<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 26, 1996
-------------------------
INSIGHT HEALTH SERVICES CORP.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 33-0702770
- -------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
4400 MACARTHUR BOULEVARD, SUITE 800, NEWPORT BEACH, CA 92660
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 476-0733
-----------------------
- -------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 26, 1996, InSight Health Services Corp., a Delaware corporation
("InSight" or the "Registrant"), consummated the acquisition and merger (the
"Merger") of two public companies -- Maxum Health Corp., a Delaware
corporation ("Maxum"), and American Health Services Corp., a Delaware
corporation ("AHS") -- pursuant to an Agreement and Plan of Merger dated as
of February 26, 1996 (the "Merger Agreement"), by and among InSight, Maxum,
AHS, MXHC Acquisition Company, a Delaware corporation and a wholly owned
subsidiary of InSight ("MXHC Acquisition"), and AHSC Acquisition Company, a
Delaware corporation and a wholly owned subsidiary of InSight ("AHSC
Acquisition"). The Merger Agreement and the consummation of the transactions
contemplated thereby were approved by the respective stockholders of Maxum
and AHS at respective special meetings of such stockholders held on June 25,
1996.
Immediately prior to the consummation of the Merger and in exchange for
the financial accommodations summarized below given by General Electric
Company, acting through GE Medical Systems, the primary creditor of each of
Maxum and AHS ("GE Medical," and together with its affiliate General Electric
Capital Corporation ("GECC"), the "GE Parties"), (a) Maxum issued to GE
Medical 15,000 shares of Maxum Series B Preferred Stock and (b) AHS issued to
GE Medical 1,000,000 shares of AHS Series C Preferred Stock pursuant to a
Preferred Stock Acquisition Agreement dated as of February 26, 1996, among
InSight, Maxum, AHS and GE Medical.
Pursuant to the Merger Agreement, (a) MXHC Acquisition was merged with
and into Maxum with Maxum as the surviving corporation, and AHSC Acquisition
was merged with and into AHS with AHS as the surviving corporation, and (b)
(i) each outstanding share of Maxum common stock was converted into the right
to receive .598 of a share of InSight common stock, (ii) each outstanding
share of Maxum Series B Preferred Stock was converted into the right to
receive 83.392 shares of InSight Series A Preferred Stock, (iii) each
outstanding share of AHS common stock was converted into the right to receive
.1 of a share of InSight common stock, (iv) each outstanding share of AHS
Series B Senior Convertible Preferred Stock was converted into the right to
receive 10 shares of InSight common stock, (v) each outstanding share of AHS
Series C Preferred Stock was converted into the right to receive 1.25088
shares of InSight Series A Preferred Stock, and (vi) each outstanding option,
warrant or other right to purchase Maxum common stock and AHS common stock
was converted into the right to acquire, on the same terms and conditions,
shares of InSight common stock, except that the number of shares and exercise
price applicable to such option, warrant or other right was adjusted based on
the applicable exchange ratio for the underlying Maxum or AHS common stock.
In addition, in consideration of certain agreements by the holders of AHS
Series B Preferred Stock, such holders will receive warrants to purchase 1.32
shares of InSight common stock (at a per share purchase price equal to the
average market value of one share of InSight common stock during the 20
trading-day period commencing July 12, 1996) for each share of Series B
Preferred Stock. The approximate percentage interests of InSight common
stock held by former Maxum stockholders, former AHS
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<PAGE>
stockholders and GE Medical as of June 26, 1996, assuming the conversion by
GE Medical of its InSight Series A Preferred Stock into InSight common stock,
was 26.1%, 25.9% and 48%, respectively.
As holder of the InSight Series A Preferred Stock, GE Medical has the
right, exercisable on and after June 26, 1997, under certain circumstances,
to require InSight to register the InSight common stock issuable upon
conversion of its InSight Series A Preferred Stock.
The Merger will be accounted for as a "purchase" for financial reporting
purposes and treated as a tax-free reorganization for federal income tax
purposes. Maxum is treated as the acquiror for financial reporting purposes.
The purchase price of AHS, including direct costs of the Merger, will be
allocated based upon the fair value of the assets acquired and liabilities
assumed, with the excess purchase consideration allocated to goodwill. The
exchange of Maxum common stock for InSight common stock will be treated as a
reorganization with no change in the recorded amount of Maxum's assets and
liabilities. Maxum's financial statements became the financial statements of
InSight upon the consummation of the Merger and the results of InSight will
include the results of AHS from and after such time.
Immediately prior to the consummation of the Merger, InSight, Maxum and
certain of its subsidiaries, AHS and the GE Parties entered into a Master
Debt Restructuring Agreement dated as of June 26, 1996 pursuant to which the
GE Parties consented to the Merger and agreed to provide certain financial
accommodations to Maxum and AHS in exchange for the issuance of the Maxum
Series B Preferred Stock and the AHS Series C Preferred Stock described
above. The financial accommodations include (a) with respect to Maxum, an
aggregate reduction of the outstanding principal amount of certain
indebtedness by approximately $9.0 million and an aggregate reduction in
required lease payments over the terms of the leases by approximately $1.1
million, and (b) with respect to AHS, a reduction of the outstanding
principal amount of a term loan by approximately $6.2 million, an aggregate
reduction in required annual lease payments by approximately $814,000 and the
release of certain deferred obligations in the aggregate outstanding
principal amount of approximately $4.5 million. As part of the granting of
the financial accommodations by GE Medical, warrants previously issued to GE
Medical by Maxum to acquire 700,000 shares of Maxum common stock, and
warrants previously issued to GE Medical by AHS to acquire 1,589,072 shares
of AHS common stock, were canceled. GE Medical also acquired the right to
receive for ten years annual payments (the "Supplemental Service Fee") under
its maintenance agreements with InSight, Maxum and AHS equal to 14% of
pre-tax income, subject to certain adjustments, of InSight, and further
subject to proportional reductions for certain post-Merger acquisitions.
InSight may terminate the Supplemental Service Fee at any time during such
ten-year period by making a payment to GE Medical equal to $8 million less
the discounted value of the Supplemental Service Fee (calculated at a
discount rate of 15% per annum) paid through the date of such termination
payment.
Prior to the consummation of the Merger, shares of Maxum common stock
were traded over the counter on the OTC Bulletin Board under the symbol
"MXHC" and shares of AHS
-3-
<PAGE>
common stock were traded over the counter on the OTC Bulletin Board under the
symbol "AHTS." InSight common stock is quoted on the OTC Bulletin Board
under the symbol "IHSC" and became eligible for trading on June 27, 1996.
InSight's application to list its common stock on the Nasdaq SmallCap Market
is pending. On June 26, 1996, InSight issued a press release announcing the
completion of the Merger. A copy of such press release is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
Maxum is a provider of diagnostic imaging and related management
services in 24 states throughout the Central and Eastern United States.
Maxum delivers its services through a network of 48 mobile magnetic resonance
imaging ("MRI") facilities, five fixed-site facilities and four
multi-modality imaging centers. In its imaging centers, Maxum offers various
services in addition to MRI which include diagnostic and fluoroscopic x-ray,
ACR accredited mammography, diagnostic and vascular ultrasound, nuclear
medicine, nuclear cardiology, computerized tomography ("CT") and
cardiovascular services. Maxum also offers additional services through a
variety of arrangements, including equipment rental, technologist services
and training/applications, marketing, management services, patient
scheduling, utilization review, and billing and collection services.
AHS operates 17 diagnostic imaging and treatment centers located in
seven states. AHS also operates two Leksell Stereotactic Gamma Unit
treatment centers and one radiation oncology center. AHS also operates an
additional radiation oncology center as part of one of its centers. Its
centers provide outpatient diagnostic services in the areas of MRI, CT,
general radiology, cardiology, ultrasound, mammography, nuclear medicine and
neurosciences. AHS also offers additional services through a variety of
arrangements, including equipment rental, marketing, management services,
technologist services, utilization review, and billing and collection
services.
InSight intends to integrate the operations of each of Maxum and AHS,
where deemed appropriate by management, in order to take advantage of
efficiencies in providing nationwide coverage using the companies' existing
facilities. InSight's principal executive offices are located in Newport
Beach, California.
Additional information with respect to the Merger and related matters is
set forth in the Joint Proxy Statement/Prospectus of Maxum, AHS and InSight
(the "Joint Proxy Statement") dated May 9, 1996 and filed with the Securities
and Exchange Commission (the "Commission") on May 13, 1996 and is
incorporated herein by reference to the extent appropriate.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial statements of businesses acquired.
Audited financial statements of Maxum and AHS required by this
Item are included in the Joint Proxy Statement and are incorporated
herein by reference.
-4-
<PAGE>
Unaudited interim financial statements of each of Maxum and
AHS required by this Item are included, respectively, in (i) Maxum's
Quarterly Report on Form 10-Q filed with the Commission on May 15,
1996, and (ii) AHS's Quarterly Report on Form 10-Q filed with the
Commission on May 15, 1996, each of which is hereby incorporated
herein by reference to the extent appropriate.
(b) Pro forma financial information (unaudited).
Certain pro forma information required by this Item is
included in the Joint Proxy Statement and is hereby incorporated
herein by reference to the extent appropriate.
Unaudited Pro Forma Condensed Consolidated Financial
Statements of InSight at and as of the quarter ended March 31, 1996
are attached hereto.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of February 26, 1996, by
and among InSight Health Services Corp., Maxum Health Corp.,
American Health Services Corp., MXHC Acquisition Company and
AHSC Acquisition Company (incorporated herein by reference to
Exhibit 2.1 to Amendment No. 1 to InSight's Registration
Statement on Form S-4 filed with the Commission on May 9, 1996
"Amendment No. 1").
4.1 Article 4 of InSight Health Services Corp.'s Certificate of
Incorporation (incorporated herein by reference to Exhibit 4.1
of Amendment No. 1).
20 Joint Proxy Statement/Prospectus dated May 9, 1996 of InSight
Health Services Corp., Maxum Health Corp. and American Health
Services Corp. and filed with the Commission on May 13, 1996
(incorporated herein by reference).
99.1 Press Release dated June 27, 1996 announcing the completion of
the Merger.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: July 3, 1996
INSIGHT HEALTH SERVICES CORP.
By: /S/ E. Larry Atkins
-------------------------------------
E. Larry Atkins,
President and Chief Executive Officer
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<PAGE>
ITEM 7(b). FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are presented in two phases. First, Unaudited Pro Forma Condensed
Consolidated Financial Statements are presented separately for each of Maxum and
AHS to show the effect of the Master Debt Restructuring Agreement ("GE Medical
Financial Transactions"). The GE Medical Financial Transactions will receive
troubled-debt restructuring treatment for accounting purposes. Second,
Unaudited Pro Forma Condensed Consolidated Financial Statements are presented
which reflect the Merger of Maxum and AHS into InSight after giving effect to
the GE Medical Financial Transactions. The merger will be accounted for using
the purchase method of accounting in accordance with generally accepted
accounting principles. Maxum is treated as the acquiror for accounting
purposes, based on the relative revenues, book values and other factors which
are reflected in the stock apportionment.
The Unaudited Pro Forma Condensed Consolidated Balance Sheets of Maxum and
AHS are based on such Company's respective historical balance sheets as of March
31, 1996 and are presented as if the GE Medical Financial Transactions had been
consummated at that date. The Unaudited Pro Forma Condensed Consolidated
Statements of Operations are based on the historical statements of operations of
Maxum and AHS for the three months ended March 31, 1996 for each Company and
give effect to the GE Medical Financial Transactions, as if they had occurred on
January 1, 1996.
The Unaudited Pro Forma Condensed Consolidated Balance Sheets of InSight
are based on the respective pro forma balance sheets of Maxum and AHS as of
March 31, 1996, and are presented as if the Merger had been consummated at that
date using purchase accounting with Maxum as the acquiror. The Unaudited Pro
Forma Condensed Consolidated Statements of Operations for InSight are based on
the pro forma statements of operations for the three months ended March 31, 1996
for Maxum and AHS and are presented as if the Merger had occurred on January 1,
1996.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
provided for informational purposes only. They do not purport to be indicative
of the results that actually would have occurred if the Merger and the GE
Medical Financial Transactions had been consummated on the dates indicated or
which may be obtained in the future. The pro forma adjustments are based on
available information and upon certain assumptions outlined in the accompanying
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements, which
the respective managements of Maxum and AHS believe are reasonable.
The Unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with the notes thereto, the audited consolidated
financial statements of Maxum and the related notes thereto contained elsewhere
herein, and the audited consolidated financial statements of AHS and the related
notes thereto contained elsewhere herein.
1
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
-------------------------
MAXUM AHS DEBIT CREDIT INSIGHT
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,753 $ 5,782 $ -- $ 2,500(C) $ 5,035
Accounts receivable 7,216 6,763 -- -- 13,979
Prepaid expenses and other 2,524 457 -- 500(C) 2,481
-------- -------- ------- ------- -------
Total current assets 11,493 13,002 -- 3,000 21,495
PROPERTY AND EQUIPMENT 11,853 19,620 -- -- 31,473
INTANGIBLE ASSETS 4,077 2,472 13,825(D) 1,273(D) 19,101
OTHER ASSETS 1,245 -- -- -- 1,245
-------- -------- ------- ------- -------
$28,668 $35,094 $13,825 $ 4,273 $73,314
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,036 $ 5,418 $ -- $ -- $12,454
Current portion of long-term debt 4,654 4,710 -- -- 9,364
Deferred gain on debt
restructuring 998 1,227 1,227(A) -- 998
-------- -------- ------- ------- -------
Total current liabilities 12,688 11,355 1,227 -- 22,816
-------- -------- ------- ------- -------
LONG-TERM LIABILITIES:
Long-term debt 6,679 24,609 -- -- 31,288
Capital leases 4,092 438 -- -- 4,530
Accrued securities litigation
settlement 1,900 -- -- -- 1,900
Deferred gain on debt
restructuring 1,627 6,600 6,600(A) -- 1,627
Other long-term liabilities -- 900 -- -- 900
-------- -------- ------- ------- -------
Total long-term liabilities 14,298 32,547 6,600 -- 40,245
-------- -------- ------- ------- -------
MINORITY INTEREST -- 1,546 -- -- 1,546
-------- -------- ------- ------- -------
STOCKHOLDERS'S EQUITY (DEFICIT):
Preferred stock 3,375 9,450 6,075(B) -- 6,750
Common stock 30 291 321(B) 3(B) 3
Additional paid-in capital 19,693 9,350 9,615(B) 3,677(B) 23,105
Accumulated deficit (21,151) (29,445) -- 29,445(B) (21,151)
Treasury stock (265) -- -- 265(B) --
-------- -------- ------- ------- -------
Total stockholders' equity
(deficit) 1,682 (10,354) 16,011 33,390 8,707
-------- -------- ------- ------- -------
$28,668 $35,094 $23,838 $33,390 $73,314
-------- -------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated balance sheets.
2
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Adjustments
Maxum AHS Debit Credit InSight
----- --- ----- ------ -------
<S> <C> <C> <C> <C> <C>
REVENUES:
Contract services $ 9,816 $ 1,013 $-- $-- $ 10,829
Patient services 2,977 7,532 -- -- 10,509
-------- ------- ------ ------- --------
Other 283 -- -- -- 283
-------- ------- ------ ------- --------
Total revenues 13,076 8,545 -- -- 21,621
-------- ------- ------ ------- --------
COSTS OF OPERATIONS:
Cost of services 7,686 4,588 -- -- 12,274
Equipment leases 3,452 1,036 -- -- 4,488
Depreciation and amortization 1,053 1,059 -- 38(E) 2,074
-------- ------- ------ ------- --------
Total costs of operations 12,191 6,683 -- 38 18,836
-------- ------- ------ ------- --------
GROSS PROFIT 885 1,862 -- 38 2,785
CORPORATE OVERHEAD 1,042 1,026 173(F) -- 2,241
-------- ------- ------ ------- --------
INCOME (LOSS) FROM
COMPANY OPERATIONS (157) 836 173 38 544
EQUITY IN EARNINGS OF
UNCONSOLIDATED
PARTNERSHIPS 80 -- -- -- 80
-------- ------- ------ ------- --------
OPERATING INCOME (LOSS) (77) 836 173 38 624
OTHER EXPENSES:
Interest expense (44) (309) (380)(G) -- (733)
Interest income and other -- 43 -- -- 43
-------- ------- ------ ------- --------
INCOME (LOSS) BEFORE
INCOME TAXES (121) 570 553 38 (66)
INCOME TAX EXPENSE -- 11 -- -- 11
-------- ------- ------ ------- --------
NET INCOME (LOSS) $ (121) $ 559 $553 $38 $ (77)(H)
-------- ------- ------ ------- --------
-------- ------- ------ ------- --------
PER SHARE DATA:
Net income (loss) $ (0.03)
--------
--------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,710,240
--------
--------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
3
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Merger will be accounted for as a purchase. Maxum is the acquiror for
accounting purposes. Generally accepted accounting principles require that
transferred assets and liabilities of the acquiree be accounted for at total
acquisition cost, allocated based on their relative fair values.
The unaudited pro forma condensed consolidated balance sheet of InSight as
of March 31, 1996 gives effective to the following pro forma adjustments,
dollar amounts in thousands:
(A) As required under purchase accounting, long-term debt of the
company acquired (AHS) is restated to fair market value. This
adjustment restated the debt of AHS by reversing the deferred gain
(i.e. future interest payments) of $7,827.
(B) As part of the acquisition of AHS by Maxum, certain adjustments
were recorded as required by purchase accounting. Those adjustments
are summarized as follows:
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Accumulated Treasury
Stock (4) Stock Capital Deficit Stock Total
--------- ------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Maxum purchase accounting
applied to AHS Equity(1) $(6,075) $(291) $(9,350) $29,445 $ -- $13,729
Retirement of Maxum treasury
stock(2) -- -- (265) -- 265 --
Records issuance of InSight
Common Stock for AHS
Common Stock and AHS
Series A Preferred Stock(3) -- 3 3,647 -- -- 3,650
Reclass to reset the par value
of InSight Common Stock
issued in exchange for
Maxum's Common Stock -- (30) 30 -- -- --
-------- -------- -------- -------- -------- --------
$(6,075) $(318) $(5,938) $29,445 $265 $17,379
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
- -----------
(1) Purchase accounting entry which eliminates the equity of AHS, except
for the $3,375 of AHS Series C Preferred Stock held by GE Medical
converted to 1,250,880 shares of InSight Series A Preferred Stock
($2.70 per share), as a condition precedent of the Merger and in
exchange for certain financial accommodations.
(2) Retirement of treasury stock of Maxum.
(3) Records the issuance of 1,349,908 shares of InSight Common Stock
($.001 par value) at $3,650 ($2.70 per share) in consideration for all
of the AHS Common Stock and the AHS Series A Preferred Stock. These
shares were recorded at the estimated fair market value of AHS Common
Stock.
(4) The Maxum Series B Preferred Stock and the AHS Series C Preferred
Stock will be converted into InSight Series A Preferred Stock at the
Effective Time.
(C) Recognizes the transaction costs of $3,000 related to the Merger.
(D) Records goodwill related to the purchase of AHS, which reflects
the total purchase price of $47,646 ($7,025 preferred
and common stock, $37,621 of liabilities assumed and $3,000 transaction costs)
less the estimated fair market value of assets acquired of $33,821 (total AHS
assets ($35,094) less goodwill previously recorded by AHS ($1,273)).
4
<PAGE>
The unaudited pro forma condensed consolidated statement of operations of
InSight for the three months ended March 31, 1996 gives effect to the following
pro forma adjustments:
(E) As part of Maxum's acquisition of AHS, all of the intangible
assets of AHS were removed under purchase accounting for the three
months ended March 31, 1996. This amount reverses the amortization of
those intangible assets at AHS.
(F) In purchase accounting, Maxum recorded goodwill of $13,825 (see
(D) above) related to the acquisition of AHS. This entry records
amortization of goodwill over 20 years using the straight-line method.
(G) As required by purchase accounting, long-term debt is restated to
fair market value, resulting in an increase in interest expense.
(H) In the event there had been pre-tax income, 14% of that amount
would have been recorded as additional maintenance expense under the
Master Service Agreement.
5
<PAGE>
MAXUM HEALTH CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
ADJUSTMENTS
---------------
HISTORICAL DEBIT CREDIT TOTAL
---------- ----- ------ -----
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,753 $ -- $ -- $ 1,753
Accounts receivable 7,216 -- -- 7,216
Prepaid expenses and other 2,524 -- -- 2,524
Total current assets 11,493 -- -- 11,493
PROPERTY AND EQUIPMENT 11,853 -- -- 11,853
INTANGIBLE ASSETS 4,077 -- -- 4,077
OTHER ASSETS 1,245 -- -- 1,245
-------- -------- -------- --------
$28,668 $ -- $ -- $28,668
-------- -------- -------- --------
-------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,036 $ -- $ -- $ 7,036
Current portion of long-term debt 5,981 1,327(A) -- 4,654
Deferred gain on debt restructuring -- -- 998(A) 998
-------- -------- -------- --------
Total current liabilities 13,017 1,317 998 12,688
-------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt 14,372 7,693(A) -- 6,679
Capital leases 4,092 -- -- 4,092
Accrued securities litigation settlement 1,900 -- -- 1,900
Deferred gain on debt restructuring -- -- 1,627(A) 1,627
-------- -------- -------- --------
Total long-term liabilities 20,364 7,693 1,627 14,298
-------- -------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock -- -- 3,375(A) 3,375
Common stock 30 -- -- 30
Common stock warrant 7 7(B) --
Additional paid-in capital 19,693 -- -- 19,693
Accumulated deficit (24,178) -- 3,027(A)(B) (21,151)
Treasury stock (265) -- -- (265)
-------- -------- -------- --------
Total stockholders' equity (deficit) (4,713) 7 6,402 1,682
-------- -------- -------- --------
$28,668 $9,027 $9,027 $28,668
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated balance sheets.
6
<PAGE>
MAXUM HEALTH CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------
ADJUSTMENTS
-----------------------------------------
HISTORICAL DEBIT CREDIT TOTAL
---------- ----- ------ -----
<S> <C> <C> <C> <C>
REVENUES:
Contract services $ 9,816 $ -- $ -- $ 9,816
Patient services 2,977 -- -- 2,977
Other 283 -- -- 283
-------- -------- -------- --------
Total revenues 13,076 -- -- 13,076
-------- -------- -------- --------
COSTS OF OPERATIONS:
Cost of services 7,686 -- -- 7,686
Equipment leases 3,515 -- 63(C) 3,452
Depreciation and amortization 1,053 -- -- 1,053
-------- -------- -------- --------
Total costs of operations 12,254 -- 63 12,191
GROSS PROFIT 822 -- 63 885
CORPORATE OVERHEAD 1,042 -- -- 1,042
-------- -------- -------- --------
INCOME (LOSS) FROM COMPANY
OPERATIONS (220) -- 63 (157)
EQUITY IN EARNINGS OF
UNCONSOLIDATED PARTNERSHIPS: 80 -- -- 80
-------- -------- -------- --------
OPERATING INCOME (LOSS) (140) -- 63 (77)
-------- -------- -------- --------
OTHER EXPENSES:
Interest expense (568) -- 524(D) (44)
-------- -------- -------- --------
NET INCOME (LOSS) $ (708) $ -- $587 $ (121)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
7
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
<PAGE>
MAXUM HEALTH CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The unaudited pro forma condensed consolidated balance sheet of Maxum as of
March 31, 1996 gives effect to the following pro forma adjustments:
(A) Recognizes the satisfaction of Maxum's current and long-term debt
obligations of $1,327 and $7,693, respectively, resulting from the GE
Medical Financial Transactions. The gain represents the difference in the
carrying value ($9,020) of the debt obligations settled over the fair value
($3,375) of the Maxum Series B Preferred Stock issued to GE Medical. (The
15,000 shares of Maxum Series B Preferred Stock are convertible into
2,098,666 shares of Maxum Common Stock.) In accordance with the provisions
of troubled debt accounting (as required by SFAS No.15), a portion of the
gain equal to the sum of the current and long-term portions of future
interest payable on all remaining GE Medical debt and capital lease
obligations of $890 and $1,264, respectively, payable on all remaining GE
Medical debt and capital lease obligations of $890 and $1,264,
respectively, will be deferred and reduced by future interest payments over
the terms of the respective debt instruments.
The gain does not take into account a potential gain that could be
recognized should Maxum return or exchange certain Mobile MRI Facilities
(which are financed under operating lease agreements) allowed for under the
GE Medical Financial Transactions.
(B) As part of the GE Medical Financial Transactions, GE Medical has
agreed to surrender its common stock warrant to Maxum for cancellation.
The unaudited pro forma condensed consolidated statement of operations of
Maxum for the three months ended March 31, 1996 gives effect to the following
pro forma adjustment:
(C) As a result of the debt restructuring in connection with the GE
Medical Financial Transactions, lease payments on four Mobile MRI
Facilities are reduced which would result in a reduction of lease expense
of $63 if these transactions would have occurred on January 1, 1996.
(D) To reduce interest expense on approximately $20,983 of GE Medical
debt and capital lease obligations that would not have been recognized in
the statement of operations for 1996 if the satisfaction of the debt
obligations and the deferral of the future interest payable on all other GE
Medical debt and capital lease obligations discussed in (A) above had
occurred on January 1, 1996. Interest payments on such GE Medical debt and
capital lease obligations would have been charged against the deferred gain
as discussed in (A) above, thereby decreasing Maxum's effective interest
rate.
8
<PAGE>
AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
ADJUSTMENTS
--------------------------
HISTORICAL DEBIT CREDIT TOTAL
---------- ------ ------ ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 5,782 $ -- $ -- $ 5,782
Accounts receivable 6,763 -- -- 6,763
Prepaid expenses and other 457 -- -- 457
------- ------- ------- -------
Total current assets 13,002 -- -- 13,002
PROPERTY AND EQUIPMENT 19,620 -- -- 19,620
INTANGIBLE ASSETS 2,945 -- 473(D) 2,472
------- ------- ------- -------
$35,567 $ -- $ 473 $35,094
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 5,261 $ -- $ 157(E) $ 5,418
Current portion of long-term debt 18,824 14,114(A) -- 4,710
Deferred gain on debt restructuring -- -- 1,227(A) 1,227
------- ------- ------- -------
Total current liabilities 24,085 14,114 1,384 11,355
------- ------- ------- -------
LONG-TERM LIABILITIES:
Long-term debt 21,054 -- 3,555(A) 24,609
Capital leases 438 -- -- 438
Deferred gain on debt restructuring -- -- 6,600(A) 6,600
Other long-term liabilities 900 -- -- 900
------- ------- ------- -------
Total long-term liabilities 22,392 -- 10,155 32,547
------- ------- ------- -------
MINORITY INTEREST 1,546 -- -- 1,546
------- ------- ------- -------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock 6,075 -- 3,375(B) 9,450
Common stock 291 -- -- 291
Common stock warrants 1,116 1,116-C- -- --
Additional paid-in capital 9,350 -- -- 9,350
Accumulated deficit (29,288) 157(E) -- (29,445)
------- ------- ------- -------
Total stockholders' equity (deficit) (12,456) 1,273 3,375 (10,354)
------- ------- ------- -------
$35,567 $15,387 $14,914 $35,094
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated balance sheets.
9
<PAGE>
AMERICAN HEALTH CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------
ADJUSTMENTS
--------------------------
HISTORICAL DEBIT CREDIT TOTAL
---------- ------ ------ ---------
<S> <C> <C> <C> <C>
REVENUES:
Contract services $ 1,013 $ -- $ -- $ 1,013
Patient services 7,664 132(H) -- 7,532
------- ------ ------ -------
Total revenues 8,677 132 -- 8,545
------- ------ ------ -------
COSTS OF OPERATIONS:
Cost of services 4,695 -- 107(H) 4,588
Equipment leases 1,240 -- 204(F) 1,036
Depreciation and amortization 1,062 -- 3(H) 1,059
------- ------ ------ -------
Total costs of operations 6,997 -- 314 6,683
------- ------ ------ -------
GROSS PROFIT 1,680 132 314 1,862
CORPORATE OVERHEAD 1,026 -- -- 1,026
------- ------ ------ -------
OPERATING INCOME 654 132 314 836
OTHER EXPENSES:
Interest expense (1,058) -- 749(G) (309)
Interest income and other 43 -- -- 43
------- ------ ------ -------
INCOME (LOSS) BEFORE INCOME TAXES (361) 132 1,063 570
INCOME TAX EXPENSE -- 11(I) -- 11
------- ------ ------ -------
NET INCOME (LOSS) $ (361) $143 $1,063 $ 559
------- ------ ------ -------
------- ------ ------ -------
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
10
<PAGE>
AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The unaudited pro forma condensed consolidated balance sheet of AHS as of
March 31, 1996 gives effect to the following pro forma adjustments:
(A) Reflects the restructuring of AHS's debt resulting from the GE
Medical Financial Transactions. The amount of debt outstanding March 31,
1996 which was subject to the debt restructure was $38,421. After
restructuring the debt, the outstanding amount will be $27,862, resulting
in a potential gain of $10,559. This potential gain is then offset by the
value of the preferred stock issued in consideration for the restructuring
(see (B)), less the warrants canceled by the lender (see (C)) ($3,375-
$1,116, or $2,259) and the write-off of previously established deferred
finance charges of $473 (see (D)). In accordance with the provisions of
troubled debt accounting (as required by SFAS No. 15), the remaining
potential gain of $7,827 is then offset in its entirety by the expected
future interest payments of $9,374 on the restructured debt. The amount of
gain offset by the future interest payments is therefore deferred and
reduced by future interest payments over the terms of the respective debt
instruments. Finally, the restructure debt has a gross balance of $27,862,
with a current maturity of $4,366. As a result, this adjustment reflects
the reduction in the debt, recognition of future interest payments of
$7,827 and the modified classifications of the current and long-term
portions of that debt.
(B) Reflects the issuance to GE Medical of 1,000,000 shares of the AHS
Series C Preferred Stock which is convertible into AHS Common Stock
representing approximately 48% of AHS Common Stock outstanding at the
Effective Time (after giving effect to such conversion and assuming the
conversion of the AHS Series B Preferred Stock).
(C) As part of the GE Medical Financial Transactions, GE Medical has
agreed to surrender it common stock warrants to AHS for cancelation.
(D) In 1993, AHS completed a debt restructuring with GE Medical. The
costs of that restructuring were deferred and were being amortized over the
term of the debt. As this debt is part of the current restructuring, those
costs related to the 1993 restructuring are being written off.
(E) Adjustment reflects the Alternative Minimum Tax of two percent
which would be payable as a result of the tax gain recognition related to
the debt restructuring.
The unaudited pro forma condensed consolidated statement of operations of
AHS for the three months ended March 31, 1996 gives effect to the following pro
forma adjustments:
(F) As a result of the debt restructuring in connection with the GE
Medical Financial Transactions, lease payments on several centers are
reduced which would result in a reduction of lease expense of $204 if
these transactions would have occurred on January 1, 1996.
(G) To reduce interest expense on approximately $10,559 of GE Medical
debt that would not have been recognized in the statement of operations for
1996 if the satisfaction of the debt and the deferral of the future
interest payable on all other GE Medical debt discussed in (A) above had
occurred on January 1, 1996. Interest payments on such GE Medical debt
would have been charged against the deferred gain as discussed in (A)
above, thereby decreasing AHS' effective interest rate.
In addition, this reduces the amortization of deferred finance costs
of $52 related to debt restructured by the GE Medical Financial
Transactions.
11
<PAGE>
(H) As part of the GE Medical Financial Transactions, AHS will close
one of its centers and return the equipment to GE Medical. This entry
reflects the reduction in both the revenues and expenses related to that
center.
(I) Recognition of the Federal Alternative Minimum Tax provision
resulting from the GE Medical Financial Transaction.
12
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. DOCUMENT DESCRIPTION NUMBERED PAGE
- ----------- -------------------- -------------
2.1 Agreement and Plan of Merger dated as of
February 26, 1996, by and among InSight
Health Services Corp., Maxum Health Corp.,
American Health Services Corp., MXHC
Acquisition Company and AHSC Acquisition
Company (incorporated herein by reference to
Exhibit 2.1 to Amendment No. 1 to InSight's
Registration Statement on Form S-4 filed with
the Commission on May 9, 1996 "Amendment No. 1").
4.1 Article 4 of InSight Health Services Corp.'s
Certificate of Incorporation (incorporated
herein by reference to Exhibit 4.1 of
Amendment No. 1).
20 Joint Proxy Statement/Prospectus dated May 9,
1996 of InSight Health Services Corp., Maxum
Health Corp. and American Health Services
Corp. and filed with the Commission on May
13, 1996 (incorporated herein by reference).
99.1 Press Release dated June 27, 1996 announcing
the completion of the Merger.
<PAGE>
EXHIBIT 99.1
Contact: Lillian Armstrong
Lippert Heilshorn
(415) 955-2735
Company Contact: Thomas V. Croal
Vice President & Chief
Financial Officer
(714) 476-0733
INSIGHT HEALTH SERVICES CORP. FORMED BY MERGER OF
AMERICAN HEALTH SERVICES CORP. AND MAXUM HEALTH CORP.
NEWPORT BEACH, CALIFORNIA, June 27, 1996 - InSight Health Services Corp.
announced today that the merger of American Health Services Corp. ("American
Health") and Maxum Health Corp. ("Maxum") is complete. As a result of the
merger, American Health and Maxum are now wholly-owned subsidiaries of
InSight Health Services Corp. ("InSight"), a new Delaware corporation.
InSight common stock is listed on the OTC Bulletin Board under the symbol:
IHSC.
TERMS OF THE MERGER AND GE'S FINANCIAL POSITION REGARDING INSIGHT
With the merger complete, American Health and Maxum shareholders each
own approximately one-half of InSight's issued and outstanding common stock.
(Each share of pre-merger Maxum common stock represents .598 shares of
InSight common stock. Each share of pre-merger American Health common stock
represents .10 shares of InSight common stock.)
In exchange for an extensive debt and lease restructuring, General
Electric Company, acting through GE Medical Systems (GE), will receive
non-voting preferred stock of InSight, convertible into approximately 48% of
the common stock of InSight on a fully-diluted basis. GE will also be
entitled to receive certain payments based on InSight's future performance.
In accordance with the terms of the merger agreement dated February
1996, E. Larry Atkins, former chief executive officer of American Health, has
been named president and chief executive officer of InSight. Glenn P. Cato,
former president and chief executive officer of Maxum, will serve as
InSight's executive vice president and chief
- m o r e -
<PAGE>
operating officer. On a pro forma basis, InSight realized $87 million
in combined revenues, based on reported revenues for the year ending
December 31, 1995.
NEW COMPANY CEO COMMENTS ON ENVIRONMENT
Commenting on the merger, E. Larry Atkins said, "InSight will take
advantage of the opportunities that are presently being created in the
diagnostic imaging industry. With the combined expertise of American Health
and Maxum, InSight believes it will be able to meet the needs of the current
managed care environment by providing quality, cost-effective services and by
creating new innovative product offerings. The merger also gives InSight an
enhanced presence in several regional markets. On a combined basis, InSight
will serve its customers in nearly 200 locations in 28 states."
"All the elements for InSight's success are now in place," Atkins
continued. "On day one, InSight is ready with an experienced management team
and a compelling strategy. The market opportunity is now, and we believe
InSight is ideally positioned to be a leader in this consolidating industry."
THE SUM OF THE PARTS CREATES A NEW FOUNDATION
"InSight believes it is poised to move forward, both in terms of our
product offerings and our financial position," said Glenn P. Cato, executive
vice president and chief operating officer of InSight. "New products and
services that have been separately developed by American Health and Maxum
will be enhanced and more effectively marketed under InSight's expanded
network. For example, InSight will be in a position to provide its customers
with a variety of innovative new services, such as radiology out-sourcing,
diagnostic imaging networks, new billing services, and diagnostic temporary
staffing."
"Furthermore, InSight emerges from American Health and Maxum in an
improved financial condition with
- m o r e -
<PAGE>
greater potential for continued growth and increased shareholder value," Cato
continued. "InSight's strength is realized through its internal synergies,
its dedication to health care providers, and its strong partnerships with
hospitals and managed care entities. The ongoing commitment of InSight's
management, employees and business partners supports the company's
competitive stance and its performance targets."
COMPANY DESCRIPTION
InSight Health Services Corp., headquartered in Newport Beach,
California, provides diagnostic imaging, treatment and related management
services through a combination of mobile and fixed-site facilities. It
serves managed care, hospitals and other contractual customers in 28 U.S.
states, including five major U.S. markets: Southern California, the
Southwest, including a major presence in Texas, the Midwest, the Northeast
and the Southeast.
SAFE HARBOR STATEMENT
Except for historical information contained herein, the matters set
forth in this release are forward-looking statements that are dependent on
certain risks and uncertainties, including such factors, among others, as
physician and market acceptance, market demand, pricing, changing regulatory
environment, changing economic conditions, risks in new product and service
development, the effect of the company's accounting policies, and other risk
factors detailed in the company's SEC filings, including the Proxy Statement
dated May 9, 1996, which outlines the details of this merger.
###
