to beneficial owners that are non-U.S. holders purchasing our common
stock pursuant to this offering and that will hold our common stock as a capital
asset (generally, property held for investment). In general, a "non-U.S. holder"
is an individual or entity other than:

- a citizen or resident of the United States;

- a corporation (including any entity taxable as a corporation) or
partnership created or organized in or under the laws of the United States
or any of its political subdivisions;

- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;

- a trust if a U.S. court is able to exercise primary supervision over
administration of the trust and one or more of the individuals or entities
described above have authority to control all substantial decisions of the
trust; or

- a trust that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a United States person.

This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), U.S. Treasury regulations, Internal Revenue Service rulings and
pronouncements, judicial decisions and other applicable authorities, all as now
in effect, all of which are subject to change (possibly on a retroactive basis).
The discussion does not address aspects of U.S. federal taxation other than
income and estate taxation and does not address all aspects of federal income
and estate taxation, including the fact that in the case of a non-U.S. holder
that is a partnership, the U.S. tax consequences of holding and disposing of
shares of common stock may be affected by determinations made at the partner
level and the activities of the partnership. The discussion does not consider
any specific facts or circumstances that may apply to a particular non-U.S.
holder and does not address all aspects of U.S. federal income tax law that may
be relevant to non-U.S. holders that may be subject to special treatment under
such law, such as insurance companies, tax-exempt organizations, financial
institutions, dealers in securities or currencies, holders whose "functional
currency" is not the U.S. dollar, holders of securities held as part of a
straddle, hedge or conversion transaction, some U.S. expatriates, controlled
foreign corporations, passive foreign investment companies or foreign personal
holding companies. The discussion also does not address U.S. state or local or
foreign tax consequences. We have not sought, and will not seek, any ruling from
the IRS with respect to the tax consequences discussed in this prospectus, and
there can be no assurance that the IRS will not take a position contrary to the
tax consequences discussed below or that any positions taken by the IRS would
not be sustained.

INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR
TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUTATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE
FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

DIVIDENDS

As discussed under "Dividend Policy" above, we do not anticipate declaring
or paying cash dividends on our common stock in the near future. However,
subject to the discussion below under "--Income or Gains Effectively Connected
With A U.S. Trade or Business," if any dividend is paid on our common stock, the
gross amount of such dividends paid to a non-U.S. holder generally will be
subject to withholding of U.S. federal income tax at a 30 percent rate, or a
lower rate prescribed by an applicable tax treaty.

A non-U.S. holder of our common stock who wishes to claim the benefit of an
applicable treaty rate (and avoid backup withholding as discussed below) will be
required to satisfy applicable certification and other requirements. If a
non-U.S. holder holds our common stock through a foreign partnership or a
foreign intermediary, the foreign partnership or foreign intermediary will also
be required to comply with certain certification requirements. A non-U.S. holder
who is eligible for a reduced rate of U.S. withholding tax under an income tax
treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the Internal Revenue Service.

DISPOSITION OF COMMON STOCK

A non-U.S. holder of our common stock generally will not be subject to U.S.
federal income tax (including by way of withholding) on gains recognized on the
sale, exchange or other disposition of such stock unless (1) such non-U.S.
holder is an individual who is present in the United States for 183 days or more
in the taxable year of the sale, exchange or other disposition, and other
required conditions are met; (2) such gain is effectively connected with the
conduct by the non-U.S. holder of a trade or business in the United States and,
if an applicable income tax treaty requires, is attributable to a United States
permanent establishment maintained by the non-U.S. holder; or (3) our common
stock constitutes a "United States real property interest" by reason of our
status as a "United States real property holding corporation," or a "USRPHC,"
for U.S. federal income tax purposes at any time during the shorter of the
non-U.S. holder's holding period in our common stock or 5-year period ending on
the date you dispose of our common stock. We do not believe that we are
currently a USRPHC or that we will become one in the future.

Unless an applicable treaty provides otherwise, a non-U.S. holder described
in clause (1) above will be subject to a flat 30% U.S. federal income tax on the
gain realized on the sale, which may be offset by U.S. source capital losses.
Gain described in clause (2) above will be subject to the U.S. federal income
tax in the manner discussed below under "--Income or Gains Effectively Connected
With A U.S. Trade or Business." Non-U.S. holders should consult any applicable
income tax treaties that may provide for different rules.

INCOME OR GAINS EFFECTIVELY CONNECTED WITH A U.S. TRADE OR BUSINESS

If a non-U.S. holder of our common stock is engaged in a trade or business
in the U.S. and if dividends on the common stock or gain realized on the sale,
exchange or other disposition of the common stock is effectively connected with
the non-U.S. holder's conduct of such trade or business (and, if an applicable
tax treaty requires, is attributable to a U.S. permanent establishment
maintained by the non-U.S. holder in the U.S.), the non-U.S. holder, although
exempt from withholding tax (provided that the certification requirements
discussed in the next sentence are met), will generally be subject to U.S.
federal income tax on such dividends or gain on a net income basis in the same
manner as if it were a U.S. holder. The non-U.S. holder will be required, under
currently effective Treasury Regulations, to provide a properly executed
Internal Revenue Service form W-8ECI or successor form in order to claim an
exemption from U.S. withholding tax. In addition, if such non-U.S. holder is a
foreign corporation, it may be subject to a branch profits tax equal to
30 percent (or such lower rate provided by an applicable U.S. income tax treaty)
of a portion of its effectively connected earnings and profits for the taxable
year.

ESTATE TAX

Common stock owned, or treated as owned, by an individual non-U.S. holder at
the time of death will be includable in the individual's gross estate for U.S.
federal estate tax purposes and may be subject to U.S. federal estate tax,
unless an applicable treaty provides otherwise.

BACKUP WITHHOLDING AND INFORMATION REPORTING

A non-U.S. holder may have to comply with specific certification procedures
to establish that the holder is not a U.S. person in order to avoid backup
withholding tax requirements with respect to our payments of dividends on the
common stock. We must report annually to the Internal Revenue Service and to
each non-U.S. holder the amount of any dividends paid to such holder and the tax
withheld with respect to such dividends, regardless of whether any tax was
actually withheld. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of a country in which the non-U.S. holder resides.

Payment of the proceeds from a disposition by a non-U.S. holder of common
stock made by or through the U.S. office of a broker is generally subject to
information reporting and backup withholding unless the non-U.S. holder
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption from information reporting and backup withholding.

Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder of common stock will be allowed as a refund or credit against
such holder's U.S. federal income tax provided that the required information is
furnished to the Internal Revenue Service in a timely manner.

NON-U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPLICATION
OF BACKUP WITHHOLDING AND INFORMATION REPORTING IN THEIR PARTICULAR SITUATION,
INCLUDING THE AVAILABILITY OF AN EXEMPTION FROM SUCH REQUIREMENTS AND THE
PROCEDURES FOR OBTAINING SUCH AN EXEMPTION.

UNDERWRITING

Deutsche Banc Alex. Brown Inc. and Salomon Smith Barney Inc. are acting as
joint bookrunning managers of the offering, and, together with J.P. Morgan
Securities Inc. and UBS Warburg LLC are acting as representatives of the
underwriters named below. Subject to the terms and conditions stated in the
underwriting agreement dated the date of this prospectus, each underwriter named
below has agreed to purchase, and we have agreed to sell to that underwriter,
the number of shares set forth opposite the underwriter's name.

NUMBER
UNDERWRITER OF SHARES
----------- -----------

Deutsche Banc Alex. Brown Inc...............................
Salomon Smith Barney Inc....................................
J.P. Morgan Securities Inc..................................
UBS Warburg LLC.............................................
Total................................................... 9,375,000

The underwriting agreement provides that the obligations of the underwriters
to purchase the shares included in this offering are subject to approval of
legal matters by counsel and to other conditions. The underwriters are obligated
to purchase all the shares (other than those covered by the over-allotment
option described below) if they purchase any of the shares.

The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to dealers at the public offering price less a concession not
to exceed $ per share. The underwriters may allow, and the dealers may
reallow, a concession not to exceed $ per share on sales to other dealers.
If all of the shares are not sold at the initial offering price, the
representatives may change the public offering price and the other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm any sales to any accounts over which they exercise discretionary
authority.

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 1,406,250 additional shares of
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter must, subject to specified conditions,
purchase a number of additional shares approximately proportionate to that
underwriter's initial purchase commitment.

We, our officers and directors and some of our other stockholders have
agreed that, for a period of 180 days from the date of this prospectus, we and
they will not, without the prior written consent of Deutsche Banc Alex.
Brown Inc. and Salomon Smith Barney Inc., dispose of or hedge any shares of our
common stock or any securities convertible into or exchangeable for our common
stock. Deutsche Banc Alex. Brown Inc. and Salomon Smith Barney Inc. in their
discretion may release any of the securities subject to these lock-up agreements
at any time without notice.

At our request, the underwriters have reserved up to 5% of the shares of
common stock for sale at the initial public offering price to persons who are
directors, officers or employees, or who are otherwise associated with us
through a directed share program. The number of shares of common stock available
for sale to the general public will be reduced by the number of directed shares
purchased by participants in the program. Any directed shares not purchased will
be offered by the underwriters to the general public on the same basis as all
other shares of common stock offered. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, in connection with sales of the directed shares.

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our shares was
determined by negotiations between us and the representatives. Among the factors
considered in determining the initial public offering price were our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects for the industry in which we
compete, our management, and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. We cannot assure you, however,
that the prices at which the shares will sell in the public market after this
offering will not be lower than the initial public offering price or that an
active trading market in our common stock will develop and continue after this
offering.

The following table shows the estimated underwriting discounts and
commissions that we are to pay to the underwriters in connection with this
offering assuming an initial public offering price of $16.00. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.

PAID BY ALLIANCE
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------

Per Share.......................................... $ 1.12 $ 1.12
Total.............................................. $10,500,000 $12,075,000

In connection with this offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve syndicate sales
of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
"Covered" short sales are sales of shares made in an amount up to the number of
shares represented by the underwriters' over-allotment option. In determining
the source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Transactions to close out the
covered syndicate short involve either purchases of the common stock in the open
market after the distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make "naked" short sales of
shares in excess of the over-allotment option. The underwriters must close out
any naked short position by purchasing shares of common stock in the open
market. A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the shares in
the open market after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of the bids for or purchases
of shares in the open market while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from an underwriter when Salomon
Smith Barney Inc. repurchases shares originally sold by that syndicate member in
order to cover syndicate short positions or make stabilizing purchases.

Any of these activities may have the effect of preventing or retarding a
decline in the market price of the common stock. They may also cause the price
of the common stock to be higher than the price that otherwise would exist in
the open market in the absence of these transactions. The underwriters may
conduct these transactions on the New York Stock Exchange or in the
over-the-counter market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.

We estimate that our portion of the total expenses of this offering will be
$2,500,000.

An affiliate of Deutsche Banc Alex. Brown is the Administrative Agent and a
lender, and affiliates of Salomon Smith Barney Inc. and J.P. Morgan Securities
Inc. are each lenders under our credit facility.

Under Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), if more than 10% of the net offering
proceeds of an offering of securities, not including underwriting compensation,
are intended to be paid to members of the NASD who are participating in the
offering, or associated or affiliated persons of those members, then the initial
public offering price may be no higher than that recommended by a "qualified
independent underwriter," as defined by the NASD. Because we intend to use the
proceeds of this offering to repay indebtedness under our credit facility, and
Salomon Smith Barney Inc., Deutsche Banc Alex. Brown Inc. and J.P. Morgan
Securities Inc. are each affiliates of banks that are lenders under our credit
facility, these affiliates may receive more than 10% of the net proceeds of this
offering. In accordance with Rule 2710(c)(8), UBS Warburg LLC has assumed the
responsibilities of acting as a qualified independent underwriter. In its role
as a qualified independent underwriter, UBS Warburg LLC has performed a due
diligence investigation and participated in the preparation of this prospectus
and the registration statement of which this prospectus is a part. We have
agreed to indemnify UBS Warburg LLC against liabilities incurred in connection
with acting as a qualified independent underwriter, including liabilities under
the Securities Act.

Certain of the representatives have performed investment banking and
advisory services for us and KKR from time to time for which they have received
customary fees and expenses. In April 2001, the representatives were the initial
purchasers in the sale of our 10 3/8% senior subordinated notes due 2011,
pursuant to which they received purchase discounts totalling $6,825,000. The
underwriters may, from time to time, engage in transactions with and perform
services for us and KKR in the ordinary course of their business. Certain of the
underwriters are participants in funds affiliated with KKR and have an indirect
interest in us.

An affiliate of Deutsche Banc Alex. Brown Inc. owns 121,440 shares of our
common stock. Affiliates of each of the representatives are limited partners in
funds affiliated with KKR, the majority stockholder of our company. Affiliates
of each of Deutsche Banc Alex. Brown Inc., Salomon Smith Barney Inc. and J.P.
Morgan Securities Inc., are also lenders to us under our credit facility.

A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The representatives may agree to
allocate a number of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to underwriters that
may make Internet distributions on the same basis as other allocations. In
addition, shares may be sold by the underwriters to securities dealers who
resell shares to online brokerage account holders.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Latham & Watkins, Los Angeles, California, and for the
underwriters by Cravath, Swaine & Moore, New York, New York. Certain partners of
Latham & Watkins, members of their families and related persons indirectly own
less than 1% of our common stock.

EXPERTS

The consolidated financial statements as of December 31, 2000 and 1999, and
for the years then ended, included in this prospectus and the related financial
statement schedule included elsewhere in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the registration statement, and have
been so

included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule for the year ended December 31, 1998, as set
forth in their reports. We have included our financial statements and schedules
for this period in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.

CHANGE OF ACCOUNTANTS

In November 1999, in connection with the KKR acquisition, our new board of
directors elected to change our independent auditors from Ernst & Young LLP to
Deloitte & Touche LLP. In connection with Ernst & Young LLP's audit of the
financial statements for the year ended December 31, 1998 and for the subsequent
unaudited six-month period ended June 30, 1999, there were no disagreements with
Ernst & Young LLP on any matters of accounting principles or practices,
financial statement disclosures or auditing scope or procedures, nor any
reportable events. Ernst & Young LLP's reports on our financial statements for
the year ended December 31, 1998 contained no adverse opinions or disclaimers of
opinion and were not modified or qualified as to uncertainty, audit scope or
accounting principles. We have provided Ernst & Young LLP with a copy of the
disclosure contained in this section of the prospectus. Prior to retaining
Deloitte & Touche LLP, we did not consult with Deloitte & Touche LLP regarding
the application of accounting principles to a specified transaction or the type
of audit opinion that might be rendered on our financial statements.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits and schedules thereto) under the
Securities Act and the rules and regulations thereunder, for the registration of
the common stock offered hereby. This prospectus is part of the registration
statement. This prospectus does not contain all the information included in the
registration statement because we have omitted parts of the registration
statement as permitted by the Securities and Exchange Commission's rules and
regulations. For further information about us and our common stock, you should
refer to the registration statement. Statements contained in this prospectus as
to any contract, agreement or other document referred to are not necessarily
complete. Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.

You can inspect and copy all or any portion of the registration statements
or any reports, statements or other information we file at the public reference
facility maintained by the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information about the
operation of the public reference rooms. Copies of all or any portion of the
registration statement can be obtained from the Public Reference Section of the
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the registration statement is publicly
available through the Securities and Exchange Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov.

We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You can also
request copies of these documents, for a copying fee, by writing to the
Securities and Exchange Commission. We intend to furnish to our stockholders
annual reports containing audited financial statements for each fiscal year.

ALLIANCE IMAGING, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
--------

Independent Auditors' Report of Deloitte & Touche LLP....... F-2
Independent Auditors' Report of Ernst & Young LLP........... F-3
Consolidated Financial Statements
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Operations..................... F-5
Consolidated Statements of Cash Flows..................... F-6
Consolidated Statements of Stockholders' Deficit.......... F-9
Notes to Consolidated Financial Statements................ F-10

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of
Alliance Imaging, Inc.

We have audited the accompanying consolidated balance sheets of Alliance
Imaging, Inc. and subsidiaries (the Company), as of December 31, 2000 and 1999,
and the related consolidated statements of operations, cash flows and
stockholders' deficit for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Alliance Imaging, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Costa Mesa, California
February 22, 2001
(June 30, 2001 as to the effects of the stock split described in Note 1)

F-2

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Alliance Imaging, Inc.

We have audited the consolidated balance sheet (not separately presented herein)
of Alliance Imaging, Inc. as of December 31, 1998, and the related accompanying
restated consolidated statement of operations, stockholders' deficit and cash
flows for the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Alliance Imaging, Inc. at December 31, 1998, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Orange County, California
March 5, 1999, except for Note 1 -- Common Control Merger,
as to which the date is May 13, 1999 and Note 1 -- Common Stock Split,
as to which the date is June 30, 2001

F-3

ALLIANCE IMAGING, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, MARCH 31,
--------------------- -----------
1999 2000 2001
--------- --------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents................................ $ 4,804 $ 12,971 $ 9,634
Accounts receivable, net of allowance for doubtful
accounts of $11,688 in 1999, $15,570 in 2000, and
$16,055 in 2001........................................ 51,877 49,973 52,570
Deferred income taxes.................................... 8,369 3,085 3,085
Prepaid expenses......................................... 2,574 1,874 1,850
Other receivables........................................ 4,001 4,189 5,925
--------- --------- ---------
Total current assets....................................... 71,625 72,092 73,064
Equipment, at cost......................................... 408,083 506,735 535,777
Less accumulated depreciation.............................. (125,800) (176,939) (192,114)
--------- --------- ---------
282,283 329,796 343,663
Goodwill, net of accumulated amortization of $27,939 in
1999, $35,600 in 2000, and $37,882 in 2001............... 158,534 151,981 149,699
Other intangibles, net of accumulated amortization of
$9,017 in 1999, $14,570 in 2000, and $15,895 in 2001..... 74,724 69,450 68,132
Deferred financing costs, net of accumulated amortization
of $825 in 1999, $3,095 in 2000, and $3,643 in 2001...... 16,324 14,104 13,606
Deposits and other assets.................................. 22,020 8,737 6,621
--------- --------- ---------
Total assets............................................... $ 625,510 $ 646,160 $ 654,785
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable......................................... $ 4,144 $ 11,980 $ 13,628
Accrued compensation and related expenses................ 7,265 8,776 8,251
Accrued interest payable................................. 5,892 14,412 8,198
Other accrued liabilities................................ 22,564 23,188 19,707
Current portion of long-term debt........................ 12,974 15,863 17,015
--------- --------- ---------
Total current liabilities.................................. 52,839 74,219 66,799
Long-term debt, net of current portion..................... 478,875 483,126 497,109
Senior subordinated credit facility due to affiliate....... 260,000 260,000 260,000
Minority interests......................................... 459 702 1,398
Deferred income taxes...................................... 35,236 31,922 31,922
--------- --------- ---------
Total liabilities.......................................... 827,409 849,969 857,228
Commitments and contingencies (NOTE 8)
Stockholders' deficit:
Common stock, $.01 par value; 100,000,000 shares
authorized; shares issued and outstanding--37,988,580
in 1999, 38,068,360 in 2000 and 2001................... 380 381 381
Additional paid-in deficit............................... (138,167) (137,575) (137,446)
Note receivable from officer............................. -- (300) (300)
Accumulated deficit...................................... (64,112) (66,315) (65,078)
--------- --------- ---------
Total stockholders' deficit................................ (201,899) (203,809) (202,443)
--------- --------- ---------
Total liabilities and stockholders' deficit................ $ 625,510 $ 646,160 $ 654,785
========= ========= =========

SEE ACCOMPANYING NOTES.

F-4

ALLIANCE IMAGING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
(UNAUDITED)

Revenues.................................... $243,297 $318,106 $345,287 $84,322 $91,257
Costs and expenses:
Operating expenses, excluding
depreciation............................ 111,875 143,238 151,722 36,647 39,853
Depreciation expense...................... 33,493 47,055 54,924 12,721 15,406
Selling, general and administrative
expenses................................ 24,446 31,097 38,338 9,240 11,068
Amortization expense, primarily
goodwill................................ 11,289 14,565 14,390 3,598 3,607
Termination and related costs............. -- -- 4,573
Recapitalization, merger integration, and
regulatory costs........................ 2,818 52,581 4,523 336 --
Interest expense, net of interest income
of $513 in 1998, $709 in 1999, $770 in
2000 and $139 and $160 for the three
months ended March 31, 2000 and 2001,
respectively............................ 41,772 51,958 77,051 18,933 18,849
-------- -------- -------- ------- -------
Total costs and expenses.................... 225,693 340,494 345,521 81,475 88,783
-------- -------- -------- ------- -------
Income (loss) before income taxes and
extraordinary loss........................ 17,604 (22,388) (234) 2,847 2,474
Provision for income taxes.................. 8,736 3,297 1,969 1,423 1,237
-------- -------- -------- ------- -------
Income (loss) before extraordinary loss..... 8,868 (25,685) (2,203) 1,424 1,237
Extraordinary loss, net of taxes of $1,452
in 1998 and $12,020 in 1999............... (2,271) (17,766) -- -- --
-------- -------- -------- ------- -------
Net income (loss)........................... 6,597 (43,451) (2,203) 1,424 1,237
Less: Preferred stock dividends and
financing fee accretion................... (2,186) (2,081) -- -- --
Less: Excess of consideration paid over
carrying amount of preferred stock
repurchased............................... -- (2,796) -- -- --
-------- -------- -------- ------- -------
Income (loss) applicable to common stock.... $ 4,411 $(48,328) $ (2,203) $ 1,424 $ 1,237
======== ======== ======== ======= =======

Earnings (loss) per common share:
Income (loss) before extraordinary loss... $ 0.12 $ (0.56) $ (0.06) $ 0.04 $ 0.03
Extraordinary loss, net of taxes.......... (0.04) (0.33) -- -- --
-------- -------- -------- ------- -------
Net income (loss) per common share........ $ 0.08 $ (0.89) $ (0.06) $ 0.04 $ 0.03
======== ======== ======== ======= =======
Earnings (loss) per common share--assuming
dilution:
Income (loss) before extraordinary loss... $ 0.11 $ (0.56) $ (0.06) $ 0.04 $ 0.03
Extraordinary loss, net of taxes.......... (0.04) (0.33) -- -- --
-------- -------- -------- ------- -------
Net income (loss) per common share--
assuming dilution....................... $ 0.07 $ (0.89) $ (0.06) $ 0.04 $ 0.03
======== ======== ======== ======= =======
Weighted average number of shares of common
stock and common stock equivalents:
Basic..................................... 57,110 54,210 38,000 37,990 38,070
Diluted................................... 59,210 54,210 38,000 39,480 40,400

SEE ACCOMPANYING NOTES.

F-5

ALLIANCE IMAGING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1998 1999 2000 2000 2001
--------- --------- --------- --------- --------
(UNAUDITED)

OPERATING ACTIVITIES:
Net income (loss)...................... $ 6,597 $ (43,451) $ (2,203) $ 1,424 $ 1,237
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Extraordinary loss, net of taxes..... 2,271 17,766 -- -- --
Provision for doubtful accounts...... 4,651 4,580 5,450 1,572 1,496
Non-cash compensation................ 100 -- 333 -- 129
Depreciation and amortization........ 44,782 61,620 69,314 16,319 19,013
Amortization of deferred financing
costs.............................. 2,505 2,720 2,270 744 548
Distributions in excess of equity in
undistributed income of investee... (652) (600) (538) 50 165
Increase in deferred income taxes.... 8,517 2,948 1,970
Gain on sale of equipment............ (267) (88) (254) (29) (102)
Changes in operating assets and
liabilities:
Accounts receivable.................. (14,159) (13,350) (3,546) (4,560) (3,635)
Prepaid expenses..................... 730 767 700 480 24
Other receivables.................... 926 60 (188) (157) (1,846)
Other assets......................... (2,300) 544 (92) (879) (397)
Accounts payable, accrued
compensation and other accrued
liabilities........................ (2,816) 4,935 18,585 6,205 (8,655)
Minority interests and other
liabilities........................ (4,030) (254) 243 94 307
--------- --------- --------- -------- --------
Net cash provided by operating
activities........................... 46,855 38,197 92,044 21,263 8,284

INVESTING ACTIVITIES:
Equipment purchases.................... (72,321) (95,914) (101,554) (34,010) (21,152)
Decrease (increase) in deposits on
equipment............................ (7,482) (8,058) 13,913 8,026 2,212
Purchase of common stock of Southeast
Arizona, Inc......................... -- -- (4,063) -- --
Purchase of all equity interests in
Acclaim Medical LLC, net of cash
acquired............................. -- (493) -- -- --
Purchase of common stock of Mid
American Imaging Inc., Dimensions
Medical Group, Inc. and RIA
Management Services, Inc., net of
cash acquired........................ (12,495) -- -- -- --
Purchase of common stock of Mobile
Technology Inc., net of cash
acquired............................. (94,147) -- -- -- --
Purchase of common stock of Medical
Diagnostics, Inc., net of cash
acquired............................. (31,158) -- -- -- --
Purchase of all equity interests in two
operating subsidiaries of American
Shared Hospital Services............. (29,845) (400) -- -- --
Proceeds from sale of equipment........ 2,358 793 709 87 104
Other.................................. (14) -- -- -- --
--------- --------- --------- -------- --------
Net cash used in investing
activities........................... (245,104) (104,072) (90,995) (25,897) (18,836)

F-6

ALLIANCE IMAGING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1998 1999 2000 2000 2001
--------- --------- --------- --------- --------
(UNAUDITED)

FINANCING ACTIVITIES:
Principal payments on long-term debt... $ (15,757) $ (20,686) $ (13,298) (3,677) (2,735)
Proceeds from long-term debt........... -- -- 2,438 -- --
Principal payments on term loan
facility............................. (500) (320,655) -- -- --
Proceeds from term loan facility....... 175,000 536,000 -- -- --
Principal payments on revolving loan
facility............................. (59,976) (68,835) (15,000) -- --
Proceeds from revolving loan
facility............................. 91,940 32,602 33,000 8,000 10,000
Principal payments on senior
subordinated notes................... -- (185,000) -- -- --
Consent payments and fees to retire
senior subordinated notes............ -- (16,131) -- -- --
Proceeds from senior subordinated
credit facility...................... -- 260,000 -- -- --
Refinance of short and long-term
debt................................. (843) -- -- -- --
Repurchase of Series F preferred
stock................................ -- (21,550) -- -- --
Repurchase of common stock and common
stock warrants....................... -- (302,553) -- -- --
Issuance of common stock............... -- 191,802 -- -- --
Payments of debt issuance costs........ (853) (17,905) (50) -- (50)
Proceeds from exercise of employee
stock options........................ 66 507 28
--------- --------- --------- -------- --------
Net cash provided by financing
activities........................... 189,077 67,596 7,118 4,323 7,215
--------- --------- --------- -------- --------

Net increase (decrease) in cash and
cash equivalents..................... (9,172) 1,721 8,167 (311) (3,337)
Cash and cash equivalents, beginning of
year................................. 12,255 3,083 4,804 4,804 (12,971
--------- --------- --------- -------- --------
Cash and cash equivalents, end of
year................................. $ 3,083 $ 4,804 $ 12,971 $ 4,493 $ 9,634
========= ========= ========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid.......................... $ 38,742 $ 46,653 $ 67,031 $ 11,060 $ 24,675
Income taxes paid...................... 748 101 229 47 (115)

SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Net book value of assets exchanged..... $ 454 $ 115 $ 3,319 $ -- $ 105
Capital lease obligations assumed for
the purchase of equipment............ -- -- -- -- 5,165
Preferred stock dividend accrued and
financing fee accretion.............. 2,186 2,081 -- -- --
Issuance of common stock to an officer
in exchange for a promissory note.... 300 -- --

F-7

ALLIANCE IMAGING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(DOLLARS IN THOUSANDS)

In 1998, Canton Holding Corp., a wholly owned subsidiary of SMT, purchased
all of the common stock of Mid American Imaging, Inc. and Dimensions Medical
Group, Inc. and related assets for cash consideration of approximately $10,418.
In connection with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired............................. $ 16,282
Cash paid for equity interests............................ (10,418)
--------
Liabilities assumed....................................... $ 5,864
========

In 1998, the Company purchased all of the equity interests of MTI for cash
consideration of approximately $103,893. In connection with the acquisition,
liabilities were assumed as follows:

Fair value of assets acquired............................ $ 125,720
Cash paid for equity interests........................... (103,893)
---------
Liabilities assumed...................................... $ 21,827
=========

In 1998, the Company purchased all of the common stock of MDI for cash
consideration of approximately $31,166. In connection with the acquisition,
liabilities were assumed as follows:

Fair value of assets acquired............................. $ 40,076
Cash paid for common stock................................ (31,166)
--------
Liabilities assumed....................................... $ 8,910
========

In 1998, SMT purchased all of the common stock of RIA Management Services,
Inc. for cash consideration of approximately $2,135. In connection with the
acquisition, liabilities were assumed as follows:

Fair value of assets acquired.............................. $ 3,366
Cash paid for common stock................................. (2,135)
-------
Liabilities assumed........................................ $ 1,231
=======

In 1998, the Company purchased all of the equity interests in two operating
subsidiaries of American Shared Hospital Services for cash consideration of
approximately $29,967. In connection with the acquisition, liabilities were
assumed as follows:

Fair value of assets acquired............................. $ 46,706
Cash paid for equity interests............................ (29,967)
--------
Liabilities assumed....................................... $ 16,739
========

In 2000, the Company purchased all of the common stock of Southeast Arizona,
Inc. ("SEA") as well as a mobile MRI system from an affiliate of SEA for cash
consideration of $4,050. In connection with the acquisition, no liabilities were
assumed.

SEE ACCOMPANYING NOTES.

F-8

ALLIANCE IMAGING, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(DOLLARS IN THOUSANDS)

ADDITIONAL NOTE
COMMON STOCK PAID-IN RECEIVABLE TOTAL
---------------------- CAPITAL FROM ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) OFFICER DEFICIT DEFICIT
----------- -------- ---------- ---------- ----------- -------------

Balance at December 31, 1997..... 56,985,490 $ 570 $ (25,483) $ -- $(22,991) $ (47,904)

Exercise of common stock
options...................... 185,000 2 64 -- -- 66
Employee stock option rollover
value........................ -- -- 100 -- -- 100
Series F preferred stock
dividend accrued and
accretion.................... -- -- -- -- (2,186) (2,186)
Net income..................... -- -- -- -- 6,597 6,597
----------- ----- --------- ----- -------- ---------
Balance at December 31, 1998..... 57,170,490 572 (25,319) -- (18,580) (43,327)

Exercise of common stock
options...................... 605,940 6 501 -- -- 507
Repurchase of common stock..... (54,057,420) (541) (302,012) -- -- (302,553)
Issuance of common stock....... 34,269,570 343 191,459 -- -- 191,802
Series F preferred stock
dividend accrued and
accretion.................... -- -- -- -- (2,081) (2,081)
Repurchase of Series F
preferred stock.............. -- -- (2,796) -- -- (2,796)
Net loss....................... -- -- -- -- (43,451) (43,451)
----------- ----- --------- ----- -------- ---------
Balance at December 31, 1999..... 37,988,580 380 (138,167) -- (64,112) (201,899)

Exercise of common stock
options...................... 26,180 -- 28 -- -- 28
Issuance of common stock to an
executive officer............ 53,600 1 299 (300) -- --
Non-cash stock-based
compensation................. -- -- 265 -- -- 265
Net loss....................... -- -- -- -- (2,203) (2,203)
----------- ----- --------- ----- -------- ---------
Balance at December 31, 2000..... 38,068,360 381 (137,575) (300) (66,315) (203,809)
Non-cash stock-based
compensation................. -- -- 129 -- -- 129
Net income..................... -- -- -- -- 1,237 1,237
----------- ----- --------- ----- -------- ---------
Balance at March 31, 2001
(unaudited).................... 38,068,360 $ 381 $(137,446) $(300) $(65,078) $(202,443)
=========== ===== ========= ===== ======== =========

SEE ACCOMPANYING NOTES.

F-9

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION

DESCRIPTION OF THE COMPANY--Alliance Imaging, Inc. and its subsidiaries (the
"Company") provide diagnostic imaging and therapeutic systems and related
technical support services, as well as management services, to hospitals and
other health care providers. Diagnostic imaging services are provided on both a
mobile, shared-user basis as well as on a full-time basis to single customers.
The Company operates entirely within the United States and is one of the largest
outsourced providers of magnetic resonance imaging ("MRI") services in the
country.

PRINCIPLES OF CONSOLIDATION AND BASIS OF FINANCIAL STATEMENT
PRESENTATION--The accompanying consolidated financial statements of the Company
include the assets, liabilities, revenues and expenses of all majority owned
subsidiaries over which the Company exercises control, and for which control is
other than temporary. Significant intercompany transactions have been
eliminated. Investments in non-consolidated affiliates (20-50 percent owned
companies and majority owned entities over which the Company does not possess
control) are accounted for under the equity method. The consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America.

COMMON STOCK SPLIT--On June 30, 2001, the Company's Board of Directors
authorized a ten-for-one stock split. As a result of the stock split, the
accompanying consolidated financial statements reflect an increase in the number
of outstanding shares of common stock and the transfer of the par value of these
additional shares from additional paid-in deficit. All share and per share
amounts have been restated to reflect the retroactive effect of the stock split
for all periods presented.

1999 RECAPITALIZATION MERGER--On November 2, 1999, after obtaining approval
of the stockholders, the Company completed a series of transactions contemplated
by an Agreement and Plan of Merger between Viewer Acquisition Corp. ("Viewer")
and the Company (the "1999 Recapitalization Merger") whereby the Company:
obtained proceeds from debt financing aggregating $726,000; issued 34,269,570
shares of its common stock in exchange for all of the outstanding stock of
Viewer and received net proceeds of $191,803; and converted all shares of its
common stock held by existing stockholders in excess of 2,844,120 shares that
were retained by an affiliate of Apollo Management, L.P., ("Apollo") into the
right to receive approximately $5.60 per share in cash. The Company used the
cash proceeds from these transactions to fund: the purchase of its common stock
from existing stockholders--$302,553; purchase of outstanding stock
options--$17,082; repayment of existing debt--$526,858; transaction costs
charged to expense--$25,423; deferred debt financing fees--$17,149; redemption
of series F preferred stock--$21,550; and an increase in the Company's cash
balance of $7,188.

As a result of these transactions, the Company experienced an approximate
92% ownership change. Viewer, which was formed and is wholly owned by certain
affiliates of Kohlberg Kravis Roberts & Co. ("KKR") obtained ownership of
approximately 92% of the Company's outstanding common stock, and the Company
refinanced substantially all of its long-term debt. The Company paid $12,140 to
KKR for professional services rendered in connection with the 1999
Recapitalization Merger. The 1999 Recapitalization Merger and related
transactions have been treated as a leveraged recapitalization in which the
issuance and retirement of debt have been accounted for as financing
transactions, the sale and purchases of the Company's stock have been accounted
for as capital transactions at amounts received from or paid to stockholders,
and no changes were made to the

F-10

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION
(CONTINUED)
carrying values of the Company's assets and liabilities that were not directly
impacted by the transactions.

COMMON CONTROL MERGER--On May 13, 1999, the Company acquired all of the
outstanding common stock of Three Rivers Holding Corp. ("Three Rivers"), the
parent corporation of SMT Health Services, Inc. ("SMT"), in a stock-for-stock
merger (the "SMT Merger"). The Company exchanged 16,444,380 shares of common
stock for all the outstanding common shares of Three Rivers. At the time of the
SMT Merger, Three Rivers was wholly owned by affiliates of Apollo, which held
approximately 82.6% of the Company's outstanding common stock. Accordingly, the
SMT Merger has been accounted for as a reorganization of entities under common
control in a manner similar to a pooling of interests. As such, the accompanying
financial statements and footnotes have been restated to include the assets,
liabilities and operations of SMT from the date when both entities were under
Apollo's control, which was December 18, 1997.

In connection with the SMT Merger in 1999, the Company amended and restated
its previous credit agreement to add a new $70,000 tranche D term loan facility
which was used to fund: repayment of SMT's existing indebtedness--$62,044;
payment on the Company's previous revolving loan facility--$6,000; transaction
costs charged to expense--$851; deferred financing costs--$650; and an increase
in the Company's cash balance of $455. The Company recorded an extraordinary
loss of $2,240 (net of taxes of $1,515) associated with the write-off of
unamortized deferred financing costs of $1,753 on SMT's existing indebtedness
and $2,002 on Alliance's tranche C term loan facility under its previous credit
agreement.

Also in connection with the SMT Merger, the Company established a severance
accrual of $2,164, an office lease termination accrual of $230, and a fixed
asset disposal reserve of $241. All of the preceding amounts were charged to
transaction related costs. Of these amounts, $1,641 and zero were included in
other accrued liabilities as of December 31, 1999 and 2000, respectively.

TERMINATION AND RELATED COSTS--Termination and related costs for the year
ended December 31, 2000 represent $4,232 associated with termination costs and
the cash-out of stock options for an executive officer who resigned due to
health-related issues and $341 associated with the recruitment of his
replacement.

RECAPITALIZATION, MERGER INTEGRATION AND REGULATORY COSTS--Recapitalization,
merger integration and regulatory costs for the year ended December 31, 2000
represent $704 of professional fees paid in connection with the 1999
Recapitalization Merger, $570 of compensatory costs related to stock option
buy-backs and severance payments resulting from change in control provisions
triggered by the 1999 Recapitalization Merger, $154 related to additional
severance for employees of SMT, $123 of integration costs to migrate acquired
entities to a common systems platform for direct patient billing, and $850 for
assessments and $2,122 for costs and related professional fees to settle
regulatory matters associated with the direct patient billing process of one of
the Company's acquired entities.

Recapitalization, merger integration and regulatory costs for the year ended
December 31, 1999, represent $19,640 in professional fees paid in connection
with the 1999 Recapitalization Merger, $17,082 related to the purchase of
outstanding stock options in connection with the 1999

F-11

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION
(CONTINUED)
Recapitalization Merger, $6,003 in bonus payments paid in connection with the
1999 Recapitalization Merger, $1,088 in provisions to conform the accounting
policies with respect to accounts receivable reserves, as well as employee
vacation and sick pay reserves in connection with the SMT Merger, $2,164 in
employee severance costs in connection with the SMT Merger, $3,075 in
professional fees and other merger integration costs associated with the SMT
Merger and other acquired entities, and $3,529 for assessments to settle
regulatory matters associated with the direct patient billing process of one of
the Company's acquired entities.

Recapitalization, merger integration and regulatory costs for the year ended
December 31, 1998 represents $1,846 in special non-recurring bonuses paid in
connection with the MTI acquisition, $722 in professional fees associated with
accounting and billing systems conversions of acquired companies, and $250 in a
provision for doubtful accounts conforming accounting adjustment made in
connection with the American Shared acquisition.

UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS--The unaudited condensed
financial statements as of March 31, 2001 and for the three months ended
March 31, 2000 and 2001 have been prepared in accordance with generally accepted
accounting principles and rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended March 31, 2001 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001. Certain reclassifications
have been made in the 2000 financial statements to conform to the 2001
presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS--The Company considers short-term investments with
original maturities of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE--The Company provides shared and single-user diagnostic
imaging equipment and technical support services to the healthcare industry and
directly to patients on an outpatient basis. Substantially all of the Company's
accounts receivable are due from hospitals, other healthcare providers and
health insurance providers located throughout the United States. Services are
generally provided pursuant to long-term contracts with hospitals and other
healthcare providers or directly to patients, and generally collateral is not
required. Receivables generally are collected within industry norms for
third-party payors. Estimated credit losses are provided for in the consolidated
financial statements and losses experienced have been within management's
expectations.

CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to a concentration of credit risk principally consists of
cash, cash equivalents and trade receivables. The Company invests available cash
in money market securities of high-credit-quality financial institutions. At
December 31, 1999 and 2000, the Company's accounts receivable were primarily
from clients in the healthcare industry. To reduce credit risk, the Company
performs periodic credit evaluations of its

F-12

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
clients, but does not generally require advance payments or collateral. Credit
losses to clients in the health care industry have not been material.

EQUIPMENT--Equipment is stated at cost and is generally depreciated using
the straight-line method over an initial estimated life of three to eight years
to an estimated residual value, generally between five and twenty percent of
original cost. If the Company continues to operate the equipment beyond its
initial estimated life, the residual value is then depreciated to a nominal
salvage value over three years.

Routine maintenance and repairs are charged to expense as incurred. Major
repairs and purchased software and hardware upgrades, which extend the life of
or add value to the equipment, are capitalized and depreciated over the
remaining useful life.

With the exception of a small amount of office furniture, office equipment
and leasehold improvements, substantially all of the property owned by the
Company relates to diagnostic imaging equipment, tractors and trailers used in
the business.

GOODWILL, LONG-LIVED ASSETS, AND OTHER INTANGIBLES--The Company amortizes
goodwill and other intangibles using the straight-line method over a period of
four to twenty-five years. For acquired entities, the amortization period
selected is primarily based upon the estimated life of the customer contracts,
including expected renewals, and other related assets acquired, not to exceed
twenty years. The Company evaluates the potential impairment of goodwill and
other intangibles on an ongoing basis. Additionally, the Company reviews its
long-lived assets and related intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The recoverability test is performed at the lowest level at
which net cash flows can be directly attributable to long-lived assets and is
performed on an undiscounted basis. For any assets identified as impaired, the
Company measures the impairment as the amount by which the carrying value of the
asset exceeds the fair value of the asset. In estimating the fair value of the
asset, management utilizes a valuation technique based on the present value of
expected future cash flows.

REVENUE RECOGNITION--The majority of the Company's revenues are derived
directly from health care providers. To a lesser extent, revenues are generated
from direct billings to patients or their medical payors which are recorded net
of contractual discounts and other arrangements for providing services at less
than established patient billing rates. Revenues from direct patient billing
amounted to approximately 11%, 12% and 10% of revenues in the years ended
December 31, 1998, 1999, and 2000, respectively. No single customer accounted
for more than 3% or more of consolidated revenues in each of the three years in
the period ended December 31, 2000. All revenues are recognized at the time the
service is performed.

INCOME TAXES--The provision for income taxes is determined in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred tax assets and liabilities are determined based on the
temporary differences between the financial reporting and tax bases of assets
and liabilities, applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse. Future tax benefits are
recognized only to the extent that the realization of such benefits is
considered to be more likely than not.

F-13

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS--The carrying amount reported in the
balance sheet for cash and cash equivalents approximates fair value based on the
short-term maturity of these instruments. The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate fair
value based on the short-term nature of these accounts. The carrying amount
reported in the balance sheet for long-term debt approximates fair value as
these borrowings have variable rates that reflect currently available terms and
conditions for similar debt.

USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

RECLASSIFICATIONS--Certain reclassifications have been made in the 1998 and
1999 financial statements to conform to the 2000 presentation.

COMPREHENSIVE INCOME--Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For the
years ended December 31, 1998, 1999 and 2000, the Company did not have any
components of other comprehensive income as defined in SFAS 130. Therefore,
statements of comprehensive income have not been presented.

SEGMENT REPORTING--Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). Management reviews the
operating results of the Company's nine regional offices for the purpose of
making operating decisions and assessing performance. Based on the aggregation
criteria in SFAS 131, the Company has aggregated the results of its nine
regional offices into one reportable segment.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--Effective January 1, 2001,
the Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative and Hedging Activities", as amended ("SFAS 133").
This statement establishes a new model for accounting for derivatives and
hedging activities. Under SFAS 133, all derivatives must be recognized as assets
and liabilities and measured at fair value. The Company currently does not have
any derivative instruments which require fair value measurement under SFAS 133
and, accordingly, the effect of the adoption will not have a material impact on
its results of operations or financial position.

RECENT ACCOUNTING PRONOUNCEMENTS--In December 1999, the staff of the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. The adoption of SAB 101 had no
impact on the Company's results of operations or financial position.

In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation". FIN 44
clarifies the application of Accounting Principles

F-14

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Board ("APB") Opinion No. 25 regarding (a) the definition of employee for
purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a stock option plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occurred after either
December 25, 1998, or January 12, 2000. The Company believes that the adoption
of FIN 44 will not have a material effect on its consolidated results of
operations or financial position.

3. ACQUISITIONS

On November 1, 2000, the Company acquired all of the outstanding common
stock of Southeast Arizona, Inc. ("SEA") as well as a mobile MRI system from an
affiliate of SEA. The acquisition was accounted for as a purchase and
accordingly, the results of operations of SEA have been included in the
Company's consolidated financial statements from the date of acquisition. The
purchase price consisted of $4,050 in cash plus direct acquisition costs of $13.
The acquisition was financed using the Company's available cash. The goodwill
recorded as a result of this acquisition was $2,563, which is being amortized
using the straight-line method over 20 years. The allocation of the SEA purchase
price is tentative pending the completion of fair value determinations for the
net assets acquired. The allocation may change with the completion of these
determinations.

On January 2, 1998, Canton Holding Corp., a wholly owned subsidiary of SMT,
acquired all of the outstanding common stock of Mid American Imaging, Inc.
("MAI") and Dimensions Medical Group, Inc. ("DMG"). The acquisition was
accounted for as a purchase and accordingly, the results of operations of MAI
and DMG have been included in the Company's consolidated financial statements
from the date of acquisition. The purchase price consisted of approximately
$10,400 in cash plus the assumption of approximately $5,100 in financing
arrangements. The acquisition was primarily funded by an $11,500 borrowing on
SMT's revolving loan facility that was also used to refinance $843 of existing
MAI and DMG indebtedness. The goodwill recorded as a result of this acquisition
was $10,620, which is being amortized using the straight-line method over
20 years.

On March 12, 1998, the Company acquired Mobile Technology Inc. ("MTI"). The
purchase price consisted of $58,300 for all of the equity interests in MTI, plus
direct acquisition costs of approximately $2,000. In connection with the
acquisition, the Company also refinanced $37,400 of MTI's outstanding debt and
paid MTI direct transaction costs of $3,500. The transaction has been accounted
for as a purchase and, accordingly, the results of operations of MTI have been
included in the Company's consolidated financial statements from the date of
acquisition. The goodwill recorded as a result of this acquisition was $29,974,
which is being amortized on a straight-line basis over 20 years. Additionally,
the Company assigned $67,200 of the purchase price to customer contracts and
$2,870 of the purchase price to assembled work force. The amounts are being
amortized on a straight-line basis over 20 and four years respectively. The
allocation of the intangible assets acquired was based on an independent
valuation study.

F-15

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. ACQUISITIONS (CONTINUED)
On May 19, 1998, the Company acquired Medical Diagnostics, Inc. ("MDI"), a
subsidiary of U. S. Diagnostic, Inc. The purchase price consisted of
approximately $31,000 plus the assumption of approximately $7,400 in financing
arrangements. The transaction has been accounted for as a purchase and,
accordingly, the results of operations of MDI have been included in the
Company's consolidated financial statements from the date of acquisition. The
goodwill recorded as a result of this acquisition was $17,776, which is being
amortized on a straight-line basis over 20 years. Additionally, the Company
assigned $8,300 of purchase price to customer contracts and $350 of purchase
price to assembled work force. The amounts are being amortized on a
straight-line basis over 20 and four years respectively. The allocation of the
intangibles assets acquired was based on an independent valuation study.

On August 17, 1998, SMT acquired all of the outstanding common stock of RIA
Management Services, Inc. ("RIA"). The acquisition was accounted for as a
purchase and, accordingly, the results of operations of RIA have been included
in the Company's consolidated financial statements from the date of acquisition.
The purchase price consisted of approximately $2,100 in cash plus the assumption
of approximately $1,100 in financing arrangements. The acquisition was primarily
funded from operating cash on hand and a $1,000 borrowing on SMT's revolving
loan facility. The goodwill recorded as a result of this acquisition was $1,920,
which is being amortized using the straight-line method over 20 years.

On November 13, 1998, two wholly owned subsidiaries of the Company acquired
all of the outstanding common stock of CuraCare, Inc. and all of the partnership
interests in American Shared-CuraCare (collectively, "American Shared"). The
purchase price consisted of $13,377 plus the assumption of $12,241 in financing
arrangements. In connection with the acquisition, the Company also refinanced
$13,130 of American Shared's outstanding debt. The transaction has been
accounted for as a purchase and, accordingly, the results of operations of
American Shared have been included in the Company's consolidated financial
statements from the date of acquisition. The goodwill recorded as a result of
this acquisition was $26,940 which is being amortized on a straight-line basis
over 20 years. Additionally, the Company assigned $3,300 of the purchase price
to customer contracts and $690 of the purchase price to assembled work force
which is being amortized on a straight-line basis over ten and four years
respectively. The allocation of the intangible assets acquired was based on an
independent valuation study.

The following unaudited pro forma information presents combined results of
operations as if the SEA acquisition had occurred at the beginning of 1999 and
2000. The unaudited pro forma information is not necessarily indicative of the
results of operations of the combined company had the acquisitions

F-16

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

3. ACQUISITIONS (CONTINUED)
actually occurred at the beginning of the periods presented, nor is it
necessarily indicative of future results.

YEAR ENDED
DECEMBER 31,
-------------------
1999 2000
-------- --------

Revenues.................................................... $320,456 $347,859
Loss before extraordinary loss.............................. (25,331) (1,715)
Net loss.................................................... (43,097) (1,715)

Earnings (loss) per share:
Basic..................................................... $ (0.88) $ (0.05)
Diluted................................................... $ (0.88) $ (0.05)

4. OTHER ACCRUED LIABILITIES

Other accrued liabilities consisted of the following:

DECEMBER 31, MARCH 31,
------------------- -----------
1999 2000 2001
-------- -------- -----------
(UNAUDITED)

Accrued systems rental and maintenance costs................ $ 4,245 $ 4,092 $ 3,602
Accrued site rental fees.................................... 1,146 1,015 1,095
Accrued taxes payable....................................... 5,773 7,978 9,527
Accrued regulatory costs.................................... 3,500 4,350 2,052
Accrued severance and related costs......................... 1,641 1,116 290
Other accrued expenses...................................... 6,259 4,637 3,141
------- ------- -------
Total....................................................... $22,564 $23,188 $19,707
======= ======= =======

F-17

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5. LONG-TERM DEBT AND SENIOR SUBORDINATED CREDIT FACILITY

Long-term debt consisted of the following:

DECEMBER 31, MARCH 31,
------------------- -----------
1999 2000 2001
-------- -------- -----------
(UNAUDITED)

Term loan facility under the 1999 Credit Agreement, due in
annual installments commencing 2001 through 2008, interest
payable as defined........................................ $466,000 $466,000 $466,000
Senior subordinated credit facility......................... 260,000 260,000 260,000
Revolving loan facility under the 1999 Credit Agreement..... -- 18,000 28,000
Obligations to lending institutions, secured by equipment,
due in monthly installments through February 2005 with
weighted average interest rates of 9.29% and 9.33% at
December 31, 1999 and 2000, respectively.................. 25,849 14,989 20,124
-------- -------- --------
751,849 758,989 774,124
Less current portion........................................ 12,974 15,863 17,015
-------- -------- --------
$738,875 $743,126 $757,109
======== ======== ========

On March 12, 1998, the Company increased its term loan facility under the
1997 Credit Agreement by $70,000 by increasing its existing tranche A term loan
facility by $20,000 and establishing a new $50,000 tranche B term loan facility.
In connection with this transaction, the Company recorded an extraordinary loss
of $800, net of income tax benefit, on early extinguishment of debt. On
September 24, 1998, the Company completed a $90,000 expansion of its 1997 Credit
Agreement. The transaction added a new $85,000 tranche C term loan facility and
increased the revolving loan facility to $80,000. In connection with this
transaction, the Company recorded an extraordinary loss of $1,471, net of income
tax benefit, on early extinguishment of debt. On May 13, 1999, in connection
with the SMT Merger, the Company amended and restated its 1997 Credit Agreement
to add a new $70,000 tranche D term loan facility. In connection with this
transaction, the Company recorded an extraordinary loss of $2,240, net of income
tax benefit, on early extinguishment of debt.

On November 2, 1999, in connection with the 1999 Recapitalization Merger,
the Company entered into a new $616,000 Credit Agreement (the "1999 Credit
Agreement") consisting of a $131,000 Tranche A Term Loan Facility, a $150,000
Tranche B Term Loan Facility, a $185,000 Tranche C Term Loan Facility, and a
$150,000 Revolving Loan Facility. The 1999 Credit Agreement requires loans to be
prepaid with 100% of the net proceeds of unreinvested asset sales and 50% of
annual consolidated excess cash flow. In addition, the 1999 Credit Agreement
contains restrictive covenants which, among other things, limit the incurrence
of additional indebtedness, dividends, transactions with affiliates, asset
sales, acquisitions, mergers and consolidations, liens and encumbrances, capital
expenditures and prepayments of other indebtedness. As of December 31, 2000, the
Company is in compliance with all covenants under the 1999 Credit Agreement.
Voluntary prepayments are permitted in whole or in part without premium or
penalty. Interest under the term loan facility and revolving loan facility is
variable based on the Company's leverage ratio and changes in specified
published rates and the bank's prime

F-18

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5. LONG-TERM DEBT AND SENIOR SUBORDINATED CREDIT FACILITY (CONTINUED)
lending rate. The interest rates on the Tranche A, Tranche B, and Tranche C Term
Loan Facilities at December 31, 2000 were 9.25%, 9.94%, and 10.19%,
respectively. The weighted average interest rate on the Revolving Loan Facility
at December 31, 2000 was 9.15%. The Company pays a commitment fee equal to 1/2
of 1% per annum on the undrawn portion available under the Revolving Loan
Facility subject to decreases in certain circumstances. The Company also pays
variable per annum fees in respect of outstanding letters of credit. The 1999
Credit Agreement is collateralized by the Company's equity interests in its
majority owned subsidiaries, partnerships and limited liability companies and
its unencumbered assets, which include accounts receivable, inventory,
equipment, and intellectual property.

In connection with the 1999 Recapitalization Merger, the Company also
entered into a $260,000 Senior Subordinated Credit Facility with KKR. On May 2,
2001, any outstanding balance on the Senior Subordinated Credit Facility will
convert into senior subordinated term notes ("KKR Term Notes") maturing on
November 2, 2009. Voluntary prepayments are permitted in whole or in part
without premium or penalty. Interest under the Senior Subordinated Credit
Facility is at the greater of the three, six or twelve-month U.S. treasury
obligations plus 4% (payable quarterly, reset at twelve months). Interest under
the KKR Term Notes is at a variable rate, which is set annually, equal to the
U.S. treasury obligations maturing on November 2, 2009 plus 9% payable
semi-annually (not to exceed 17%). The interest rate on the Senior Subordinated
Credit Facility was 10.38% at December 31, 2000.

On November 2, 1999, the Company used a portion of the proceeds from the
1999 Credit Agreement and the Senior Subordinated Credit Facility to pay off its
term loan facility and revolving loan facility under its previous credit
agreement ("1997 Credit Agreement"), its senior subordinated notes, and its
subordinated term securities. In connection with this transaction, the Company
recorded an extraordinary loss of $15,526, net of income tax benefit, which
primarily consisted of consent payments and repurchase premiums on the senior
subordinated notes and subordinated term securities as well as writing off
existing unamortized deferred financing costs.

The maturities of long-term debt as of December 31, 2000 are as follows:

TERM LOAN
--------------------------------- KKR FACILITY/ EQUIPMENT
TRANCHE A TRANCHE B TRANCHE C TERM NOTE REVOLVER OBLIGATIONS TOTAL
--------- --------- --------- ------------- -------- ----------- --------

Year ending December 31:
2001................. $ 5,000 $ 1,500 $ 1,850 $ -- $ -- $ 7,513 $ 15,863
2002................. 10,000 1,500 1,850 -- -- 4,667 18,017
2003................. 23,000 1,500 1,850 -- -- 2,069 28,419
2004................. 25,000 1,500 1,850 -- -- 444 28,794
2005................. 32,000 1,500 1,850 -- -- 296 35,646
Thereafter........... 36,000 142,500 175,750 260,000 18,000 -- 632,250
-------- -------- -------- -------- -------- -------- --------
$131,000 $150,000 $185,000 $260,000 $ 18,000 $ 14,989 $758,989
======== ======== ======== ======== ======== ======== ========

Of the Company's total indebtedness at December 31, 2000, $747,633 is an
obligation of the Company and $11,356 is an obligation of the Company's
consolidated subsidiaries.

F-19

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

6. PREFERRED STOCK

On December 18, 1997, the Company authorized 300,000 shares of a new
Series F redeemable preferred stock. The stock was recorded at $14,400
(liquidation value of $15,000 less a financing fee of $600). The financing fee
was being accreted on a straight-line basis over the ten-year term of the stock.
The holders of the Series F redeemable preferred stock were entitled to receive
cumulative dividends at the rate of 13.5% per annum of the stated liquidation
value. Unpaid dividends accumulated and were payable quarterly by the Company in
kind for the first five years after issuance, and thereafter in cash. In
connection with the 1999 Recapitalization Merger (SEE NOTE 1), the Company
repurchased all outstanding shares of Series F redeemable preferred stock at a
premium of $2,796 which was recorded to additional paid-in capital in
November 1999. The Company's amended and restated certificate of incorporation
no longer provides for the issuance of preferred stock.

7. STOCKHOLDERS' DEFICIT

EARNINGS (LOSS) PER COMMON SHARE: The following table sets forth the
computation of basic and diluted earnings (loss) per share (amounts in
thousands, except per share amounts):

THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
(UNAUDITED)

Numerator:
Income (loss) before extraordinary loss.......... $ 8,868 $(25,685) $(2,203) $1,424 $1,237
Preferred stock dividends and financing fee
accretion...................................... (2,186) (2,081) -- -- --
Excess of consideration paid over carrying amount
of preferred stock repurchased................. -- (2,796) -- -- --
------- -------- ------- ------ ------
Numerator for basic and diluted earnings per
share--income (loss) available to common
stockholders before extraordinary loss......... $ 6,682 $(30,562) $(2,203) $1,424 $1,237
======= ======== ======= ====== ======

Denominator:
Denominator for basic earnings per
share--weighted-average shares................. 57,110 54,210 38,000 37,990 38,070
Effect of dilutive securities:
Employee stock options........................... 2,100 -- -- 1,490 2,330
------- -------- ------- ------ ------
Denominator for diluted earnings per
share--adjusted weighted-average shares........ 59,210 54,210 38,000 39,480 40,400
======= ======== ======= ====== ======

Basic earnings (loss) per share before
extraordinary loss............................. $ 0.12 $ (0.56) $ (0.06) $ 0.04 $ 0.03
======= ======== ======= ====== ======
Diluted earnings (loss) per share before
extraordinary loss............................. $ 0.11 $ (0.56) $ (0.06) $ 0.04 $ 0.03
======= ======== ======= ====== ======

F-20

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. STOCKHOLDERS' DEFICIT (CONTINUED)
The diluted share base for the years ended December 31, 1999 and 2000
excludes incremental shares of 2,670 and 2,720, respectively, related to
employee stock options. These shares are excluded due to their antidilutive
effect as a result of the Company's net loss for the years ended December 31,
1999 and 2000.

STOCK OPTIONS AND AWARDS--The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") requires use of option
valuation models that were not developed for use in valuing employee stock
options.

The Company's 1991 Stock Option Plan, which was terminated effective
November 2, 1999 in connection with the 1999 Recapitalization Merger, provided
that up to 20,000,000 shares may be granted to management and key employees.
Options were granted at their fair market value at the date of grant. All
options granted have 10-year terms and become fully exercisable at the end of 3
to 4 years of continued employment. No options granted pursuant to this 1991
Stock Option Plan were outstanding as of December 31, 1999 and 2000.

In December 1997, the Company adopted a new employee stock option plan
pursuant to which options with respect to a total of 4,685,450 shares of the
Company's common stock will be available for grant. Options are granted at their
fair value at the date of grant. All options have 10-year terms. Fifty percent
of the options vest in equal increments over four years and fifty percent vest
after seven and one-half years (subject to acceleration if certain per-share
equity targets are achieved).

In connection with the SMT Merger, outstanding employee stock options under
the 1997 Three Rivers Stock Option Plan were converted into options to acquire
shares of the Company's common stock. The Three Rivers stock option plan allows
for options with respect to a total of 2,825,200 shares of the Company's common
stock to be available for grant. Options are granted at their fair value at the
date of grant. All options have 10-year terms. Fifty percent of the options vest
in equal increments over four years and fifty percent vest after seven and
one-half years (subject to acceleration if certain per-share equity targets are
achieved).

In 1999, the Company adopted a new non-employee directors' stock option plan
pursuant to which options with respect to a total of 500,000 shares of the
Company's common stock will be available for grant. Options are granted at their
fair value at the date of grant. All options have 10-year terms. Ten percent of
the options vest upon grant, eighty percent of the options vest over four years
and the remaining ten percent vest in the fifth year. This plan was terminated
effective November 2, 1999 in connection with the 1999 Recapitalization Merger.
No options granted pursuant to this 1999 non-employee directors' stock option
plan were outstanding as of December 31, 1999 and 2000.

In connection with the 1999 Recapitalization Merger (SEE NOTE 1), the
Company adopted a new employee stock option plan pursuant to which options with
respect to a total of 6,325,000 shares of the Company's common stock will be
available for grant. Options are granted at their fair value at the date of
grant, except as noted below. All options have 10-year terms. Fifty percent of
the options vest in

F-21

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. STOCKHOLDERS' DEFICIT (CONTINUED)
equal increments over five years and fifty percent vest after eight years
(subject to acceleration if certain per-share equity targets are achieved). In
November 2000, the Company granted 865,000 options to certain employees at
exercise prices below the fair value of the Company's common stock. The exercise
price of these options and the fair value of the Company's common stock on the
grant date was $5.60 and $9.52 per share, respectively. The compensation expense
of $3,395 is being recognized on a straight-line basis over the vesting period
of the options. For the year ended December 31, 2000, the Company recorded
non-cash compensation of $55 with an offset to additional paid-in deficit.

The weighted average remaining contractual life of options outstanding as of
December 31, 1999 and 2000 is 9.12 and 8.45 years, respectively. The following
table summarizes the Company's stock option activity:

WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------

Outstanding at December 31, 1997.................. 5,398,100 $1.21
Granted......................................... 2,557,240 1.43
Exercised....................................... (185,000) 0.36
Canceled........................................ (30,000) 1.65
----------
Outstanding at December 31, 1998.................. 7,740,340 1.30
Granted......................................... 5,343,000 5.39
Exercised....................................... (605,940) 0.84
Redeemed for cash............................... (4,031,660) 1.36
Canceled........................................ (142,030) 2.21
----------
Outstanding at December 31, 1999.................. 8,303,710 3.92
Granted......................................... 865,000 5.60
Exercised....................................... (26,180) 1.10
Redeemed for cash............................... (955,440) 1.15
Canceled........................................ (114,000) 5.60
----------
Outstanding at December 31, 2000.................. 8,073,090 $4.42
==========

Of the 8,073,090 options outstanding at December 31, 2000, 1,623,770 of
these options had an exercise price of $1.10; 129,500 had an exercise price of
$1.65; 369,750 had an exercise price of $2.04; 90,000 had an exercise price of
$2.20; 92,070 had an exercise price of $4.59; and 5,768,000 had an exercise
price of $5.60.

The number of options exercisable at December 31, 1998, 1999 and 2000 were
2,939,500, 3,061,710 and 2,682,890, respectively, at weighted average exercise
prices of $0.99, $1.39 and $2.24, respectively.

SFAS 123 requires presentation of pro forma information regarding net income
and earnings per share determined as if the Company has accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method of that Statement. The fair value for these options was estimated
as of the date of grant using the Black-Scholes option pricing model with the
following

F-22

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. STOCKHOLDERS' DEFICIT (CONTINUED)
weighted average assumptions for 1998, 1999, and 2000, respectively: risk-free
interest rates of 5.23%, 6.13%, and 5.70%; no dividend yield; volatility factors
of the expected market price of the Company's common stock of .83, zero, and
zero; and a weighted average expected life of the options of 5.75, 6.44, and
6.50 years. Volatility of zero for 1999 and 2000 was used as the Company ceased
to be a public entity as a result of the 1999 Recapitalization Merger. The
weighted average fair value of options granted during 1998, 1999, and 2000 is
$1.03, $1.76, and $5.64, respectively.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' expected vesting period. The
Company's pro forma information for the years ended December 31 are as follows:

1998 1999 2000
-------- -------- --------

Pro forma net income (loss)................................. $6,114 $(29,199) $(3,083)
Pro forma earnings (loss) per share......................... 0.07 (0.63) (0.08)
Pro forma earnings (loss) per share--assuming dilution...... 0.07 (0.63) (0.08)

DIRECTORS' DEFERRED COMPENSATION PLAN--Effective January 1, 2000, the
Company established a Directors' Deferred Compensation Plan (the "Director
Plan") for all non-employee directors. Each of the four non-employee directors
has elected to participate in the Director Plan and have their annual fee of $25
deferred into a stock account and converted quarterly into Phantom Shares. Upon
retirement, separation from the Board of Directors, or the occurrence of a
change of control, each director has the option of being paid cash or issued
common stock for their Phantom Shares. Upon issuance of the Phantom Shares, the
Company recorded non-cash compensation of $68 with an offset to other accrued
liabilities for the difference between the fair market value and the issuance
price of the Phantom Shares. At December 31, 2000, $168 was included in other
accrued liabilities relating to the Director Plan.

8. COMMITMENTS AND CONTINGENCIES

The Company has contracts with its equipment vendors for comprehensive
maintenance and cryogen coverage for its MRI and CT systems. The contracts are
between one and six years from inception and extend through the year 2004, but
may be canceled by the Company under certain circumstances. Contract payments
are approximately $28,186 per year. At December 31, 2000, the Company had
binding equipment purchase commitments totaling $18,036.

F-23

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company leases office and warehouse space and certain equipment under
non-cancelable operating leases. The office and warehouse leases generally call
for minimum monthly payments plus maintenance and inflationary increases. The
future minimum payments under such leases are as follows:

Year ending December 31:
2001...................................................... $ 6,464
2002...................................................... 4,439
2003...................................................... 3,593
2004...................................................... 2,275
2005...................................................... 780
Thereafter................................................ --
-------
$17,551
=======

The Company's total rental expense, which includes short-term equipment
rentals, for the years ended December 31, 1998, 1999 and 2000 was $15,530,
$16,075 and $14,723, respectively.

In late 1999, the Company identified potential deficiencies in certain
billing processes at one of its retail billing locations. In order to quantify
the effect of these deficiencies, the Company conducted a review of the billing
process for the preceding five-year period. As a result of this issue, the
Company has accrued $4,350 for probable settlement of these issues, which is
included in other accrued liabilities at December 31, 2000. While actual results
could vary significantly from such settlement, management believes that the
resolution of any billing processes will not have a material adverse effect on
the Company's results of operations or consolidated financial position.

The Company from time to time is involved in routine litigation and
regulatory matters incidental to the conduct of its business. The Company
believes that resolution of such matters will not have a material adverse effect
on its results of operations or consolidated financial position.

9. 401(k) SAVINGS PLAN

The Company established a 401(k) Savings Plan (the "Plan") in January 1990.
Effective August 1, 1998, the Plan was amended and restated in its entirety.
Currently, all employees who are over 21 years of age are eligible to
participate after attaining three months of service. Employees may contribute
between 1% and 15% of their annual compensation. The Company matches 50 cents
for every dollar of employee contributions up to 5% of their annual
compensation, subject to the limitations imposed by the Internal Revenue Code.
The Company may also make discretionary contributions depending on
profitability. No discretionary contributions were made in 1998, 1999, or 2000.
The Company incurred and charged to expense $608, $996 and $1,179 during 1998,
1999 and 2000, respectively, related to the Plan.

F-24

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. INCOME TAXES

The provision for income taxes shown in the consolidated statements of
operations consists of the following:

YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------

Current:
Federal........................................... $ (234) $ (963) $ (100)
State............................................. 453 1,312 99
------ ------ ------
219 349 (1)
Deferred:
Federal........................................... 6,550 1,985 1,125
State............................................. 1,967 963 845
------ ------ ------
8,517 2,948 1,970
------ ------ ------
$8,736 $3,297 $1,969
====== ====== ======

Significant components of the Company's net deferred tax assets
(liabilities) at December 31 are as follows:

1999 2000
-------- --------

Basis differences in fixed assets....................... $(46,658) $(61,555)
Basis differences in intangible assets.................. (29,394) (26,172)
Net operating losses.................................... 54,657 64,041
Accounts receivable..................................... 4,347 5,980
State taxes............................................. 3,041 2,899
Accruals not currently deductible for tax purposes...... 4,149 4,715
Basis differences associated with acquired
investments........................................... (122) (1,353)
Other................................................... 1,226 721
-------- --------
Total deferred taxes.................................. (8,754) (10,724)
Valuation allowance..................................... (18,113) (18,113)
-------- --------
Net deferred taxes.................................... $(26,867) $(28,837)
======== ========
Current deferred tax asset.............................. $ 8,369 $ 3,085
Noncurrent deferred tax liability....................... (35,236) (31,922)
-------- --------
Net deferred taxes.................................... $(26,867) $(28,837)
======== ========

F-25

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. INCOME TAXES (CONTINUED)
A reconciliation of the expected total provision for income taxes, computed
using the federal statutory rate on income before extraordinary loss, is as
follows:

YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------

U.S Federal statutory tax expense (benefit)........ $6,084 $(7,836) $ (82)
State income taxes, net of federal benefit......... 1,358 1,478 614
Amortization of non-deductible goodwill............ 1,713 975 975
Nondeductible recapitalization merger expenses..... -- 8,609 246
Other.............................................. (419) 71 216
------ ------- ------
$8,736 $ 3,297 $1,969
====== ======= ======

As of December 31, 2000, the Company had net operating loss carryforwards of
$167,666 and $88,093 for federal and state income tax purposes, respectively.
The utilization of the majority of these net operating loss carryforwards is
subject to limitation under Section 382 of the Internal Revenue Code. These loss
carryforwards will expire at various dates from 2003 through 2020. As of
December 31, 2000, the Company also had alternative minimum tax credit
carryforwards of $818 with no expiration date.

The Company maintains a valuation allowance to reduce certain deferred tax
assets to amounts that are in management's estimation more likely than not to be
realized. This allowance primarily relates to the deferred tax assets
established for certain state net operating loss carryforwards as well as net
operating loss carryforwards from the acquisition of MTI which are subject to
limitation. Any reductions in the valuation allowance resulting from realization
of the MTI net operating loss carryforwards will result in a reduction of
goodwill.

11. RELATED-PARTY TRANSACTIONS

The Company paid KKR an annual management fee of $122 in 1999 and $650 in
2000, and will continue to receive financial advisory services from KKR on an
ongoing basis. In addition, the Company paid to KKR a fee of $12,140 in
connection with arranging the transactions associated with the 1999
Recapitalization Merger, including the financings thereof (SEE NOTE 1). In
connection with the 1999 Recapitalization Merger, the Company borrowed $260,000
under a Senior Subordinated Credit Facility with KKR (SEE NOTE 5).

The Company paid Apollo an annual management fee of $750 in 1998 and $628 in
1999. Additionally, in 1998, the Company paid to Apollo fees of $1,000 and $460
as consideration for services rendered in structuring and negotiating the
acquisition of MTI and American Shared, respectively, and also reimbursed Apollo
for expenses of approximately $275 associated with these acquisitions.

Revenue from management agreements with equity investees was $6,508, $6,308,
and $7,295, during 1998, 1999, and 2000, respectively.

On November 27, 2000, the Company issued 53,600 shares of common stock to an
officer of the Company in exchange for a $300 secured promissory note, bearing
interest at 6%. Upon issuance of

F-26

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. RELATED-PARTY TRANSACTIONS (CONTINUED)
these shares, the Company recorded non-cash compensation of $210 with an offset
to additional paid-in deficit for the difference between the fair market value
and the issuance price of the shares.

On September 1, 1999, the Company acquired Acclaim Medical LLC, a California
limited liability company ("Acclaim") from four individuals (the "Sellers") who
each held a 25% equity interest in Acclaim. Two of the Sellers were members of
the immediate family of two executive officers of the Company at the time of the
transaction. The purchase price consisted of $500 in cash ($125 per Seller) plus
warrants to purchase 20% (5% per Seller) of the equity interests in Acclaim as
of August 31, 2001.

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly unaudited financial data for the years ended
December 31, 1999 and 2000 is as follows:

THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, 1999 JUNE 30, 1999 SEPTEMBER 30, 1999 DECEMBER 31, 1999
--------------- -------------- ------------------- ------------------

Revenues.............................. $75,741 $80,306 $81,284 $80,775

Income (loss) before income taxes and
extraordinary loss.................. 5,699 4,920 9,578 (42,585)

Extraordinary loss, net of taxes...... -- (2,297) -- (15,469)

Net income (loss)..................... 2,904 480 5,124 (51,959)

Income (loss) before extraordinary
loss per common share............... $ 0.04 $ 0.04 $ 0.08 $ (0.88)

Income (loss) before extraordinary
loss per common share--assuming
dilution............................ $ 0.04 $ 0.04 $ 0.07 $ (0.88)

THREE MONTHS ENDED
---------------------------------------------------------------------------
MARCH 31, 2000 JUNE 30, 2000 SEPTEMBER 30, 2000 DECEMBER 31, 2000
--------------- -------------- ------------------- ------------------

Revenues.............................. $84,322 $86,899 $88,222 $85,844

Income (loss) before income taxes and
extraordinary loss.................. 2,847 2,841 (1,774) (4,148)

Net income (loss)..................... 1,424 1,420 (887) (4,160)

Income (loss) before extraordinary
loss per common share............... $ 0.04 $ 0.04 $ (0.02) $ (0.11)

Income (loss) before extraordinary
loss per common share--assuming
dilution............................ $ 0.04 $ 0.04 $ (0.02) $ (0.11)

F-27

ALLIANCE IMAGING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 2000

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

12. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
The earnings (loss) per share amounts for the four quarters of 1999 do not
sum to the annual loss per share amount as a result of the significant decline
in shares outstanding that occurred in the fourth quarter in connection with the
1999 Recapitalization Merger.

In 1999, Company recorded extraordinary losses on the early extinguishments
of debt related to the KKR recapitalization and SMT debt refinancing.

13. SUBSEQUENT EVENT (UNAUDITED)

In April 2001, the Company issued $260,000 in senior subordinated notes
("Notes") and used the proceeds to repay its senior subordinated credit facility
with KKR. The Notes bear interest at 10.375% and mature in April 2011. The Notes
contain restrictive covenants which, among other things, limit the incurrence of
additional indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, liens and encumbrances, and
restrictive payments. The Notes are unsecured senior subordinated obligations
and are subordinated in right of payment to all existing and future senior debt,
including bank debt.

On June 20, 2001, the Company modified the per-share equity targets of the
stock options as described in Note 7. As a result, the Company may be required
to record non-cash compensation charges in the future if these targets are met
and the option holders terminate their employment prior to the end of the
eight-year vesting period.

F-28

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

9,375,000 SHARES

COMMON STOCK

[LOGO]

------

PROSPECTUS
, 2001
---------

JOINT BOOK-RUNNING MANAGERS

DEUTSCHE BANC ALEX. BROWN SALOMON SMITH BARNEY

--------------

JPMORGAN UBS WARBURG

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):

NATURE OF EXPENSE AMOUNT
----------------- ----------

SEC Registration Fee........................................ $ 45,821
NYSE Listing Fee............................................ 150,000
NASD Fee.................................................... 18,829
Accounting Fees and Expenses................................ 400,000
Legal Fees and Expenses..................................... 900,000
Printing Expenses........................................... 300,000
Transfer Agent's Fee........................................ 12,500
Miscellaneous............................................... 672,850
----------
TOTAL................................................... $2,500,000
==========

The amounts set forth above, except for the Securities and Exchange Commission
NYSE listing fees, are in each case estimated.

------------------------

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent permitted by the Delaware General Corporation Law. We expect to enter
into agreements with our directors and executive officers that require us among
other things to indemnify them against certain liabilities that may arise by
reason of their status or service as directors and officers liability insurance,
which provides coverage against certain liabilities including liabilities under
the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On November 2, 1999, in connection with our recapitalization merger, we
issued 34,269,570 shares of our common stock in exchange for all of the
outstanding stock of Viewer Acquisition Corp. and net proceeds of approximately
$191,803,000.

On November 27, 2000, we sold 53,600 shares of common stock to Jamie Hopping
in exchange for her promissory note to us in the amount of $299,992.83 plus
interest at an annual rate of 6%.

The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or, with respect to compensatory issuances
to employees and directors, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each of the foregoing transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection

II-1

with any distribution thereof and appropriate legends were affixed to the
instruments representing such securities issued in such transactions.

In April 2001, we sold $260 million aggregate principal amount of our
10 3/8% senior subordinated notes due 2011 in an offering exempt from the
provisions of the Securities Act of 1933, as amended, pursuant to Section 4(2),
Rule 144A and Regulation S thereunder. Salomon Smith Barney Inc., Chase
Securities Inc, Deutsche Banc Alex. Brown Inc. and UBS Warburg LLC were the
initial purchasers of the notes. Net proceeds to us, after deducting initial
purchaser's discounts and commissions, was $253.175 million. The net proceeds of
the offering were used to repay our senior subordinated credit facility which
bore interest at a rate of 10.377% per annum.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a. EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------

1.1 Form of Underwriting Agreement.(1)

3.1 Certificate of Incorporation of Alliance.(8)

3.2 Amended and Restated By-laws of Alliance.(8)

3.3 Form of Amended and Restated Certificate of Incorporation of
Alliance to be effective immediately prior to this
offering.(1)

3.4 Form of Amended and Restated Bylaws of Alliance to be
effective immediately prior to this offering.(1)

4.1 Indenture dated as of April 10, 2001 by and between the
Registrant and the Bank of New York with respect to
$260 million aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2011.(8)

4.2 Registration Rights Agreement dated as of April 10, 2001 by
and among the Registrant and Salomon Smith Barney Inc.,
Chase Securities Inc., Deutsche Banc Alex. Brown Inc. and
UBS Warburg LLC.(8)

4.3 Credit Agreement dated as of November 2, 1999, as
amended.(8)

4.4 Note Purchase Agreement dated November 2, 1999.(8)

4.5 Specimen certificate for shares of common stock, $.01 par
value, of Alliance.(2)

5.1 Form of Opinion of Latham & Watkins as to the legality of
the securities being offered.(1)

10.1 The 1999 Equity Plan for Employees of Alliance and
Subsidiaries, including the forms of option agreements used
thereunder, as amended.(8)

10.2 The Alliance 1997 Stock Option Plan, including form of
option agreement used thereunder, as amended.(8)

10.3 The Three Rivers Holding Corp. 1997 Stock Option Plan, as
amended.(8)

10.4 2001 Incentive Plan.(8)

10.5 Alliance Directors' Deferred Compensation Plan.(8)

10.6 Employment Agreement dated as of July 23, 1997 between
Alliance and Richard N. Zehner.(3)

10.7 Agreement Not to Compete dated as of July 23, 1999 between
Alliance and Richard N. Zehner.(3)

10.8 Amendment to Employment Agreement dated as of July 23, 1997
between Alliance and Richard N. Zehner.(4)

II-2

EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------

10.9 Amendment to Employment Agreement dated as of December 31,
1997 between Alliance and Richard N. Zehner.(5)

10.10 Second Amendment to Employment Agreement dated as of
February 5, 1998 between Alliance and Richard N. Zehner.(5)

10.11 Employment Agreement dated as of January 19, 1998 between
Alliance and Kenneth S. Ord.(6)

10.12 Agreement Not to Compete dated as of January 19, 1998
between Alliance and Kenneth S. Ord.(6)

10.13 Employment Agreement dated September 9, 1993 between
Alliance and Terry A. Andrues.(8)

10.14 Employment Agreement dated as of June 6, 1994 between
Alliance and Cheryl A. Ford.(8)

10.15 Employment Agreement dated as of June 6, 1994 between
Alliance and Jay A. Mericle.(8)

10.16 Employment Agreement dated as of November 27, 2000 between
Alliance and Jamie E. Hopping.(8)

10.17 Agreement Not to Compete dated as of November 27, 2000
between Alliance and Jamie E. Hopping.(8)

10.18 Repayment and Stock Pledge Agreement dated as of
November 27, 2000 between Alliance and Jamie E. Hopping.(8)

10.19 Secured Promissory Note of Jamie E. Hopping dated as of
November 27, 2000.(8)

10.20 Letter agreement dated as of August 8, 2000 between Alliance
and Vincent S. Pino, as amended.(8)

10.21 Form of Stockholder's Agreement.(8)

10.22 Agreement and Plan of Merger dated as of April 14, 1999
among Alliance and Three Rivers Holding Corp.(7)

10.23 Agreement and Plan of Merger dated September 13, 1999
between Alliance and Viewer Acquisition Corporation, as
amended.(8)

10.24 Registration Rights Agreement dated as of November 2,
1999.(8)

10.25 Management Agreement, dated as of November 2, 1999, between
Alliance and Kohlberg Kravis and Roberts & Co., LLP.(8)

10.26 Amendment No. 1 to Management Agreement, effective as of
January 1, 2000, between Alliance and Kohlberg Kravis and
Roberts & Co., LLP.(8)

10.27 Form of Indemnification Agreement.(1)

16.1 Letter from Ernst & Young LLP regarding change in certifying
accountant.(8)

21.1 Subsidiaries of the Registrant.(8)

23.1 Consent of Deloitte & Touche LLP.(1)

23.2 Consent of Ernst & Young LLP.(1)

23.3 Consent of Latham & Watkins (included in exhibit 5.1).

24.1 Powers of Attorney (included on signature page).(1)

------------------------------

(1) Filed herewith.

(2) Incorporated by reference to Exhibit 4.1 filed with the Company's
Registration Statement on Form S-1, No. 33-40805, initially filed on
May 24, 1991.

II-3

(3) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-2, No. 333-33817.

(4) Incorporated by reference herein to the indicated Exhibit in response to
Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.

(5) Incorporated by reference herein to the indicated Exhibit in response to
Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.

(6) Incorporated by reference to exhibits filed in response to Item 6,
"Exhibits" of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.

(7) Incorporated by reference to exhibits filed with the Company's Report on
Form 8-K filed on April 14, 1999.

(8) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-4, No. 333-60682, as amended.

b. FINANCIAL STATEMENT SCHEDULE

PAGE
--------

(1) Independent Auditors' Consent and Report on Schedule.... S-1
(2) Report of Independent Auditors on Financial Statement
Schedule.................................................. S-2
(3) Schedule II--Valuation and Qualifying Accounts.......... S-3

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anaheim, State of
California, on July 2, 2001.

ALLIANCE IMAGING, INC.

By: /s/ RUSSELL D. PHILLIPS, JR.
-----------------------------------------
Name: Russell D. Phillips, Jr.
Title: General Counsel

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Russell D. Phillips, Jr. and Kenneth S. Ord, and
each of them, with full power to act without the other, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, and any and all amendments
thereto (including post-effective amendments), and to file the same, with
exhibits and schedules thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing necessary or desirable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ RICHARD N. ZEHNER Chairman of the Board of Directors and July 2, 2001
------------------------------------ Chief Executive Officer (Principal
Richard N. Zehner Executive Officer)

/s/ JAMIE E. HOPPING President, Chief Operating Officer and July 2, 2001
------------------------------------ Director
Jamie E. Hopping

/s/ KENNETH S. ORD Chief Financial Officer (Principal July 2, 2001
------------------------------------ Financial Officer)
Kenneth S. Ord

/s/ HOWARD K. AIHARA Vice President, Corporate Controller July 2, 2001
------------------------------------ (Principal Accounting Officer)
Howard K. Aihara

II-5

SIGNATURE TITLE DATE
--------- ----- ----

/s/ HENRY R. KRAVIS Director July 2, 2001
------------------------------------
Henry R. Kravis

/s/ MICHAEL W. MICHELSON Director July 2, 2001
------------------------------------
Michael W. Michelson

/s/ GEORGE R. ROBERTS Director July 2, 2001
------------------------------------
George R. Roberts

/s/ DAVID H.S. CHUNG Director July 2, 2001
------------------------------------
David H.S. Chung

II-6

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Stockholders of Alliance Imaging, Inc.:

We have audited the consolidated financial statements of Alliance Imaging,
Inc. and subsidiaries (the "Company"), as of December 31, 2000 and 1999, and for
the years then ended, and have issued our report thereon dated February 22, 2001
(June 30, 2001 as to the effects of the stock split described in
Note 1)(included elsewhere in this Registration Statement).

Our audits also included the financial statement schedule of Alliance
Imaging, Inc., listed in Item 16 of this Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ Deloitte & Touche LLP

Costa Mesa, California
February 22, 2001

S-1

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Stockholders
Alliance Imaging, Inc.

We have audited the consolidated financial statements of Alliance Imaging, Inc.
as of December 31, 1998, and for the year then ended, and have issued our report
thereon dated March 15, 1999, except for Note 1 -- Common Control Merger, as to
which the date is May 13, 1999 and Note 1 -- Common Stock Split, as to which the
date is June 30, 2001 (included elsewhere in this Registration Statement). Our
audit also included the financial statement schedule for the year ended
December 31, 1998 listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Orange County, California
March 5, 1999, except for Note 1 -- Common Control Merger,
as to which the date is May 13, 1999 and Note 1 -- Common Stock Split,
as to which the date is June 30, 2001

S-2

SCHEDULE II

ALLIANCE IMAGING, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

DEDUCTIONS
(BAD DEBT
BALANCE AT ADDITIONS ADDITIONS WRITE-OFFS, BALANCE
BEGINNING CHARGED TO FROM ACQUIRED NET OF AT END
OF PERIOD EXPENSE COMPANIES RECOVERIES) OF PERIOD
---------- ---------- ------------- ----------- ---------

Year ended December 31, 2000
Allowance for Doubtful Accounts....... $11,688 $5,450 $ -- $(1,568) $15,570
======= ====== ====== ======= =======
Year ended December 31, 1999
Allowance for Doubtful Accounts....... $ 8,384 $4,580 $ -- $(1,276) $11,688
======= ====== ====== ======= =======
Year ended December 31, 1998
Allowance for Doubtful Accounts....... $ 750 $4,651 $5,096 $(2,113) $ 8,384
======= ====== ====== ======= =======

S-3

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------

1.1 Form of Underwriting Agreement.(1)

3.1 Certificate of Incorporation of Alliance.(8)

3.2 Amended and Restated By-laws of Alliance.(8)

3.3 Form of Amended and Restated Certificate of Incorporation of
Alliance to be effective immediately prior to this
offering.(1)

3.4 Form of Amended and Restated Bylaws of Alliance to be
effective immediately prior to this offering.(1)

4.2 Registration Rights Agreement dated as of April 10, 2001 by
and among the Registrant and Salomon Smith Barney Inc.,
Chase Securities Inc., Deutsche Banc Alex. Brown Inc. and
UBS Warburg LLC.(8)

4.3 Credit Agreement dated as of November 2, 1999, as
amended.(8)

4.4 Note Purchase Agreement dated November 2, 1999.(8)

4.5 Specimen certificate for shares of common stock, $.01 par
value, of Alliance.(2)

5.1 Form of Opinion of Latham & Watkins as to the legality of
the securities being offered.(1)

10.1 The 1999 Equity Plan for Employees of Alliance and
Subsidiaries including the forms of option agreements used
thereunder, as amended.(8)