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Separation Agreement - InSight Health Services Corp. and E. Larry Atkins

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CONFIDENTIAL                                                       CONFIDENTIAL

                                 SEPARATION AGREEMENT

       This Separation Agreement ("Agreement") is made as of July 19, 1999
and is entered into by and between InSight Health Services Corp., a Delaware
corporation ("Company") and E. Larry Atkins ("Atkins").


       A.     Until July 12, 1999, Atkins was President and CEO of the Company.

       B.     Atkins and the Company are parties to an Employment Agreement
dated February 23, 1996 ("Employment Agreement").

       C.     Atkins and the Company (or its subsidiaries) are also parties
to Stock Option Agreements dated January 18, 1995, October 2, 1996,  July 18,
1997, and November 7, 1997 (collectively, "Stock Option Agreements").

       D.     The Company and Atkins have agreed that Atkins will voluntarily
resign from his employment with the Company and that the Company will make
certain payments and grant certain other benefits to Atkins upon the terms
and conditions set forth in this Agreement.


       NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth in this Agreement, the parties agree as follows:

       1.     RESIGNATION.  Atkins hereby voluntarily resigns as President
and CEO of the Company, effective as of July 12, 1999, and from his
employment with the Company, effective as of July 31, 1999.  Without limiting
the foregoing, Atkins also hereby resigns, effective as of July 12, 1999, as
a director of the Company, from any other Board committees and management
committees of the Company and as an officer of its subsidiaries and
affiliates.  Concurrently with the execution of this Agreement, Atkins will
provide the Company with an original letter of resignation in the form
attached hereto as Exhibit "A." Atkins agrees to assist the Company in
effectuating a smooth transition of his responsibilities.


              (a)    SALARY.  The Company agrees to continue to pay to Atkins
an amount equal to his regular annual base salary ($292,000), less applicable
deductions and withholdings required by law, for the months of August 1999
through and including July 2001, ("Separation Payment Period") on the
Company's regular payroll dates.  In the event that there is a Change of
Control (as defined in the Employment Agreement) of the Company  other than a
transaction in which the current Series B and Series C Preferred Stockholders
acquire a majority of the outstanding Company Common Stock owned by the
public, Atkins shall be



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paid on the effective date thereof in a lump sum the remaining monthly
payments due hereunder.

              (b)    EMPLOYEE BENEFIT PLANS.   The Company agrees to
maintain, at the Company's expense, in full force and effect, for Atkins'
(and his dependants) continued benefit until the earlier of (i) twenty-four
(24) months following termination of employment or (ii) Atkins' eligibility
to participate in another life insurance, medical, health and accident and
disability plan or program, all life insurance, medical, health and accident,
and disability plans or programs, in which Atkins was entitled to participate
immediately prior to the date of termination of employment; provided that
Atkins' participation in any such plan or program is permitted under the
general terms and provisions of such plans or programs.

              (c)    REFERENCE.  The Company agrees to provide Atkins with a
reference letter in the form attached hereto as Exhibit "B."

              (d)    OFFICE SPACE.  The Company agrees to provide Atkins with
reasonable office space, telephone, voicemail and e-mail services through
August 31, 1999 for the purpose of facilitating a smooth transition of his

              (e)    MAINTENANCE OF BUSINESS RELATIONSHIPS.  During the
Separation Payment Period, Atkins agrees, upon the reasonable request of the
Company, to use his best efforts to assist the Company in maintaining its
business relationships with the customers, vendors and partners of the
Company existing on the date of this Agreement.  Atkins will be reimbursed
for all reasonable out-of-pocket expenses incurred in connection with this
assistance. If Atkins breaches in any material respect his obligations under
this Paragraph 2(e), the separation payments and employee benefits to which
he would otherwise be entitled under Paragraph 2 (a) and (b) for the months
of August 2000 through and including July  2001, (or any shorter period,
commencing with the date of breach) shall no longer be paid by the Company.

       3.     STOCK OPTIONS.  As of the date hereof, Atkins holds unvested
options covering an aggregate of 200,000 shares of Company Common Stock
pursuant to the Stock Option Agreements.   In addition, Atkins holds vested
options covering an aggregate of 117,500 shares of Company Common Stock.
Pursuant to amendments to the Stock Option Agreements, Atkins and the Company
agree that (i) the unvested stock options will continue to vest for twelve
(12) months following termination of employment in accordance with the
vesting schedule set forth in the Stock Option Agreements  and as described
on Exhibit "C" attached hereto, as if Atkins' employment had not been
terminated and (ii) the vested stock options and the unvested stock options
which will vest in accordance with (i) above, will be exercisable  until
their expiration in accordance with the terms of the Stock Option Agreements
as if Atkins' employment had not been terminated.  Atkins agrees that he will
provide at least three (3) business days prior written notice to the Company
of his intention to sell any or all shares of Company Common Stock which he

for the continuing obligations of Atkins under Article V of the Employment
Agreement, the parties agree that said Employment Agreement is terminated in
its entirety, and both parties



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expressly waive any notice periods for termination of the Employment
Agreement.  Atkins agrees that he is not entitled to receive, and will not
claim, any damages, profits, compensation, bonuses, benefits, vacation, stock
options or rights other than those which are expressly set forth in this
Agreement.  Atkins acknowledges that the consideration he is receiving under
this Agreement is in lieu of, and he hereby waives any other rights he may
have had under, the Employment Agreement, the Stock Option Agreements, and/or
any other agreements, express or implied, he may have had with the Company.
Except as otherwise provided herein, this Agreement supersedes all rights
and/or benefits Atkins may have or claim arising out of the Employment
Agreement, the Stock Option Agreements and other agreements he may have had
with the Company. Atkins acknowledges that this Agreement provides him with
consideration in addition to anything of value to which he is already

       5.     NON-DISPARAGEMENT.  Atkins represents and agrees that he has no
disagreement with the Company on any matter relating to his employment, the
termination of his employment or the Company's operations, policies, or
practices.  In addition, Atkins covenants not to make any negative, harassing
or disparaging statements concerning the Company or any of its officers,
directors, employees, attorneys, stockholders, vendors, representatives,
agents or affiliates, either orally or in writing.  The Company covenants not
to  make any negative, harassing or disparaging statements concerning Atkins,
either orally or in writing.


              (a)    On or before July 31, 1999, Atkins will return all
Company property and equipment in his possession or under his control,
including, but not limited to, cell phones, computers, keys, credit cards,
manuals, notebooks, financial statements, reports and other property of the
Company; however, the Company agrees that the Toshiba laptop computer and
Hewlett Packard printer which are currently in Atkins' possession may be
retained by Atkins.

              (b)    On or before August 31, 1999, Atkins must submit to the
Company all outstanding business expenses for reconciliation and payment.
The Company will pay only for business expenses incurred through July 31,
1999, according to its established policy.

       7.     RELEASE BY ATKINS.  Excepting only the obligations undertaken
by the Company in accordance with this Agreement, and in exchange for the
consideration provided to Atkins under this Agreement, Atkins hereby
releases, acquits, relieves, and forever discharges the Company and its
successors, heirs, assigns, employees, officers, directors, investors,
stockholders, agents, representatives, attorneys, benefit plans, parent
corporations, subsidiaries, divisions or affiliated corporations or
organizations, whether previously or hereinafter affiliated in any manner
(collectively, "Released Parties"), from any and all claims, rights, actions,
complaints, demands, causes of action, wage claims, obligations, promises,
contracts, agreements, controversies, suits, debts, expenses, damages,
attorneys' fees, costs, and liabilities of any nature whatsoever, matured or
unmatured, fixed or contingent, which Atkins ever had, now has, or may claim
to have from the beginning of time to the moment he signs



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this Agreement against the Released Parties (whether directly or indirectly),
or any of them, by reason of any act, event or omission concerning any
matter, cause or thing, including, without limiting the generality of the
foregoing, any claims related to or arising out of:  (a) Atkins' employment
with the Company or the termination of that employment; (b) any common law
torts, including, without limitation, infliction of emotional distress; (c)
any federal, state or governmental constitution, statute, regulation or
ordinance, including, without limitation, Title VII of the Civil Rights Act
of 1964, the California Fair Employment and Housing Act, and the Age
Discrimination in Employment Act; (d) any agreement, express or implied,
between Atkins and any of the Released Parties, including the Employment
Agreement and the Stock Option Agreements; (e) any impairment of his ability
to compete in the open labor market; or (f) any permanent or temporary
disability or loss of future earnings as a result of injury or disability
arising from or associated with his employment or termination of his
employment relationship with the Company; provided, however, that this
Paragraph is not intended to release claims for indemnification in connection
with his business activities as an officer and director of the Company during
the term of his employment with the Company, which are covered under the
Indemnification Agreement between the Company and Atkins dated September 19,
1996, a copy of which is attached hereto as Exhibit "D".

       8.     TRADE SECRETS AND PROPRIETARY INFORMATION.  Atkins acknowledges
and agrees that: (a) by reason of his position with the Company, he has been
given access to procedures, plans, designs and expertise unique to the
Company, as well as the Company's expansion and marketing plans and other
confidential materials and information; and (b) the foregoing constitute
trade secrets and/or confidential information respecting the Company's
business affairs.  Atkins acknowledges and agrees to comply with his
continuing obligations under Article V of the Employment Agreement.  Atkins
also agrees, covenants and represents that he has held, and will hold, all
such information strictly confidential and that he will not disclose or use
such information for any reason without the prior written consent of the
Company.  Atkins agrees to immediately return all documents and writings of
any kind, including both originals and copies within his custody, possession
or control, which contain any information which in any way relates or refers
to the Company.

       9.     ASSISTANCE/COOPERATION WITH LITIGATION.  In connection with the
Company's participation in current or future litigation relating to events
which occurred during Atkins's employment or about which Atkins has
information, Atkins agrees to cooperate fully and devote all time which may
be reasonably required in the preparation, prosecution or defense of the
Company's case, including, but not limited to, the execution of truthful
declarations or providing information and/or documents requested by the
Company.  In addition, Atkins shall be entitled to receive from the Company
reasonable travel and out-of-pocket expenses incurred by Atkins in connection
with his preparation for and/or participation in such litigation.  Atkins
further agrees not to voluntarily assist any party and/or attorney in any
claim, dispute, charge, or litigation adverse to the Company.  Nothing in
this Paragraph shall prohibit Atkins from testifying truthfully pursuant to a
subpoena or lawful court order.

       10.    LEGAL REPRESENTATION.  Atkins is hereby advised to consult with
an attorney prior to executing this Agreement.  The parties acknowledge that
they have had the opportunity to



CONFIDENTIAL                                                       CONFIDENTIAL

receive the advice of independent legal counsel prior to the execution of
this Agreement and the opportunity to receive an explanation from legal
counsel of the legal nature and effect of the Agreement, and each party has
fully exercised that opportunity to the extent desired and understands the
terms and provisions of this Agreement and its nature and effect.  Each party
further represents that it also is entering into this Agreement freely and
voluntarily, and not relying on the representations of any other party or of
the counsel of any other party.  Each party expressly agrees that this
Agreement shall not be construed or interpreted for or against the party
drafting the Agreement.

       11.    NO ADMISSION.  Nothing contained in this Agreement or the fact
that the parties have signed this Agreement shall be considered an admission
of any liability whatsoever.

       12.    CONFIDENTIALITY.  Atkins agrees that this Agreement, including
the separation payments referred to in Paragraph 2 above, shall be and remain
confidential, and the parties  promise and covenant not to disclose,
publicize, or cause to be disclosed or publicized in any manner, directly or
indirectly, any of the terms and conditions of this Agreement except:  (a) to
his accountants, financial advisors, attorneys, and immediately family
members, provided such persons also agree to this pledge of confidentiality;
(b) state and federal taxing authorities; and (c) as legally required by
applicable law.

       13.    INJUNCTIVE RELIEF.  Atkins agrees that it would be difficult to
measure the damage to the Company from any breach by Atkins of the covenants
set forth in Paragraphs 8 and 12 above, and in Article V of the Employment
Agreement, that injury to the Company from any such breach would be
impossible to calculate, and that money damages would therefore be an
inadequate remedy for any such breach.  Accordingly, Atkins agrees that if
Atkins breaches any term of this Agreement, the Company shall be entitled, in
addition to and without limitation of all other remedies it may have, to
obtain injunctive or other relief to restrain any such breach without showing
or proving any such actual damage to the Company.

       14.    FEES AND COSTS.  Atkins and the Company agree that in the event
of litigation relating to this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs.

       15.    SUCCESSORS AND ASSIGNS.  This Agreement, and all the terms and
provisions hereof, shall be binding upon and shall inure to the benefit of
the parties and their respective heirs, legal representatives, successors and

       16.    WAIVER.  No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar.  No waiver shall constitute a continuing waiver.  No
waiver shall be binding unless executed in writing by the party charged with
the waiver.

       17.    SEVERABILITY.  In the event any provision of this Agreement
shall finally be determined to be unlawful, such provision shall be deemed to
be severed from this Agreement and every other provision of this Agreement
shall remain in full force and effect.  If, moreover, any one or more of the
provisions contained in this Agreement shall for any reason



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be held to be excessively broad, it shall be construed, by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law as it shall then appear.

       18.    MISCELLANEOUS.  Atkins and the Company agree that:

              (a)    Atkins has until 5:00 p.m. on August 10, 1999, or
twenty-one (21) days from receipt of this Agreement, whichever is later, to
consider it.  The Company hereby advises Atkins to consult with an attorney
before signing this Agreement;

              (b)    for a period of seven (7) days following the signing of
this Agreement, Atkins may revoke the Agreement.  This Agreement does not
become effective or enforceable until the revocation period has expired;

              (c)    this Agreement constitutes the entire agreement and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings and negotiations between the parties with respect to the
subject matter of this Agreement;

              (d)    this Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which shall constitute one and
the same instrument;

              (e)    this Agreement may not be amended except by an agreement
in writing signed by the parties to this Agreement of their respective
successors in interest and expressly stating that it is an amendment of this
Agreement; and

              (f)    this Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of

       The parties have executed this Agreement as of the date written above.


                                       INSIGHT HEALTH SERVICES CORP., a
                                       Delaware corporation

Dated:  July 19,  1999             By:   /s/ Frank E. Egger
                                         Frank E. Egger
                                         Chairman of the Board



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I,  E. Larry Atkins, have read and understand the foregoing Agreement, have
been provided the opportunity to consult with an attorney or other persons of
my choice before signing it, and I acknowledge that I am signing this
Agreement freely and voluntarily.

Dated:  July 20, 1999               By:   /s/ E. Larry Atkins
       --------                         ----------------------
                                          E. Larry Atkins