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[LETTERHEAD]
INSIGHT HEALTH SERVICES CORP.
4400 MacArthur Boulevard, Suite 800
Newport Beach, California 92660
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 15, 1998
The Second Annual Meeting of Stockholders of InSight Health Services Corp.
("Company") will be held at the Sutton Place Hotel, located at 4500 MacArthur
Boulevard, Newport Beach, California 92660 on Tuesday, December 15, 1998, at
10:00 a.m., Pacific Standard Time, for the following purposes:
(1) to elect two of the Company's directors to serve a three-year term until
the 2001 Annual Meeting of Stockholders and until their successors are duly
elected and qualified; and
(2) to transact such other business as may properly come before the Annual
Meeting and any and all postponements or adjournments thereof.
The close of business on Friday, October 23, 1998 has been fixed as the record
date for the determination of stockholders entitled to receive notice of, and to
vote at, the Annual Meeting and any and all postponements or adjournments
thereof.
The presence, either in person or by proxy, of persons entitled to vote a
majority of the outstanding common stock is necessary to constitute a quorum for
the election of directors, and the presence, either in person or by proxy, of
persons entitled to vote a majority of the votes represented by the outstanding
common stock, Series B Senior Convertible Preferred Stock and Series C Senior
Convertible Preferred Stock is necessary to constitute a quorum for the
transaction of any other business as may properly come before the Annual
Meeting. To assure your representation at the Annual Meeting, please vote, sign
and mail the enclosed Proxy for which a return envelope is provided.
By Order of the Board of Directors
/s/ Marilyn U. MacNiven-Young
Marilyn U. MacNiven-Young
Executive Vice President, General Counsel
and Secretary
Newport Beach, California
October 27, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON; HOWEVER,
TO ENSURE YOUR REPRESENTATION AT THE MEETING YOU ARE URGED TO VOTE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENVELOPE ENCLOSED FOR
THAT PURPOSE.
<PAGE>
INSIGHT HEALTH SERVICES CORP.
4400 MacArthur Boulevard
Suite 800
Newport Beach, California 92660
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
December 15, 1998
This Proxy Statement is being mailed in connection with the solicitation on
behalf of the Board of Directors of InSight Health Services Corp., a Delaware
corporation ("Company"), of proxies for use at the Second Annual Meeting of
Stockholders of the Company to be held at the Sutton Place Hotel, located at
4500 MacArthur Boulevard, Newport Beach, California 92660, on Tuesday, December
15, 1998, at 10:00 a.m., Pacific Standard Time, and at any and all postponements
or adjournments thereof.
The entire cost of the solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling and mailing the
proxy solicitation materials and all papers accompanying them. The Company will
reimburse brokers or other persons holding stock in their name or in the names
of their nominees for the benefit of other beneficial owners for their expenses
in sending proxies and proxy materials to beneficial owners. In addition to
solicitation by mail, certain directors, officers and regular employees of the
Company, who will receive no special compensation for their services, may
solicit proxies personally or by telephone or facsimile.
The person named in the accompanying proxy card will vote shares represented by
all valid proxies in accordance with the instructions contained thereon. In the
absence of such instructions, shares represented by properly executed proxies
will be voted in favor of the nominees for director. Any stockholder may revoke
his or her proxy at any time prior to its use by filing with the secretary of
the Company, at 4400 MacArthur Boulevard, Suite 800, Newport Beach, California
92660, written notice of revocation or a duly executed proxy bearing a later
date. Execution of the enclosed proxy will not affect your right to vote in
person if you should later decide to attend the Annual Meeting.
This Proxy Statement and the accompanying proxy card are first being mailed to
holders of the Company's common stock, par value $0.001 per share ("Common
Stock"), on or about October 27, 1998.
RECORD DATE AND VOTING SECURITIES
The close of business on Friday, October 23, 1998, has been fixed as the record
date for determination of the holders of Common Stock entitled to notice of and
to vote at the Annual Meeting. On that date, there were outstanding and
entitled to vote 2,833,060 shares of Common Stock. Each share of Common Stock
is entitled to one vote with respect to the election of directors to be elected
by the holders of Common Stock ("Common Stock Directors") (see "Election of
Directors"). The presence, either in person or by proxy, of persons entitled to
cast a majority of such votes constitutes a quorum for the purpose of the
election of the Common Stock Directors. Votes may be cast in favor of or
withheld from the Common Stock Director nominees. Votes that are withheld will
be excluded entirely from the vote and will have no effect. Certain of the
Company's directors ("Preferred Stock Directors") are elected by the holders of
the Company's Series B Senior Convertible Preferred Stock ("Series B Preferred
Stock") and Series C Senior Convertible Preferred Stock ("Series C Preferred
Stock" and, together with the Series B Preferred Stock, "Preferred Stock") as
separate classes and acting by written consent. See "ELECTION OF DIRECTORS."
All matters, other than the election of directors and matters which are to be
voted on by the holders of Series B Preferred Stock and Series C Preferred Stock
as separate classes, are to be voted on by the holders of Common Stock and
Preferred Stock (voting on an as-if-converted basis) as a single class, provided
that the maximum aggregate voting percentage of the Preferred Stock in such
event may not exceed 37% of the shares eligible to vote. The Series B Preferred
Stock is currently convertible into 2,985,075 shares of Common Stock and the
Series C Preferred Stock is currently convertible into 3,337,581 shares of
Common Stock. The presence, either in person or by proxy, of persons entitled
to vote a majority of the votes represented by the outstanding Common Stock and
Preferred Stock (on an as-if-converted basis) is necessary to constitute a
quorum for the
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transaction of any other business which may properly come before the Annual
Meeting. The Company is not aware of any business to be presented for
consideration at the Annual Meeting other than the election of the Common Stock
Directors identified herein.
ELECTION OF DIRECTORS
Pursuant to the terms of a recapitalization consummated in October 1997
("Recapitalization"), the number of directors comprising the Company's Board of
Directors ("Board") is fixed at nine, consisting of six Common Stock
Directors, 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, and three
Preferred Stock Directors, two of whom are to be elected by the holders of the
Series B Preferred Stock ("Series B Directors") and one of whom is to be elected
by the holders of the Series C Preferred Stock ("Series C Director"), 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 General Electric Company ("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 Senior Convertible Preferred Stock (see
"POSSIBLE FUTURE BOARD CHANGES"), 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 the Series C Preferred Stock are not entitled to participate
in the election of the Common Stock Directors.
Presently, the Board consists of eight directors, five of whom are Common Stock
Directors and three of whom are Preferred Stock Directors. 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 II directors expires at this Annual Meeting, the term of the Class
III directors expires at the 1999 Annual Meeting and the term of the Class I
directors (which will include the Joint Director) expires at the 2000 Annual
Meeting. The terms of the two Series B Directors coincide with the terms of the
Class I and Class III directors, respectively, and the term of the Series C
Director coincides with the term of the Class II directors. It is contemplated
that GE will elect the Series C Director by written consent on December 15,
1998.
NOMINEES FOR ELECTION. The nominees for election as a Class II directors are
set forth below, together with information regarding the nominees:
<TABLE>
<CAPTION>
Year First
----------
Elected To
----------
Name Age Current Position Term To Expire Serve
- ---- --- ---------------- --------------- -----
<S> <C> <C> <C> <C>
Grant R. Chamberlain 33 Director, Class II 1998 1996
Ronald G. Pantello 54 Director, Class II 1998 1996
</TABLE>
Grant R. Chamberlain has been a director of the Company since July 19, 1996.
Since January 1, 1998, Mr. Chamberlain has been a managing director of Shattuck
Hammond Partners, an investment banking firm based in New York City. From
April 1995 to January 1, 1998, Mr. Chamberlain was a vice president of Shattuck
Hammond Partners. From April 1991 to April 1995, he served as manager of
strategic investments and restructurings for GE.
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 Maxum Health Corp.
("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.
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BOARD OF DIRECTORS. Set forth below are the Class I and Class III directors of
the Company whose terms do not expire this year and the Preferred Stock
Directors who are elected by the holders of the Preferred Stock, together with
certain information about the Company' s directors:
<TABLE>
<CAPTION>
Year First
----------
Elected To
----------
Name Age Current Position Term To Expire Serve
- ---- --- ---------------- -------------- -----
<S> <C> <C> <C> <C>
COMMON STOCK DIRECTORS:
E. Larry Atkins 51 President and Chief Executive 2000 1996
Officer and Director, Class I
Frank E. Egger 54 Chairman of the Board and Director,
Class III 1999 1996
Leonard H. Habas 55 Director, Class III 1999 1996
PREFERRED STOCK DIRECTORS:
Michael E. Aspinwall 45 Series C Director 1998 1997
David W. Dupree 45 Series B Director 2000 1997
Glenn A. Youngkin 31 Series B Director 1999 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 American Health Services
Corp. ("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.
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 is 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 1989 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 children's book publishing company based in Winter Park,
Florida. Mr. Habas is also a director of CeraMed Corporation.
Michael E. Aspinwall has been a director of the Company since November 20, 1997.
Mr. Aspinwall is senior vice president and healthcare industry leader in the
Equity Capital Group of GE Capital, where he is focused on private equity
investments in the healthcare industry. From 1994 to 1996, Mr. Aspinwall was
senior vice president and manager, healthcare receivables in GE Capital's
Commercial Finance Group. From 1987 to 1994, Mr. Aspinwall held several vice
presidential positions with Chase Manhattan Bank in New York.
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David W. Dupree has been a director of the Company since October 14, 1997. Mr.
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 is also a director of Care Systems Corporation,
Pharmaceutical Research Associates, Inc., and Whole Foods Market, Inc.
Glenn A. Youngkin has been a director of the Company since October 14, 1997.
Mr. 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. Mr. Youngkin also serves as a director of Elgar Holdings, Inc.
In fiscal 1998, the Board of Directors held twelve meetings at which at least
75% of 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 1998
prior to the Recapitalization, the Company's Compensation Committee consisted
of two non-employee directors, Messrs. Habas (co-chairman) and Pantello
(co-chairman). Since the Recapitalization, the Compensation Committee has
consisted of three non-employee directors, Messrs. Habas (chairman), Pantello
and Youngkin. 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 1998 Employee Stock Option Plan, 1997 Management
Stock Option Plan, 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. The Compensation Committee met once in fiscal
1998.
ACQUISITION COMMITTEE. The Acquisition Committee was created pursuant to the
Recapitalization. It currently consists of Messrs. Aspinwall (chairman),
Atkins, Egger and Youngkin. Its principal functions are to consider certain
transactions with respect to which the aggregate compensation payable in
connection therewith is less than $15 million.
AUDIT COMMITTEE. During fiscal 1998 prior to the Recapitalization,, the Audit
Committee consisted of Messrs. Egger (chairman) and Chamberlain. Its principal
functions are to review the results of the Company's annual audit with the
Company's independent auditors and review the performance of the Company's
independent auditors. Following the Recapitalization, the Audit Committee now
consists of Messrs. Chamberlain and Pantello. It is intended that the Joint
Director, when appointed and approved, will be a member of the Audit Committee.
The Audit Committee met once in fiscal 1998.
EXECUTIVE COMMITTEE. Following the Recapitalization, the Executive Committee
was created. The Executive Committee currently consists of Messrs. Aspinwall,
Atkins, Dupree and Egger. It is authorized to exercise all the power and
authority of the Board in the management of the business of the Company but its
authority does not extend to certain fundamental corporate transactions.
NOMINATING COMMITTEE. The Nominating Committee currently consists of Messrs.
Habas and Egger. Its principal function is to make recommendations relating to
the composition of the Board, including identifying potential candidates as
Board members. The Nominating Committee met once in fiscal 1998.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT OF 1934
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 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, 1997 through June 30, 1998, except that
certain officers of the Company, consisting of
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Messrs. Atkins, Michael A. Boylan, Glenn P. Cato, Michael D. Cragin, Thomas V.
Croal, Robert N. LaDouceur (with regard to one stock option grant each) and Ms.
Deborah M. MacFarlane (with regard to one stock option grant and one small
acquisition of Common Stock), failed to file timely an Annual Statement of
Changes in Beneficial Ownership on Form 5 reporting certain stock options grants
and a small acquisition of the Company's Common Stock; when it was brought to
their attention, each of the foregoing individuals filed a Form 5, disclosing
these transactions.
EXECUTIVE OFFICERS
The amount for the executive officers of the Company, together with the year in
which they were appointed to their current positions, are set forth below:
<TABLE>
<CAPTION>
Executive Officer Age Position Year
- ----------------- --- -------- ----
<S> <C> <C> <C>
E. Larry Atkins 51 President, Chief Executive Officer 1996
and Director
Thomas V. Croal 39 Senior Executive Vice President, 1996
Chief Operating Officer and
Chief Financial Officer
Michael A. Boylan 43 Executive Vice President and 1998
Chief Development Officer
Michael D. Cragin 51 Senior Vice President-Operations 1996
Brian G. Drazba 37 Senior Vice President-Finance and 1996
Corporate Controller
Robert N. LaDouceur 55 Senior Vice President-Operations 1996
Deborah M. MacFarlane 43 Senior Vice President-Marketing 1996
Brian P. Stone 38 Senior Vice President-Operations 1998
</TABLE>
Information concerning Mr. Atkins is set forth above under "ELECTION OF
DIRECTORS."
Thomas V. Croal was executive vice president, chief financial officer and
secretary of the Company from February 23, 1996 until July 21, 1998 when he was
appointed senior executive vice president and chief operating officer. He
remains chief financial officer of the Company but effective August 1, 1998 is
no longer secretary. 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 executive vice president and chief development
officer of the Company since April 1, 1998. From February 23, 1996 to April 1,
1998 he was senior vice president-operations of the Company. 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
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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.
Brian P. Stone has been senior vice president-operations of the Company since
May 18, 1998. From 1994 until May 18, 1998, Mr. Stone served as president and
chief executive officer of Signal Medical Services, Inc. From 1991 until 1994,
Mr. Stone was treasurer and chief financial officer of Signal.
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 year ended December 31,
1995, the six months ended June 30, 1996 and the years ended June 30, 1998 and
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, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
--------------------------------------------------- Compensation
Fiscal Awards
Year Stock Options All Other
Name and Principal Position Ended Salary (1) Bonus (2) Other (3) (Shares) Comp (3)
- --------------------------- ----- ---------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
E. Larry Atkins 1998 $ 287,000 $126,900 $ 9,000 200,000 $ 16,242
President and Chief 1997 246,400 86,000 9,000 100,000 11,040
Executive Officer 1996(4) 123,200 -- 4,500 -- 4,691
1995 246,400 61,600 4,680 175,000 7,882
Thomas V. Croal 1998 200,000 109,333 9,000 165,000 12,748
Executive Vice President, 1997 175,230 53,000 9,000 25,000 9,804
Chief Financial Officer and 1996(4) 87,615 -- 4,500 -- 2,669
Secretary (5) 1995 175,230 43,808 4,742 125,000 2,669
Glenn P. Cato 1998 207,000 25,000 9,000 110,000 14,335
Senior Executive Vice 1997 180,000 54,000 9,000 25,000 13,296
President and Chief 1996(4) 97,500 10,000 3,000 -- --
Operating Officer(6) 1995 172,500 20,000 6,000 30,000 3,158
Michael A. Boylan 1998 188,250 68,250 7,800 60,000 7,715
Executive Vice President and Chief 1997 165,000 36,000 7,800 10,000 5,509
Development Officer 1996(4) 81,865 25,000 3,900 -- --
1995 165,000 20,000 6,400 30,000 --
Robert N. LaDouceur 1998 181,500 63,525 7,800 60,000 14,638
Senior Vice President- 1997 165,000 36,000 7,800 10,000 8,169
Operations 1996(4) 82,500 10,000 3,900 -- --
1995 165,000 20,000 6,400 30,000 3,072
</TABLE>
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(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.
(4) Six months ended June 30, 1996.
(5) On July 21, 1998, Mr. Croal became senior executive vice president and
chief operating officer of the Company. He remained chief financial
officer of the Company but was replaced as secretary of the Company on
August 1, 1998.
(6) Mr. Cato resigned from the Company on July 21, 1998.
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
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 $85,000 per year for services rendered to the Company in
connection with its acquisition and financing activities. See "EMPLOYMENT
AGREEMENTS AND SEVERANCE AGREEMENTS" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The Directors' Plan provided for the automatic grant at the effective time of
the merger of each of AHS and MHC into wholly owned subsidiaries of the Company
("Merger") to each non-employee director then serving on the Board of an option
to purchase 15,000 shares of 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 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 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 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 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 Common Stock at an
exercise price of $4.56 per share, which was the fair market value of the
Common Stock on such date. The warrants vest cumulatively at the rate of 416.66
shares per month and are exercisable at any time up to July 17, 2000.
In lieu of an automatic grant, under the Directors' Plan, to each of the Series
B Directors and the Series C Director of an option to purchase 15,000 shares of
Common Stock, at the request of such Preferred Stock Directors, upon the date
each of them became a Preferred Stock Director, the Company issued to an
affiliate of the Carlyle Stockholders a warrant to purchase 30,000 shares of
Common Stock at an exercise price of $7.25 per share and GE a warrant to
purchase 15,000 shares of Common Stock at an exercise price of $10.00 per share.
The Carlyle Stockholders warrant vests cumulatively at the rate of 833.33
shares per month and the GE warrant vests cumulatively at the rate of 416.67
shares per month. The Carlyle Stockholders warrant is exercisable at any time
up to October 14, 2000 and the GE warrant is exercisable at any time up to
November 20, 2000. See "TRANSACTIONS WITH HOLDERS OF PREFERRED STOCK."
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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, 1998:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------
Number of % of Total Potential Realizable
Securities Options Value at Assumed
Underlying Granted Exercise Annual Rates of Stock
Options to Employees Price Per Expiration Price Appreciation for
Name Granted in Fiscal Year(1) Share Date Option Term (2)
- ---- --------- ----------------- ------- ---------- ----------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
E. Larry Atkins 50,000 5% $4.56 07/17/07(3) $143,388 $363,373
150,000 16% 8.37 11/07/07(4) 789,577 2,000,944
Thomas V. Croal 25,000 3% 4.56 07/17/07(3) 71,694 181,687
140,000 14% 8.37 11/07/07(4) 736,939 1,867,547
Glenn P. Cato 30,000 3% 4.56 07/17/07(3) 86,033 218,024
80,000 8% 8.37 11/07/07(4) 421,108 1,067,170
Michael A. Boylan 10,000 1% 4.56 07/17/07(3) 28,678 72,675
50,000 5% 8.37 11/07/07(4) 263,192 666,981
Robert N. LaDouceur 10,000 1% 4.56 07/17/07(3) 28,678 72,675
50,000 5% 8.37 11/07/07(4) 263,192 666,981
</TABLE>
(1) All options were granted at fair market value (the closing price reported
on The Nasdaq SmallCap Market for the Company's Common Stock) on the date
of grant.
(2) 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 options (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 the Company's Common Stock holdings are dependent on
the future performance of the Company's Common Stock and overall stock
market conditions.
(3) Options are exercisable starting twelve 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 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.
(4) 50% of the options are exercisable starting twelve months after the grant
date, with 33% of the shares becoming exercisable at that time and with an
additional 33% of the shares becoming exercisable on each successive
anniversary date. The remaining 50% of the options are exercisable seven
years after the grant date, with 33% of the shares becoming exercisable at
that time and with an additional 33% of the shares becoming exercisable on
each successive anniversary date, with acceleration in certain
circumstances. 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.
8
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES. During the year ended June 30,
1998, neither of the chief executive officer nor the Other Executive Officers of
the Company (except Mr. Cato) exercised any stock options. The following table
sets forth information with respect to the stock options exercised by Mr. Cato
during fiscal 1998 and the unexercised stock options to purchase Common Stock
granted, under (i) MHC's and AHS's stock option plans and assumed by the Company
pursuant to the Merger, (ii) the Company's 1996 Employee Stock Option Plan, and
(iii) the Company's 1997 Management Stock Option Plan, to the chief executive
officer and the Other Executive Officers of the Company as of June 30, 1998:
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Number of Options in-the-Money
Shares Held at June 30, 1998 Options at June 30, 1998 (1)
Acquired ---------------------------- -------------------------------
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Larry Atkins -- -- 39,000 278,500 $228,000 $1,032,875
Thomas V. Croal -- -- 16,250 186,250 110,625 592,950
Glenn P. Cato 34,385 $487,011(2) 24,190 128,750 205,910 460,475
Michael A. Boylan -- -- 41,370 67,500 408,165 214,650
Robert N. LaDouceur -- -- 41,370 67,500 408,165 214,650
</TABLE>
(1) Based on the closing price reported on The Nasdaq SmallCap Market for the
Company's Common Stock on that date of $10.75 per share.
(2) The value realized is the fair market value of the shares on the date of
exercise less the exercise price.
INDEMNIFICATION AGREEMENTS. The Company has entered into separate
indemnification agreements with each of its directors and executive 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 executive 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.
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 Stone and Ms. MacFarlane,
which provide for rolling twelve month periods of employment, and severance
compensation equal to twelve 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, or (iii) voluntarily by the executive due to a "Change of Control"
and in the case of Mr. Stone voluntarily by him for "good reason" as defined in
his
9
<PAGE>
employment agreement. A "Change of Control" will have occurred if the Company
or its stockholders enter into an agreement to dispose of, whether by sale,
exchange, merger, consolidation, reorganization, dissolution or liquidation, (a)
not less than 80% of the assets of the Company or (b) a portion of the
outstanding 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 Common
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 twelve 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,
magnetic resonance imaging ("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 $85,000 per
year. Mr. Egger's agreement provides for severance compensation equal to twelve
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, or (iii) a corporate reorganization that has the effect of
diminishing or impairing Mr. Egger's consulting responsibilities.
Pursuant to his executive employment agreement, Mr. Cato will receive severance
equal to twelve months salary at his level of compensation as of July 21, 1998
in connection with his resignation from the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. The Compensation
Committee is responsible for determining the specific forms and levels of
compensation for executive officers of the Company and administering the
Company's stock option plans. The Compensation Committee also consults
periodically with the Company's chief executive officer concerning the
compensation and benefits of the Other Executive Officers of the Company.
In accordance with the SEC's rules, this report shall not be incorporated by
reference into any of the Company's registration statements, reports or filings
under the Securities Act of 1933, as amended ("Securities Act"), or the Exchange
Act.
The Board believes that the achievements of the Company result from the
coordinated efforts of all employees (including executive officers of the
Company) working toward the common goals of meeting the needs of the Company's
customers and enhancing stockholder value. The Company's compensation policies
are therefore strongly oriented toward providing compensation opportunities that
are competitive with those of comparable companies; establishing a link between
the chief executive officer's and executive officers' compensation and the
Company's short-term and long-term goals and including elements of financial
risks and rewards. Specific corporate performance objectives are established
("budget") and the chief executive officer's and executive officers'
contribution to the enhancement of stockholder value is derived from achieving
the Company's budget. The Compensation Committee, while intending to provide
compensation to the Company's executive officers at competitive levels in order
to attract and retain qualified individuals, believes that achieving budget and
other strategic and business plan objectives is critical to the long-term
success of the Company.
Compensation of the Company's chief executive officer and Other Executive
Officers consists principally of base salary, a cash bonus, contribution to a
401(k) profit sharing plan and stock options.
First, the base salary component represents the base rate of pay provided to an
executive officer for carrying out the overall responsibilities of the position.
Base salary is determined using companies providing comparable services within
the healthcare industry and market dynamics. Comparable companies for executive
compensation purposes are the same as the peer group established to compare
stockholder return. Actual compensation levels may be greater or less than
average competitive levels in other companies, based on annual and long-term
company performance as well as individual experience and performance. In
addition, scope of responsibilities, experience and other factors may be
considered by the Compensation Committee in its discretion in the determination
of base salary for the chief executive officer and Other Executive Officers.
The base salary of the Other Executive Officers was determined pursuant to the
terms of executive employment agreements between each of the Other Executive
Officers and the Company dated between February 22 and May 1, 1996 and adjusted
upwards for fiscal 1998; however, in light of a specific effort to further tie
the total compensation of the chief executive officer and Other Executive
Officers to the Company's performance and the creation of stockholder value by
the award of stock
10
<PAGE>
options aggregating a total of 500,000 shares of Common Stock to the chief
executive officer and Other Executive Officers in fiscal 1998 in connection with
the Recapitalization, the Compensation Committee determined that base salary
increases would be limited to a cost of living adjustment.
Second, the Compensation Committee determines annually whether a cash bonus will
be paid to the chief executive officer and Other Executive Officers. The
determination thereof is based almost entirely upon the achievement of the
Company's budget and strategic and business plan objectives. If these
established goals are met or exceeded, the chief executive officer and Other
Executive Officers could receive bonuses up to an annually determined percentage
of their base salaries, the amounts of which are subjectively determined by the
Compensation Committee; however, in the determination of such percentage,
consideration is given to the achievement of the Company's budget and other
strategic and business plan objectives, particularly in the areas for which the
chief executive officer and Other Executive Officers have responsibility, and
individual performance achievements, including contract awards and renewals.
The Other Executive Officers received bonuses for fiscal 1998 based upon the
Compensation Committee's determination, after consultation with the chief
executive officer and independent compensation consultants, of their individual
role in the realization of the Company's financial and other objectives.
Third, the Company has a 401(k) profit sharing plan ("401(k) Plan") in which all
eligible employees, including the chief executive officer and Other Executive
Officers, of the Company are permitted to participate. To the extent the chief
executive officer and Other Executive Officers participate in the 401(k) Plan,
they may contribute up to 15% of their salaries on a pretax basis and the
Company will contribute on their behalf an amount equal to 50% of the first 6%
of compensation contributed by the chief executive officer and Other Executive
Officers.
Fourth, the Company has established various stock option plans in which the
chief executive officer and Other Executive Officers may participate. The
Compensation Committee believes that stock option plans help to recruit, retain
and motivate executive personnel. The Compensation Committee further believes
that stock options and stock ownership by the chief executive officer and Other
Executive Officers are an important component of performance-based compensation,
as the value of stock options directly relates to the price of the Common Stock
and provides the chief executive officer and Other Executive Officers with an
incentive to enhance stockholder value. Stock options are granted on a periodic
basis, as the discretion of the Compensation Committee, with interim awards
being made in the case of new employee executive officers, promotions or a
significant increase in job responsibilities. The number of shares granted
under stock options is determined subjectively by the Compensation Committee,
but scope of responsibilities and individual performance achievements or
expectations related thereto are also considered. The Other Executive Officers
were granted stock options in fiscal 1998, upon the recommendation of
independent compensation consultants and in connection with the
Recapitalization, based upon their ongoing contribution in the Company's
long-term business and financial objectives.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. Mr. Atkins' base salary was
determined pursuant to the terms of his executive employment agreement with the
Company entered into on February 23, 1996 as adjusted upwards for fiscal 1997
and fiscal 1998. Mr. Atkins also received a bonus of $126,900 for services
performed in fiscal 1998. The amount of the bonus was determined by the
Compensation Committee after consideration of the critical role Mr. Atkins
played in the realization of the financial and business objectives of the
Company. In addition, for the reasons described above, Mr. Atkins was also
granted stock options in fiscal 1998.
It is the Company's policy generally to qualify compensation paid to its chief
executive officer and Other Executive Officers for deductibility under the
Internal Revenue Code of 1996 and regulations in order to maximize the Company's
income tax deductions; however, the Compensation Committee believes that its
primary responsibility is to provide compensation programs that attract, retain
and reward executive talent in a manner that is in the best interests of both
the Company and its stockholders. Accordingly, the Compensation Committee will
consider tax deductibility levels, but will not necessarily be limited by this
consideration as it determines the Company's executive compensation strategy.
Compensation Committee
Leonard H. Habas, Chairman
11
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH. The following graph compares the yearly
percentage change in the cumulative total stockholder return on the Common Stock
against the cumulative total return of the NASDAQ Stock Market - U.S. index and
a peer group index for the period commencing July 1, 1996 and ending June 30,
1998. To comply with the SEC's requirements, the Company has developed a peer
group comprised of Alliance Imaging, Inc., American Shared Hospital Services,
Diagnostic Health Services, Inc., Healthcare Imaging Services, Inc., Medical
Resources, Inc., U.S. Diagnostic Labs, Inc. and the Company. The peer group
index is weighted in accordance with the SEC's requirements by market
capitalization as of the beginning of each measurement date. Also in accordance
with the SEC's rules, this graph is not intended to be incorporated by reference
into any of the Company's registration statements, reports or filings under the
Exchange Act.
COMPARISON OF 24 MONTH CUMULATIVE TOTAL RETURN*
AMONG INSIGHT HEALTH SERVICES CORP., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
Insight Health Svcs Corp (IHSC)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------
6/28/96 6/30/96 6/30/97 6/30/98
<S> <C> <C> <C> <C>
INSIGHT HEALTH SERVICES CORP. 100 100 79 200
PEER GROUP 100 100 100 66
NASDAQ STOCK MARKET (U S) 100 100 122 160
</TABLE>
12
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership, reported to the Company
as of September 30, 1998, of 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 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 the Common Stock, (ii) each
director of the Company, (iii) the Company's executive officers, and (iv) all
directors and executive officers, as a group.
<TABLE>
<CAPTION>
Amount and Nature Percent of
----------------- ----------
Of Beneficial Common Stock
------------- ------------
Ownership of Beneficially
Name and Addresses of ------------ ------------
Beneficial Owners Common Stock (1) Owned (1)
----------------- ----------------- ---------
<S> <C> <C>
Carlyle Stockholders (2) 3,245,908 53.5%
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
General Electric Company (3) 3,592,581 56.0%
20825 Swenson Drive
Suite 100
Waukesha, WI 53186
E. Larry Atkins (4) 113,600 3.9%
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Grant R. Chamberlain (5) 18,750 *
620 Fifth Avenue - Suite 2950
New York, NY 10111
Frank E. Egger (6) 65,652 2.3%
10301 S.W. 13th Street
Pembroke Pines, FL 33025
Leonard H. Habas (7) 61,591 2.1%
2290 Lucien Way, Suite 280
Maitland, FL 32751
David W. Dupree (8) 0 0
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Glenn A. Youngkin (9) 1,000 *
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Roz Kovens (10) 149,079 5.0%
9999 Collins Avenue #1K
Bal Harbour, FL 33154
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Ronald G. Pantello (11) 37,106 1.3%
200 Madison Avenue, 9th Floor
New York, NY 10016
Glenn P. Cato (12) 58,871 2.0%
1205 British Boulevard
Grand Prairie, Texas
Thomas V. Croal (13) 53,583 1.9%
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Michael A. Boylan (14) 54,703 1.9%
110 Gibraltar Road
Horsham, PA 18901
Robert N. LaDouceur (15) 54,703 1.9%
11011 King Street - Suite 240
Overland Park, KS 66210
Michael D. Cragin (16) 15,000 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Brian G. Drazba (17) 6,500 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Deborah M. MacFarlane (18) 10,500 *
4400 MacArthur Boulevard - Suite 800
Newport Beach, CA 92660
Brian P. Stone (19) 17,860 *
74 Batterson Park Road
Farmington, CT 06032
All directors and executive
officers as a group (15 persons) (20) 569,419 16.9%
</TABLE>
* 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 September 30, 1998.
(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
certain warrants ("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
14
<PAGE>
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 purchase 3,733 shares of Common Stock with respect to which
it has disposal power and shares voting power; (v) 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; (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; and (x) warrants to purchase 10,833 shares of Common Stock at an exercise
price of $7.25 per share owned by TC Group Management, LLC. Does not include
warrants to purchase 19,167 shares of Common Stock at an exercise price of $7.25
per share, owned by TC Group Management, LLC, which are not currently
exercisable. 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 27,953 shares of Series C Preferred
Stock (convertible into 3,337,581 shares of Common Stock) held by GE, (ii)
exercise of certain warrants ("GE Warrants") (exercisable for 250,000 shares of
Common Stock), and (iii) warrants to purchase 5,000 shares of Common Stock at an
exercise price of $10.00 per share. Does not include warrants to purchase
10,000 shares of Common Stock at an exercise price of $10.00 per share, which
are not currently exercisable. GE owns all of the outstanding shares of Series
C Preferred Stock.
(4) Includes (i) options to purchase 14,000 shares of Common Stock at an
exercise price of $2.50 per share, (ii) options to purchase 50,000 shares of
Common Stock at an exercise price of $6.25 per share, (iii) options to purchase
12,500 shares of the Common Stock at an exercise price of $4.56 per share, and
(iv) options to purchase 25,000 shares of Common Stock at an exercise price of
$8.37 per share. Does not include (i) options to purchase 3,500 shares of
Common Stock at an exercise price of $2.50 per share, (ii) options to purchase
50,000 shares of Common Stock at an exercise price of $6.25 per share, (iii)
options to purchase 37,500 shares of Common Stock at an exercise price of $4.56
per share, and (iv) options to purchase 125,000 shares of Common Stock at an
exercise price of $8.37 per share, which are not currently exercisable.
15
<PAGE>
(5) Includes (i) options to purchase 11,667 shares of Common Stock at an
exercise price of $7.00 per share and (ii) warrants to purchase 7,083 shares of
Common Stock at an exercise price of $4.56 per share. Does not include options
to purchase 3,333 shares of Common Stock at an exercise price of $7.00 per share
and (ii) warrants to purchase 7,917 shares of Common Stock at an exercise price
of $4.56 per share, which are not currently exercisable.
(6) Includes (i) options to purchase 12,083 shares of Common Stock at an
exercise price of $5.37 per share, (ii) options to purchase 3,000 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 Common Stock at an exercise price of $5.64
per share, and (v) warrants to purchase 7,083 shares of Common Stock at an
exercise price of $4.56 per share. Does not include (i) options to purchase
2,917 shares of Common Stock at an exercise price of $5.37 per share, and (ii)
warrants to purchase 7,917 shares of Common Stock at an exercise price of $4.56
per share, which are not currently exercisable.
(7) Includes (i) options to purchase 12,083 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 $15.64 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 7,083 shares of Common Stock at an
exercise price of $4.56 per share. Does not include (i) options to purchase
2,917shares of Common Stock at an exercise price of $5.37 per share and (ii)
warrants to purchase 7,917 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 Schedule 13G filed with the
SEC on March 12, 1998. Includes (i) options to purchase 600 shares of Common
Stock at an exercise price of $2.50 per share and (ii) by virtue of her status
as personal representative of the Estate of Cal Kovens, the 1,004 shares
beneficially owned thereby. Does not include options to purchase 600 shares at
an exercise price of $2.50 per share, which are not currently exercisable.
(11) Includes (i) options to purchase 12,083 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 7,083 shares of Common Stock at an exercise price of $4.56
per share. Does not include (i) options to purchase 2,917 shares of Common
Stock at an exercise price of $5.37 per share and (ii) warrants to purchase
7,917 shares of Common Stock at an exercise price of $4.56 per share, which are
not currently exercisable.
(12) Includes (i) options to purchase 17,940 shares of Common Stock at an
exercise price of $0.84 per share, (ii) options to purchase 6,250 shares of
Common Stock at an exercise price of $6.25 per share and (iii) options to
purchase 7,500 shares of Common Stock at an exercise price of $4.56 per share.
(13) Includes options to purchase 10,000 shares of Common Stock at an exercise
price of $2.50 per share, (ii) options to purchase 12,500 shares of Common Stock
at an exercise price of $6.25 per share, (iii) options to purchase 6,250 shares
of Common Stock at an exercise price of $4.56 per share and (iv) options to
purchase 23,333 shares of Common Stock at an exercise price of $8.37 per share.
Does not include (i) options to purchase 12,500 shares of Common Stock at an
exercise price of $6.25 per share, (ii) options to purchase 18,750 shares of
Common Stock at an exercise price of $4.56 per share, (iii) options to purchase
2,500 shares of Common Stock at $2.50 per share, and (iv) options to purchase
116,667 shares of Common Stock at an exercise price of $8.37 per share, which
are not currently exercisable.
(14) 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, (iv)
options to purchase 5,000 shares of Common Stock at an exercise
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price of $6.25 per share, (v) options to purchase 2,500 shares of Common Stock
at an exercise price of $4.56 per share and (vi) options to purchase 8,333
shares of Common Stock at an exercise price of $8.37 per share. Does not include
(i) options to purchase 5,000 shares of Common Stock at an exercise price of
$6.25 per share, (ii) options to purchase 7,500 shares of Common Stock at an
exercise price of $4.56 per share, and (iii) options to purchase 41,667 shares
of Common Stock at an exercise price of $8.37 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, (iv)
options to purchase 5,000 shares of Common Stock at an exercise price of $6.25
per share, (v) options to purchase 2,500 shares of Common Stock at an exercise
price of $4.56 per share and (vi) options to purchase 8,333 shares of Common
Stock at an exercise price of $8.37 per share. Does not include (i) options to
purchase 5,000 shares of Common Stock at an exercise price of $6.25 per share,
(ii) options to purchase 7,500 shares of Common Stock at an exercise price of
$4.56 per share, and (iii) options to purchase 41,667 shares of Common Stock at
an exercise price of $8.37 per share, which are not currently exercisable.
(16) Includes (i) options to purchase 7,500 shares of Common Stock at an
exercise price of $6.25 per share, (ii) options to purchase 2,500 shares of
Common Stock at an exercise price of $4.56 per share and (iii) options to
purchase 5,000 shares of Common Stock at an exercise price of $8.37 per share.
Does not include (i) options to purchase 7,500 shares of Common Stock at an
exercise price of $6.25 per share, (ii) options to purchase 7,500 shares of
Common Stock at an exercise price of $4.56 per share, and (iii) options to
purchase 25,000 shares of Common Stock at an exercise price of $8.37 per share,
which are not currently exercisable.
(17) Includes (i) options to purchase 4,000 shares of Common Stock at an
exercise price of $6.25 per share and (ii) options to purchase 2,500 shares of
Common Stock at an exercise price of $4.56 per share. Does not include (i)
options to purchase 4,000 shares of Common Stock at an exercise price of $6.25
per share and (ii) options to purchase 7,500 shares of Common Stock at an
exercise price of $4.56 per share, which are not currently exercisable.
(18) Includes (i) options to purchase 7,500 shares of Common Stock at an
exercise price of $6.25 per share and (ii) options to purchase 2,500 shares of
Common Stock at an exercise price of $4.56 per share. Does not include (i)
options to purchase 7,500 shares of Common Stock at an exercise price of $6.25
per share and (ii) options to purchase 7,500 shares of Common Stock at an
exercise price of $4.56 per share, which are not currently exercisable.
(19) Includes options to purchase 17,860 shares of Common Stock at an
exercise price of $12.57 per share. Does not include options to purchase
89,300 shares of Common Stock at an exercise price of $12.57 per share, which
are not currently exercisable.
(20) Assumes the exercise in full of options or warrants described in
footnotes (4) through (7) and (11) through (19) that are currently exercisable
or that will become exercisable within 60 days of September 30, 1998.
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. 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
October 22, 1998 ("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 an additional 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. Assuming conversion of all of the
outstanding Series B Preferred Stock and Series C Preferred Stock, the
percentage of the outstanding Common
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Stock currently owned by the Series B Preferred Stock holders is approximately
33% and the percentage of Common Stock currently owned by the Series C Preferred
Stock holders 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).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE ESTATE OF CAL KOVENS. In November 1994, AHS issued Cal
Kovens, who was a director of AHS until his death on February 6, 1995, a
warrant to purchase 200,000 shares of AHS Common Stock at $0.25 per share in
consideration of certain Gamma Knife financing activities which Mr. Kovens
assisted in facilitating. 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 Common Stock at the exercise price of $2.50 per share.
The warrant was exercised by the Estate of Mr. Kovens in November 1997. In
addition, a loan to a wholly owned subsidiary of AHS was secured by a letter of
credit of $400,000 which was guaranteed by the Estate of Cal Kovens until
September 30, 1997, when the guarantee expired. See "TRANSACTION WITH HOLDERS
OF AHS SERIES B PREFERRED STOCK."
TRANSACTIONS WITH FRANK E. EGGER. Since July 1, 1996, Mr. Egger, chairman of
the board, has been and continues to be paid $85,000 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 severance compensation
equal to twelve 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 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 MHC, had from time
to time granted AHS and MHC certain financial accommodations with respect to
certain loans and leases. In exchange for such accommodations, AHS and MHC
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 MHC, and its affiliates. As a result, certain debt
and operating lease obligations of AHS and MHC were reduced in exchange for,
among other things, the issuance to GE
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immediately prior to the consummation of the Merger of AHS Series C Preferred
Stock and MHC Series B Preferred Stock. At the effective time of the Merger, the
AHS Series C Preferred Stock and MHC 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 Common Stock representing
approximately 48% of the Common Stock outstanding at the effective time of the
Merger (after giving effect to such conversion).
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 MHC to acquire 700,000 shares of MHC
Common Stock, were canceled without payment therefor. Furthermore, GE had the
right to receive for ten years annual payments ("Supplemental Service Fee")
under its maintenance agreements with InSight, AHS and MHC equal to 14% of
InSight pretax 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.
In connection with the Recapitalization, the net proceeds from the Carlyle
investment were used to refinance a portion of the Company's outstanding
indebtedness to GE (approximately $20 million). Also in connection with the
Recapitalization, the Company executed a Credit Agreement with NationsBank, N.A.
("Nationsbank") pursuant to which NationsBank, as agent and lender, provided a
total of $125 million in senior secured credit financing including (i) a $50
million term loan facility, (ii) a $25 million revolving working capital
facility and (iii) a $50 million acquisition facility (the "Bank Financing").
At the initial funding of the Bank Financing, all of the term loan facility was
drawn down to refinance all of the remaining GE indebtedness (approximately $50
million). In addition, the Company has purchased a majority of its MRI systems
from GE, through GEMS, and the Company currently leases a majority of its
diagnostic imaging and treatment systems from GEMS under a master lease
agreement, including 18 systems within a variable lease pool. GEMS also
provides maintenance services with respect to the Company's equipment.
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,
including Mr. Egger, Roz Kovens and the Estate of Cal Kovens, 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, warrants to purchase
an aggregate of 50,000 shares of Common Stock (including 7,660 shares to Roz
Kovens and 33,645 shares to the Estate of Mr. Kovens which have been exercised
and 2,268 shares to Mr. Egger) at the exercise price of $5.64 per share,
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 ("SHP"), an investment
banking firm located in New York in which a director of the Company, Mr.
Chamberlain, is a managing director, pursuant to which SHP will provide general
strategic advisory and investment banking services. The term of the agreement
commenced July 1, 1996 and extended through December 31, 1997. The Company has
recently agreed to extend the term of the agreement through December 31, 1998.
The Company is obligated to pay SHP in quarterly installments of $30,000. SHP
also is entitled to separately negotiated fees for certain mergers or
acquisitions. The Company also issued SHP a warrant to purchase 35,000 shares of
Common Stock at an exercise price of $5.50 per share, which vested cumulatively
on a monthly basis over the 18 month term of the initial agreement. The warrant
is now fully exercisable and 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. In connection with the
Recapitalization, the Company paid SHP a fee of $500,000 for providing certain
advisory services. On September 1, 1998, the Company entered into an agreement
with SHP pursuant to which SHP will provide financial advisory services in
connection with a potential acquisition by the Company. If the potential
acquisition is consummated, the Company has agreed to pay SHP a total of
$350,000 in transaction fees and its reasonable out-of-pocket expenses.
TRANSACTIONS WITH HOLDERS OF PREFERRED STOCK. In lieu of an automatic grant,
under the Directors' Plan, to each of the Series B Directors (appointed by the
Carlyle Stockholders) and the Series C Director (appointed by GE) of an option
to purchase 15,000 shares of Common Stock, at the request of such Preferred
Stock Directors, upon the date each of them became a Preferred Stock Director,
the Company issued to an affiliate of the Carlyle Stockholders a warrant to
purchase 30,000 shares of Common Stock at an exercise price of $7.25 per share
and GE a warrant to purchase 15,000 shares of Common Stock at an exercise price
of $10.00 per share. The Carlyle Stockholders warrant vests cumulatively at the
rate of
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833.33 shares per month and the GE warrant vests cumulatively at the rate of
416.67 shares per month. The Carlyle Stockholders warrant is exercisable at any
time up to October 14, 2000 and the GE warrant is exercisable at any time up to
November 20, 2000.
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.
TRANSACTIONS WITH BRIAN P. STONE. In connection with the acquisition by merger
of Signal (the "Signal Merger"), the Company paid to Mr. Stone approximately
$2.9 million in cash in consideration for tendering his shares of Signal's
common stock in the Signal Merger. On May 18, 1998, at the consummation of the
Signal Merger, the Company and Mr. Stone entered into an employment agreement
pursuant to which Mr. Stone was appointed senior vice president-operations for
an initial term of one year. Thereafter, such employment agreement renews
automatically for additional one year terms unless terminated by either party
pursuant to the terms thereof. Under the terms of his employment agreement, Mr.
Stone receives a base salary of $165,000 per year, a stay bonus of $408,300
payable over four years and a discretionary bonus the amount of which is based
upon the financial performance of the Company. Pursuant to his employment
agreement, Mr. Stone also received options to purchase 107,160 shares of Common
Stock at $12.57 per share. SEE "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."
SELECTION OF AUDITORS
Arthur Andersen LLP, independent public accountants, have been the auditors of
the consolidated financial statements of the Company and its subsidiaries since
1996. A meeting of the Board or the Audit Committee will be held in the near
future, at which time a recommendation will be made to confirm the selection of
the Company's auditors for the current fiscal year. Representatives of Arthur
Andersen LLP are expected to be present at the 1998 Annual Meeting. Such
representatives will be given an opportunity to make a statement if they desire
to do so and will be available to respond to any appropriate questions from the
stockholders.
OTHER BUSINESS
The Certificate of Incorporation requires that all nominations for persons to be
elected Common Stock directors, other than those made by the Board of Directors,
be made pursuant to written notice to the secretary of the Company. The notice
must be received not less than 50 nor more than 75 days prior to the meeting
which the election will take place (or not later than 15 days after public
disclosure of such meeting date if such disclosure occurs less than 65 days
prior to the date of such meeting). The notice must set forth all information
relating to each nominee that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, pursuant to the
Exchange Act (including the nominee's written consent to serve as a director).
The notice must also include the stockholder's name and address as they appear
on the Company's books and the class, series and number of shares beneficially
owned by the stockholder.
The management of the Company knows of no further or other matters which are to
be considered at this Annual Meeting. If any other business shall properly come
before this Annual Meeting, the person named in the accompanying form of proxy
will, as to such items, vote or refrain from voting in accordance with his best
judgment.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended June 30,
1998, including audited consolidated financial statements for the fiscal year
ended June 30, 1998, is being mailed to the stockholders concurrently with this
Proxy Statement.
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STOCKHOLDER PROPOSALS
Any eligible stockholders of the Company wishing to have a proposal considered
for inclusion in the Company's proxy solicitation materials for the 1999 Annual
Meeting must set forth such proposal in writing and file it with the secretary
of the Company on or before June 29, 1999. The Board will review the proposals
from eligible stockholders which it receives by that date and will determine
whether such proposals will be included in its 1999 proxy solicitation
materials.
By Order of the Board of Directors
/s/ Marilyn U. MacNiven-Young
Marilyn U. MacNiven-Young
Executive Vice President, General Counsel and Secretary
Newport Beach, California
October 27, 1998
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INSIGHT HEALTH SERVICES CORP.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
December 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INSIGHT HEALTH
SERVICES CORP.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the accompanying Proxy Statement for the 1998
Annual Meeting to be held on December 15, 1998 and, revoking all prior
proxies, hereby appoints E. Larry Atkins, with full power of substitution, as
proxy of the undersigned to attend and vote all shares of Common Stock of
InSight Health Services Corp. which the undersigned may be entitled to vote
at the Annual Meeting of Stockholders to be held on December 15, 1998, and
any and all postponements or adjournments thereof hereof, upon the matter
specified below and such other business as may properly come before the
Annual Meeting.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE>
/X/ Please mark your votes as in this example using dark ink only.
1. The election of Grant R. Chamberlain and Ronald G. Pantello
as directors of the Company to hold office for a three-year
term and until their successors are duly elected and qualified.
FOR / / WITHHOLD VOTE / /
2. To transact such other business as may properly come before
the Annual Meeting and any and all postponements or adjournments
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS INDICATED; HOWEVER, IF NO INSTRUCTIONS ARE GIVEN, THE PROXY WILL
VOTE FOR THE NOMINEES FOR DIRECTOR AND IN HIS DISCRETION ON ANY OTHER MATTERS
THAT MAY COME BEFORE THE ANNUAL MEETING.
NOTE: Please sign exactly as your name appears on your stock certificate(s).
If the stock is jointly held, each owner should sign. Executors,
administrators, trustees, guardians and attorneys should so indicate when
signing. Attorneys should submit powers of attorney.
Date: _____________, 1998
- ------------------------------- ---------------------
Signature(s) of stockholder(s)
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
SO THAT IT CAN BE COUNTED AT THE ANNUAL MEETING ON DECEMBER 15, 1998.
