SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) October 14, 1997
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InSight Health Services Corp.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 0-28622 33-0702770
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(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
4400 MacArthur Boulevard, Suite 800, Newport Beach, CA 92660
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 476-0733
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
ITEM 5. OTHER EVENTS.
On October 14, 1997, InSight Health Services Corp., a Delaware corporation
("InSight" or the "Company"), consummated a recapitalization
("Recapitalization") pursuant to which (a) certain investors (the "Carlyle
Stockholders") affiliated with TC Group, L.L.C., a Delaware limited liability
company doing business as The Carlyle Group, a private merchant bank
headquartered in Washington, D.C., made a cash investment of $25 million in the
Company and received therefor 25,000 shares of newly issued Convertible
Preferred Stock, Series B of the Company, par value $0.001 per share ("Series B
Preferred Stock"), initially convertible, at the option of the holders thereof,
in the aggregate into 2,985,075 shares of InSight common stock, par value $0.001
per share ("Common Stock"), and warrants (the "Carlyle Warrants") to purchase up
to 250,000 shares of Common Stock at the initial exercise price of $10.00 per
share; (b) General Electric Company, a New York corporation ("GE"), (i)
surrendered its rights under an amended equipment service agreement to receive
annual supplemental service fee payments equal to 14% of pretax income in
exchange for the issuance of 7,000 shares of newly issued Convertible Preferred
Stock, Series C of the Company, par value $0.001 per share ("Series C Preferred
Stock"), initially convertible, at the option of GE, in the aggregate into
835,821 shares of Common Stock, and warrants (the "GE Warrants") to purchase up
to 250,000 shares of Common Stock at the initial exercise price of $10.00 per
share, and (ii) agreed to exchange all of its shares of InSight's Convertible
Preferred Stock, Series A of the Company, par value $0.001 per share (the
"Series A Preferred Stock"), on the business day (the "Second Closing") after
all waiting periods with respect to GE's filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, have expired or been terminated,
for an additional 20,953 shares of Series C Preferred Stock, initially
convertible, at the option of GE, in the aggregate into 2,501,851 shares of
Common Stock; and (c) the Company executed a Credit Agreement with NationsBank,
N.A. pursuant to which NationsBank, as agent and lender, committed to provide, a
total of $125 million in senior secured credit (the "Bank Financing"), including
(i) a $50 million term loan facility consisting of a $20 million tranche with
increasing amortization over a five-year period and a $30 million tranche with
increasing amortization over a seven-year period, principally repayable in
years 6 and 7, (ii) a $25 million revolving working capital facility with a
five-year maturity, and (iii) a $50 million acquisition facility.
Initial funding under the Bank Financing occurred on October 22, 1997
and, on December 19, 1997, the acquisition facility was increased to $75
million. The Second Closing occurred on November 4, 1997. As a result of the
Second Closing, GE holds 27,953 shares of Series C Preferred Stock initially
convertible, at its option, into 3,337,672 shares of Common Stock, and there
are no shares of Series A Preferred Stock outstanding.
THE SERIES B PREFERRED STOCK
The following is a description of the rights, preferences and privileges of
the Series B Preferred Stock as set forth in the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock, Series B (the "Series B
Certificate of Designation"). Such description does not purport to be complete
and is subject to and qualified in its entirety by reference to the Series B
Certificate of Designation, a copy of which is filed with the Securities and
Exchange Commission (the "SEC") as Exhibit 3.2 to InSight's Annual Report on
Form 10-K for the year ended June 30, 1997 (the "1997 Form 10-K").
RANK. The Series B Preferred Stock ranks, with respect to dividend
distributions and distributions upon the liquidation, winding up and
dissolution of the Company, (i) senior to all classes of the Company's Common
Equity (defined to mean any class of common stock, including the Common
Stock, which has the right, subject to preferred stock rights, to participate
in any distribution of the assets or earnings of the Company without limit as
to per share amount) and to each other class or series of the Company's
capital stock ("Capital Stock"), the terms of which do not expressly provide
that it ranks senior to or on a parity with the Series B Preferred Stock with
respect to such distributions (collectively, the "Junior Securities"); (ii)
on a parity with any class or series of Capital Stock which expressly
provides that it ranks on a parity with the Series B Preferred Stock as to
such distributions (such shares, together with the Series C Preferred Stock
and the Convertible Preferred Stock, Series D, par value $0.001 (the "Series
D Preferred Stock") are, collectively, the "Parity Securities"); and (iii)
junior to each class or series of Capital Stock issued in accordance with the
"Protective Provisions" described below and which expressly provides that it
ranks senior to the Series B Preferred Stock as to such distributions
(collectively, the "Senior Securities").
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DIVIDEND RIGHTS. Each holder of Series B Preferred Stock is entitled to
receive dividends (when, as and if declared by InSight's Board of Directors
(the "Board"), together with holders of Series C Preferred Stock, Series D
Preferred Stock (collectively with the Series B Preferred Stock, the
"Preferred Stock") and Common Stock, on a basis proportionate to the number
of shares of Common Stock held by such holder (assuming conversion of all
Preferred Stock). No dividends will be paid on any Common Stock until the
holders of the Preferred Stock have been paid in full their pro rata portion
thereof.
LIQUIDATION PREFERENCE. Upon any Liquidating Event (as defined below), the
holders of the Series B Preferred Stock then outstanding shall be entitled to be
paid $1,000 per share of Series B Preferred Stock (the "Series B Liquidation
Preference"), plus any declared but unpaid dividends thereon, before any payment
shall be made on any assets distributed to the holders of any of the Junior
Securities, including Common Stock. Otherwise, holders of Series B Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Company. "Liquidating Event"
means, with respect to a Person (as defined below), any of (i) the commencement
by such Person of a voluntary case under the bankruptcy laws of the United
States or the commencement of an involuntary case against such Person with
respect to which the petition shall not be controverted within 15 days or
dismissed within 60 days after commencement thereof; (ii) the appointment of a
custodian for, or the taking charge by a custodian of, all or substantially all
of the property of such Person; (iii) the commencement by such Person of any
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law relating to such
Person; (iv) the commencement against such Person of any proceeding set forth in
clause (iii) which is not controverted within 10 days thereof and dismissed
within 60 days after commencement thereof; (v) the adjudication of such Person
insolvent or bankrupt, or the adoption by such Person of a plan of liquidation;
(vi) the occurrence of any Change of Control (as defined below) with respect to
such Person; or (vii) the filing of a certificate of dissolution in respect of
InSight; in any of cases (i) through (vi) above, in a single transaction or
series of related transactions. "Person" means any individual, corporation,
partnership, joint venture, association, limited liability company, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
A "Change of Control" will be deemed to have occurred with respect to a
Person (i) at such time as any person (as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) at any time shall directly or
indirectly acquire more than 40% in outstanding voting power of such Person,
(ii) at such time as during any one year period, individuals who at the
beginning of such period constitute such Person's board of directors or other
governing body cease to constitute at least a majority of such board or
governing body (other than upon a Type B Event Date (as defined below)), (iii)
upon consummation of a merger or consolidation of such Person into or with
another Person in which the stockholders of the subject Person immediately prior
to the consummation of such transaction shall own less than 50% of the voting
securities of the surviving Person (or its parent corporation where the
surviving Person is wholly owned by the parent corporation) immediately
following consummation of such transaction or (iv) the sale, transfer or lease
of all or substantially all of the assets of such Person, in any of cases of
(i), (ii), (iii) or (iv) above, in a single transaction or series of related
transactions; provided that no Change of Control shall be deemed to occur solely
by reason of (x) the ownership by the Carlyle Stockholders or any of their
affiliates or by GE or any of its affiliates of any Capital Stock of the
Company, (y) the conversion of Series C Preferred Stock into Series D Preferred
Stock (and any Board changes incident thereto) or (z) the conversion of Series D
Preferred Stock into Common Stock.
CONVERSION RIGHTS. Each share of Series B Preferred Stock is initially
convertible, without payment, by the holder thereof, into 119.403 shares of
Common Stock based upon an initial conversion price of $8.375 per share, subject
to adjustment (the "Conversion Price"). The Conversion Price is subject to (i)
decrease if InSight at any time subdivides (by stock split, stock dividend,
reclassification, recapitalization or otherwise) one or more classes or series
of its outstanding Common Equity into a greater number of shares or (ii)
increase if InSight at any
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time combines (by reverse stock split or otherwise) one or more classes or
series of its outstanding Common Equity into a smaller number of shares. In the
event of any Corporate Change (defined to mean any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of InSight's assets or other transaction, effected in such a
way that the holders of Common Equity are entitled to receive stock, securities,
cash, debt instruments or assets with respect to or in exchange for Common
Equity), each share of Series B Preferred Stock then outstanding will become
convertible only into the kind and amount of securities, cash and other property
receivable upon such Corporate Change by the holder of the number of shares of
Common Stock into which such share of Series B Preferred Stock was convertible
immediately prior thereto. If InSight declares or pays a Liquidating Dividend
(defined to mean a dividend upon the Common Equity payable otherwise than out of
earnings or earned surplus except for a stock dividend payable in Common Stock),
InSight shall pay to each holder of a share of Series B Preferred Stock the
Liquidating Dividend that would have been paid to such holder on the Common
Stock such holder would have owned had such holder fully exercised its right to
convert the shares of Series B Preferred Stock into Common Stock immediately
prior to the record or determination date for such Liquidating Dividend. In
addition, if InSight issues any shares of Common Stock or securities convertible
into, or exercisable for, shares of Common Stock at a common stock equivalent
price of less than the Conversion Price in effect at the time of such issuance,
then, subject to certain exceptions, such Conversion Price shall be adjusted in
accordance with certain price-based antidilution provisions.
The Series B Preferred Stock may be converted only in a Type A Conversion
or a Type B Conversion, as described below.
TYPE A CONVERSION. Each holder of Series B Preferred Stock has the right,
at its option, at any time, to convert all, but not less than all, of its Series
B Preferred Stock then outstanding into such number of shares of Common Stock as
results from dividing (i) the sum of (A) the aggregate Liquidation Preference of
all shares of Series B Preferred Stock to be converted plus (B) any declared but
unpaid dividends on such shares, by (ii) the applicable Conversion Price on the
date of conversion (the "Conversion Date"). In addition, substantially
contemporaneous with any Partial Conversion Event (defined to mean (a) the sale
at any time of a holder's Series B Preferred Stock to a third party approved by
the Board, (b) the consummation at any time of a public offering of Common Stock
and (c) the consummation of a private sale of Common Stock after April 14,
1999), each holder of Series B Preferred Stock has the right, at its option, to
convert all or any part of its Series B Preferred Stock into such number of
shares of Common Stock as results from dividing (i) the sum of (A) the aggregate
Liquidation Preference of all shares of Series B Preferred Stock to be converted
plus (B) any declared but unpaid dividends on such shares, by (ii) the
applicable Conversion Price on the Conversion Date.
TYPE B CONVERSION. At any time on or after October 22, 1998 (the "Type B
Trigger Date"), the holders of a majority of the Series B Preferred Stock may
elect to deliver an irrevocable notice (a "Type B Conversion Notice") to convert
all of their Series B Preferred Stock into Series D Preferred Stock, provided
that such notice shall not be effective unless substantially contemporaneous
with its delivery the holders of a majority of the Series C Preferred Stock
deliver a similar notice to convert all of their Series C Preferred Stock into
Series D Preferred Stock. On the date of delivery of the Type B Conversion
Notice (the "Type B Event Date") each share of Series B Preferred Stock then
outstanding shall automatically be converted into such number of shares of
Series D Preferred Stock as results from dividing (i) the sum of (A) the
aggregate Series B Liquidation Preference of such share of Series B Preferred
Stock plus (B) any declared but unpaid dividends on such share, by (ii) the
product of ten (10) times the applicable Conversion Price on the Type B Event
Date. Each outstanding share of Series C Preferred Stock will also
automatically be converted into Series D Preferred Stock based upon a similar
formula. The rights of holders of Series B Preferred Stock with respect to a
Type B Conversion are not transferable except to an affiliate of an initial
purchaser of Series B Preferred Stock.
REDEMPTION. The Series B Preferred Stock is not subject to mandatory
redemption by InSight or the holder thereof, pursuant to InSight's or such
holder's unilateral election.
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VOTING AND RELATED RIGHTS. Holders of Series B Preferred Stock have the
right to vote with the holders of Common Stock and the holders of Series C
Preferred Stock with respect to all matters submitted to a stockholder vote,
except for the election of directors (with respect to which the holders of
the Series B Preferred Stock have the voting rights set forth in "Composition
of Board" below). With respect to all matters submitted to a stockholder
vote (except for the election of directors), each holder of Series B
Preferred Stock has one vote for every share of Common Stock into which each
share of Series B Preferred Stock is then convertible, provided that the
aggregate number of such votes, when combined with the aggregate number of
votes attributable to the holders of Series C Preferred Stock, shall not
exceed 37% of the total number of votes eligible to be cast.
SUPERMAJORITY BOARD VOTE. Prior to a Type B Event Date, approval of at
least six directors is required for the approval of the annual capital budget
plan and for any financing activity not approved by the Executive Committee (as
defined below) of the Board.
BYLAW AMENDMENTS. InSight's Bylaws may be amended, repealed or replaced by
InSight's stockholders or the Board only upon approval by (i) in the case of
adoption by the Board, prior to the first meeting of the newly constituted Board
held two calendar days after a Type B Event Date (a "First Meeting"), a majority
of the Preferred Stock Directors (as defined below) and either (A) a majority of
the entire Board (if such amendment, repeal or replacement does not increase the
size of the Board) or (B) at least 80% of the members of the entire Board (if
such amendment, repeal or replacement does increase the size of the Board); or
(ii) in case of adoption by the stockholders with a record date on or before a
Type B Event Date, holders of at least 80% of the outstanding shares entitled
to vote in the election of directors, voting as one class, and by holders of a
majority of the shares outstanding as of such record date of whichever (or both)
of Series B Preferred Stock or Series C Preferred Stock continued (as of such
record date) to have the right to elect one or more Preferred Stock Directors.
PROTECTIVE PROVISIONS. For so long as the Carlyle Stockholders and
certain affiliates thereof own at least 33% of the Series B Preferred Stock,
the approval of the holders of at least 67% of the Series B Preferred Stock
is required before the Company may take the following actions: (a) alter,
change or amend (by merger or otherwise) any of (i) the rights, preferences
and privileges of the Series B Preferred Stock or any other class of capital
stock; or (ii) the terms or provisions of any option or convertible security;
(b) enter into any transaction or event that could result in a Special
Corporate Event with respect to InSight or any subsidiary (defined to include
the acquisition of more than 20% of the voting power, a change in a majority
of the board of directors other than pursuant to a Type B Event, a merger
resulting in a change in ownership of 50% or more of the voting securities of
the Person surviving such merger or the sale of all or substantially all of
the assets); (c) initiate any Liquidating Event with respect to InSight or
any subsidiary; (d) amend, restate, alter, modify or repeal (by merger or
otherwise) the Certificate of Incorporation or the Bylaws of InSight,
including, without limitation, amendment, restating, modifying or repealing
(by merger or otherwise) any certificate of designation or preferences
relating to the Series B Preferred Stock, the Series C Preferred Stock or the
Series D Preferred Stock; (e) amend, restate, alter, modify or repeal (by
merger or otherwise) or permit any subsidiary to amend, restate, alter,
modify or repeal (by merger or otherwise) the certificate of incorporation,
other organizational documents, or bylaws of any subsidiary in any material
respect; (f) change the number of directors of InSight to a number less than
eight or more than nine or the manner in which the directors are selected, as
provided in the Certificate of Incorporation, Bylaws, Series B Preferred
Stock Certificate of Designation, the Certificate of Designations,
Preferences and Rights of Convertible Preferred Stock, Series C (the "Series
C Certificate of Designation"), and the Certificate of Designations,
Preferences and Rights of Convertible Preferred Stock, Series D (the "Series
D Certificate of Designation"); (g) except with respect to the Bank
Financing, or any other credit facility existing as of October 14, 1997,
incur any indebtedness, in the aggregate with respect to InSight and its
subsidiaries, in excess of $15 million in any fiscal year; (h) become a
party to operating leases during any fiscal year with respect to which the
present value of all payments due during the term of such operating leases in
the aggregate (determined using a discount rate of 10%) exceed $15 million;
(i) create, authorize or issue any shares of Series B Preferred Stock or any
class or series of
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Senior Securities, Parity Securities, or securities having the right to cast
more than one vote per share or to elect one or more members of the Board
("Supervoting Securities"), or shares of any such class or series; (j)
reclassify any authorized stock of the Company into Series B Preferred Stock or
any class or series of Senior Securities, Parity Securities, Supervoting
Securities or shares of any such class or series; (k) increase or decrease the
authorized number of shares of Series B Preferred Stock or any class or series
of Senior or Parity Securities or shares of any such class or series; (l) issue
any equity security below either the then current Market Price (without
deduction for any underwriters' discount) or the then-applicable Conversion
Price other than for (A) management stock options currently authorized and
available for grant for not more than Three Hundred Thousand (300,000) shares of
Common Stock in the aggregate, in which senior management of the Company shall
not participate, (B) management stock options exercisable at not less than the
then-applicable Conversion Price per share of Common Stock issued after October
14, 1997, and exercisable for not more than Five Hundred Thousand (500,000)
shares of Common Stock in the aggregate, in which only certain members of senior
management of the Company shall participate, and (C) the Common Stock underlying
such management stock options referred to in (A) and (B) above and other stock
options outstanding as of October 14, 1997; (m) declare or pay any dividend or
make any distribution with respect to shares of Capital Stock or any securities
convertible into, or exercisable, redeemable or exchangeable for, any share of
Capital Stock directly or indirectly, whether in cash, obligations or shares of
InSight or other property; (n) acquire, in one or a series of related
transactions, any equity ownership interest or interests of any Person, where
the aggregate consideration payable in connection with such acquisition is equal
to or greater than $15 million; (o) acquire any asset or assets of any Person in
any transaction or transactions, where the aggregate consideration payable in
connection with any single such transaction whether such transaction is effected
in a single transaction or series of related transactions, is greater than $15
million; provided that this provision shall not apply to certain capital
expenditures made by InSight in the ordinary course of business; (p) merge or
consolidate with any Person, or permit any other Person to merge into it, where
(i) the stockholders of InSight immediately prior to the consummation of such
merger or consolidation shall, immediately after the consummation of such merger
or consolidation, hold securities possessing more than 50% of both the total
voting power of and the beneficial ownership interests in the surviving entity
of such merger or consolidation and (ii) the equity holders of the subject
Person immediately prior to the consummation of such transaction shall receive
(directly or indirectly) aggregate consideration payable in connection with such
transaction equal to or greater than $15 million; (q) cause or permit any
subsidiary to merge or consolidate with any Person (other than InSight or a
wholly owned subsidiary of InSight), or cause or permit any other Person to
merge into it, where: (i) the stockholders of such subsidiary immediately prior
to the consummation of such merger or consolidation shall, immediately after the
consummation of such merger or consolidation, hold securities possessing more
than 50% of both the total voting power of and the beneficial ownership
interests in the surviving entity of such merger or consolidation and (ii) the
equity holders of the subject Person immediately prior to the consummation of
such transaction shall receive (directly or indirectly) aggregate consideration
payable in connection with such transaction equal to or greater than $15
million; (r) substantially and materially engage in, either through acquisition
or internal development, any business other than the business of providing
diagnostic services to the healthcare industry; (s) make or permit any of its
subsidiaries to make capital expenditures in any fiscal year in excess, in the
aggregate, of two percent (2%) above the approved capital budget plan for such
fiscal year of InSight unless such expenditure is approved by the Executive
Committee or a Supermajority Board Vote; (t) (i) sell, transfer, convey, lease
or dispose of, outside the ordinary course of business, any assets or properties
of InSight or any subsidiary, whether now or hereafter acquired, in any
transaction or transactions, if (X) the aggregate consideration payable in
connection with any single such transaction is greater than $5 million or
(Y) the aggregate consideration payable in connection with all such transactions
consummated after October 14, 1997, taken as a whole, is or would become as a
result of such transaction greater than $20 million; (ii) undergo or cause or
permit any subsidiary to undergo a reorganization or recapitalization;
(iii) merge or consolidate with any Person, or permit any other Person to merge
into it, where the stockholders of InSight immediately prior to the consummation
of such merger or consolidation shall, immediately after the consummation of
such merger or consolidation, hold securities possessing 50% or less of either
the total voting power of or the beneficial ownership interests in the surviving
entity of such merger or consolidation; (iv) cause or permit any subsidiary to
merge or consolidate with any other Person (other than InSight or a wholly owned
subsidiary of
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InSight), or cause or permit any other Person to merge into such subsidiary,
where the stockholders of such subsidiary immediately prior to the consummation
of such merger or consolidation shall, immediately after the consummation of
such merger or consolidation, hold 50% or less of either the total voting power
of or the beneficial ownership interests in the surviving entity of such merger
or consolidation if (X) the value of the assets of such subsidiary is greater
than $5 million or (Y) the aggregate value of the assets of all such
subsidiaries with respect to all such mergers or consolidations consummated
after October 14, 1997, taken as a whole and including such transaction, is or
would become as a result of such transaction greater than $20 million; (u)
permit any subsidiary of InSight to issue or sell any share of capital stock,
option or convertible security; provided that InSight may form a new subsidiary
not all of the equity securities of which need be owned directly or indirectly
by InSight (a "Partial Subsidiary"), but only if (i) at the time of creation of
such Partial Subsidiary, such Partial Subsidiary is designated as such in a
written notice to the holders of the shares of Series B Preferred Stock, and,
(ii) cumulatively through time no more than $5,000 of assets (in the aggregate)
are transferred to such Partial Subsidiary by InSight or any other subsidiary,
and (iii) no liabilities of such Partial Subsidiary are ever assumed or
guaranteed by InSight or any other subsidiary; or (v) issue any share of Series
D Preferred Stock, otherwise than pursuant to a Type B Conversion.
"Market Price" means as to any security the average of the closing prices of any
such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
Nasdaq as of 4:00 p.m., New York time, on such day, or, if on any day such
security is not quoted in Nasdaq, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 business days
consisting of the day as of which Market Price is to be determined and the 20
consecutive business days prior to such day. If such security is not so listed
or quoted, Market Price shall be the fair market value of such security
determined by the Company and the holders of a majority of the Series B
Preferred Stock in accordance with certain procedures.
PREEMPTIVE RIGHTS. The holders of Series B Preferred Stock have a right
of first offer with respect to future sales in any transaction or proposed
transaction not involving a public offering by InSight of Common Equity
(including Common Stock) or any securities convertible or exchangeable into
Common Equity, excluding offers of Common Stock pursuant to options granted
to its officers, directors and employees for the primary purpose of
soliciting or retaining their employment or services (the "Preemptive
Securities"). With respect to any proposed offering by InSight of Preemptive
Securities in which the proposed sale price reflects a price per share of
Common Stock at or above the higher (the "Trigger Price") of (i) the Market
Price per share of Common Stock as of the date of InSight's written notice
(the "Preemptive Notice") to such holders regarding the proposed offering or
(ii) $8.375 per share of Common Stock (a "Type A Offering"), each holder may
elect to purchase, pursuant to specified procedures, at the price and on the
terms specified in the Preemptive Notice, up to that portion of Preemptive
Securities which equals the proportion that the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock then held by
such holder bears to the total number of shares of Common Stock then
outstanding (assuming full conversion of all convertible securities,
including all Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock). With respect to any proposed offering by InSight of
Preemptive Securities in which the proposed sale price reflects a price per
share of Common Stock below the Trigger Price (a "Type B Offering"), each
holder may elect to purchase, pursuant to specified procedures, at the price
and on the terms specified in the Preemptive Notice, up to that portion of
Preemptive Securities which equals the proportion that the number of shares
of Common Stock issuable upon conversion of the Series B Preferred Stock then
held by such holder bears to the total number of shares of Common Stock into
which the outstanding shares of Series B Preferred Stock are then
convertible. Certain procedures are provided to permit holders of Series B
Preferred Stock to purchase Preemptive Securities which other holders of
Series B Preferred Stock decline to purchase. In the event that there
remain any unpurchased Preemptive Securities InSight may offer and sell the
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remaining unsubscribed portion of such Preemptive Securities, on the same terms
and conditions specified in the Preemptive Notice to any Person for a specified
period of time.
THE SERIES C PREFERRED STOCK
The rights, preferences and privileges of the Series C Preferred Stock, as
set forth in the Series C Certificate of Designation, are substantially the same
as those described above with respect to the Series B Preferred Stock
(substituting therein "Series C Preferred Stock" for "Series B Preferred Stock"
and "Series B Preferred Stock" for "Series C Preferred Stock", as the case may
be), except as set forth below in "Composition of the Board." Such description
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Series C Certificate of Designation, a copy of which is
filed as Exhibit 3.3 to the 1997 Form 10-K.
THE SERIES D PREFERRED STOCK
The following is a brief description of the rights, preferences and
privileges of the Series D Preferred Stock as set forth in the Series D
Certificate of Designation. Such description does not purport to be complete and
is subject to and qualified in its entirety by reference to the Series D
Certificate of Designation, a copy of which is filed as Exhibit 3.4 to the 1997
Form 10-K.
RANK. The Series D Preferred Stock ranks on a parity with the Series B
Preferred Stock and the Series C Preferred Stock.
DIVIDEND RIGHTS. Each holder of Series D Preferred Stock is entitled to
receive dividends (when, as and if declared by the Board) together with
holders of Series B Preferred Stock, Series C Preferred Stock and Common
Stock on a basis proportionate to the number of shares of Common Stock held
by such holder (assuming conversion of all Preferred Stock).
LIQUIDATION PREFERENCE. Upon any Liquidating Event, the holders of the
Series D Preferred Stock then outstanding shall be entitled to be paid $.001 per
share of Series D Preferred Stock, plus any declared but unpaid dividends
thereon, before any payment shall be made on any assets distributed to the
holders of any of the Junior Securities, including Common Stock. In addition,
holders of Series D Preferred Stock shall be entitled to receive any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Company on a parity with shares of Common Stock , on a pro rata
basis (assuming full conversion of all shares of Series D Preferred Stock into
Common Stock).
CONVERSION RIGHTS. Each holder of Series D Preferred Stock shall have the
right, at its option, to convert all or any part of its Series D Preferred Stock
into such number of shares of Common Stock as results from multiplying the
number of shares of Series D Preferred Stock to be converted by the Conversion
Multiple. The "Conversion Multiple" is initially ten (10) and is subject to (i)
increase if InSight at any time subdivides (by stock split, stock dividend,
reclassification, recapitalization or otherwise) one or more classes or series
of its outstanding Common Equity into a greater number of shares or (ii)
decrease if InSight at any time combines (by reverse stock split or otherwise)
one or more classes or series of its outstanding Common Equity into a smaller
number of shares. In the event of any Corporate Change, each share of Series D
Preferred Stock then outstanding will become convertible only into the kind and
amount of securities, cash and other property receivable upon such Corporate
Change by the holder of the number of shares of Common Stock into which such
share of Series D Preferred Stock was convertible immediately prior thereto. If
InSight declares or pays a Liquidating Dividend, InSight shall pay to each
holder of a share of Series D Preferred Stock the Liquidating Dividend that
would have been paid to such holder on the Common Stock such holder would have
owned had such holder fully exercised its right to convert the shares of Series
D Preferred Stock into Common Stock immediately prior to the record or
determination date for such Liquidating Dividend.
- 8 -
REDEMPTION. The Series D Preferred Stock is not subject to mandatory
redemption by InSight or the holder thereof, pursuant to InSight's or such
holder's unilateral election.
VOTING RIGHTS. Holders of Series D Preferred Stock have the right to vote
with the holders of Common Stock with respect to all matters submitted to a
stockholder vote, except for the election of directors (with respect to which
the holders of the Series D Preferred Stock have the voting rights set forth in
"Composition of Board" below). With respect to all matters submitted to a
stockholder vote (except for the election of directors), each holder of Series D
Preferred Stock will have one vote for every share of Common Stock into which
each share of Series D Preferred Stock is then convertible.
PROTECTIVE PROVISIONS. The approval of the holders of at least 67% of the
Series D Preferred Stock is required before the Company may take the following
actions: (a) create, authorize or issue any shares of Series D Preferred Stock
or any class or series of Supervoting Securities or shares of such class or
series; (b) reclassify any authorized stock of InSight into Series D Preferred
Stock or any class or series of Supervoting Securities or shares of any such
class or series; or (c) increase or decrease the authorized number of shares of
Series D Preferred Stock or any class or series of Supervoting Securities or
shares of any such class or series.
COMPOSITION OF THE BOARD
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Board is currently fixed at nine. Six directors (the "Common
Stock Directors") are to be elected by the Common Stock holders, one of whom
(the "Joint Director") is to be proposed by the majority holders 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
(the "Preferred Stock Directors"), two are to be elected by the holders of the
Series B Preferred Stock and one is to be elected by the holders of the Series C
Preferred Stock, in each case acting by written consent and without a meeting of
the Common Stock holders. As long as the Carlyle Stockholders and certain
affiliates thereof own at least 50% of the Series B Preferred Stock originally
purchased thereby, the holders of the Series B Preferred Stock will have the
right to elect two Preferred Stock Directors (the "Series B Director" or "Series
B Directors", as the case may be) and as long as the Carlyle Stockholders and
certain affiliates thereof own at least 25% of such stock, such holders will
have the right to elect one Series B Director. As long as GE owns at least 25%
of the Series C Preferred Stock originally purchased thereby, it will have the
right to elect one Preferred Stock Director (the "Series C Director"). Except
in the event of a Type B Conversion, 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 Carlyle Stockholders or GE
will initially be appointed by the Board and thereafter, be elected by the
Common Stock holders.
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.
In the event of a Type B Conversion, the number of members of the Board
will be increased automatically by the smallest whole number that will result in
at least the Type B Percentage (but less than 66 2/3%) of the members of the
Board being Series D Directors. Immediately following a Type B Event Date, the
holders of Series D Preferred Stock shall have the right to elect all of the new
directors (the "Conversion Directors") using cumulative voting. The "Type B
Percentage" equals a percentage equal to the number of shares of Common Stock
- 9 -
held by all holders of Series B Preferred Stock and Series C Preferred Stock as
of the Type B Event Date (assuming conversion of all such shares of Series B
Preferred Stock and Series C Preferred Stock into Common Stock) divided by the
total number of shares of Common Stock outstanding as of such date (assuming
conversion of all shares of Series B Preferred Stock and Series C Preferred
Stock as of such date); provided that the maximum Type B Percentage is 64%.
"Series D Directors" means, collectively, the Preferred Stock Directors and the
Conversion Directors.
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.
COMMITTEES OF THE BOARD. Pursuant to the terms of the Series B Certificate
of Designation and the Series C Certificate of Designation, the following
committees of the Board were created or reconstituted, as applicable, with the
respective duties, membership and voting requirements stated below:
COMPENSATION COMMITTEE. The Compensation Committee consists of three
members, at least one of whom is to be selected jointly by the Preferred Stock
Directors. The affirmative vote of at least two members of the Compensation
Committee is required for approval of matters considered by the Compensation
Committee.
AUDIT COMMITTEE. The Audit Committee consists of three members, including
as many independent directors as are available. An affirmative vote of at least
two members of the Audit Committee is required for approval of matters
considered by the Audit Committee.
EXECUTIVE COMMITTEE. The Executive Committee consists of four members, one
of whom is to be selected by the Series B Directors (and shall be a Series B
Director), one of whom shall be the Series C Director and two of whom are to be
selected by the Board. The affirmative vote of at least three members of the
Executive Committee is required for approval of matters considered by the
Executive Committee.
ACQUISITIONS COMMITTEE. The Acquisitions Committee consists of four
members, one of whom is to be selected by the Series B Directors (and shall be a
Series B Director), one of whom shall be the Series C Director and two of whom
are to be selected by the Board (and shall be directors). The Acquisitions
Committee has the right to approve certain transactions where the aggregate
consideration payable is less than $15 million. A unanimous vote is required for
approval of matters considered by the Acquisitions Committee, although certain
matters which do not receive the Committee's unanimous approval may be referred
to the Board for approval by a majority of its members. The unanimous approval
of the Acquisitions Committee or of the Board is required for certain
transactions in which the aggregate consideration payable is less than $15
million and the Company is to issue its Common Equity at an implicit or explicit
price of less than $8.375 per share.
The foregoing Committees must be maintained by the Company until a Type B
Event Date unless otherwise approved by a majority of the Board and a majority
of the Preferred Stock Directors, provided that if the holders of the Series B
Preferred Stock cease to have the right to nominate and elect a Series B
Director (other than as a result of conversion of the Series B Preferred Stock
in a Type B Conversion), the holders of the Series B Preferred Stock shall no
longer have the right to select Committee members and their designees on such
Committees shall automatically cease to be members thereof.
TRANSFER RESTRICTIONS
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Pursuant to the definitive agreements relating to the Recapitalization,
each of the Carlyle Stockholders and GE has agreed (i) not to transfer, sell,
assign, or pledge to any person other than an affiliate, or dispose of, any
interest in any shares of Series B Preferred Stock or Series C Preferred Stock
without the prior approval of the Board, in its sole discretion, and (ii) not
to transfer, sell or assign to an affiliate any interest in any shares of Series
B Preferred Stock or Series C Preferred Stock if such affiliate is engaged in
the provision of diagnostic services to the healthcare industry.
In addition, until the earlier to occur of April 14, 1999 or a Type B
Event Date, each of the Carlyle Stockholders and GE has agreed not to
transfer, sell or assign to any Person any of the Series D Preferred Stock,
the Common Stock issuable upon conversion of the Series B Preferred Stock
(the "Series B Conversion Shares") (with respect to the Carlyle
Stockholders), the Common Stock issuable upon conversion of the Series C
Preferred Stock (the "Series C Conversion Shares") (with respect to GE) or
the Common Stock issuable upon conversion of the Series D Preferred Stock (the
"Series D Conversion Shares") without the prior approval of a majority of the
Board in its sole discretion, other than (i) a transfer to an affiliate
(provided that prior to any such transfer such affiliate agrees in writing to
be bound by the same transfer restrictions described herein), (ii) a transfer
permitted under Rule 144 of the Securities Act of 1933, as amended (the
"Securities Act"), (iii) a transfer pursuant to a registered offering
pursuant to Registration Rights Agreements (described below) or (iv) a
transfer pursuant to a transaction available to all stockholders of the
Company on the same terms as to the Carlyle Stockholders or GE, as
applicable, which has been approved by a majority of the Board.
If a Type B Event occurs prior to April 14, 1999, then from the Type B
Event Date until the second subsequent annual meeting of the Company's
stockholders after such Type B Event Date, each of the Carlyle Stockholders
and GE has agreed not to make a transfer of any of its Series D Preferred
Stock, Series B Conversion Shares (in the case of the Carlyle Stockholders),
the Series C Conversion Shares (in the case of GE) or the Series D Conversion
Shares (i) in a transaction available to all holders of Common Stock on the
same terms as to the Carlyle Stockholders or GE, as applicable, unless such
transaction has been approved by either (a) the affirmative vote of not less
than 80% of the outstanding shares of the Company entitled to vote (which
include the Common Stock and the Series D Preferred Stock) or (b) at least
two-thirds of the Company's directors (which must include, to the extent
still a director, either (1) the Joint Director, if such Joint Director
served in such position as of the Type B Event Date or has been approved by a
majority of the directors who were Common Stock Directors as of the Type B
Event Date or (2) at least one director who was a Common Stock Director prior
to the Type B Event Date); or (ii) in a transaction other than one available
to all holders of Common Stock on the same terms as to the Carlyle
Stockholders or GE, as applicable, unless such transaction has been approved
either by (a) the affirmative vote of not less than 80% of the outstanding
shares of the Company entitled to vote or (b) at least 50% of the Company's
directors who are not the Preferred Stock Directors or the Conversion
Directors.
If the Type B Event Date is prior to October 14, 1999, then from the Type B
Event 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: (a) any merger or consolidation of the Company or any
of its subsidiaries with or into such Person; (b) 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; (c) 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 (d) 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 shares entitled to vote (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 Type B Event Date or has been approved by a majority of the directors who
were Common Stock Directors as of
- 11 -
the Type B Event Date or (B) at least one director who was a Common Stock
Director prior to the Type B Event Date).
The Carlyle Warrants and the GE Warrants and the Common Stock issuable upon
exercise of such Warrants are transferable by the Carlyle Stockholders and GE,
as applicable, subject to compliance with federal and state securities laws,
without the Board's approval.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the Carlyle
Stockholders and GE with respect to the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Carlyle Warrants and the GE
Warrants. Pursuant to separate Registration Rights Agreements dated October 14,
1997 with (i) the Carlyle Stockholders and (ii) GE, upon the demand of the
Carlyle Stockholders or GE, as applicable, the Company will use commercially
reasonable efforts to effect the registration (a "Demand Registration") under
the Securities Act, of such number of Registrable Securities (as defined below)
as are requested to be registered. The Company will be obligated to effect no
more than two Demand Registrations for each of the Carlyle Stockholders and GE
and in each such case the aggregate public offering price of the Registrable
Securities to be registered must be at least $5 million. The Carlyle
Stockholders may elect to join in a GE Demand Registration with respect to a
number of shares less than or equal to the number of shares which is the subject
of the GE Demand Registration, and GE may similarly elect to join in a Demand
Registration of the Carlyle Stockholders. In either case, the party electing to
join in the other party's Demand Registration will not be charged with a Demand
Registration of its own for purposes of the two Demand Registration limit. Under
certain circumstances, the number of Registrable Securities that the Carlyle
Stockholders or GE will be entitled to include in a Demand Registration will be
limited.
"Registrable Securities" means (a) with respect to the Carlyle
Stockholders, (i) the Common Stock issued or issuable upon conversion of the
Series B Preferred Stock and the Series D Preferred Stock, whether or not owned
by the Carlyle Stockholders, (ii) the Common Stock issued or issuable upon
exercise of the Carlyle Warrants, whether or not owned by the Carlyle
Stockholders, (iii) any securities issued or issuable with respect to such
Common Stock by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
reorganization; and (iv) any Common Stock or securities issuable with respect to
such Common Stock as provided in (iii) above, acquired by the Carlyle
Stockholders from the Company subsequent to October 14, 1997, whether or not
owned by the Carlyle Stockholders at the time of such registration; and (b) with
respect to GE, (i) the Common Stock issued or issuable upon conversion of the
Series C Preferred Stock and the Series D Preferred Stock, whether or not owned
by GE, (ii) the Common Stock issued or issuable upon exercise of the GE
Warrants, whether or not owned by GE, (iii) any securities issued or issuable
with respect to such Common Stock by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or reorganization; and (iv) any Common Stock or securities
issuable with respect to such Common Stock as provided in (iii) above, acquired
by GE from the Company subsequent to October 14, 1997, whether or not owned by
GE at the time of such registration. Securities cease to be Registrable
Securities once they have been sold to or through a broker, dealer or
underwriter in a public distribution or other public securities transaction or
sold in a transaction pursuant to Rule 144 under the Securities Act.
In addition, if the Company proposes to register any of its securities for
sale for cash, each of the Carlyle Stockholders and GE, upon request, will have
the right to include the number of Registrable Securities such party wishes to
sell or distribute publicly under the registration statement proposed to be
filed by the Company and the Company will use commercially reasonable efforts to
register under the Securities Act the sale of such Registrable Securities (a
"Piggyback Registration"). Under certain circumstances, the number of
Registrable Securities that the Carlyle Stockholders or GE will be entitled to
include in a Piggyback Registration will be limited.
- 12 -
The Registration Rights Agreements contain customary provisions regarding the
payment of expenses by the Company and regarding mutual indemnification and
contribution agreements between the Company and the holders of the Registrable
Securities.
THE CARLYLE WARRANTS AND THE GE WARRANTS
Each of the Carlyle Warrants and the GE Warrants represent the right to
purchase at any time until the expiration of such Warrants on October 14, 2002,
up to 250,000 shares of Common Stock at an initial purchase price of $10.00 per
share. The exercise price and the number of shares issuable upon exercise of
the Warrants are subject to adjustment under certain circumstances.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
*3.2 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series B (incorporated herein by
reference to Exhibit 3.2 to InSight's Annual Report on Form 10-K filed
with the SEC on October 14, 1997 (the "1997 Form 10-K").
*3.3 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series C (incorporated herein by
reference to Exhibit 3.3 to the 1997 Form 10-K).
*3.4 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series D (incorporated herein by
reference to Exhibit 3.4 to the 1997 Form 10-K).
10.23 Securities Purchase Agreement dated as of October 14, 1997 by
and among InSight and the Carlyle Stockholders, filed herewith.
10.24 Securities Purchase Agreement dated as of October 14, 1997 by
and between InSight and GE, filed herewith.
10.25 Registration Rights Agreement dated as of October 14, 1997 by
and among InSight and the Carlyle Stockholders, filed herewith.
10.26 Registration Rights Agreement dated as of October 14, 1997 by
and between InSight and GE, filed herewith.
10.27 Warrant Agreement dated as of October 14, 1997 by and among
InSight and the Carlyle Stockholders, filed herewith.
10.28 Warrant Agreement dated as of October 14, 1997 by and between
InSight and GE, filed herewith.
99.1 Press Release dated October 14, 1997 with respect to the
Recapitalization, filed herewith.
99.2 Press Release dated October 23, 1997 with respect to the Bank
Financing, filed herewith.
99.3 Press Release dated December 22, 1997 with respect to the Bank
Financing, filed herewith.
* Previously filed.
- 13 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 16, 1998
INSIGHT HEALTH SERVICES CORP.
By: /s/ E. Larry Atkins
-------------------------------------------------
E. Larry Atkins,
President and Chief Executive Officer
- 14 -
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. DOCUMENT DESCRIPTION NUMBERED PAGE
- ----------- -------------------- -------------
3.2 Certificate of Designation, Preferences and Rights
of Convertible Preferred Stock, Series B
(incorporated herein by reference to Exhibit 3.2
to InSight's Annual Report on Form 10-K filed with
the SEC on October 14, 1997 (the "1997
Form 10-K").
3.3 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock, Series C (incorporated
herein by reference to Exhibit 3.3 to
the 1997 Form 10-K).
3.4 Certificate of Designation, Preferences and Rights
of Convertible Preferred Stock, Series D
(incorporated herein by reference to Exhibit 3.4
to the 1997 Form 10-K).
10.23 Securities Purchase Agreement dated as of October
14, 1997 by and among InSight and the Carlyle
Stockholders, filed herewith.
10.24 Securities Purchase Agreement dated as of October
14, 1997 by and between InSight and GE, filed herewith.
10.25 Registration Rights Agreement dated as of October
14, 1997 by and among InSight and the Carlyle
Stockholders, filed herewith.
10.26 Registration Rights Agreement dated as of October
14, 1997 by and between InSight and GE, filed herewith.
10.27 Warrant Agreement dated as of October 14, 1997
by and among InSight and the Carlyle Stockholders,
filed herewith.
10.28 Warrant Agreement dated as of October 14, 1997
by and between InSight and GE, filed herewith.
99.1 Press Release dated October 14, 1997 with respect to
the Recapitalization, filed herewith.
99.2 Press Release dated October 23, 1997 with respect to the Bank
Financing, filed herewith.
99.3 Press Release dated December 22, 1997 with respect to the Bank
Financing, filed herewith.
*Previously filed.