<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[ X ] AMENDMENT TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-28622
INSIGHT HEALTH SERVICES CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0702770
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
4400 MACARTHUR BLVD., SUITE 800, NEWPORT BEACH, CA 92660
(Address of principal executive offices) (Zip Code)
(714) 476-0733
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
The undersigned Registrant hereby amends Part III, Items 10 through 13 of its
Annual Report on Form 10-K for the fiscal year ended June 30, 1997 ("Form
10-K") as set forth in the pages attached hereto. Capitalized terms used but
not defined herein have the meanings ascribed to them in the Form 10-K.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
THE BOARD OF DIRECTORS FOLLOWING THE RECAPITALIZATION
Pursuant to the terms of the Recapitalization (see "Item 1, Business
- --Recapitalization" in the Form 10-K), the number of directors comprising the
Company's Board of Directors ("Board") is fixed at nine. Six directors
("Common Stock Directors") are to be elected by the Common Stock holders, one
of whom ("Joint Director") is to be proposed by the holders of a majority of
each of the Series B Preferred Stock and the Series C Preferred Stock and
approved by a majority of the Board in its sole discretion. Of the three
remaining directors ("Preferred Stock Directors"), two are to be elected by
the holders of the Series B Preferred Stock ("Series B Directors") and one is
to be elected by the holders of the Series C Preferred Stock ("Series C
Director"), in each case acting by written consent and without a meeting of
the Common Stock holders. As long as the initial purchasers of the Series B
Preferred Stock and their affiliates ("Carlyle Stockholders") own at least
50% of the Series B Preferred Stock, the holders of the Series B Preferred
Stock will have the right to elect two Preferred Stock Directors and as long
as the Carlyle Stockholders own at least 25% but less than 50% of such stock,
such holders will have the right to elect one Preferred Stock Director. As
long as GE owns at least 25% of the Series C Preferred Stock, the holders of
the Series C Preferred Stock will have the right to elect one Preferred Stock
Director. Except in the event of a conversion of all of the Series B
Preferred Stock and Series C Preferred Stock into Series D Preferred Stock
(see "Possible Future Board Changes" below), if the ownership percentage of
the Carlyle Stockholders or GE falls below the applicable threshold, the
Preferred Stock Director(s) formerly entitled to be elected by the Series B
Preferred Stock holders or the Series C Preferred Stock holders, as
applicable, will automatically be removed and the Board will be able to fill
the resulting vacancies for the balance of the terms of such directors.
Thereafter, such directors will be elected by the Common Stock holders.
Holders of the Series B Preferred Stock and Series C Preferred Stock are not
entitled to participate in the election of the Common Stock Directors. Such
holders are otherwise entitled to vote as a single class with the Common
Stock on an as-if-converted basis, provided that the maximum aggregate voting
percentage in such event may not exceed 37% of the shares eligible to vote.
Carlyle owns approximately 33% of the voting power of the Common Stock
assuming the conversion of the Series B Preferred Stock and the Series C
Preferred Stock (approximately 35% assuming exercise of the Carlyle
Warrants). GE will own approximately 37% of the voting power of the Common
Stock assuming the conversion of the Series B Preferred Stock and the Series
C Preferred Stock and assuming the Second Closing occurs (approximately 39%
assuming exercise of the GE Warrants). Presently, the Board consists of
seven directors, five of whom are Common Stock Directors and two of whom are
Series B Directors. GE intends to elect its Preferred Stock Director as of
the Second Closing. The vacancy created for the Joint Director has not yet
been filled.
The Company's Certificate of Incorporation provides that the Common Stock
Directors serve for three-year terms which are staggered to provide for the
election of approximately one-third of the Board members each year. The term of
the Class I directors (which will include the Joint Director) expires at the
next annual stockholders' meeting, the term of the Class II directors expires at
the 1998 annual meeting and the term of the Class III directors expires at the
1999 annual meeting. The terms of the two Series B Directors will coincide with
the terms of the Class I and Class III directors, respectively, and the term of
the Series C Director will coincide with the term of the Class II directors.
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Certain information about the Company' s directors is set forth in the following
table:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION TERM TO EXPIRE YEAR FIRST
- ----- ---- ---------------- --------------- ELECTED TO
SERVE
COMMON STOCK DIRECTORS: ---------
<S> <C> <C> <C> <C>
E. Larry Atkins 50 President and Chief Executive
Officer and Director, Class I 1997 1996
Grant R. Chamberlain 32 Director, Class II 1998 1996
Frank E. Egger 53 Chairman of the Board and Director,
Class III 1999 1996
Leonard H. Habas 54 Director, Class III 1999 1996
Ronald G. Pantello 53 Director, Class II 1998 1996
PREFERRED STOCK DIRECTORS:
David W. Dupree 44 Series B Director 2000 1997
Glenn A. Youngkin 30 Series B Director 1998 1997
</TABLE>
E. Larry Atkins has been a director and president and chief executive officer of
the Company since February 23, 1996. Mr. Atkins joined AHS in 1986 and has
served as AHS's president and chief executive officer since August 1990 and
chairman of the board from December 1990 to June 1992. Mr. Atkins served as
executive vice president and chief operating officer of AHS from 1986 to August
1990. Mr. Atkins became a director of AHS in 1988. From 1979 to 1986, Mr.
Atkins served as president and chief executive officer of AMI Diagnostic
Services, a wholly owned subsidiary of American Medical International, Inc.
Grant R. Chamberlain has been a director of the Company since July 19, 1996.
Since April 1995, Mr. Chamberlain has been a vice president of Shattuck
Hammond Partners, Inc., an investment banking firm based in New York City.
From April 1991 to April 1995, he served as manager of strategic investments
and restructurings for GE.
Frank E. Egger has been chairman of the board and a director of the Company
since February 23, 1996. Mr. Egger was a director of AHS from August 1991 until
June 26, 1996. He was appointed chairman of the board of AHS in May 1995, and
served as such until June 26, 1996. From 1995 through December 1996, Mr.
Egger served as vice president of Kovens & Associates, Inc. ("Kovens &
Associates"), a successor entity to Kovens Enterprises, where Mr. Egger served
as chief financial officer from 1980 to 1995. Kovens & Associates was a group
of real estate development and investment companies based in Miami, Florida.
Since December 1996, Mr. Egger has been a consultant.
Leonard H. Habas has been a director of the Company since February 23, 1996.
From 1986 to June 26, 1996, Mr. Habas was a director of MHC. Since 1995 he has
been a director , chairman of the board and chief executive officer of Advance
Publishers, L.C., a book distribution company based in Winter Park, Florida. He
established his own financing and consulting firm in 1987, which he continues to
own. Mr. Habas is also a director of Dick Davis Digest and CeraMed Corporation.
Ronald G. Pantello has been a director of the Company since February 23, 1996.
From 1993 to June 26, 1996, Mr. Pantello was a director of MHC. He is a
founding partner of Lally, McFarland & Pantello, an advertising agency
specializing in the health care industry, based in New York City, and has been
its chief executive officer since 1980.
David W. Dupree is a Managing Director of The Carlyle Group, a Washington,
D.C. based merchant banking firm, where he has been employed since 1992. From
1990 to 1992, Mr. Dupree was a principal in Corporate Finance, Private
Placements, with Montgomery Securities. From 1988 to 1990, he was Vice
President-Corporate Finance and Co-Head of Equity Private Placements at Alex.
Brown & Sons, Incorporated. Mr. Dupree managed the Corporate Finance
Department and served on the Management Advisory Committee at Johnston Lemon
& Co., Incorporated, a regional investment banking
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firm based in Washington, D.C. from 1983 to 1988. Mr. Dupree is also a
director of Care Systems Corporation, Pharmaceutical Research Associates,
Inc., and Whole Foods Market, Inc.
Glenn A. Youngkin is a Vice President at The Carlyle Group, where he has been
employed since 1995. Mr. Youngkin was a consultant with McKinsey & Company,
a global management consulting firm from 1994 to 1995. From 1990 to 1992, Mr.
Youngkin worked in the Natural Resource Group of CS First Boston where he
structured and executed merger and acquisition transactions and capital
market financings.
In fiscal 1997, the Board of Directors held four meetings at which all the
directors were present. In addition, the Board of Directors took action by
unanimous written consent eight times.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During fiscal
1997, the Company's Compensation Committee consisted of two non-employee
directors, Messrs. Habas (co-chairman) and Pantello (co-chairman). The
Compensation Committee is responsible for determining the specific forms and
levels of compensation of the Company's executive officers, and administering
the Company's 1996 Employee Stock Option Plan and 1996 Directors' Stock
Option Plan, AHS's 1987 Stock Option Plan, AHS's 1992 Option and Incentive
Plan, and MHC's 1989 Stock Option Plan.
COMPENSATION OF DIRECTORS. The members of the Board who are not employees of
the Company receive an annual director fee of $15,000 and options to purchase
InSight Common Stock for their services as directors, as provided in the
Company's 1996 Directors' Stock Option Plan ("Directors' Plan"). On March
28, 1996, the Company entered into a consulting agreement with Mr. Egger
pursuant to which Mr. Egger receives $100,000 per year for services rendered
to the Company in connection with its acquisition and financing activities.
See "Item 11 - Employment Agreements and Severance Agreements" and "Item 13
- -Certain Relationships and Related Transactions."
The Directors' Plan provided for the automatic grant at the effective time of
the Merger to each non-employee director then serving on the Board of an
option to purchase 15,000 shares of InSight Common Stock at an exercise price
equal to the fair market value of such stock on the date of the grant. In
addition, each new director of the Company who commences service after the
effective time of the Merger will be granted an option to purchase 15,000
shares of InSight Common Stock. The initial grants vest monthly on a pro rata
basis over a three-year period, so long as the individual remains a director
of the Company or is an employee or independent contractor of the Company or
any of its subsidiaries. At the end of such three-year period and annually
thereafter during the term of the Directors' Plan, so long as the individual
remains a director, he or she will be granted an option to purchase 5,000
shares of InSight Common Stock. These additional grants vest monthly over one
year on the same terms as the initial grants. These options expire ten years
from the date of grant. In accordance with this formula, on June 26, 1996,
each of Messrs. Egger, Habas and Pantello were granted options to purchase
15,000 shares of InSight Common Stock at an exercise price of $5.37 per
share. In addition, on July 19, 1996, Mr. Chamberlain was granted an option
to purchase 15,000 shares of InSight Common Stock at an exercise price of
$7.00 per share.
On July 17, 1997, the Company issued to each of Messrs. Chamberlain, Egger,
Habas and Pantello a warrant to purchase 15,000 shares of InSight Common
Stock at an exercise price of $4.56 per share. The warrants vest
cumulatively at the rate of 416.66 shares per month and are exercisable at
any time up to July 17, 2000.
EXECUTIVE OFFICERS
For fiscal 1997, the executive officers of the Company, together with the year
in which they were appointed to their current positions, are set forth below:
EXECUTIVE OFFICER AGE POSITION YEAR
- ----------------- ----- --------- -----
E. Larry Atkins 50 President, Chief Executive Officer 1996
and Director
Glenn P. Cato 44 Senior Executive Vice President and 1996
Chief Operating Officer
Thomas V. Croal 38 Executive Vice President, Chief
Financial Officer and Secretary 1996
Michael A. Boylan 41 Senior Vice President-Operations 1996
Michael D. Cragin 50 Senior Vice President-Operations 1996
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Brian G. Drazba 36 Senior Vice President-Finance and 1996
Corporate Controller
Robert N. LaDouceur 53 Senior Vice President-Operations 1996
Deborah M. MacFarlane 42 Senior Vice President-Marketing 1996
Robert J. Armstrong 60 Vice President-Design and Construction 1996
T. Michael Henderson 53 Vice President-Business Development 1997
Information concerning Mr. Atkins is set forth above under "The Board of
Directors Following The Recapitalization."
Glenn P. Cato has been senior executive vice president and chief operating
officer of the Company since February 23, 1996. Mr. Cato has served as
president and chief executive officer of MHC since March 1994 and served as
secretary from 1993 until June 26, 1996. From 1989 to 1994, he served as senior
vice president and chief financial officer of MHC.
Thomas V. Croal has been executive vice president, chief financial officer and
secretary of the Company since February 23, 1996. Mr. Croal served as a
director of AHS from March 1991 until June 26, 1996. He has served as vice
president and chief financial officer of AHS since April 1991. He was
controller of AHS from 1989 until April 1991. In December 1990, Mr. Croal was
appointed corporate secretary. From 1981 to 1989, Mr. Croal was employed by
Arthur Andersen & Co., an independent public accounting firm.
Michael A. Boylan has been senior vice president-operations of the Company
since February 23, 1996. Mr. Boylan has served as executive vice president
of MHC since March 1994. From 1992 to 1994, he served as a regional vice
president of MHC's principal operating subsidiary, Maxum Health Services
Corp. ("MHSC"). From 1991 to 1992, he served as an executive director of
certain of MHC's operations. From 1986 to 1991, Mr. Boylan served in various
capacities as an officer or employee, including president and chief operating
officer, with American Medical Imaging Corporation.
Michael D. Cragin has been senior vice president-operations of the Company
since February 23, 1996. Mr. Cragin has served as regional vice president,
western operations of AHS since he joined AHS in May 1994. From 1989 to 1994,
he was Director of Professional Business Affairs at Saint John's Hospital,
Santa Monica, California.
Brian G. Drazba was elected senior vice president-finance of the Company on
July 18, 1997. From March 28, 1996 he served as vice president-finance of
the Company. Since June 1995, he has served as vice president, finance of
AHS. Mr. Drazba served as corporate controller for AHS from 1992 to 1995.
From 1985 to 1992, Mr. Drazba was employed by Arthur Andersen & Co.
Robert N. LaDouceur has been senior vice president-operations of the Company
since February 23, 1996. Mr. LaDouceur has served as executive vice
president of MHC since March 1994. From 1992 to 1994, he served as a regional
vice president of MHSC. From 1991 to 1992, he served as an executive director
of certain of MHC's operations. From 1984 to 1991, Mr. LaDouceur served in
various capacities as an officer or employee, including vice president, with
Glassrock Home Health Care.
Deborah M. MacFarlane has been senior vice president-marketing of the Company
since March 28, 1996. Since July 1991, she has served as vice president,
marketing of AHS. From 1987 until June 1991, Ms. MacFarlane served as
director of marketing for the Center Operating Group of Medical Imaging
Centers of America, Inc.
Robert J. Armstrong has been vice president-design and construction of the
Company since March 28, 1996. Since 1985, Mr. Armstrong has been vice
president, design and construction of AHS. Mr. Armstrong served as director
of design and construction of AHS from 1983 to 1985.
T. Michael Henderson has been vice president-business development of the
Company since February 10, 1997. From 1996 to February 1997, Mr. Henderson
was director of strategic accounts for Toshiba America Medical Systems, Inc.
From 1992 to 1996, Mr. Henderson was president of International Medical
Resources, Inc., an international marketer of medical equipment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act")
requires the Company's directors and officers and persons who own more than
10% of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") and the National
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Association of Securities Dealers, Inc. Directors and officers and greater
than 10% stockholders are required by SEC regulation to furnish the Company
with copies of the reports they file. Based solely on the review of the
copies of such reports and written representations from certain persons that
certain reports were not required to be filed by such persons, the Company
believes that all its directors, officers and greater than 10% beneficial
owners complied with all filing requirements applicable to them with respect
to transactions for the period July 1, 1996 through June 30, 1997, except
that Mr. Henderson failed to timely file an Initial Statement of Beneficial
Ownership of Securities on Form 3, and Mr. Egger failed to file timely a
Statement of Changes in Beneficial Ownership on Form 4 reporting the grant of
a warrant; when it was brought to their attention, Mr. Henderson promptly
filed a Form 3 and Mr. Egger promptly filed a Form 4, disclosing these
inadvertent omissions.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Because (i) the Company was not a reporting company pursuant to Section 13(a)
or 15(d) of the Exchange Act until June 26, 1996, (ii) its fiscal year ended
shortly thereafter on June 30, 1996 and (iii) each of its predecessors, MHC
and AHS, were reporting companies and have reported executive compensation
information through the year ended December 31, 1995, the following table
sets forth information concerning the annual, long-term and all other
compensation for services rendered in all capacities to the Company, its
subsidiaries and predecessors for the years ended December 31, 1995 and 1994,
the six months ended June 30, 1996 and the year ended June 30, 1997 of (i)
the Company's Chief Executive Officer and (ii) the four most highly
compensated executive officers (other than the chief executive officer) of
the Company (the "Other Executive Officers") whose aggregate cash
compensation exceeded $100,000 for the year ended June 30, 1997
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term All Other
Annual Compensation Compensation Comp(3)
----------------------------------------------------------- Awards
Name and Principal Stock Options
Position Period Salary(1) Bonus(2) Other(3) (Shares)
- --------- --------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
E. Larry Atkins Year ended 1997 $246,400 $86,000 $2,160 100,000 $11,040
President and Chief Six months ended
Executive Officer June 30, 1996 123,200 -- 5,250 -- 4,691
Year ended 1995 246,400 61,600 4,680 175,000 7,882
Year ended 1994 220,000 54,000 3,789 -- 9,327
Glenn P. Cato Year ended 1997 180,000 54,000 9,000 25,000 13,296
Senior Executive Vice Six months ended
President and Chief June 30, 1996 97,500 10,000 3,000 -- --
Operating Officer Year ended 1995 172,500 20,000 6,000 30,000 3,158
Year ended 1994 143,750 71,875 4,500 57,500 1,751
Thomas V. Croal Year ended 1997 175,230 53,000 2,340 25,000 9,804
Executive Vice Six months ended
President, Chief June 30, 1996 87,615 -- 4,500 -- 2,669
Financial Officer and Year ended 1995 175,230 43,808 4,742 125,000 5,252
Corporate Secretary Year ended 1994 148,500 38,000 4,836 -- 3,519
Robert N. LaDouceur Year ended 1997 165,000 36,000 7,800 10,000 8,169
Senior Vice Six months ended
President-Operations June 30, 1996 82,500 10,000 3,900 -- --
Year ended 1995 165,000 20,000 6,400 30,000 3,072
Year ended 1994 165,000 82,500 5,400 35,000 1,751
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Michael A. Boylan Year ended 1997 165,000 36,000 7,800 10,000 5,509
Senior Vice Six months ended
President-Operations June 30, 1996 81,865 25,000 3,900 -- --
Year ended 1995 165,000 20,000 6,400 30,000 --
Year ended 1994 165,000 82,500 5,400 35,000 --
--------------- -------- ------- ------- ---------- ---------
</TABLE>
(1) Includes amounts for periods during which the chief executive officer
and the Other Executive Officers of the Company, whose aggregate cash
compensation exceeded $100,000, served as executive officers of AHS or MHC,
which are now wholly owned subsidiaries of the Company.
(2) Annual bonuses are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of each fiscal year.
(3) Amounts of Other Annual Compensation include perquisites (auto
allowances and commissions for contract awards and renewals) and amounts of
All Other Compensation include (i) amounts contributed to the Company's,
MHC's or AHS's 401(k) profit sharing plans, as the case may be, (ii)
specified premiums on executive split-dollar insurance arrangements,
and (iii) specified premiums on executive health insurance arrangements,
for the chief executive officer and the Other Executive Officers of
the Company.
OPTION GRANTS
The following table sets forth information concerning options granted to each of
the chief executive officer and the Other Executive Officers of the Company
during the year ended June 30, 1997.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
% of
Total
Number of Options Potential Realizable
Securities Granted to Value at Assumed
Underlying Employees Exercise Annual Rates of Stock
Options in Price Per Expiration Price Appreciation for
Name Granted Fiscal Year Share (2) Date (3) Option Term (1)
- ------ --------- ------------- ---------- -------- -----------------
<S> <C> <C> <C> <C> <C>
5% 10%
E. Larry Atkins 100,000 46% $6.25 10-02-2006 $393,059 $996,089
Glenn P. Cato 25,000 11% 6.25 10-02-2006 98,265 249,022
Thomas V. Croal 25,000 11% 6.25 10-02-2006 98,265 249,022
Robert N. LaDouceur 10,000 5% 6.25 10-02-2006 39,306 99,609
Michael A. Boylan 10,000 5% 6.25 10-02-2006 39,306 99,609
</TABLE>
(1) Potential realizable value is determined by taking the exercise price per
share and applying the stated annual appreciation rate compounded annually for
the remaining term of the option (ten years), subtracting the exercise price per
share at the end of the period and multiplying the remaining number by the
number of options granted. Actual gains, if any, on stock option exercises and
InSight Common Stock holdings are dependant on the future performance of InSight
Common Stock and overall stock market conditions.
(2) All options were granted at fair market value (the closing price reported
on NASDAQ Small Cap Market for InSight Common Stock).
(3) Options granted in fiscal 1997 are exercisable starting twelve (12) months
after the grant date, with 25% of the shares becoming exercisable at that time
and with an additional 25% of the shares becoming exercisable on each
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successive anniversary date, with full vesting occurring on the fourth
anniversary date. The options were granted for a term of ten years, subject to
earlier termination in certain events related to termination of employment.
No stock options were granted under any stock option plan of either AHS or MHC,
to the chief executive officer and the Other Executive Officers of the Company.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
During the year ended June 30, 1997, neither of the chief executive officer
nor the Other Executive Officers of the Company exercised any stock options.
The following table sets forth information with respect to the unexercised
stock options to purchase InSight Common Stock granted, under (i) MHC's and
AHS's stock option plans and assumed by the Company pursuant to the Merger,
and (ii) the Company's 1996 Employee Stock Option Plan, to the chief executive
officer and the Other Executive Officers of the Company as of June 30, 1997.
Number of Unexercised Value of Unexercised
Options Held at In-the-Money Options at
Name June 30, 1997 June 30, 1997
-------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
E. Larry Atkins 10,500 107,000 $ 18,375 $ 12,250
Glenn P. Cato 52,325 25,000 195,819 --
Thomas V. Croal 7,500 30,000 13,125 8,750
Robert N. LaDouceur 38,870 10,000 144,260 --
Michael A. Boylan 38,870 10,000 144,260 --
-------- ------- --------- -----------
(1) Based on the closing price reported on NASDAQ Small Cap Market for InSight
Common Stock on that date of $4.25.
INDEMNIFICATION AGREEMENTS
The Company has entered into separate indemnification agreements with each of
its directors and officers that could require the Company, among other things,
to indemnify them against certain liabilities that may arise by reason of their
status or service as directors and officers and to advance expenses incurred by
them as a result of any proceedings against them as to which they could be
indemnified.
The Recapitalization agreements also contain provisions for the indemnification
of the Company's directors under certain circumstances. The agreements pursuant
to which the Carlyle Stockholders and GE acquired Series B Preferred Stock and
Series C Preferred Stock, respectively, provide that the Company will indemnify,
defend and hold harmless the Carlyle Stockholders and GE, as the case may be,
and their respective affiliates, directors, officers, advisors, employees and
agents to the fullest extent lawful from and against all demands, losses,
damages, penalties, claims, liabilities, obligations, actions, causes of action
and reasonable expenses ("Losses') arising out of the agreements or the related
transactions or arising by reason of or resulting from the breach of any
representation, warranty, covenant or agreement of the Company contained in such
agreements for the period for which such representation or warranty survives;
provided, however, that the Company does not have any liability to indemnify the
Carlyle Stockholders or GE with respect to Losses arising from the bad faith or
gross negligence of the Carlyle or GE indemnified party. The Recapitalization
agreements provide that no claim may be made by the Carlyle Stockholders or GE
against the Company for indemnification until the aggregate dollar amount of all
Losses incurred by the Carlyle Stockholders or GE, as applicable, exceeds
$250,000 and the indemnification obligations of the Company shall be effective
only until the dollar amount paid in respect of the Losses incurred by the
Carlyle Stockholders or GE, as applicable, and indemnified against aggregates to
an amount equal to $25 million, except with respect to Losses resulting from the
breaches of certain representations or covenants, which are unlimited in amount.
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EMPLOYMENT AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company has entered into executive employment agreements with its chief
executive officer, the Other Executive Officers and Messrs. Cragin, Drazba and
Henderson and Ms. MacFarlane, which provide for rolling twelve (12) month
periods of employment, and severance compensation equal to 12 months of
compensation at his or her annual salary rate then in effect, in the event the
executive's employment is terminated (i) because of physical or mental
disability, (ii) because of discretionary action of the Board of InSight, or
(iii) voluntarily by the executive due to a "Change of Control." A "Change of
Control" will have occurred if (a) the Company or its stockholders enter into an
agreement to dispose of, whether by sale, exchange, merger, consolidation,
reorganization, dissolution or liquidation, (i) not less than 80% of the assets
of the Company or (ii) a portion of the outstanding InSight Common Stock such
that one person or "group" (as defined by the SEC) owns, of record or
beneficially, not less than 50% of the outstanding InSight Common Stock; or (b)
one person or "group" (as defined by the SEC) acquires not less than 18% of the
Post-Conversion Common Stock (as defined below). However, a Change of Control
will not have occurred if GE converts its Series A Preferred Stock into
InSight Common Stock. "Post-Conversion Common Stock" means the outstanding
InSight Common Stock issuable, at the time a determination is made, upon
conversion of the outstanding Series A Preferred Stock. In the event that the
executive's employment is terminated for cause, he or she has no right to
receive any severance compensation under his or her employment agreement. In
consideration for such severance compensation, each executive has agreed not to
solicit, entice, divert or otherwise contact any customer or employee of InSight
for any provision of services which constitute "Company Business" during the
period that the executive is receiving severance compensation or for a period of
12 months after the executive's termination of employment, whichever is later.
"Company Business" means the development and operation, at times together with
other healthcare providers, of outpatient facilities which provide diagnostic
services in the areas of general radiology, MRI, cardiology and neurosciences
utilizing the related equipment and computer programs and software and various
distribution methods and investment structures.
Mr. Egger, a director and chairman of the board, has entered into a consulting
agreement with InSight providing for compensation at the rate of $100,000 per
year. Mr. Egger's agreement provides for severance compensation equal to 12
months of compensation in the event the agreement is terminated as a result of
(i) Mr. Egger becoming physically or mentally disabled, (ii) discretionary
action of the Board of InSight, or (iii) a corporate reorganization that has the
effect of diminishing or impairing Mr. Egger's consulting responsibilities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership, reported to the Company as
of October 14, 1997, of InSight's Common Stock, including shares as to which a
right to acquire ownership exists (for example, through the exercise of stock
options and warrants and conversions of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock within the meaning of Rule
13d-3(d)(1) under the Exchange Act), of (i) each person known to the Company to
own beneficially 5% or more of InSight Common Stock, (ii) each director of the
Company, (iii) the Company's executive officers, and (iv) all directors and
executive officers, as a group.
NAME AND ADDRESSES OF AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNERS OF BENEFICIAL COMMON STOCK
------------------- OWNERSHIP OF BENEFICIALLY
COMMON STOCK (1) OWNED (1)
---------------- -----------
Carlyle Stockholders (2) 3,235,075 54.4%
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
General Electric Company (3) 3,587,581 56.9%
20825 Swenson Drive
Suite 100
Waukesha, WI 53186
E. Larry Atkins (4) 47,600 1.7%
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
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Grant R. Chamberlain (5) 7,083 *
620 Fifth Avenue - Suite 2950
New York, NY 10111
Frank E. Egger (6) 52,804 1.9%
10301 S.W. 13th Street
Pembroke Pines, FL 33025
Leonard H. Habas (7) 39,925 1.5%
501 S. New York Avenue - Suite 210
Winter Park, FL 32789
David W. Dupree (8) 0 0
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Glenn A. Youngkin (9) 0 0
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Estate of Cal Kovens (10) 482,031 17.4%
9999 Collins Avenue #1K
Bal Harbour, FL 33154
Roz Kovens (11) 563,276 20.3%
9999 Collins Avenue #1K
Bal Harbour, FL 33154
Ronald G. Pantello (12) 25,440 *
60 Madison Avenue
New York, NY 10010
Glenn P. Cato (13) 58,575 2.1%
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Thomas V. Croal (14) 15,250 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Michael A. Boylan (15) 41,370 1.5%
110 Gibraltar Road
Horsham, PA 18901
Robert N. LaDouceur (16) 41,370 1.5%
11011 King Street - Suite 240
Overland Park, KS 66210
Robert J. Armstrong (17) 0 0
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Michael D. Cragin (18) 3,750 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
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Brian G. Drazba (19) 2,000 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
T. Michael Henderson (20) 0 0
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Deborah M. MacFarlane (21) 3,750 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Tammy M. Morita (22) 0 0
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Susan E. Arnheiter (23) 0 0
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Cecilia A. Guastaferro (24) 0 0
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Joseph F. Denninger (25) 8,970 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Julia E. Krikorian (26) 0 0
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
All directors and executive
officers as a group (21 persons) (27) 347,887 11.6%
* Less than 1% of the outstanding Common Stock.
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any security that such person has the right to acquire within 60
days after October 14, 1997.
(2) The information in the table is based upon the Schedule 13D filed with the
SEC by the Carlyle Stockholders on October 24, 1997. Represents shares of
Common Stock issuable upon conversion of all 25,000 shares of Series B Preferred
Stock (convertible into 2,985,075 shares of Common Stock) and exercise of the
Carlyle Warrants (exercisable for 250,000 shares of Common Stock) held by the
Carlyle Stockholders, which Stockholders are comprised of the entities listed in
the following sentence. The cumulative Carlyle Stockholders ownership figure
represents (i) 3,235,075 shares beneficially owned by Carlyle Partners II, L.P.,
including 8,208 shares of Series B Preferred Stock (convertible into 980,028
shares of Common Stock) and Carlyle Warrants to purchase 82,077 shares of Common
Stock with respect to which it has disposal power, and 3,235,075 shares with
respect to which it shares voting power; (ii) 3,235,075 shares beneficially
owned by Carlyle Partners III, L.P., including 375 shares of Series B Preferred
Stock (convertible into 44,732 shares of Common Stock) and Carlyle Warrants to
purchase 3,764 shares of Common Stock with respect to which it has disposal
power, and 3,235,075 shares with respect to which it shares voting power; (iii)
896,526 shares beneficially owned by Carlyle International Partners II, L.P.,
including 6,928 shares of Series B Preferred Stock (convertible into 827,244
shares of Common Stock) and Carlyle Warrants to purchase 69,282 shares of Common
Stock with respect to which it has disposal power and shares voting power; (iv)
48,304 shares beneficially owned by Carlyle International Partners III,
L.P., including 373 shares of Series B Preferred Stock (convertible into 44,571
shares of Common Stock) and Carlyle Warrants to purchases 3,733 shares of Common
Stock with respect to which it has disposal power and shares voting power; (v)
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201,857 shares beneficially owned by C/S International Partners, including
1,559 shares of Series B Preferred Stock (convertible into 186,258 shares of
Common Stock) and Carlyle Warrants to purchase 15,599 shares of Common Stock
with respect to which it has disposal power and shares voting power; (vi)
1,115 shares beneficially owned by Carlyle Investment Group, L.P., including
9 shares of Series B Preferred Stock (convertible into 1,029 shares of Common
Stock) and Carlyle Warrants to purchase 86 shares of Common Stock with
respect to which it has disposal power and shares voting power; (vii)
118,902 shares beneficially owned by Carlyle-InSight International Partners,
L.P., including 919 shares of Series B Preferred Stock (convertible into
109,714 shares of Common Stock) and Carlyle Warrants to purchase 9,178 shares
of Common Stock with respect to which it has disposal power and shares voting
power; (viii) 3,235,075 shares beneficially owned by Carlyle-InSight
Partners, L.P. including 3,181 shares of Series B Preferred Stock
(convertible into 379,863 shares of Common Stock) and Carlyle Warrants to
purchase 31,813 shares of Common Stock with respect to which it has disposal
power and 3,235,075 shares with respect to which it shares voting power; and
(ix) 446,404 shares beneficially owned by Carlyle Investment Management,
L.L.C. acting as investment advisor and manager with responsibility to invest
certain assets of the State Board of Administration of the State of Florida
("State Board"), including 3,448 shares of Series B Preferred Stock
(convertible into 411,658 shares of Common Stock) and Carlyle Warrants to
purchase 34,746 shares of Common Stock with respect to which it has disposal
power and shares voting power. TC Group, L.L.C. may be deemed to share
voting and disposal power with respect to, and therefore be the beneficial
owner of, 3,235,075 shares of Common Stock as the general partner of Carlyle
Partners II, L.P., Carlyle Partners III, L.P., Carlyle Investment Group,
L.P., and Carlyle-InSight Partners, L.P., and as the managing partner of
Carlyle International Partners II, L.P., Carlyle International Partners III,
L.P., C/S International Partners, and Carlyle-InSight International Partners
II, L.P. TCG Holdings, L.L.C., as a member holding a controlling interest in
TC Group, L.L.C., may be deemed to share all rights herein described
belonging to TC Group, L.L.C. Furthermore, because certain managing members
of TCG Holdings, L.L.C, are also managing members of Carlyle Investment
Management, L.L.C., Carlyle Investment Management, L.L.C. may be deemed to be
part of the Carlyle Stockholders and consequently, TCG Holdings, L.L.C. may
be deemed the beneficial owner of the shares of Common Stock controlled by
Carlyle Investment Management, L.L.C. The principal business address of TC
Group, L.L.C. and TCG Holdings, L.L.C. is c/o The Carlyle Group, 1001
Pennsylvania Avenue, N.W., Suite 220 South, Washington, D.C. 20004. The
principal business address of Carlyle Partners II, L.P., Carlyle Partners
III, L.P., Carlyle Investment Group, L.P., Carlyle-InSight Partners, L.P.,
and Carlyle Investment Management, L.L.C. is Delaware Trust Building, 900
Market Street, Suite 200, Wilmington, Delaware 19801. The principal business
address of Carlyle International Partners II, L.P., Carlyle International
Partners III, L.P., C/S International Partners, and Carlyle-InSight
International Partners, L.P. is Coutts & Co., P.O. Box 707, Cayman Islands,
British West Indies. The Carlyle Stockholders own all of the outstanding
shares of the Series B Preferred Stock.
(3) The information in the table is based upon Amendment No. 1 to Schedule
13D filed by GE with the SEC on October 23, 1997. Represents shares of
Common Stock issuable upon (i) conversion of all 2,501,760 shares of Series A
Preferred Stock (convertible into 2,501,760 shares of Common Stock) and 7,000
shares of Series C Preferred Stock (convertible into 835,821 shares of Common
Stock) held by GE and (ii) exercise of the GE Warrants (exercisable for
250,000 shares of Common Stock). GE is obligated to exchange the shares of
Series A Preferred Stock for 20,953 shares of Series C Preferred Stock
(convertible into 2,501,851 shares of Common Stock) at the Second Closing.
GE owns all of the outstanding shares of Series A Preferred Stock and Series
C Preferred Stock.
(4) Includes options to purchase 10,500 shares of Common Stock at an exercise
price of $2.50 per share and (ii) options to purchase 25,000 shares of Common
Stock at an exercise price of $6.25 per share. Does not include (i) options
to purchase 7,000 shares of Common Stock at an exercise price of $2.50 per
share, (ii) options to purchase 75,000 shares of Common Stock at an exercise
price of $6.25 per share, and (iii) options to purchase 50,000 shares of
Common Stock at an exercise price of $4.56 per share, which are not currently
exercisable.
(5) Includes (i) options to purchase 5,833 shares of Common Stock at an
exercise price of $7.00 per share and (ii) warrants to purchase 1,250 shares of
Common Stock at an exercise price of $4.56 per share. Does not include options
to purchase 9,167 shares of Common Stock at an exercise price of $7.00 per share
and (ii) warrants to purchase 13,750 shares of Common Stock at an exercise price
of $4.56 per share, which are not currently exercisable.
(6) Includes (i) options to purchase 6,250 shares of Common Stock at an
exercise price of $5.37 per share, (ii) options to purchase 1,800 shares of
Common Stock at an exercise price of $2.50 per share, (iii) options to purchase
2,000 shares of Common Stock at an exercise price of $16.20 per share,
(iv)warrants to purchase 2,268 shares of
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Common Stock at an exercise price of $5.64 per share, and (v) warrants to
purchase 1,250 shares of Common Stock at an exercise price of $4.56 per share.
Does not include (i) options to purchase 9,750 shares of Common Stock at an
exercise price of $5.37 per share, (ii) options to purchase 1,200 shares of
Common Stock at an exercise price of $2.50 per share and (iii) warrants to
purchase 13,750 shares of Common Stock at an exercise price of $4.56 per share,
which are not currently exercisable. 19,218 shares of Common Stock and the
warrants listed in clause (iv) of the first sentence of this footnote are
pledged to the estate of Cal Kovens as security for the repayment of a loan. If
the loan is not repaid when due, the estate of Mr. Kovens would have the right
to sell such of the pledged securities as are necessary to satisfy such
indebtedness.
(7) Includes (i) options to purchase 6,250 shares of Common Stock at an
exercise price of $5.37 per share, (ii) options to purchase 4,485 shares of
Common Stock at an exercise price of $15.84 per share, (iii) options to purchase
8,970 shares of Common Stock at an exercise price of $1.25 per share, (iv)
options to purchase 8,970 shares of Common Stock at an exercise price of $0.10
per share and (v) warrants to purchase 1,250 shares of Common Stock at an
exercise price of $4.56 per share. Does not include (i) options to purchase
8,750 shares of Common Stock at an exercise price of $5.37 per share and (ii)
warrants to purchase 13,750 shares of Common Stock at an exercise price of $4.56
per share, which are not currently exercisable.
(8) Mr. Dupree is a Managing Member of TCG Holdings, L.L.C. Mr. Dupree's
interest in TCG Holdings, L.L.C. is not controlling and thus Mr. Dupree
expressly disclaims any beneficial ownership in the Common Stock beneficially
owned by TCG Holdings, L.L.C.
(9) Mr. Youngkin is an employee of The Carlyle Group and holds no economic
interest in either TC Group L.L.C. or TCG Holdings, L.L.C., and as such
expressly disclaims any beneficial ownership in the Common Stock beneficially
owned by any of the Carlyle Stockholders.
(10) The information in the table is based upon Amendment No. 1 to
Schedule 13D filed with the SEC on July 9, 1996. Includes (i) warrants to
purchase 20,000 shares of Common Stock at an exercise price of $2.50 per
share and (ii) warrants to purchase 33,645 shares of Common Stock at an
exercise price of $5.64 per share.
(11) The information in the table is based upon Amendment No. 1 to
Schedule 13D filed with the SEC on July 9, 1996. Includes (i) warrants to
purchase 7,660 shares of Common Stock at an exercise price of $5.64 per
share, (ii) options to purchase 1,800 shares of Common Stock at an exercise
price of $2.50 per share and (iii) by virtue of her status as personal
representative of the estate of Cal Kovens, the 482,031 shares beneficially
owned thereby.
(12) Includes (i) options to purchase 6,250 shares of Common Stock at an
exercise price of $5.37 per share, (ii) options to purchase 8,970 shares of
Common Stock at an exercise price of $1.25 per share, (iii) options to
purchase 8,970 shares of Common Stock at an exercise price of $0.10 per
share and (iv) warrants to purchase 1,250 shares of Common Stock at an
exercise price of $4.56 per share. Does not include (i) options to purchase
8,750 shares of Common Stock at an exercise price of $5.37 per share and (ii)
warrants to purchase 13,750 shares of Common Stock at an exercise price of
$4.56 per share, which are not currently exercisable.
(13) Includes (i) options to purchase 25,415 shares of Common Stock at an
exercise price of $0.42 per share, (ii) options to purchase 8,970 shares of
Common Stock at an exercise price of $0.10 per share, (iii) options to
purchase 17,940 shares of Common Stock at an exercise price of $0.84 per
share and (iv) options to purchase 6,250 shares of Common Stock at an
exercise price of $6.25 per share. Does not include (i) options to purchase
18,750 shares of Common Stock at an exercise price of $6.25 and (ii) options
to purchase 30,000 shares of Common Stock at an exercise price of $4.56 per
share, which are not currently exercisable.
(14) Includes (i) options to purchase 7,500 shares of Common Stock at an
exercise price of $2.50 per share and (ii) options to purchase 6,250 shares
of Common Stock at an exercise price of $6.25 per share. Does not include
(i) options to purchase 18,750 shares of Common Stock at an exercise price of
$6.25 per share and (ii) options to purchase 25,000 shares of Common Stock at
an exercise price of $4.56 per share, which are not currently exercisable,
(15) Includes (i) options to purchase 11,960 shares of Common Stock at an
exercise price of $0.42 per share, (ii) options to purchase 8,970 shares of
Common Stock at an exercise price of $0.10 per share, (iii) options to
purchase 17,940 shares of Common Stock at an exercise price of $0.84 per
share and (iv) options to purchase 2,500 shares of Common Stock at an
exercise price of $6.25 per share. Does not include (i) options to purchase
7,500
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shares of Common Stock at an exercise price of $6.25 per share and (ii)
options to purchase 10,000 shares of Common Stock at an exercise price of
$4.56 per share, which are not currently exercisable.
(16) Includes (i) options to purchase 11,960 shares of Common Stock at
an exercise price of $0.42 per share, (ii) options to purchase 8,970 shares
of Common Stock at an exercise price of $0.10 per share, (iii) options to
purchase 17,940 shares of Common Stock at an exercise price of $0. 84 per
share and (iv) options to purchase 2,500 shares of Common Stock at an
exercise price of $6.25 per share. Does not include (i) options to purchase
7,500 shares of Common Stock at an exercise price of $6.25 and (ii) options
to purchase 10,000 shares of Common Stock at an exercise price of $4.56 per
share, which are not currently exercisable.
(17) Does not include options to purchase 10,000 shares of Common Stock
at an exercise price of $4.56 per share, which are not currently exercisable.
(18) Includes options to purchase 3,750 shares of Common Stock at an
exercise price of $6.25 per share. Does not include (i) options to purchase
11,250 shares of Common Stock at an exercise price of $6.25 per share and
(ii) options to purchase 10,000 shares of Common Stock at an exercise price
of $4.56 per share, which are not currently exercisable.
(19) Includes options to purchase 2,000 shares of Common Stock at an
exercise price of $6.25 per share. Does not include (i) options to purchase
6,000 shares of Common Stock at an exercise price of $6.25 per share and (ii)
options to purchase 10,000 shares of Common Stock at an exercise price of
$4.56 per share, which are not currently exercisable.
(20) Does not include (i) options to purchase 10,000 shares of Common
Stock at an exercise price of $4.75 per share and (ii) options to purchase
5,000 shares of Common Stock at an exercise price of $4.56 per share, which
are not currently exercisable.
(21) Includes options to purchase 3,750 shares of Common Stock at an
exercise price of $6.25 per share. Does not include (i) options to purchase
11,250 shares of Common Stock at an exercise price of $6.25 per share and
(ii) options to purchase 10,000 shares of Common Stock at an exercise price
of $4.56 per share, which are not currently exercisable.
(22) Does not include options to purchase 5,000 shares of Common Stock at
an exercise price of $4.56 per share, which are not currently exercisable.
(23) Does not include options to purchase 5,000 shares of Common Stock at
an exercise price of $4.56 per share, which are not currently exercisable.
(24) Does not include options to purchase 5,000 shares of Common Stock at
an exercise price of $4.56 per share, which are not currently exercisable.
(25) Includes (i) options to purchase 2,990 shares of Common Stock at an
exercise price of $15.64 per share, (ii) options to purchase 4,485 shares of
Common Stock at an exercise price of $0.10 per share and (iii) options to
purchase 1,495 shares of Common Stock at an exercise price of $0.16 per
share. Does not include options to purchase 5,000 shares of Common Stock at
an exercise price of $4.56 per share, which are not currently exercisable.
(26) Does not include options to purchase 5,000 shares of Common Stock at
an exercise price of $4.56 per share, which are not currently exercisable.
(27) Assumes the exercise in full of options or warrants described in
footnotes (4) through (9) and (12) through (26) that are currently
exercisable or that will become exercisable within 60 days of October 14,
1997.
Except as otherwise noted, the Company believes that each of the stockholders
listed in the table above has sole voting and dispositive power over all
shares owned.
POSSIBLE FUTURE BOARD CHANGES
Pursuant to the terms of the Series B Preferred Stock and the Series C
Preferred Stock (collectively, the "Preferred Stock"), the number of
directors is currently fixed at nine, including six Common Stock Directors
(one of whom is the Joint Director) who are to be elected by the Common
Stock holders (without the participation of the Preferred Stock holders), and
three Preferred Stock Directors, two of whom (the "Series B Directors") are
to be elected by the
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Series B Preferred Stock holders and one of whom (the "Series C Director") is
to be elected by the Series C Preferred Stock holders. There are currently
seven directors, including five Common Stock Directors and two Series B
Directors. GE intends to fill the Series C Director vacancy as of the date
of the Second Closing. The Joint Director vacancy has not yet been filled.
Thus, the Common Stock holders currently are entitled to elect a majority of
the Board.
Under certain circumstances, the holders of the Series D Preferred Stock
(which is issuable only on conversion of the Series B Preferred Stock and the
Series C Preferred Stock) would be entitled to elect a majority of the Board.
If, at any time on or after the first anniversary of the initial funding
under the Bank Financing (which occurred on October 22, 1997) ("Trigger
Date"), a majority of the holders of each of the Series B Preferred Stock and
the Series C Preferred Stock elect to convert such stock into Series D
Preferred Stock, then all shares of Series B Preferred Stock and Series C
Preferred Stock will automatically be converted into shares of Series D
Preferred Stock on the date of such election ("Conversion Date").
Immediately following such conversion, the number of members of the Board
will be increased by the smallest number of directors ("Conversion
Directors") such that the percentage of the total Board represented by the
Conversion Directors and the Preferred Stock Directors ("Series D Directors")
would correspond to the percentage of Common Stock owned by the Series D
Preferred Stock holders on an as-if-converted basis, provided that the Series
D Directors shall constitute less than two-thirds of the Board. In such
event, the Preferred Stock Directors would remain on the Board and the
vacancies created for the Conversion Directors would be filled by the Series
D Preferred Stock holders. The percentage of the outstanding Common Stock
currently owned by the Series B Preferred Stock holders, assuming conversion
of all of the outstanding Series B Preferred Stock and Series C Preferred
Stock, is approximately 33% and the percentage of the outstanding Common Stock
currently owned by the Series C Preferred Stock holders, assuming conversion
of all of the outstanding Series B Preferred Stock and Series C Preferred
Stock, is approximately 37%. If such Preferred Stock were converted into
Series D Preferred Stock on or after the Trigger Date, the aggregate
percentage of Common Stock owned by the Series D Preferred Stock holders
would be approximately 70%. Thus, as a result of such conversion, designees
of the Series D Preferred Stock holders would constitute a majority (but
less than two-thirds) of the Board.
The holders of Series D Preferred Stock will have the right to vote with the
holders of Common Stock with respect to all matters submitted to a
stockholder vote except, until the second annual meeting of stockholders
after the Conversion Date, for the election of directors. At and after the
second annual stockholders meeting, the positions of all directors whose
terms have expired will be subject to election by holders of Common Stock and
Series D Preferred Stock voting together as a class, with each share of
Series D Preferred Stock having the number of votes equal to the number of
shares of Common Stock into which such share is then convertible.
Notwithstanding the foregoing, if the Conversion Date is prior to October 14,
1999, then from the Conversion Date until the second subsequent annual
stockholders meeting, except as provided in the next sentence, none of the
following transactions may be effected by the Company, and neither the
Carlyle Stockholders, GE, nor any other holder of Series D Preferred Stock
shall participate in such transactions, if any transferee of the Carlyle
Stockholders or GE or any other person referred to in the following clauses
beneficially owns five percent (5%) or more of the Company's voting shares:
(i) any merger or consolidation of the Company or any of its subsidiaries
with or into such person; (ii) any sale, lease, exchange or other disposition
of all or any substantial part of the assets of the Company or any of its
subsidiaries to such other person; (iii) the issuance or delivery of any
voting securities of the Company or any of its subsidiaries to such other
person in exchange for cash, other assets or securities, or a combination
thereof; or (iv) any dissolution or liquidation of the Company. The
foregoing prohibition shall not apply with respect to a transaction approved
by (i) at least 80% of the Company's outstanding voting shares (which
includes the Common Stock and the Series D Preferred Stock) or (ii) at least
two-thirds of the Company's directors (which must include, to the extent
still a director, either (A) the Joint Director, if such Joint Director
served in such position as of the Conversion Date or has been approved by a
majority of the directors who were Common Stock Directors as of the
Conversion Date, or (B) at least one director who was a Common Stock Director
prior to the Conversion Date).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE ESTATE OF CAL KOVENS
In February 1992, AHS purchased a Gamma Knife from Elekta to be located in
California and made a deposit toward the purchase of another Gamma Knife.
AHS received nonrecourse interim financing of $2,000,000 toward the
acquisition of the Gamma Knife and the deposit for the other Gamma Knife from
Cal Kovens (a director until his death on February 6, 1995). The interim
financing was borrowed from Mr. Kovens pursuant to the terms of a nonrecourse
promissory note secured by the Gamma Knife and due August 24, 1992, at an
interest rate of 10.5% per annum. Mr. Kovens extended the term of the note
while AHS sought to obtain permanent financing.
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In December 1992, AHS's wholly owned subsidiary, Radiosurgery Centers, Inc.
("RCI"), entered into a five-year loan of $2,750,000 with City National Bank
of Florida ("City National Bank"), and the promissory note in favor of Mr.
Kovens was repaid from the proceeds of such loan in the first quarter of
1993. The new loan was guaranteed by Mr. Kovens and his spouse, Roz Kovens.
During the second half of fiscal 1993, Mr. Kovens repurchased RCI's
promissory note from City National Bank. Pursuant thereto, Mr. Kovens was
paid approximately $195,000 in interest in fiscal 1993.
In early 1993, RCI, AHS and Elekta became involved in a dispute when RCI
advised Elekta that it intended to relocate the Gamma Knife it purchased for
a location in California to Miami, Florida, since in December 1992, RCI had
entered into an agreement with Public Health Trust, an agency and
instrumentality of Metropolitan Dade County, Florida, to establish and
operate a Gamma Knife center at Jackson Memorial Hospital Medical Center
located in Miami. The parties settled their claims and, pursuant to the terms
thereof, Mr. Kovens agreed to guarantee certain scheduled payments of
$250,000 to be made by RCI to Elekta in connection with the delivery of the
Gamma Knife to Miami, which payment has been made by RCI.
In February 1994, RCI entered into a new five-year loan of $2,900,000 with
County National Bank of South Florida. Mr. Kovens was repaid from the
proceeds of such new bank loan in the first quarter of 1994. This loan was
guaranteed by Mr. Kovens and secured by certain real property owned by Mr.
Kovens. Effective March 1, 1996, RCI refinanced the remainder of the
equipment loan (approximately $2,075,000) with GE on terms substantially
equivalent to the original equipment loan. The loan is secured by all of the
assets of the Gamma Knife center. The loan was also secured by a letter of
credit of $400,000 which was guaranteed by the estate of Cal Kovens until
September 30, 1997. On February 4, 1997, GE permitted the estate of Cal
Kovens to substitute securities in exchange for the letter of credit.
In November 1994, AHS issued Mr. Kovens a warrant to purchase 200,000 shares
of AHS Common Stock at $0.25 per share in consideration of the Gamma Knife
financing activities discussed above. Pursuant to the terms of the Merger,
InSight assumed the warrant which, after the applicable exchange ratio,
became a warrant to purchase 20,000 shares of InSight Common Stock at the
exercise price of $2.50 per share. The warrant is exercisable at any time up
to November 14, 1997.
TRANSACTIONS WITH FRANK E. EGGER
Since July 1, 1996, Mr. Egger has been paid $100,000 per year for acquisition
and financing activities pursuant to a consulting agreement. In the event
the agreement is terminated as a result of (i) Mr. Egger becoming physically
or mentally disabled, (ii) discretionary action of the Board of InSight, or
(iii) a corporate reorganization that has the effect of diminishing or
impairing Mr. Egger's consulting responsibilities, he is entitled to a
severance compensation equal to 12 months of compensation.
Pursuant to certain agreements among InSight, AHS and the holders of AHS
Series B Preferred Stock, InSight issued to Mr. Egger on August 9, 1996 a
warrant to purchase 2,268 shares of InSight Common Stock at the exercise
price of $5.64 per share. The warrant is exercisable at any time up to
August 9, 2001. In addition, subject to certain conditions, Mr. Egger, and
other holders, have certain "piggyback" registration rights to register the
shares subject to the warrants under the Securities Act. See "Transactions
with Holders of AHS Series B Preferred Stock."
TRANSACTIONS WITH GE
GE, as the primary creditor of AHS and Maxum, had from time to time granted
AHS and Maxum certain financial accommodations with respect to certain loans
and leases. In exchange for such accommodations, AHS and Maxum issued
certain considerations to GE. As a prerequisite to the consummation of the
Merger, certain financial accommodations were provided by GE, the primary
creditor of each of AHS and Maxum, and its affiliates. As a result, certain
debt and operating lease obligations of AHS and Maxum were reduced in
exchange for, among other things, the issuance to GE immediately prior to the
consummation of the Merger of AHS Series C Preferred Stock and Maxum Series B
Preferred Stock. At the effective time of the Merger, the AHS Series C
Preferred Stock and Maxum Series B Preferred Stock issued to GE was converted
into the right to receive such number of shares of InSight Series A Preferred
Stock which were convertible into InSight Common Stock representing
approximately 48% of InSight Common Stock outstanding at the effective time
of the Merger (after giving effect to such conversion).
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In addition, as part of the granting of certain financial accommodations
contemplated to be provided by GE, at the effective time of the Merger, warrants
previously issued to GE by AHS to acquire 1,589,072 shares of AHS Common Stock,
and warrants previously issued to GE by Maxum to acquire 700,000 shares of Maxum
Common Stock, were canceled. Furthermore, GE had the right to receive for ten
years annual payments ("Supplemental Service Fee") under its maintenance
agreements with InSight, AHS and Maxum equal to 14% of InSight pre-tax income,
subject to certain adjustments, and further subject to proportional reductions
for certain post-Merger acquisitions. InSight terminated the Supplemental
Service Fee on October 14, 1997 as part of the Recapitalization in exchange for
the issuance to GE of 7,000 shares of Series C Preferred Stock.
TRANSACTIONS WITH HOLDERS OF AHS SERIES B PREFERRED STOCK
Pursuant to certain agreements among InSight, AHS and the holders of AHS Series
B Preferred Stock, the holders of Series B Preferred Stock agreed to waive any
rights to dividends, liquidation preferences, voting and redemption they might
have had in connection with the Merger and certain other rights. In
consideration therefor, upon the consummation of the Merger, InSight issued to
such holders, including Mr. Egger, Roz Kovens and the estate of Cal Kovens,
warrants to purchase an aggregate of 50,000 shares of InSight Common Stock at
the exercise price of $5.64 per share. The warrants are exercisable at any time
up to August 9, 2001. In addition, subject to certain conditions, the holders
have certain "piggy-back" registration rights to register the shares subject to
the warrants under the Securities Act.
TRANSACTIONS WITH SHATTUCK HAMMOND PARTNERS
On August 14, 1996, the Company entered into an agreement with Shattuck
Hammond Partners, Inc. ("SHP"), an investment banking firm located in New
York in which a director of the Company, Mr. Chamberlain, is a vice
president, pursuant to which SHP will provide general strategic advisory and
investment banking services. The term of the agreement commenced July 1, 1996
and extends through December 31, 1997. The Company is obligated to pay SHP
$180,000, payable in quarterly installments of $30,000. SHP is also entitled
to separately negotiated fees for certain mergers or acquisitions. In
connection with the Recapitalization, the Company has agreed to pay SHP a fee
of $500,000 for providing certain advisory services. In addition, the Company
also issued SHP a warrant to purchase 35,000 shares of InSight Common Stock
at an exercise price of $5.50 per share. The warrant vests cumulatively on a
monthly basis over the 18 month term of the agreement. The warrant is
exercisable at any time up to August 14, 2000. In addition, SHP has certain
"piggy-back" registration rights to register the shares subject to the
warrant under the Securities Act.
FINANCIAL ADVISORY AND PLACEMENT FEES
In connection with the Recapitalization, the Company paid to each of the
Carlyle Stockholders and GE a placement fee of $125,000, reimbursed the
Carlyle Stockholders and GE an aggregate of $500,000 for reasonable
out-of-pocket expenses incurred and agreed to pay each of the Carlyle
Stockholders and GE an annual financial advisory fee equal to $50,000,
payable quarterly, for a two-year period.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused the amendment to this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INSIGHT HEALTH SERVICES CORP.
By /S/ E. LARRY ATKINS
------------------------------
E. Larry Atkins, President and
Chief Executive Officer
Date: October 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, the
amendment to this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ----------- ------------- -----------
Director, President and October 28, 1997
/S/ E. LARRY ATKINS Chief Executive Officer
- ----------------------
E. Larry Atkins (Principal Executive Officer)
Executive Vice President and October 28, 1997
/S/ THOMAS V. CROAL Chief Financial Officer
- ----------------------
Thomas V. Croal (Principal Accounting Officer)
Director October 28, 1997
/S/ GRANT R. CHAMBERLAIN
- ----------------------
Grant R. Chamberlain
Director October 28, 1997
/S/ DAVID W. DUPREE
- ----------------------
David W. Dupree
Director October 28, 1997
/S/ FRANK E. EGGER
- ----------------------
Frank E. Egger
Director October __, 1997
- ----------------------
Leonard H. Habas
Director October __, 1997
- ----------------------
Ronald G. Pantello
Director October __, 1997
- ----------------------
Glenn A. Youngkin
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