-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GXLTTtJMCNhaIhx+Uy6u5i65NtxJzTeDmO0WG1TpUx6IG+iPF+9drqfcNOzJyh8t T7oGoG62qiip9Jy3CUHobw== 0000912057-96-013908.txt : 19960708 0000912057-96-013908.hdr.sgml : 19960708 ACCESSION NUMBER: 0000912057-96-013908 CONFORMED SUBMISSION TYPE: 8-K12G3 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960626 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960705 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT HEALTH SERVICES CORP CENTRAL INDEX KEY: 0001012697 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 330702770 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K12G3 SEC ACT: 1934 Act SEC FILE NUMBER: 333-02935 FILM NUMBER: 96591403 BUSINESS ADDRESS: STREET 1: 4440 VON KARMAN AVENUE STE 320 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7144760733 MAIL ADDRESS: STREET 1: 4440 VON KARMAN AVE., STE 320 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 8-K12G3 1 8-K12G3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JUNE 26, 1996 ------------------------- INSIGHT HEALTH SERVICES CORP. - ------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 33-0702770 - ------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.) 4400 MACARTHUR BOULEVARD, SUITE 800, NEWPORT BEACH, CA 92660 - ------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 476-0733 ----------------------- - ------------------------------------------------------------------------- (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On June 26, 1996, InSight Health Services Corp., a Delaware corporation ("InSight" or the "Registrant"), consummated the acquisition and merger (the "Merger") of two public companies -- Maxum Health Corp., a Delaware corporation ("Maxum"), and American Health Services Corp., a Delaware corporation ("AHS") -- pursuant to an Agreement and Plan of Merger dated as of February 26, 1996 (the "Merger Agreement"), by and among InSight, Maxum, AHS, MXHC Acquisition Company, a Delaware corporation and a wholly owned subsidiary of InSight ("MXHC Acquisition"), and AHSC Acquisition Company, a Delaware corporation and a wholly owned subsidiary of InSight ("AHSC Acquisition"). The Merger Agreement and the consummation of the transactions contemplated thereby were approved by the respective stockholders of Maxum and AHS at respective special meetings of such stockholders held on June 25, 1996. Immediately prior to the consummation of the Merger and in exchange for the financial accommodations summarized below given by General Electric Company, acting through GE Medical Systems, the primary creditor of each of Maxum and AHS ("GE Medical," and together with its affiliate General Electric Capital Corporation ("GECC"), the "GE Parties"), (a) Maxum issued to GE Medical 15,000 shares of Maxum Series B Preferred Stock and (b) AHS issued to GE Medical 1,000,000 shares of AHS Series C Preferred Stock pursuant to a Preferred Stock Acquisition Agreement dated as of February 26, 1996, among InSight, Maxum, AHS and GE Medical. Pursuant to the Merger Agreement, (a) MXHC Acquisition was merged with and into Maxum with Maxum as the surviving corporation, and AHSC Acquisition was merged with and into AHS with AHS as the surviving corporation, and (b) (i) each outstanding share of Maxum common stock was converted into the right to receive .598 of a share of InSight common stock, (ii) each outstanding share of Maxum Series B Preferred Stock was converted into the right to receive 83.392 shares of InSight Series A Preferred Stock, (iii) each outstanding share of AHS common stock was converted into the right to receive .1 of a share of InSight common stock, (iv) each outstanding share of AHS Series B Senior Convertible Preferred Stock was converted into the right to receive 10 shares of InSight common stock, (v) each outstanding share of AHS Series C Preferred Stock was converted into the right to receive 1.25088 shares of InSight Series A Preferred Stock, and (vi) each outstanding option, warrant or other right to purchase Maxum common stock and AHS common stock was converted into the right to acquire, on the same terms and conditions, shares of InSight common stock, except that the number of shares and exercise price applicable to such option, warrant or other right was adjusted based on the applicable exchange ratio for the underlying Maxum or AHS common stock. In addition, in consideration of certain agreements by the holders of AHS Series B Preferred Stock, such holders will receive warrants to purchase 1.32 shares of InSight common stock (at a per share purchase price equal to the average market value of one share of InSight common stock during the 20 trading-day period commencing July 12, 1996) for each share of Series B Preferred Stock. The approximate percentage interests of InSight common stock held by former Maxum stockholders, former AHS -2- stockholders and GE Medical as of June 26, 1996, assuming the conversion by GE Medical of its InSight Series A Preferred Stock into InSight common stock, was 26.1%, 25.9% and 48%, respectively. As holder of the InSight Series A Preferred Stock, GE Medical has the right, exercisable on and after June 26, 1997, under certain circumstances, to require InSight to register the InSight common stock issuable upon conversion of its InSight Series A Preferred Stock. The Merger will be accounted for as a "purchase" for financial reporting purposes and treated as a tax-free reorganization for federal income tax purposes. Maxum is treated as the acquiror for financial reporting purposes. The purchase price of AHS, including direct costs of the Merger, will be allocated based upon the fair value of the assets acquired and liabilities assumed, with the excess purchase consideration allocated to goodwill. The exchange of Maxum common stock for InSight common stock will be treated as a reorganization with no change in the recorded amount of Maxum's assets and liabilities. Maxum's financial statements became the financial statements of InSight upon the consummation of the Merger and the results of InSight will include the results of AHS from and after such time. Immediately prior to the consummation of the Merger, InSight, Maxum and certain of its subsidiaries, AHS and the GE Parties entered into a Master Debt Restructuring Agreement dated as of June 26, 1996 pursuant to which the GE Parties consented to the Merger and agreed to provide certain financial accommodations to Maxum and AHS in exchange for the issuance of the Maxum Series B Preferred Stock and the AHS Series C Preferred Stock described above. The financial accommodations include (a) with respect to Maxum, an aggregate reduction of the outstanding principal amount of certain indebtedness by approximately $9.0 million and an aggregate reduction in required lease payments over the terms of the leases by approximately $1.1 million, and (b) with respect to AHS, a reduction of the outstanding principal amount of a term loan by approximately $6.2 million, an aggregate reduction in required annual lease payments by approximately $814,000 and the release of certain deferred obligations in the aggregate outstanding principal amount of approximately $4.5 million. As part of the granting of the financial accommodations by GE Medical, warrants previously issued to GE Medical by Maxum to acquire 700,000 shares of Maxum common stock, and warrants previously issued to GE Medical by AHS to acquire 1,589,072 shares of AHS common stock, were canceled. GE Medical also acquired the right to receive for ten years annual payments (the "Supplemental Service Fee") under its maintenance agreements with InSight, Maxum and AHS equal to 14% of pre-tax income, subject to certain adjustments, of InSight, and further subject to proportional reductions for certain post-Merger acquisitions. InSight may terminate the Supplemental Service Fee at any time during such ten-year period by making a payment to GE Medical equal to $8 million less the discounted value of the Supplemental Service Fee (calculated at a discount rate of 15% per annum) paid through the date of such termination payment. Prior to the consummation of the Merger, shares of Maxum common stock were traded over the counter on the OTC Bulletin Board under the symbol "MXHC" and shares of AHS -3- common stock were traded over the counter on the OTC Bulletin Board under the symbol "AHTS." InSight common stock is quoted on the OTC Bulletin Board under the symbol "IHSC" and became eligible for trading on June 27, 1996. InSight's application to list its common stock on the Nasdaq SmallCap Market is pending. On June 26, 1996, InSight issued a press release announcing the completion of the Merger. A copy of such press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. Maxum is a provider of diagnostic imaging and related management services in 24 states throughout the Central and Eastern United States. Maxum delivers its services through a network of 48 mobile magnetic resonance imaging ("MRI") facilities, five fixed-site facilities and four multi-modality imaging centers. In its imaging centers, Maxum offers various services in addition to MRI which include diagnostic and fluoroscopic x-ray, ACR accredited mammography, diagnostic and vascular ultrasound, nuclear medicine, nuclear cardiology, computerized tomography ("CT") and cardiovascular services. Maxum also offers additional services through a variety of arrangements, including equipment rental, technologist services and training/applications, marketing, management services, patient scheduling, utilization review, and billing and collection services. AHS operates 17 diagnostic imaging and treatment centers located in seven states. AHS also operates two Leksell Stereotactic Gamma Unit treatment centers and one radiation oncology center. AHS also operates an additional radiation oncology center as part of one of its centers. Its centers provide outpatient diagnostic services in the areas of MRI, CT, general radiology, cardiology, ultrasound, mammography, nuclear medicine and neurosciences. AHS also offers additional services through a variety of arrangements, including equipment rental, marketing, management services, technologist services, utilization review, and billing and collection services. InSight intends to integrate the operations of each of Maxum and AHS, where deemed appropriate by management, in order to take advantage of efficiencies in providing nationwide coverage using the companies' existing facilities. InSight's principal executive offices are located in Newport Beach, California. Additional information with respect to the Merger and related matters is set forth in the Joint Proxy Statement/Prospectus of Maxum, AHS and InSight (the "Joint Proxy Statement") dated May 9, 1996 and filed with the Securities and Exchange Commission (the "Commission") on May 13, 1996 and is incorporated herein by reference to the extent appropriate. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial statements of businesses acquired. Audited financial statements of Maxum and AHS required by this Item are included in the Joint Proxy Statement and are incorporated herein by reference. -4- Unaudited interim financial statements of each of Maxum and AHS required by this Item are included, respectively, in (i) Maxum's Quarterly Report on Form 10-Q filed with the Commission on May 15, 1996, and (ii) AHS's Quarterly Report on Form 10-Q filed with the Commission on May 15, 1996, each of which is hereby incorporated herein by reference to the extent appropriate. (b) Pro forma financial information (unaudited). Certain pro forma information required by this Item is included in the Joint Proxy Statement and is hereby incorporated herein by reference to the extent appropriate. Unaudited Pro Forma Condensed Consolidated Financial Statements of InSight at and as of the quarter ended March 31, 1996 are attached hereto. (c) Exhibits. 2.1 Agreement and Plan of Merger dated as of February 26, 1996, by and among InSight Health Services Corp., Maxum Health Corp., American Health Services Corp., MXHC Acquisition Company and AHSC Acquisition Company (incorporated herein by reference to Exhibit 2.1 to Amendment No. 1 to InSight's Registration Statement on Form S-4 filed with the Commission on May 9, 1996 "Amendment No. 1"). 4.1 Article 4 of InSight Health Services Corp.'s Certificate of Incorporation (incorporated herein by reference to Exhibit 4.1 of Amendment No. 1). 20 Joint Proxy Statement/Prospectus dated May 9, 1996 of InSight Health Services Corp., Maxum Health Corp. and American Health Services Corp. and filed with the Commission on May 13, 1996 (incorporated herein by reference). 99.1 Press Release dated June 27, 1996 announcing the completion of the Merger. -5- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 3, 1996 INSIGHT HEALTH SERVICES CORP. By: /S/ E. Larry Atkins ------------------------------------- E. Larry Atkins, President and Chief Executive Officer -6- ITEM 7(b). FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following Unaudited Pro Forma Condensed Consolidated Financial Statements are presented in two phases. First, Unaudited Pro Forma Condensed Consolidated Financial Statements are presented separately for each of Maxum and AHS to show the effect of the Master Debt Restructuring Agreement ("GE Medical Financial Transactions"). The GE Medical Financial Transactions will receive troubled-debt restructuring treatment for accounting purposes. Second, Unaudited Pro Forma Condensed Consolidated Financial Statements are presented which reflect the Merger of Maxum and AHS into InSight after giving effect to the GE Medical Financial Transactions. The merger will be accounted for using the purchase method of accounting in accordance with generally accepted accounting principles. Maxum is treated as the acquiror for accounting purposes, based on the relative revenues, book values and other factors which are reflected in the stock apportionment. The Unaudited Pro Forma Condensed Consolidated Balance Sheets of Maxum and AHS are based on such Company's respective historical balance sheets as of March 31, 1996 and are presented as if the GE Medical Financial Transactions had been consummated at that date. The Unaudited Pro Forma Condensed Consolidated Statements of Operations are based on the historical statements of operations of Maxum and AHS for the three months ended March 31, 1996 for each Company and give effect to the GE Medical Financial Transactions, as if they had occurred on January 1, 1996. The Unaudited Pro Forma Condensed Consolidated Balance Sheets of InSight are based on the respective pro forma balance sheets of Maxum and AHS as of March 31, 1996, and are presented as if the Merger had been consummated at that date using purchase accounting with Maxum as the acquiror. The Unaudited Pro Forma Condensed Consolidated Statements of Operations for InSight are based on the pro forma statements of operations for the three months ended March 31, 1996 for Maxum and AHS and are presented as if the Merger had occurred on January 1, 1996. The Unaudited Pro Forma Condensed Consolidated Financial Statements are provided for informational purposes only. They do not purport to be indicative of the results that actually would have occurred if the Merger and the GE Medical Financial Transactions had been consummated on the dates indicated or which may be obtained in the future. The pro forma adjustments are based on available information and upon certain assumptions outlined in the accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements, which the respective managements of Maxum and AHS believe are reasonable. The Unaudited Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the notes thereto, the audited consolidated financial statements of Maxum and the related notes thereto contained elsewhere herein, and the audited consolidated financial statements of AHS and the related notes thereto contained elsewhere herein. 1 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 (AMOUNTS IN THOUSANDS)
ADJUSTMENTS ------------------------- MAXUM AHS DEBIT CREDIT INSIGHT -------- -------- ------- ------- ------- ASSETS CURRENT ASSETS: Cash $ 1,753 $ 5,782 $ -- $ 2,500(C) $ 5,035 Accounts receivable 7,216 6,763 -- -- 13,979 Prepaid expenses and other 2,524 457 -- 500(C) 2,481 -------- -------- ------- ------- ------- Total current assets 11,493 13,002 -- 3,000 21,495 PROPERTY AND EQUIPMENT 11,853 19,620 -- -- 31,473 INTANGIBLE ASSETS 4,077 2,472 13,825(D) 1,273(D) 19,101 OTHER ASSETS 1,245 -- -- -- 1,245 -------- -------- ------- ------- ------- $28,668 $35,094 $13,825 $ 4,273 $73,314 -------- -------- ------- ------- ------- -------- -------- ------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 7,036 $ 5,418 $ -- $ -- $12,454 Current portion of long-term debt 4,654 4,710 -- -- 9,364 Deferred gain on debt restructuring 998 1,227 1,227(A) -- 998 -------- -------- ------- ------- ------- Total current liabilities 12,688 11,355 1,227 -- 22,816 -------- -------- ------- ------- ------- LONG-TERM LIABILITIES: Long-term debt 6,679 24,609 -- -- 31,288 Capital leases 4,092 438 -- -- 4,530 Accrued securities litigation settlement 1,900 -- -- -- 1,900 Deferred gain on debt restructuring 1,627 6,600 6,600(A) -- 1,627 Other long-term liabilities -- 900 -- -- 900 -------- -------- ------- ------- ------- Total long-term liabilities 14,298 32,547 6,600 -- 40,245 -------- -------- ------- ------- ------- MINORITY INTEREST -- 1,546 -- -- 1,546 -------- -------- ------- ------- ------- STOCKHOLDERS'S EQUITY (DEFICIT): Preferred stock 3,375 9,450 6,075(B) -- 6,750 Common stock 30 291 321(B) 3(B) 3 Additional paid-in capital 19,693 9,350 9,615(B) 3,677(B) 23,105 Accumulated deficit (21,151) (29,445) -- 29,445(B) (21,151) Treasury stock (265) -- -- 265(B) -- -------- -------- ------- ------- ------- Total stockholders' equity (deficit) 1,682 (10,354) 16,011 33,390 8,707 -------- -------- ------- ------- ------- $28,668 $35,094 $23,838 $33,390 $73,314 -------- -------- ------- ------- -------
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated balance sheets. 2 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
Adjustments Maxum AHS Debit Credit InSight ----- --- ----- ------ ------- REVENUES: Contract services $ 9,816 $ 1,013 $-- $-- $ 10,829 Patient services 2,977 7,532 -- -- 10,509 -------- ------- ------ ------- -------- Other 283 -- -- -- 283 -------- ------- ------ ------- -------- Total revenues 13,076 8,545 -- -- 21,621 -------- ------- ------ ------- -------- COSTS OF OPERATIONS: Cost of services 7,686 4,588 -- -- 12,274 Equipment leases 3,452 1,036 -- -- 4,488 Depreciation and amortization 1,053 1,059 -- 38(E) 2,074 -------- ------- ------ ------- -------- Total costs of operations 12,191 6,683 -- 38 18,836 -------- ------- ------ ------- -------- GROSS PROFIT 885 1,862 -- 38 2,785 CORPORATE OVERHEAD 1,042 1,026 173(F) -- 2,241 -------- ------- ------ ------- -------- INCOME (LOSS) FROM COMPANY OPERATIONS (157) 836 173 38 544 EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS 80 -- -- -- 80 -------- ------- ------ ------- -------- OPERATING INCOME (LOSS) (77) 836 173 38 624 OTHER EXPENSES: Interest expense (44) (309) (380)(G) -- (733) Interest income and other -- 43 -- -- 43 -------- ------- ------ ------- -------- INCOME (LOSS) BEFORE INCOME TAXES (121) 570 553 38 (66) INCOME TAX EXPENSE -- 11 -- -- 11 -------- ------- ------ ------- -------- NET INCOME (LOSS) $ (121) $ 559 $553 $38 $ (77)(H) -------- ------- ------ ------- -------- -------- ------- ------ ------- -------- PER SHARE DATA: Net income (loss) $ (0.03) -------- -------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,710,240 -------- --------
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. 3 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) The Merger will be accounted for as a purchase. Maxum is the acquiror for accounting purposes. Generally accepted accounting principles require that transferred assets and liabilities of the acquiree be accounted for at total acquisition cost, allocated based on their relative fair values. The unaudited pro forma condensed consolidated balance sheet of InSight as of March 31, 1996 gives effective to the following pro forma adjustments, dollar amounts in thousands: (A) As required under purchase accounting, long-term debt of the company acquired (AHS) is restated to fair market value. This adjustment restated the debt of AHS by reversing the deferred gain (i.e. future interest payments) of $7,827. (B) As part of the acquisition of AHS by Maxum, certain adjustments were recorded as required by purchase accounting. Those adjustments are summarized as follows:
Additional Preferred Common Paid-in Accumulated Treasury Stock (4) Stock Capital Deficit Stock Total --------- ------ ------- ------- -------- ------- Maxum purchase accounting applied to AHS Equity(1) $(6,075) $(291) $(9,350) $29,445 $ -- $13,729 Retirement of Maxum treasury stock(2) -- -- (265) -- 265 -- Records issuance of InSight Common Stock for AHS Common Stock and AHS Series A Preferred Stock(3) -- 3 3,647 -- -- 3,650 Reclass to reset the par value of InSight Common Stock issued in exchange for Maxum's Common Stock -- (30) 30 -- -- -- -------- -------- -------- -------- -------- -------- $(6,075) $(318) $(5,938) $29,445 $265 $17,379 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- ----------- (1) Purchase accounting entry which eliminates the equity of AHS, except for the $3,375 of AHS Series C Preferred Stock held by GE Medical converted to 1,250,880 shares of InSight Series A Preferred Stock ($2.70 per share), as a condition precedent of the Merger and in exchange for certain financial accommodations. (2) Retirement of treasury stock of Maxum. (3) Records the issuance of 1,349,908 shares of InSight Common Stock ($.001 par value) at $3,650 ($2.70 per share) in consideration for all of the AHS Common Stock and the AHS Series A Preferred Stock. These shares were recorded at the estimated fair market value of AHS Common Stock. (4) The Maxum Series B Preferred Stock and the AHS Series C Preferred Stock will be converted into InSight Series A Preferred Stock at the Effective Time. (C) Recognizes the transaction costs of $3,000 related to the Merger. (D) Records goodwill related to the purchase of AHS, which reflects the total purchase price of $47,646 ($7,025 preferred and common stock, $37,621 of liabilities assumed and $3,000 transaction costs) less the estimated fair market value of assets acquired of $33,821 (total AHS assets ($35,094) less goodwill previously recorded by AHS ($1,273)). 4 The unaudited pro forma condensed consolidated statement of operations of InSight for the three months ended March 31, 1996 gives effect to the following pro forma adjustments: (E) As part of Maxum's acquisition of AHS, all of the intangible assets of AHS were removed under purchase accounting for the three months ended March 31, 1996. This amount reverses the amortization of those intangible assets at AHS. (F) In purchase accounting, Maxum recorded goodwill of $13,825 (see (D) above) related to the acquisition of AHS. This entry records amortization of goodwill over 20 years using the straight-line method. (G) As required by purchase accounting, long-term debt is restated to fair market value, resulting in an increase in interest expense. (H) In the event there had been pre-tax income, 14% of that amount would have been recorded as additional maintenance expense under the Master Service Agreement. 5 MAXUM HEALTH CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 (AMOUNTS IN THOUSANDS)
PRO FORMA ---------------------------------- ADJUSTMENTS --------------- HISTORICAL DEBIT CREDIT TOTAL ---------- ----- ------ ----- ASSETS CURRENT ASSETS: Cash $ 1,753 $ -- $ -- $ 1,753 Accounts receivable 7,216 -- -- 7,216 Prepaid expenses and other 2,524 -- -- 2,524 Total current assets 11,493 -- -- 11,493 PROPERTY AND EQUIPMENT 11,853 -- -- 11,853 INTANGIBLE ASSETS 4,077 -- -- 4,077 OTHER ASSETS 1,245 -- -- 1,245 -------- -------- -------- -------- $28,668 $ -- $ -- $28,668 -------- -------- -------- -------- -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 7,036 $ -- $ -- $ 7,036 Current portion of long-term debt 5,981 1,327(A) -- 4,654 Deferred gain on debt restructuring -- -- 998(A) 998 -------- -------- -------- -------- Total current liabilities 13,017 1,317 998 12,688 -------- -------- -------- -------- LONG-TERM LIABILITIES: Long-term debt 14,372 7,693(A) -- 6,679 Capital leases 4,092 -- -- 4,092 Accrued securities litigation settlement 1,900 -- -- 1,900 Deferred gain on debt restructuring -- -- 1,627(A) 1,627 -------- -------- -------- -------- Total long-term liabilities 20,364 7,693 1,627 14,298 -------- -------- -------- -------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock -- -- 3,375(A) 3,375 Common stock 30 -- -- 30 Common stock warrant 7 7(B) -- Additional paid-in capital 19,693 -- -- 19,693 Accumulated deficit (24,178) -- 3,027(A)(B) (21,151) Treasury stock (265) -- -- (265) -------- -------- -------- -------- Total stockholders' equity (deficit) (4,713) 7 6,402 1,682 -------- -------- -------- -------- $28,668 $9,027 $9,027 $28,668 -------- -------- -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated balance sheets. 6 MAXUM HEALTH CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (AMOUNTS IN THOUSANDS)
PRO FORMA -------------------------------------------------------- ADJUSTMENTS ----------------------------------------- HISTORICAL DEBIT CREDIT TOTAL ---------- ----- ------ ----- REVENUES: Contract services $ 9,816 $ -- $ -- $ 9,816 Patient services 2,977 -- -- 2,977 Other 283 -- -- 283 -------- -------- -------- -------- Total revenues 13,076 -- -- 13,076 -------- -------- -------- -------- COSTS OF OPERATIONS: Cost of services 7,686 -- -- 7,686 Equipment leases 3,515 -- 63(C) 3,452 Depreciation and amortization 1,053 -- -- 1,053 -------- -------- -------- -------- Total costs of operations 12,254 -- 63 12,191 GROSS PROFIT 822 -- 63 885 CORPORATE OVERHEAD 1,042 -- -- 1,042 -------- -------- -------- -------- INCOME (LOSS) FROM COMPANY OPERATIONS (220) -- 63 (157) EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS: 80 -- -- 80 -------- -------- -------- -------- OPERATING INCOME (LOSS) (140) -- 63 (77) -------- -------- -------- -------- OTHER EXPENSES: Interest expense (568) -- 524(D) (44) -------- -------- -------- -------- NET INCOME (LOSS) $ (708) $ -- $587 $ (121) -------- -------- -------- -------- -------- -------- -------- --------
7 The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. MAXUM HEALTH CORP. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) The unaudited pro forma condensed consolidated balance sheet of Maxum as of March 31, 1996 gives effect to the following pro forma adjustments: (A) Recognizes the satisfaction of Maxum's current and long-term debt obligations of $1,327 and $7,693, respectively, resulting from the GE Medical Financial Transactions. The gain represents the difference in the carrying value ($9,020) of the debt obligations settled over the fair value ($3,375) of the Maxum Series B Preferred Stock issued to GE Medical. (The 15,000 shares of Maxum Series B Preferred Stock are convertible into 2,098,666 shares of Maxum Common Stock.) In accordance with the provisions of troubled debt accounting (as required by SFAS No.15), a portion of the gain equal to the sum of the current and long-term portions of future interest payable on all remaining GE Medical debt and capital lease obligations of $890 and $1,264, respectively, payable on all remaining GE Medical debt and capital lease obligations of $890 and $1,264, respectively, will be deferred and reduced by future interest payments over the terms of the respective debt instruments. The gain does not take into account a potential gain that could be recognized should Maxum return or exchange certain Mobile MRI Facilities (which are financed under operating lease agreements) allowed for under the GE Medical Financial Transactions. (B) As part of the GE Medical Financial Transactions, GE Medical has agreed to surrender its common stock warrant to Maxum for cancellation. The unaudited pro forma condensed consolidated statement of operations of Maxum for the three months ended March 31, 1996 gives effect to the following pro forma adjustment: (C) As a result of the debt restructuring in connection with the GE Medical Financial Transactions, lease payments on four Mobile MRI Facilities are reduced which would result in a reduction of lease expense of $63 if these transactions would have occurred on January 1, 1996. (D) To reduce interest expense on approximately $20,983 of GE Medical debt and capital lease obligations that would not have been recognized in the statement of operations for 1996 if the satisfaction of the debt obligations and the deferral of the future interest payable on all other GE Medical debt and capital lease obligations discussed in (A) above had occurred on January 1, 1996. Interest payments on such GE Medical debt and capital lease obligations would have been charged against the deferred gain as discussed in (A) above, thereby decreasing Maxum's effective interest rate. 8 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 (AMOUNTS IN THOUSANDS)
PRO FORMA ---------------------------------- ADJUSTMENTS -------------------------- HISTORICAL DEBIT CREDIT TOTAL ---------- ------ ------ --------- ASSETS CURRENT ASSETS: Cash $ 5,782 $ -- $ -- $ 5,782 Accounts receivable 6,763 -- -- 6,763 Prepaid expenses and other 457 -- -- 457 ------- ------- ------- ------- Total current assets 13,002 -- -- 13,002 PROPERTY AND EQUIPMENT 19,620 -- -- 19,620 INTANGIBLE ASSETS 2,945 -- 473(D) 2,472 ------- ------- ------- ------- $35,567 $ -- $ 473 $35,094 ------- ------- ------- ------- ------- ------- ------- ------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 5,261 $ -- $ 157(E) $ 5,418 Current portion of long-term debt 18,824 14,114(A) -- 4,710 Deferred gain on debt restructuring -- -- 1,227(A) 1,227 ------- ------- ------- ------- Total current liabilities 24,085 14,114 1,384 11,355 ------- ------- ------- ------- LONG-TERM LIABILITIES: Long-term debt 21,054 -- 3,555(A) 24,609 Capital leases 438 -- -- 438 Deferred gain on debt restructuring -- -- 6,600(A) 6,600 Other long-term liabilities 900 -- -- 900 ------- ------- ------- ------- Total long-term liabilities 22,392 -- 10,155 32,547 ------- ------- ------- ------- MINORITY INTEREST 1,546 -- -- 1,546 ------- ------- ------- ------- STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock 6,075 -- 3,375(B) 9,450 Common stock 291 -- -- 291 Common stock warrants 1,116 1,116-C- -- -- Additional paid-in capital 9,350 -- -- 9,350 Accumulated deficit (29,288) 157(E) -- (29,445) ------- ------- ------- ------- Total stockholders' equity (deficit) (12,456) 1,273 3,375 (10,354) ------- ------- ------- ------- $35,567 $15,387 $14,914 $35,094 ------- ------- ------- ------- ------- ------- ------- -------
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated balance sheets. 9 AMERICAN HEALTH CORP. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (AMOUNTS IN THOUSANDS)
PRO FORMA ---------------------------------- ADJUSTMENTS -------------------------- HISTORICAL DEBIT CREDIT TOTAL ---------- ------ ------ --------- REVENUES: Contract services $ 1,013 $ -- $ -- $ 1,013 Patient services 7,664 132(H) -- 7,532 ------- ------ ------ ------- Total revenues 8,677 132 -- 8,545 ------- ------ ------ ------- COSTS OF OPERATIONS: Cost of services 4,695 -- 107(H) 4,588 Equipment leases 1,240 -- 204(F) 1,036 Depreciation and amortization 1,062 -- 3(H) 1,059 ------- ------ ------ ------- Total costs of operations 6,997 -- 314 6,683 ------- ------ ------ ------- GROSS PROFIT 1,680 132 314 1,862 CORPORATE OVERHEAD 1,026 -- -- 1,026 ------- ------ ------ ------- OPERATING INCOME 654 132 314 836 OTHER EXPENSES: Interest expense (1,058) -- 749(G) (309) Interest income and other 43 -- -- 43 ------- ------ ------ ------- INCOME (LOSS) BEFORE INCOME TAXES (361) 132 1,063 570 INCOME TAX EXPENSE -- 11(I) -- 11 ------- ------ ------ ------- NET INCOME (LOSS) $ (361) $143 $1,063 $ 559 ------- ------ ------ ------- ------- ------ ------ -------
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements. 10 AMERICAN HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) The unaudited pro forma condensed consolidated balance sheet of AHS as of March 31, 1996 gives effect to the following pro forma adjustments: (A) Reflects the restructuring of AHS's debt resulting from the GE Medical Financial Transactions. The amount of debt outstanding March 31, 1996 which was subject to the debt restructure was $38,421. After restructuring the debt, the outstanding amount will be $27,862, resulting in a potential gain of $10,559. This potential gain is then offset by the value of the preferred stock issued in consideration for the restructuring (see (B)), less the warrants canceled by the lender (see (C)) ($3,375- $1,116, or $2,259) and the write-off of previously established deferred finance charges of $473 (see (D)). In accordance with the provisions of troubled debt accounting (as required by SFAS No. 15), the remaining potential gain of $7,827 is then offset in its entirety by the expected future interest payments of $9,374 on the restructured debt. The amount of gain offset by the future interest payments is therefore deferred and reduced by future interest payments over the terms of the respective debt instruments. Finally, the restructure debt has a gross balance of $27,862, with a current maturity of $4,366. As a result, this adjustment reflects the reduction in the debt, recognition of future interest payments of $7,827 and the modified classifications of the current and long-term portions of that debt. (B) Reflects the issuance to GE Medical of 1,000,000 shares of the AHS Series C Preferred Stock which is convertible into AHS Common Stock representing approximately 48% of AHS Common Stock outstanding at the Effective Time (after giving effect to such conversion and assuming the conversion of the AHS Series B Preferred Stock). (C) As part of the GE Medical Financial Transactions, GE Medical has agreed to surrender it common stock warrants to AHS for cancelation. (D) In 1993, AHS completed a debt restructuring with GE Medical. The costs of that restructuring were deferred and were being amortized over the term of the debt. As this debt is part of the current restructuring, those costs related to the 1993 restructuring are being written off. (E) Adjustment reflects the Alternative Minimum Tax of two percent which would be payable as a result of the tax gain recognition related to the debt restructuring. The unaudited pro forma condensed consolidated statement of operations of AHS for the three months ended March 31, 1996 gives effect to the following pro forma adjustments: (F) As a result of the debt restructuring in connection with the GE Medical Financial Transactions, lease payments on several centers are reduced which would result in a reduction of lease expense of $204 if these transactions would have occurred on January 1, 1996. (G) To reduce interest expense on approximately $10,559 of GE Medical debt that would not have been recognized in the statement of operations for 1996 if the satisfaction of the debt and the deferral of the future interest payable on all other GE Medical debt discussed in (A) above had occurred on January 1, 1996. Interest payments on such GE Medical debt would have been charged against the deferred gain as discussed in (A) above, thereby decreasing AHS' effective interest rate. In addition, this reduces the amortization of deferred finance costs of $52 related to debt restructured by the GE Medical Financial Transactions. 11 (H) As part of the GE Medical Financial Transactions, AHS will close one of its centers and return the equipment to GE Medical. This entry reflects the reduction in both the revenues and expenses related to that center. (I) Recognition of the Federal Alternative Minimum Tax provision resulting from the GE Medical Financial Transaction. 12 EXHIBIT INDEX SEQUENTIALLY EXHIBIT NO. DOCUMENT DESCRIPTION NUMBERED PAGE - ----------- -------------------- ------------- 2.1 Agreement and Plan of Merger dated as of February 26, 1996, by and among InSight Health Services Corp., Maxum Health Corp., American Health Services Corp., MXHC Acquisition Company and AHSC Acquisition Company (incorporated herein by reference to Exhibit 2.1 to Amendment No. 1 to InSight's Registration Statement on Form S-4 filed with the Commission on May 9, 1996 "Amendment No. 1"). 4.1 Article 4 of InSight Health Services Corp.'s Certificate of Incorporation (incorporated herein by reference to Exhibit 4.1 of Amendment No. 1). 20 Joint Proxy Statement/Prospectus dated May 9, 1996 of InSight Health Services Corp., Maxum Health Corp. and American Health Services Corp. and filed with the Commission on May 13, 1996 (incorporated herein by reference). 99.1 Press Release dated June 27, 1996 announcing the completion of the Merger. EX-99.1 2 EXHIBIT 99.1 - PRESS RELEASE EXHIBIT 99.1 Contact: Lillian Armstrong Lippert Heilshorn (415) 955-2735 Company Contact: Thomas V. Croal Vice President & Chief Financial Officer (714) 476-0733 INSIGHT HEALTH SERVICES CORP. FORMED BY MERGER OF AMERICAN HEALTH SERVICES CORP. AND MAXUM HEALTH CORP. NEWPORT BEACH, CALIFORNIA, June 27, 1996 - InSight Health Services Corp. announced today that the merger of American Health Services Corp. ("American Health") and Maxum Health Corp. ("Maxum") is complete. As a result of the merger, American Health and Maxum are now wholly-owned subsidiaries of InSight Health Services Corp. ("InSight"), a new Delaware corporation. InSight common stock is listed on the OTC Bulletin Board under the symbol: IHSC. TERMS OF THE MERGER AND GE'S FINANCIAL POSITION REGARDING INSIGHT With the merger complete, American Health and Maxum shareholders each own approximately one-half of InSight's issued and outstanding common stock. (Each share of pre-merger Maxum common stock represents .598 shares of InSight common stock. Each share of pre-merger American Health common stock represents .10 shares of InSight common stock.) In exchange for an extensive debt and lease restructuring, General Electric Company, acting through GE Medical Systems (GE), will receive non-voting preferred stock of InSight, convertible into approximately 48% of the common stock of InSight on a fully-diluted basis. GE will also be entitled to receive certain payments based on InSight's future performance. In accordance with the terms of the merger agreement dated February 1996, E. Larry Atkins, former chief executive officer of American Health, has been named president and chief executive officer of InSight. Glenn P. Cato, former president and chief executive officer of Maxum, will serve as InSight's executive vice president and chief - m o r e - operating officer. On a pro forma basis, InSight realized $87 million in combined revenues, based on reported revenues for the year ending December 31, 1995. NEW COMPANY CEO COMMENTS ON ENVIRONMENT Commenting on the merger, E. Larry Atkins said, "InSight will take advantage of the opportunities that are presently being created in the diagnostic imaging industry. With the combined expertise of American Health and Maxum, InSight believes it will be able to meet the needs of the current managed care environment by providing quality, cost-effective services and by creating new innovative product offerings. The merger also gives InSight an enhanced presence in several regional markets. On a combined basis, InSight will serve its customers in nearly 200 locations in 28 states." "All the elements for InSight's success are now in place," Atkins continued. "On day one, InSight is ready with an experienced management team and a compelling strategy. The market opportunity is now, and we believe InSight is ideally positioned to be a leader in this consolidating industry." THE SUM OF THE PARTS CREATES A NEW FOUNDATION "InSight believes it is poised to move forward, both in terms of our product offerings and our financial position," said Glenn P. Cato, executive vice president and chief operating officer of InSight. "New products and services that have been separately developed by American Health and Maxum will be enhanced and more effectively marketed under InSight's expanded network. For example, InSight will be in a position to provide its customers with a variety of innovative new services, such as radiology out-sourcing, diagnostic imaging networks, new billing services, and diagnostic temporary staffing." "Furthermore, InSight emerges from American Health and Maxum in an improved financial condition with - m o r e - greater potential for continued growth and increased shareholder value," Cato continued. "InSight's strength is realized through its internal synergies, its dedication to health care providers, and its strong partnerships with hospitals and managed care entities. The ongoing commitment of InSight's management, employees and business partners supports the company's competitive stance and its performance targets." COMPANY DESCRIPTION InSight Health Services Corp., headquartered in Newport Beach, California, provides diagnostic imaging, treatment and related management services through a combination of mobile and fixed-site facilities. It serves managed care, hospitals and other contractual customers in 28 U.S. states, including five major U.S. markets: Southern California, the Southwest, including a major presence in Texas, the Midwest, the Northeast and the Southeast. SAFE HARBOR STATEMENT Except for historical information contained herein, the matters set forth in this release are forward-looking statements that are dependent on certain risks and uncertainties, including such factors, among others, as physician and market acceptance, market demand, pricing, changing regulatory environment, changing economic conditions, risks in new product and service development, the effect of the company's accounting policies, and other risk factors detailed in the company's SEC filings, including the Proxy Statement dated May 9, 1996, which outlines the details of this merger. ### -----END PRIVACY-ENHANCED MESSAGE-----