Executive Employment Agreement - InSight Health Services Corp. and Brian G. Drazba
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT dated as of June 29, 2001 between InSight Health Services
Corp., a Delaware corporation (the "Company"), and Brian G. Drazba (the
"Executive"). InSight Health Services Holdings Corp., a Delaware corporation
("Parent") is a party to this Agreement solely for the purposes of Section 3.07.
The Company wishes to employ the Executive, and the Executive wishes to
accept such employment, in each case, subject to the terms and conditions
hereof. Accordingly, the Company and the Executive hereby agree as follows:
I. TERM OF EMPLOYMENT
Commencing at the Effective Time (as defined below), the Executive is
to be employed by the Company for rolling twelve (12) month periods, whereby the
Executive's term of employment is twelve (12) months on a continuing basis,
unless earlier terminated in accordance with Article IV below.
II. EMPLOYMENT, DUTIES AND ACCEPTANCE
SECTION 2.01. EMPLOYMENT BY COMPANY. The Company for itself and its
affiliates, employs the Executive for the term of this Agreement to render
full-time services as Company's Sr. Vice President, Finance and Controller and
in such capacities as the Board of Directors of the Company (the "Board") and
its affiliates may assign and, in connection therewith, to perform such duties
as are consistent with the Executive's initial appointment and as the Board
shall direct. The Executive agrees to perform such duties as are consistent with
the duties normally pertaining to the offices to which he has been elected or
appointed, subject always to the direction of the Company's Board. Subject to
Section 5.01 hereof, the Executive's expenditure of reasonable amounts of time
for personal business, charitable or professional activities will not be deemed
a breach of his undertaking to provide full-time services hereunder, provided
that such activities do not interfere materially with the Executive's rendering
of such services.
SECTION 2.02. ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
accepts such employment and shall render the services required by this Agreement
to be rendered by him. The Executive shall also serve on request during all or
any part of the term of this Agreement as an officer of the Company and of any
of its affiliates without any compensation therefor other than specified in this
Agreement.
SECTION 2.03. PLACE OF EMPLOYMENT. The Executive's principal place of
employment shall be located at 4400 MacArthur Boulevard, Suite 800, Newport
Beach, California 92660. In the event that the principal place of employment of
the Executive is relocated to a site that is more than 50 miles from the
Executive's principal residence, the Company may require the Executive to
relocate his principal residence to within 50 miles of such office.
Notwithstanding the foregoing, the Executive acknowledges that the duties to be
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performed by him hereunder are such that he may be required to travel
extensively both throughout the United States and abroad and, in some cases,
spend extended periods of time away from the Company's corporate headquarters.
III. COMPENSATION
SECTION 3.01. SALARY, BONUSES, LIFE INSURANCE. As compensation for all
services to be rendered pursuant to this Agreement, the Company shall pay the
Executive, and the Executive shall accept, a salary of $136,000.00 per annum,
subject to adjustment in accordance with Section 3.02 hereof (as so adjusted,
the "Annual Salary"), payable in accordance with the payroll policies of the
Company as from time to time in effect, less such amounts as may be required to
be withheld by applicable federal, state and local law and regulations (the
"Payroll Policies").
In addition to the Annual Salary, Executive shall be eligible (no less
frequently than annually beginning for the fiscal year ending June 30, 2002) for
such discretionary bonuses, if any, as awarded by the President and Chief
Executive Officer of the Company and approved by the Board.
The Company shall purchase and maintain in full force and effect at all
times during the term of this Agreement a policy of term insurance on the life
of the Executive payable to such beneficiary or beneficiaries as the Executive
may designate in an amount equal to three times the amount of the Annual Salary.
SECTION 3.02. ANNUAL REVIEW. Commencing with the first renewal period,
if any, of the term of this Agreement and annually thereafter during the term of
this Agreement, the Executive's performance shall be reviewed and evaluated by
his immediate supervisor and the Annual Salary shall be reviewed by the Board
and may be adjusted (but in no event to an amount less than the Annual Salary
then in effect) for the then upcoming year, if the Board, in its sole
discretion, determines that such adjustment is warranted.
SECTION 3.03. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive
shall be entitled during the term of this Agreement, if and to the extent
eligible, to participate in any health, hospitalization or disability insurance
plan, pension plan or similar benefit plan of the Company, which may be
available to senior executives of the Company generally, on the same terms as
such other executives.
SECTION 3.04. EXPENSES. Subject to such policies as may from time to
time be established by the Company for senior executives of the Company
generally, the Company shall pay or reimburse the Executive for all reasonable
business expenses actually incurred or paid by the Executive during the term of
this Agreement in the performance of the Executive of services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company may reasonably require.
SECTION 3.05. AUTOMOBILE. The Company shall pay Executive $750 per
month and all reasonable expenses of operating an automobile subject to such
policies as may from time to time be established and amended by Company.
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SECTION 3.06. VACATION. The Executive shall be entitled to three (3)
weeks of paid vacation per year during the term of this Agreement, which he may
accumulate up to six (6) weeks, to be taken at a time or times which do not
unreasonably interfere with his duties hereunder.
SECTION 3.07. STOCK OPTIONS. Parent shall grant stock options to
Executive, pursuant to the terms of the Stock Option Agreement substantially in
the form of Exhibit A, to purchase shares of Parent common stock in an amount to
be determined by the President and Chief Executive Officer of the Company and
approved by the board of directors of Parent. The stock options granted by
Parent to Executive shall be part of the total available pool of options, which
shall equal 10% of the fully diluted common stock of Parent as of the Effective
Time. The exercise price of the stock options shall be the price per share that
subscribing stockholders pay to Parent as of the Effective Time in connection
with their subscription of Parent common stock.
IV. TERMINATION
SECTION 4.01. TERMINATION UPON DEATH. If the Executive dies during the
term of this Agreement, this Agreement shall terminate as of the date of his
death.
SECTION 4.02. TERMINATION UPON DISABILITY. If during the term of this
Agreement, the Executive becomes physically or mentally disabled, whether
totally or partially, so that he is unable substantially to perform the services
required by this Agreement to be rendered by him for (i) a period of three
consecutive months or (ii) for shorter periods aggregating three months during
any 12-month period, the Company may at any time after the last day of the three
consecutive months of disability or the day on which the shorter periods of
disability equal an aggregate of three months, by thirty (30) days' written
notice to the Executive, terminate this Agreement and the Executive's employment
hereunder. Nothing in this Section 4.02 shall be deemed to extend the term of
this Agreement or of the Executive's employment hereunder.
SECTION 4.03. TERMINATION FOR CAUSE. If the Board determines that the
Executive has neglected his duties hereunder, has performed such duties
negligently, is guilty of misconduct in connection with performance of his
duties hereunder, or has breached in any material respect any affirmative or
negative covenant or undertaking hereunder, or if the Executive is convicted of
or pleads guilty or no contest to any serious crime or offense, commits any
willful act or omission which is materially injurious to the financial condition
or business reputation of the Company or any of its subsidiaries, or fails or
refuses to comply with the oral or written policies or directives of the
Company's Board or President and Chief Executive Officer of the Company (unless
such instructions represent an illegal act) (collectively, hereinafter referred
to as "Cause"), the Company may at any time thereafter (i) by written notice to
the Executive, terminate the Executive's right to enter the Company's premises,
and such termination shall be effective as of the date notice is given and (ii)
by thirty (30) days' written notice to the Executive, terminate this Agreement
and the term of the Executive's employment hereunder, and the Executive shall
have no right to receive any monetary compensation or benefit hereunder in
respect of any period after the effective date of such notice.
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SECTION 4.04. TERMINATION IN DISCRETION OF THE COMPANY. The Company
may, at any time, (i) terminate the Executive's right to enter the premises of
the Company by giving notice of such termination, and such notice shall be
effective as of the date notice is given and (ii) by thirty (30) days' written
notice to the Executive terminate this Agreement and the term of the Executive's
employment hereunder, and the Executive thereafter shall have only such rights
to receive monetary compensation or benefits hereunder in respect of any period
after the effective date of termination as are provided in Section 4.06 hereof.
SECTION 4.05. TERMINATION BY THE EXECUTIVE. The Executive shall have
the right to terminate this Agreement upon sixty (60) days' written notice to
the Company and, upon such termination, the Executive shall not have the right
to receive any monetary compensation or benefit hereunder with respect to any
period after the date specified in such notice.
SECTION 4.06. COMPENSATION ON TERMINATION.
(a) If the term of the Executive's employment hereunder is
terminated pursuant to Section 4.01 hereof, the Company shall pay to the
executors or administrators of the Executive's estate or the Executive's heirs
or legatees (as the case may be) all compensation accrued and unpaid up to the
date of the Executive's death.
(b) If the term of the Executive's employment hereunder is
terminated pursuant to Sections 4.02, 4.04 or 4.06(c) hereof, the Executive
shall be entitled to receive all compensation accrued and unpaid up to the
effective date of termination, plus additional compensation in an amount equal
to twelve (12) months of compensation at the Annual Salary rate then in effect,
paid in accordance with the Payroll Policies, less, in the case of termination
pursuant to said Section 4.02, the amount which the Executive is entitled to
receive under the terms of the Company's long-term disability insurance policy
for key executives as and if in effect at the time of termination. Any payments
made pursuant to this Section 4.06 shall be reduced by such amounts as are
required by law to be withheld or deducted. In addition, the Company shall
maintain, at the Company's expense, in full force and effect, for the
Executive's continued benefit until the earlier of (x) twelve (12) months after
the effective date of termination or (y) commencement of the Executive's
benefits pursuant to full time employment with a new employer under such
employer's standard benefits program, all life insurance, medical, health and
accident, and disability plans or programs, in which the Executive was entitled
to participate immediately prior to the effective date of termination; provided,
that the Executive's continued participation is permissible under the general
terms and provisions of such plans or programs and provided further, that the
Company shall be entitled to amend or terminate any employee benefit plans which
are applicable generally to the Company's employees. In the event that the
Executive's participation in any such plan or program is prohibited, the Company
shall arrange to provide the Executive with benefits substantially similar to
those which the Executive was entitled to receive under such plans or programs.
(c) Notwithstanding any provision herein to the contrary, if the
Executive is terminated by Company without Cause, within twelve (12) months of a
Change in Control (as defined herein) which occurs after the Effective Time, the
Executive shall be entitled to the
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payments and benefits set forth in Section 4.06(b). For purposes hereof, a
"Change in Control" shall be deemed to have occurred if (i) any person, or any
two or more persons acting as a group, and all affiliates of such person or
persons (a "Group"), who prior to such time beneficially owned less than 50% of
the then outstanding capital stock of the Company or Parent, shall acquire
shares of the Company's or Parent's capital stock in one or more transactions or
series of transactions,including by merger, and after such transaction or
transactions such person or group and affiliates beneficially own 50% or more of
the Company's or Parent's outstanding capital stock, or (ii) the Company or
Parent shall sell all or substantially all of its assets to any Group which,
immediately prior to the time of such transaction, beneficially owned less than
50% of the then outstanding capital stock of the Company or Parent.
(d) The compensation rights provided for the Executive in this
Section 4.06 shall be the Executive's sole and exclusive remedies in the event
of a breach of this Agreement by the Company, and the Executive, the executors
or administrators of the Executive's estate or the Executive's heirs or
legatees, as the case may be, shall not be entitled to any other compensation,
damages or relief.
V. CERTAIN COVENANTS OF THE EXECUTIVE
SECTION 5.01. COVENANTS AGAINST UNFAIR COMPETITION. The Executive
acknowledges, that, as of the date hereof: (i) the principal business of Company
and its affiliates is the provision of diagnostic imaging, treatment and related
management services through a network of mobile magnetic resonance imaging
("MRI") and positron emission tomography ("PET") facilities, fixed-site MRI and
PET facilities and multi-modality centers, at times, together with other
healthcare providers, utilizing the related equipment and computer programs and
"software" and various corporate investment structures (the "Company Business");
(ii) the Company Business is national and international in scope; and (iii) the
Executive's duties hereunder will bring him into close contact with much
confidential information not readily available to the public, including without
limitation, corporate, business and financial plans, marketing strategy, the
result of the Company's efforts in the areas of product research, development
and improvement, plans for future development and other matters. The Executive
agrees that his obligations under this Section 5.01 shall be absolute and
unconditional. In order, therefore, to induce the Company to enter into this
Agreement, the Executive covenants as follows:
(a) Non-Compete. During the term of this Agreement and for twelve
(12) months after the termination of this Agreement (the "Restricted
Period"), the Executive shall not anywhere in the world, directly or
indirectly, (i) engage in the Company Business for his own account;
(ii) enter the employment of, or render any services to, any person
engaged in such activities; and (iii) become interested in any person
engaged in the Company Business, directly or indirectly, as an
individual, partner, shareholder, officer, director, principal, agent,
employee, trustee, consultant or in any other relationship or capacity;
provided, however, that the Executive may own, directly or indirectly,
solely as an investment, 5% of securities of any entity which are
traded on any national securities exchange if the Executive neither (x)
is a controlling person of, or a member of a group which controls, such
entity nor (y) owns, directly or indirectly, one or more of any class
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of securities of such entity. The parties acknowledge that in
California and some states post-employment non-compete clauses may be
generally unenforceable, but that other states and jurisdictions permit
such agreements.
(b) Confidential Information.
(i) For purposes of this Agreement, "Confidential
Information" shall mean (i) all of the Company's financial statements
and related financial data and (ii) any other trade secrets,
proprietary information or other information relating to the Company
Business, or of any customer or supplier of the Company or any of its
affiliates, that has not been previously publicly released or widely
disseminated to multiple parties in the same or substantially the same
form by duly authorized representatives of the Company or any of its
affiliates or known by the Executive prior to the commencement of the
Executive's employment by the Company. By way of illustration, but not
limitation, Confidential Information shall include any and all customer
lists (whether or not current), agreements with customers (whether or
not currently in effect or expired), standard forms of customer
agreements, data concerning customers, data concerning customer service
requirements, financial information concerning customers, agreements
with equipment manufacturers and other suppliers, trade secrets,
processes, ideas, inventions, improvements, know-how, techniques,
drawings, designs, original writings, software programs, plans,
proposals, marketing and sales plans, financial information concerning
the Company and its affiliates, cost or pricing information,
blueprints, specifications, promotional ideas, and all other concepts,
information or ideas related to the present or potential business of
the Company or any of its affiliates.
(ii) The Executive agrees that, during and after
employment by the Company, without limitation as to duration except as
hereinafter expressly provided, he shall keep confidential and not (i)
communicate or disclose to any person any Confidential Information, or
(ii) use or exploit in any fashion any of such Confidential Information
or permit the use or exploitation in any fashion of any such
Confidential Information by any other person or entity; provided,
however, that (a) the foregoing confidentiality restriction shall not
apply in any particular circumstance in which the Executive is required
to disclose particular Confidential Information pursuant to
governmental process, as indicated in a written opinion of counsel to
the Executive reasonably satisfactory to the Company which is delivered
to the Company, and (b) the foregoing confidentiality and exploitation
restrictions shall not apply to any particular Confidential Information
if and to the extent that such information becomes generally known and
available to the public otherwise than in connection with a disclosure
or communication of such information by the Executive. The Executive
acknowledges and agrees that all Confidential Information, and all
copies thereof, are the sole and exclusive property of the Company. The
Executive agrees that, on the date of his termination of employment, he
shall have delivered to the Company all documents and materials in his
possession or under his control which constitute Confidential
Information, including all copies thereof, and no copies thereof shall
be retained by the Executive.
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(c) Property of the Company. All correspondence, memoranda, notes,
lists, records, computer tapes, discs and design and other document and
data storage and retrieval materials (and all copies, compilations and
summaries thereof), and all other personal property, made or compiled
by the Executive, in whole or in part and alone or with others, or in
any way coming into his possession concerning the business or other
affairs of the Company or any of its affiliates, shall be the property
of the Company or any such affiliates, and no copies thereof shall be
retained by the Executive after termination thereof for any reason.
(d) Disclosure and Assignment of Rights. (i) The Executive shall
promptly disclose and assign to the Company and its affiliates or its
nominee(s), to the maximum extent permitted by Section 2870 of the
California Labor Code, as it may be hereafter amended from time to
time, all right, title and interest of the Executive in and to any and
all ideas, inventions, discoveries, secret processes and methods and
improvements, together with any and all patents that may be issued
thereon in the United States and in all foreign countries, which the
Executive may invent, develop or improve, or cause to be invented,
developed or improved, during the term of this Agreement or, in the
event that the Executive's employment is terminated pursuant to the
provisions of Section 4.03 hereof, during the 12-month period
commencing on the date of termination, which are (i) conceived and
developed during normal working hours, and (ii) which are related to
the scope of the Company's Business or are related to any work carried
on by the Company or are related to any projects specifically assigned
to the Executive. As used in this Agreement, the term "invent" includes
"make," "discover," "develop," "manufacture" or "produce," or any of
them; "invention" includes the phrase "any new or useful original art,
machine, methods of manufacture, process, composition of matter,
design, or configuration of any kind;" "improvement" includes
"discovery" or "production;" and "patent" includes "Letters Patent" and
"all the extensions, renewals, modifications, improvements and
reissues" of such patents.
(ii) The Executive shall disclose immediately to duly authorized
representatives of the Company any ideas, inventions, discoveries,
secret processes and methods and improvements covered by the provisions
of clause (i) above, and execute all documents reasonably required in
connection with the application for an issuance of Letters Patent in
the United States and in any foreign country and the assignment thereof
to the Company and its affiliates or its nominee(s).
(e) No Solicitation of Customers or Employees. As provided above
in subparagraph (b)(i), the Executive acknowledges and agrees that the
identity and location of the Company's customers and the positions,
duties and terms of employment of the Company's and its subsidiaries'
employees constitute Confidential Information of the Company. The
Executive agrees that during any period that the Executive is receiving
compensation from the Company pursuant to Section 4.06 hereof or for a
period of twelve (12) months after the Executive's termination of
employment, whichever is later, he shall not, directly or indirectly,
solicit, entice, divert or otherwise contact or attempt to solicit,
entice, divert or otherwise contact any customer or employee of the
Company, for any provision of services which constitute Company
Business.
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SECTION 5.02. RIGHTS AND REMEDIES UPON BREACH. If the Executive
breaches, or threatens to breach, in any material respect any of the provisions
of Section 5.01 hereof (hereinafter referred to as the "Restrictive Covenants"),
the Company shall, in addition to all its other rights hereunder and under
applicable law and in equity, have the right and remedy, to have the Restrictive
Covenants specifically enforced by any court having jurisdiction, including,
without limitation, the granting of a preliminary injunction which may be
granted without the necessity of proving damages or the posting of a bond or
other security, it being acknowledged that any such breach or threatened breach
will cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company. In addition to and not in lieu of any
other remedy that the Company may have pursuant to this Agreement or otherwise,
in the event of any breach of any provision of Section 5.01 during the period
during which the Executive is entitled to receive payments and benefits pursuant
to Section 4.06, such period shall terminate as of the date of such breach and
the Executive shall not thereafter be entitled to receive any salary or other
payments under this Agreement, including, but not limited to, any stock options
granted to the Executive.
SECTION 5.03. SEVERABILITY OF COVENANTS. If any court of competent
jurisdiction determines that any of the Restrictive Covenants, or any part
thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants
shall not thereby be affected and shall be given full effect, without regard to
the invalid portions.
SECTION 5.04. BLUE-PENCILING. The Company and the Executive agree and
acknowledge that the duration, scope and geographic area of the Restrictive
Covenants are fair, reasonable and necessary in order to protect the good will
and other legitimate interests of the Company, that adequate consideration has
been received by the Executive for such obligations, and that these obligations
do not prevent the Executive from earning a livelihood. If any court of
competent jurisdiction construes any of the Restrictive Covenants, or any part
thereof, to be unenforceable because of the duration or geographic scope of such
provision or otherwise, such provision shall be deemed amended to the minimum
extent required to make it enforceable and, in its reduced form, such provision
shall then be enforceable and enforced.
SECTION 5.05. ENFORCEABILITY IN JURISDICTION. Notwithstanding Section
7.08, the parties hereto hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of
their duration, geographic scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect the Company's right
to the relief provided herein in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants as to breaches of such
Restrictive Covenants in such other jurisdiction, such Restrictive Covenants as
they relate to each jurisdiction being, for this purpose, severable into diverse
and independent covenants.
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VI. CERTAIN AGREEMENTS
SECTION 6.01. CUSTOMERS, SUPPLIERS. The Executive does not have, and at
any time during the term of this Agreement shall not have, any employment with
or any direct or indirect interest in (as owner, partner, shareholder, employee,
director, officer, agent, consultant or otherwise) any customer of or supplier
to the Company.
SECTION 6.02. CERTAIN ACTIVITIES. The Executive during the term of this
Agreement shall not (i) give or agree to give, any gift or similar benefit of
more than nominal value to any customer, supplier, or governmental employee or
official or any other person who is or may be in a position to assist or hinder
the Company in connection with any proposed transaction, which gift or similar
benefit, if not given or continued in the future, might adversely affect the
business or prospects of the Company, (ii) use any corporate or other funds for
unlawful contributions, payments, gifts or entertainment, (iii) make any
unlawful expenditures relating to political activity to government officials or
others, (iv) establish or maintain any unlawful or unrecorded funds in violation
of Section 30A of the Securities Exchange Act of 1934, as amended, and (v)
accept or receive any unlawful contributions, payments, gifts, or expenditures.
VII. MISCELLANEOUS
SECTION 7.01. NOTICES. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, telegraphed, telexed or faxed, or sent by certified, registered or
express mail, postage prepaid, and shall be deemed given when so delivered
personally, telegraphed, telexed or faxed, or if mailed, two days after the date
of mailing, as follows:
(i) If to Company, addressed to it at:
InSight Health Services Corp.
4400 MacArthur Boulevard, Suite 800
Newport Beach, CA 92660
Attention: General Counsel
Facsimile No.: (949) 476-0137
(ii) If to Parent, addressed to it at:
InSight Health Services Holdings Corp.
c/o J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Attention: Edward D. Yun
Facsimile No.: (617) 753-1101
with copies to:
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The Halifax Group, L.L.C.
1133 Connecticut Avenue, N.W., Suite 700
Washington, D.C. 20036
Attention: David Dupree
Facsimile No.: (202) 296-7133
Kaye Scholer LLP
425 Park Avenue
New York, NY 10022
Attention: Stephen C. Koval, Esq.
Facsimile No.: (212) 836-8689
(iii) If to Executive, to the address or facsimile set
forth below his signature hereto. Any party hereto may, by notice to
the other, change its address for receipt of notices hereunder.
SECTION 7.02. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto.
SECTION 7.03. WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by Company,
Executive and Parent or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder.
SECTION 7.04. ASSIGNMENT. This Agreement is personal to the Executive,
and the Executive's rights and obligations hereunder may not be assigned by the
Executive. The Company may assign this Agreement and its rights, together with
its obligations, hereunder (i) in connection with any sale, transfer or other
disposition of all or substantially all of its assets or business(es), whether
by merger, consolidation or otherwise; or (ii) to any wholly-owned subsidiary of
the Company; provided that the Company shall remain liable for all of its
obligations under this Agreement.
SECTION 7.05. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 7.06. HEADINGS. The article and section headings in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
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SECTION 7.07. GENDER, NUMBER. Unless the context of this Agreement
otherwise requires, words of any gender will be deemed to include each other
gender and words using the singular or plural number will also include the
plural or singular number, respectively.
SECTION 7.08. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of California, without regard to any conflicts of law
principles thereof that would call for the application of the laws of any other
jurisdiction. Subject to Section 7.10 below, any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against either of the parties in the courts of the State of
California, or if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of California, and each of the parties
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world, whether
within or without the State of California.
SECTION 7.09. EFFECTIVE DATE. This Agreement shall be effective at the
Effective Time (as defined in the Agreement and Plan of Merger, dated as of June
29, 2001, by and among Parent, JWCH Merger Corp. and the Company). Immediately
prior to the Effective Time, the Executive's current employment agreement with
the Company shall be terminated and be of no further force or effect, and
Executive waives any and all rights he may have under such employment agreement,
including any payments for severance or in respect of a change of control
contained therein.
SECTION 7.10. (a) RESOLUTION OF DISPUTES. The Executive and the Company
mutually agree and understand that as an inducement for the Company to enter
into this Agreement, the Executive and the Company agree and consent to the
resolution by arbitration of all claims or controversies, past, present or
future, whether arising out of the employment relationship (or its termination)
or relating to this Agreement that the Company may have against the Executive or
that the Executive may have against the Company or against its officers,
directors, employees or agents in their capacity as such or otherwise. The only
claims that are arbitrable are those that, in the absence of this arbitration
provision, would have been justiciable under applicable state or federal law.
The claims covered by this arbitration provision, include, but are not limited
to, claims for wages or other compensation due; claims for breach of any
contract or covenant (express or implied); tort claims; claims for
discrimination, retaliation or harassment (including, but not limited to, race,
sex, sexual orientation, religion, national origin, age, marital status, or
medical condition, handicap or disability); claims for benefits (except claims
under an employee benefit or pension plan that either (i) specifies that its
claims procedure shall culminate in an arbitration procedure different from this
one, or (ii) is underwritten by a commercial insurer which decides the claims);
and claims for violation of any federal, state, or other governmental law,
statute, regulation or ordinance, except claims excluded in Section 7.10 (b)
below.
Except as otherwise provided in this arbitration provision, both the Company and
the Executive agree that neither of them shall initiate or prosecute any lawsuit
or administrative action (other than an administrative charge of discrimination)
in any way related to any claim covered by this arbitration provision.
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<PAGE>
(b) Claims Excluded From Arbitration. Claims the Executive may have for
workers' compensation or unemployment compensation benefits are not covered by
this arbitration provision. Also not covered are claims by the Company for
injunctive and/or other equitable relief, including but not limited to those for
unfair competition and/or the use and/or unauthorized disclosure of Trade
Secrets or confidential information, as to which the Executive understands and
agrees that the Company may seek and obtain relief from a court of competent
jurisdiction.
(c) Arbitration Procedures. The Executive and the Company understand
and agree that the arbitration will take place in Orange County, California, in
accordance with the California Employment Dispute Resolution Rules of the
American Arbitration Association then in effect in the State of California, and
judgment upon such award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The decision of the arbitrator(s) shall be
bound by generally accepted legal principles, including, but not limited to, all
rules of law and legal principles concerning potential liability, burdens of
proof, and measure of damages found in all applicable California statutes and
administrative rules and codes, and all California case law.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement as of the date first above written.
COMPANY
INSIGHT HEALTH SERVICES CORP.
By: /s/ Steven T. Plochocki
----------------------------------------
Name: Steven T. Plochocki
Title: President & CEO
EXECUTIVE
/s/ Brian G. Drazba
--------------------------------------------
Name: Brian G. Drazba
Address and Facsimile Number:
18 Nutcracker Lane
Aliso Viejo, CA 92656
INSIGHT HEALTH SERVICES HOLDINGS CORP.
(solely for the purpose of Section 3.07)
By: /s/ Mark J. Tricolli
----------------------------------------
Name: Mark J. Tricolli
Title: Vice President & CEO
13
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
14
<PAGE>
STOCK OPTION AGREEMENT
AGREEMENT entered into as of the ___ day of ________, 2001 by and
between InSight Health Services Holdings Corp., a Delaware corporation (the
"Company"), and the undersigned employee (the "Employee") of the Company or one
of its subsidiaries.
WHEREAS, the Company desires to grant the Employee a nonqualified stock
option to acquire shares of the Company's common stock, $0.001 par value per
share ("Common Stock"); and
WHEREAS, the Employee desires to accept such option subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the Company and the Employee,
intending to be legally bound, hereby agree as follows:
1. Grant of Option. As of the Effective Time (as defined in the
Agreement and Plan of Merger, dated as of June 29, 2001, by and among the
Company, JWCH Merger Corp. and InSight Health Services Corp.) (the "Grant
Date"), the Company grants to the Employee a nonqualified stock option (the
"Option") to purchase all (or any part) of _____________ shares of Common Stock
(the "Shares") on the terms and conditions hereinafter set forth. This Option is
not intended to be treated as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise Price. The exercise price ("Exercise Price") for the
Shares covered by the Option shall be $18.00* per share.
3. Vesting and Exercisability. Twenty percent (20%) of the total
Option set forth in Section 1 shall be available for vesting each fiscal year
during the Company's 2002-2006 fiscal years as follows: (A) twenty-five percent
(25%) of the number of available Options for each such fiscal year shall vest
and become exercisable upon the anniversary of the Grant Date in such fiscal
year and (B) seventy-five percent (75%) of the number of available Options for
each such fiscal year shall vest and become exercisable upon the Company's
attainment of the performance goals set forth on Schedule I attached hereto and
incorporated herein. In the event the Employee is employed by the Company or one
of its subsidiaries at the time a Change in Control (as defined below) occurs,
all of the Options (to the extent not already vested) which are to vest over
time pursuant to clause (A) above shall vest immediately prior to the Change in
Control. Notwithstanding the foregoing, to the extent any of the Options which
may vest pursuant to
----------
* Intended to be the subscription price for all stockholders who
subscribe as of the Effective Time. Currently anticipated to be $18.00
per share.
15
<PAGE>
clause (B) above do not vest in accordance with Schedule I by the eighth (8th)
anniversary of the Grant Date, they shall be deemed to vest on such date.
4. Term of Options.
(a) Each Option shall expire on the tenth
anniversary of the Grant Date, but shall be subject to earlier
termination as provided in subsections (b) and (c) below.
(b) If the Employee is terminated for Cause (as
defined in Schedule II hereto) or voluntarily terminates his employment
with the Company at any time without Good Reason (as defined in
Schedule II), the Option shall terminate on the date of such
termination of employment, whether or not then fully vested and
exercisable.
(c) If the Employee is terminated by the Company
without Cause, resigns for Good Reason, dies, or becomes Disabled (as
defined in Schedule II) at any time during the term of his employment
by the Company, any portion of the Option that is not then fully vested
and exercisable shall terminate immediately, provided, however, that
the board of directors of the Company (the "Board") shall have the
discretion to vest any portion of such Employee's Options that have not
yet become eligible to vest, and any such accelerated Options shall be
subject to the same terms and conditions as other Options that have
vested pursuant to Section 3. Any portion of the Option that is vested
and exercisable shall terminate on the 120th day following such
termination of employment.
5. Manner of Exercise of Option.
(a) The Employee may exercise any Option that is
fully vested and exercisable by giving written notice to the Company
stating the number of Shares (which shall not be less than 100, unless
the total Shares which are vested and exercisable at such time is less
than 100) to be purchased and accompanied by payment in full of the
Exercise Price for such Shares. Payment shall be either in cash or by a
certified or bank cashier's check or checks payable to the Company.
At any time when Common Stock is registered under Section 12
of the Securities Exchange Act of 1934, as amended, the Option may also be
exercised by means of a "broker cashless exercise" procedure approved in all
respects in advance by the Board, in which a broker: (i) transmits the Exercise
Price for any Shares to the Company in cash or acceptable cash equivalents,
either (1) against the Employee's notice of exercise and the Company's
confirmation that it will deliver to the broker stock certificates issued in the
name of the broker for at least that number of Shares having a fair market value
equal to the Exercise Price therefor, or (2) as the proceeds of a margin loan to
the Employee; or (ii) agrees to pay the Exercise Price therefor to the Company
in cash or acceptable cash equivalents upon the broker's receipt from the
Company of stock certificates issued in the name of the broker for at least that
number of
16
<PAGE>
Shares having a fair market value equal to the Exercise Price therefor. The
Employee's written notice of exercise of the Option pursuant to a "cashless
exercise" procedure must include the name and address of the broker involved, a
clear description of the procedure, and such other information or undertaking by
the broker as the Board shall reasonably require. If payment is to be made in
whole or in part in Shares underlying the Option, the Employee shall direct the
Company to subtract from the number of Shares underlying the Option, that number
of Shares having a fair market value (as determined in good faith by the Board)
equal to the purchase price (or portion thereof) to be paid with such underlying
Shares.
Upon such purchase, delivery of a certificate for paid-up,
non-assessable Shares shall be made at the principal office of the Company to
the Employee (or the person entitled to exercise the Option pursuant to Section
7), not more than 10 days from the date of receipt of the notice by the Company.
(b) The Company shall at all times during the
term of the Option reserve and keep available such number of Shares as
will be sufficient to satisfy the requirements of the Option.
(c) Notwithstanding Section 5(a) of this
Agreement, the Company may delay the issuance of Shares covered by the
Option and the delivery of a certificate for such Shares until one of
the following conditions is satisfied: (i) the Shares purchased
pursuant to the Option are at the time of the issuance of such Shares
effectively registered or qualified under applicable federal and state
securities laws or (ii) such Shares are exempt from registration and
qualification under applicable federal and state securities laws.
6. Administration. This Agreement shall be administered by the
Board. The Board shall be authorized to interpret this Agreement and to make all
other determinations necessary or advisable for the administration of this
Agreement. The determinations of the Board in the administration of this
Agreement, as described herein, shall be final and conclusive. The Secretary
shall be authorized to implement this Agreement in accordance with its terms and
to take such actions of a ministerial nature as shall be necessary to effectuate
the intent and purposes thereof.
7. Non-Transferability. The right of the Employee to exercise the
Option (as and when vested) shall not be assignable or transferable by the
Employee otherwise than by will or the laws of descent and distribution, and
such Shares may be purchased during the lifetime of the Employee only by him (or
his legal representative in the event that he is Disabled). Any other such
transfer shall be null and void and without effect upon any attempted assignment
or transfer, except as hereinabove provided, including without limitation any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition contrary to the provisions hereof, or levy of
execution, attachment, trustee process or similar process, whether legal or
equitable, upon the Option.
17
<PAGE>
8. Representation Letter and Investment Legend.
(a) In the event that for any reason the Shares
to be issued upon exercise of a vested Option shall not be effectively
registered under the Securities Act of 1933, as amended (the "1933
Act"), upon any date on which the Option is exercised, the Employee (or
the person exercising the Option pursuant to Section 7) shall give a
written representation to the Company in the form attached hereto as
Exhibit A, and the Company shall place the legend described on Exhibit
A, upon any certificate for the Shares issued by reason of such
exercise.
(b) The Company shall be under no obligation to
qualify Shares or to cause a registration statement or a post-effective
amendment to any registration statement to be prepared for the purposes
of covering the issue of Shares; provided, that the Company will use
its reasonable best efforts to comply with any available exemption from
registration and qualification of the Shares under applicable federal
and state securities laws.
9. Adjustments upon Changes in Capitalization.
(a) In the event that the outstanding shares of
the Common Stock of the Company are changed into or exchanged for a
different number or kind of shares or other securities of the Company
or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of Shares,
and the Exercise Price therefor, as to which the Option, to the extent
not theretofore exercised, shall be exercisable.
In addition, unless otherwise determined by the Board in its
sole discretion, in the case of a Change in Control (as hereinafter defined) of
the Company, the purchaser(s) of the Company's assets or stock may, in his, her
or its discretion, deliver to the Employee, to the extent that the right to
purchase Shares under the Option has vested, the same kind of consideration (net
of the Exercise Price for such Shares) that is delivered to the stockholders of
the Company as a result of the Change in Control, or the Board may, in its sole
determination, cancel the Option, to the extent not theretofore exercised, in
exchange for consideration in cash or in kind, which consideration in either
case shall be equal in value to the value of those shares of stock or other
consideration the Employee would have received had the Option been exercised (to
the extent it has vested and not been exercised) and no disposition of the
shares acquired upon such exercise been made prior to the Change in Control,
less the Exercise Price therefor. Upon receipt of such consideration by the
Employee, the Option shall immediately terminate and be of no further force and
effect, with respect to both vested and nonvested portions thereof. The value of
the stock or other securities the Employee would have received if the Option had
been exercised shall be determined in good faith by the Board. In addition, in
the case of a Change in Control, the Board may, in its sole discretion,
accelerate the vesting of all or any portion of the Option that would remain
unvested after the application of the accelerated vesting on Schedule I
18
<PAGE>
and Section 3 hereto. A "Change in Control" shall be deemed to have occurred if
(i) any person, or any two or more persons acting as a group, and all affiliates
of such person or persons (a "Group") who prior to such time beneficially owned
less than 50% of the then outstanding capital stock of the Company shall acquire
shares of the Company's capital stock in one or more transactions or series of
transactions, including by merger, and after such transaction or transactions
such person or Group and affiliates beneficially own 50% or more of the
Company's outstanding capital stock, or (ii) the Company shall sell all or
substantially all of its assets to any Group which, immediately prior to the
time of such transaction, beneficially owned less than 50% of the then
outstanding capital stock of the Company.
(b) Upon dissolution or liquidation of the
Company, the Option shall terminate, but the Employee shall have the
right, immediately prior to such dissolution or liquidation, to
exercise any then vested Options.
(c) No fraction of a share of Common Stock shall
be purchasable or deliverable upon the exercise of the Option, but in
the event any adjustment hereunder of the number of shares covered by
the Option shall cause such number to include a fraction of a share,
such fraction shall be adjusted to the nearest smaller whole number of
shares.
10. No Special Employment Rights. Nothing contained in this
Agreement shall be construed or deemed by any person under any circumstances to
bind the Company or any of its subsidiaries to continue the employment of the
Employee for the period within which this Option may vest or for any other
period.
11. Rights as a Stockholder. The Employee shall have no rights as
a stockholder with respect to any Shares which may be purchased upon the vesting
of this Option unless and until a certificate or certificates representing such
Shares are duly issued and delivered to the Employee. Except as otherwise
expressly provided herein, no adjustment shall be made for dividends or other
rights for which the record date is prior to the date the stock certificate is
issued.
12. Withholding Taxes. The Employee hereby agrees, as a condition
to any exercise of the Option, to provide to the Company an amount sufficient to
satisfy its obligation to withhold certain federal, state and local taxes
arising by reason of such exercise (the "Withholding Amount"), if any, by (a)
authorizing the Company to withhold the Withholding Amount from his cash
compensation, or (b) remitting the Withholding Amount to the Company in cash;
provided that, to the extent that the Withholding Amount is not provided by one
or a combination of such methods, the Company may at its election withhold from
the Shares delivered upon exercise of the Option that number of Shares having a
fair market value (in the good faith judgment of the Board) equal to the
Withholding Amount.
13. Execution of Stockholders' Agreement. The Employee
acknowledges that he has previously executed and delivered the stockholders
agreement by and among the Company and the stockholders of the Company named
therein (the "Stockholders Agreement"). The Employee further agrees that this
Agreement, the Option and all Shares acquired by him upon exercise of
19
<PAGE>
the Option will be subject to the terms and conditions of the Stockholders
Agreement, as the same may have been amended or modified in accordance with its
terms.
14. Governing Law. This Agreement shall be governed by the laws of
the State of Delaware, without regard to any conflicts of law principles thereof
that would call for the application of the laws of any other jurisdiction. Any
action or proceeding seeking to enforce any provision of, or based on any right
arising out of, this Agreement may be brought against either of the parties in
the courts of the State of Delaware, or if it has or can acquire jurisdiction,
in the United States District Court for the District of Delaware, and each of
the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world,
whether within or without the State of Delaware.
* * * * * * * * *
[Signatures on Following Page]
20
<PAGE>
STOCK OPTION AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, by its officer thereunto duly authorized, and the Employee has
executed this Agreement, all as of the day and year first above written.
INSIGHT HEALTH SERVICES EMPLOYEE
HOLDINGS CORP.
BY: _______________________________________
BY: Name:
_______________________________
Address:
Name: _______________________________________
Title:
_______________________________________
_______________________________________
Telecopier Number: ___________________
Social Security Number: _______________
21
<PAGE>
SCHEDULE I
OPTION PERFORMANCE VESTING SCHEDULE
(a) For each of the Company's fiscal years ending June 30 in the years
2002 through 2006, the portion of the total Option described in clause (B) of
Section 3 of the Agreement shall vest and become exercisable if the Company
achieves a return on equity ("ROE") for such year that equals or exceeds the
following Base Targets:
Base Target 90% of Base Target
----------- ------------------
2002 1.11 1.00
2003 2.40 2.16
2004 3.50 3.15
2005 5.00 4.50
2006 6.50 5.85
If the Company achieves more than 90% but less than 100% of the Base Target ROE
in any fiscal year, the Options available to vest in that year shall vest in the
ratio by which ROE achieved exceeds 90% of Base Target ROE for such fiscal year
(i.e., for ROE of 90.5% of Base Target ROE, one-twentieth of the available
Options would vest; for ROE of 96%, six-tenths of the available Options would
vest).
For purposes hereof, ROE for any fiscal year shall be calculated by the
following formula: [(5.25 x EBITDA) - D+C]/TE where
D = the Company's Consolidated Indebtedness at
fiscal year-end (or at time of sale of the Company)
C = the Company's Excess Cash at fiscal
year-end (or at time of sale of the Company)
TE = total equity invested as of the Effective
Time (including the net pre-tax value of any options
rolled over as of the Effective Time)
EBITDA = EBITDA for such fiscal year
If TE is increased at any time after the Effective Time and during the
Company's fiscal years ending on June 30 in the years 2002 through 2006, the
Board, in good faith, shall adjust the Base Targets. The Options available for
vesting shall vest, if the Targets are met, upon completion of the audit for the
Company and its subsidiaries' consolidated financial statements for such fiscal
year.
(b) Notwithstanding the foregoing, if in the fiscal year ending June
30, 2006, (1) the percentage of Options available to vest that do vest exceeds
(2) the cumulative percentage of Options available to vest in the fiscal years
ending June 30 in the years 2002-2005 that did vest
SCHEDULE I-1
<PAGE>
in those years, the vesting percentage achieved in fiscal year ending June 30,
2006 shall be carried back to the fiscal years ending June 30 in the years
2002-2005 and applied to the Options available to vest in those fiscal years.
The number of vested Options for the fiscal years ending on June 30 in the years
2002 through 2005 shall be adjusted to reflect such higher percentage.
(c) (1) In the event a Change in Control of the Company occurs before
the end of the fiscal year ending June 30, 2006, the Base Target for the year in
which the Change in Control occurs and the above formula will be modified as
follows:
- the Base Target for such year will be adjusted to be an
amount determined by adding to the Base Target for the fiscal year immediately
prior to the fiscal year in which the Change in Control occurs an amount equal
to the product of (i) a fraction the numerator of which is the number of days
that elapsed since the first day of the fiscal year in which the Change in
Control occurs until the date of the consummation of the Change in Control and
the denominator of which is 365 and (ii) the difference between the Base Target
for the year in which the Change in Control occurs and the Base Target for the
immediately preceding fiscal year.
- the formula for determining ROE at the time of the Change in
Control will be adjusted by using EBITDA for the 12 full calendar months
immediately preceding the date of the Change in Control so that the multiple of
EBITDA used will be the greater of 5.25 and the multiple used in determining the
Company's enterprise value in the Change in Control.
(2) The percentage of Options that vest in accordance with the formula
as so modified will then be applied to fiscal years preceding and following the
year in which the Change in Control occurs and the number of vested Options
shall be adjusted to reflect such percentage; provided that, if the cumulative
percentage of Options that vested in the fiscal years preceding the Change in
Control exceeds the percentage that vest in the fiscal year of the Change in
Control pursuant to the modified formula, the cumulative percentage of Options
that vested prior to the Change in Control will instead be applied to the fiscal
years that follow the Change in Control.
(d) Notwithstanding the foregoing, in the event J.W. Childs Equity
Partners II, L.P., Halifax Capital Partners, L.P. and their respective
affiliates each receive a net cash return on their total investment in the
Company resulting (i) in an internal rate of return of at least 35% on their
total investment in the Company and (ii) in an amount of cash equal to at least
three times their respective total investment in the Company, then one-third of
the total Options described in clause (B) of Section 3 of the Agreement (i.e.,
25% of the total Option set forth in Section 1 of the Agreement) shall vest and
become exercisable. This vesting provision is not intended to be additive to the
preceding provisions, but is intended to be in the alternative.
For purposes of this Schedule I, the following terms have the following
meanings:
"Consolidated Indebtedness" shall mean, as of any date, the aggregate
amount outstanding, on a consolidated basis, of (a) all obligations of the
Company or its subsidiaries for borrowed money, (b) all obligations of the
Company or its subsidiaries evidenced by bonds, debentures, notes or other
similar instruments or upon which interest charges are customarily
SCHEDULE I-2
<PAGE>
paid, (c) all obligations of the Company or its subsidiaries for the deferred
purchase price of property or services, except current accounts payable arising
in the ordinary course of business and not overdue beyond such period as is
commercially reasonable for the Company or its subsidiaries' business, (d) all
obligations of the Company or its subsidiaries under conditional sale or other
title retention agreements relating to property purchased by such Person and all
capitalized lease obligations, (e) all payment obligations of the Company or its
subsidiaries on or for currency protection agreements, (f) all obligations of
the Company or its subsidiaries as an account party under any letter of credit
(excluding those supporting trade payables), (g) all obligations of any third
party secured by property or assets of the Company or its subsidiaries
(regardless of whether or not such Person is liable for repayment of such
obligations) and (h) all guarantees of the Company or its subsidiaries.
"EBITDA" shall mean consolidated earnings of the Company and its
subsidiaries, including equity in the earnings from non-consolidated
subsidiaries, before interest, taxes, depreciation, amortization and the
management fees paid to J.W. Childs Associates, L.P. and The Halifax Group,
L.L.C. or any of their respective affiliates and after deduction of all
operating expenses, minority interest expenses and incentive compensation, all
as calculated in accordance with generally accepted accounting principles
consistently applied, as reflected in the Company's consolidated financial
statements. For purposes of calculating EBITDA, upon the Company making an
acquisition or disposition of any assets or business, the Board, in good faith,
shall adjust EBITDA for any fiscal year to include or exclude on a pro forma
basis, as applicable, the EBITDA for such assets or business for the period of
time the assets or business are not owned by the Company for the fiscal year in
which the assets or business are acquired or sold.
"Excess Cash" shall mean cash in excess of the Company and its
subsidiaries' operating needs, in the good faith judgment of the Board.
SCHEDULE I-3
<PAGE>
SCHEDULE II
Definitions Applicable to
Stock Option Agreement
1. "Cause," with respect to the Employee, shall have the meaning
attributed to it under the executed written employment agreement between the
Employee and the Company (or a subsidiary thereof) or, in the absence of such
employment agreement, "Cause" shall mean the occurrence of any of the following
during the term of the Employee's employment with the Company (or a subsidiary
thereof):
(a) the Employee has performed his/her duties negligently;
(b) the Employee is guilty of misconduct in connection with
the performance of the Employee's duties;
(c) the Employee has committed any serious crime or offense;
(d) the Employee has failed or refused to comply with the oral
or written policies or directives of the Board of Directors; or
(e) the Employee has breached any provision or covenant
contained in this Agreement.
2. "Disabled," with respect to the Employee, shall have the meaning
attributed to it under the executed written employment agreement between the
Employee and the Company (or a subsidiary thereof) or, in the absence of such
employment agreement, the Employee shall be deemed to have become "Disabled" if,
during the term of the Employee's employment with the Company (or a subsidiary
thereof), the Employee shall become physically or mentally disabled, whether
totally or partially, either permanently or so that the Employee, in the good
faith judgment of the Board, is unable substantially and competently to perform
his duties on behalf of the Company (or a subsidiary thereof) for a period of 90
consecutive days or for 90 days during any six month period during the said term
of employment. In order to assist the Board in making that determination, the
Employee shall, as reasonably requested by the Board, (i) make himself available
for medical examinations by one or more physicians chosen by the Board and (ii)
grant to the Board and any such physicians access to all relevant medical
information concerning him, arrange to furnish copies of his medical records to
the Board and use his best efforts to cause his own physicians to be available
to discuss his health with the Board.
3. "Good Reason," with respect to the Employee, shall have the meaning
attributed to it under the executed written employment agreement between the
Employee and the Company (or a subsidiary thereof) or, in the absence of such
employment agreement, "Good Reason" shall be deemed to have occurred if, other
SCHEDULE II-1
<PAGE>
than for Cause, any of the following has occurred during the term of the
Employee's employment with the Company (or a subsidiary thereof):
(a) the Employee's base salary has been reduced, other than in
connection with a reduction of executive compensation imposed by the Board in
response to negative financial results or other adverse circumstances affecting
the Company or its subsidiaries; or
(b) the Company has reduced or reassigned, in any material
respect, the duties of the Employee as an employee of the Company (or a
subsidiary thereof) and such event has not been rescinded within 10 business
days after the Employee notifies the Company (or a subsidiary thereof) in
writing that he objects thereto.
4. "Person" shall mean an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government or any agency
or political subdivision thereof, or any other entity.
SCHEDULE II-2
<PAGE>
EXHIBIT A
TO STOCK OPTION AGREEMENT
Gentlemen:
In connection with the purchase by me of ___________________ shares of
common stock, $0.001 par value per share, of InSight Health Services Holdings
Corp., a Delaware corporation (the "Company") under the nonqualified stock
option granted to me pursuant to that certain Stock Option Agreement dated as of
June ____, 2001 (the "Option Agreement"), I hereby acknowledge that I have been
informed as follows:
EXHIBIT A-1
<PAGE>
1. The shares of common stock of the Company to
be issued to me upon exercise of said option have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and accordingly, must be held indefinitely unless such
shares are subsequently registered under the Act, or an
exemption from such registration is available.
2. Routine sales of securities made in reliance
upon Rule 144 under the Act can be made only after the holding
period and in limited amounts in accordance with the terms and
conditions provided by that Rule, and with respect to which
that Rule is not applicable, registration or compliance with
some other exemption under the Act will be required.
3. The Company is under no obligation to me to
register the shares or to comply with any such exemptions
under the Act, other than as set forth in the Stockholders'
Agreement referenced and defined in paragraph 13 of the Option
Agreement (the "Stockholders Agreement").
4. The availability of Rule 144 is dependent
upon adequate current public information with respect to the
Company being available and, at the time that I may desire to
make a sale pursuant to the Rule, the Company may neither wish
nor be able to comply with such requirement.
5. The shares of common stock of the Company to
be issued to me upon the exercise of said option are subject
to the terms and conditions, including restrictions on
transfer, of the Stockholders Agreement.
In consideration of the issuance of certificates for the shares to me,
I hereby represent and warrant that I am acquiring such shares for my own
account for investment, and that I will not sell, pledge, hypothecate or
otherwise transfer such shares in the absence of an effective registration
statement covering the same, except as permitted by an applicable exemption
under the Act. In view of this representation and warranty, I agree that there
may be affixed to the certificates for the shares to be issued to me, and to all
certificates issued hereafter representing such shares (until in the opinion of
counsel, which opinion must be reasonably satisfactory in form and substance to
counsel for the Company, it is no longer necessary or required) a legend as
follows:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be sold, transferred, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as
to the securities under the Act or an opinion of counsel satisfactory
to the Company and its counsel that such registration is not required."
"The securities represented by this certificate are subject to the
terms and conditions, including restrictions on transfer, of a
Stockholders' Agreement among the Company and its stockholders dated as
of ____________, as amended from time to time, a copy of which is on
file at the principal office of the Company."
Exhibit A-2
<PAGE>
I further agree that the Company may place a stop order with its
transfer agent, prohibiting the transfer of such shares, so long as the legend
remains on the certificates representing the shares.
I hereby represent and warrant that: My financial situation is such
that I can afford to bear the economic risk of holding the shares issued to me
upon exercise of said option for an indefinite period of time, I have no need
for liquidity with respect to my investment and have adequate means to provide
for my current needs and personal contingencies, and can afford to suffer the
complete loss of my investment in such shares.
(a) I am an "accredited investor" within the
meaning of Rule 501 under the Act and I, either alone or with
my purchaser representative (as such term is defined in Rule
501 under the Act) have such knowledge and experience in
financial and business matters that I am capable of evaluating
the merits and risks of my investment in the shares issued to
me upon exercise of said option.
(b) I have been afforded the opportunity to ask
questions of, and to receive answers from, the Company and its
representatives concerning the shares issued to me upon
exercise of said option and to obtain any additional
information I have deemed necessary.
(c) I have a high degree of familiarity with the
business, operations, financial condition and prospects of the
Company.
Very truly yours,
-------------------------
[Employee]
Exhibit A-3