AMERICAN PHYSICIAN PARTNERS INC, S-4EF/A, 1997-10-15

AMERICAN PHYSICIAN PARTNERS INC
S-4EF/A, 1997-10-15
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997

REGISTRATION NO. 333-31611

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

PRE-EFFECTIVE
AMENDMENT NO. 1
TO

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

AMERICAN PHYSICIAN PARTNERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 8099 75-2648089
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

2301 NATIONSBANK PLAZA
901 MAIN STREET
DALLAS, TEXAS 75202-3721
(214) 761-3100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

PAUL M. JOLAS, ESQ.
GENERAL COUNSEL, SENIOR VICE PRESIDENT AND SECRETARY
AMERICAN PHYSICIAN PARTNERS, INC.
2301 NATIONSBANK PLAZA
901 MAIN STREET
DALLAS, TEXAS 75202-3721
(214) 761-3100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C> <C>
RICHARD A. FINK, ESQ. THEODORE W. HIRSH, ESQ. ROBERT A. SHELTON, ESQ.
BROBECK, PHLEGER & HARRISON LLP LAW OFFICES OF VENABLE, BAETJIR & HOWARD LLP
4675 MACARTHUR COURT, SUITE 1000 PETER G. ANGELOS, P.C. 1800 MERCANTILE BANK &
NEWPORT BEACH, CALIFORNIA 92660 ONE CHARLES CENTER, 22ND FLOOR TRUST BLDG.
(714) 752-7535 100 NORTH CHARLES STREET 2 HOPKINS PLAZA
BALTIMORE, MARYLAND 21201 BALTIMORE, MARYLAND 21201
(410) 659-0100 (410) 244-7400

STEVEN R. GERSZ, ESQ. WILLIAM R. CREASEY, ESQ. STEVEN L. TARSHIS, ESQ.
UNDERBERG & KESSLER LLP LOOPER, REED, MARK & MCGRAW DRAKE, SOMMERS, LOEB, TARSHIS &
1800 CHASE SQUARE INCORPORATED CATANIA, P.C.
ROCHESTER, NEW YORK 14604 1601 ELM STREET, SUITE 4100 ONE CORWIN COURT
(716) 258-2800 DALLAS, TEXAS 75201 P. O. BOX 1479
(214) 954-4135 NEWBURGH, NEW YORK 12550
(914) 565-1100

WALTER R. TURNER, ESQ. JEFFREY O. ELLIS, ESQ. STEPHEN S. MCCRAY, ESQ.
WENDEL, ROSEN, BLACK & LATHROP & GAGE L.C. HOGE FENTON JONES & APPEL, INC.
DEAN, LLP 9401 INDIAN CREEK PARKWAY, 60 SOUTH MARKET STREET, #1400
1111 BROADWAY, 24TH FLOOR BLDG. #40 SAN JOSE, CALIFORNIA 95113
OAKLAND, CALIFORNIA 94607 OVERLAND PARK, KANSAS 66210 (408) 287-9501
(510) 834-6600 (913) 451-5100

KENNETH K. BEZOZO, ESQ. JEROME B. COHEN, ESQ.
RICHARD A. FIJULEK, ESQ. OPPENHEIMER, BLEND, HARRISON &
HAYNES AND BOONE, L.L.P. TATE, INC.
3100 NATIONSBANK PLAZA 711 NAVARRO, 6TH FLOOR
901 MAIN STREET SAN ANTONIO, TEXAS 78205-1796
DALLAS, TEXAS 75202 (210) 224-2000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:

Upon consummation of the Mergers and Exchanges described herein.

<PAGE> 2
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATIONS STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.

<PAGE> 3
[ADVANCED LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of Ad Rad, Inc., a Maryland corporation
("Advanced"), to be held on [DATE] at [MEETING LOCATION], commencing at [TIME],
local time. At the Special Meeting, security holders of Advanced will consider
and make a fundamental determination regarding the future direction of Advanced.

At the Special Meeting, Advanced's security holders will be asked to act
upon a proposal to approve and adopt the Agreement and Plan of Reorganization
and Merger, dated as of June 27, 1997 (the "Advanced Merger Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"), and
Advanced and approve the transactions contemplated by the Advanced Merger
Agreement. Pursuant to the Advanced Merger Agreement, (1) Advanced will merge
with and into APPI and will cease to exist as a separate entity (the "Advanced
Merger") and (2) each outstanding share of Common Stock of Advanced will be
converted into the right to receive shares of Common Stock of APPI and cash. The
terms and conditions of the Advanced Merger Agreement are described in the
accompanying Notice of Special Meeting of Security Holders and Prospectus/Joint
Proxy Statement. The complete text of the Advanced Merger Agreement is attached
as Appendix A to the Prospectus/Joint Proxy Statement.

Advanced's Board of Directors, after careful consideration of many
factors, has determined that the Advanced Merger is fair to, and in the best
interests of, Advanced and its security holders. ACCORDINGLY, ADVANCED'S BOARD
OF DIRECTORS HAS APPROVED THE ADVANCED MERGER AGREEMENT AND THE ADVANCED MERGER
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
ADVANCED MERGER AGREEMENT AND APPROVAL OF THE ADVANCED MERGER AT THE SPECIAL
MEETING.

Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of two-thirds of the shares of Advanced's
Common Stock entitled to vote thereon is required. Therefore, it is important
that your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you
decide to attend the Special Meeting and vote in person.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/ MICHAEL L. SHERMAN, M.D.
Michael L. Sherman, M.D.
President

<PAGE> 4

AD RAD, INC.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of

Ad Rad, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of Ad Rad, Inc. ("Advanced") will be held on [DATE] at
[MEETING LOCATION], commencing at [TIME], local time, for the following
purposes:

1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "Advanced Merger Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"), and
Advanced and the transactions contemplated by the Advanced Merger Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the Advanced Merger Agreement, (1) Advanced will merge with
and into APPI and will cease to exist as a separate entity (the "Advanced
Merger") and (2) each outstanding share of Common Stock of Advanced ("Advanced
Common Stock") will be converted into the right to receive shares of Common
Stock of APPI ("APPI Common Stock") and cash. The exact number of shares of APPI
Common Stock and the exact amount of cash into which each share of Advanced
Common Stock will be converted by reason of the Advanced Merger will not be
determined until the closing of the Advanced Merger. The closing will occur
simultaneously with the closing of the initial underwritten public offering of
APPI Common Stock (the "Initial Public Offering"). The number of shares of APPI
Common Stock and the amount of cash into which each share of Advanced Common
Stock will be converted will depend on the price per share of APPI Common Stock
received by APPI in connection with the Initial Public Offering, before
deduction of any underwriting commissions, discounts or fees relating thereto
(the "Initial Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of Advanced Common Stock will be converted into
7.5000 shares of APPI Common Stock and $35.0000 in cash. However, if the Initial
Public Offering Price of the APPI Common Stock is greater than $14.00 per share,
then (1) the number of shares of APPI Common Stock issued to each Advanced
security holder will not change (each will receive 7.5000 shares of APPI Common
Stock for each share of Advanced Common Stock held by such security holder), and
(2) each security holder will receive a greater amount of cash for each share of
Advanced Common Stock, calculated as follows:

$35.0000 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each Advanced
security holder will receive will not change (each will receive $35.0000 in cash
for each share of Advanced Common Stock held by such security holder), and (2)
each security holder will receive a greater number of shares of APPI Common
Stock for each share of Advanced Common Stock, calculated as follows:

7.5000 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, each share of
Advanced Common Stock will, at a minimum, be converted into $35.0000 in cash
and $105.0000 in APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of Advanced Common Stock are converted in the Advanced
Merger, the aggregate consideration received by the Advanced security holders
will be approximately 3,562,500 shares of APPI Common Stock and $16,625,000 in
cash. However, Advanced security holders may dissent by voting against the
Advanced Merger. A dissenting Advanced security holder who complies with the
requirements of Sections 3-202 and 3-203 of the Maryland General Corporation
Law will

<PAGE> 5

have the right to demand payment for, and appraisal of, the value of his shares.
In the event that a security holder of Advanced exercises such dissenters'
rights, the aggregate consideration to be received by the Advanced security
holders will be reduced by the number of shares of APPI Common Stock and amount
of cash that such dissenting security holder would have received in the Advanced
Merger. Notwithstanding the foregoing, the exercise of dissenters' rights by one
or more Advanced security holders will have no effect on the number of shares of
APPI Common Stock and cash consideration to be received for each share of
Advanced Common Stock by non-dissenting security holders. See "Approval of the
Mergers, Exchanges and Related Transactions -- Dissenters' Rights Regarding the
Mergers" in the accompanying Prospectus/Joint Proxy Statement.

Approval of the Advanced Merger Agreement and the Advanced Merger
requires the affirmative vote of the holders of two-thirds of the shares of
Advanced Common Stock entitled to vote thereon. If the security holders of
Advanced fail to approve by the requisite percentage the Advanced Merger
Agreement and the Advanced Merger, the Advanced Merger will not be consummated.
In addition, the closing of the Advanced Merger is contingent on the closing of
each of the other mergers and exchanges described in the accompanying
Prospectus/Joint Proxy Statement.

By Order of the Board of Directors,

/s/
[----------------],
Secretary

[CITY, STATE]
[DATE]

<PAGE> 6
[IDE LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of The Ide Group, P.C., a New York professional
corporation ("Ide"), to be held on [DATE] at [MEETING LOCATION], commencing at
[TIME], local time. At the Special Meeting, security holders of Ide will
consider and make a fundamental determination regarding the future direction of
Ide.

At the Special Meeting, Ide's security holders will be asked to act upon
a proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "Ide Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and Ide and
the transactions contemplated by the Ide Merger Agreement. Pursuant to the Ide
Merger Agreement, (1) Ide will merge with and into APPI and will cease to exist
as a separate entity (the "Ide Merger") and (2) each outstanding share of Common
Stock of IDE will be converted into the right to receive shares of Common Stock
of APPI and cash. The terms and conditions of the Ide Merger Agreement are
described in the accompanying Notice of Special Meeting of Security Holders and
Prospectus/Joint Proxy Statement. The complete text of the Ide Merger Agreement
is attached as Appendix A to the Prospectus/Joint Proxy Statement.

Ide's Board of Directors, after careful consideration of many factors,
has determined that the Ide Merger is fair to, and in the best interests of, Ide
and its security holders. ACCORDINGLY, IDE'S BOARD OF DIRECTORS APPROVED THE IDE
MERGER AGREEMENT AND THE IDE MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE IDE MERGER AGREEMENT AND APPROVAL OF THE IDE MERGER
AT THE SPECIAL MEETING.

Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of three-quarters of the outstanding
shares of Ide's Common Stock is required. Therefore, it is important that your
shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to attend
the Special Meeting and vote in person.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/ DERACE L. SCHAFFER, M.D.
Derace L. Schaffer, M.D.
President

<PAGE> 7
THE IDE GROUP, P.C.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of The Ide Group, P.C.:

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of The Ide Group, P.C. ("Ide") will be held on [DATE] at
[MEETING LOCATION], commencing at [TIME], local time, for the following
purposes:

1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "Ide Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and Ide and
the transactions contemplated by the Ide Merger Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the Ide Merger Agreement, (1) Ide will merge with and into
APPI and will cease to exist as a separate entity (the "Ide Merger") and (2)
each outstanding share of Common Stock of Ide ("Ide Common Stock") will be
converted into the right to receive shares of Common Stock of APPI ("APPI Common
Stock") and cash. The exact number of shares of APPI Common Stock and the exact
amount of cash into which each share of Ide Common Stock will be converted by
reason of the Ide Merger will not be determined until the closing of the Ide
Merger. The closing will occur simultaneously with the closing of the initial
underwritten public offering of APPI Common Stock (the "Initial Public
Offering"). The number of shares of APPI Common Stock and the amount of cash
into which each share of Ide Common Stock will be converted will depend on the
price per share of APPI Common Stock received by APPI in connection with the
Initial Public Offering, before deduction of any underwriting commissions,
discounts or fees relating thereto (the "Initial Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of Ide Common Stock will be converted into 942.5581
shares of APPI Common Stock and $4,398.6047 in cash. However, if the Initial
Public Offering Price of the APPI Common Stock is greater than $14.00 per share,
(1) the number of shares of APPI Common Stock issued to each Ide security holder
will not change (each will receive 942.5581 shares of APPI Common Stock for each
share of Ide Common Stock held by such security holder), and (2) each security
holder will receive a greater amount of cash for each share of Ide Common Stock,
calculated as follows:

$4,398.6047 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each Ide security
holder will receive will not change (each will receive $4,398.6047 in cash for
each share of Ide Common Stock held by such security holder), and (2) each
security holder will receive a greater number of shares of APPI Common Stock for
each share of Ide Common Stock, calculated as follows:

942.5581 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, each share of Ide Common
Stock will, at a minimum, be converted into $4,398.6047 in cash and $13,195.8134
in APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of Ide Common Stock are converted in the Ide Merger, the
aggregate consideration received by the Ide security holders will be
approximately 2,026,500 shares of APPI Common Stock and $9,457,000 in cash.
However, Ide security holders may dissent by voting against the Ide Merger. A
dissenting Ide security holder who complies with the requirements of Section
623 of the New York Business Corporation Law will have the right to demand

<PAGE> 8

payment for, and appraisal of, the value of his shares. In the event that a
security holder of Ide exercises such dissenters' rights, the aggregate
consideration to be received by the Ide security holders will be reduced by
the number of shares of APPI Common Stock and amount of cash that such
dissenting security holder would have received in the Ide Merger.
Notwithstanding the foregoing, the exercise of dissenters' rights by one or
more Ide security holders will have no effect on the number of shares of APPI
Common Stock and cash consideration to be received for each share of Ide
Common Stock by non-dissenting security holders. See "Approval of the Mergers,
Exchanges and Related Transactions -- Dissenters' Rights Regarding the
Mergers" in the accompanying Prospectus/Joint Proxy Statement.

The Ide Merger Agreement and Ide Merger require the approval of the
holders of three-quarters of the outstanding shares of Ide Common Stock. If the
security holders of Ide fail to approve by the requisite percentage the Ide
Merger Agreement and Ide Merger, the Ide Merger will not be consummated. In
addition, the closing of the Ide Merger is contingent on the closing of each of
the other mergers and exchanges described in the accompanying Prospectus/Joint
Proxy Statement.

By Order of the Board of Directors,

/s/ KENNETH D. PEARSEN, M.D.
Kenneth D. Pearsen, M.D.
Secretary

[CITY, STATE]
[DATE]

<PAGE> 9
[M&S X-RAY ASSOCIATES, P.A. LETTERHEAD/LOGO]
[SOUTH TEXAS MR, INC. LETTERHEAD/LOGO]
[SAN ANTONIO MR, INC. LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the joint special meeting (the
"Special Meeting") of security holders of M&S X-Ray Associates, P.A., a Texas
professional association ("M&S"), South Texas MR, Inc., a Texas corporation
("South Texas"), and San Antonio MR, Inc., a Texas corporation ("San Antonio"),
to be held on [DATE] at [MEETING LOCATION], commencing at [TIME], local time. At
the Special Meeting, security holders of each of M&S, South Texas and San
Antonio will consider and make a fundamental determination regarding the future
direction of each of M&S, South Texas and San Antonio, respectively.

At the Special Meeting, M&S's security holders will be asked to act upon
a proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "M&S Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and M&S and
approve the transactions contemplated by the M&S Merger Agreement; South Texas'
security holders will be asked to act upon a proposal to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997 (the
"South Texas Merger Agreement") by and between APPI and South Texas and approve
the transactions contemplated by the South Texas Merger Agreement; and San
Antonio's security holders will be asked to act upon a proposal to approve and
adopt the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997 (the "San Antonio Merger Agreement") by and between APPI and San Antonio
and approve the transactions contemplated by the San Antonio Merger Agreement.

Pursuant to the M&S Merger Agreement, (1) M&S will merge with and into
APPI and will cease to exist as a separate entity (the "M&S Merger") and (2)
each outstanding share of Common Stock of M&S will be converted into the right
to receive shares of Common Stock of APPI and cash. Pursuant to the South Texas
Merger Agreement, (1) South Texas will merge with and into APPI and will cease
to exist as a separate entity (the "South Texas Merger") and (2) each
outstanding share of Common Stock of South Texas will be converted into the
right to receive shares of Common Stock of APPI and cash. Pursuant to the San
Antonio Merger Agreement, (1) San Antonio will merge with and into APPI and will
cease to exist as a separate entity (the "San Antonio Merger") and (2) each
outstanding share of Common Stock of San Antonio will be converted into the
right to receive shares of Common Stock of APPI and cash.

The terms and conditions of each of the M&S Merger Agreement, the South
Texas Merger Agreement and the San Antonio Merger Agreement are described in the
accompanying Notice of Special Meeting of Security Holders and Prospectus/Joint
Proxy Statement. The complete texts of the M&S Merger Agreement, the South Texas
Merger Agreement and the San Antonio Merger Agreement are attached as Appendix A
to the Prospectus/Joint Proxy Statement.

The Board of Directors of each of entities, after careful consideration
of many factors, has determined that the M&S Merger, the South Texas Merger and
the San Antonio Merger, respectively, is fair to, and in the best interests of,
M&S, South Texas and San Antonio, respectively, and the security holders of each
of the entities, respectively. ACCORDINGLY, THE BOARD OF DIRECTORS OF EACH OF
M&S, SOUTH TEXAS AND SAN ANTONIO HAS APPROVED THE M&S MERGER AGREEMENT AND THE
M&S MERGER, THE SOUTH TEXAS MERGER AGREEMENT AND THE SOUTH TEXAS MERGER, AND THE
SAN ANTONIO MERGER AGREEMENT AND THE SAN ANTONIO MERGER, RESPECTIVELY, AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE APPLICABLE
MERGER AGREEMENT AND THE APPROVAL OF THE APPLICABLE MERGER AT THE SPECIAL
MEETING.

<PAGE> 10

Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of two-thirds of the outstanding shares
of each such entity's Common Stock is required. Therefore, it is important that
your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to
attend the Special Meeting and vote in person.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/ JEREMY WIERSIG, M.D.
Jeremy Wiersig, M.D.
President

<PAGE> 11

M&S X-RAY ASSOCIATES, P.A.
SOUTH TEXAS MR, INC.
SAN ANTONIO MR, INC.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of
M&S X-Ray Associates, P.A.,
South Texas MR, Inc. and
San Antonio MR, Inc.:

NOTICE IS HEREBY GIVEN that a joint special meeting (the "Special
Meeting") of the security holders of M&S X-Ray Associates, P.A., a Texas
professional association ("M&S"), South Texas MR, Inc., a Texas corporation
("South Texas"), and San Antonio MR, Inc., a Texas corporation ("San Antonio")
will be held on [DATE] at [MEETING LOCATION], commencing at [TIME], local time,
for the following purposes:

1. With respect to the security holders of M&S, to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997 (the
"M&S Merger Agreement") by and between American Physician Partners, Inc., a
Delaware corporation ("APPI"), and M&S and the transactions contemplated by the
M&S Merger Agreement. With respect to the security holders of South Texas, to
approve and adopt the Agreement and Plan of Reorganization and Merger, dated as
of June 27, 1997 (the "South Texas Merger Agreement") by and between APPI and
South Texas and the transactions contemplated by the South Texas Merger
Agreement. With respect to the security holders of San Antonio, to approve and
adopt the Agreement and Plan of Reorganization and Merger, dated as of June 27,
1997 (the "San Antonio Merger Agreement") by and between APPI and San Antonio
and the transactions contemplated by the San Antonio Merger Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the M&S Merger Agreement, M&S will merge with and into APPI
and will cease to exist as a separate entity (the "M&S Merger") and each
outstanding share of Common Stock of M&S ("M&S Common Stock") will be converted
into the right to receive shares of Common Stock of APPI ("APPI Common Stock")
and cash. Pursuant to the South Texas Merger Agreement, South Texas will merge
with and into APPI and will cease to exist as a separate entity (the "South
Texas Merger") and each outstanding share of Common Stock of South Texas ("South
Texas Common Stock") will be converted into the right to receive shares of APPI
Common Stock and cash. Pursuant to the San Antonio Merger Agreement, San Antonio
will merge with and into APPI and will cease to exist as a separate entity (the
"San Antonio Merger") and each outstanding share of Common Stock of San Antonio
("San Antonio Common Stock") will be converted into the right to receive shares
of APPI Common Stock and cash.

The exact number of shares of APPI Common Stock and the exact amount of
cash into which each share of M&S Common Stock, South Texas Common Stock and San
Antonio Common Stock will be converted by reason of the mergers, will not be
determined until the closing of each of the respective mergers. The closings
will occur simultaneously with the closing of the initial underwritten public
offering of APPI Common Stock (the "Initial Public Offering"). The number of
shares of APPI Common Stock and the amount of cash into which each share of M&S
Common Stock, South Texas Common Stock and San Antonio Common Stock will be
converted will depend on the price per share of APPI Common Stock received by
APPI in connection with the Initial Public Offering, before deduction of any
underwriting commissions, discounts or fees relating thereto (the "Initial
Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, (1) each share of M&S Common Stock will be converted into
3,868.1289 shares of APPI Common Stock and $18,051.2684 in cash, (2) each share
of South Texas Common Stock will be converted into 21.3083 shares of APPI Common
Stock and $99.5167 in cash and

<PAGE> 12

(3) each share of San Antonio Common Stock will be converted into
28.4313 shares of APPI Common Stock and $132.6792 in cash.

However, if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then:

M&S

The number of shares of APPI Common Stock issued to each M&S security
holder will not change (each will receive 3,868.1289 shares of APPI
Common Stock for each share of M&S Common Stock held by such security
holder), and each security holder will receive a greater amount of cash
for each share of M&S Common Stock, calculated as follows:

$18,051.2684 x Initial Public Offering Price
-----------------------------
$14.00

South Texas

The number of shares of APPI Common Stock issued to each South Texas
security holder will not change (each will receive 21.3083 shares of
APPI Common Stock for each share of South Texas Common Stock held by
such security holder), and each security holder will receive a greater
amount of cash for each share of South Texas Common Stock, calculated
as follows:

$99.5167 x Initial Public Offering Price
-----------------------------
$14.00

San Antonio

The number of shares of APPI Common Stock issued to each San Antonio
security holder will not change (each will receive 28.4313 shares of
APPI Common Stock for each share of San Antonio Common Stock held by
such security holder), and each security holder will receive a greater
amount of cash for each share of San Antonio Common Stock, calculated
as follows:

$132.6792 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI
Common Stock is less than $14.00 per share, then:

M&S

The amount of cash each M&S security holder will receive will not change
(each will receive $18,051.2684 in cash for each share of M&S Common
Stock held by such security holder), and each security holder will
receive a greater number of shares of APPI Common Stock for each share
of M&S Common Stock, calculated as follows:

3,868.1289 x $14.00
-----------------------------
Initial Public Offering Price

<PAGE> 13

South Texas

The amount of cash each South Texas security holder will receive will
not change (each will receive $99.5167 in cash for each share of South
Texas Common Stock held by such security holder), and each security
holder will receive a greater number of shares of APPI Common Stock for
each share of South Texas Common Stock, calculated as follows:

21.3083 x $14.00
-----------------------------
Initial Public Offering Price

San Antonio

The amount of cash each San Antonio security holder will receive will
not change (each will receive $132.6792 in cash for each share of San
Antonio Common Stock held by such security holder), and each security
holder will receive a greater number of shares of APPI Common Stock for
each share of San Antonio Common Stock, calculated as follows:

28.4313 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, (1) each share of M&S Common
Stock will, at a minimum, be converted into $18,051.2684 in cash and
$54,153.8046 in APPI Common Stock, (2) each share of South Texas Common Stock
will, at a minimum, be converted into $99.5167 in cash and $298.3162 in APPI
Common Stock, and (3) each share of San Antonio Common Stock will, at a minimum,
be converted into $132.6729 in cash and $398.0382 in APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share (1) if all
outstanding shares of M&S Common Stock are converted in the M&S Merger, the
aggregate consideration received by the M&S security holders will be
approximately 734,945 shares of APPI Common Stock and $3,429,741 in cash, (2) if
all outstanding shares of South Texas Common Stock are converted in the South
Texas Merger, the aggregate consideration received by the South Texas security
holders will be approximately 2,557 shares of APPI Common Stock and $11,942 in
cash and (3) if all outstanding shares of San Antonio Common Stock are converted
in the San Antonio Merger, the aggregate consideration received by the San
Antonio security holders will be approximately 3,412 shares of APPI Common Stock
and $15,922 in cash. However, security holders of M&S, South Texas and San
Antonio may dissent by voting against the M&S Merger, South Texas Merger and San
Antonio Merger, respectively. A dissenting security holder of M&S, South Texas
or San Antonio who complies with the requirements of Articles 5.11 and 5.12 of
the Texas Business Corporation Act will have the right to demand payment for,
and appraisal of, the value of his shares. In the event that a security holder
of M&S, South Texas or San Antonio exercises such dissenters' rights, the
aggregate consideration to be received by the M&S, South Texas or San Antonio
security holders, as the case may be, will be reduced by the number of shares of
APPI Common Stock and amount of cash that such dissenting security holder would
have received in the applicable merger. Notwithstanding the foregoing, the
exercise of dissenters' rights by one or more security holders of M&S, South
Texas or San Antonio will have no effect on the number of shares of APPI Common
Stock and cash consideration to be received for each share of M&S Common Stock,
South Texas Common Stock or San Antonio Common Stock, as applicable, by
non-dissenting security holders. See "Approval of the Mergers, Exchanges and
Related Transactions -- Dissenters' Rights Regarding the Mergers" in the
accompanying Prospectus/Joint Proxy Statement.

The approval of each of the M&S Merger Agreement and M&S Merger, the
South Texas Merger Agreement and South Texas Merger and the San Antonio Merger
Agreement and San Antonio Merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of each respective entity's Common Stock.
If the security holders of M&S, South Texas or San Antonio fail to approve by
the requisite percentage the applicable merger agreement and merger, such
merger will not be consummated. In addition the closing of each of the mergers
described herein is contingent on the closing of (1) each of the other mergers
described herein and (2) each of the other mergers and exchanges described in
the accompanying Prospectus/Joint Proxy Statement.

Only those security holders of record at the close of business on
[RECORD DATE] will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. A list of security holders of each of M&S, South
Texas and San Antonio will be available commencing [DATE] and may be inspected
during normal business hours prior to the Special Meeting at the offices of each
of M&S, South Texas and San Antonio at 730 North Main Avenue, Suite B109, San
Antonio, Texas 78205.
<PAGE> 14
By Order of the Board of Directors of M&S, South Texas and San Antonio,

/s/
[----------------],
Secretary of the Board of M&S, South
Texas and San Antonio

[CITY, STATE]
[DATE]

<PAGE> 15
[LEXINGTON MR LTD. LETTERHEAD/LOGO]
[MADISON SQUARE JOINT VENTURE LETTERHEAD/LOGO]
[SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP LETTERHEAD/LOGO]
[SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD. LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR PARTNERS:

You are cordially invited to attend the joint special meeting (the
"Special Meeting") of holders of partnership interests (the "Interests") of
Lexington MR Ltd., a Texas limited partnership ("Lexington"), Madison Square
Joint Venture, a Texas general partnership ("Madison"), South Texas No. 1 MRI
Limited Partnership, a Texas limited partnership ("South Texas No. 1"), and San
Antonio MRI Partnership No. 2 Ltd., a Texas limited partnership ("San Antonio
No. 2"), to be held on [DATE] at [MEETING LOCATION], commencing at [TIME], local
time. At the Special Meeting, holders of Interests will consider and make a
fundamental determination regarding the future direction of each of Lexington,
Madison, South Texas No. 1 and San Antonio No. 2.

At the Special Meeting, holders of Interests of Lexington will be asked
to act upon a proposal to approve and adopt the Agreement and Plan of Exchange
(the "Lexington Exchange Agreement") by and among American Physician Partners,
Inc., a Delaware corporation ("APPI"), and holders of certain Interests of
Lexington and the transactions contemplated by the Lexington Exchange Agreement;
holders of Interests of Madison will be asked to act upon a proposal to approve
and adopt the Agreement and Plan of Exchange (the "Madison Exchange Agreement")
by and among APPI and holders of certain Interests of Madison and the
transactions contemplated by the Madison Exchange Agreement; holders of
Interests of South Texas No. 1 will be asked to act upon a proposal to approve
and adopt the Agreement and Plan of Exchange (the "South Texas No. 1 Exchange
Agreement") by and among APPI and holders of certain Interests of South Texas
No. 1 and the transactions contemplated by the South Texas No. 1 Exchange
Agreement; and holders of Interests of San Antonio No. 2 will be asked to act
upon a proposal to approve and adopt the Agreement and Plan of Exchange (the
"San Antonio No. 2 Exchange Agreement") by and among APPI and holders of certain
Interests of San Antonio No. 2 and the transactions contemplated by the San
Antonio No. 2 Exchange Agreement. Pursuant to the Lexington Exchange Agreement,
APPI shall exchange cash and shares of Common Stock of APPI ("APPI Common
Stock") for Interests of Lexington. Pursuant to the Madison Exchange Agreement,
APPI shall exchange cash and shares of APPI Common Stock for Interests of
Madison. Pursuant to the South Texas No. 1 Exchange Agreement, APPI shall
exchange cash and shares of APPI Common Stock for Interests of South Texas No.
1. Pursuant to the San Antonio No. 2 Exchange Agreement, APPI shall exchange
cash and shares of APPI Common Stock for Interests of San Antonio No. 2. The
terms and conditions of each of the Lexington Exchange Agreement, the Madison
Exchange Agreement, the South Texas No. 1 Exchange Agreement and the San Antonio
No. 2 Exchange Agreement are described in the accompanying Notice of Special
Meeting of Security Holders and Prospectus/Joint Proxy Statement. The complete
texts of each of the Lexington Exchange Agreement, the Madison Exchange
Agreement, the South Texas No. 1 Exchange Agreement and the San Antonio No. 2
Exchange Agreement are attached as Appendix A to the Prospectus/Joint Proxy
Statement.

Under Lexington's Amended and Restated Agreement of Limited Partnership
and Texas Law, the General Partner may not transfer its Interest as a General
Partner of Lexington without the consent of limited partners who own more than
50% of the distributive share of profits and losses of the partnership owned by
all of the limited partners. The limited partnership Interests may not be
transferred without the General Partner's and each Limited Partner's consent in
accordance with the terms of the Lexington Exchange Agreement.

Under Madison's Joint Venture Agreement and Texas Law, the holders of
two-thirds of the Interests of Madison must approve the Madison Exchange
Agreement.

<PAGE> 16

Under South Texas No. 1's limited partnership Agreement and Texas Law,
the approval of one or more limited partners holding in the aggregate two-thirds
of the percentage ownership Interests held by the limited partners as a class is
necessary for the transfer of the General Partner's Interests in South Texas No.
1 and the approval of two-thirds of the partners other than the transferor
partner is necessary for transfer of a Limited Partner's Interests in South
Texas No. 1.

Under San Antonio No. 2's limited partnership Agreement and Texas Law,
the approval of one or more limited partners holding in the aggregate two-thirds
of the percentage ownership Interests held by the limited partners as a class is
necessary for the transfer of the General Partner's Interest in San Antonio No.
2 and the approval of two-thirds of the partners other than the transferor
partner is necessary for transfer of a Limited Partner's Interest in San Antonio
No. 2.

Your participation in the Special Meeting, in person or by proxy, is
important. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. You may revoke your proxy if you decide to attend the
Special Meeting and vote in person.

In addition, if you intend to exchange your Interests in either
Lexington, Madison, South Texas No. 1 or San Antonio No. 2, as the case may be,
you will be asked to, and at such time you must, enter into the applicable
Exchange Agreement.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/

[------------------]
General Partner

<PAGE> 17
LEXINGTON MR LTD.
MADISON SQUARE JOINT VENTURE
SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP
SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the partners of
Lexington, Madison, South Texas No. 1
and San Antonio No. 2 (as defined below):

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the holders of partnership interests (the "Interests") of Lexington MR Ltd., a
Texas limited partnership ("Lexington"), Madison Square Joint Venture, a Texas
general partnership ("Madison"), South Texas No. 1 MRI Limited Partnership, a
Texas limited partnership ("South Texas No. 1"), and San Antonio MRI Partnership
No. 2 Ltd., a Texas limited partnership ("San Antonio No. 2") (collectively, the
"Exchange Entities"), will be held on [DATE] at [MEETING LOCATION], commencing
at [TIME], local time, for the following purposes:

1. With respect to the partners of Lexington, to approve and adopt the
Agreement and Plan of Exchange, (the "Lexington Exchange Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"), and
holders of certain Interests of Lexington and the transactions contemplated by
the Lexington Exchange Agreement. With respect to the partners of Madison, to
approve and adopt the Agreement and Plan of Exchange, (the "Madison Exchange
Agreement") by and between APPI and holders of certain Interests of Madison and
the transactions contemplated by the Madison Exchange Agreement. With respect to
South Texas No. 1, to approve and adopt the Agreement and Plan of Exchange, (the
"South Texas No. 1 Exchange Agreement") by and between APPI and holders of
certain Interests of South Texas No. 1 and the transactions contemplated by the
South Texas No. 1 Exchange Agreement. With respect to the partners of San
Antonio No. 2, to approve and adopt the Agreement and Plan of Exchange, (the
"San Antonio No. 2 Exchange Agreement") by and between APPI and holders of
certain Interests of San Antonio No. 2 and the transactions contemplated by the
San Antonio No. 2 Exchange Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the exchange agreements, APPI shall exchange cash and shares
of Common Stock of APPI ("APPI Common Stock") for Interests of Lexington,
Madison, South Texas No. 1 and San Antonio No. 2. The exact number of shares of
APPI Common Stock and the exact amount of cash for which the Interests of each
of the Exchange Entities will be converted by reason of each respective
exchange, will not be determined until the closing of such exchanges. The
closings will occur simultaneously with the closing of the initial underwritten
public offering of APPI Common Stock (the "Initial Public Offering"). The number
of shares of APPI Common Stock and the amount of cash into which such Interests
will be exchanged will depend on the price per share of APPI Common Stock
received by APPI in connection with the Initial Public Offering, before
deduction of any underwriting commission, discounts or fees relating thereto
(the "Initial Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share: (i) the Interests of Lexington will be converted into an
aggregate of 108,092 shares of APPI Common Stock and $504,427 in cash, (ii) the
Interests of Madison will be converted into an aggregate of 123,502 shares of
APPI Common Stock and $576,342 in cash, (iii) the Interests of South Texas No. 1
will be converted into an aggregate of

<PAGE> 18

253,221 shares of APPI Common Stock and $1,181,698 in cash and (iv) the
Interests of San Antonio No. 2 will be converted into an aggregate of 337,754
shares of APPI Common Stock and $1,576,187 in cash.

However, if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then:

Lexington

The aggregate number of shares of APPI Common Stock issued to holders of
Interests in Lexington will not change (holders of Interests in
Lexington will receive an aggregate of 108,092 shares of APPI Common
Stock), and such holders of Interests in Lexington will receive a
greater aggregate amount of cash, calculated as follows:

$504,427 x Initial Public Offering Price
-----------------------------
$14.00

Madison

The aggregate number of shares of APPI Common Stock issued to holders of
Interests in Madison will not change (holders of Interests in Madison
will receive an aggregate of 123,502 shares of APPI Common Stock), and
such holders of Interests in Madison will receive a greater aggregate
amount of cash, calculated as follows:

$576,342 x Initial Public Offering Price
-----------------------------
$14.00

South Texas No. 1

The aggregate number of shares of APPI Common Stock issued to holders of
Interests in South Texas No. 1 will not change (holders of Interests in
South Texas No. 1 will receive an aggregate of 253,221 shares of APPI
Common Stock), and such holders of Interests in South Texas No. 1 will
receive a greater aggregate amount of cash, calculated as follows:

$1,181,698 x Initial Public Offering Price
-----------------------------
$14.00

San Antonio No. 2

The aggregate number of shares of APPI Common Stock issued to holders of
Interests in San Antonio No. 2 will not change (holders of Interests in
San Antonio No. 2 will receive an aggregate of 337,754 shares of APPI
Common Stock), and such holders of Interests in San Antonio No. 2 will
receive a greater aggregate amount of cash, calculated as follows:

$1,576,187 x Initial Public Offering Price
-----------------------------
$14.00

<PAGE> 19

On the other hand, if the Initial Public Offering Price of the APPI
Common Stock is less than $14.00 per share, then:

Lexington

The aggregate amount of cash received by holders of Interests in
Lexington will not change (holders of Interests in Lexington will
receive an aggregate of $504,427 in cash), and such holders of
Interests in Lexington will receive a greater aggregate number of shares
of APPI Common Stock, calculated as follows:

108,092 x $14.00
-----------------------------
Initial Public Offering Price

Madison

The aggregate amount of cash received by holders of Interests in Madison
will not change (holders of Interests in Madison will receive an
aggregate of $576,342 in cash), and such holders of Interests in
Madison will receive a greater aggregate number of shares of APPI Common
Stock, calculated as follows:

123,502 x $14.00
-----------------------------
Initial Public Offering Price

South Texas No. 1

The aggregate amount of cash received by holders of Interests in South
Texas No. 1 will not change (holders of Interests in South Texas No. 1
will receive an aggregate of $1,181,698 in cash), and such holders of
Interests in South Texas No. 1 will receive a greater aggregate number
of shares of APPI Common Stock, calculated as follows:

253,221 x $14.00
-----------------------------
Initial Public Offering Price

San Antonio No. 2

The aggregate amount of cash received by holders of Interests in San
Antonio No. 2 will not change (holders of Interests in San Antonio No. 2
will receive an aggregate of $1,576,187 in cash), and such holders of
Interests in San Antonio No. 2 will receive a greater aggregate number
of shares of APPI Common Stock, calculated as follows:

337,754 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, (1) the Interests in
Lexington will, at a minimum, be converted into an aggregate of $504,427 in cash
and $1,513,288 in APPI Common Stock, (2) the Interests in Madison will, at a
minimum, be converted into an aggregate of $576,342 in cash and $1,729,028 in
APPI Common Stock, (3) the Interests in South Texas No. 1 will, at a minimum, be
converted into an aggregate of $1,181,698 in cash and $3,545,094 in APPI Common
Stock and (4) the Interests in San Antonio No. 2 will, at a minimum, be
converted into $1,576,187 in cash and $4,728,556 in APPI Common Stock.

If the partners of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2 fail to approve by the requisite percentage the applicable
exchange agreement and exchange, such exchange will not be consummated. In
addition, the closing of each of the exchanges described herein is contingent
on the closing of (1) each of the other exchanges described herein and (2) each
of the mergers described in the accompanying Prospectus/Joint Proxy Statement.

Only those security holders of record at the close of business on
[RECORD DATE] will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. A list of security holders of each of Lexington,
Madison, South Texas No. 1 and San Antonio No. 2 will be available commencing
[DATE] and may be inspected during normal business hours prior to the Special
Meeting at the offices of each of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2 at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205.

/s/
[----------------],

[CITY, STATE]
[DATE]

<PAGE> 20
[PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC. LETTERHEAD/LOGO]
[TOTAL MEDICAL IMAGING, INC. LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the joint special meeting (the
"Special Meeting") of security holders of Pacific Imaging Consultants, A Medical
Group, Inc., a California corporation ("Pacific"), and Total Medical Imaging, a
California corporation ("TMI"), to be held on [DATE] at [MEETING LOCATION],
commencing at [TIME], local time. At the Special Meeting, security holders of
each of Pacific and TMI will consider and make a fundamental determination
regarding the future direction of each of Pacific and TMI, respectively.

At the Special Meeting, Pacific's security holders will be asked to act
upon a proposal to approve and adopt the Agreement and Plan of Reorganization
and Merger, dated as of June 27, 1997 (the "Pacific Merger Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"), and
Pacific and approve the transactions contemplated by the Pacific Merger
Agreement. Pursuant to the Pacific Merger Agreement, (1) a separate subsidiary
of APPI will merge with and into Pacific and such subsidiary will cease to exist
as a separate entity (the "Pacific Merger") and (2) each outstanding share of
Common Stock of Pacific will be converted into the right to receive shares of
Common Stock of APPI ("APPI Common Stock") and cash. The terms and conditions of
the Pacific Merger Agreement are described in the accompanying Notice of Special
Meeting of Security Holders and Prospectus/Joint Proxy Statement. The complete
text of the Pacific Merger Agreement is attached as Appendix A to the
Prospectus/Joint Proxy Statement.

In addition, at the Special Meeting, TMI's security holders will be
asked to act upon a proposal to approve and adopt the Agreement and Plan of
Reorganization and Merger, dated as of June 27, 1997 (the "TMI Merger
Agreement") by and between APPI and TMI and approve the transactions
contemplated by the TMI Merger Agreement. Pursuant to the TMI Merger Agreement,
(1) a separate subsidiary of APPI will merge with and into TMI and such
subsidiary will cease to exist as a separate entity (the "TMI Merger") and (2)
each outstanding share of Common Stock of TMI will be converted into the right
to receive shares of APPI Common Stock and cash. The terms and conditions of the
TMI Merger Agreement are described in the accompanying Notice of Special Meeting
of Security Holders and Prospectus/Joint Proxy Statement. The complete text of
the TMI Merger Agreement is attached as Appendix A to the Prospectus/Joint Proxy
Statement.

The Board of Directors of each of Pacific and TMI, after careful
consideration of many factors, has determined that the Pacific Merger and the
TMI Merger is fair to, and in the best interests of Pacific and TMI,
respectively, and each such security holders of Pacific and TMI, respectively.
ACCORDINGLY, THE BOARD OF DIRECTORS OF EACH OF PACIFIC AND TMI HAS APPROVED THE
PACIFIC MERGER AGREEMENT AND THE PACIFIC MERGER AND THE TMI MERGER AGREEMENT AND
THE TMI MERGER, RESPECTIVELY, AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF EACH SUCH MERGER AGREEMENT AND THE APPROVAL OF THE
APPLICABLE MERGER AT THE SPECIAL MEETING.

Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of a majority of the outstanding shares
of each entity's Common Stock is required. Therefore, it is important that your
shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. You may revoke your proxy if you decide to attend
the Special Meeting and vote in person.

<PAGE> 21
We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/ LESS T. CHAFEN, M.D.
Less T. Chafen, M.D.
Chairman of the Board of Pacific
and TMI

<PAGE> 22
PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC.
TOTAL MEDICAL IMAGING, INC.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of Pacific Imaging Consultants, A Medical Group, Inc.,
and Total Medical Imaging, Inc.:

NOTICE IS HEREBY GIVEN that a joint special meeting (the "Special
Meeting") of the security holders of Pacific Imaging Consultants, A Medical
Group, Inc., a California corporation ("Pacific"), and Total Medical Imaging, a
California corporation ("TMI") will be held on [DATE] at [MEETING LOCATION],
commencing at [TIME], local time, for the following purposes:

1. With respect to the security holders of Pacific, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997
(the "Pacific Merger Agreement") by and between American Physician Partners,
Inc., a Delaware corporation ("APPI"), and Pacific and the transactions
contemplated by the Pacific Merger Agreement. With respect to the security
holders of TMI, to approve and adopt the Agreement and Plan of Reorganization
and Merger, dated as of June 27, 1997 (the "TMI Merger Agreement") by and
between APPI and TMI and the transactions contemplated by the TMI Merger
Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the Pacific Merger Agreement, (1) a separate subsidiary of
APPI will merge with and into Pacific and such subsidiary will cease to exist as
a separate entity (the "Pacific Merger") and (2) each outstanding share of
Common Stock of Pacific ("Pacific Common Stock") will be converted into the
right to receive shares of Common Stock of APPI ("APPI Common Stock") and cash.
Pursuant to the TMI Merger Agreement, (1) a separate subsidiary of APPI will
merge with and into TMI and such subsidiary will cease to exist as a separate
entity (the "TMI Merger") and (2) each outstanding share of Common Stock of TMI
("TMI Common Stock") will be converted into the right to receive shares of APPI
Common Stock and cash. The exact number of shares of APPI Common Stock and the
exact amount of cash into which each share of Pacific Common Stock and TMI
Common Stock will be converted by reason of the Pacific Merger and TMI Merger,
respectively, will not be determined until their respective closings. The
closings will occur simultaneously with the closing of the initial underwritten
public offering of APPI Common Stock (the "Initial Public Offering"). The
number of shares of APPI Common Stock and the amount of cash into which each
share of Pacific Common Stock and TMI Common Stock will be converted will
depend on the price per share of APPI Common Stock received by APPI in
connection with the Initial Public Offering, before deduction of any
underwriting commissions, discounts or fees relating thereto (the "Initial
Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share: (1) each share of Pacific Common Stock will be converted into
41.5926 shares of APPI Common Stock and $194.0989 in cash and (2) each share of
TMI Common Stock will be converted into 2.2396 shares of APPI Common Stock and
$10.4515 in cash.

However, if the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then:

Pacific

The number of shares of APPI Common Stock issued to each Pacific
security holder will not change (each will receive 41.5926 shares of
APPI common stock for each share of Pacific Common Stock held by such
security holder), and each

<PAGE> 23

security holder will receive a greater amount of cash for each share of
Pacific Common Stock, calculated as follows:

$194.0989 x Initial Public Offering Price
-----------------------------
$14.00

TMI

The number of shares of APPI Common Stock issued to each TMI security
holder will not change (each will receive 2.2396 shares of APPI common
stock for each share of TMI Common Stock held by such security holder),
and each security holder will receive a greater amount of cash for each
share of TMI Common Stock, calculated as follows:

$10.4515 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI
Common Stock is less than $14.00 per share, then:

Pacific

The amount of cash each Pacific security holder will receive will not
change (each will receive $194.0989 in cash for each share of Pacific
Common Stock held by such security holder), and each security holder
will receive a greater number of shares of APPI Common Stock for each
share of Pacific Common Stock, calculated as follows:

41.5926 x $14.00
-----------------------------
Initial Public Offering Price

TMI

The amount of cash each TMI security holder will receive will not change
(each will receive $10.4515 in cash for each share of TMI Common Stock
held by such security holder), and each security holder will receive a
greater number of shares of APPI Common Stock for each share of TMI
Common Stock, calculated as follows:

2.2396 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, (1) each share of Pacific
Common Stock will, at a minimum, be converted into $194.0989 in cash and
$582.2964 in APPI Common Stock and (2) each share of TMI Common Stock will, at a
minimum, be converted into $10.4515 in cash and $31.3544 in APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share (1) if all
outstanding shares of Pacific Common Stock are converted in the Pacific Merger,
the aggregate consideration received by the Pacific security holders will be
approximately 457,519 shares of APPI Common Stock and $2,135,088 in cash and (2)
if all outstanding shares of TMI Common Stock are converted in the TMI Merger,
the aggregate consideration received by the TMI security holders will be
approximately 246,356 shares of APPI Common Stock and $1,149,663 in cash.
However, security holders of Pacific and TMI may dissent by voting against the
Pacific Merger and TMI Merger, respectively. A dissenting security holder of
Pacific or TMI who complies with the requirements of Sections 1300 through 1304
of the California Corporations Code will have the right to demand payment for,
and appraisal of, the value of his shares. In the event that a security holder
of Pacific or TMI exercises such dissenters' rights, the aggregate consideration
to be received by the Pacific or TMI security holders, as the case may be, will
be reduced by the number of shares of APPI Common Stock and amount of cash that
such dissenting security holder would have received in the applicable merger.
Notwithstanding the foregoing, the exercise of dissenters' rights by one or more
security holders of Pacific or TMI will have no effect on the number of shares
of APPI Common Stock and cash consideration to be received for each share of
Pacific Common Stock or TMI Common Stock, as applicable, by non-dissenting
security holders. See "Approval of the Mergers, Exchanges and Related
Transactions -- Dissenters' Rights Regarding the Mergers" in the accompanying
Prospectus/Joint Proxy Statement.

<PAGE> 24

Approval of each of the Pacific Merger Agreement and the Pacific Merger
and the TMI Merger Agreement and the TMI Merger requires the affirmative vote of
the holders of a majority of the outstanding shares of each such entity's Common
Stock. If the security holders of Pacific or TMI fail to approve by the
requisite percentage the applicable merger agreement and merger, such merger
will not be consummated. In addition, the closing of each of the mergers
described herein is contingent on the closing of (1) the other merger described
herein and (2) each of the other mergers and exchanges described in the
accompanying Prospectus/Joint Proxy Statement.

Only those security holders of record at the close of business on
[RECORD DATE] will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. A list of security holders of each of Pacific and
TMI will be available commencing [DATE] and may be inspected during normal
business hours prior to the Special Meeting at the offices of each of Pacific
and TMI at 350 Hawthorne Avenue, Oakland, California 94609.

By Order of the Board of Directors,

/s/
[----------------],
Secretary of the Board of Pacific and TMI

[CITY, STATE]
[DATE]

<PAGE> 25
[RNM LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of Radiology and Nuclear Medicine, a Professional
Association, a Kansas professional association ("RNM"), to be held on [DATE] at
[MEETING LOCATION], commencing at [TIME], local time. At the Special Meeting,
security holders of RNM will consider and make a fundamental determination
regarding the future direction of RNM.

At the Special Meeting, RNM's security holders will be asked to act upon
a proposal to approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "RNM Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and RNM and
approve the transactions contemplated by the RNM Merger Agreement. Pursuant to
the RNM Merger Agreement, (1) RNM will merge with and into APPI and will cease
to exist as a separate entity (the "RNM Merger") and (2) each outstanding share
of Common Stock of RNM will be converted into the right to receive shares of
Common Stock of APPI and in cash. The terms and conditions of the RNM Merger
Agreement are described in the accompanying Notice of Special Meeting of
Security Holders and Prospectus/Joint Proxy Statement. The complete text of the
RNM Merger Agreement is attached as Appendix A to the Prospectus/Joint Proxy
Statement.

RNM's Board of Directors, after careful consideration of many factors,
has determined that the RNM Merger is fair to, and in the best interests of, RNM
and its security holders. ACCORDINGLY, RNM'S BOARD OF DIRECTORS HAS APPROVED THE
RNM MERGER AGREEMENT AND RNM MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
APPROVAL AND ADOPTION OF THE RNM MERGER AGREEMENT AND APPROVAL OF THE RNM
MERGER AT THE SPECIAL MEETING.

Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of a majority of the outstanding shares
of RNM's Common Stock is required. Therefore, it is important that your shares
be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING. You may revoke your proxy if you decide to attend the
Special Meeting and vote in person.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/
[------------------]
President

<PAGE> 26
RADIOLOGY AND NUCLEAR MEDICINE, A PROFESSIONAL ASSOCIATION

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of
Radiology and Nuclear Medicine, a Professional Association:

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of Radiology and Nuclear Medicine, a Professional
Association, a Kansas professional association ("RNM") will be held on [DATE] at
[MEETING LOCATION], commencing at [TIME], local time, for the following
purposes:

1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "RNM Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and RNM and
the transactions contemplated by the RNM Merger Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the RNM Merger Agreement, (1) RNM will merge with and into
APPI and will cease to exist as a separate entity (the "RNM Merger") and (2)
each outstanding share of Common Stock of RNM ("RNM Common Stock") will be
converted into the right to receive shares of Common Stock of APPI ("APPI Common
Stock") and cash. The exact number of shares of APPI Common Stock and the exact
amount of cash into which each share of RNM Common Stock will be converted by
reason of the RNM Merger will not be determined until the closing of the RNM
Merger. The closings will occur simultaneously with the closing of the initial
underwritten public offering of APPI Common Stock (the "Initial Public
Offering"). The number of shares of APPI Common Stock and the amount of cash
into which each share of RNM Common Stock will be converted will depend on the
price per share of APPI Common Stock received by APPI in connection with the
Initial Public Offering (the "Initial Public Offering Price"), before deduction
of any underwriting commissions, discounts or fees relating thereto.

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of RNM Common Stock will be converted into 309.5930
shares of APPI Common Stock and $1,444.7674 in cash. However, if the Initial
Public Offering Price of the APPI Common Stock is greater than $14.00 per share,
then (1) the number of shares of APPI Common Stock issued to each RNM security
holder will not change (each will receive 309.5930 shares of APPI Common Stock
for each share of RNM Common Stock held by such security holder), and (2) each
security holder will receive a greater amount of cash for each share of RNM
Common Stock, calculated as follows:

$1,444.7674 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each RNM security
holder will receive will not change (each will receive $1,444.7674 in cash for
each share of RNM Common Stock held by such security holder), and (2) each
security holder will receive a greater number of shares of APPI Common Stock for
each share of RNM Common Stock, calculated as follows:

309.5930 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, each share of RNM Common
Stock will, at a minimum, be converted into $1,444.7674 in cash and $4,334.3020
in APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of RNM Common Stock are converted in the RNM Merger, the
aggregate consideration received by the RNM security holders will be
approximately 958,500 shares of APPI Common Stock and $4,473,000 in cash.
However, RNM security holders may dissent by voting against the RNM Merger. A
dissenting RNM security holder who complies with the requirements of Section
17-6712 of the Kansas General Corporation Code will have the right to demand
payment for, and appraisal of, the value of his shares. In the event that a
security holder of RNM exercises such dissenters' rights, the aggregate
consideration to be

<PAGE> 27

received by the RNM security holders will be reduced by the number of shares of
APPI Common Stock and amount of cash that such dissenting security holder would
have received in the RNM Merger. Notwithstanding the foregoing, the exercise
of dissenters' rights by one or more RNM security holders will have no effect
on the number of shares of APPI Common Stock and cash consideration to be
received for each share of RNM Common Stock by non-dissenting security holders.
See "Approval of the Mergers, Exchanges and Related Transactions -- Dissenters'
Rights Regarding the Mergers" in the accompanying Prospectus/Joint Proxy
Statement.

Approval of RNM Merger Agreement and the RNM Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of RNM's
Common Stock. If security holders of RNM fail to approve by the requisite
percentage the RNM Merger Agreement and RNM Merger, such merger will not be
consummated. In addition, the closing of the RNM Merger is contingent on the
closing of each of the other mergers and exchanges described in the
accompanying Prospectus/Joint Proxy Statement.

Only those security holders of record at the close of business on
[RECORD DATE] will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. A list of security holders will be available
commencing [DATE] and may be inspected during normal business hours prior to the
Special Meeting at the offices of RNM at the Medical Park West Building, 823 SW
Mulvane, Suite 1, Topeka, Kansas 66606.

By Order of the Board of Directors,

/s/
[----------------],
Secretary

[CITY, STATE]
[DATE]

<PAGE> 28
[ADVANCED IMAGING OF ORANGE COUNTY, P.C. LETTERHEAD/LOGO]
[CENTRAL IMAGING ASSOCIATES, P.C. LETTERHEAD/LOGO]
[MID ROCKLAND IMAGING ASSOCIATES, P.C. LETTERHEAD/LOGO]
[NYACK MAGNETIC RESONANCE IMAGING, P.C. LETTERHEAD/LOGO]
[PELHAM IMAGING ASSOCIATES, P.C. LETTERHEAD/LOGO]
[ROCKLAND RADIOLOGICAL GROUP, P.C. LETTERHEAD/LOGO]
[WOMEN'S IMAGING CONSULTANTS, P.C. LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the joint special meeting (the
"Special Meeting") of security holders of Advanced Imaging of Orange County,
P.C., a New York professional corporation ("AIOC"), Central Imaging Associates,
P.C., a New York professional corporation ("CIA"), Mid Rockland Imaging
Associates, P.C., a New York professional corporation ("MRIA"), Nyack Magnetic
Resonance Imaging, P.C., a New York professional corporation ("Nyack"), Pelham
Imaging Associates, P.C., a New York professional corporation ("Pelham"),
Rockland Radiological Group, P.C., a New York professional corporation ("RRG")
and Women's Imaging Consultants, P.C., a New York professional corporation
("WIC"), to be held on [DATE] at 18 Squadron Boulevard, New City, New York
10956, commencing at [TIME], local time. At the Special Meeting, security
holders of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will consider and
make a fundamental determination regarding the future direction of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC, respectively.

At the Special Meeting, the security holders of each of the foregoing
entities will be asked to act upon a proposal to approve and adopt the Agreement
and Plan of Reorganization and Merger, dated as of June 27, 1997 by and between
American Physician Partners, Inc., a Delaware corporation ("APPI") and such
entity (the "Merger Agreement") and the transactions contemplated by the Merger
Agreement.

Pursuant to the Merger Agreement, each entity will merge with and into
APPI and will cease to exist as a separate entity (the "Merger") and each
outstanding share of Common Stock of such entity will be converted into the
right to receive shares of Common Stock of APPI ("APPI Common Stock") and cash.

<PAGE> 29

The terms and conditions of each of the Merger Agreements, are
described in the accompanying Notice of Special Meeting of Security Holders
and Prospectus/Joint Proxy Statement. The complete texts of each of the Merger
Agreements are attached as Appendix A to the Prospectus/Joint Proxy Statement.

The Board of Directors of each of the entities, after careful
consideration of many factors, has determined that their respective Merger is
fair to, and in the best interests of, such entity and the security holders of
such entity. ACCORDINGLY, THE BOARD OF DIRECTORS OF EACH OF AIOC, CIA, MRIA,
NYACK, PELHAM, RRG AND WIC HAS APPROVED THEIR RESPECTIVE MERGER AGREEMENT AND
MERGER AND RECOMMENDS THAT A VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF SUCH
MERGER AGREEMENT AND MERGER AT THE SPECIAL MEETING.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/
Herbert Z. Geller, M.D.
Chairman of the Board of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC

<PAGE> 30
ADVANCED IMAGING OF ORANGE COUNTY, P.C.
CENTRAL IMAGING ASSOCIATES, P.C.
MID ROCKLAND IMAGING ASSOCIATES, P.C.
NYACK MAGNETIC RESONANCE IMAGING, P.C.
PELHAM IMAGING ASSOCIATES, P.C.
ROCKLAND RADIOLOGICAL GROUP, P.C.
WOMEN'S IMAGING CONSULTANTS, P.C.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of
AIOC, CIA, MRIA, Nyack, Pelham
RRG and WIC (as defined below):

NOTICE IS HEREBY GIVEN that a joint special meeting (the "Special
Meeting") of the security holders of Advanced Imaging of Orange County, P.C., a
New York professional corporation ("AIOC"), Central Imaging Associates, P.C., a
New York professional corporation ("CIA"), Mid Rockland Imaging Associates,
P.C., a New York professional corporation ("MRIA"), Nyack Magnetic Resonance
Imaging, P.C., New York professional corporation ("Nyack"), Pelham Imaging
Associates, P.C., a New York professional corporation ("Pelham"), Rockland
Radiological Group, P.C., a New York professional corporation ("RRG") and
Women's Imaging Consultants, P.C., a New York professional corporation ("WIC"),
will be held on [DATE] at 18 Squadron Boulevard, New City, New York 10956,
commencing at [TIME], local time, for the following purposes:

1. With respect to the security holders of AIOC, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997
(the "AIOC Merger Agreement") by and between American Physician Partners, Inc.,
a Delaware corporation ("APPI"), and AIOC and the transactions contemplated by
the AIOC Merger Agreement.

2. With respect to the security holders of CIA, to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997 (the
"CIA Merger Agreement") by and between APPI and CIA and the transactions
contemplated by the CIA Merger Agreement.

3. With respect to the security holders of MRIA, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997
(the "MRIA Merger Agreement") by and between APPI and MRIA and the transactions
contemplated by the MRIA Merger Agreement.

4. With respect to the security holders of Nyack, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997
(the "Nyack Merger Agreement") by and between APPI and Nyack and the
transactions contemplated by the Nyack Merger Agreement.

5. With respect to the security holders of Pelham, to approve and adopt
the Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997
(the "Pelham Merger Agreement") by and between APPI and Pelham and the
transactions contemplated by the Pelham Merger Agreement.

6. With respect to the security holders of RRG, to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997 (the
"RRG Merger Agreement") by and between APPI and RRG and the transactions
contemplated by the RRG Merger Agreement.

7. With respect to the security holders of WIC, to approve and adopt the
Agreement and Plan of Reorganization and Merger, dated as of June 27, 1997 (the
"WIC Merger Agreement") by and between APPI and WIC and the transactions
contemplated by the WIC Merger Agreement.

<PAGE> 31

8. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the AIOC Merger Agreement, AIOC will merge with and into
APPI and will cease to exist as a separate entity (the "AIOC Merger") and each
outstanding share of Common Stock of AIOC ("AIOC Common Stock") will be
converted into the right to receive shares of Common Stock of APPI ("APPI Common
Stock") and cash. Pursuant to the CIA Merger Agreement, CIA will merge with and
into APPI and will cease to exist as a separate entity (the "CIA Merger") and
each outstanding share of Common Stock of CIA ("CIA Common Stock") will be
converted into the right to receive shares of APPI Common Stock and cash.
Pursuant to the MRIA Merger Agreement, MRIA will merge with and into APPI and
will cease to exist as a separate entity (the "MRIA Merger") and each
outstanding share of Common Stock of MRIA ("MRIA Common Stock") will be
converted into the right to receive shares of APPI Common Stock and cash.
Pursuant to the Nyack Merger Agreement, Nyack will merge with and into APPI and
will cease to exist as a separate entity (the "Nyack Merger") and each
outstanding share of Common Stock of Nyack ("Nyack Common Stock") will be
converted into the right to receive shares of APPI Common Stock and cash.
Pursuant to the Pelham Merger Agreement, Pelham will merge with and into APPI
and will cease to exist as a separate entity (the "Pelham Merger") and each
outstanding share of Common Stock of Pelham ("Pelham Common Stock") will be
converted into the right to receive shares of APPI Common Stock and cash.
Pursuant to the RRG Merger Agreement, RRG will merge with and into APPI and will
cease to exist as a separate entity (the "RRG Merger") and each outstanding
share of Common Stock of RRG ("RRG Common Stock") will be converted into the
right to receive shares of APPI Common Stock and cash. Pursuant to the WIC
Merger Agreement, WIC will merge with and into APPI and will cease to exist as a
separate entity (the "WIC Merger") and each outstanding share of Common Stock of
WIC ("WIC Common Stock") will be converted into the right to receive shares of
APPI Common Stock and cash.

The exact number of shares of APPI Common Stock and the exact amount of
cash into which each share of common stock of each entity will be converted by
reason of each respective merger will not be determined until the closing of
each of the applicable merger. The closings will occur simultaneously with the
closing of the initial underwritten public offering of APPI Common Stock (the
"Initial Public Offering"). The number of shares of APPI Common Stock and the
amount of cash into which each share of common stock of each entity will be
converted will depend on the price per share of APPI Common Stock received by
APPI in connection with the Initial Public Offering, before deduction of any
underwriting commissions, discounts or fees relating thereto (the "Initial
Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock
is $14.00 per share, each share of AIOC Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC
Common Stock will be converted into 1,589.4231 shares of APPI Common Stock and
$7,417.3077 in cash. However, if the Initial Public Offering Price of the APPI
Common Stock is greater than $14.00 per share, then (1) the number of shares of
APPI Common Stock issued to each security holder of AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC will not change (each will receive 1,589.4231 shares of APPI
Common Stock for each share of AIOC Common Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common
Stock held by such security holder), and (2) each security holder will receive
a greater amount of cash for each share of AIOC Common Stock, CIA Common Stock,
MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and
WIC Common Stock, calculated as follows:

$7,417.3077 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (1) the amount of cash each security holder
of AIOC, CIA,

<PAGE> 32

MRIA, Nyack, Pelham, RRG and WIC will receive will not change (each will receive
$7,417.3077 in cash for each share of AIOC Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC
Common Stock, held by such security holder), and (2) each security holder will
receive a greater number of shares of APPI Common Stock for each share of AIOC
Common Stock, CIA Common Stock, MRIA Common Stock, Nyack Common Stock, Pelham
Common Stock, RRG Common Stock and WIC Common Stock, calculated as follows:

1,589.4231 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, each share of common stock of
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will, at a minimum, be
converted into $7,417.3077 in cash and $22,251.923 in APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of AIOC Common Stock, CIA Common Stock, MRIA Common Stock,
Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common Stock
are converted in their respective Merger, the aggregate consideration received
by each of the AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC security holders will
be approximately 206,625 shares of APPI Common Stock and $964,250 in cash.
However, security holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC may
dissent by voting against the AIOC Merger, CIA Merger, MRIA Merger, Nyack
Merger, Pelham Merger, RRG Merger and WIC Merger, respectively. A dissenting
security holder of AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC who complies with
the requirements of Section 623 of the New York Business Corporation Law will
have the right to demand payment for, and appraisal of, the value of his shares.
In the event that a security holder of AIOC, CIA, MRIA, Nyack, Pelham, RRG or
WIC exercises such dissenters' rights, the aggregate consideration to be
received by the AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC security holders, as
the case may be, will be reduced by the number of shares of APPI Common Stock
and amount of cash that such dissenting security holder would have received in
the applicable merger. Notwithstanding the foregoing, the exercise of
dissenters' rights by one or more security holders of AIOC, CIA, MRIA, Nyack,
Pelham, RRG or WIC will have no effect on the number of shares of APPI Common
Stock and cash consideration to be received for each share of AIOC Common Stock,
CIA Common Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock,
RRG Common Stock or WIC Common Stock, as applicable, by non-dissenting security
holders. See "Approval of the Mergers, Exchanges and Related Transactions --
Dissenters' Rights Regarding the Mergers" in the accompanying Prospectus/Joint
Proxy Statement.

Approval of each of the AIOC Merger Agreement and AIOC Merger, the CIA
Merger Agreement and CIA Merger, the MRIA Merger Agreement and MRIA Merger, the
Nyack Merger Agreement and Nyack Merger, the Pelham Merger Agreement and Pelham
Merger, the RRG Merger Agreement and RRG Merger and the WIC Merger Agreement
and WIC Merger requires the affirmative vote of the holders of two-thirds of the
outstanding shares of each such entity's Common Stock. If the security holders
of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC fail to approve by the requisite
percentage the applicable merger agreement and merger, such merger will not be
consummated. In addition, the closing of each of the mergers described herein
is contingent on the closing of (1) each of the other mergers described herein
and (2) each of the other mergers and exchanges described in the accompanying
Prospectus/Joint Proxy Statement.

Only those security holders of record at the close of business on
[RECORD DATE] will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. A list of security holders of each of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC will be available commencing [DATE] and may be
inspected during normal business hours prior to the Special Meeting at the
offices of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC at 18 Squadron
Boulevard, New City, New York 10956.

By Order of the Board of Directors,

/s/ HERBERT Z. GELLER, M.D.
Herbert Z. Geller, M.D.
President, AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC

New City, New York
[Date]
<PAGE> 33
[VALLEY LETTERHEAD/LOGO]

IMPORTANT SECURITY HOLDER COMMUNICATION

[DATE], 1997

DEAR SECURITY HOLDER:

You are cordially invited to attend the special meeting (the "Special
Meeting") of security holders of Valley Radiologists Medical Group, Inc., a
California professional medical corporation ("Valley"), to be held on [DATE] at
[MEETING LOCATION], commencing at [TIME], local time. At the Special Meeting,
security holders of Valley will consider and make a fundamental determination
regarding the future direction of Valley.

At the Special Meeting, Valley's security holders will be asked to act
upon a proposal to approve and adopt the Agreement and Plan of Reorganization
and Merger, dated as of June 27, 1997 (the "Valley Merger Agreement") by and
between American Physician Partners, Inc., a Delaware corporation ("APPI"), and
Valley and approve the transactions contemplated by the Valley Merger Agreement.
Pursuant to the Valley Merger Agreement, (1) a separate subsidiary of APPI will
merge with and into Valley and such subsidiary will cease to exist as a separate
entity (the "Valley Merger") and (2) each outstanding share of Common Stock of
Valley will be converted into the right to receive shares of Common Stock of
APPI and cash. The terms and conditions of the Valley Merger Agreement are
described in the accompanying Notice of Special Meeting of Security Holders and
Prospectus/Joint Proxy Statement. The complete text of the Valley Merger
Agreement is attached as Appendix A to the Prospectus/Joint Proxy Statement.

Valley's Board of Directors, after careful consideration of many
factors, has determined that the Valley Merger is fair to, and in the best
interests of, Valley and its security holders. ACCORDINGLY, VALLEY'S BOARD OF
DIRECTORS HAS APPROVED THE VALLEY MERGER AGREEMENT AND THE VALLEY MERGER AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE VALLEY
MERGER AGREEMENT AND APPROVAL OF THE VALLEY MERGER AT THE SPECIAL MEETING.

Your participation in the Special Meeting, in person or by proxy, is
important. The approval of the holders of a majority of the shares of Valley's
Common Stock entitled to vote thereon is required. Therefore, it is important
that your shares be voted. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. You may revoke your proxy if you
decide to attend the Special Meeting and vote in person.

We look forward to seeing you at the Special Meeting on [DATE].

Sincerely,

/s/

[------------------]
Secretary

<PAGE> 34
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.

NOTICE OF SPECIAL MEETING OF SECURITY HOLDERS TO BE HELD [DATE]

To the security holders of
Valley Radiologists Medical Group, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the security holders of Valley Radiologists Medical Group, Inc., a California
professional medical corporation ("Valley") will be held on [DATE] at [MEETING
LOCATION], commencing at [TIME], local time, for the following purposes:

1. To approve and adopt the Agreement and Plan of Reorganization and
Merger, dated as of June 27, 1997 (the "Valley Merger Agreement") by and between
American Physician Partners, Inc., a Delaware corporation ("APPI"), and Valley
and the transactions contemplated by the Valley Merger Agreement.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

Pursuant to the Valley Merger Agreement, (1) a separate subsidiary of
APPI will merge with and into Valley and such subsidiary will cease to exist as
a separate entity (the "Valley Merger") and (2) each outstanding share of Common
Stock of Valley ("Valley Common Stock") will be converted into the right to
receive shares of Common Stock of APPI ("APPI Common Stock") and cash. The exact
number of shares of APPI Common Stock and the exact amount of cash into which
each share of Valley Common Stock will be converted by reason of the Valley
Merger will not be determined until the closing of the Valley Merger. The
closing will occur simultaneously with the closing of the initial underwritten
public offering of APPI Common Stock (the "Initial Public Offering"). The number
of shares of APPI Common Stock and the amount of cash into which each share of
Valley Common Stock will be converted will depend on the price per share of APPI
Common Stock received by APPI in connection with the Initial Public Offering,
before deduction of any underwriting commissions, discounts or fees relating
thereto (the "Initial Public Offering Price").

Assuming the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, each share of Valley Common Stock will be converted into
29.6972 shares of APPI Common Stock and $138.5868 in cash. However, if the
Initial Public Offering Price of the APPI Common Stock is greater than $14.00
per share, then (i) the number of shares of APPI Common Stock issued to each
Valley security holder will not change (each will receive 29.6972 shares of APPI
Common Stock for each share of Valley Common Stock held by such security
holder), and (ii) each security holder will receive a greater amount of cash for
each share of Valley Common Stock, calculated as follows:

$138.5868 x Initial Public Offering Price
-----------------------------
$14.00

On the other hand, if the Initial Public Offering Price of the APPI Common Stock
is less than $14.00 per share, then (i) the amount of cash each Valley security
holder will receive will not change (each will receive $138.5868 in cash for
each share of Valley Common Stock held by such security holder), and (ii) each
security holder will receive a greater number of shares of APPI Common Stock for
each share of Valley Common Stock, calculated as follows:

29.6972 x $14.00
-----------------------------
Initial Public Offering Price

Irrespective of the Initial Public Offering Price, each share of Valley Common
Stock will, at a minimum, be converted into $138.5868 in cash and $415.7608 in
APPI Common Stock.

Assuming an Initial Public Offering Price of $14.00 per share, if all
outstanding shares of Valley Common Stock are converted in the Valley Merger,
the aggregate consideration received by the Valley security holders will be
approximately 592,088 shares of APPI Common Stock and

<PAGE> 35

$2,763,075 in cash. However, Valley security holders may dissent by voting
against the Valley Merger. A dissenting Valley security holder who complies with
the requirements of Sections 1300 through 1304 of the California Corporations
Code will have the right to demand payment for, and appraisal of, the value of
his shares. In the event that a security holder of Valley exercises such
dissenters' rights, the aggregate consideration to be received by the Valley
security holders will be reduced by the number of shares of APPI Common Stock
and amount of cash that such dissenting security holder would have received in
the Valley Merger. Notwithstanding the foregoing, the exercise of dissenters'
rights by one or more Valley security holders will have no effect on the number
of shares of APPI Common Stock and cash consideration to be received for each
share of Valley Common Stock by non-dissenting security holders. See "Approval
of the Mergers, Exchanges and Related Transactions -- Dissenters' Rights
Regarding the Mergers" in the accompanying Prospectus/Joint Proxy Statement.

Approval of each of the Valley Merger Agreement and Valley Merger
requires the affirmative vote of the holders of a majority of the shares of
Valley's Common Stock entitled to vote thereon. If the security holders of
Valley fail to approve the Valley Merger Agreement and Valley Merger, such
merger will not be consummated. In addition, the closing of the Valley Merger
is contingent on the closing of each of the other mergers and exchanges
described in the accompanying Prospectus/Joint Proxy Statement.

Only those security holders of record at the close of business on
[RECORD DATE] will be entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. A list of security holders will be available
commencing [DATE] and may be inspected during normal business hours prior to the
Special Meeting at the offices of Valley at 110 South Winchester Boulevard,
Suite J220, San Jose, California 95128.

By Order of the Board of Directors,

/s/

[----------------],
Secretary

[CITY, STATE]
[DATE]

<PAGE> 36

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

AMERICAN PHYSICIAN PARTNERS, INC.
PROSPECTUS
FOR 12,809,907 SHARES
OF COMMON STOCK

JOINT PROXY STATEMENT
FOR
THE ENTITIES
LISTED BELOW

This Prospectus/Joint Proxy Statement is provided in connection with the
solicitation of proxies from the security holders of 20 entities which comprise
seven Founding Affiliated Practices located in California, Kansas, Maryland, New
York and Texas as follows:

(i) Ad Rad, Inc., a Maryland corporation ("Advanced" or "Advanced
Radiology").

(ii) The Ide Group, P.C., a New York professional corporation ("Ide"
or "The Ide Group").

(iii) M&S X-Ray Practices, which includes seven related entities ("M&S
X-Ray Practices"):

(a) M&S X-Ray Associates, P.A., a Texas professional
association ("M&S");

(b) Lexington MR Ltd., a Texas limited partnership
("Lexington");

(d) South Texas MR, Inc., a Texas corporation ("South
Texas");

(e) South Texas No. 1 MRI Limited Partnership, a Texas
limited partnership ("South Texas No. 1");

(f) San Antonio MR, Inc., a Texas corporation ("San
Antonio"); and

(g) San Antonio MRI Partnership No. 2, Ltd., a Texas limited
partnership ("San Antonio No. 2").

(iv) Pacific Imaging Consultants, which includes two related entities
("Pacific Imaging Consultants"):

<PAGE> 37
(a) Pacific Imaging Consultants, A Medical Group, Inc., a
California professional medical corporation ("Pacific");
and

(b) Total Medical Imaging, Inc., a California corporation
("TMI").

(v) Radiology and Nuclear Medicine, a Professional Association, a
Kansas professional association ("RNM" or "Radiology and Nuclear
Medicine").

(vi) Rockland Radiological Group, which includes seven related
entities ("Rockland Radiological Group"):

(a) Advanced Imaging of Orange County, P.C., a New York
professional corporation ("AIOC");

(b) Central Imaging Associates, P.C., a New York
professional corporation ("CIA");

(d) Nyack Magnetic Resonance Imaging, P.C., a New York
professional corporation ("Nyack");

(e) Pelham Imaging Associates, P.C., a New York professional
corporation ("Pelham");

(f) Rockland Radiological Group, P.C., a New York
professional corporation ("RRG"); and

(g) Women's Imaging Consultants, P.C., a New York
professional corporation ("WIC").

(vii) Valley Radiologists Medical Group, Inc., a California
professional medical corporation ("Valley" or the "Valley
Radiology Group").

This Prospectus/Joint Proxy Statement also constitutes the prospectus
under the Securities Act for the issuance of APPI Common Stock (i) into which
common stock of the Merger Entities will be converted upon consummation of the
Merger Transactions and (ii) for which certain outstanding partnership interests
of the Exchange Entities will be exchanged upon consummation of the Exchange
Transactions.

If the security holders of each of the Entities approve the respective
Merger Proposal or Exchange Proposal, as the case may be, and if the other
conditions specified in each respective Merger Agreement or Exchange Agreement,
as the case may be, are satisfied or waived, (i) each of Advanced, Ide, M&S,
South Texas, San Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will
merge with and into APPI and will cease to exist as a separate entity; (ii) a
separate subsidiary of APPI will merge with and into Pacific, TMI and Valley and
each such subsidiary will cease to exist as a separate entity; and (iii) APPI
will acquire from the partners of each of Lexington, Madison, South Texas No. 1
and San Antonio No. 2 some or all of the partnership interests in each such
Exchange Entity.

The consideration to be paid to each Merger Entity is as follows:

<PAGE> 38

Merger Transaction, the aggregate consideration paid to security
holders of Advanced will be approximately 3,562,500 shares of APPI
Common Stock and $16,625,000 in cash.

- Each outstanding share of RNM Common Stock will be converted into the
right to receive 309.5930 shares of APPI Common Stock and $1,444.7674
in cash. If all outstanding shares of RNM Common Stock are converted
in the RNM Merger Transaction, the aggregate consideration paid to
security holders of RNM will be approximately 958,500 shares of APPI
Common Stock and $4,473,000 in cash.

- Each outstanding share of AIOC Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common
Stock and WIC Common Stock will be converted into the right to
receive 1,589.4231 shares of APPI Common Stock and $7,417.3077 in
cash. For each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, if all
outstanding shares of common stock of such entities are converted in
the applicable Merger Transaction, the aggregate consideration paid
to security holders of each of AIOC, CIA, MRIA, Nyack, Pelham,
RRG and WIC will be approximately 206,625 shares of APPI Common Stock
and $964,250 in cash.

iii

<PAGE> 39

- Each outstanding share of Valley Common Stock will be converted into
the right to receive 29.6972 shares of APPI Common Stock and
$138.5868 in cash. If all outstanding shares of Valley Common Stock
are converted in the Valley Merger Transaction, the aggregate
consideration paid to security holders of Valley will be
approximately 592,088 shares of APPI Common Stock and $2,763,075 in
cash.

The shares of APPI Common Stock and cash to be received by the security
holders of the Entities upon consummation of each Merger set forth above were
determined assuming that the Initial Public Offering Price of the APPI Common
Stock will be $14.00 per share. In the event that the Initial Public Offering
Price of the APPI Common Stock is greater than $14.00 per share, the total cash
consideration received by the security holders of each of the Entities will
increase to an amount equal to the product of (i) the amount of cash such
security holders would have received had the Initial Public Offering Price been
$14.00 per share multiplied by (ii) the quotient of the Initial Public Offering
Price divided by $14.00. In the event that the Initial Public Offering Price of
the APPI Common Stock is less than $14.00 per share, the total number of shares
of APPI Common Stock received by the security holders of each of the Entities
will increase to an amount sufficient to make the aggregate value of the shares
of APPI Common Stock received by such security holders equal to the value of the
shares of APPI Common Stock they would have received had the Initial Public
Offering Price been $14.00 per share. No fractional shares of APPI Common Stock
will be issued. Any security holder otherwise entitled to receive a fractional
share of APPI Common Stock upon consummation of a Merger will receive cash,
without interest, in lieu thereof in an amount equal to such holder's
proportionate interest in a share of APPI Common Stock multiplied by the Initial
Public Offering Price of APPI Common Stock. See "The Mergers, Exchanges and
Related Transactions -- Terms of the Mergers and Exchanges -- Conversion of
Shares and Exchange of Partnership Interests."

Upon the consummation of each Exchange, certain partners of Lexington
will exchange 18.98% of the total interests of the partners in Lexington for
108,092 shares of APPI Common Stock and $504,427 in cash; certain partners of
Madison will exchange 100% of the total interests of the partners in Madison for
123,502 shares of APPI Common Stock and $576,342 in cash; certain partners of
South Texas No. 1 will exchange

<PAGE> 40

99% of the total interests of the partners in South Texas No. 1 for 253,221
shares of APPI Common Stock and $1,181,698 in cash; and certain partners of San
Antonio No. 2 will exchange 99% of the total interests of the partners in San
Antonio No. 2 for 337,754 shares of APPI Common Stock and $1,576,187 in cash.

The shares of APPI Common Stock and cash to be received by the partners
of the Entities upon consummation of each Exchange set forth above were
determined assuming that the Initial Public Offering Price of the APPI Common
Stock will be $14.00 per share. In the event that the Initial Public Offering
Price is greater than $14.00 per share, the total cash consideration received by
the partners participating in each Exchange will increase to an amount equal to
the product of (i) the amount of cash such security holders would have received
had the Initial Public Offering Price been $14.00 per share multiplied by (ii)
the quotient of the Initial Public Offering Price divided by $14.00. In the
event that the Initial Public Offering Price is less than $14.00 per share, the
total number of shares of APPI Common Stock received by the partners
participating in each Exchange will increase to an amount sufficient to make
the aggregate value of the shares of APPI Common Stock received by such
security holders equal to the value of the shares of APPI Common Stock they
would have received had the Initial Public Offering Price been $14.00 per
share.

FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED WHEN
EVALUATING THE TRANSACTIONS CONTEMPLATED BY THIS PROSPECTUS/JOINT PROXY
STATEMENT, SEE "RISK FACTORS" ON PAGES [ ] THROUGH [ ] OF THIS PROSPECTUS/JOINT
PROXY STATEMENT.

NEITHER THE MERGERS OR THE SECURITIES TO BE ISSUED IN THE MERGERS NOR THE
EXCHANGES OR THE SECURITIES TO BE ISSUED IN THE EXCHANGES HAS BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus/Joint Proxy Statement is October __,
1997.

<PAGE> 41
TABLE OF CONTENTS

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AVAILABLE INFORMATION.............................................................................xvi

SUMMARY .......................................................................................... 1
General................................................................................... 1
Risk Factors.............................................................................. 2
American Physician Partners, Inc.......................................................... 2
The Entities.............................................................................. 2
Special Meetings of Security Holders of the Entities...................................... 5
Record Date and Vote Required............................................................. 6
The Mergers............................................................................... 7
The Exchanges............................................................................. 11
The Merger and Exchange Entities' Reasons for the Mergers and Exchanges
and Recommendations of the Boards of Directors of the Merger Entities.............. 13
Conditions to the Mergers and Exchanges................................................... 16
Closing of the Mergers and Exchanges and Effective Time of the Mergers.................... 17
Termination............................................................................... 17
Expenses; Fees............................................................................ 17
Exchange/Issuance of Stock Certificates in the Mergers and Exchanges...................... 17
Interests of Certain Persons in the Merger................................................ 17
Dissenters' Rights Regarding the Mergers.................................................. 18
Government and Regulatory Approvals....................................................... 19
Certain Income Tax Considerations......................................................... 20
Accounting Treatment...................................................................... 20

SUMMARY HISTORICAL FINANCIAL DATA................................................................. 21

EQUIVALENT PER COMMON SHARE DATA.................................................................. 25

RISK FACTORS...................................................................................... 29
Absence of Combined Operating History; No Prior Operating Experience...................... 29
Dependence on Affiliated Radiologists; Risk of Termination of Service
Agreements......................................................................... 29
Uncertainty Regarding the Enforceability of Noncompetition Provisions..................... 30
Reliance on Referrals..................................................................... 30
Risks Associated with Acquisitions and Expansion Strategy................................. 31
Government Regulation..................................................................... 32
Reimbursement Trends and Cost Containment................................................. 35
Risks Associated with Managed Care Contracts and Capitated Fee
Arrangements....................................................................... 36
Competition............................................................................... 36
Potential Liability and Insurance; Legal Proceedings...................................... 37
Dependence on Information Systems......................................................... 38
Dependence on Key Personnel............................................................... 39
Restrictions on Transfer of Shares of APPI Common Stock Received
in the Mergers and Exchanges....................................................... 39
Uncertainty of Merger and Exchange Consideration.......................................... 39
Dilution of Voting Power; Potential Adverse Impact of Future Sale
of APPI Shares..................................................................... 39
Shares Eligible for Future Sale........................................................... 40
Control by Existing Stockholders.......................................................... 40
Anti-Takeover Considerations.............................................................. 40
No Prior Market; Possible Volatility of Stock Price....................................... 40
Immediate and Substantial Dilution........................................................ 41
Impact of Service Agreements on Provider Compensation; Restrictions on
Autonomy of Founding Affiliated Practices.......................................... 41
Requirement to Purchase Assets............................................................ 41
Income Tax Risks.......................................................................... 42
Risks Relating to Failure to Approve the Mergers, Exchanges and
Reorganizations.................................................................... 42
Interests of Certain Persons in the Mergers and Exchanges................................. 42
</TABLE>

<PAGE> 42

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INTRODUCTION...................................................................................... 44

ADVANCED MEETING.................................................................................. 44
Date, Time and Place of Advanced Meeting.................................................. 44
Purpose................................................................................... 44
Record Date and Outstanding Shares........................................................ 44
Vote Required............................................................................. 44
Voting of Proxies......................................................................... 44
Solicitation of Proxies; Expenses......................................................... 45

IDE MEETING....................................................................................... 45
Date, Time and Place of Ide Meeting....................................................... 45
Purpose................................................................................... 45
Record Date and Outstanding Shares........................................................ 45
Vote Required............................................................................. 45
Voting of Proxies......................................................................... 45
Solicitation of Proxies; Expenses......................................................... 46

M&S MEETING....................................................................................... 46
Date, Time and Place of M&S Meeting....................................................... 46
Purpose................................................................................... 46
Record Date and Outstanding Shares........................................................ 46
Vote Required............................................................................. 46
Voting of Proxies......................................................................... 47
Solicitation of Proxies; Expenses......................................................... 47

LEXINGTON MEETING................................................................................. 47
Date, Time and Place of Lexington Meeting................................................. 47
Purpose................................................................................... 47
Record Date and Outstanding Partnership Interests......................................... 47
Vote Required............................................................................. 48
Voting of Proxies......................................................................... 48
Solicitation of Proxies; Expenses......................................................... 48

MADISON MEETING................................................................................... 48
Date, Time and Place of Madison Meeting................................................... 48
Purpose................................................................................... 49
Record Date and Outstanding Partnership Interests......................................... 49
Vote Required............................................................................. 49
Voting of Proxies......................................................................... 49
Solicitation of Proxies; Expenses......................................................... 49

SOUTH TEXAS MEETING............................................................................... 50
Date, Time and Place of South Texas Meeting............................................... 50
Purpose................................................................................... 50
Record Date and Outstanding Shares........................................................ 50
Vote Required............................................................................. 50
Voting of Proxies......................................................................... 50
Solicitation of Proxies; Expenses......................................................... 51

SOUTH TEXAS NO. 1 MEETING......................................................................... 51
Date, Time and Place of South Texas No. 1 Meeting......................................... 51
Purpose................................................................................... 51
Record Date and Outstanding Partnership Interests......................................... 51
Vote Required............................................................................. 51
Voting of Proxies......................................................................... 52
Solicitation of Proxies; Expenses......................................................... 52
</TABLE>

vii

<PAGE> 43

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SAN ANTONIO MEETING............................................................................... 52
Date, Time and Place of San Antonio Meeting............................................... 52
Purpose................................................................................... 52
Record Date and Outstanding Shares........................................................ 52
Vote Required............................................................................. 53
Voting of Proxies......................................................................... 53
Solicitation of Proxies; Expenses......................................................... 53

SAN ANTONIO NO. 2 MEETING......................................................................... 53
Date, Time and Place of San Antonio No. 2 Meeting......................................... 53
Purpose................................................................................... 54
Record Date and Outstanding Partnership Interests......................................... 54
Vote Required............................................................................. 54
Voting of Proxies......................................................................... 54
Solicitation of Proxies; Expenses......................................................... 55

PACIFIC MEETING................................................................................... 55
Date, Time and Place of Pacific Meeting................................................... 55
Purpose................................................................................... 55
Record Date and Outstanding Shares........................................................ 55
Vote Required............................................................................. 55
Voting of Proxies......................................................................... 55
Solicitation of Proxies; Expenses......................................................... 56

TMI MEETING....................................................................................... 56
Date, Time and Place of TMI Meeting....................................................... 56
Purpose................................................................................... 56
Record Date and Outstanding Shares........................................................ 56
Vote Required............................................................................. 56
Voting of Proxies......................................................................... 57
Solicitation of Proxies; Expenses......................................................... 57

RNM MEETING....................................................................................... 57
Date, Time and Place of RNM Meeting....................................................... 57
Purpose................................................................................... 57
Record Date and Outstanding Shares........................................................ 57
Vote Required............................................................................. 57
Voting of Proxies......................................................................... 58
Solicitation of Proxies; Expenses......................................................... 58

AIOC MEETING...................................................................................... 58
Date, Time and Place of AIOC Meeting...................................................... 58
Purpose................................................................................... 58
Record Date and Outstanding Shares........................................................ 59
Vote Required............................................................................. 59
Voting of Proxies......................................................................... 59
Solicitation of Proxies; Expenses......................................................... 59

CIA MEETING....................................................................................... 60
Date, Time and Place of CIA Meeting....................................................... 60
Purpose................................................................................... 60
Record Date and Outstanding Shares........................................................ 60
Vote Required............................................................................. 60
Voting of Proxies......................................................................... 60
Solicitation of Proxies; Expenses......................................................... 61
</TABLE>

viii

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MRIA MEETING...................................................................................... 61
Date, Time and Place of MRIA Meeting...................................................... 61
Purpose................................................................................... 61
Record Date and Outstanding Shares........................................................ 61
Vote Required............................................................................. 61
Voting of Proxies......................................................................... 61
Solicitation of Proxies; Expenses......................................................... 62

NYACK MEETING..................................................................................... 62
Date, Time and Place of Nyack Meeting..................................................... 62
Purpose................................................................................... 62
Record Date and Outstanding Shares........................................................ 62
Vote Required............................................................................. 62
Voting of Proxies......................................................................... 63
Solicitation of Proxies; Expenses......................................................... 63

PELHAM MEETING.................................................................................... 63
Date, Time and Place of Pelham Meeting.................................................... 63
Purpose................................................................................... 63
Record Date and Outstanding Shares........................................................ 63
Vote Required............................................................................. 64
Voting of Proxies......................................................................... 64
Solicitation of Proxies; Expenses......................................................... 64

RRG MEETING....................................................................................... 64
Date, Time and Place of RRG Meeting....................................................... 64
Purpose................................................................................... 65
Record Date and Outstanding Shares........................................................ 65
Vote Required............................................................................. 65
Voting of Proxies......................................................................... 65
Solicitation of Proxies; Expenses......................................................... 66

WIC MEETING....................................................................................... 66
Date, Time and Place of WIC Meeting....................................................... 66
Purpose................................................................................... 66
Record Date and Outstanding Shares........................................................ 66
Vote Required............................................................................. 66
Voting of Proxies......................................................................... 66
Solicitation of Proxies; Expenses......................................................... 67

VALLEY MEETING.................................................................................... 67
Date, Time and Place of Valley Meeting.................................................... 67
Purpose................................................................................... 67
Record Date and Outstanding Shares........................................................ 67
Vote Required............................................................................. 67
Voting of Proxies......................................................................... 67
Solicitation of Proxies; Expenses......................................................... 68

THE MERGERS, EXCHANGES AND RELATED TRANSACTIONS................................................... 68
APPI's Material Contacts and Board Deliberations.......................................... 69
Advanced Radiology's Material Contacts and Board Deliberations............................ 70
The Ide Group's Material Contacts and Board Deliberations................................. 72
M&S X-Ray Practices' Material Contacts and Board Deliberations............................ 74
Pacific Imaging Consultants' Material Contacts and Board Deliberations.................... 76
Radiology and Nuclear Medicine's Material Contacts and Board
Deliberations...................................................................... 77
Rockland Radiological Group's Material Contacts and Board Deliberations................... 79
Valley Radiology Group's Material Contacts and Board Deliberations........................ 80
APPI's Reasons for the Mergers and Exchanges.............................................. 82
</TABLE>

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The Merger and Exchange Entities' Reasons for the Mergers and Exchanges
and Recommendations of the Boards of Directors of the Merger
Entities........................................................................... 82
Conditions to the Mergers and Exchanges................................................... 85
Terms of the Mergers and Exchanges........................................................ 87

CONVERSION OF SHARES AND EXCHANGE OF PARTNERSHIP INTERESTS........................................ 87
Conversion of Advanced Common Stock....................................................... 87
Conversion of Ide Common Stock............................................................ 89
Conversion of M&S Common Stock............................................................ 90
Exchange of Lexington Partnership Interests............................................... 91
Exchange of Madison Partnership Interests................................................. 92
Conversion of South Texas Common Stock.................................................... 93
Exchange of South Texas No. 1 Partnership Interests....................................... 94
Conversion of San Antonio Common Stock.................................................... 95
Exchange of San Antonio No. 2 Partnership Interests....................................... 96
Conversion of Pacific Common Stock........................................................ 97
Conversion of TMI Common Stock............................................................ 98
Conversion of RNM Common Stock............................................................ 99
Conversion of Common Stock of Entities Comprising Rockland Radiological Group.............100
Conversion of Valley Common Stock.........................................................101

CONDITIONS OF THE MERGER AGREEMENTS AND EXCHANGE AGREEMENTS.......................................102
Conditions of the Mergers and Exchanges...................................................102
Conditions Applicable to the Merger Agreements............................................103
Conditions Applicable to the Exchange Agreements..........................................104
Closing of the Mergers and Exchanges and Effective Time of the Mergers....................104
Conduct of the Merger Entities' Businesses Prior to the Mergers...........................104
Conduct of Exchange Entities' Business Prior to the Exchanges.............................105
Termination of Each Merger Agreement......................................................106
Termination of Each Exchange Agreement....................................................107
Expenses; Fees............................................................................107
Exchange/Issuance of Stock Certificates in the Mergers and Exchanges......................107
Payment in Lieu of Fractional Shares......................................................108
Interests of Certain Persons in the Mergers and Exchanges.................................108
Dissenters' Rights Regarding the Mergers..................................................109
Under California State Law................................................................110
Under Kansas State Law....................................................................111
Under Maryland State Law..................................................................112
Under New York State Law..................................................................113
Under Texas State Law.....................................................................115
Government and Regulatory Approvals.......................................................116
Certain Income Tax Considerations.........................................................116
Accounting Treatment......................................................................117

UNAUDITED PRO FORMA COMBINED BALANCE SHEET........................................................117
American Physician Partners, Inc.
Pro Forma Combined Balance Sheet..........................................................118
American Physician Partners, Inc.
Notes to Pro Forma Combined Balance Sheet.................................................119

APPI ..........................................................................................121
Operation, Management and Business Following the Mergers and Exchanges....................121
General...................................................................................121
Industry Background.......................................................................122
Market Overview...........................................................................122
Radiology.................................................................................122
Trends in Radiology.......................................................................123
Business Strategy.........................................................................125
Emphasize Quality Service.................................................................125
Expand Within Existing Regional Markets...................................................125
Improve Operating Efficiencies............................................................125
Expand Into New Markets...................................................................126
Affiliation Structure.....................................................................126
Operations and Development................................................................127
General...................................................................................127
Services..................................................................................128
Information Management....................................................................130
Service Agreements........................................................................131
Practice Marketing........................................................................133
Government Regulation and Supervision.....................................................134
</TABLE>

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Competition...............................................................................137
Facilities and Employees..................................................................138
Corporate Liability and Insurance.........................................................138
Legal Proceedings.........................................................................139

APPI SELECTED FINANCIAL DATA......................................................................141

APPI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................................................142

MANAGEMENT AND EXECUTIVE COMPENSATION.............................................................145
Management................................................................................145
Executive Compensation....................................................................147
Summary Compensation Table................................................................147
Stock Option Plan.........................................................................148
Option Grants During 1996.................................................................149
Aggregated Option Exercises During 1996 and Year-End Option Values........................150
Cash Bonus Program........................................................................150
Employment Agreements; Covenants-Not-To-Compete...........................................150

APPI PRINCIPAL STOCKHOLDERS.......................................................................151

APPI CERTAIN TRANSACTIONS.........................................................................153
Company Policy............................................................................153

ADVANCED RADIOLOGY
OPERATION, MANAGEMENT AND BUSINESS................................................................154
General...................................................................................154
Strategy..................................................................................154
Government Regulation.....................................................................154
Services Provided.........................................................................155
Competition...............................................................................155
Employees.................................................................................155
Insurance.................................................................................155
Properties and Facilities.................................................................156
Information Systems.......................................................................156
Teleradiology.............................................................................156
Legal Proceedings.........................................................................156

ADVANCED RADIOLOGY SELECTED FINANCIAL DATA........................................................157

ADVANCED RADIOLOGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................158
Results of Operations.....................................................................158

ADVANCED PAST COMPENSATION FOR CONTINUING DIRECTORS...............................................160

ADVANCED RADIOLOGY PRINCIPAL STOCKHOLDERS.........................................................160

THE IDE GROUP
OPERATION, MANAGEMENT AND BUSINESS................................................................162
General...................................................................................162
Strategy..................................................................................162
Government Regulation.....................................................................162
Services Provided.........................................................................162
Competition...............................................................................163
Employees.................................................................................163
Insurance.................................................................................163
Properties and Facilities.................................................................163
</TABLE>

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<TABLE>
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Information Systems.......................................................................163
Legal Proceedings.........................................................................164

IDE SELECTED FINANCIAL DATA.......................................................................165

IDE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................................................166
Results of Operations.....................................................................166

IDE PAST COMPENSATION FOR CONTINUING DIRECTORS....................................................167

IDE PRINCIPAL SHAREHOLDERS........................................................................168

M&S X-RAY PRACTICES
OPERATION, MANAGEMENT AND BUSINESS................................................................169
General...................................................................................169
Strategy..................................................................................169
Government Regulation.....................................................................169
Services Provided.........................................................................170
Competition...............................................................................170
Employees.................................................................................170
Insurance.................................................................................170
Properties and Facilities.................................................................170
Information Systems.......................................................................171
Legal Proceedings.........................................................................171

M&S X-RAY PRACTICES SELECTED FINANCIAL DATA.......................................................172

M&S X-RAY PRACTICES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................................................173
Results of Operations.....................................................................173

M&S PRINCIPAL SHAREHOLDERS........................................................................175

LEXINGTON PARTNERSHIP INTEREST HOLDERS............................................................176

MADISON PARTNERSHIP INTEREST HOLDERS..............................................................177

SOUTH TEXAS NO. 1 PARTNERSHIP INTEREST HOLDERS....................................................178

SAN ANTONIO NO. 2 PARTNERSHIP INTEREST HOLDERS....................................................179

SOUTH TEXAS AND SAN ANTONIO PRINCIPAL SHAREHOLDERS................................................180

PACIFIC IMAGING CONSULTANTS
OPERATION, MANAGEMENT AND BUSINESS................................................................181
General...................................................................................181
Strategy..................................................................................181
Government Regulation.....................................................................181
Services Provided.........................................................................182
Competition...............................................................................182
Employees.................................................................................182
Insurance.................................................................................182
Properties and Facilities.................................................................183
Information Systems.......................................................................183
Legal Proceedings.........................................................................183

PACIFIC IMAGING CONSULTANTS SELECTED FINANCIAL DATA...............................................184
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PACIFIC IMAGING CONSULTANTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................185
Results of Operations.....................................................................185

PACIFIC IMAGING CONSULTANTS PRINCIPAL SHAREHOLDERS................................................187

TMI PRINCIPAL SHAREHOLDERS........................................................................188

RADIOLOGY AND NUCLEAR MEDICINE
OPERATION, MANAGEMENT AND BUSINESS................................................................189
General...................................................................................189
Strategy..................................................................................189
Government Regulation.....................................................................189
Services Provided.........................................................................189
Marketing and Development.................................................................190
Competition...............................................................................190
Employees.................................................................................190
Insurance.................................................................................190
Properties and Facilities.................................................................190
Information Systems.......................................................................191
Legal Proceedings.........................................................................191

RNM SELECTED FINANCIAL DATA.......................................................................192

RNM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................................................193
Results of Operations.....................................................................193

RNM PRINCIPAL STOCKHOLDERS........................................................................194

ROCKLAND RADIOLOGICAL GROUP
OPERATION, MANAGEMENT AND BUSINESS................................................................195
General...................................................................................195
Strategy..................................................................................195
Government Regulation.....................................................................195
Services Provided.........................................................................196
Marketing and Development.................................................................196
Competition...............................................................................196
Employees.................................................................................196
Insurance.................................................................................196
Properties and Facilities.................................................................197
Information Systems.......................................................................197
Legal Proceedings.........................................................................197

ROCKLAND RADIOLOGICAL GROUP SELECTED FINANCIAL DATA...............................................198

ROCKLAND RADIOLOGICAL GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................199
Results of Operations.....................................................................199

ROCKLAND RADIOLOGICAL GROUP PRINCIPAL SHAREHOLDERS................................................201

VALLEY RADIOLOGY GROUP
OPERATION, MANAGEMENT AND BUSINESS................................................................202
General...................................................................................202
Strategy..................................................................................202
Government Regulation.....................................................................202
Services Provided.........................................................................202
Marketing and Development.................................................................203
Competition...............................................................................203
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Employees.................................................................................203
Insurance.................................................................................203
Properties and Facilities.................................................................204
Legal Proceedings.........................................................................204

VALLEY RADIOLOGY GROUP SELECTED FINANCIAL DATA....................................................205

VALLEY RADIOLOGY GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................206
Results of Operations.....................................................................206

VALLEY PRINCIPAL SHAREHOLDERS.....................................................................207

COMPARISON OF CAPITAL STOCK
DESCRIPTION OF CAPITAL STOCK OF APPI..............................................................208
General...................................................................................208
Common Stock..............................................................................208
Preferred Stock...........................................................................208
Convertible Notes.........................................................................209
General...................................................................................209
Optional Redemption.......................................................................209
Conversion Rights.........................................................................209
Lock-Up...................................................................................210
Registration Rights.......................................................................210

DESCRIPTION OF CAPITAL STOCK OF ADVANCED..........................................................210
Common Stock..............................................................................210
Preferred Stock...........................................................................211

DESCRIPTION OF CAPITAL STOCK OF IDE...............................................................211
Common Stock..............................................................................211
Preferred Stock...........................................................................211

DESCRIPTION OF CAPITAL STOCK OF M&S, SOUTH TEXAS AND SAN ANTONIO..................................211
Common Stock..............................................................................211
Preferred Stock...........................................................................212

DESCRIPTION OF CAPITAL STOCK OF PACIFIC AND TMI...................................................212
Common Stock..............................................................................212
Preferred Stock...........................................................................212

DESCRIPTION OF CAPITAL STOCK OF RNM...............................................................212
Common Stock..............................................................................212
Preferred Stock...........................................................................213

DESCRIPTION OF CAPITAL STOCK OF AIOC, CIA, MRIA, NYACK, PELHAM, RRG AND WIC.......................213
Common Stock..............................................................................213
Preferred Stock...........................................................................213

DESCRIPTION OF CAPITAL STOCK OF VALLEY............................................................213
Common Stock..............................................................................213
Preferred Stock...........................................................................214

COMPARISON OF RIGHTS OF SECURITY HOLDERS OF APPI AND THE ENTITIES.................................214
Limitation of Directors' or Partners' Liability...........................................214
Indemnification of Directors or Partners..................................................215
Voting Requirements.......................................................................216
Special Meetings of Security Holders......................................................217
Size of the Boards of Directors...........................................................220
Cumulative Voting for Directors...........................................................221
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Removal of Directors......................................................................221
Amendments to the Governance Documents....................................................223
Dissolution...............................................................................224

EXPERTS ..........................................................................................225

LEGAL MATTERS.....................................................................................225

GLOSSARY OF TERMS.................................................................................227

INDEX TO FINANCIAL STATEMENTS.....................................................................F-1
Appendix A
Appendix B
Appendix C
Appendix D
Appendix E
Appendix F
Appendix G
Appendix G
Appendix I
Appendix J
Appendix K
</TABLE>

<PAGE> 51
AVAILABLE INFORMATION

APPI has filed this Registration Statement under the Securities Act with
the SEC covering the APPI Common Stock to be issued pursuant to the Merger
Agreements and the Exchange Agreements. As permitted by the rules and
regulations of the SEC, this Prospectus/Joint Proxy Statement does not contain
all information set forth in the Registration Statement and exhibits thereto.
For further information, please refer to the Registration Statement, including
the exhibits thereto, all of which are available for inspection and copying at
prescribed rates at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W. Judiciary Plaza, Washington, D.C. 20549, and
at the regional offices of the SEC located at 5670 Wilshire Blvd., 11th Floor,
Los Angeles, California 90036; 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York, New York
10048. The SEC maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. Statements contained in this
Prospectus/Joint Proxy Statement relating to the contents of any contract or
other document referred to herein are not necessarily complete, and reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.

* * *

All information in this Prospectus/Joint Proxy Statement concerning
Advanced and its affiliates has been furnished by Advanced. All information in
this Prospectus/Joint Proxy Statement concerning Ide and its affiliates has been
furnished by Ide. All information in this Prospectus/Joint Proxy Statement
concerning M&S and its affiliates has been furnished by M&S. All information in
this Prospectus/Joint Proxy Statement concerning Lexington and its affiliates
has been furnished by Lexington. All information in this Prospectus/Joint Proxy
Statement concerning Madison and its affiliates has been furnished by Madison.
All information in this Prospectus/Joint Proxy Statement concerning South Texas
and its affiliates has been furnished by South Texas. All information in this
Prospectus/Joint Proxy Statement concerning South Texas No. 1 and its affiliates
has been furnished by South Texas No. 1. All information in this
Prospectus/Joint Proxy Statement concerning San Antonio and its affiliates has
been furnished by San Antonio. All information in this Prospectus/Joint Proxy
Statement concerning San Antonio No. 2 and its affiliates has been furnished by
San Antonio No. 2. All information in this Prospectus/Joint Proxy Statement
concerning Pacific and its affiliates has been furnished by Pacific. All
information in this Prospectus/Joint Proxy Statement concerning TMI and its
affiliates has been furnished by TMI. All information in this Prospectus/Joint
Proxy Statement concerning RNM and its affiliates has been furnished by RNM. All
information in this Prospectus/Joint Proxy Statement concerning AIOC and its
affiliates has been furnished by AIOC. All information in this Prospectus/Joint
Proxy Statement concerning CIA and its affiliates has been furnished by CIA. All
information in this Prospectus/Joint Proxy Statement concerning MRIA and its
affiliates has been furnished by MRIA. All information in this Prospectus/Joint
Proxy Statement concerning Nyack and its affiliates has been furnished by Nyack.
All information in this Prospectus/Joint Proxy Statement concerning Pelham and
its affiliates has been furnished by Pelham. All information in this
Prospectus/Joint Proxy Statement concerning RRG and its affiliates has been
furnished by RRG. All information in this Prospectus/Joint Proxy Statement
concerning WIC and its affiliates has been furnished by WIC. All information in
this Prospectus/Joint Proxy Statement concerning Valley and its affiliates has
been furnished by Valley.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/JOINT PROXY STATEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS/JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER
TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS/JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF SHARES OF APPI
COMMON STOCK MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY

<PAGE> 52
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH
HEREIN OR THE AFFAIRS OF APPI, ADVANCED, IDE, M&S, LEXINGTON, MADISON, SOUTH
TEXAS, SOUTH TEXAS NO. 1, SAN ANTONIO, SAN ANTONIO NO. 2, PACIFIC, TMI, RNM,
AIOC, CIA, MRIA, NYACK, PELHAM, RRG, WIC AND VALLEY SINCE THE DATE HEREOF.

<PAGE> 53
SUMMARY

The following is a summary of certain information contained elsewhere in
this Prospectus/Joint Proxy Statement. This summary does not contain a complete
statement of all material elements of the proposals to be voted on and is
qualified in its entirety by the more detailed information contained elsewhere
in this Prospectus/Joint Proxy Statement and the appendices hereto.

GENERAL

This Prospectus/Joint Proxy Statement is provided to security holders of
Advanced, Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA,
MRIA, Nyack, Pelham, RRG, WIC and Valley in connection with the solicitation of
proxies by their respective Boards of Directors and to the holders of
partnership interests of Lexington, Madison, South Texas No. 1 and San Antonio
No. 2 in connection with the solicitation of proxies by the general or managing
partner of each such Exchange Entity. Security holders of each of the Entities
will consider and vote on a proposal to approve the applicable Merger Agreement
or Exchange Agreement, and the transactions contemplated therein.

Reorganizations. Prior to each Merger, each of Advanced, Ide, M&S,
Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley will
perform certain steps to reorganize by (a) incorporating or organizing a NewCo,
(b) transferring to the applicable NewCo certain assets and liabilities
substantially consisting of assets and liabilities relating to the professional
medical services provided by each such medical entity, and (c) entering into a
Service Agreement with APPI. The ownership of each NewCo shall be identical to
the ownership of the applicable Merger Entity immediately prior to the Effective
Time of each respective Merger. Advanced will effectuate the Advanced
Reorganization, Ide will effectuate the Ide Reorganization, M&S will effectuate
the M&S Reorganization, Pacific will effectuate the Pacific Reorganization, TMI
will effectuate the TMI Reorganization, RNM will effectuate the RNM
Reorganization, AIOC will effectuate the AIOC Reorganization, CIA will
effectuate the CIA Reorganization, MRIA will effectuate the MRIA Reorganization,
Nyack will effectuate the Nyack Reorganization, Pelham will effectuate the
Pelham Reorganization, RRG will effectuate the RRG Reorganization, WIC will
effectuate the WIC Reorganization and Valley will effectuate the Valley
Reorganization.

F Reorganizations. With respect only to the Ide Reorganization, the AIOC
Reorganization, the CIA Reorganization, the MRIA Reorganization, the Nyack
Reorganization, the Pelham Reorganization, the RRG Reorganization and the WIC
Reorganization, each of Ide, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC shall
effectuate a F Reorganization, whereby each of Ide, AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC shall form a New Sub. With respect to these mergers only,
the New Sub shall merge with and into APPI and the separate existence of the
professional corporation will disappear as a result of the F Reorganization.

The purpose of the Reorganizations is to comply with the requirements of
the laws of each respective state of organization of each Merger Entity which
restrict non-physician ownership or control of a medical practice. The
incorporation of each of Advanced NewCo, Ide NewCo, M&S NewCo, Pacific NewCo,
TMI NewCo, RNM NewCo, AIOC NewCo, CIA NewCo, MRIA NewCo, Nyack NewCo, Pelham
NewCo, RRG NewCo, WIC NewCo and Valley NewCo allows the respective security
holders of the Merger Entities to continue as security holders of an entity
which is capable of providing those professional medical services previously
provided by each respective Merger Entity.

Merger Transactions. Pursuant to the Merger Agreements, APPI and each
of Advanced, Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA,
MRIA, Nyack, Pelham, RRG, WIC and Valley will merge by undertaking the following
actions: (a) Advanced, Ide, M&S, South Texas, San Antonio, RNM, AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC will merge with and into APPI and a separate
subsidiary of APPI will merge with and into Pacific, TMI and Valley and each of
Pacific, TMI and Valley will become a wholly-owned subsidiary of APPI and (b)
each outstanding share of each

<PAGE> 54

of the Merger Entities, other than the shares held by those security holders who
take required actions to properly assert their dissenters' rights under each
such Merger Entity's applicable state law, will be converted into the right to
receive a specified number of shares of APPI Common Stock and a specified amount
of cash. See "Summary -- The Mergers" for the consideration in the Mergers.

Exchange Transactions. Pursuant to the Exchange Agreements, APPI shall
acquire each of Lexington, Madison, South Texas No. 1 and San Antonio No. 2 (or
a controlling interest therein) by exchanging cash and shares of APPI Common
Stock for partnership interests of the Exchange Entities.

The following chart depicts APPI's organizational structure following
consummation of the Mergers and Exchanges:

[ORGANIZATIONAL CHART FOR APPI FOLLOWING
MERGERS, EXCHANGES AND REORGANIZATIONS]

RISK FACTORS

A number of risk factors should be considered in evaluating the Merger
Transactions and Exchange Transactions and the receipt by the Entities' security
holders of shares of APPI Common Stock. In addition, security holders should be
aware that the obligation of APPI to consummate each Merger is subject to
certain conditions, including, without limitation, that the sum of the amount
which may become due to the security holders who have dissented to a given
Merger and have indicated their intent to seek appraisal rights plus the cash
portion of the consideration paid in the applicable Merger shall not exceed 25%
of the total consideration paid in the applicable Merger. In addition, APPI is
not obligated to consummate a given Merger or Exchange unless and until each of
the other Mergers and Exchanges has closed. See "Risk Factors" and "The Merger
and Exchange Entities' Reasons for the Mergers and Exchanges and Recommendations
of the Boards of Directors of the Merger Exhibits."

AMERICAN PHYSICIAN PARTNERS, INC.

APPI is a radiology specific physician practice management company
focused on the development, consolidation and management of integrated radiology
and imaging center networks. Upon the consummation of the various Mergers and
Exchanges, the Company will provide practice management services to the seven
Founding Affiliated Practices consisting of 223 physicians practicing at 42
hospitals and 65 ICs in California, Kansas, Maryland, New York and Texas. The
Company will derive its revenue from the provision of management,
administrative, technical and other non-medical services to physicians of the
Affiliated Practices.

THE ENTITIES

The following chart (i) depicts the organizational structure of APPI and
each of the Entities prior to the Mergers, Exchanges and Reorganizations and
(ii) indicates whether each such Entity will be acquired by APPI in a forward
merger, reverse triangular merger or exchange transaction following the
Reorganizations.

[ORGANIZATIONAL CHART FOR EACH ENTITY
PRIOR TO THE MERGERS, EXCHANGES AND REORGANIZATIONS]

Advanced Radiology

Prior to the consummation of the Advanced Merger, Advanced will be
organized under the laws of the state of Maryland as a C-Corporation. Advanced
will be a consolidation of seven practice groups, which collectively own all of
the membership interests of Advanced Radiology, LLC, a Maryland limited
liability company. On the Advanced Record Date, there will be 64 security
holders of record of Advanced Common Stock holding an aggregate of 475,000
shares of Advanced Common Stock. See "Advanced Principal Stockholders." Advanced
staffs the radiology departments of ten hospitals in the Baltimore metropolitan
area and has 29 offices and ICs in that area. Advanced employs 87 physicians and
approximately 565 full-time and part-time non-physician personnel. The principal
executive offices of Advanced are located at 7253 Ambassador Road, Baltimore,
Maryland 21244. The telephone number is (410) 281-9100.

The Ide Group

Ide is a New York professional corporation organized in 1980. As of the
Ide Record Date, there were 22 security holders of record of Ide Common Stock
holding an

<PAGE> 55

aggregate of 2,150 shares of Ide Common stock. See "Ide Principal Shareholders."
Ide staffs the radiology departments of five hospitals in upstate New York and
has eight offices and ICs extending over the greater Rochester metropolitan
area. Ide employs 28 radiologists and two radiation oncologists. The principal
executive offices of Ide are located at 2273 South Clinton Avenue, Rochester,
New York 14618. The telephone number is (716) 244-6630.

M&S X-Ray Practices

M&S is a Texas professional association organized in 1970. As of the M&S
Record Date, there were 19 security holders of record of M&S Common Stock
holding an aggregate of 190 shares of M&S Common Stock. See "M&S Principal
Shareholders." M&S is comprised of 20 board certified radiologists who provide
professional radiological services to five hospitals and seven ICs located
throughout the San Antonio Texas metropolitan area. M&S also provides
administrative and non-medical support services to all seven IC's. The principal
executive offices of M&S are located at 730 North Main Avenue, Suite B109, San
Antonio, Texas 78205. The telephone number is (210) 351-0778.

Lexington is a Texas limited partnership founded in 1991. As of the
Lexington Record Date, there were 11 limited partners and one general partner
holding an aggregate of 100% of the partnership interests in Lexington. See
"Lexington Partnership Interest Holders." Lexington owns certain diagnostic
imaging equipment. The principal executive offices of Lexington are located at
730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone
number is (210) 351-0778.

Madison is a Texas general partnership founded in 1981. As of the
Madison Record Date, there were 13 general partners holding an aggregate of 100%
of the partnership interests in Madison. See "Madison Partnership Interest
Holders." Madison owns certain diagnostic imaging equipment. The principal
executive offices of Madison are located at 730 North Main Avenue, Suite B109,
San Antonio, Texas 78205. The telephone number is (210) 351-0778.

South Texas is a Texas corporation organized in 1990. As of the South
Texas Record Date, there were 12 security holders of South Texas Common Stock
holding an aggregate of 120 shares of South Texas Common Stock. See "South Texas
and San Antonio Principal Shareholders." South Texas owns a 1% partnership
interest in South Texas No. 1 and serves as the sole general partner of South
Texas No. 1. The principal executive offices of South Texas are located at 730
North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone number is
(210) 351-0778.

South Texas No. 1 is a Texas limited partnership founded in 1997. As of
the South Texas No. 1 Record Date, there were 12 limited partners and one
general partner holding an aggregate of 100% of the partnership interests in
South Texas No. 1. See "South Texas No. 1 Partnership Interest Holders." South
Texas No. 1 owns a 49% general partner interest in Baptist Imaging Center, a
Texas general partnership which owns certain diagnostic imaging equipment. South
Texas No. 1 also owns a 49% general partnership interest in Northeast Baptist
MRI Center, a Texas general partnership which owns certain diagnostic imaging
equipment. The principal executive offices of South Texas No. 1 are located at
730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone
number is (210) 351-0778.

San Antonio is a Texas corporation organized in 1991. As of the San
Antonio Record Date, there were 12 security holders of record of San Antonio
Common Stock holding an aggregate of 120 shares of San Antonio Common Stock. See
"South Texas and San Antonio Principal Shareholders." San Antonio owns a 1%
partnership interest in San Antonio No. 2 and serves as the sole general partner
of San Antonio No. 2. The principal executive offices of San Antonio are located
at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone
number is (210) 351-0778.

San Antonio No. 2 is a Texas limited partnership founded in 1997. As of
the San Antonio No. 2 Record Date, there were 12 limited partners and one
general partner holding an aggregate of 100% of the partnership interests in San
Antonio No. 2. See

3
<PAGE> 56

"San Antonio No. 2 Partnership Interest Holders." San Antonio No. 2 owns a 60%
partnership interest in Lexington and serves as the sole general partner of
Lexington. The principal executive offices of San Antonio No. 2 are located at
730 North Main Avenue, Suite B109, San Antonio, Texas 78205. The telephone
number is (210) 351-0778.

Pacific Imaging Consultants

Pacific is a California professional medical corporation organized in
1978. Pacific was formerly known as Peralta Radiology Medical Group, Inc. and
East Bay Medical Imaging Associates, A Medical Group, Inc. As of the Pacific
Record Date, there were 22 security holders of record of Pacific Common Stock
holding an aggregate of 11,000 shares of Pacific Common Stock. See "Pacific
Principal Shareholders." Pacific operates the professional component of
radiology medical practices in northern California, and provides professional
radiology services to the general public through individual physicians who are
licensed to practice medicine in the State of California. The principal
executive offices of Pacific are located at 350 Hawthorne Avenue, Oakland,
California 94609. The telephone number is (510) 869-6251.

TMI is a California corporation organized in 1989. As of the TMI Record
Date, there were 22 security holders of record of TMI Common Stock holding an
aggregate of 110,000 shares of TMI Common Stock. See "TMI Principal
Shareholders." TMI owns certain medical equipment and facilities utilized in
connection with the radiology practice of Pacific and provides management,
administrative and other non-medical radiological support services to the
radiology practice conducted by Pacific, including furnishing non-physician
personnel, supplies and non-physician support staff services. The principal
executive offices of TMI are located at 350 Hawthorne Avenue, Oakland,
California 94609. The telephone number is (510) 869-6251.

Radiology and Nuclear Medicine

RNM is a Kansas professional association organized in 1959 as "Radiology
and Nuclear Medicine, an association." In 1967 Radiology and Nuclear Medicine,
an association, merged with and into a Kansas professional association named
"Radiology and Nuclear Medicine, a Professional Association," to form RNM. As of
the RNM Record Date, there were 24 security holders of record of RNM Common
Stock holding an aggregate of 3,096 shares of RNM Common Stock. See "RNM
Principal Stockholders." RNM has 19 diagnostic radiologists and five radiation
oncologists and owns two ICs in Topeka, Kansas. RNM provides radiologic and
radiation oncologist coverage to over 40 locations as well as diagnostic
coverage to the two hospitals in Topeka. RNM also provides radiologic coverage
to nine hospitals outside of the Topeka area, covering a large portion of
northeast Kansas and southeast Nebraska, and to a number of other clinics and
physician offices. The principal executive offices of RNM are located at the
Medical Park West Building, 823 SW Mulvane, Suite 1, Topeka, Kansas 66606. The
telephone number is (913) 234-3451.

Rockland Radiological Group

AIOC is a New York professional corporation organized in 1995. As of the
AIOC Record Date, there were 13 security holders of record of AIOC Common Stock
holding an aggregate of 130 shares of AIOC Common Stock. See "Rockland
Radiological Group Principal Shareholders." AIOC operates two medical facilities
in Rockland County, New York. The principal executive offices of AIOC are
located at 18 Squadron Boulevard, New City, New York 10956. The telephone number
is (914) 637-9729.

CIA is a New York professional corporation organized in 1993. As of the
CIA Record Date, there were 13 security holders of record of CIA Common Stock
holding an aggregate of 130 shares of CIA Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
CIA are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.

<PAGE> 57

MRIA is a New York professional corporation organized in 1986. As of the
MRIA Record Date, there were 13 security holders of record of MRIA Common Stock
holding an aggregate of 130 shares of MRIA Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
MRIA are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.

Nyack is a New York professional corporation organized in 1992. As of
the Nyack Record Date, there were 13 security holders of record of Nyack Common
Stock holding an aggregate of 130 shares of Nyack Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
Nyack are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.

Pelham is a New York professional corporation organized in 1995. As of
the Pelham Record Date, there were 13 security holders of record of Pelham
Common Stock holding an aggregate of 130 shares of Pelham Common Stock. See
"Rockland Radiological Group Principal Shareholders." The principal executive
offices of Pelham are located at 18 Squadron Boulevard, New City, New York
10956. The telephone number is (914) 637-9729.

RRG is a New York professional corporation organized in 1972. As of the
RRG Record Date, there were 13 security holders of record of RRG Common Stock
holding an aggregate of 130 shares of RRG Common Stock. See "Rockland
Radiological Group Principal Shareholders." Its physicians and other medical
care providers numbering 14 and 50, respectively, as of May 1, 1997, provide a
broad range of radiological and related services. The principal executive
offices of RRG are located at 18 Squadron Boulevard, New City, New York 10956.
The telephone number is (914) 637-9729.

WIC is a New York professional corporation organized in 1995. As of the
WIC Record Date, there were 13 security holders of record of WIC Common Stock
holding an aggregate of 130 shares of WIC Common Stock. See "Rockland
Radiological Group Principal Shareholders." The principal executive offices of
WIC are located at 18 Squadron Boulevard, New City, New York 10956. The
telephone number is (914) 637-9729.

Valley Radiology Group

Valley is a California professional medical corporation organized in
1969. As of the Valley Record Date, there were 20 security holders of record of
Valley Common Stock holding an aggregate of 19,937.50 shares of Valley Common
Stock. See "Valley Principal Shareholders." Valley operates six ICs and four
MRI centers in the San Jose/Southern San Francisco Bay Area. Valley is also
affiliated with four regional hospitals. Valley's physician radiologists and
other professional radiology staff provide radiology services over all image
modalities, including general x-ray, mammography, ultrasound, CT scanning,
nuclear medicine, interventional radiology and MRI. The principal executive
offices of Valley are located at 110 South Winchester Boulevard, Suite J220, San
Jose, California 95128. The telephone number is (408) 244-2100.

SPECIAL MEETINGS OF SECURITY HOLDERS OF THE ENTITIES

Advanced Radiology. A special meeting of Advanced security holders will
be held at [PLACE] located at [ADDRESS] on [DATE], 1997 at [TIME]. The purpose
of the Advanced Meeting is to approve and adopt the Advanced Merger Proposal.

The Ide Group. A special meeting of Ide security holders will be held at
[PLACE] located at [ADDRESS] on [DATE], 1997 at [TIME]. The purpose of the Ide
Meeting is to approve and adopt the Ide Merger Proposal.

M&S X-Ray Practices. A joint special meeting of the security holders of
each of M&S, Lexington, Madison, South Texas, South Texas No. 1, San Antonio and
San Antonio No. 2 will be held at [PLACE] located at [ADDRESS] on [DATE], 1997
at [TIME]. The purpose of such meeting is to approve and adopt the M&S Merger
Proposal, the Lexington Exchange Proposal, the Madison Exchange Proposal, the
South Texas Merger Proposal, the South Texas No. 1 Exchange Proposal, the San
Antonio Merger Proposal and the San Antonio No. 2 Exchange Proposal,
respectively.

<PAGE> 58

Pacific Imaging Consultants. A joint special meeting of the security
holders of each of Pacific and TMI will be held at [PLACE] located at [ADDRESS]
on [DATE], 1997 at [TIME]. The purpose of such meeting is to approve and adopt
the Pacific Merger Proposal and the TMI Merger Proposal, respectively.

Radiology and Nuclear Medicine. A special meeting of RNM security
holders will be held at [PLACE] located at [ADDRESS] on [DATE], 1997 at [TIME].
The purpose of the RNM Meeting is to approve and adopt the RNM Merger Proposal.

Rockland Radiological Group. A joint special meeting of the security
holders of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will be held at
the corporate offices of such Entities located at 18 Squadron Boulevard, New
City, New York on [DATE], 1997 at [TIME]. The purpose of such meeting is to
approve and adopt the AIOC Merger Proposal, the CIA Merger Proposal, the MRIA
Merger Proposal, the Nyack Merger Proposal, the Pelham Merger Proposal, the RRG
Merger Proposal and the WIC Merger Proposal, respectively.

Valley Radiology Group. A special meeting of Valley security holders
will be held at [PLACE] located at [ADDRESS] on [DATE], 1997 at [TIME]. The
purpose of the Valley Meeting is to approve and adopt the Valley Merger
Proposal.

RECORD DATE AND VOTE REQUIRED

The record date for security holders of each of Advanced, Ide, M&S,
South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham,
RRG, WIC and Valley entitled to vote on the Merger Entities' respective Merger
Proposal is [ ], 1997. The record date for partners of each of Lexington,
Madison, South Texas No. 1 and San Antonio No. 2 entitled to vote on the
Exchange Entities' respective Exchange Proposal is [ ], 1997.

Advanced. The Advanced Merger Proposal must be approved by two-thirds of
the shares entitled to vote thereon.

Ide. The Ide Merger Proposal must be approved by holders of
three-quarters of the outstanding shares of Ide Common Stock.

M&S. The M&S Merger Proposal must be approved by two-thirds of the
holders of M&S Common Stock.

Lexington. The transfer of a partnership interest of Lexington pursuant
to the Lexington Exchange Proposal must be approved by the General Partner of
Lexington and by all of the limited partners of Lexington. In addition, each
transferring partner of Lexington must agree to exchange such partner's
interests in Lexington.

Madison. The transfer of a partnership interest of Madison pursuant to
the Madison Exchange Proposal must be approved by holders of at least two-thirds
of the outstanding partnership interests of Madison. In addition, each
transferring partner of Madison must agree to exchange such partner's interests
in Madison.

South Texas. The South Texas Merger Proposal must be approved by
two-thirds of the outstanding shares of South Texas Common Stock.

South Texas No. 1. The transfer of the General Partner's interest in
South Texas No. 1 pursuant to the South Texas No. 1 Exchange Proposal must be
approved by two-thirds of the outstanding partnership interests of South Texas
No. 1, and the transfer of a limited partner's interest pursuant to the South
Texas No. 1 Exchange Proposal must be approved by two-thirds of the partners
other than the transferor partner. In addition, each transferring partner of
South Texas No. 1 must agree to exchange such partner's interests in South Texas
No. 1.

San Antonio. The San Antonio Merger Proposal must be approved by
two-thirds of the outstanding shares of San Antonio Common Stock.

<PAGE> 59

San Antonio No. 2. The transfer of the General Partner's interest in San
Antonio No. 2 pursuant to the San Antonio No. 2 Exchange Proposal must be
approved by two-thirds of the outstanding limited partnership interests of San
Antonio No. 2 and the transfer of a limited partner's interest pursuant to the
San Antonio No. 2 Exchange Proposal must be approved by two-thirds of the
partners other than the transferor partner. In addition, each transferring
partner of San Antonio No. 2 must agree to exchange such partner's interest in
San Antonio No. 2.

Pacific and TMI. The Pacific Merger Proposal and the TMI Merger
Proposal must be approved by a majority of the outstanding shares of Pacific
Common Stock and TMI Common Stock, respectively.

RNM. The RNM Merger Proposal must be approved by a majority of the
outstanding shares of RNM Common Stock.

AIOC. The AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC Merger Proposals
must be approved by two-thirds of the outstanding shares of AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC Common Stock.

Valley. The Valley Merger Proposal must be approved by a majority of the
outstanding shares of Valley Common Stock.

If security holders of any Merger Entity fail to approve by the
requisite percentage the Merger Entities' respective Merger Proposal, such
Merger will not be consummated. If the partners of any Exchange Entity fail to
approve by the requisite percentage any Exchange Entity's respective Exchange
Proposal or if fewer than 100% of the partnership interests of any Exchange
Entity are exchanged for APPI Common Stock and cash, APPI shall not be obligated
to consummate such Exchange. In addition, the closing of each of the Mergers and
Exchanges is contingent on the closing of each of the other Mergers and
Exchanges.

THE MERGERS

The Merger Agreements for each of Advanced, Ide, M&S, South Texas, San
Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC contemplate that each
such Merger Entity will merge with and into APPI, provided that all conditions
to the consummation of each respective Merger are satisfied or waived. The
Merger Agreements for each of Pacific, TMI and Valley contemplate that a
separate subsidiary of APPI will merge with and into Pacific, TMI and Valley,
respectively, and each of Pacific, TMI and Valley will become a wholly-owned
subsidiary of APPI, provided that all conditions to the consummation of each
respective Merger are satisfied or waived. Security holders of each Merger
Entity (other than security holders who take required actions to properly assert
their dissenters' rights under the applicable state law)

<PAGE> 60

will receive cash and shares of APPI Common Stock in exchange for their
respective Old Shares, as set forth below.

Each security holder of a Merger Entity who receives shares of APPI
Common Stock and cash in each Entity's respective Merger will be required to
execute and deliver a Stockholder Representation Letter to APPI, which, among
other things, prohibits such security holder from selling any such shares for a
period of 12 months following the Effective Date, and then limits the ability of
such security holder to sell such shares to (i) up to 25% of such shares upon
expiration of the 12-month period following the Effective Date, (ii) an
additional 25% of such shares upon expiration of the 18-month period following
the Effective Date and (iii) the remaining 50% of such shares on or after the
second anniversary of the Effective Date.

The exact number of shares of APPI Common Stock and amount of cash to be
received by the security holders of each Entity will be determined by applying a
formula which is tied to the Initial Public Offering Price of the APPI Common
Stock. As such, the security holders will not know precisely how many shares or
how much cash they will receive at the time such security holders are asked to
vote on the applicable Merger or Exchange Transaction. However, the security
holders are assured of receiving a minimum aggregate consideration as set forth
more fully below.

The following sets forth for each Merger Entity the consideration
(e.g., number of shares of APPI Common Stock and cash amounts) to be received by
each security holder assuming that (i) Initial Public Offering Price will be
$14.00 and (ii) such security holder does not take required actions to properly
assert dissenters' rights under the applicable state law. If the Initial Public
Offering Price of the APPI Common Stock is greater than $14.00 per share, then
the total cash consideration received by the security holders of each of the
Entities will increase to an amount calculated as follows.

[Cash security holder Initial Public Offering Price
would have received had X -----------------------------
the Initial Public Offering $14.00
Price been $14.00 per share]

However, if the Initial Public Offering Price of the APPI Common Stock is less
than $14.00 per share, the total number of shares of APPI Common Stock received
by the security holders of each of the Entities will increase to an amount,
calculated as follows, resulting in such security holders receiving shares of
APPI Common Stock having an aggregate value equal to the aggregate value of the
shares of APPI Common Stock they would have received had the Initial Public
Offering Price been $14.00 per share.

[Number of shares $14.00
security holder would X -----------------------------
have received had the Initial Public Offering Price
Initial Public Offering
Price been $14.00]

The parties to each Merger Agreement are not permitted to terminate the
respective agreement for any reason related to the price of the APPI Common
Stock. For a more detailed discussion of the foregoing, see "The Mergers,
Exchanges and Related Transactions -- Terms of the Mergers and Exchanges --
Conversion of Shares and Exchange of Partnership Interests."

Advanced Radiology

- Each outstanding share of Advanced Common Stock will be converted
into the right to receive 7.5000 shares of APPI Common Stock and
$35.0000 in cash. If all outstanding shares of Advanced Common Stock
are converted in the Advanced Merger Transactions, the aggregate
consideration received by security holders of Advanced will be
approximately 3,562,500 shares of APPI Common Stock and $16,625,000
in cash. Such security holders of Advanced will own an aggregate of
19.44% of the total shares of APPI Common Stock outstanding upon
consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.

The Ide Group

- Each outstanding share of Ide Common Stock will be converted into
the right to receive 942.5581 shares of APPI Common Stock and
$4,398.6047 in cash. If all outstanding shares of Ide Common Stock
are converted in the Ide Merger Transactions, the aggregate
consideration received by security holders of Ide will be
approximately 2,026,500 shares of APPI Common Stock and $9,457,000
in cash. Such security holders of Ide will own an aggregate of
11.06% of the total shares of APPI Common Stock outstanding upon
consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.

<PAGE> 61

M&S X-Ray Practices

- Each outstanding share of M&S Common Stock will be converted into
the right to receive 3,868.1289 shares of APPI Common Stock and
$18,051.2684 in cash. If all outstanding shares of M&S Common Stock
are converted in the M&S Merger Transactions, the aggregate
consideration received by security holders of M&S will be
approximately 734,945 shares of APPI Common Stock and $3,429,741 in
cash. Such security holders of M&S will own an aggregate of 4.01% of
the total shares of APPI Common Stock outstanding upon consummation
of the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.

- Each outstanding share of South Texas Common Stock will be converted
into the right to receive 21.3083 shares of APPI Common Stock and
$99.5167 in cash. If all outstanding shares of South Texas Common
Stock are converted in the South Texas Merger Transactions, the
aggregate consideration received by security holders of South Texas
will be approximately 2,557 shares of APPI Common Stock and $11,942
in cash. Such security holders of South Texas will own an aggregate
of 0.01% of the total shares of APPI Common Stock outstanding upon
consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.

- Each outstanding share of San Antonio Common Stock will be converted
into the right to receive 28.4313 shares of APPI Common Stock and
$132.6792 in cash. If all outstanding shares of San Antonio Common
Stock are converted in the San Antonio Merger Transactions, the
aggregate consideration received by security holders of San Antonio
will be approximately 3,412 shares of APPI Common Stock and $15,922
in cash. Such security holders of San Antonio will own an aggregate
of 0.02% of the total shares of APPI Common Stock outstanding upon
consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.

Pacific Imaging Consultants

- Each outstanding share of Pacific Common Stock will be converted
into the right to receive 41.5926 shares of APPI Common Stock and
$194.0989 in cash. If all outstanding shares of Pacific Common Stock
are converted in the Pacific Merger Transactions, the aggregate
consideration received by security holders of Pacific will be
approximately 457,519 shares of APPI Common Stock and $2,135,088 in
cash. Such security holders of Pacific will own an aggregate of
2.50% of the total shares of APPI Common Stock outstanding upon
consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.

- Each outstanding share of TMI Common Stock will be converted into
the right to receive 2.2396 shares of APPI Common Stock and $10.4515
in cash. If all outstanding shares of TMI Common Stock are converted
in the TMI Merger Transactions, the aggregate consideration received
by security holders of TMI will be approximately 246,356 shares of
APPI Common Stock and $1,149,663 in cash. Such security holders of
TMI will own an aggregate of 1.35% of the total shares of APPI
Common Stock outstanding upon consummation of the Mergers and
Exchanges, the Initial Public Offering and the conversion of the
Convertible Notes.

Radiology And Nuclear Medicine

- Each outstanding share of RNM Common Stock will be converted into
the right to receive 309.5930 shares of APPI Common Stock and
$1,444.7674 in cash. If all outstanding shares of RNM Common Stock
are converted in the RNM Merger Transactions, the aggregate
consideration received by security holders of RNM will be
approximately 958,500 shares of APPI Common Stock and $4,473,000 in
cash. Such security holders of RNM will own an aggregate of 5.23% of
the

<PAGE> 62

total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.

Rockland Radiological Group

- Each outstanding share of common stock of AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC will be converted into the right to receive
1,589.4231 shares of APPI Common Stock and $7,417.3077 in cash. For
each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, if all
outstanding shares of common stock of each such entity are converted
in the AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC Merger
Transactions, the aggregate consideration received by security
holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will be
approximately 206,625 shares of APPI Common Stock and $964,250 in
cash. Such security holders will own an aggregate of 1.13% of the
total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.

<PAGE> 63

Valley Radiology Group

- Each outstanding share of Valley Common Stock will be converted into
the right to receive 29.6972 shares of APPI Common Stock $138.5868
in cash. If all outstanding shares of Valley Common Stock are
converted in the Valley Merger Transactions, the aggregate
consideration received by security holders of Valley will be
approximately 592,088 shares of APPI Common Stock and $2,763,075 in
cash. Such security holders of Valley will own an aggregate of 3.23%
of the total shares of APPI Common Stock outstanding upon
consummation of the Mergers and Exchanges, the Initial Public
Offering and the conversion of the Convertible Notes.

The total consideration to be paid to each Founding Affiliated Practice
and its respective security holders in connection with the Mergers and Exchanges
was determined by valuing each of the Founding Affiliated Practices using a
consistent methodology. The audited financial statements of the Founding
Affiliated Practices were used as a basis for estimating the consideration to
be paid. Management evaluated each practice's operating cash flows taking into
account expected future trends (e.g., reimbursement trends, potential growth
opportunities and capital needs, etc.). The merger consideration is comprised
of 25% cash and 75% stock. The consideration mix was proposed by APPI
management was designed to achieve several objectives, including aligning
physicians' economic interests with the Company's managing balance sheet
ratios and preserving capital for future growth opportunities.

The complete text of a form of Merger Agreement where the entity to be
acquired by APPI shall merge with and into a subsidiary of APPI is attached as
Appendix B to this Prospectus/Joint Proxy Statement. The complete text of a form
of Merger Agreement where the entity to be acquired by APPI shall merge with and
into APPI is attached as Appendix C to this Prospectus/Joint Proxy Statement.

It is contemplated that each Merger will occur as soon as practicable
after each of the Merger Entities' security holders approve the applicable
Merger Proposal at each such Entity's respective special meeting.

In addition, the Company has entered into an agreement in principle
with LXL Group, Ltd., a California general partnership ("LXL"), to purchase
substantially all of the assets of LXL for a purchase price of approximately
$532,000.00. The Company intends to pay the entire purchase price in cash. The
closing of the LXL asset purchase transaction is expected to occur within 90
days following the consummation of the Mergers and Exchanges. Such transaction
is not a part of any Merger or Exchange. Certain shareholders of Valley,
including Peter J. Long, M.D., Cyril J. McDonald, M.D., William T. McLaughlin,
M.D., Richard Silberstein, M.D., Robert Filipi, M.D., Edward Lebowitz, M.D.,
Stephen Teng, M.D., James Vaudagna, M.D., Andrew Koo, M.D., Franklin Gee, M.D.,
Keith Fraker, M.D., John Noonan, M.D., and Bruce Hyman, M.D., collectively own
100% of the partnership interests in LXL.

THE EXCHANGES

Each of the Exchange Agreements contemplates that the partners (or some
percentage thereof) of each of the Exchange Entities will exchange such
partners' partnership interests in the respective Exchange Entity for cash and
shares of APPI Common Stock as set forth below, provided that all conditions to
the consummation of each Exchange are satisfied or waived. The partners of each
of Lexington, Madison, South Texas No. 1 and San Antonio No. 2 will receive cash
and shares of APPI Common Stock in exchange for their partnership interests, as
applicable, as set forth below.

Each security holder of a Exchange Entity who receives shares of APPI
Common Stock and cash in each Entity's respective Exchange will be required to
execute and deliver a Stockholder Representation Letter to APPI, which, among
other things, prohibits such security holder from selling any such shares for a
period of 12 months following the Effective Date, and then limits the ability of
such security holder to sell such shares to (i) up to 25% of such shares upon
expiration of the 12-month period following the Effective Date, (ii) an
additional 25% of such shares upon expiration of the 18-month period following
the Effective Date and (iii) the remaining 50% of such shares on or after the
second anniversary of the Effective Date.

The exact number of shares and cash to be received by the security
holders of each Entity will be determined by applying a formula which is tied to
the Initial Public Offering Price of the APPI Common Stock. As such, the
security holders will not

<PAGE> 64

know precisely how many shares or how much cash they will receive at the time
such security holders are asked to vote on the applicable Merger or Exchange
Transaction.

The following sets forth for each Exchange Entity the consideration
(e.g., number of shares of APPI Common Stock and cash amounts) to be received by
each security holder assuming that the Initial Public Offering Price will be
$14.00 per share. If the Initial Public Offering Price of the APPI Common Stock
is greater than $14.00 per share, then the total cash consideration received by
the security holders of each of the Entities will increase to an amount
calculated as follows:

[Cash security holder Initial Public Offering Price
would have received had X -----------------------------
the Initial Public Offering $14.00
Price been $14.00 per share]

However, if the Initial Public Offering Price of the APPI Common Stock is less
than $14.00 per share, the total number of shares of APPI Common Stock received
by the security holders of each of the Entities will be increased to an amount,
calculated as follows, resulting in such security holders receiving shares of
APPI Common Stock having an aggregate value equal to the aggregate value of the
shares of APPI Common Stock they would have received had the Initial Public
Offering Price been $14.00 per share.

[Number of shares $14.00
security holder would X -----------------------------
have received had the Initial Public Offering Price
Initial Public Offering
Price been $14.00]

The parties to each Exchange Agreement are not permitted to terminate
the respective agreement for any reason related to the price of the APPI Common
Stock. For a more detailed discussion of the foregoing, see "The Mergers,
Exchanges and Related Transactions -- Terms of the Mergers and Exchanges --
Conversion of Shares and Exchange of Partnership Interests."

M&S X-Ray Practices

- The Lexington Partners will exchange 18.98% of the total interests
of the partners in Lexington for approximately 108,092 shares of
APPI Common Stock and $504,427 in cash. Such partners of Lexington
will own an aggregate of 0.59% of the total shares of APPI Common
Stock outstanding upon consummation of the Mergers and Exchanges,
the Initial Public Offering and the conversion of the Convertible
Notes.

- The Madison Partners will exchange 100% of the total interests of
the partners in Madison for approximately 123,502 shares of APPI
Common Stock and $576,342 in cash. Such partners of Madison will own
an aggregate of 0.67% of the total shares of APPI Common Stock
outstanding upon consummation of the Mergers and Exchanges, the
Initial Public Offering and the conversion of the Convertible Notes.

- The South Texas No. 1 Partners will exchange 99% of the total
interests of the partners in South Texas No. 1 for approximately
253,221 shares of APPI Common Stock and $1,181,698 in cash. Such
partners of South Texas No. 1 will own an aggregate of 1.38% of the
total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.

- The San Antonio No. 2 Partners will exchange 99% of the total
interests of the partners in San Antonio No. 2 for approximately
337,754 shares of APPI Common Stock and $1,576,187 in cash. Such
partners of San Antonio No. 2 will own an aggregate of 1.84% of the
total shares of APPI Common Stock outstanding upon consummation of
the Mergers and Exchanges, the Initial Public Offering and the
conversion of the Convertible Notes.

The complete text of a form of Exchange Agreement is attached as
Appendix D to this Prospectus/Joint Proxy Statement.

It is contemplated that each Exchange will occur as soon as practicable
after each of the Exchange Entities' partners approve the applicable Exchange
Proposal at each such Entity's respective Special Meeting and each of such
exchanging partners consummates the applicable Exchange. Following the
consummation of the Exchange Transactions, the Company will become a party to
the management agreements currently

<PAGE> 65

in effect between M&S and each of Baptist Imaging Center and Northeast Baptist
MR Center, and will assume the responsibility for the day-to-day management
of the joint ventures. Prior to the Exchange Transactions, the management fees
received by M&S from each of the joint ventures were calculated based upon
different methodologies including predetermined monthly fees and a percentage
of net revenues. However, in an effort to simplify payment of the management
fees and to develop a consistent management fee structure amongst each joint
venture, a nationally-recognized "big six" accounting firm conducted an
independent analysis of the fair market value of the management services to be
rendered by the Company to the joint ventures following the Exchange
Transactions. The analysis recommended that the joint ventures adopt a
percentage of revenue fee structure with the identical percentage being
applied on a consistent basis to each joint venture. The analysis further
stated that, based upon revenue projections contained in the analysis, the
modification to the management fee structure would not significantly increase
the aggregate amount of management fees paid by Baptist Imaging Center and
Northeast Baptist MRI Center and that such fees would likely be substantially
the same in 1998 as they were in 1997.

APPI'S REASONS FOR THE MERGERS AND EXCHANGES

APPI was formed in April 1996 for the sole purpose of acquiring and
consolidating radiology practices on a national basis and forming a publicly
traded radiology practice management company. From its inception, APPI's focus
has been to develop, consolidate and manage integrated radiology and IC
networks. APPI and the Founding Affiliated Practices recognized that market
forces were driving physicians, including radiologists, into larger group
practices and driving group practices to seek corporate partners to provide
management expertise, capital and sophisticated information systems. APPI and
the Founding Affiliated Practices identified certain factors which they believe
apply pressure to physician groups, which factors include, without limitation,
increased managed care penetration, declining reimbursements from private and
governmental payors, increased competition for payor contracts, physician
oversupply, physician income erosion, increased complexity of billing and
collection processes, increased information system requirements and the need for
greater sums of capital to remain competitive.

APPI and the Founding Affiliated Practices believed that if APPI could
provide the resources (including business and management expertise, purchasing
power and sophisticated information systems) necessary for radiology practices
to compete in the managed care dominated environment, then radiology practices
would be motivated to affiliate with APPI. APPI and the Founding Affiliated
Practices believe that if APPI was successful in affiliating with a select group
of radiology practices across the United States, that they would be able to
develop integrated networks of radiology groups and ICs to provide wide
geographic coverage and subspecialty expertise.

APPI's strategy is to (i) emphasize quality service, (ii) expand within
its selected markets, (iii) improve operating efficiencies within the Founding
Affiliated Practices and (iv) expand into new regional markets through
acquisitions of or affiliations with additional radiology practices and ICs.
APPI believes that the Founding Affiliated Practices form the foundation upon
which APPI can attempt to implement its strategy.

THE MERGER AND EXCHANGE ENTITIES' REASONS FOR THE MERGERS AND EXCHANGES
AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE MERGER ENTITIES

The respective Boards of Directors of the Entities have identified a
number of potential benefits of the Mergers, Exchanges and an affiliation with
APPI to security holders of the Entities. The potential benefits include:

o APPI's management will offer the Founding Affiliated Practices
management resources and expertise in areas such as strategic planning,
marketing, managed care contracting, business development, purchasing, billings
and collections and dealing with hospitals and other facilities. Such resources
and expertise could offer the Founding Affiliated Practices opportunities to
enhance practice revenue and spend more time on the professional as opposed to
administrative aspects of their practice. In addition, through access to the
collective knowledge and information of all Affiliated Practices, Affiliated
Practices will be in a better position to identify and promote best practices
and operating efficiencies in areas such as practice guidelines, equipment
utilization and resource management.

o Through APPI, the Founding Affiliated Practices will have increased
access to capital to upgrade existing imaging equipment, purchase equipment for
new imaging modalities, invest in new technologies (e.g., teleradiology), invest
in clinical information systems to improve quality of care, and implement
financial and cost-accounting systems to optimize resource management,
facilitate managed care contracting and improve profitability.

o As part of APPI's acquisition and expansion strategy, the Founding
Affiliated Practices will serve as a hub for future acquisitions of and
affiliations with practices and imaging centers in regions in which the Founding
Affiliated Practices are located. Through such acquisitions and affiliations,
and opportunities to invest in technologies such as teleradiology, the Founding
Affiliated Practices will be positioned to provide greater geographic coverage
and patient accessibility, improved response time and broader subspecialty
expertise, thereby improving patient service and referring physician
satisfaction.

<PAGE> 66

o The Mergers, Exchanges and affiliations with APPI offer the Founding
Affiliated Practices the opportunity to participate in a larger and more
diversified physician organization which will have greater contracting ability
and bargaining leverage with managed care organizations, greater financial
strength and ability to enter into risk-sharing arrangements with payors, and
greater purchasing power with vendors.

o The consideration the security holders are receiving in the Mergers
and Exchanges is enabling them to liquidate a portion of the equity they have in
their respective Founding Affiliated Practices. In addition, a substantial
portion of the consideration to be received by security holders of the Entities
is in the form of an equity interest in a larger and more diversified physician
organization that is expected to benefit strategically, competitively and
operationally from the Mergers and Exchanges and the affiliation with APPI. The
security holders equity interest in APPI provides them with the potential to
realize greater long-term returns on and liquidity of the financial investment
they currently have in their respective Founding Affiliated Practices. Finally,
it is anticipated that the other benefits described above could enhance the
revenues of the Founding Affiliated Practices and increase physician
compensation.

The respective Board of Directors of the Entities also identified a
number of potential adverse effects of the Mergers and Exchanges on the security
holders of each Entity including (i) decreased autonomy in the management of
their respective Founding Affiliated Practices, (ii) payment of a service fee to
APPI out of practice revenues, (iii) dependence on the operating results of the
other Affiliated Practices and the continued affiliation of such Practices with
APPI, (iv) the lack of prior operating experience of APPI with the Founding
Affiliated Practices, (v) risks associated with APPI's acquisition and expansion
strategy and (vi) general risks associated with owning an equity interest in
APPI. These and other risk factors may interfere with or undermine the
realization of the potential benefits described above. See "Risk Factors."

In reaching their decisions to approve the respective Merger Proposals,
the Boards of each of the Entities were influenced by all of the potential
benefits described above. The importance of each benefit varied to some extent
for each Board; however, each Board was positively influenced by each of the
benefits to some degree.

The Advanced Board has approved the Advanced Merger Proposal and
determined that the Advanced Merger is fair and in the best interests of the
security holders of Advanced. In reaching its decision to approve the Advanced
Merger proposal, the Advanced Board was most strongly influenced by (i) the
benefits relating to the management resources and expertise offered by APPI,
particularly for strategic planning and implementation, (ii) those benefits
relating to access to capital, particularly for investments in facilities and
equipment and information systems to optimize resource and utilization
management, (iii) those benefits relating to prospects of increased current
physician compensation and equity value through potential appreciation in APPI's
Common Stock, and (iv) the relatively greater autonomy Advanced would retain in
decisions related to physician income distribution and professional staffing
issues as compared to other physician practice management models. The Advanced
Board felt the most significant potential adverse effects of the Advanced Merger
Proposal were (i) the potential lack of attention and responsiveness from APPI's
management as APPI implements its growth strategy and (ii) potential limitations
on the amount of capital that might be available for investments that would
benefit Advanced due to the multitude of investment opportunities within all of
the Founding Affiliated Practices, but concluded that such factors were
outweighed by the potential benefits. THE ADVANCED BOARD RECOMMENDS APPROVAL OF
THE ADVANCED MERGER PROPOSAL BY ITS SECURITY HOLDERS.

The IDE Board has approved the IDE Merger Proposal and determined that
the IDE Merger is fair to, and in the best interests of, the security holders of
IDE. In its decision to approve the IDE Merger Proposal, the IDE Board was most
strongly influenced by (i) the benefits relating to management resources and
expertise, particularly for long-term strategic planning, (ii) those benefits
relating to access to capital, particularly to build management infrastructure
and implement information systems to improve utilization management in a managed
care environment, (iii) those benefits relating to prospects for increased
equity value through potential appreciation in APPI's Common Stock, and (iv)
continued autonomy in decisions on matters such as professional staffing and
physician income distribution. The Ide Board felt that the most significant
potential adverse effect of the IDE Merger Proposal was (i) the risks associated
with owning an equity interest in APPI, including the restrictions on resale of
the APPI shares issued pursuant to the IDE Merger imposed on the security
holders of IDE pursuant to lock-up agreements executed by them in connection
with the IDE Merger Transaction, and (ii) the concern that APPI would not be
able to fulfill its operational support obligations under the Service Agreement,
but concluded that such factors were outweighed by the potential benefits. THE
IDE BOARD RECOMMENDS APPROVAL OF THE IDE MERGER PROPOSAL BY ITS SECURITY
HOLDERS.

14
<PAGE> 67

The members of the Boards of South Texas and San Antonio comprise a
majority of the M&S Board. The M&S, South Texas and San Antonio Boards have each
approved their respective Merger Proposals and determined that their respective
Mergers are fair to, and in the best interests of, their respective security
holders. In their decisions to approve their respective Merger Proposals, the
M&S Board, South Texas Board and San Antonio Board were most strongly influenced
by (i) the benefits relating to APPI's management resources and expertise,
particularly for strategic planning, marketing,managed care contracting and
reimbursement matters, (ii) those benefits relating to access to capital,
particularly to upgrade existing equipment and purchase equipment for new
modalities, (iii) those benefits relating to APPI's in-market expansion
strategy, and (iv) the relatively greater autonomy the Entities would retain in
the area of physician income distribution as compared to other physician
practice management models. The M&S, South Texas and San Antonio Boards felt
that the most significant potential adverse effects of their respective Merger
Proposals were (i) the concern regarding the view of its joint venture partner
and its affiliated hospitals to their respective affiliations with APPI, and
(ii) the concern regarding APPI's ability to fulfill its operational support
obligations under the Service Agreement, but concluded that such factors were
outweighed by the potential benefits. THE M&S, SOUTH TEXAS AND SAN ANTONIO
BOARDS EACH RECOMMEND APPROVAL OF THE MERGER PROPOSALS BY THEIR RESPECTIVE
SECURITY HOLDERS.

The Pacific Board and TMI Board are comprised of the same individuals.
The Pacific Board and TMI Board have each approved their respective Merger
Proposals and determined that their respective Mergers are fair to, and in the
best interests of, their respective security holders. In their decision to
approve their respective Merger Proposals, the Pacific Board and TMI Board were
most strongly influenced by the benefits relating to (i) APPI's management
resources and expertise, particularly in the area of practice marketing, managed
care contracting and reimbursement matters, (ii) access to capital and expanded
patient service, particularly with respect to investments in teleradiology and
information systems to improve utilization management, (iii) building management
infrastructure, (iv) the prospects of increasing revenue and current physician
compensation, and (v) retained autonomy, particularly with respect to decisions
on professional staffing and physician income distribution. The Pacific Board
and the TMI Board felt that the most significant potential adverse effects of
their respective Merger Proposals were (i) potential limitations on the amount
of capital for their respective expansion and replacement projects in light of
the potential capital needs of the other Founding Affiliated Practices, and (ii)
the possibility that the future value of their practices might be greater than
the value being realized in the respective Merger Proposals, but concluded that
such factors were outweighed by the potential benefits. THE PACIFIC BOARD AND
TMI BOARD EACH RECOMMEND APPROVAL OF THE MERGER PROPOSALS BY THEIR RESPECTIVE
SECURITY HOLDERS.

The RNM Board has approved the RNM Merger Proposal and determined that
the RNM Merger is fair to, and in the best interests of, the security holders of
RNM. In its decision to approve the RNM Merger Proposal, the RNM Board was
strongly influenced by (i) the potential benefits relating to APPI's management
resources and expertise, particularly for long-term strategic planning, (ii)
those benefits relating to access to capital, particularly for investments in
teleradiology and outpatient imaging facilities, (iii) those benefits relating
to improved patient service and referral source satisfaction through greater
geographic coverage and the implementation of teleradiology, (iv) those benefits
relating to prospects of maintaining current levels of physician compensation,
and (v) the autonomy RNM would retain in decisions on matters such as
professional staffing and physician income distribution as compared to other
physician practice management companies. The RNM Board felt that the significant
potential adverse effects of the RNM Merger Proposal were (i) the potential
adverse reaction from the health care communities in which they practice, and
(ii) the risks associated with equity ownership in APPI and the resale
restrictions imposed on the APPI shares issued to the RNM security holders
pursuant to lock-up agreements executed by them in connection with the RNM
Merger Transaction, but concluded that such factors were outweighed by the
potential benefits. THE RNM BOARD RECOMMENDS APPROVAL OF THE RNM MERGER
PROPOSAL BY ITS SECURITY HOLDERS.

The members of the Boards of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
are comprised of the same individuals. The AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC Boards have each approved their respective Merger Proposals and
determined that their respective Mergers are fair to, and in the best interests
of, their respective security holders. In their decision to approve their
respective Merger Proposals, the Boards of AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC were most strongly influenced by (i) the benefits relating to access to
capital, particularly to establish outpatient imaging facilities and invest in
information systems to improve utilization management and facilitate managed
care contracting, (ii) those benefits relating to APPI's management resources
and expertise, particularly for strategic planning and practice marketing, (iii)
the potential for equity value appreciation in the APPI shares being issued in
the respective Merger Transactions, and (iv) the retention of autonomy in
decisions on professional staffing and physician income distribution. The Boards
felt that (i) the risks associated with equity ownership in APPI and the resale
restrictions imposed on the APPI shares issued pursuant to the Mergers, (ii) the
potential for loss of control over business decisions for which the practices
were historically responsible and (iii) the potential for decreased compensation
were the most significant potential adverse effects of their respective Merger
Proposals. However, the Boards concluded that such potential adverse effects
were outweighed by the potential benefits. THE AIOC, CIA, MRIA, NYACK, PELHAM,
RRG AND WIC BOARDS EACH RECOMMEND APPROVAL OF THE MERGER PROPOSALS BY THEIR
RESPECTIVE SECURITY HOLDERS.

15
<PAGE> 68

The Valley Board has approved the Valley Merger Proposal and determined
that the Valley Merger is fair to, and in the best interests of, the security
holders of Valley. In its decision to approve the Valley Merger Proposal, the
Valley Board was most strongly influenced by (i) the benefits relating to APPI's
management resources and expertise, particularly for marketing, managed care
contracting, reimbursement management and the implementation of information
systems, (ii) those benefits relating to access to capital, particularly for
investments in information systems and teleradiology, (iii) those benefits
relating to prospects for increased current physician compensation and the
opportunity for partial liquidity of their security holders' equity interests in
their practices, and (iv) retention of autonomy in decisions on matters such as
professional staffing and physician income distribution. The Valley Board felt
that (i) the potential for loss of control over business decisions for which it
was historically responsible, (ii) the future value of their practice might be
greater than the current value being realized in the Valley Merger Proposal, and
(iii) the concern regarding APPI's ability to fulfill its operational support
obligations under the Service Agreement were the most significant potential
adverse effects of the Valley Merger Proposal. However, the Valley Board
concluded that such factors were outweighed by the potential benefits. THE
VALLEY BOARD RECOMMENDS APPROVAL OF THE VALLEY MERGER PROPOSAL BY ITS SECURITY
HOLDERS.

CONDITIONS TO THE MERGERS AND EXCHANGES

Except as may be waived in writing, consummation of the Mergers and
Exchanges is subject to the satisfaction of certain conditions under applicable
laws and rules, which include, without limitation, the following: no action,
proceeding or order by any court, governmental body or agency shall have been
threatened or entered to restrain or prohibit consummation of the Mergers and
Exchanges; the Registration Statement and the Form S-1 shall have become
effective; APPI shall have received all necessary state securities and "Blue
Sky" permits; the APPI Common Stock shall have been approved for listing on
the Nasdaq National Market; the Initial Public Offering shall have closed; and
each Merger or Exchange Proposal shall have been approved by the requisite
number of security holders of each respective Entity.

In addition, the obligation of each Merger Entity to consummate each
respective Merger is subject to certain additional conditions unless waived by
the applicable Merger Entity, which include, without limitation that each Merger
Entity shall have received from Shattuck Hammond Partners, Inc. its opinion and
analysis that the terms of the Service Agreement are fair and commercially
reasonable.

In addition, the obligation of APPI to consummate each Merger and
Exchange is subject to certain conditions unless waived by APPI, which include,
without limitation, the following: (i) each of the Mergers and Exchanges shall
have closed; (ii) each respective Merger Entity shall have satisfied each of its
obligations to its security holders regarding dissenters' or related rights and
the sum of the amount due to the security holders who have dissented to such
Merger plus the cash portion of the consideration paid in the applicable Merger
shall not exceed 25% of the total consideration paid in the applicable Merger;
(iii) each security holder who is a party to each respective Merger Agreement
shall have executed and delivered to APPI a Stockholder Representation Letter
and certain of such security holders shall have executed and delivered to APPI
the Indemnification Agreement; and (iv) all of the assets and properties of each
respective Merger Entity and its related entities to be transferred to each
respective NewCo pursuant to each respective Reorganization shall have been
transferred, assigned and conveyed to such NewCo.

If any material condition to consummation of the Mergers or Exchanges is
waived, the Registration Statement will be amended and the security holders of
each of the Entities will be resolicited.

For a more detailed discussion of the foregoing, see "Conditions of the
Merger Agreements and Exchange Agreements."

16
<PAGE> 69

CLOSING OF THE MERGERS AND EXCHANGES AND EFFECTIVE TIME OF THE MERGERS

The Mergers will become effective upon the closing of the Initial Public
Offering and upon the completion of the filing of a properly executed
Certificate of Merger with the appropriate Secretaries of State as required by
the applicable Merger Agreement reflecting such Merger, which filings will be
made after satisfaction of certain conditions set forth in the Merger
Agreements. See "The Mergers, Exchanges and Related Transactions." In addition,
the Exchanges will become effective upon the closing of the Initial Public
Offering.

TERMINATION

Each Merger Agreement and Exchange Agreement may be terminated under
certain circumstances, including, without limitation, (i) by mutual written
consent of APPI and the applicable Merger Entity or Exchange Entity and partners
thereof, (ii) by either APPI or the respective Merger or Exchange Entity if the
other party is in breach of any representation, warranty or covenant contained
in the applicable Merger Agreement or Exchange Agreement, (iii) if, as a result
of the conduct of due diligence and regulatory compliance procedures, APPI deems
termination to be advisable or (iv) if the Merger or Exchange, as the case may
be, is not consummated on or before November 30, 1997.

EXPENSES; FEES

All fees and expenses incurred in connection with the Merger Agreements
and the transactions contemplated thereby and the Exchange Agreements and the
transactions contemplated thereby will be paid by the party incurring such
expenses, whether or not the respective Merger or Exchange is consummated.

EXCHANGE/ISSUANCE OF STOCK CERTIFICATES IN THE MERGERS AND EXCHANGES

At or after the Effective Time of each Merger and on the Closing Date of
each Exchange, APPI will make available, and each holder of the Old Shares
(other than those security holders who take required actions to properly assert
their dissenters' rights under the applicable state law) or Old Partnership
Interests will be entitled to receive, upon surrender to APPI of one or more
stock certificates evidencing such Old Shares for cancellation or upon delivery
to APPI of a bill of sale evidencing the transfer of Old Partnership Interests,
certificates evidencing the number of shares of APPI Common Stock into which
such Old Shares are converted in the applicable Merger or for which such Old
Partnership Interests are exchanged in each Exchange. No fractional shares of
APPI Common Stock will be issued. Any security holder otherwise entitled to
receive a fractional share of APPI Common Stock upon consummation of a Merger or
Exchange will receive cash, without interest, in lieu thereof in an amount equal
to such holder's proportionate interest in a share of APPI Common Stock
multiplied by the Initial Public Offering Price of APPI Common Stock.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Michael L. Sherman, M.D., a director nominee of APPI and a physician
owner of Advanced, entered into a consulting agreement with APPI in August 1996
pursuant to which Dr. Sherman received an option grant for 20,000 shares of APPI
Common Stock under the Automatic Option Grant Program. The Company and Dr.
Sherman have also entered into a consulting agreement which will go into effect
immediately following the Initial Public Offering for which Dr. Sherman will
receive annual compensation of $100,000. In addition, as part of the Advanced
Merger Transaction, the Company will issue 65,014 shares of APPI Common Stock
and $303,395 in cash to Dr. Sherman in exchange for his ownership interest in
Advanced, subject to the adjustments applicable to changes in the Initial Public
Offering Price as described above. The Company has also agreed to nominate Dr.
Sherman for election to the Board of Directors at the next two annual meetings
of stockholders.

17
<PAGE> 70

Less T. Chafen, M.D., Chairman of the Board of Pacific, has been
nominated and approved to serve as a director of APPI effective upon
consummation of the Initial Public Offering. At such time, Dr. Chafen will
receive an option grant for 30,000 shares of APPI Common Stock under the
Company's 1996 Stock Option Plan Automatic Option Grant Program. In addition, as
part of the Pacific and TMI Merger Transactions, the Company will issue an
aggregate of 31,994 shares of Common Stock and $149,307 in cash to Dr. Chafen
in exchange for his ownership interest in Pacific and TMI, subject to the
adjustments applicable to changes in the Initial Public Offering Price as
described above.

Derace L. Schaffer, M.D., a director of APPI since its inception and
President of Ide, purchased 1,000,000 shares of APPI Common Stock in the Company
for $125,000. Dr. Schaffer also owns $107,500 in principal amount of the
Convertible Notes. In addition, on July 25, 1997, Dr. Schaffer and Mr.
Pappajohn, a director of the Company, personally guaranteed a $1,000,000 line of
credit for the benefit of the Company. As a director of the Company, Dr.
Schaffer will be eligible to participate in the Automatic Option Grant Program
upon consummation of the Initial Public Offering. In addition, as part of the
Ide Merger Transaction, APPI will issue 94,256 shares of Common Stock and
$439,860.00 in cash to Dr. Schaffer in exchange for his ownership interest in
Ide, subject to the adjustments applicable to changes in the Initial Public
Offering Price as described above.

Due to the benefits to be received by Drs. Sherman, Chafen and Schaffer
in connection with the Mergers, as described herein, the interests of these
individuals may be different from the interests of security holders of the
Entities generally. Security holders should consider such persons' interests in
the applicable Merger in connection with any such person's recommendation of
such Merger. See "The Mergers, Exchanges and Related Transactions--Interests of
Certain Persons in the Mergers and Exchanges."

In addition, the following table provides certain information concerning
certain of the security holders of the Founding Affiliated Practices, including
cash distributions to be paid in connection with the Mergers and Exchanges. Each
of the below listed security holders of the Founding Affiliated Practices is or
will be a Director of the Company and is deemed to be a promoter of this
offering.

<TABLE>
<CAPTION>
Consideration to
Be Received
----------------------------
Assets to Be Number of Cash
Security Holder Contributed(1) Shares Distribution
- --------------- -------------- ------ ------------
<S> <C> <C> <C>
Michael L. Sherman, M.D. $ 612,139 65,014 $ 325,068
Derace L. Schaffer, M.D. 326,461 94,256 471,279
Less T. Chafen, M.D. 188,642 31,994 159,972
---------- ------- ---------

Total $1,127,242 191,264 $ 956,319
========== ======= ==========
</TABLE>

- ------------------

(1) Assets to Be Contributed reflects the historical book value of the
assets of each Founding Affiliated Practice, including their patient
receivable balance. The non-monetary assets are reflected at historical
cost in accordance with SAB 48. All monetary assets are recorded at fair
value, which is approximated by the historical costs recorded by the
Founding Affiliated Practices.

DISSENTERS' RIGHTS REGARDING THE MERGERS

Under California State Law.
---------------------------

Holders of record of Pacific Common Stock, TMI Common Stock and Valley
Common Stock who do not vote in favor of the applicable Merger Proposal and who
comply with the applicable procedures under Sections 1300 through 1304 of the
CCC will be entitled to receive the fair market value of shares held by such
Dissenting Security Holders. The CCC defines the term "fair market value" as the
value of the shares as of the day before the first announcement of the terms of
the applicable Merger Proposal, excluding any appreciation or depreciation
resulting from the proposed transaction. Dissenting security holders have
certain rights of appraisal under California law. A Dissenting Security Holder
must properly follow the steps specified by California law and take required
actions to assert such Dissenting Security Holder's dissenters' rights.
Dissenting Security Holders are urged to consult legal counsel with respect to
dissenters' rights under the CCC. See "Conditions of the Merger Agreements and
Exchange Agreements -- Dissenters' Rights Regarding the Mergers."

<PAGE> 71

Under Kansas State Law.
-----------------------

Holders of record of RNM Common Stock who do not vote in favor of the
RNM Merger Proposal and who comply with the applicable procedures under Section
17-6712 of the KGCC will be entitled to receive the value of the shares held
by such Dissenting Security Holders as of the Effective Time of the RNM Merger,
exclusive of any element of value arising from the expectation or accomplishment
of the RNM Merger. Dissenting Security Holders have certain rights of appraisal
under Kansas law. A Dissenting Security Holder must properly follow the steps
specified by Kansas law and take required actions to assert such Dissenting
Security Holder's dissenters' rights. Dissenting Security Holders are urged to
consult legal counsel with respect to dissenters' rights under the KGCC. See
"Conditions of the Merger Agreements and Exchange Agreements -- Dissenters'
Rights Regarding the Merger."

Under Maryland State Law.
-------------------------

Holders of record of Advanced Common Stock who do not vote in favor of
the Advanced Merger Proposal and who comply with the applicable procedures under
Section 3-202 of the MGCL will be entitled to receive the fair value of shares
held by such Dissenting Security Holders. The MGCL defines the term "fair value"
as the value of the shares as of the close of business of the date upon which
the Advanced Merger Proposal is approved, excluding any appreciation or
depreciation in anticipation of the proposed merger. Dissenting Security Holders
have certain rights of appraisal under Maryland law. A dissenting security
holder must properly follow the steps specified by Maryland law and take
required actions to assert such Dissenting Security Holder's dissenters' rights.
Dissenting Security Holders are urged to consult legal counsel with respect to
dissenters' rights under the MGCL. See "Conditions of the Merger Agreements and
Exchange Agreements -- Dissenter's Rights Regarding the Merger."

Under New York State Law.
-------------------------

Holders of record of Ide Common Stock, AIOC Common Stock, CIA Common
Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common
Stock and WIC Common Stock who do not vote in favor of the applicable Merger
Proposal and who comply with the applicable procedures under Section 623 of the
NYBCL will be entitled to receive the value, as agreed upon by the applicable
Entity and such Dissenting Security Holders or as judicially determined, of the
shares held by such Dissenting Security Holders. Dissenting Security Holders
have certain rights of appraisal under New York law. A Dissenting Security
Holder must properly follow the steps specified by New York law and take
required actions to assert such Dissenting Security Holder's dissenters' rights.
Dissenting Security Holders are urged to consult legal counsel with respect to
dissenters' rights under the NYBCL. See "Conditions of the Merger Agreements and
Exchange Agreements -- Dissenters' Rights Regarding the Merger."

Under Texas State Law.
----------------------

Holders of record of M&S Common Stock, South Texas Common Stock and San
Antonio Common Stock who do not vote in favor of the applicable Merger Proposal
and who comply with the applicable procedures under Articles 5.11 and 5.12 of
the TBCA will be entitled to receive the fair value of shares held by such
Dissenting Security Holders. The value of Dissenting Security Holders' shares
will be calculated as of the day that the action authorizing the applicable
Entity's Merger Proposal was approved by the requisite holders of shares needed
to effect such Merger, excluding any appreciation or depreciation in
anticipation of such Merger. Dissenting Security Holders have certain rights of
appraisal under Texas law. A Dissenting Security Holder must properly follow the
steps specified by Texas law and take required actions to assert such Dissenting
Security Holder's dissenters' rights. Dissenting Security Holders are urged to
consult legal counsel with respect to dissenters' rights under the TBCA. See
"Conditions of the Merger Agreements and Exchange Agreements -- Dissenter's
Rights Regarding the Merger."

GOVERNMENT AND REGULATORY APPROVALS

Except as otherwise set forth herein, APPI and the Entities are aware of
no governmental or regulatory approvals required for consummation of the Mergers
and Exchanges, other than compliance with the federal securities laws and
applicable laws of the various states. See "Conditions of the Merger Agreements
and Exchange Agreements -- Government and Regulatory Approvals."

19
<PAGE> 72
CERTAIN INCOME TAX CONSIDERATIONS

Each Merger and Exchange is intended to qualify as a reorganization
under either Section 351 or Section 368(a) of the Internal Revenue Code. In that
case, no gain or loss generally should be recognized (except to the extent that
a security holder receives, or is deemed to receive, cash or property other than
APPI Common Stock) by the holders of shares of Advanced Common Stock, Ide Common
Stock, M&S Common Stock, South Texas Common Stock, San Antonio Common Stock,
Pacific Common Stock, TMI Common Stock, RNM Common Stock, AIOC Common Stock, CIA
Common Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG
Common Stock, WIC Common Stock or Valley Common Stock or the holders of
partnership interests in Lexington, Madison, South Texas No. 1 or San Antonio
No. 2 on the exchange of such shares or partnership interests, as the case may
be, for APPI Common Stock. Haynes and Boone, special counsel to APPI, will
render an opinion that, upon the respective Merger or Exchange will constitute a
tax-free reorganization under either Section 351 or Section 368(a) of the
Internal Revenue Code. However, all security holders and partners of the
Entities are urged to consult their own tax advisors. See "Conditions of the
Merger Agreements and Exchange Agreements -- Certain Income Tax Considerations."

ACCOUNTING TREATMENT

SAB 48 states that when a company acquires assets from promoters and
security holders in exchange for stock just prior to or at the time of an
initial public offering, such assets should be recorded at the historical cost
to any such promoter or security holder. Each of the security holders is
involved as a promoter of the Mergers or the Exchanges, as the case may be, and
the related Initial Public Offering. Accordingly, the assets and liabilities to
be acquired by APPI or a subsidiary thereof in the Merger Transactions and the
Exchange Transactions will be recorded on the balance sheet of APPI in the same
amounts as reflected in the balance sheets of the Entities at the Effective Time
of the applicable Merger or Closing Date of the applicable Exchange. See
"Conditions of the Merger Agreements and Exchange Agreements -- Interests of
Certain Persons in the Mergers and Exchanges" and "-- Accounting Treatment."

<PAGE> 73
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)

The following summary historical information for APPI and each of the
Founding Affiliated Practices (Advanced Radiology; The Ide Group, M&S X-Ray
Practices, Pacific Imaging Consultants, Radiology and Nuclear Medicine, Rockland
Radiological Group and Valley Radiology Group) has been derived from the
unaudited financial statements. In the opinion of management, such information
includes all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the information included therein. APPI was
incorporated in April 1996 and has conducted no significant operations and
generated no revenue to date other than in connection with the Initial Public
Offering and the pending Mergers and Exchanges. Results for the six months ended
June 30, 1997 are not necessarily indicative of those to be expected for a full
fiscal year. The selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for APPI and each of the Entities and the audited financial
statements of APPI and each of the Founding Affiliated Practices and notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FROM
INCEPTION
(APRIL 30,
1996) SIX MONTHS
THROUGH ENDED
DEC. 31, JUNE 30,
1996 1997
---- ----
(UNAUDITED)
<S> <C> <C>
AMERICAN PHYSICIAN PARTNERS, INC.

SUMMARY OF OPERATIONS DATA:
Total revenue $ -- $ --
Total expenses 1,650 1,699
------- -------
Net loss $(1,650) $(1,699)
======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $2,486
Total debt 3,500
Stockholders' deficit (3,099)
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ADVANCED RADIOLOGY, LLC AND
SUBSIDIARY STATEMENT OF
OPERATIONS DATA:
Total revenue $22,451 $38,833 $52,882 $23,765 $31,560
Total expenses 22,717 23,884 30,592 14,786 19,396
Equity in earnings of
investments 762 635 1,207 680 642
Minority interests in income
of consolidated subsidiaries -- -- (18) 9 26
------- ------- ------- ------- -------
Income before income taxes $ 496 $15,584 $23,479 $ 9,668 $12,780
======= ======= ======= ======= =======
</TABLE>

<PAGE> 74

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $33,762
Total debt 11,622
Stockholders' equity 16,317
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED JUNE 30, JUNE 30,
----------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
THE IDE GROUP

STATEMENT OF OPERATIONS DATA:
Total revenue $24,304 $25,534 $26,020 $19,742 $19,851
Total expense 21,801 23,514 24,115 17,371 18,565
Equity in earnings of
investments -- -- -- -- --
Minority interests in income
of consolidated subsidiaries -- -- -- -- --
------- ------- ------- ------- -------
Income before income taxes $ 2,503 $ 2,020 $ 1,905 $ 2,371 $ 1,285
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $7,232
Total debt 1,858
Stockholders' equity 1,666
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
M&S X-RAY PRACTICES

STATEMENT OF OPERATIONS DATA:
Total revenue $17,341 $15,068 $15,198 $7,712 $7,220
Total expenses 15,045 13,834 13,178 6,409 5,729
Equity in earnings of
investments 98 213 605 273 427
Minority interests in income
of consolidated subsidiaries (220) (216) (249) (122) (160)
------- ------- ------- ------ ------
Income before income taxes $ 2,174 $ 1,231 $ 2,376 $1,454 $1,758
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $7,628
Total debt 459
Stockholders' equity 4,825
</TABLE>

<PAGE> 75

STATEMENT OF OPERATIONS DATA:
Total revenue $8,806 $11,448 $13,295 $5,634 $7,052
Total expenses 9,347 11,552 13,240 5,669 7,092
Equity in earnings of
investments -- -- -- -- --
Minority interests in income
of consolidated subsidiaries -- -- -- -- --
------ ------- ------- ------ ------
Income (loss) before income
taxes $ (541) $ (104) $ 55 $ (35) $ (40)
====== ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $6,332
Total debt 3,645
Stockholders' equity 255
</TABLE>

STATEMENT OF OPERATIONS DATA:
Total revenue $13,379 $13,849 $13,572 $6,620 $6,961
Total expenses 13,434 14,225 13,670 5,471 5,672
Equity in earnings of
investments 273 311 292 190 192
Minority interests in income
of consolidated subsidiaries -- -- -- -- --
------- ------- ------ ------ ------
Income before income taxes $ 218 $ (65) $ 194 $1,334 $1,481
======= ======= ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $5,202
Total debt 1,119
Stockholders' equity 2,449
</TABLE>

<PAGE> 76

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ROCKLAND RADIOLOGICAL GROUP

STATEMENT OF OPERATIONS DATA:
Total revenue $15,080 $17,824 $17,333 $11,764 $ 1,366
Total expenses 14,635 18,870 17,070 12,118 13,775
Equity in earnings of
investments -- -- -- -- --
Minority interests in income
of consolidated subsidiaries -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes $ 445 $(1,046) $ 263 $ 354 $ (108)
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Total assets $12,237
Total debt 9,162
Stockholders' equity (1,827)
</TABLE>

STATEMENT OF OPERATIONS DATA:
Total revenue $13,557 $10,507 $11,174 $5,570 $5,454
Total expenses 13,169 10,050 10,349 4,952 5,293
Equity (loss) in earnings of
investments 84 14 (19) -- --
Minority interests in income
of consolidated subsidiaries -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes $ 472 $ 471 $ 806 $ 618 $ 661
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $4,155
Total debt 1,406
Stockholders' equity 1,987
</TABLE>

<PAGE> 77
EQUIVALENT PER COMMON SHARE DATA

The following tables set forth certain historical per common share data
for APPI and pro forma equivalent data per share for each of the Founding
Affiliated Practices (Advanced Radiology, The Ide Group, M&S X-Ray Practices,
Pacific Imaging Consultants, Radiology and Nuclear Medicine, Rockland
Radiological Group and Valley Radiology Group). The pro forma equivalent data
per share is based on the historical amounts per share divided by the shares to
be issued to the respective Founding Affiliated Practice. The data should be
read in conjunction with the financial statements and notes thereto of the
respective entities set forth elsewhere in this Joint Prospectus/Joint Proxy
Statement, and such data is qualified in its entirety by reference thereto.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 (1) 1996 1997
<S> <C> <C> <C> <C> <C>
AMERICAN PHYSICIAN PARTNERS, INC.

Income (loss) before taxes per share:
Historical -- -- -- (2) -- (0.24)
Pro forma equivalent (unaudited) -- -- (0.11) -- (0.12)
</TABLE>

Book value per share at period end:

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical -- (2)
Pro forma equivalent (unaudited) (0.16)
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ADVANCED RADIOLOGY(2)

Income (loss) before taxes per share:
Historical -- -- -- -- --
Pro forma equivalent (unaudited) 0.14 4.37 6.59 2.71 3.59
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 4.58
</TABLE>

<PAGE> 78

YEAR ENDED JUNE 30,
-----------------------------
1995 1996 1997

<S> <C> <C> <C>
THE IDE GROUP(3)

Income (loss) before taxes per share:
Historical -- -- --
Pro forma equivalent (unaudited) 1.00 0.94 0.21
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 1.38
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
M&S X-RAY PRACTICES(3)

Income (loss) before taxes per share:
Historical -- -- -- -- --
Pro forma equivalent (unaudited) 1.39 0.79 1.52 0.93 1.12
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 3.09
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
PACIFIC IMAGING CONSULTANTS(3)
Income (loss) before taxes
per share:
Historical -- -- -- -- --
Pro forma equivalent (unaudited) (0.77) (0.15) 0.08 (0.05) (0.06)
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 0.36
</TABLE>

26
<PAGE> 79

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
RADIOLOGY AND NUCLEAR MEDICINE(3)

Income (loss) before taxes per share:
Historical -- -- -- -- --
Pro forma equivalent (unaudited) 0.23 (0.07) 0.20 1.40 1.55
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 2.56
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------- -----------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
ROCKLAND RADIOLOGICAL GROUP(3)

Income (loss) before taxes per share:
Historical -- -- -- -- --
Pro forma equivalent (unaudited) 0.31 (0.72) 0.18 (0.24) (0.07)
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 1.26
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
VALLEY RADIOLOGY GROUP(3)

Income (loss) before taxes per share:
Historical -- -- -- -- --
Pro forma equivalent (unaudited) 0.80 0.80 1.36 1.04 1.12
</TABLE>

Book value per share at period end:
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
Historical --
Pro forma equivalent (unaudited) 3.36
</TABLE>

<PAGE> 80
(1) The 1996 Net Loss per share for American Physician Partners, Inc. is for
the period from inception (April 1, 1996) to December 31, 1996.

(2) Historical net loss per share data has not been presented as the
historical information does not reflect the distribution to the Founding
Affiliated Practices.

(3) The legal structure of the Founding Affiliated Practices includes
partnerships, corporations and limited liability companies and,
accordingly, the financial statements of each such Founding Affiliated
Practice is presented on a combined basis. Therefore, historical data is
not available so as to compute net income/loss and book value per share
for each Entity.

<PAGE> 81
RISK FACTORS

An investment in the APPI Common Stock being offered pursuant to the
Merger Agreements and Exchange Agreements involves a high degree of risk. In
addition to the other information contained and incorporated by reference in
this Prospectus/Joint Proxy Statement, prospective investors should consider
carefully the factors listed below before approving and consenting to the
applicable Merger Agreement, Merger and the transactions contemplated thereby or
the applicable Exchange Agreement, Exchange and the transactions contemplated
thereby, as the case may be, or purchasing the APPI Common Stock offered
thereby.

ABSENCE OF COMBINED OPERATING HISTORY; NO PRIOR OPERATING EXPERIENCE

APPI was incorporated in April 1996, has generated no revenue to date
and has conducted no significant operations other than in connection with the
Initial Public Offering and the pending Mergers and Exchanges. The Company will
derive a substantial portion of its revenue from service fees it receives from
the Affiliated Practices for managing certain non-medical aspects of their
operations. The service fees paid to the Company generally will be based on the
revenue of the Affiliated Practices. The Company's success will depend in large
part on its ability to apply its management experience and implement practices,
systems and marketing plans to enhance the revenue and profitability of the
Affiliated Practices. To date, the Founding Affiliated Practices have been
operated as independent entities without common management. Moreover, the
Company has no preexisting relationship with any of the Founding Affiliated
Practices and has not managed any physician groups in the past. Due to this lack
of prior operating experience, there can be no assurance that the Company will
be able to integrate successfully the assets and personnel of the Founding
Affiliated Practices or to successfully implement its operating strategies with,
and profitably provide management and administrative services to, the Founding
Affiliated Practices or any other Affiliated Practices. There can be no
assurance that the Company will be profitable on a quarterly or annual basis in
the future.

DEPENDENCE ON AFFILIATED RADIOLOGISTS; RISK OF TERMINATION OF SERVICE AGREEMENTS

The Company's operations are entirely dependent on its continued
affiliation through Service Agreements with the Founding Affiliated Practices
and any other practices with which it may affiliate in the future. There can be
no assurance that the Founding Affiliated Practices or any other Affiliated
Practices will operate profitably or that the Service Agreements will not be
terminated. Two of the Founding Affiliated Practices (Advanced Radiology, LLC
and The Ide Group, P.C.) are expected to contribute in the aggregate
approximately 50% of the service fees to be paid to the Company by the Founding
Affiliated Practices, based on their historical net patient revenue and
expenses. The Service Agreements with the Founding Affiliated Practices will
have terms of 40 years, but may be terminated by either party if (i) the other
party (a) files a petition in bankruptcy or other similar events occur or (b)
defaults in the performance of a material duty or obligation, which default
continues for a specified period after notice or (ii) an opinion is rendered by
a law firm of nationally-recognized expertise in health care law that a material
term of the Service Agreement is in violation of applicable law (or a court or
regulatory agency finds as such) and such violation cannot be cured. The Company
generates its revenue through the service fees it receives pursuant to the
Service Agreements. The termination of any of the Founding Affiliated Practices'
Service Agreements could have a material adverse effect on the Company's
business, financial condition and results of operations. See "APPI -- Operation,
Management and Business Following the Mergers and Exchanges -- Service
Agreements." The Company anticipates that, to the extent that it enters into
management relationships with additional practices, the Service Agreements
entered into with such Affiliated Practices will have provisions providing for
the terms, termination and repurchase of assets similar to those contained in
the Service Agreements with the Founding Affiliated Practices. Any termination
of the Service Agreements with such Affiliated Practices could have a material
adverse effect on the Company's business,

<PAGE> 82

financial condition and results of operations. In addition, the Company has
executed a $115 million Credit Facility with GECC and other lenders and granted
a security interest in the Service Agreements to the lenders to secure the
Company's payment and performance obligations under the Credit Facility. The
Credit Facility is expected to become effective upon completion of the Initial
Public Offering and consummation of the Mergers and Exchanges. See "APPI --
APPI Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "-- Operation,
Management and Business Following the Mergers and Exchanges -- Service
Agreements."

Each Founding Affiliated Practice will enter into employment agreements
with the key radiologists associated with each such Founding Affiliated
Practice. The employment agreements generally will be for a term of five years.
Although the Company, in conjunction with the Founding Affiliated Practices,
will endeavor to maintain and review such contracts, in the event a significant
number of such radiologists terminate their relationships with the Company, the
Company's business could be adversely affected. The Company anticipates that, to
the extent it enters into Service Agreements with other Affiliated Practices,
similar employment agreements will be entered into between such Affiliated
Practices and the key radiologists associated with their respective practices;
as such, the Company will face similar risks if a significant number of such
radiologists terminate their relationships with the Affiliated Practices.
Further, if a significant number of radiologists or other medical service
providers become unable or unwilling to continue in their roles, the Company's
business could be adversely affected. Neither the Company nor the Founding
Affiliated Practices maintains insurance on the lives of any affiliated
physician for the benefit of the Company. See "APPI -- Operation, Management and
Business Following the Mergers and Exchanges -- Affiliation Structure."

UNCERTAINTY REGARDING THE ENFORCEABILITY OF NONCOMPETITION PROVISIONS

The Service Agreements require the Founding Affiliated Practices to
enter into and enforce agreements with the stockholders and full-time
radiologists at each Founding Affiliated Practice (subject to certain
exceptions) that include covenants not to compete with the Company for a period
of two years after termination of employment. See "APPI -- Operation, Management
and Business Following the Mergers and Exchanges -- Service Agreements." The
Company anticipates that Service Agreements that may be entered into with
Affiliated Practices in the future will also contain similar covenants requiring
such Affiliated Practices to restrict the ability of the stockholders and
full-time radiologists of such Affiliated Practices to compete with the Company.
In most states, a covenant not to compete will be enforced only to the extent it
is necessary to protect a legitimate business interest of the party seeking
enforcement, does not unreasonably restrain the party against whom enforcement
is sought and is not contrary to public interest. This determination is made
based on all of the facts and circumstances of the specific case at the time
enforcement is sought. For this reason, it is not possible to predict with
certainty whether a court will enforce such a covenant in a given situation. In
addition, the Company is not aware of any judicial precedents which have
addressed whether a management company's interest under a management agreement
will be viewed as the type of protectable business interest that would permit it
to enforce such a covenant. The inability of the Company to enforce such
anti-competition covenants could have a material adverse effect on the Company's
business, financial condition and results of operations.

RELIANCE ON REFERRALS

The Company is dependent on referrals from third parties to its owned,
operated or managed ICs and to other ICs or hospitals to which the Affiliated
Practices provide professional services in each of the markets where the Company
conducts business. A substantial portion of these referrals are made by
physicians who have no contractual obligation or economic incentive to refer
patients to those ICs or hospitals. The Company's owned, operated or managed ICs
and the Founding Affiliated Practices compete with local radiologists and
technical imaging service providers including non-profit and for profit
hospitals and health systems. The Company generates revenue from fees charged
for technical services provided at its owned, operated or managed ICs and from
service fees that it receives from the Affiliated Practices. Neither the Company
nor any Founding Affiliated Practice is dependent on any single referral source
for a material portion of its revenue. If a sufficiently large number of
physicians elected at any time to discontinue referring patients to the ICs
affiliated with the Company, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition, there
is potential for disruption of

<PAGE> 83

relationships in connection with the acquisition or assumption of control of a
particular IC by the Company, and there can be no assurance that the Company
will retain all of the business conducted by that IC at the time of acquisition
or assumption of control by the Company.

Further, in an effort to control costs, non-governmental health care
payors have implemented cost containment programs which could limit the ability
of physicians to refer patients to the Company's owned, operated or managed ICs.
For example, persons enrolled in prepaid health care plans, such as HMOs, often
are not free to choose where they obtain diagnostic imaging, interventional
radiology or radiation oncology services. Rather, the health plan provides these
services directly or contracts with providers and requires its enrollees to
obtain such services only from such providers. Some insurance companies and
self-insured employers also limit such services to contracted providers. Such
"closed panel" systems are now common in the managed care environment. Other
systems create an economic disincentive for referrals to providers outside of
the plan's designated panel of providers. Although the Company intends to seek
managed care contracts for its owned, operated or managed ICs and to assist the
Affiliated Practices to obtain contracts to provide professional and technical
radiology services, there can be no assurance that the Company will be able to
compete successfully for managed care contracts against larger companies with
greater resources.

RISKS ASSOCIATED WITH ACQUISITIONS AND EXPANSION STRATEGY

General

The Company's business strategy includes growth through the acquisition
of radiology practice assets, MSOs, ICs and related businesses and entry into
and maintenance of agreements to provide management and administrative services
to radiology practices, including services designed to improve operating
efficiencies. There can be no assurance that the Company will be able to acquire
and retain the assets of, or provide management and administrative services to,
additional radiology practices, MSOs or ICs, profitably provide such services or
successfully integrate such additional relationships, or successfully improve
operating efficiencies of the Affiliated Practices. In addition, there can be no
assurance that the assets of radiology practices acquired in the future, or the
relationships entered into in the future, will be beneficial to the successful
implementation of the Company's overall strategy or that such assets and
relationships will ultimately produce returns that justify their related
investment or implementation by the Company. See "APPI -- Operation, Management
and Business Following the Mergers and Exchanges -- Business Strategy."
Affiliated Practices acquired in the future may have disparate cultures,
operating and information systems and organizational structures. Failure of the
Company to acquire additional practices and to successfully integrate and
profitably manage or improve the operating efficiencies of the Founding
Affiliated Practices could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company's ability to expand its operations is dependent upon factors
such as its ability to (i) identify attractive and willing candidates for
acquisition, (ii) adapt or amend the Company's structure to comply with present
or future federal and state legal requirements affecting the Company's
arrangements with physician practice groups, including state prohibitions on
fee-splitting, corporate practice of medicine and referrals to facilities in
which physicians have a financial interest, (iii) obtain regulatory approvals
and certificates of need, where necessary, and comply with licensing
requirements applicable to the Company, the Affiliated Practices and the
physicians associated with the Affiliated Practices, including their respective
facilities, and (iv) expand the Company's infrastructure and management to
accommodate expansion. There can be no assurance that the Company will be able
to achieve these objectives or its planned growth, that the assets of radiology
practices, MSOs or ICs will continue to be available for acquisition by the
Company or that the addition of such assets or management relationships will be
profitable. Further, acquisitions involve a number of special risks, including
possible adverse effects on the Company's

<PAGE> 84

operating results, diversion of management's attention and resources, failure to
retain key acquired personnel, amortization or write-off of acquired intangible
assets and risks associated with unanticipated events or liabilities, some or
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations.

Potential Need for Additional Capital

The Company intends to finance future acquisitions by using shares of
the Common Stock for all or a portion of the consideration to be paid. In the
event that the Common Stock does not maintain a sufficient valuation, or
potential acquisition candidates are otherwise unwilling to accept Common Stock
as part of the consideration for the sale of the assets of their businesses, the
Company may be required to utilize more of its cash resources in order to pursue
its acquisition program. The Company may also incur indebtedness to fund future
acquisitions. The Company has executed the Credit Facility, however, the
availability of the Credit Facility is subject to a number of closing
conditions, including the consummation of the Initial Public Offering and the
Mergers and Exchanges as well as other customary closing and borrowing
conditions. The Company's growth could be limited and its existing operations
impaired unless it is able to obtain additional capital through subsequent
debt or equity financings. There can be no assurance that borrowing capacity
under the Credit Facility will be available to the Company when needed, that
the Company will be able to obtain such additional financing or that, if
available, such financing will be on terms acceptable to the Company. See
"APPI -- APPI Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." As a result, there
can be no assurance that the Company will be able to implement its acquisition
strategy successfully.

Risks Relating to Antitrust Laws

The Company intends to expand both in areas where the Founding
Affiliated Practices currently operate as well as in new markets. Although the
Company will continue to structure its operations in an effort to comply with
applicable antitrust laws, there can be no assurance that federal or state
governmental authorities would not view the Company as being dominant in a
particular market and, therefore, cause the Company to divest itself of any
particular Affiliated Practice or related assets. In addition, these laws could
prevent acquisitions of practices that would be integrated into existing
Affiliated Practices if such acquisitions substantially lessen competition or
tend to create a monopoly.

GOVERNMENT REGULATION

State and Federal Fraud and Abuse, Anti-Kickback and Anti-Referral Laws

Various federal and state laws regulate the relationships between
providers of health care services, physicians and other clinicians. See "APPI --
Operation, Management and Business Following the Mergers and Exchanges --
Government Regulation and Supervision." These laws include the fraud and abuse
provisions of the Social Security Act, which include the federal "anti-kickback"
and Stark or anti-referral laws. The "anti-kickback" laws prohibit the offering,
payment, solicitation or receipt of any direct or indirect remuneration for the
referral of Medicare, Medicaid or other governmental program patients or for the
recommendation, leasing, arranging, purchasing, ordering or providing of
Medicare or Medicaid covered services, items or equipment. Violations of the
"anti-kickback" laws may result in substantial civil or criminal penalties for
individuals or entities, including large civil monetary penalties and exclusion
from participation in Medicare, Medicaid and other governmental programs. BBA97
contains certain reform provisions relating to Medicare, Medicaid and other
governmental programs, that are intended to assist the government in its efforts
to enforce the "anti-kickback" laws, including adding a civil money penalty and
broadening the scope of circumstances under which mandatory or permissive
exclusion from the programs may apply. Such exclusion and penalties, if

<PAGE> 85

applied to the Company's owned, operated or managed ICs, the Affiliated
Practices or physicians affiliated with the Affiliated Practices, could result
in significant loss of reimbursement to the affected individuals and entities. A
determination of liability under any such laws could have a material adverse
effect on the Company's business, financial condition and results of operations.

Certain provisions contained in Stark I and Stark II, and subsequent
amendments, prohibit physician referrals for certain "designated health
services," including, without limitation, radiology services to entities with
which a physician or an immediate family member has a financial relationship.
The Stark Law also prohibits entities from presenting or causing to be presented
a claim or bill to any individual, third-party payor, or other entity for
designated health services furnished under a prohibited referral. A violation of
the Stark Law by the Company, an Affiliated Practice or physicians affiliated
with the Affiliated Practices, may result in significant civil penalties, which
may include exclusion or suspension of the physician or entity from future
participation in Medicare and Medicaid programs and substantial fines. A
determination of violation under such law by any of these persons or entities
could have a material adverse effect on the Company's business, financial
condition and results of operation.

Several states have adopted laws similar to the federal "anti-kickback"
and Stark Law that cover patients in private programs as well as government
programs. All of the states in which the Founding Affiliated Practices are
located have adopted a form of "anti-kickback" law and almost all of those
states (California, Kansas, Maryland and New York) have also adopted a form of
anti-referral law. These laws and the interpretations thereof vary from state to
state and are enforced by the courts and regulatory authorities, each with broad
discretion. A determination of liability under any such laws could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Corporate Practice of Medicare; Fee-Splitting

The laws of many states, including the states in which the Founding
Affiliated Practices are located, also prohibit business corporations, such as
the Company, from exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements, such as
fee-splitting, with physicians. These laws and their interpretations vary from
state to state and are enforced by both the courts and regulatory authorities,
each with broad discretion. The Company's strategy is to acquire certain assets
and assume certain liabilities of, and to enter into Service Agreements with,
Affiliated Practices. Pursuant to the Service Agreements, the Company will
provide management, administrative, technical and other non-medical services to
the Affiliated Practices in exchange for a service fee. The Company intends to
structure its relationships with the Affiliated Practices (including the
purchase of assets and the provision of services under the Service Agreements)
to keep the Company from engaging in the practice of medicine or exercising
control over the medical judgments or decisions of the Affiliated Practices or
their physicians. There can be no assurance that regulatory authorities or other
parties will not assert that the Company is engaged in the corporate practice of
medicine in such states or that the payment of service fees to the Company by
the Affiliated Practices pursuant to the Service Agreements constitutes
fee-splitting or the corporate practice of medicine. If such a claim was
successfully asserted, the Company could be subject to civil and criminal
penalties and could be required to restructure or terminate its contractual
arrangements. Such results or the inability of the Company to successfully
restructure its relationships to comply with such statutes could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "APPI -- Operation, Management and Business Following the
Mergers and Exchanges -- Service Agreements."

Licensing and Certification Laws

The ownership, construction, operation, expansion and acquisition of ICs
are subject to various federal and state laws, regulations and approvals
concerning the

33
<PAGE> 86

licensing of facilities, personnel, certificates of need and other required
certificates for certain types of health care facilities and major medical
equipment. Although the laws of the five states in which the Founding Affiliated
Practices are located do not subject ICs to certificate of need or separate
licensing requirements as stand-alone imaging centers, the laws of other states
could limit the Company's ability to acquire new imaging equipment or expand or
replace its equipment at ICs in other states. No assurances can be given that
the required regulatory approvals for any future acquisitions, expansions or
replacements will be granted to the Company, and the failure to obtain such
approvals could materially and adversely affect the Company's business,
financial condition and results of operations. See "APPI -- Operation,
Management and Business Following the Mergers and Exchanges -- Government
Regulation and Supervision."

Compliance

Although the Company intends to structure and conduct its proposed
operation so as to comply with applicable federal and state laws, neither the
Company's current or anticipated business operations nor the operations of the
Founding Affiliated Practices have been the subject of judicial or regulatory
interpretation. There can be no assurance that a review of the Company's
business by courts or regulatory authorities will not result in determinations
that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
operations. In addition, the regulatory framework of certain jurisdictions may
limit the Company's expansion into or ability to continue operations within such
jurisdictions, unless the Company is able to modify its operational
structure to conform with such regulatory framework. Any limitation on the
Company's ability to expand could have a material adverse effect on the
Company's business, financial condition and results of operations.

Reform Initiatives; Increased Enforcement

In addition to existing government health care regulations, there have
been numerous initiatives at the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services. The
Company believes that such initiatives will continue for the foreseeable future.
Certain aspects of these reforms as proposed in the past, such as further
reductions in Medicare and Medicaid payments, if adopted, could materially and
adversely affect the Company's business, financial condition and results of
operations.

Federal regulatory and law enforcement authorities have recently
increased enforcement activities with respect to Medicare and Medicaid fraud and
abuse regulations and other reimbursement laws and rules, including laws and
regulations that govern the Company's activities. There can be no assurance that
the Company's activities will not be investigated, that claims will not be made
against the Company or that increased enforcement activities will not directly
or indirectly have an adverse effect on the Company's business, financial
condition and results of operations or the market price of the Common Stock.

Insurance Laws and Regulations

Certain states have enacted statutes or adopted regulations affecting
risk assumption in the health care industry, including statutes and regulations
that subject any physician or physician network engaged in risk-based
contracting to applicable insurance laws and regulations, which may include,
among other things, laws and regulations providing for minimum capital
requirements and other safety and soundness requirements. Failure to comply with
these statutes and regulations could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
implementation of additional regulations or compliance requirements could result
in substantial costs to the Company and the Affiliated Practices. The inability
to enter into capitated or other risk-sharing arrangements or the cost of
complying with certain applicable laws that would permit expansion of the

<PAGE> 87

Company's risk-based contracting activities could have a material adverse effect
on the Company's business, financial condition and results of operations.

REIMBURSEMENT TRENDS AND COST CONTAINMENT

The Company's revenue will be derived from service fees paid to the
Company by the Affiliated Practices pursuant to the Service Agreements and
through its ownership, operation and management of ICs. Substantially all of the
revenue of the Affiliated Practices and such ICs is currently derived from
government sponsored health care programs (principally, Medicare and Medicaid)
and private third-party payors. During the six month period ended June 30, 1997,
approximately 21% of the combined medical service revenues, net of the Founding
Affiliated Practices was derived from government approved health care programs
and approximately 79% of the combined medical service revenues, net of the
Founding Affiliated Practices was derived from private third-party payors. The
health care industry is experiencing a trend toward cost containment as
government and private third-party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with service
providers. The Company believes that these trends will continue to result in a
reduction from historical levels in per-patient revenue for its Affiliated
Practices and ICs and that the results of operations of the Affiliated Practices
are likely to continue to be affected by lower reimbursement levels. Further
reductions in payments or other changes in reimbursement for health care
services could have a material adverse effect on the Company's business,
financial condition and results of operations unless the Company is otherwise
able to offset such payment reductions.

Rates paid by private third-party payors are based on established
physician and hospital charges and are generally higher than Medicare
reimbursement rates. Any decrease in the relative number of patients covered by
private insurance could have a material adverse effect on the Company's
business, financial condition and results of operations.

The federal government has implemented, through the Medicare program, a
RBRVS payment methodology for physician services. The RBRVS is a fee schedule
that, except for certain geographical and other adjustments, pays
similarly-situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the discretion
of Congress. To date, the implementation of the RBRVS has reduced payment rates
for certain of the procedures historically provided by the Affiliated Practices.
BBA 97 provides for reductions in the rate of growth of payments for physician
services, including services historically provided by the Affiliated Practices,
in the amount of $5.3 billion over a five-year period ending in 2002. In
addition, BBA 97 provides for the implementation of a resource-based methodology
for payment of physician practice expenses under the physician fee schedule over
a four-year period beginning in fiscal year 1999. Adoption of this methodology
is expected to reduce payments for services historically provided by the
Affiliated Practices.

RBRVS-type payment systems also have been adopted by certain private
third-party payors and the Company believes that it is likely that other private
third-party payors will adopt this payment methodology in the future.
Wider-spread implementation of such programs could reduce payments by private
third-party payors and could indirectly reduce the Company's operating margins
to the extent that the costs of providing management, administrative, technical
and non-medical services related to such procedures could not be proportionately
reduced. There can be no assurance that such cost reduction efforts by
governmental or private third-party payors will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "APPI -- Operation, Management and Business Following the Mergers and
Exchanges -- Government Regulation and Supervision."

Private third-party payors and Medicare and Medicaid have increased
their use of managed care as a means of cost containment. Increasingly, private
third-party payors negotiate discounts from established physician and hospital
charges or require

<PAGE> 88

capitation or other risk sharing arrangements as a condition of patient referral
to physician groups such as the Affiliated Practices. BBA 97 also includes
provisions designed to increase the enrollment of Medicare and Medicaid
participants in managed care programs. The inability of the Company to negotiate
satisfactory arrangements with managed care companies could have a material
adverse effect on the Company's business, financial condition and results of
operations.

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS

During the six month period ended June 30, 1997, approximately 94% of
the combined medical service revenues, net of the Founding Affiliated Practices
was derived from payments made on a fee-for-service basis by patients and
third-party payors (including government programs) and approximately 6% of the
combined medical service revenues, net of the Founding Affiliated Practices was
derived from capitated arrangements. Under capitated or other risk-sharing
arrangements, the health care provider typically is paid a pre-determined amount
per-patient per-month from the payor in exchange for providing all necessary
covered services to patients covered under the arrangement. Such contracts pass
much of the financial risk of providing care, including the risk of
over-utilization, from the payor to the provider. The Company believes that its
success will, in part, depend on the Company's ability to negotiate, on behalf
of the Affiliated Practices and the Company's owned, operated or managed ICs,
contracts with HMOs, employer groups and other third-party payors pursuant to
which services will be provided on a risk-sharing or capitated basis by some or
all of such Affiliated Practices or ICs. Risk-sharing arrangements result in
greater predictability of revenue but greater unpredictability of expenses and,
consequently, profitability. There can be no assurance that the Company will be
able to negotiate, on behalf of its Affiliated Practices or the Company's owned,
operated or managed ICs, satisfactory arrangements on a capitated or other
risk-sharing basis. In addition, to the extent that patients or enrollees
covered by such contracts require more frequent or extensive care than is
anticipated, the Company would incur unanticipated costs not offset by
additional revenue, which would reduce operating margins. In the worst case, the
revenue derived from such contracts may be insufficient to cover the costs of
the services provided. Any such reduction or elimination of earnings could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Furthermore, various quality assurance programs and organizations have
been created to scrutinize managed care organizations and their providers. In
response to such programs, managed care organizations and providers have
developed their own quality assurance programs to address a variety of areas,
including patient access to services, patient satisfaction, outcomes and
performance measures and utilization of services. These quality assurance
measures involve various costs associated with their implementation and
operation and depend, in part, upon the sophistication and compatibility of
existing systems and operations of the Affiliated Practices as well as the
Company's ability to integrate those systems and operations. The Company's
inability to develop strong quality assurance measures in conjunction with its
Affiliated Practices could place the Company and its Affiliated Practices at a
competitive disadvantage and have a material adverse effect on the Company's
business, financial condition and results of operations.

COMPETITION

The Company is under competitive pressure to acquire and retain the
assets of, and to provide management and administrative services to, additional
radiology practices, MSOs and ICs. There are a number of publicly-traded
companies focused on owning or managing ICs, including U.S. Diagnostic, Inc.,
Medical Resources, Inc., TeamHealth (a subsidiary of MedPartners, Inc.), and
Health Images (a division of HEALTHSOUTH Corporation). The Company is aware of
at least two privately-held physician practice management companies focused on
professional and technical radiology services. Several companies, both publicly
and privately held, that have established operating histories and, in some
instances, greater resources than the Company are pursuing the acquisition of
general and specialty physician practices (including radiology in the

<PAGE> 89

case of TeamHealth) and the management of such practices. Additionally, some
hospitals, clinics, health care companies, HMOs and insurance companies engage
in activities similar to those of the Company. There can be no assurance that
the Company will be able to compete effectively for the acquisition of, or
affiliation with, radiology practices, that additional competitors will not
enter the market, that such competition will not make it more difficult or
expensive to acquire the assets of, and provide management and administrative
services to, radiology practices on terms beneficial to the Company, or that
competitive pressures will not otherwise adversely affect the Company. See "APPI
- -- Operation, Management and Business Following the Mergers and Exchanges --
Competition."

The Affiliated Practices and the Company's owned, operated or managed
ICs compete with numerous local radiology and imaging service providers. The
Company believes that changes in governmental and private reimbursement policies
and other factors have resulted in increased competition among providers for the
provision of medical services to consumers. There can be no assurance that the
Affiliated Practices and the Company's owned, operated or managed ICs will be
able to compete effectively in the markets they serve, which inability to
compete could materially and adversely affect the Company's business, financial
condition and results of operations.

Further, the Affiliated Practices will compete with other providers for
managed care contracts. The Company believes that trends toward managed care
have resulted, and will continue to result, in increased competition for such
contracts. Other radiology practices and MSOs may have more experience than the
Affiliated Practices and the Company in obtaining such contracts. There can be
no assurance that the Affiliated Practices and the Company will be able to
obtain future business from managed care entities which will allow the Company
to compete effectively in the markets they serve, which inability to compete
could materially and adversely affect the Company's business, financial
condition and results of operations.

POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS

The provision of medical services entails an inherent risk of
professional malpractice and other similar claims. Although the Company intends
to structure its relationships with the Affiliated Practices under the Service
Agreements in a manner that will not constitute the practice of medicine, there
can be no assurance that claims, suits or complaints relating to services and
products provided by Affiliated Practices will not be asserted against the
Company in the future. Additionally, the Company owns, operates and manages ICs,
which expose the Company to professional liability claims. The Company
maintains insurance policies with coverages that it believes are appropriate in
light of the risks attendant to its business. In addition, pursuant to the
Service Agreements, the Affiliated Practices are required to maintain
professional liability insurance. Nevertheless, there can be no assurance that
successful malpractice or other claims will not be asserted against the
Affiliated Practices or the Company that exceed the scope of coverage or
applicable policy limits or which could otherwise have a material adverse effect
on the Company's business, financial condition and results of operations.

The availability and cost of professional liability insurance has been
affected by various factors, many of which are beyond the control of the Company
and the Affiliated Practices. There can be no assurance that adequate liability
insurance will be available to the Company and the Affiliated Practices in the
future at acceptable costs or that the future cost of such insurance to the
Company and the Affiliated Practices will not have a material adverse effect on
the Company's business, financial condition and results of operations. See "APPI
- -- Operation, Management and Business Following the Mergers and Exchanges --
Corporate Liability and Insurance."

In connection with the Mergers and Exchanges, the Company will assume
and succeed to substantially all of the obligations of each Founding Affiliated
Practice. Further, in connection with the acquisition of the assets of other
Affiliated Practices in the future, the Company anticipates that it will
typically succeed to some or all of the liabilities of such Affiliated
Practices. Therefore, claims may be asserted against the

<PAGE> 90

Company for events that occurred prior to the acquisition of the assets of
the Affiliated Practices.

The physicians employed by the Founding Affiliated Practices are from
time to time subject to malpractice claims. Such malpractice claims, if
successful, could result in damages which may exceed applicable insurance
coverage for such malpractice claims. While each Founding Affiliated Practice
and the Company maintain insurance consistent with industry practice, there can
be no assurance that the amount of insurance currently maintained by them will
satisfy all claims made against them or that a Founding Affiliated Practice or
the Company will be able to obtain insurance in the future at satisfactory rates
or in adequate amounts. Further, there are certain claims against the Founding
Affiliated Practices which are not covered by insurance (see note 11 to the
Consolidated Financial Statements of Advanced Radiology, LLC and Subsidiary).
The Company cannot predict the effect that any such claims, regardless of their
outcome, might have on its business or reputation.

The Company has not been named in any of the lawsuits against a Founding
Affiliated Practice; however, there can be no assurance that the Company will
not subsequently be named as a defendant in one or more of these lawsuits
following consummation of the Reorganizations. Each Founding Affiliated Practice
has retained responsibility for, and agreed to indemnify the Company in full
against, the liabilities associated with these lawsuits. In the event the
Company is subsequently added as a party in any of these lawsuits, or a monetary
judgment is entered against the Company and a Founding Affiliated Practice is
not required or is unable to satisfy its indemnification obligations to the
Company, the Company's business, financial condition and results of operations
could be materially adversely affected.

On September 1, 1997, a new law became effective in the state of Texas
that permits injured patients to sue health insurance carriers, HMOs and other
managed care entities for medical malpractice. There can be no assurance that
this law will not increase the cost of liability insurance to the Company for
services provided in Texas or any other states in which the Company does
business if similar legislation is adopted in those states.

In connection with the Mergers and Exchanges, the security holders of
the Founding Affiliated Practices have agreed to indemnify the Company for
certain claims. There can be no assurance that the Company will be able to
recover payment under any such indemnity agreements or that the failure to fully
recover such amounts will not have a material adverse effect on the Company's
business, financial condition and results of operations.

DEPENDENCE ON INFORMATION SYSTEMS

The current information systems of the Founding Affiliated Practices
consist of disparate, non-integrated accounting, practice management and other
information systems. In order to facilitate the extensive information management
requirements necessary to effectively manage operations, compete for managed
care contracts and achieve standardization and economies of scale, the Company
intends to create a network infrastructure and deploy two company-wide
information systems. The design, selection and implementation of the various
components of these systems and the integration throughout the Company and the
Affiliated Practices will entail an aggregate estimated expenditure of
approximately $3.0 million and significant management resources. The Company
intends to implement such systems within the first 12 months following the
Initial Public Offering, but may experience unanticipated delays, complications
and expenses in implementing, integrating and operating such systems.
Furthermore, such systems may require modifications, improvements or
replacements as the Company expands or if new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during periods of
implementation. There can be no assurance that the Company will be able to
implement and operate these information systems effectively or that these
systems will produce the expected benefits. The failure to successfully
implement and maintain

<PAGE> 91

operational and financial information systems could prevent the Company from
efficiently accumulating data from disparate systems maintained by the
Affiliated Practices and generating operational data necessary to more
effectively manage the Affiliated Practices which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "APPI -- Operation, Management and Business Following the Mergers and
Exchanges -- Operations and Development -- Information Management."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the ability and experience of its
executive officers and key personnel for the management of the Company and the
implementation of its business strategy. The Company currently has employment
contracts with four of its executive officers and a consulting agreement (which
will become effective immediately following the Initial Public Offering) with
one other executive officer. Because of the difficulty in finding adequate
replacements for such personnel, the loss of the services of any such personnel
or the Company's inability in the future to attract and retain management and
other key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain key man insurance for any of its executive officers. See "APPI --
Management and Executive Compensation -- Employment Agreements;
Covenants-Not-To-Compete" and "Certain Transactions."

RESTRICTIONS ON TRANSFER OF SHARES OF APPI COMMON STOCK RECEIVED IN THE MERGERS
AND EXCHANGES

Each security holder of a Merger or Exchange Entity who receives shares
of APPI Common Stock and cash in each Entity's respective Merger or Exchange
will be required to execute and deliver a Stockholder Representation Letter to
APPI, which, among other things, prohibits such security holder from selling any
such shares for a period of 12 months following the Effective Date and then
limits the ability of such security holder to sell shares to (i) up to 25% of
such shares upon expiration of the 12-month period following the Effective Date,
(ii) an additional 25% of such shares upon expiration of the 18-month period
following the Effective Date and (iii) the remaining 50% of such shares on or
after the second anniversary of the Effective Date. The Company has agreed not
to waive the restrictive provisions of the Stockholder Representation Letters
for a period of 180 days following the consummation of the Initial Public
Offering without the prior written consent of Smith Barney Inc. Accordingly, the
shares of APPI Common Stock issued to security holders of the Merger and
Exchange Entities will not be freely transferable upon consummation of the
Mergers and Exchanges and such security holders will be bearing the risk of an
investment in such shares for at least the periods during which they are
prohibited or restricted from selling such shares. See "The Mergers, Exchanges
and Related Transactions -- Terms of the Mergers and Exchanges."

UNCERTAINTY OF MERGER AND EXCHANGE CONSIDERATION

The exact number of shares of APPI Common Stock and amount of cash to
be received by the security holders of each Merger and Exchange Entity will be
determined using a formula which is tied to the Initial Public Offering Price
of the APPI Common Stock. As such, the security holders of each Entity will not
know precisely the number of shares of APPI Common Stock or the amount of cash
that such security holders will receive at the time such security holders are
asked to vote on the applicable Merger or Exchange Transactions. However,
irrespective of the Initial Public Offering Price of the APPI Common Stock,
security holders of each of the Entities will receive, at a minimum, (i) the
amount of cash such security holders would have received had the Initial Public
Offering Price of the APPI Common Stock been $14.00 per share and (ii) that
number of shares of APPI Common Stock that is sufficient to make the aggregate
value of shares of APPI Common Stock received by such security holders equal to
the aggregate value of the shares of APPI Common Stock such security holders
would have received had the Initial Public Offering Price of the APPI Common
stock been $14.00 per share.

The parties to each Merger and Exchange Agreement are not permitted to
terminate the applicable agreement for any reason related to the price of the
APPI Common Stock. See "The Mergers, Exchanges and Related Transactions --
Terms of the Mergers and Exchanges."

DILUTION OF VOTING POWER; POTENTIAL ADVERSE IMPACT OF FUTURE SALE OF APPI
SHARES

Upon the consummation of the Mergers and Exchanges, based upon the
number of outstanding shares of the Entities as of October 1, 1997 and assuming
the Initial Public Offering Price of the APPI Common Stock is $14.00 per share
and that no security holders of the Merger Entities exercise their right to
dissent, approximately 18,321,982 shares of APPI Common Stock will be
outstanding, of which (1) approximately 3,562,500 shares, representing
approximately 19.44% of the total, will be held by the Advanced security
holders, (2) approximately 2,026,500 shares, representing approximately 11.06%
of the total, will be held by the Ide security holders, (3) approximately
734,945 shares, representing approximately 4.01% of the total, will be held by
the M&S security holders, (4) approximately 108,092 shares, representing
approximately 0.59% of the total, will be held by the Lexington security
holders, (5) approximately 123,502 shares, representing approximately 0.67% of
the total, will be held by the Madison security holders, (6) approximately 2,557
shares, representing approximately 0.01% of the total, will be held by the South
Texas security holders, (7) approximately 253,221 shares, representing
approximately 1.38% of the total, will be held by the South Texas No. 1 security
holders, (8) approximately 3,412 shares, representing approximately 0.02% of the
total, will be held by the San Antonio security holders, (9) approximately
337,754 shares, representing approximately 1.84% of the total, will be held by
the San Antonio No. 2 security holders, (10) approximately 457,519 shares,
representing approximately 2.50% of the total, will be held by the Pacific
security holders, (11) approximately 246,356 shares, representing approximately
1.35% of the total, will be held by the TMI security holders, (12) approximately
958,500 shares, representing approximately 5.23% of the total, will be held by
the RNM security holders, (13) approximately 206,625 shares, representing
approximately 1.13% of the total, will be held by the AIOC security holders,
(14) approximately 206,625 shares, representing approximately 1.13% of the
total, will be held by the CIA security holders, (15) approximately 206,625
shares, representing approximately 1.13% of the total, will be held by the MRIA
security holders, (16) approximately 206,625 shares, representing approximately
1.13% of the total, will be held by the Nyack security holders, (17)
approximately 206,625 shares, representing approximately 1.13% of the total,
will be held by the Pelham security holders, (18) approximately 206,625 shares,
representing approximately 1.13% of the total, will be held by the RRG security
holders, (19) approximately 206,625 shares, representing approximately 1.13% of
the total, will be held by the WIC security holders, and (20) approximately
592,088 shares, representing approximately 3.23% of the total, will be held by
the Valley security holders. As a result, the security holders of the Entities
will experience immediate and substantial voting dilution upon consummation of
the Mergers and Exchanges.

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market following the
Initial Public Offering. Upon the completion of the Mergers and Exchanges, the
conversion of the Convertible Notes and completion of the Initial Public
Offering, the Company will have outstanding 18,321,982 shares of Common Stock,
assuming an Initial Public Offering price of $15.00 per share. The 5,000,000
shares of Common Stock to be sold in the Initial Public Offering will be freely
tradable without restriction under the Securities Act, unless acquired by
"affiliates" of the Company, as that term is defined under the Securities Act or
contractually restricted.

Simultaneously with the closing of the Initial Public Offering, security
holders of the Founding Affiliated Practices will receive, in the aggregate,
10,884,482 shares of APPI Common Stock as a portion of the consideration for
their practices, which shares will have been registered under the Securities
Act. Certain other stockholders of the Company will hold, in the aggregate, an
additional 2,000,000 shares of APPI Common Stock, none of which are being
offered by the Prospectus for the Initial Public Offering and none of which were
acquired in transactions registered under the Securities Act. These 2,000,000
shares of Common Stock may not be sold except in transactions registered under
the Securities Act or pursuant to an exemption from registration. Further,
each of the holders of the Convertible Notes have entered into agreements with
the Company pursuant to which each holder has agreed not to sell any portion of
the Convertible Notes or any shares of the APPI Common Stock issued or issuable
upon conversion thereof for a period of 24 months following the date the
Convertible Notes were issued to such holder (which Notes were issued between
September 30, 1996 and December 31, 1996). The Company has agreed with the
Underwriters not to waive the restrictive provisions of those agreements for 180
days after the date of the Form S-1 without the prior written consent of Smith
Barney Inc. Upon expiration of these agreements, the registered shares of APPI
Common Stock will be eligible for resale in the public market and the
unregistered shares of APPI Common Stock, the Convertible Notes and the shares
of APPI Common Stock issued or

<PAGE> 92

issuable upon conversion of the Convertible Notes will become eligible for sale
in the public market, subject to the provisions of Rule 144 of the Securities
Act.

In addition, the Company and its officers and directors and
substantially all other holders of APPI Common Stock and securities convertible
into or exercisable or exchangeable for APPI Common Stock have agreed that for
a period of 180 days following the Initial Public Offering they will not,
without the prior written consent of Smith Barney Inc., offer, sell, contract
to sell or otherwise dispose of APPI Common Stock or any securities convertible
into or exercisable or exchangeable for APPI Common Stock except, in the case
of the Company, in certain limited circumstances.

CONTROL BY EXISTING STOCKHOLDERS

Following the completion of the Mergers and Exchanges, the conversion of
the Convertible Notes and completion of the Initial Public Offering, members of
the Board of Directors and the executive officers of the Company will own
approximately 12.3% of the outstanding shares of Common Stock and the security
holders of the Founding Affiliated Practices will own approximately 59.4% of the
outstanding shares of Common Stock (including shares received by Directors of
the Company who are also security holders of the Founding Affiliated Practices).
The Company's Amended and Restated Bylaws do not provide for cumulative voting.
The Company's Amended and Restated Bylaws provide that, following the
consummation of the Initial Public Offering, the Board of Directors must
nominate two physicians licensed to practice medicine from the Affiliated
Practices for election to the Board of Directors at each annual meeting of the
Company's stockholders (three physicians licensed to practice medicine from the
Affiliated Practices if the size of the Board of Directors increases to nine).
Although to the knowledge of the Company such directors and other persons do not
have any arrangements or understandings among themselves with respect to the
voting of the shares of Common Stock beneficially owned by such persons,
following the completion of the Initial Public Offering such persons will be
able to control the affairs of the Company. See "APPI -- APPI Principal
Stockholders."

ANTI-TAKEOVER CONSIDERATIONS

Certain provisions of the Company's Restated Certificate of
Incorporation, the Company's Amended and Restated Bylaws and Delaware law could
discourage potential acquisition proposals, delay or prevent a change in control
of the Company and, consequently, limit the price that investors might be
willing to pay in the future for shares of the Common Stock. These provisions
include the inability to remove directors except for cause and the Company's
ability to issue, without further stockholder approval, shares of preferred
stock with rights and privileges senior to the Common Stock. The Company also is
subject to Section 203 of the DGCL which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with an "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
See "Comparison of Capital Stock -- Description of Capital Stock of APPI."

The Company has entered into employment agreements with four of its
executive officers which contain provisions that require the Company to pay
certain amounts to such employees upon their termination following certain
events including a change of control of the Company. Such agreements may delay
or prevent a change of control of the Company. See "APPI -- Management and
Executive Compensation -- Employment Agreements; Covenants-Not-to-Compete."

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Initial Public Offering, there has been no public market
for the Common Stock, and there can be no assurance that an active public market
for the Common Stock will develop or continue after the Initial Public Offering.
The Initial Public Offering Price has been determined by negotiations among the
Company and the several Underwriters, and may not be indicative of the market
price for the Common Stock after the Initial Public Offering. There can be no
assurance that the market price for the Common Stock will not decline below the
initial market price. From time to time after

<PAGE> 93

the Initial Public Offering, there may be significant volatility in the market
price for the Common Stock. The trading price of the Common Stock could be
subject to significant fluctuations in response to variations in the Company's
quarterly operating results, general trends in the Company's industry,
regulatory and reimbursement developments, changes in earnings estimates by
securities analysts and other factors affecting the Company's industry or the
securities market as a whole. Any such fluctuations may adversely affect the
market price of the Common Stock.

IMMEDIATE AND SUBSTANTIAL DILUTION

The purchasers of the shares of Common Stock offered in the Initial
Public Offering will experience immediate and substantial dilution in the net
tangible book value of their shares of Common Stock in the amount of $13.17 per
share (based on an assumed public offering price of $15.00 per share and after
giving effect to the Reorganizations and conversion of the Convertible Notes).
See "Dilution." In the event the Company issues additional Common Stock in the
future, including shares that may be issued in connection with future
acquisitions, or upon the exercise of options, purchasers of Common Stock in the
Initial Public Offering may experience further dilution in the net tangible book
value per share of Common Stock.

IMPACT OF SERVICE AGREEMENTS ON PROVIDER COMPENSATION; RESTRICTIONS ON AUTONOMY
OF FOUNDING AFFILIATED PRACTICES

Upon Consummation of the Mergers and Exchanges, each of the Founding
Affiliated Practices and the Company will have entered into Service Agreements
pursuant to which the Company will provide management, administrative, technical
and non-medical services to each such Founding Affiliated Practice in exchange
for a service fee. Payment of the service fee to the Company will be an expense
of each Founding Affiliated Practice and as such will reduce the amount of
revenues available for provider compensation and benefits. See "APPI --
Operation, Management and Business Following the Mergers and Exchanges --
Service Agreements."

Further, the Service Agreements provide the Company with the ability to
influence and control a significant portion of the non-medical aspects of the
Founding Affiliated Practices. Although each Founding Affiliated Practice will
maintain exclusive authority over the medical aspects of its respective
professional radiologic practice, the ability of such Founding Affiliated
Practice and its providers to take certain non-medical business action such as
hiring and firing non-professional personnel, choice of vendors and acquisition
of equipment or facilities in certain cases will be restricted, unless approved
by the Company. See "APPI -- Operation, Management and Business Following the
Mergers and Exchanges -- Service Agreements."

REQUIREMENT TO PURCHASE ASSETS

Upon termination of the Service Agreements by the Company for cause, the
Company has certain rights to require the Founding Affiliated Practice to
purchase from the Company and assume all assets and related liabilities and
obligations associated with the professional and technical radiology services
provided by such Founding Affiliated Practice at the time of such termination.

The purchase price for such assets, liabilities and obligations will be
the lesser of fair market value thereof or the return of the consideration
received in the Merger or Exchange, as applicable. If the Company elects to
require an Entity to purchase the assets, the parties shall enter into an asset
purchase agreement containing representations, warranties and conditions
customary to a transaction of this size involving the purchase and sale of
similar businesses. At the closing, the Company shall (i) transfer and assign
the assets to the Entity and, in consideration therefor, the Entity shall pay to
the Company an amount of cash, or at the option of the Entity (subject to
certain conditions) an amount of APPI Common Stock, or some combination thereof,
equal to the purchase price and (ii) assume the liabilities related to such
Entity pertaining to the assets. If possible, the transaction shall

<PAGE> 94

be structured, as a tax-free transfer, though there can be no assurance that it
will be so.

If any Service Agreement is terminated by the Company for cause and the
Company elects to require the Founding Affiliated Practice to purchase such
assets, liabilities and obligations, such required purchase could severely
impact the cash flows and financial condition of such Founding Affiliated
Practice. See "APPI -- Operation, Management and Business Following the Mergers
and Exchanges -- Service Agreements."

INCOME TAX RISKS

The parties have received an opinion from Haynes and Boone, upon the
basis of assumed consummation of the Mergers and Exchanges as described in this
Prospectus/Joint Proxy Statement and representations of the officers of APPI,
each of the Entities and the security holders, to the effect that the Mergers
and Exchanges will satisfy the requirements for tax deferral under either
Section 351 or Section 368 of the Internal Revenue Code. No ruling will be
requested from the IRS on this issue. An opinion of counsel is not binding on
the IRS or the courts. Furthermore, no assurance can be given that the
tax-deferred characterization of the Mergers and Exchanges will not be
challenged, or if challenged, will be defended successfully. If the tax
characterization of the Mergers and Exchanges is successfully challenged, there
could be significant adverse tax consequences to the Entities and their
respective security holders. In addition, the Reorganizations may be treated as
taxable distributions, with the effect of the creation of taxable income at both
the Company and the security holder levels. If the value of capital stock of one
or more of the NewCos distributed in the respective Reorganizations exceeds the
nominal value determined to be applicable by the respective boards of directors
of the Entities, there could be significant adverse tax consequences to the
Entities distributing, and security holders receiving, the capital stock of such
NewCo or NewCos. See "Conditions of the Merger Agreements and Exchange
Agreements -- Certain Income Tax Considerations."

RISKS RELATING TO FAILURE TO APPROVE THE MERGERS, EXCHANGES AND REORGANIZATIONS

Each of the Entities have incurred and are expected to further incur
substantial costs in connection with the analysis, planning, documentation,
negotiation and approval process related to the Mergers, Exchanges and
Reorganizations. In the event the security holders of the Entities do not
approve the proposed Mergers, Exchanges and Reorganizations, there can be no
assurance that the Entities or their respective security holders will have
sufficient funds available to pay such costs and expenses.

Another risk of failure to approve the Mergers and Exchanges is that the
Entities would remain in their current respective circumstances, which include
the circumstances that led the respective board of directors of each Merger
Entity to recommend the Mergers. See "The Mergers, Exchanges and Related
Transactions -- APPI's Reasons for the Mergers and Exchanges,"and "--The Merger
and Exchange Entities' Reasons for the Mergers and Exchanges and Recommendations
of the Boards of Directors of the Merger Entities."

In addition, the obligation of APPI to consummate each Merger is subject
to certain conditions, including, without limitation, that the sum of the amount
which may become due to the security holders who have dissented to a given
Merger and have indicated their intent to seek appraisal rights plus the cash
portion of the consideration paid in the applicable Merger shall not exceed 25%
of the total consideration paid in the applicable Merger. See "Conditions of the
Merger Agreements and Exchange Agreements -- Conditions Applicable to the Merger
Agreements."

INTERESTS OF CERTAIN PERSONS IN THE MERGERS AND EXCHANGES

Several individuals have interests in the Mergers and Exchanges which
are greater than the interests of the Entities' security holders. In particular,
Michael L. Sherman, M.D., a director nominee of APPI and a physician owner of
Advanced, entered into a consulting agreement with APPI in August 1996 pursuant
to which Dr. Sherman received an option grant for 20,000 shares of APPI Common
Stock under the Automatic Option Grant Program. The Company and Dr. Sherman have
also entered into a consulting agreement which will go into effect immediately
following the Initial Public Offering

<PAGE> 95

for which Dr. Sherman will receive annual compensation of $100,000. In addition,
as part of the Advanced Merger Transaction, the Company will issue approximately
65,014 shares of APPI Common Stock and $303,395 in cash to Dr. Sherman in
exchange for his ownership interest in Advanced, subject to the adjustments
applicable to changes in the Initial Public Offering Price as described above.
The Company has also agreed to nominate Dr. Sherman for election to the Board of
Directors at the next two annual meetings of stockholders.

Less T. Chafen, M.D., Chairman of the Board of Pacific, has been
nominated and approved to serve as a director of APPI effective upon
consummation of the Initial Public Offering. At such time, Dr. Chafen will
receive an option grant for 30,000 shares of APPI Common Stock under the
Company's 1996 Stock Option Plan Automatic Option Grant Program. In addition, as
part of the Pacific and TMI Merger Transactions, the Company will issue an
aggregate of 31,994 shares of Common Stock and $149,307 in cash to Dr. Chafen
in exchange for his ownership interest in Pacific, subject to the adjustments
applicable to changes in the Initial Public Offering Price as described above.

Derace L. Schaffer, M.D., a director of APPI since its inception and
President of Ide, purchased 1,000,000 shares of APPI Common Stock in the Company
for $125,000. Dr. Schaffer also owns $107,500 in principal amount of the
Convertible Notes. In addition, on July 25, 1997 Dr. Schaffer and Mr. Pappajohn,
a director of the Company, personally guaranteed a $1,000,000 line of credit for
the benefit of the Company. As a director of the Company, Dr. Schaffer will be
eligible to participate in the Automatic Option Grant Program upon consummation
of the Initial Public Offering. In addition, as part of the Ide Merger
Transaction, APPI will issue 94,256 shares of Common Stock and $439,860.00 in
cash to Dr. Schaffer in exchange for his ownership interest in Ide, subject to
the adjustments applicable to changes in the Initial Public Offering Price as
described above.

<PAGE> 96
INTRODUCTION

This Prospectus/Joint Proxy Statement is furnished in connection with
the solicitation of proxies from (i) the security holders of each Merger Entity
approving each respective Merger Proposal and (ii) the security holders of each
Exchange Entity approving each respective Exchange Proposal.

ADVANCED MEETING

DATE, TIME AND PLACE OF ADVANCED MEETING

The Advanced Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

PURPOSE

The purpose of the Advanced Meeting is to vote upon proposals: (i) to
approve the Advanced Merger proposal and to approve and adopt the Advanced
Merger Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of Advanced Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the Advanced
Meeting. As of the Advanced Record Date, there were 64 security holders of
record of Advanced Common Stock holding an aggregate of 475,000 shares of
Advanced Common Stock. See "Advanced Principal Stockholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares entitled to vote thereon. Votes will be counted by the Advanced
Board.

Each Security holder of record of Advanced Common Stock on the Advanced
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
Security holders of Advanced at the Advanced Meeting.

The required quorum for the transaction of business at the Advanced
Meeting is a majority of the shares of Advanced Common Stock outstanding on the
Advanced Record Date. Advanced intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.

VOTING OF PROXIES

All shares of Advanced Common Stock that are entitled to vote and are
represented at the Advanced Meeting by properly executed proxies received prior
to or at the Advanced Meeting and not duly and timely revoked will be voted at
the Advanced Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Advanced Merger Proposal and (ii) FOR approval and adoption
of the Advanced Merger Agreement.

If any other matters are properly presented for consideration at the
Advanced Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Advanced
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.

<PAGE> 97
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Advanced, at or before the taking of the vote at
the Advanced Meeting, a written notice of revocation bearing a later date than
the proxy; (ii) duly executing a later dated proxy relating to the same shares
and delivering it to the Secretary of Advanced, before the taking of the vote at
the Advanced Meeting; or (iii) attending the Advanced Meeting and voting in
person (although attendance at the Advanced Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to Advanced Radiology at 7253 Ambassador Road,
Baltimore, Maryland 21244, Attention: Secretary or hand-delivered to the
Secretary of Advanced, in each case at or before the taking of the vote at the
Advanced Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Advanced Security holders will be shared
by APPI and Advanced. Proxies may be solicited by certain Advanced directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.

IDE MEETING

DATE, TIME AND PLACE OF IDE MEETING

The Ide Meeting will be held at [PLACE] located at [ADDRESS] on [DATE]
at [TIME].

PURPOSE

The purpose of the Ide Meeting is to vote upon proposals: (i) to
approve the Ide Merger Proposal and to approve and adopt the Ide Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of Ide Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the Ide Meeting. As of the
Ide Record Date, there were 22 security holders of record of Ide Common Stock
holding an aggregate of 2,150 shares of Ide Common Stock. See "Ide Principal
Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of three-quarters
of the shares of Ide Common Stock outstanding on the Ide Record Date. Votes will
be counted by the Ide Board.

Each security holder of record of Ide Common Stock on the Ide Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Ide at the Ide Meeting.

The required quorum for the transaction of business at the Ide Meeting
is three-quarters of the shares of Ide Common Stock outstanding on the Ide
Record Date. Ide intends to include abstentions as present or represented for
purposes of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of Ide Common Stock that are entitled to vote and are
represented at the Ide Meeting by properly executed proxies received prior to or
at the Ide Meeting and not duly and timely revoked will be voted at the Ide
Meeting in accordance with the

<PAGE> 98

instructions indicated on such proxies. If no such instructions are indicated,
such proxies will be voted (i) FOR approval of the Ide Merger Proposal and (ii)
FOR approval and adoption of the Ide Merger Agreement.

If any other matters are properly presented for consideration at the Ide
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the Ide Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Ide, at or before the taking of the vote at the Ide
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Ide, before the taking of the vote at the Ide
Meeting or; (iii) attending the Ide Meeting and voting in person (although
attendance at the Ide Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to The Ide Group, P.C. at 2273 South Clinton Avenue, Rochester, New York 14618,
Attention: Secretary or hand-delivered to the Secretary of Ide, in each case at
or before the taking of the vote at the Ide Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Ide security holders will be shared by
APPI and Ide. Proxies may be solicited by certain Ide directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

M&S MEETING

DATE, TIME AND PLACE OF M&S MEETING

The M&S Meeting will be held at [PLACE] located at [ADDRESS] on [DATE]
at [TIME].

PURPOSE

The purpose of the M&S Meeting is to vote upon proposals: (i) to
approve the M&S Merger Proposal and to approve and adopt the M&S Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of M&S Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the M&S Meeting. As of the
M&S Record Date, there were 19 security holders of record of M&S Common Stock
holding an aggregate of 190 shares of M&S Common Stock. See "M&S Principal
Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the security holders of M&S as of the M&S Record Date. Votes will be counted by
the M&S Board.

Each security holder of record of M&S Common Stock on the M&S Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of M&S at the M&S Meeting.

<PAGE> 99
The required quorum for the transaction of business at the M&S Meeting
is a majority of the shares of M&S Common Stock outstanding on the M&S Record
Date. M&S intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of M&S Common Stock that are entitled to vote and are
represented at the M&S Meeting by properly executed proxies received prior to or
at the M&S Meeting and not duly and timely revoked will be voted at the M&S
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the M&S Merger Proposal and (ii) FOR approval and adoption of the M&S Merger
Agreement.

If any other matters are properly presented for consideration at the M&S
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the M&S Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of M&S, at or before the taking of the vote at the M&S
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of M&S, before the taking of the vote at the M&S
Meeting; or (iii) attending the M&S Meeting and voting in person (although
attendance at the M&S Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to M&S X-Ray Associates, P.A. at 730 North Main Avenue, Suite B109, San Antonio,
Texas 78205, Attention: Secretary or hand-delivered to the Secretary of M&S, in
each case at or before the taking of the vote at the M&S Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of M&S security holders will be shared by
APPI and M&S. Proxies may be solicited by certain M&S directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

LEXINGTON MEETING

DATE, TIME AND PLACE OF LEXINGTON MEETING

The Lexington Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

PURPOSE

The purpose of the Lexington Meeting is to vote upon proposals: (i) to
approve the Lexington Exchange Proposal and to approve and adopt the Lexington
Exchange Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS

Partners of record of Lexington partnership interests at the close of
business on [DATE] are entitled to notice of and to vote at the Lexington
Meeting. As of the Lexington Record Date, there were 11 limited partners and
one general partner holding an aggregate of 100% of the partnership interests in
Lexington. See "Lexington Partnership Interest Holders."

<PAGE> 100

VOTE REQUIRED

In order to comply with Lexington's Amended and Restated Agreement of
Limited Partnership and Texas Law and in order that the Lexington Exchange
Transactions may avoid being characterized as a "roll-up transaction" as
provided by Item 901(c)(2)(iv) under Regulation S-K, the General Partner may not
transfer its interest as a General Partner in the Partnership without the
consent of more than fifty percent (50%) of the distributive share of profits
and losses of the partnership owned by all of the limited partner. The limited
partnership interests may not be transferred without the General Partner's and
each limited partner's consent in accordance with the terms of the Exchange
Agreement. Votes will be counted by the General Partner.

The required quorum for the transaction of business at the Lexington
Meeting is a majority of the Lexington partnership interests outstanding on the
Lexington Record Date. Lexington intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.

VOTING OF PROXIES

All Lexington partnership interests that are entitled to vote and are
represented at the Lexington Meeting by properly executed proxies received prior
to or at the Lexington Meeting and not duly and timely revoked will be voted at
the Lexington Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Lexington Exchange Proposal and (ii) FOR approval and
adoption of the Lexington Exchange Agreement.

If any other matters are properly presented for consideration at the
Lexington Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the
Lexington Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed forms of proxy and voting thereunder will have the discretion to vote
on such matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the General Partner of Lexington, at or before the taking of the
vote at the Lexington Meeting, a written notice of revocation bearing a later
date than the proxy; (ii) duly executing a later dated proxy relating to the
same partnership interests and delivering it to the General Partner of
Lexington, before the taking of the vote at the Lexington Meeting; or (iii)
attending the Lexington Meeting and voting in person (although attendance at the
Lexington Meeting will not in and of itself constitute a revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to Lexington
MR Ltd. at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205,
Attention: General Partner or hand-delivered to the General Partner of
Lexington, in each case at or before the taking of the vote at the Lexington
Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Lexington security holders will be
shared by APPI and Lexington. Proxies may be solicited by certain partners,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.

MADISON MEETING

DATE, TIME AND PLACE OF MADISON MEETING

The Madison Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

<PAGE> 101
PURPOSE

The purpose of the Madison Meeting is to vote upon proposals: (i) to
approve the Madison Exchange Proposal and to approve and adopt the Madison
Exchange Agreement and (ii) to transact such other business as may properly come
before the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS

Partners of record of Madison partnership interests at the close of
business on [DATE] are entitled to notice of and to vote at the Madison Meeting.
As of the Madison Record Date, there were 13 general partners holding an
aggregate of 100% of the partnership interests in Madison. See "Madison
Partnership Interest Holders."

VOTE REQUIRED

In order to comply with Madison's Joint Venture Agreement and Texas Law
and in order that the Madison Exchange Transaction may avoid being characterized
as a "roll-up transaction" as provided by Item 901(c)(2)(iv) of Registration
S-K, the holders of two-thirds of the partnership interests of Madison must
approve the Madison Exchange Proposal. Votes will be counted by the Managing
General Partner.

The required quorum for the transaction of business at the Madison
Meeting is a majority of the partnership interests of Madison outstanding on the
Madison Record Date. Madison intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.

VOTING OF PROXIES

All Madison partnership interests that are entitled to vote and are
represented at the Madison Meeting by properly executed proxies received prior
to or at the Madison Meeting and not duly and timely revoked will be voted at
the Madison Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Madison Exchange Proposal and (ii) FOR approval and adoption
of the Madison Exchange Agreement.

If any other matters are properly presented for consideration at the
Madison Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Madison
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Managing General Partner of Madison, at or before the taking of
the vote at the Madison Meeting, a written notice of revocation bearing a later
date than the proxy; (ii) duly executing a later dated proxy relating to the
same partnership interests and delivering it to the Managing General Partner of
Madison, before the taking of the vote at the Madison Meeting; or (iii)
attending the Madison Meeting and voting in person (although attendance at the
Madison Meeting will not in and of itself constitute a revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to Madison
Square Joint Venture at 730 North Main Avenue, Suite B109, San Antonio, Texas
78205, Attention: Managing General Partner or hand-delivered to the Managing
General Partner of Madison, in each case at or before the taking of the vote at
the Madison Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Madison security holders will be shared
by APPI and Madison. Proxies may be solicited by certain directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will

<PAGE> 102
not receive additional compensation, but may be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation.

SOUTH TEXAS MEETING

DATE, TIME AND PLACE OF SOUTH TEXAS MEETING

The South Texas Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

PURPOSE

The purpose of the South Texas Meeting is to vote upon proposals: (i)
to approve the South Texas Merger Proposal and to approve and adopt the South
Texas Merger Agreement and (ii) to transact such other business as may properly
come before the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of South Texas Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the South Texas
Meeting. As of the South Texas Record Date, there were 12 security holders of
record of South Texas Common Stock holding an aggregate of 120 shares of South
Texas Common Stock. See "South Texas and San Antonio Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of South Texas Common Stock outstanding on the South Texas Record
Date. Votes will be counted by the South Texas Board.

Each security holder of record of South Texas Common Stock on the South
Texas Record Date is entitled to cast one vote per share, exercisable in person
or by properly executed proxy, on each matter properly submitted for the vote of
the security holder of South Texas at the South Texas Meeting.

The required quorum for the transaction of business at the South Texas
Meeting is a majority of the shares of South Texas Common Stock outstanding on
the South Texas Record Date. South Texas intends to include abstentions as
present or represented for purposes of establishing a quorum for the transaction
of business.

VOTING OF PROXIES

All shares of South Texas Common Stock that are entitled to vote and
are represented at the South Texas Meeting by properly executed proxies received
prior to or at the South Texas Meeting and not duly and timely revoked will be
voted at the South Texas Meeting in accordance with the instructions indicated
on such proxies. If no such instructions are indicated, such proxies will be
voted (i) FOR approval of the South Texas Merger Proposal and (ii) FOR approval
and adoption of the South Texas Merger Agreement.

If any other matters are properly presented for consideration at the
South Texas Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the South
Texas Meeting to another time and/or place (including, without limitation, for
the purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the

<PAGE> 103
Secretary of South Texas, at or before the taking of the vote at the South Texas
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of South Texas, before the taking of the vote at
the South Texas Meeting; or (iii) attending the South Texas Meeting and voting
in person (although attendance at the South Texas Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to South Texas MR, Inc. at 730 North Main
Avenue, Suite B109, San Antonio, Texas 78205, Attention: Secretary or
hand-delivered to the Secretary of South Texas, in each case at or before the
taking of the vote at the South Texas Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of South Texas security holders will be
shared by APPI and South Texas. Proxies may be solicited by certain South Texas
directors, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.

SOUTH TEXAS NO. 1 MEETING

DATE, TIME AND PLACE OF SOUTH TEXAS NO. 1 MEETING

The South Texas No. 1 Meeting will be held at [PLACE] located at
[ADDRESS] on [DATE] at [TIME].

PURPOSE

The purpose of the South Texas No. 1 Meeting is to vote upon proposals:
(i) to approve the South Texas No. 1 Exchange Proposal and to approve and adopt
the South Texas No. 1 Exchange Agreement and (ii) to transact such other
business as may properly come before the meeting or any adjournments or
postponements thereof.

RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS

Partners of record of South Texas No. 1 partnership interests at the
close of business on [DATE] are entitled to notice of and to vote at the South
Texas No. 1 Meeting. As of the South Texas No. 1 Record Date, there were 12
limited partners and one general partner holding an aggregate of 100% of the
partnership interests in South Texas No. 1. See "South Texas No. 1 Partnership
Interest Holders."

VOTE REQUIRED

In order to comply with South Texas No. 1's Limited Partnership
Agreement and Texas Law and in order that the South Texas No. 1 Exchange
Transaction may avoid being characterized as a "roll-up transaction" as provided
by Item 901(c)(2)(iv) under Regulation S-K, the approval of one or more limited
partners holding in the aggregate two-thirds of the percentage ownership
interests held by the limited partners as a class is necessary for transfer of
the General Partner's interest in South Texas No. 1 and the approval of
two-thirds of the partners other than the transferor partner is necessary for
transfer of a limited partner's interest in South Texas No. 1. Votes will be
counted by the General Partner.

The required quorum for the transaction of business at the South Texas
No. 1 Meeting is a majority of the partnership interests of South Texas No. 1
outstanding on the South Texas No. 1 Record Date. South Texas No. 1 intends to
include abstentions as present or represented for purposes of establishing a
quorum for the transaction of business.

<PAGE> 104
VOTING OF PROXIES

All South Texas No. 1 partnership interests that are entitled to vote
and are represented at the South Texas No. 1 Meeting by properly executed
proxies received prior to or at the South Texas No. 1 Meeting and not duly and
timely revoked will be voted at the South Texas No. 1 Meeting in accordance with
the instructions indicated on such proxies. If no such instructions are
indicated, such proxies will be voted (i) FOR approval of the South Texas No. 1
Exchange Proposal and (ii) FOR approval and adoption of the South Texas No. 1
Exchange Agreement.

If any other matters are properly presented for consideration at the
South Texas No. 1 Meeting (or any adjournments or postponements thereof)
including, among other things, consideration of a motion to adjourn or postpone
the South Texas No. 1 Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed forms of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the General Partner of South Texas No. 1, at or before the taking of
the vote at the South Texas No. 1 Meeting, a written notice of revocation
bearing a later date than the proxy; (ii) duly executing a later dated proxy
relating to the same partnership interests and delivering it to the General
Partner of South Texas No. 1, before the taking of the vote at the South Texas
No. 1 Meeting; or (iii) attending the South Texas No. 1 Meeting and voting in
person (although attendance at the South Texas No. 1 Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to South Texas South Texas No. 1 MRI Limited
Partnership at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205,
Attention: General Partner or hand-delivered to the General Partner of South
Texas No. 1, in each case at or before the taking of the vote at the South Texas
No. 1 Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of South Texas No. 1 security holders will
be shared by APPI and South Texas No. 1. Proxies may be solicited by certain
partners, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.

SAN ANTONIO MEETING

DATE, TIME AND PLACE OF SAN ANTONIO MEETING

The San Antonio Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

PURPOSE

The purpose of the San Antonio Meeting is to vote upon proposals: (i)
to approve the San Antonio Merger Proposal and to approve and adopt the San
Antonio Merger Agreement and (ii) to transact such other business as may
properly come before the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of San Antonio Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the San Antonio
Meeting. As of the San Antonio Record Date, there were 12 security holders of
record of San Antonio Common Stock holding an aggregate of 120 shares of San
Antonio Common Stock. See "South Texas and San Antonio Principal Shareholders."

<PAGE> 105

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of San Antonio Common Stock outstanding on the San Antonio Record
Date. Votes will be counted by the San Antonio Board.

Each security holder of record of San Antonio Common Stock on the San
Antonio Record Date is entitled to cast one vote per share, exercisable in
person or by properly executed proxy, on each matter properly submitted for the
vote of the security holders of San Antonio at the San Antonio Meeting.

The required quorum for the transaction of business at the San Antonio
Meeting is a majority of the shares of San Antonio Common Stock outstanding on
the San Antonio Record Date. San Antonio intends to include abstentions as
present or represented for purposes of establishing a quorum for the transaction
of business.

VOTING OF PROXIES

All shares of San Antonio Common Stock that are entitled to vote and
are represented at the San Antonio Meeting by properly executed proxies received
prior to or at the San Antonio Meeting and not duly and timely revoked will be
voted at the San Antonio Meeting in accordance with the instructions indicated
on such proxies. If no such instructions are indicated, such proxies will be
voted (i) FOR approval of the San Antonio Merger Proposal and (ii) FOR approval
and adoption of the San Antonio Merger Agreement.

If any other matters are properly presented for consideration at the San
Antonio Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the San Antonio
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of San Antonio, at or before the taking of the vote at
the San Antonio Meeting, a written notice of revocation bearing a later date
than the proxy; (ii) duly executing a later dated proxy relating to the same
shares and delivering it to the Secretary of San Antonio, before the taking of
the vote at the San Antonio Meeting; or (iii) attending the San Antonio Meeting
and voting in person (although attendance at the San Antonio Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent to San Antonio MR, Inc. at 730
North Main Avenue, Suite B109, San Antonio, Texas 78205, Attention: Secretary or
hand-delivered to the Secretary of San Antonio, in each case at or before the
taking of the vote at the San Antonio Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of San Antonio security holders will be
shared by APPI and San Antonio. Proxies may be solicited by certain San Antonio
directors, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.

SAN ANTONIO NO. 2 MEETING

DATE, TIME AND PLACE OF SAN ANTONIO NO. 2 MEETING

The San Antonio No. 2 Meeting will be held at [PLACE] located at
[ADDRESS] on [DATE] at [TIME].

<PAGE> 106

PURPOSE

The purpose of the San Antonio No. 2 Meeting is to vote upon proposals:
(i) to approve the San Antonio No. 2 Exchange Proposal and to approve and adopt
the San Antonio No. 2 Exchange Agreement and (ii) to transact such other
business as may properly come before the meeting or any adjournments or
postponements thereof.

RECORD DATE AND OUTSTANDING PARTNERSHIP INTERESTS

Partners of record of San Antonio No. 2 partnership interests at the
close of business on [DATE] are entitled to notice of and to vote at the San
Antonio No. 2 Meeting. As of the San Antonio No. 2 Record Date, there were 12
limited partners and one general partner holding an aggregate of 100% of the
partnership interests in San Antonio No. 2. See "San Antonio No. 2 Partnership
Interest Holders."

VOTE REQUIRED

In order to comply with San Antonio No. 2's Limited Partnership
Agreement and Texas Law and in order that the San Antonio No. 2 Exchange
Transaction may avoid being characterized as a "roll-up transaction" as provided
by Item 901(c)(2)(iv) under Regulation S-K, the approval of one or more limited
partners holding in the aggregate two-thirds of the percentage ownership
interests held by the limited partners as a class is necessary for transfer of
the General Partner's interest in San Antonio No. 2 and the approval of
two-thirds of the partners other than the transferor partner is necessary for
transfer of a limited partner's interest in San Antonio No. 2. Votes will be
counted by the General Partner.

The required quorum for the transaction of business at the San Antonio
No. 2 Meeting is a majority of the partnership interests of San Antonio No. 2
outstanding on the San Antonio No. 2 Record Date. San Antonio No. 2 intends to
include abstentions as present or represented for purposes of establishing a
quorum for the transaction of business.

VOTING OF PROXIES

All San Antonio No. 2 partnership interests that are entitled to vote
and are represented at the San Antonio No. 2 Meeting by properly executed
proxies received prior to or at the San Antonio No. 2 Meeting and not duly and
timely revoked will be voted at the San Antonio No. 2 Meeting in accordance with
the instructions indicated on such proxies. If no such instructions are
indicated, such proxies will be voted (i) FOR approval of the San Antonio No. 2
Exchange Proposal and (ii) FOR approval and adoption of the San Antonio No. 2
Exchange Agreement.

If any other matters are properly presented for consideration at the San
Antonio No. 2 Meeting (or any adjournments or postponements thereof) including,
among other things, consideration of a motion to adjourn or postpone the San
Antonio No. 2 Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed forms of proxy and voting thereunder will have the discretion to
vote on such matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the General Partner of San Antonio No. 2, at or before the taking of
the vote at the San Antonio No. 2 Meeting, a written notice of revocation
bearing a later date than the proxy; (ii) duly executing a later dated proxy
relating to the same partnership interests and delivering it to the General
Partner of San Antonio No. 2, before the taking of the vote at the San Antonio
No. 2 Meeting; or (iii) attending the San Antonio No. 2 Meeting and voting in
person (although attendance at the San Antonio No. 2 Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to San Antonio MRI Partnership San Antonio No. 2
Ltd. at 730 North Main Avenue, Suite B109, San Antonio, Texas 78205,

<PAGE> 107
Attention: General Partner or hand-delivered to the General Partner of San
Antonio No. 2, in each case at or before the taking of the vote at the San
Antonio No. 2 Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of San Antonio No. 2 security holders will
be shared by APPI and San Antonio No. 2. Proxies may be solicited by certain
partners, officers and employees personally or by telephone, telecopy or other
means of communication. Such persons will not receive additional compensation,
but may be reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation.

PACIFIC MEETING

DATE, TIME AND PLACE OF PACIFIC MEETING

The Pacific Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

PURPOSE

The purpose of the Pacific Meeting is to vote upon proposals: (i) to
approve the Pacific Merger Proposal and to approve and adopt the Pacific Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of Pacific Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the Pacific Meeting.
As of the Pacific Record Date, there were 22 security holders of record of
Pacific Common Stock holding an aggregate of 11,000 shares of Pacific Common
Stock. See "Pacific Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of a majority of
the shares of Pacific Common Stock outstanding on the Pacific Record Date. Votes
will be counted by the Pacific Board.

Each security holder of record of Pacific Common Stock on the Pacific
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Pacific at the Pacific Meeting.

The required quorum for the transaction of business at the Pacific
Meeting is a majority of the shares of Pacific Common Stock outstanding on the
Pacific Record Date. Pacific intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.

VOTING OF PROXIES

All shares of Pacific Common Stock that are entitled to vote and are
represented at the Pacific Meeting by properly executed proxies received prior
to or at the Pacific Meeting and not duly and timely revoked will be voted at
the Pacific Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted (i)
FOR approval of the Pacific Merger Proposal and (ii) FOR approval and adoption
of the Pacific Merger Agreement.

If any other matters are properly presented for consideration at the
Pacific Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Pacific
Meeting to another time

<PAGE> 108
and/or place (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed forms of proxy and voting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Pacific, at or before the taking of the vote at the
Pacific Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Pacific, before the taking of the vote at the
Pacific Meeting; or (iii) attending the Pacific Meeting and voting in person
(although attendance at the Pacific Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Pacific Imaging Consultants, A Medical Group, Inc. at 350
Hawthorne Avenue, Oakland, California 94609, Attention: Secretary or
hand-delivered to the Secretary of Pacific, in each case at or before the taking
of the vote at the Pacific Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Pacific security holders will be shared
by APPI and Pacific. Proxies may be solicited by certain Pacific directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.

TMI MEETING

DATE, TIME AND PLACE OF TMI MEETING

The TMI Meeting will be held at [PLACE] located at [ADDRESS] on [DATE]
at [TIME].

PURPOSE

The purpose of the TMI Meeting is to vote upon proposals: (i) to
approve the TMI Merger Proposal and to approve and adopt the TMI Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security Holders of record of TMI Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the TMI Meeting. As of the
TMI Record Date, there were 22 security holders of record of TMI Common Stock
holding an aggregate of 110,000 shares of TMI Common Stock. See "TMI Principal
Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of a majority of
the shares of TMI Common Stock outstanding on the TMI Record Date. Votes will be
counted by the TMI Board.

Each security holder of record of TMI Common Stock on the TMI Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of TMI at the TMI Meeting.

The required quorum for the transaction of business at the TMI Meeting
is a majority of the shares of TMI Common Stock outstanding on the TMI Record
Date. TMI intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

<PAGE> 109
VOTING OF PROXIES

All shares of TMI Common Stock that are entitled to vote and are
represented at the TMI Meeting by properly executed proxies received prior to or
at the TMI Meeting and not duly and timely revoked will be voted at the TMI
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the TMI Merger Proposal and (ii) FOR approval and adoption of the TMI Merger
Agreement.

If any other matters are properly presented for consideration at the TMI
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the TMI Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of TMI, at or before the taking of the vote at the TMI
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of TMI, before the taking of the vote at the TMI
Meeting; or (iii) attending the TMI Meeting and voting in person (although
attendance at the TMI Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Total Medical Imaging, Inc. at 350 Hawthorne Avenue, Oakland, California
94609, Attention: Secretary or hand-delivered to the Secretary of TMI, in each
case at or before the taking of the vote at the TMI Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of TMI security holders will be shared by
APPI and TMI. Proxies may be solicited by certain TMI directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

RNM MEETING

DATE, TIME AND PLACE OF RNM MEETING

The RNM Meeting will be held at [PLACE] located at [ADDRESS] on [DATE]
at [TIME].

PURPOSE

The purpose of the RNM Meeting is to vote upon proposals: (i) to
approve the RNM Merger Proposal and to approve and adopt the RNM Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of RNM Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the RNM Meeting. As of the
RNM Record Date, there were 24 security holders of record of RNM Common Stock
holding an aggregate of 3,096 shares of RNM Common Stock. See "RNM Principal
Stockholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal require the affirmative vote of the holders of a majority of the
shares of RNM Common Stock outstanding on the RNM Record Date. Votes will be
counted by the RNM Board.

<PAGE> 110
Each security holder of record of RNM Common Stock on the RNM Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of RNM at the RNM Meeting.

The required quorum for the transaction of business at the RNM Meeting
is a majority of the shares of RNM Common Stock outstanding on the RNM Record
Date.

VOTING OF PROXIES

All shares of RNM Common Stock that are entitled to vote and are
represented at the RNM Meeting by properly executed proxies received prior to or
at the RNM Meeting and not duly and timely revoked will be voted at the RNM
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the RNM Merger Proposal and (ii) FOR approval and adoption of the RNM Merger
Agreement.

If any other matters are properly presented for consideration at the RNM
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the RNM Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of RNM, at or before the taking of the vote at the RNM
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of RNM, before the taking of the vote at the RNM
Meeting; or (iii) attending the RNM Meeting and voting in person (although
attendance at the RNM Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Radiology and Nuclear Medicine, A Professional Association at Medical Park
West Building, 823 S. Mulvane Street, Suite 1, Topeka, Kansas 66606, Attention:
Secretary or hand-delivered to the Secretary of RNM, in each case at or before
the taking of the vote at the RNM Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of RNM Security holders will be shared by
APPI and RNM. Proxies may be solicited by certain RNM directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

AIOC MEETING

DATE, TIME AND PLACE OF AIOC MEETING

The AIOC Meeting will be held at the corporate offices of AIOC located
at 18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

PURPOSE

The purpose of the AIOC Meeting is to vote upon proposals: (i) to
approve the AIOC Merger Proposal and to approve and adopt the AIOC Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

<PAGE> 111
RECORD DATE AND OUTSTANDING SHARES

Security holders of record of AIOC Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the AIOC Meeting. As of the
AIOC Record Date, there were 13 security holders of record of AIOC Common Stock
holding an aggregate of 130 shares of AIOC Common Stock. See "Rockland
Radiological Group Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of AIOC Common Stock outstanding on the AIOC Record Date. Votes will
be counted by the AIOC Board.

Each security holder of record of AIOC Common Stock on the AIOC Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of AIOC at the AIOC Meeting.

The required quorum for the transaction of business at the AIOC Meeting
is a majority of the shares of AIOC Common Stock outstanding on the AIOC Record
Date. AIOC intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of AIOC Common Stock that are entitled to vote and are
represented at the AIOC Meeting by properly executed proxies received prior to
or at the AIOC Meeting and not duly and timely revoked will be voted at the AIOC
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the AIOC Merger Proposal and (ii) FOR approval and adoption of the AIOC Merger
Agreement.

If any other matters are properly presented for consideration at the
AIOC Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the AIOC Meeting
to another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of AIOC, at or before the taking of the vote at the
AIOC Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of AIOC, before the taking of the vote at the
AIOC Meeting; or (iii) attending the AIOC Meeting and voting in person (although
attendance at the AIOC Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Advanced Imaging of Orange County, P.C. at 18 Squadron Boulevard, New City,
New York 10956, Attention: Secretary or hand-delivered to the Secretary of AIOC,
in each case at or before the taking of the vote at the AIOC Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of AIOC security holders will be shared by
APPI and AIOC. Proxies may be solicited by certain AIOC directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

<PAGE> 112
CIA MEETING

DATE, TIME AND PLACE OF CIA MEETING

The CIA Meeting will be held at the corporate offices of CIA located at
18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

PURPOSE

The purpose of the CIA Meeting is to vote upon proposals: (i) to
approve the CIA Merger Proposal and to approve and adopt the CIA Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of CIA Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the CIA Meeting. As of the
CIA Record Date, there were 13 security holders of record of CIA Common Stock
holding an aggregate of 130 shares of CIA Common Stock. See "Rockland
Radiological Group Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of CIA Common Stock outstanding on the CIA Record Date. Votes will be
counted by the CIA Board.

Each security holder of record of CIA Common Stock on the CIA Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of CIA at the CIA Meeting.

The required quorum for the transaction of business at the CIA Meeting
is a majority of the shares of CIA Common Stock outstanding on the CIA Record
Date. CIA intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of CIA Common Stock that are entitled to vote and are
represented at the CIA Meeting by properly executed proxies received prior to or
at the CIA Meeting and not duly and timely revoked will be voted at the CIA
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the CIA Merger Proposal and (ii) FOR approval and adoption of the CIA Merger
Agreement.

If any other matters are properly presented for consideration at the CIA
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the CIA Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of CIA, at or before the taking of the vote at the CIA
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of CIA, before the taking of the vote at the CIA
Meeting; or (iii) attending the CIA Meeting and voting in person (although
attendance at the CIA Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent

<PAGE> 113
proxy should be sent to Central Imaging Associates, P.C. at 18 Squadron
Boulevard, New City, New York 10956, Attention: Secretary or hand-delivered to
the Secretary of CIA, in each case at or before the taking of the vote at the
CIA Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of CIA security holders will be shared by
APPI and CIA. Proxies may be solicited by certain CIA directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

MRIA MEETING

DATE, TIME AND PLACE OF MRIA MEETING

The MRIA Meeting will be held at the corporate offices of MRIA located
at 18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

PURPOSE

The purpose of the MRIA Meeting is to vote upon proposals: (i) to
approve the MRIA Merger Proposal and to approve and adopt the MRIA Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of MRIA Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the MRIA Meeting. As of the
MRIA Record Date, there were 13 security holders of record of MRIA Common Stock
holding an aggregate of 130 shares of MRIA Common Stock. See "Rockland
Radiological Group Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of MRIA Common Stock outstanding on the MRIA Record Date. Votes will
be counted by the MRIA Board.

Each security holder of record of MRIA Common Stock on the MRIA Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of MRIA at the MRIA Meeting.

The required quorum for the transaction of business at the MRIA Meeting
is a majority of the shares of MRIA Common Stock outstanding on the MRIA Record
Date. MRIA intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of MRIA Common Stock that are entitled to vote and are
represented at the MRIA Meeting by properly executed proxies received prior to
or at the MRIA Meeting and not duly and timely revoked will be voted at the MRIA
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the MRIA Merger Proposal and (ii) FOR approval and adoption of the MRIA Merger
Agreement.

If any other matters are properly presented for consideration at the
MRIA Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the MRIA Meeting
to another time

<PAGE> 114
and/or place (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed forms of proxy and voting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of MRIA, at or before the taking of the vote at the
MRIA Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of MRIA, before the taking of the vote at the
MRIA Meeting; or (iii) attending the MRIA Meeting and voting in person (although
attendance at the MRIA Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Mid Rockland Imaging Associates, P.C. at 18 Squadron Boulevard, New City, New
York 10956, Attention: Secretary or hand-delivered to the Secretary of MRIA, in
each case at or before the taking of the vote at the MRIA Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of MRIA security holders will be shared by
APPI and MRIA. Proxies may be solicited by certain MRIA directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

NYACK MEETING

DATE, TIME AND PLACE OF NYACK MEETING

The Nyack Meeting will be held at the corporate offices of Nyack located
at 18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

PURPOSE

The purpose of the Nyack Meeting is to vote upon proposals: (i) to
approve the Nyack Merger Proposal and to approve and adopt the Nyack Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of Nyack Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the Nyack Meeting.
As of the Nyack Record Date, there were 13 security holders of record of Nyack
Common Stock holding an aggregate of 130 shares of Nyack Common Stock. See
"Rockland Radiological Group Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of Nyack Common Stock outstanding on the Nyack Record Date. Votes
will be counted by the Nyack Board.

Each security holder of record of Nyack Common Stock on the Nyack Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Nyack at the Nyack Meeting.

The required quorum for the transaction of business at the Nyack Meeting
is a majority of the shares of Nyack Common Stock outstanding on the Nyack
Record Date. Nyack intends to include abstentions as present or represented for
purposes of establishing a quorum for the transaction of business.

<PAGE> 115
VOTING OF PROXIES

All shares of Nyack Common Stock that are entitled to vote and are
represented at the Nyack Meeting by properly executed proxies received prior to
or at the Nyack Meeting and not duly and timely revoked will be voted at the
Nyack Meeting in accordance with the instructions indicated on such proxies. If
no such instructions are indicated, such proxies will be voted (i) FOR approval
of the Nyack Merger Proposal and (ii) FOR approval and adoption of the Nyack
Merger Agreement.

If any other matters are properly presented for consideration at the
Nyack Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Nyack Meeting
to another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Nyack, at or before the taking of the vote at the
Nyack Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Nyack, before the taking of the vote at the
Nyack Meeting; or (iii) attending the Nyack Meeting and voting in person
(although attendance at the Nyack Meeting will not in and of itself constitute a
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Nyack Magnetic Resonance Imaging, P.C. at 18 Squadron
Boulevard, New City, New York 10956, Attention: Secretary or hand-delivered to
the Secretary of Nyack, in each case at or before the taking of the vote at the
Nyack Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Nyack security holders will be shared by
APPI and Nyack. Proxies may be solicited by certain Nyack directors, officers
and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.

PELHAM MEETING

DATE, TIME AND PLACE OF PELHAM MEETING

The Pelham Meeting will be held at the corporate offices of Pelham
located at 18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

PURPOSE

The purpose of the Pelham Meeting is to vote upon proposals: (i) to
approve the Pelham Merger Proposal and to approve and adopt the Pelham Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of Pelham Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the Pelham Meeting.
As of the Pelham Record Date, there were 13 security holders of record of Pelham
Common Stock holding an aggregate of 130 shares of Pelham Common Stock. See
"Rockland Radiological Group Principal Shareholders."

<PAGE> 116
VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of Pelham Common Stock outstanding on the Pelham Record Date. Votes
will be counted by the Pelham Board.

Each security holder of record of Pelham Common Stock on the Pelham
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Pelham at the Pelham Meeting.

The required quorum for the transaction of business at the Pelham
Meeting is a majority of the shares of Pelham Common Stock outstanding on the
Pelham Record Date. Pelham intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.

VOTING OF PROXIES

All shares of Pelham Common Stock that are entitled to vote and are
represented at the Pelham Meeting by properly executed proxies received prior to
or at the Pelham Meeting and not duly and timely revoked will be voted at the
Pelham Meeting in accordance with the instructions indicated on such proxies. If
no such instructions are indicated, such proxies will be voted (i) FOR approval
of the Pelham Merger Proposal and (ii) FOR approval and adoption of the Pelham
Merger Agreement.

If any other matters are properly presented for consideration at the
Pelham Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Pelham
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Pelham, at or before the taking of the vote at the
Pelham Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Pelham, before the taking of the vote at the
Pelham Meeting; or (iii) attending the Pelham Meeting and voting in person
(although attendance at the Pelham Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Pelham Imaging Associates, P.C. at 18 Squadron Boulevard, New
City, New York 10956, Attention: Secretary or hand-delivered to the Secretary of
Pelham, in each case at or before the taking of the vote at the Pelham Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Pelham security holders will be shared
by APPI and Pelham. Proxies may be solicited by certain Pelham directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.

RRG MEETING

DATE, TIME AND PLACE OF RRG MEETING

The RRG Meeting will be held at the corporate offices of RRG located at
18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

<PAGE> 117
PURPOSE

The purpose of the RRG Meeting is to vote upon proposals: (i) to
approve the RRG Merger Proposal and to approve and adopt the RRG Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of RRG Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the RRG Meeting. As of the
RRG Record Date, there were 13 security holders of record of RRG Common Stock
holding an aggregate of 130 shares of RRG Common Stock. See "Rockland
Radiological Group Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of RRG Common Stock outstanding on the RRG Record Date. Votes will be
counted by the RRG Board.

Each security holder of record of RRG Common Stock on the RRG Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of RRG at the RRG Meeting.

The required quorum for the transaction of business at the RRG Meeting
is a majority of the shares of RRG Common Stock outstanding on the RRG Record
Date. RRG intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of RRG Common Stock that are entitled to vote and are
represented at the RRG Meeting by properly executed proxies received prior to or
at the RRG Meeting and not duly and timely revoked will be voted at the RRG
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the RRG Merger Proposal and (ii) FOR approval and adoption of the RRG Merger
Agreement.

If any other matters are properly presented for consideration at the RRG
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the RRG Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of RRG, at or before the taking of the vote at the RRG
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of RRG, before the taking of the vote at the RRG
Meeting; or (iii) attending the RRG Meeting and voting in person (although
attendance at the RRG Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Rockland Radiological Group, P.C. at 18 Squadron Boulevard, New City, New
York 10956, Attention: Secretary or hand-delivered to the Secretary of RRG, in
each case at or before the taking of the vote at the RRG Meeting.

<PAGE> 118
SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of RRG security holders will be shared by
APPI and RRG. Proxies may be solicited by certain RRG directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

WIC MEETING

DATE, TIME AND PLACE OF WIC MEETING

The WIC Meeting will be held at the corporate offices of WIC located at
18 Squadron Boulevard, New City, New York 10956, on [DATE] at [TIME].

PURPOSE

The purpose of the WIC Meeting is to vote upon proposals: (i) to
approve the WIC Merger Proposal and to approve and adopt the WIC Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of WIC Common Stock at the close of business
on [DATE] are entitled to notice of and to vote at the WIC Meeting. As of the
WIC Record Date, there were 13 security holders of record of WIC Common Stock
holding an aggregate of 130 shares of WIC Common Stock. See "Rockland
Radiological Group Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of two-thirds of
the shares of WIC Common Stock outstanding on the WIC Record Date. Votes will be
counted by the WIC Board.

Each security holder of record of WIC Common Stock on the WIC Record
Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of WIC at the WIC Meeting.

The required quorum for the transaction of business at the WIC Meeting
is a majority of the shares of WIC Common Stock outstanding on the WIC Record
Date. WIC intends to include abstentions as present or represented for purposes
of establishing a quorum for the transaction of business.

VOTING OF PROXIES

All shares of WIC Common Stock that are entitled to vote and are
represented at the WIC Meeting by properly executed proxies received prior to or
at the WIC Meeting and not duly and timely revoked will be voted at the WIC
Meeting in accordance with the instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR approval of
the WIC Merger Proposal and (ii) FOR approval and adoption of the WIC Merger
Agreement.

If any other matters are properly presented for consideration at the WIC
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the WIC Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of proxy
and voting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.

<PAGE> 119
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of WIC, at or before the taking of the vote at the WIC
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of WIC, before the taking of the vote at the WIC
Meeting or; (iii) attending the WIC Meeting and voting in person (although
attendance at the WIC Meeting will not in and of itself constitute a revocation
of a proxy). Any written notice of revocation or subsequent proxy should be sent
to Women's Imaging Consultants, P.C. at 18 Squadron Boulevard, New City, New
York 10956, Attention: Secretary or hand-delivered to the Secretary of WIC, in
each case at or before the taking of the vote at the WIC Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of WIC security holders will be shared by
APPI and WIC. Proxies may be solicited by certain WIC directors, officers and
employees personally or by telephone, telecopy or other means of communication.
Such persons will not receive additional compensation, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with such solicitation.

VALLEY MEETING

DATE, TIME AND PLACE OF VALLEY MEETING

The Valley Meeting will be held at [PLACE] located at [ADDRESS] on
[DATE] at [TIME].

PURPOSE

The purpose of the Valley Meeting is to vote upon proposals: (i) to
approve the Valley Merger Proposal and to approve and adopt the Valley Merger
Agreement and (ii) to transact such other business as may properly come before
the meeting or any adjournments or postponements thereof.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of Valley Common Stock at the close of
business on [DATE] are entitled to notice of and to vote at the Valley Meeting.
As of the Valley Record Date, there were 20 security holders of record of Valley
Common Stock holding an aggregate of 19,937.50 shares of Valley Common Stock.
See "Valley Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the
Merger Proposal requires the affirmative vote of the holders of a majority of
the shares of Valley Common Stock outstanding on the Valley Record Date. Votes
will be counted by the Valley Board.

Each security holder of record of Valley Common Stock on the Valley
Record Date is entitled to cast one vote per share, exercisable in person or by
properly executed proxy, on each matter properly submitted for the vote of the
security holders of Valley at the Valley Meeting.

The required quorum for the transaction of business at the Valley
Meeting is a majority of the shares of Valley Common Stock outstanding on the
Valley Record Date. Valley intends to include abstentions as present or
represented for purposes of establishing a quorum for the transaction of
business.

VOTING OF PROXIES

All shares of Valley Common Stock that are entitled to vote and are
represented at the Valley Meeting by properly executed proxies received prior to
or at the Valley

<PAGE> 120

Meeting and not duly and timely revoked will be voted at the Valley Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted (i) FOR approval of the
Valley Merger Proposal and (ii) FOR approval and adoption of the Valley Merger
Agreement.

If any other matters are properly presented for consideration at the
Valley Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Valley
Meeting to another time and/or place (including, without limitation, for the
purpose of soliciting additional proxies), the persons named in the enclosed
forms of proxy and voting thereunder will have the discretion to vote on such
matters in accordance with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Valley, at or before the taking of the vote at the
Valley Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Valley, before the taking of the vote at the
Valley Meeting; or (iii) attending the Valley Meeting and voting in person
(although attendance at the Valley Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent to Valley Radiologists Medical Group, Inc. at 1101 South
Winchester Boulevard, Suite J220, San Jose, California 95128, Attention:
Secretary or hand-delivered to the Secretary of Valley, in each case at or
before the taking of the vote at the Valley Meeting.

SOLICITATION OF PROXIES; EXPENSES

The cost of the solicitation of Valley security holders will be shared
by APPI and Valley. Proxies may be solicited by certain Valley directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation.

THE MERGERS, EXCHANGES AND RELATED TRANSACTIONS

The following discussion summarizes the proposed Mergers, Exchanges and
related transactions. The following is not, however, a complete statement of all
provisions of the Merger Agreements, Exchange Agreements and related agreements.
A copy of the applicable Merger or Exchange Agreement being solicited hereby is
attached as Appendix A. Detailed terms of and conditions to those Mergers and
related transactions whereby the entity to be acquired by APPI shall merge with
and into a subsidiary of APPI are contained in the Pacific, TMI and Valley
Merger Agreements. A form of Merger Agreement, which substantially conforms to
the Pacific, TMI and Valley Merger Agreements, is attached to this
Prospectus/Joint Proxy Statement as Appendix B. Detailed terms of and conditions
to those Mergers and related transactions whereby the entity to be acquired by
APPI shall merge with and into APPI are contained in the Advanced, Ide, M&S,
South Texas, San Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
Merger Agreements. A form of Merger Agreement, which substantially conforms to
the Advanced, Ide, M&S, South Texas, San Antonio, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC Merger Agreements, is attached to this Prospectus/Joint
Proxy Statement as Appendix C. Detailed terms and conditions of the Exchanges
and related transactions are contained in the Exchange Agreements. A form of
Exchange Agreement, which substantially conforms to the Exchange Agreements, is
attached to the Prospectus/Joint Proxy Statement as Appendix D. Statements made
in this Prospectus/Joint Proxy Statement with respect to the terms of the
Mergers, Exchanges and related transactions are qualified in their respective
entireties by reference to the more detailed information set forth in the Merger
Agreements and Exchange Agreements.

<PAGE> 121
APPI'S MATERIAL CONTACTS AND BOARD DELIBERATIONS

APPI was formed in April 1996 to begin operations as a radiology
physician practice management company. APPI's focus is to develop, consolidate
and manage integrated radiology and IC networks. APPI's focus was developed
based on the belief of its founders that radiology services in the United States
are delivered through a fragmented system of local providers, including small to
medium-sized groups of diagnostic and interventional radiologists and radiation
oncologists. In addition, the founders observed that cost-containment pressures
on health care providers, including radiologists, have placed small to
medium-sized physician groups at a competitive disadvantage, since their
practices typically have high operating costs and often lack the capital,
information systems and management expertise necessary to provide both
high-quality and cost-effective medical care. Following its inception, APPI
began identifying radiology practices that could be candidates to affiliate with
a physician practice management company like APPI to manage and administer the
non-medical aspects of their practices and provide access to greater capital
resources, more efficient cost structures and expertise in contracting with
payors.

During May, June and July 1996, APPI developed a list of potential
radiology practices in different parts of the United States to approach
regarding possible affiliation with APPI. During this period, APPI commenced
discussions with representatives of radiology groups on its target list and
entered into confidentiality agreements with Advanced Radiology and The Ide
Group.

During August, September and October 1996, APPI continued its
affiliation development efforts and entered into confidentiality agreements with
M&S, RNM and RRG. In addition, during this period APPI entered into letters of
intent with Advanced, Ide and M&S. Following the execution of the letters of
intent, APPI commenced financial audits of Advanced, Ide and M&S and also
commenced its legal due diligence with respect to those practices.

During November and December 1996 and January 1997, APPI continued its
affiliation development efforts with practices that had executed confidentiality
agreements with. On November 20, 1996 and January 23, 1997, APPI entered into
letters of intent with RRG and RNM, respectively. Following the execution of
these letters of intent, APPI commenced financial audits of those practices and
legal due diligence. Also during this period, APPI

69
<PAGE> 122

distributed its first draft of the Service Agreement to those Founding
Affiliated Practices which had executed letters of intent as well as to Pacific
which was contemplating whether to enter into a letter of intent with APPI. APPI
then began preliminary discussions and negotiations with such Founding
Affiliated Practices regarding the Service Agreement. During this period,
Pacific and Valley entered into letters of intent with APPI.

During February, March and April 1997, commenced financial audits of and
legal due diligence on the Founding Affiliated Practices and APPI and the
Founding Affiliated Practices continued their discussions and negotiation of the
Service Agreement. In addition, APPI distributed the first draft of the Merger
and Exchange Agreements for review and comment by the Founding Affiliated
Practices.

Thereafter, APPI began negotiations and discussions with the Founding
Affiliated Practices regarding the Merger and Exchange Agreements. Certain
representatives of the Founding Affiliated Practices met with members of APPI's
management in Dallas on March 7-8 to discuss open issues in the Service
Agreement and the Merger and Exchange Agreements and preliminary strategies for
APPI's growth and development. On April 16-17, certain representatives of the
Founding Affiliated Practices and counsel for such Practices met in Dallas to
continue their discussions of open points in the Merger and Exchange Agreements
and the Service Agreement.

In March and April 1997, APPI selected the underwriters for the Initial
Public Offering. In early April, APPI's management met with the underwriters to
commence preparation of the Form S-1. During this time, APPI continued its legal
due diligence and financial audits regarding the Founding Affiliated Practices.

During May, June and through the date of this filing, APPI concluded its
negotiation of the Service Agreement, Merger and Exchange Agreements and related
agreements for the Reorganizations and in June such agreements were executed by
APPI and each respective Founding Affiliated Practice. APPI continued to work on
the Form S-1 and filed the Form S-1 with the SEC on June 27, 1997. During May
and June, APPI also commenced work on this Registration Statement.

ADVANCED RADIOLOGY'S MATERIAL CONTACTS AND MANAGEMENT COMMITTEE DELIBERATIONS

On January 1, 1995, five separate radiology practices joined together to
form Advanced Radiology, LLC. Two additional practices subsequently became
members of Advanced Radiology, LLC in March, 1996 and January, 1997. In the
spring of 1996, the

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Management Committee of Advanced Radiology, LLC, consisting of Harry A. Knipp,
M.D., H. Alexander Munitz, M.D., Barton M. Cockey, M.D., Michael L. Sherman,
M.D., James D. Winthrop, M.D., Blair Andrew, M.D., David McNeely, M.D., Charles
J.E. Arnold, M.D., and Lee Goodman, M.D., recognized it would need to address
the company's long-term competitive issues in light of the challenges resulting
from merging six practices, as well as the changes occurring in the Baltimore
market and the healthcare industry as a whole.

Drs. Sherman, Munitz, Andelman, Winthrop and Arnold, representatives of
Advanced's Management Committee, met with representatives from APPI in May 1996
in order to explore the possibility of merging with APPI. In June 1996, APPI was
invited to present to the entire Management Committee of Advanced Radiology,
LLC.

Also during this period, the Management Committee determined to hire
consultants from First Union Bank of Charlotte, North Carolina, who have
extensive experience in medical mergers and acquisitions. The consultant group,
working with the Advanced Management Committee, identified and met with several
prospective physician management companies. The consultant group also outlined
four additional alternatives for Advanced: raise private equity, undertake an
initial public offering, sell the practice to a hospital, or sell the practice
to a managed care company. Advanced Radiology, LLC explored these alternatives
in June 1996.

Working with the consultants from First Union, a confidentiality
agreement with APPI was negotiated and signed on July 3, 1996. At that same
time, certain business and financial information of Advanced was shared with
APPI.

On July 23, 1996, the consultants from First Union gave a presentation
to the members of Advanced Radiology, LLC regarding their recommendations and
analyses as to the various alternatives described and discussed APPI's proposal.
The members authorized the Management Committee to continue negotiating with
APPI. After additional meetings of the Management Committee, a letter of intent
was negotiated and signed on August 13, 1996.

Thereafter, Advanced Radiology, LLC and its representatives entered into
negotiations with APPI regarding valuation of the practice and the Service
Agreement. Over the course of the next ten months, the Management Committee met
on a weekly basis to discuss the terms of the proposed transaction with APPI. In
addition, the members of Advanced Radiology, LLC met on three separate occasions
(February 6, 1997, February 19, 1997 and February 20, 1997) to discuss the
proposed transaction. Drs. Sherman, Munitz and Winthrop of Advanced, along with
representatives from First Union, attended a meeting with APPI in

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Dallas on March 7, 1997 to discuss the transaction and meet representatives from
the other Founding Affiliated Practices. On March 20, 1997 the consultants from
First Union gave a presentation regarding the current status of the transaction
and valuation considerations to the Management Committee of Advanced Radiology,
LLC.

From March 1997 to May 1997, Advanced Radiology, LLC and First Union
worked with APPI to finalize valuation of the practice and terms of the Service
Agreement. On May 29, 1997, Advanced Radiology LLC held a meeting of the
membership where First Union presented valuation considerations and the members
reviewed certain preliminary terms of the proposed transaction with APPI. The
members again authorized the Management Committee to continue to proceed with
the discussion with APPI.

In June 1997, the Management Committee of Advanced Radiology, LLC
approved the execution and delivery of the Advanced Merger Agreement, subject to
member approval after their receipt and review of a proxy statement/prospectus
under this Registration Statement.

THE IDE GROUP'S MATERIAL CONTACTS AND BOARD DELIBERATIONS

Ide was first introduced to APPI through Derace Schaffer, M.D.,
President of Ide. On May 29, 1996, Lawrence R. Muroff, M.D. the Chairman of the
Board and Senior Vice President of Physician Affairs of APPI, Gregory L.
Soloman, Chief Executive Officer of APPI and Mark S. Martin, Senior Vice
President and Chief Operating Officer of APPI gave a presentation on APPI's
business model to a majority of Ide's shareholder group.

On June 10, 1996, Ide entered into a Confidentiality and Standstill
Agreement with APPI. At the June 19, 1996 meeting of Ide's Board of Directors,
the Ide Board considered the risks and benefits of an affiliation with APPI,
including other options available to the group. They also discussed the due
diligence that would be required of both APPI and Ide. The Ide Board delegated
further responsibility for investigating and negotiating a possible affiliation
with APPI to the Board's Finance Committee, consisting of Michael Lebowitz,
M.D., Richard Tobin, M.D., Ronald Hainen, M.D., Frank Kelley, M.D., Rosemary
Utz, M.D. and Ken Pearsen, M.D. From the initial meeting on June 19, 1996 until
the signing of the Merger Agreement on June 27, 1997, the Ide Board met
periodically to discuss the status of the ongoing negotiations with APPI. Also
during this period, Ide's Finance Committee met several times a month, both
formally and informally, to discuss every aspect of the proposed transaction.
The Finance Committee reported to the Ide Board on an ongoing basis.

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On June 27, 1996, Ide sent initial financial and practice data to APPI.
The company received a first draft of the Service Agreement from APPI on July
19, 1996. A shareholders' meeting was held during the month of July, 1996 at
which the shareholders authorized the Board and officers of Ide to negotiate and
execute a non-binding letter of intent with APPI. On August 1, 1996, the letter
of intent was signed. Throughout August 1997, Ide focused on responding the
APPI's due diligence requests.

On August 30, 1996, APPI and its accountants, Arthur Andersen, gave a
presentation to Ide's Finance Committee regarding tax considerations associated
with the proposed transaction.

On October 9, 1996, Messrs. Martin and Solomon gave a presentation of
the preliminary terms, including the management fee, of the proposed transaction
to all members of the Finance Committee. Thereafter, the Committee weighed the
considerations supporting the transaction (such as access to capital to expand
the business, professional practice expansion, infrastructure cost avoidance)
against the financial impact of the proposed management fee. After an extensive
discussion of these matters, the Finance Committee determined to recommend
proceeding with the proposed transaction to the entire Ide Board. The Board
accepted the Committee's recommendation and approved a continuation of
negotiations and discussions with APPI.

On October 16, 1996, certain representatives of Ide (including Drs.
Lebowitz and Tobin) and Ide's legal counsel participated in a conference call
with Mr. Solomon and APPI's legal counsel to discuss issues pertaining to the
Service Agreement. On November 26, 1996, DeJoy, Knauf & Blood commenced their
audit of Ide.

On January 29, 1997, representatives from Ide and representatives from
Advanced had a teleconference to discuss the proposed transactions and share
information, analyses, concerns, ideas, etc.

On February 19-20, 1997, APPI revisited the economic terms of the deal
with the Finance Committee following receipt of the audited financial
information from Dejoy, Knauf & Blood. Following the presentation, the Finance
Committee discussed the proposed terms in detail.

On February 26, 1997, representatives of a majority of the Founding
Affiliated Practices met via teleconference to once again share information and
analysis concerning APPI and the Merger and Exchange Transactions. The groups
reconvened in person at a meeting in Dallas on March 8-9, 1997 to continue
addressing these issues.

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On March 18, 1997, the Finance Committee reviewed the discussions from
the Dallas meeting with the Ide Board and presented to the Board a final
proposal for the APPI merger. On April 2, 1997, the Board met to discuss in
detail the final proposal. The Board reiterated its approval of continued
discussions and negotiations with APPI and authorized the Ide management to
release Ide's financial information for public disclosure in the Form S-1.

On May 22, 1997, the Finance Committee presented the Ide Board with the
Merger Agreement and Services Agreement. The Board considered the terms of these
agreements and determined that more detailed information was required before a
Board vote could be taken. Over the course of the next week, the Finance
Committee addressed the issues raised at the May 22 Board meeting, which
included retaining Shattuck, Hammond to provide a fairness opinion to Ide with
respect to the service fee under the Services Agreement.

On June 3, 1997, the Ide Board unanimously approved the Ide Merger
Agreement, Services Agreement and Ide Merger Proposal, subject to shareholder
approval after receipt and review of a Prospectus/Joint Proxy Statement pursuant
to this Registration Statement after it becomes effective. The Board also
authorized execution and delivery of the agreements, subject to receipt of a
preliminary fairness opinion from Shattuck, Hammond satisfactory to the Finance
Committee. On June 24, 1997, the preliminary opinion was delivered and the
Finance Committee determined it was satisfied with the findings. On June 27,
1997 the Ide Merger Agreement was executed and delivered by Ide.

M&S X-RAY PRACTICES' MATERIAL CONTACTS AND BOARD DELIBERATIONS

During the spring of 1996, Mr. Mark Martin, the Chief Operating Officer
of APPI, contacted M&S X-Ray practices to inquire whether M&S, South Texas, San
Antonio, Lexington, Madison, South Texas No. 1 and San Antonio No. 2 would be
interested in affiliating with APPI.

During July 1996, representatives of the M&S X-Ray Practices met with
representatives of Cain Brothers, financial advisor for M&S X-Ray Practices, to
discuss the possible strategic benefits of an affiliation with APPI. The
Entities comprising the M&S X-Ray Practices entered into letters of intent with
APPI in September 1996. Following the execution of such letters of intent, M&S
X-Ray Practices began conducting a financial and legal due diligence review of
APPI.

During October, November and December of 1996, M&S X-Ray Practices
completed their financial review and legal due diligence on APPI. During the
same time period, representatives

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of M&S X-Ray Practices and its counsel began negotiating Service Agreements with
APPI.

On January 31, 1997, certain representatives of M&S X-Ray Practices,
including Terry A. Brown, the Chief Executive Officer of M&S, Dr. Jeremy N.
Wiersig, a director of M&S and Dr. Randall S. Preissig, a director of M&S and
the managing partner of Madison, met with Mark Martin and Sami Abbasi, the Chief
Operating Officer and Chief Financial Officer, respectively, of APPI to discuss
the M&S, South Texas and San Antonio Merger Proposals and the Lexington,
Madison, South Texas No. 1 and San Antonio No. 2 Exchange Proposals. During this
meeting the parties also discussed the preliminary results of Arthur Anderson's
financial review of the various entities comprising M&S X-Ray Practices.

During February 1997, representatives of the Exchange Entities and
members of the respective Boards of M&S, South Texas and San Antonio met with
APPI to discuss the economic and tax consequences of the Merger and Exchange
Proposals.

On March 7, 1997, Dr. A. Kenneth Trevino, a director of M&S, Dr. Gregory
Wojcik, a director of M&S, South Texas and San Antonio, and Dr. Wiersig met with
members of APPI's management and certain representatives of the other Founding
Affiliated Practices in Dallas to discuss certain open issues in the Service
Agreements and the Merger and Exchange Agreements and strategies for APPI's
growth and development. On April 17, 1997 counsel for M&S X-Ray Practices and
certain representatives of the other Founding Affiliated Practices reconvened in
Dallas to continue their discussions of the Merger and Exchange Agreements.

During May and June, 1997, M&S X-Ray Practices and APPI concluded their
negotiations over the M&S, South Texas and San Antonio Merger Agreements and the
Lexington, Madison, South Texas No. 1 and San Antonio No. 2 Exchange Agreements.

On May 29, 1997, the members of the respective Boards of M&S, South
Texas and San Antonio met and approved the M&S Merger Proposal, South Texas
Merger Proposal and San Antonio Merger Proposal, respectively, subject to
shareholder approval after their receipt and review of a proxy
statement/prospectus pursuant to this Registration Statement. Around the same
time Dr. Randall Preissig, the Managing Partner of each of the Exchange
Entities, determined that the Lexington Exchange Proposal, Madison Exchange
Proposal, South Texas No. 1 Exchange Proposal and San Antonio No. 2 Exchange
Proposal would be in the best interests of Lexington, Madison, South Texas No. 1
and San Antonio No. 2, respectively. Accordingly, Dr. Preissig executed each of
the Exchange Agreements on behalf of the applicable Exchange Entities and
approved each Exchange Proposal, subject to shareholder

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approval after their receipt and review of a proxy statement/prospectus pursuant
to this Registration Statement after it becomes effective.

PACIFIC IMAGING CONSULTANTS' MATERIAL CONTACTS AND BOARD DELIBERATIONS

During 1996, certain representatives of Pacific, including Charles E.
Fiske, M.D., a member of the Pacific Board, and Mark Weinberg, the Executive
Director of Pacific, met from time to time with members of the Valley Board to
discuss a proposal that the two companies establish a physician practice
management company.

In October 1996, Less Chafen, M.D. a member of the Pacific Board,
attended the Economic Symposium for Radiology and learned about APPI's business
model and growth plans. At the October meeting of the Pacific Board, Dr. Chafen
discussed the strategic benefits that Pacific could derive from being affiliated
with a physician practice management company such as APPI, such as gaining
access to management expertise and capital and achieving operating efficiencies.
The Pacific Board agreed to consider pursuing an affiliation with APPI and
contacted the Valley Board to inquire whether Valley would be also interested in
meeting with representatives of APPI.

In December 1996, certain representatives of APPI, including Lawrence R.
Muroff, M.D., the Chairman of the Board and Senior Vice President of Physician
Affairs of APPI, and Mark S. Martin, the Senior Vice President and Chief
Operating Officer of APPI, met with the directors of Pacific and Valley at a
joint meeting of the Pacific and Valley Boards. At the meeting, Dr. Muroff and
Mr. Martin presented APPI's business model and discussed the potential benefits
that an affiliation with APPI could provide to both Pacific and Valley. After
the Dr. Chafen and Mr. Martin left the meeting, the Pacific Board discussed the
relative merits of affiliating with APPI and establishing a separate physician
practice management group with Valley. The Pacific Board determined that an
affiliation with APPI would allow Pacific to obtain greater economies of scale
and operating efficiencies than the Valley proposal. On the other hand, the
Pacific Board believed that the Valley Proposal would allow it to retain greater
autonomy and would provide Pacific with management service fees, an additional
source of revenue. After a lengthy discussion regarding these issues, the
Pacific Board agreed that it would be in the best interests of Pacific and its
shareholders to pursue an affiliation with APPI. Pacific then signed a
confidentiality agreement with APPI.

During December 1996 and January and February 1997, Pacific conducted a
financial and legal due diligence review of APPI.

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During the same time period, Pacific began negotiations with APPI on a Service
Agreement and Merger Agreement.

On March 7-8 of 1997, certain representatives of Pacific met with
management of APPI and representatives of certain other Founding Affiliated
Practices to discuss open issues in the Service Agreements and Merger and
Exchange Agreements and to review APPI's strategy for growth and development. In
April 1997, representatives of Pacific and its counsel reconvened in Dallas with
management of APPI and representatives of other Founding Affiliated Practices to
continue their discussions regarding open issues in the Merger Agreements.

On May 13, 1997, the Pacific Board met to review the Service Agreement
and Merger Agreement with APPI. During the meeting, the Pacific Board approved
the Service Agreement, Merger Agreement and Pacific Merger Proposal, subject to
shareholder approval after receipt and review of a Prospectus/Joint Proxy
Statement pursuant to this Registration Statement after it becomes effective.

RADIOLOGY AND NUCLEAR MEDICINE'S MATERIAL CONTACTS AND BOARD DELIBERATIONS

In July 1996, representatives of RNM attended a conference at which
representatives of APPI, including Lawrence R. Muroff, M.D., the Chairman of the
Board and Senior Vice President of Physician Affairs of APPI, Derace L.
Schaffer, M.D., a Director of APPI, Gregory L. Solomon, President, Chief
Executive Officer and a Director of APPI, and Mark S. Martin, Senior Vice
President and Chief Operating Officer of APPI, made presentations regarding
physician practice management companies. Subsequently, a representative of RNM
contacted APPI regarding the possibility of having APPI's representatives make a
similar presentation to RNM.

On September 17, 1996, Messrs. Solomon and Martin and Dr. Muroff
presented information about APPI to the RNM Board, and certain officers and
employees of RNM, including the rationale for affiliating with APPI and current
industry issues faced by radiology groups. Following the meeting, RNM entered
into a confidentiality agreement with APPI.

On October 10, 1996, the RNM Board met and reviewed initial drafts and a
summary of the key terms of the proposed Service Agreement. The RNM Board then
met on October 14, 1996, at which time William J. Walls, M.D., President of RNM,
led a discussion concerning the disadvantages and advantages of affiliating with
APPI. After discussion, the RNM Board determined that additional information was
needed before it could make any recommendations to the stockholders.

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At the December 26, 1996 Board meeting, Ralph D. Reymond, M.D., reminded
the RNM Board that there were alternatives to pursuing an affiliation with APPI
and suggested that the group designate Richard Meindinger, M.D., as medical
director with authority to address certain management issues faced by RNM. The
RNM Board then discussed the advisability of proceeding to the letter of intent
stage with APPI. After discussing several alternatives to signing the letter of
intent, the Board concurred that proceeding with negotiations and discussions
with APPI was the most favorable option presented to the Board and agreed to
sign the letter of intent on January 23, 1997.

A meeting was then held on January 6, 1997 with Dr. Muroff, Messrs.
Solomon and Martin, and Ralph D. Reymond, M.D., Stephen D. Coon, M.D., Judith A.
Kooser, M.D., Russell E. Greene, M.D., Benjamin A. Franklin, M.D., Russell C.
Harvey, M.D., Crosby L. Gernon, M.D., and Dennis C. Peterson M.D., to address
questions raised by certain of RNM's physicians.

During January, February and March 1997, RNM conducted a financial and
legal due diligence review of APPI.

On March 7, 1997, Drs. Coon and Walls and Mr. Brown attended a meeting
with other members of the Founding Affiliated Practices and APPI management,
investors, accountants and attorneys to discuss APPI's growth and development
strategy and issues related to the Service Agreement and Merger Agreements.

On March 20, 1997, Messrs. Martin and Solomon met with the RNM Board and
certain RNM stockholders to address any outstanding questions and concerns
raised by the RNM Board and RNM employees. Following that meeting, the RNM Board
met to discuss whether the Company should continue to pursue negotiations and
discussions with APPI. After lengthy deliberations, the Board decided to submit
the issue to a stockholder vote.

On June 10, 1997, a special meeting of the RNM stockholders was held at
which the stockholders preliminarily approved the RNM Merger Agreement and RNM
Merger Proposal, subject to final stockholder approval after their receipt and
review of a Prospectus/Joint Proxy Statement pursuant to this Registration
Statement after it becomes effective and subject to satisfaction of the
following additional conditions:

a. Development of a final Service Agreement and a final Merger
Agreement in forms acceptable to the RNM Board following
consultation with legal counsel.

b. Receipt of an acceptable evaluation by Shattuck Hammond
Partners, Inc. of the payments due under the Service
Agreement.

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c. Receipt of appropriate approvals and consents to the
transactions contemplated in the Service Agreement and the
Merger Agreement from hospitals and other contracting parties
with which RNM currently has contractual relationships.

d. That a covenant be received from APPI which would
guarantee preservation now and in the future of the
capabilities of the RNM retirement plans or replacement
plans relative to the abilities of radiologist
participants and retirees to continue funding, continue
investment alternatives and continue all the other
flexibility in the retirement plans to the extent
currently available.

ROCKLAND RADIOLOGICAL GROUP'S MATERIAL CONTACTS AND BOARD DELIBERATIONS

On November 15, 1995, the Board of Directors of each of the Entities
comprising the Rockland Radiological Group met to discuss the future direction
of the group's radiology practice in the evolving managed care environment. The
directors discussed various options that were available to the group, including,
among other things, merger with another physician practice, network association
and affiliation with a public company. Over the course of the ensuing year, the
directors held strategic planning meetings and conducted interviews with various
multispecialty physician practice management companies.

In October 1996, the management group of the Rockland Radiological
Group, consisting of Herbert Z. Geller, M.D., Mark Geller, M.D. and Elliot
Handler, M.D., along with its financial consultant and administrator, attended
the Economics Symposium in Washington, D.C., where they learned of APPI as a
radiology practice management company. The Rockland management group discussed
APPI's potential and decided to explore the merits of its possible affiliation
with APPI. Shortly thereafter, the Rockland Radiological Group entered into a
confidentiality agreement with APPI.

On November 13, 1996, the Boards of the Rockland Entities met with their
financial consultant to discuss methods for evaluating the practice and
protecting its value, as well as the strategic and economic benefits of various
practice alternatives available to the group, including a merger with APPI. On
November 20, 1996, the Board approved a letter of intent to pursue negotiations
with APPI.

On December 17, 1996, the Boards met to discuss the progress of Rockland
Radiological Group's merger discussions with APPI.

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The management group explained the financial and legal due diligence review
which was being conducted by APPI.

On February 26, 1997, the Boards met with a delegation of APPI
representatives to discuss APPI's planned structure, the other prospective
Founding Affiliated Practices, APPI's growth and development strategy and the
business and financial impact of a merger of APPI and the Rockland Radiological
Group.

On March 12, 1997, at a meeting of the Rockland Boards, Smith Barney
made a presentation regarding its experience with physician practice management
companies. The Rockland Boards discussed procedural matters related to moving
forward with the merger negotiations, including the commencement of a financial
and legal due diligence review of APPI.

On May 21, 1997, the Rockland Boards met with counsel for the group to
discuss the status of the due diligence review of APPI and the various
agreements which would be executed in connection with the Merger Transactions.
On May 23, 1997, the Rockland Boards voted unanimously in favor of proceeding
with the Merger Transactions with APPI, subject to agreement on the definitive
terms of the merger and a vote of the shareholders of the Rockland Entities
after receipt and review of a Prospectus/Joint Proxy statement pursuant to this
Registration Statement after it has become effective.

VALLEY RADIOLOGY GROUP'S MATERIAL CONTACTS AND BOARD DELIBERATIONS

During September, October, and November 1996, members of the Valley
Board met with representatives of Pacific and members of the Pacific Board to
discuss a proposal that the two companies form a MSO in order to achieve
strategic benefits and economies of scale. In November 1996, APPI
representatives made a presentation to the Pacific Board, and the Pacific
representatives of the MSO subsequently suggested that Valley contact APPI. Dr.
Edward Lebowitz, a member of the Valley Board, met with Greg Solomon, Chief
Executive Officer of APPI, in Chicago during the following week at the annual
Radiological Society of North America meeting.

During December 1996, Lawrence R. Muroff, M.D., the Chairman of the
Board and Senior Vice President of Physician Affairs of APPI, and Mark Martin,
the Senior Vice President and Chief Operating Officer of APPI, met with the
directors of Valley and Pacific at a joint meeting of the Valley and Pacific
Boards. At the meeting, Dr. Muroff and Mr. Martin presented a detailed analysis
of APPI's business plan and discussed the potential benefits that an affiliation
with APPI could provide to both Valley and Pacific. Dr. Muroff and Mr. Martin
also answered questions from the members of the Valley and Pacific boards at
that time.

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Although the Valley Board believed that Valley would derive certain
strategic benefits from being affiliated with APPI, including increased access
to capital and improved operating efficiencies, it decided not to enter into a
letter of intent with APPI at that time. The principal reasons for preferring
not to affiliate with APPI were the loss of autonomy and reduction in income
that were considered likely to result from such an affiliation.

During January and February 1997, Valley and Pacific representatives
made further progress in the formation of their MSO, but it became clear that
Pacific was strongly in favor of pursuing an affiliation with APPI. For this
reason, in February 1997, Messrs. Solomon and Martin, and Don Pelton, and Mark
Laurent of APPI attended a meeting of the Valley Board to discuss further the
potential benefits of an affiliation with APPI. Upon completion of the meeting,
the Valley Board determined that an affiliation with APPI would allow Valley to
achieve greater economies of scale, a greater competitive advantage in securing
third party payor contracts, and better operating efficiencies than the MSO
proposal. For these reasons, Valley entered into a letter of intent with APPI in
March 1997.

During March and April 1997, Valley conducted its financial review of
and legal due diligence on APPI. During the same time period, Dr. Lebowitz and
John Noonan, M.D., and Eric Trefelner, M.D., members of the Valley Board, met
with members of APPI's management team, as well as representatives of certain
other Founding Affiliated Practices, in Dallas to discuss the Mergers and
Exchanges and APPI's strategy for growth and development. Among the issues
discussed were APPI's stated dedication to "same store growth," the importance
of "same store growth" to share value as emphasized by representatives of
potential underwriters, and the strategy APPI would pursue to raise individual
physician income after the IPO. Also during March and April 1997, Valley began
negotiations with APPI over the Valley Merger Agreement and the Service
Agreement.

In May 1997, Mr. Martin attended the Valley Board meeting to answer
questions from the Valley Board and to address any remaining concerns that the
Valley Board had regarding the Valley Merger Proposal, specifically the economic
and tax consequences of such a proposal. After Mr. Martin excused himself from
the meeting, the Valley Board discussed the results of the Company's due
diligence efforts and the terms of the Valley Merger Agreement with the
Company's legal counsel. Following these discussions, the Valley Board approved
the Valley Merger Proposal, subject to shareholder approval after receipt and
review of a Prospectus/Joint Proxy Statement under this Registration Statement.

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APPI'S REASONS FOR THE MERGERS AND EXCHANGES

APPI was formed in April 1996 for the sole purpose of acquiring and
consolidating radiology practices on a national basis with the explicit purpose
of forming a publicly traded radiology practice management company. From its
inception, APPI's focus has been to develop, consolidate and manage integrated
radiology and IC networks. APPI and the Founding Affiliated Practices
recognized that market forces were driving physicians, including radiologists,
into larger group practices and driving group practices to seek corporate
partners to provide management expertise, capital and sophisticated information
systems. APPI and the Founding Affiliated Practices identified certain factors
which they believe apply pressure to physician groups, which factors include,
without limitation, increased managed care penetration, declining
reimbursements from private and governmental payors, increased competition for
payor contracts, physician oversupply, physician income erosion, increased
complexity of billing and collection processes, increased information system
requirements and the need for greater sums of capital to remain competitive.

APPI and the Founding Affiliated Practices believed that if APPI could
provide the resources (including business and management expertise, purchasing
power and sophisticated information systems) necessary for radiology practices
to compete in the managed care dominated environment, then radiology practices
would be motivated to affiliate with APPI. APPI and the Founding Affiliated
Practices believe that if APPI was successful in affiliating with a select
group of radiology practices across the United States, that they would be able
to develop integrated networks of radiology groups and ICs to provide wide
geographic coverage and subspecialty expertise.

THE MERGER AND EXCHANGE ENTITIES' REASONS FOR THE MERGERS AND EXCHANGES
AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE MERGER ENTITIES

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issued to the RNM security holders pursuant to lock-up agreements executed by
them in connection with the RNM Merger Transaction, but concluded that such
factors were outweighed by the potential benefits. THE RNM BOARD RECOMMENDS
APPROVAL OF THE RNM MERGER PROPOSAL BY ITS SECURITY HOLDERS.

CONDITIONS TO THE MERGERS AND EXCHANGES

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received all necessary state securities and "Blue Sky" permits; the APPI Common
Stock shall have been approved for listing on the Nasdaq National Market; the
Initial Public Offering shall have closed; and each Merger or Exchange Proposal
shall have been approved by the requisite number of security holders of each
respective Entity.

If any material condition to consummation of the Mergers or Exchanges is
waived, the Registration Statement will be amended and the security holders of
each of the Entities will be resolicited.

For a more detailed discussion of the foregoing, see "Conditions of the
Merger Agreements and Exchange Agreements."

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TERMS OF THE MERGERS AND EXCHANGES

Each Merger Agreement was entered into by and between APPI and Advanced,
Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG, WIC or Valley, as the case may be, in June 1997 following approval
by each Merger Entity's Board of Directors. Each of Advanced, Ide, M&S, South
Texas, San Antonio, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC will merge
with and into APPI. A separate wholly-owned subsidiary of APPI will merge with
and into Pacific, TMI and Valley such that each of Pacific, TMI and
Valley will become a wholly-owned subsidiary of APPI. The description of the
merger agreements set forth below summarizes all material terms thereof and is
qualified in its entirety by reference to the copy of the applicable Merger or
Exchange Agreement being solicited hereby set forth as Appendix A and the forms
of Merger Agreement set forth as Appendices B and C hereto and incorporated
herein by this reference.

Each Exchange Agreement was executed by APPI and Randall Preissig, M.D.,
the Managing Partner of each of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2, on behalf of each such Exchange Entity, in June 1997. The holders
of partnership interests of each Exchange Entity will exchange such interests
for shares of APPI Common Stock. The description of the Exchange Agreements set
forth below summarizes all material terms thereof and is qualified in its
entirety by reference to the copy of the applicable Merger or Exchange Agreement
being solicited hereby set forth as Appendix A and the form of Exchange
Agreement set forth as Appendix C hereto and incorporated herein by this
reference.

CONVERSION OF SHARES AND EXCHANGE OF PARTNERSHIP INTERESTS

The aggregate consideration (APPI Common Stock and cash) to be paid by
APPI to each security holder pursuant to the terms of each Merger Agreement and
Exchange Agreement shall fluctuate in relation to the Initial Public Offering
Price; provided, however, the aggregate consideration shall not be less than a
negotiated base aggregate consideration as set forth in each Merger Agreement
and Exchange Agreement. Each security holder of a Merger or Exchange Entity who
receives shares of APPI Common Stock and cash in each entity's respective Merger
or Exchange will be required to execute and deliver a Stockholder Representation
Letter to APPI, which, among other things, prohibits such security holder from
selling any such shares for a period of 12 months following the Effective Date,
and then limits the ability of such security holder to sell such shares to (i)
up to 25% of such shares upon expiration of the 12-month period following the
Effective Date, (ii) an additional 25% of such shares upon expiration of the
18-month period following the Effective Date and (iii) the remaining 50% of such
shares on or after the second anniversary of the Effective Date. The following
tables present the potential exchange ratios and cash consideration to be paid
by APPI to each security holder, assuming a range in the Initial Public Offering
Price of $10 to $20.

Conversion of Advanced Common Stock

At the Effective Time of the Advanced Merger, the Advanced Common Stock
shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

<PAGE> 140

(b) Each share of Advanced Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "Advanced Exchange Ratio") and that amount of cash (the "Advanced Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common
Stock is $14.00 per share, then the Advanced Exchange
Ratio shall be 7.5000 and the Advanced Cash Consideration
shall be $35.000;

(ii) if the Initial Public Offering Price of the APPI Common
Stock is greater than $14.00 per share, then the Advanced
Exchange Ratio shall be 7.5000 and the Advanced Cash
Consideration shall be equal to the product of (x)
$35.0000 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common
Stock is less than $14.00 per share, then the Advanced
Exchange Ratio shall be equal to the product of (x) 7.5000
multiplied by (y) the quotient of $14.00 divided by the
Initial Public Offering Price, and the Advanced Cash
Consideration shall be $35.0000.

<PAGE> 141
The following table illustrates the applicable Advanced Exchange Ratio
and Advanced Cash Consideration for each share of Advanced Common Stock at each
price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 10.5000 $35.0000
$11.00 9.5455 $35.0000
$12.00 8.7500 $35.0000
$13.00 8.0769 $35.0000
$14.00 7.5000 $35.0000
$15.00 7.5000 $37.5000
$16.00 7.5000 $40.0000
$17.00 7.5000 $42.5000
$18.00 7.5000 $45.0000
$19.00 7.5000 $47.5000
$20.00 7.5000 $50.0000
</TABLE>

Conversion of Ide Common Stock

The aggregate consideration (APPI Common Stock and cash) to be paid by
APPI to each security holder pursuant to the terms of the Merger Agreement or
the Exchange Agreement, as the case may be, shall fluctuate in relation to the
Initial Public Offering Price; provided, however, the aggregate consideration
shall not be less than a negotiated base aggregate consideration as set forth in
the Merger Agreement or Exchange Agreement. The following tables present the
potential Exchange Ratios and Cash Consideration to be paid by APPI to each
security holder, assuming a range of $10 to $20.

At the Effective Time of the Ide Merger, the Ide Common Stock shall be
converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of Ide Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "Ide Exchange Ratio") and that amount of cash (the "Ide Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Ide Exchange Ratio shall be 942.5581
and the Ide Cash Consideration shall be $4,398.6047;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Ide Exchange Ratio shall
be 942.5581 and the Ide Cash Consideration shall be equal to the
product of (x) $4,398.6047 multiplied (y) the quotient of the
Initial Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Ide Exchange Ratio shall be
equal to the product of (x) 942.5581 multiplied by (y) the
quotient of $14.00 divided by the Initial Public Offering Price,
and the Ide Cash Consideration shall be $4,398.6047.

<PAGE> 142
The following table illustrates the applicable Ide Exchange Ratio and
Ide Cash Consideration for each share of Ide Common Stock at each price within
the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 1,319.5813 $4,398.6047
$11.00 1,199.6194 $4,398.6047
$12.00 1,099.6511 $4,398.6047
$13.00 1,015.0626 $4,398.6047
$14.00 942.5581 $4,398.6047
$15.00 942.5581 $4,712.7908
$16.00 942.5581 $5,026.9768
$17.00 942.5581 $5,341.1629
$18.00 942.5581 $5,655.3489
$19.00 942.5581 $5,969.5350
$20.00 942.5581 $6,283.7210
</TABLE>

Conversion of M&S Common Stock

At the Effective Time of the M&S Merger, the shares of M&S Common Stock
shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of M&S Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "M&S Exchange Ratio") and that amount of cash (the "M&S Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the M&S Exchange Ratio shall be 3,868.1289
and the M&S Cash Consideration shall be $18,051.2684;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the M&S Exchange Ratio shall
be 3,868.1289 and the M&S Cash Consideration shall be equal to
the product of (x) $18,051.2684 multiplied by (y) the quotient
of the Initial Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the M&S Exchange Ratio shall be
equal to the product of (x) 3,868.1289 multiplied by (y) the
quotient of $14.00 divided by the Initial Public Offering Price,
and the M&S Cash Consideration shall be $18,051.2684.

<PAGE> 143
The following table illustrates the applicable M&S Exchange Ratio and
M&S Cash Consideration for each share of M&S Common Stock at each price within
the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 5,415.3805 $18,051.2684
$11.00 4,923.0732 $18,051.2684
$12.00 4,512.8171 $18,051.2684
$13.00 4,165.6773 $18,051.2684
$14.00 3,868.1289 $18,051.2684
$15.00 3,868.1289 $19,340.6447
$16.00 3,868.1289 $20,630.0210
$17.00 3,868.1289 $21,919.3973
$18.00 3,868.1289 $23,208.7737
$19.00 3,868.1289 $24,498.1500
$20.00 3,868.1289 $25,787.5263
</TABLE>

Exchange of Lexington Partnership Interests

Upon the consummation of the Lexington Exchange, certain partners of
Lexington will transfer 18.98% of the total partnership interests in Lexington
in exchange for that aggregate number of shares of APPI Common Stock (the
"Lexington Exchange Ratio") and that aggregate amount of cash (the "Lexington
Cash Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Lexington Exchange Ratio shall be
108,092.0000 and the Lexington Cash Consideration shall be
$504,427.0000;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Lexington Exchange Ratio
shall be $108,092.0000 and the Lexington Cash Consideration shall
be equal to the product of (x) $504,427.0000 multiplied by (y)
the quotient of the Initial Public Offering Price divided by
$14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Lexington Exchange Ratio
shall be equal to the product of (x) 108,092.0000 multiplied by
(y) the quotient of $14.00 divided by the Initial Public
Offering Price, and the Lexington Cash Consideration shall be
504,427.0000.

<PAGE> 144
The following table illustrates the applicable Lexington Exchange Ratio
and Lexington Cash Consideration that such Lexington Partners would receive at
each price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 151,328.8000 $504,427.0000
$11.00 137,571.6364 $504,427.0000
$12.00 126,107.3333 $504,427.0000
$13.00 116,406.7692 $504,427.0000
$14.00 108,092.0000 $504,427.0000
$15.00 108,092.0000 $540,457.5000
$16.00 108,092.0000 $576,488.0000
$17.00 108,092.0000 $612,518.5000
$18.00 108,092.0000 $648,549.0000
$19.00 108,092.0000 $684,579.5000
$20.00 108,092.0000 $720,610.0000
</TABLE>

Exchange of Madison Partnership Interests

Upon the consummation of the Madison Exchange, all of the partners of
Madison will transfer 100% of the total partnership interests in Madison in
exchange for that aggregate number of shares of APPI Common Stock (the "Madison
Exchange Ratio") and that aggregate amount of cash (the "Madison Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Madison Exchange Ratio shall be
123,502.0000 and the Cash Consideration shall be $576,342.0000;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Madison Exchange Ratio
shall be 123,502.0000 and the Madison Cash Consideration shall be
equal to the product of (x) $576,342.0000 multiplied by (y) the
quotient of the Initial Public Offering Price divided by $14.00;
and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Madison Exchange Ratio shall
be equal to the product of (x) 123,502.0000 multiplied by (y)
the quotient of $14.00 divided by the Initial Public Offering
Price, and the Madison Cash Consideration shall be $576,342.0000.

<PAGE> 145
The following table illustrates the applicable Madison Exchange Ratio
and Madison Cash Consideration that such Madison Partners would receive at each
price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 172,902.8000 $576,342.0000
$11.00 157,184.3636 $576,342.0000
$12.00 144,085.6667 $576,342.0000
$13.00 133,002.1539 $576,342.0000
$14.00 123,502.0000 $576,342.0000
$15.00 123,502.0000 $617,509.2857
$16.00 123,502.0000 $658,676.5714
$17.00 123,502.0000 $699,843.8571
$18.00 123,502.0000 $741,011.1429
$19.00 123,502.0000 $782,178.4286
$20.00 123,502.0000 $823,345.7143
</TABLE>

Conversion of South Texas Common Stock

At the Effective Time of the South Texas Merger, the South Texas Common
Stock shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of South Texas Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "South Texas Exchange Ratio") and that amount of cash (the "South Texas
Cash Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the South Texas Exchange Ratio shall be
21.3083 and the South Texas Cash Consideration shall be $99.5167;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the South Texas Exchange
Ratio shall be 21.3083 and the South Texas Cash Consideration
shall be equal to the product of (x) $99.5167 multiplied by (y)
the quotient of the Initial Public Offering Price divided by
$14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the South Texas Exchange Ratio
shall be equal to the product of (x) 21.3083 multiplied by (y)
the quotient of $14.00 divided by the Initial Public Offering
Price, and the South Texas Cash Consideration shall be $99.5167.

<PAGE> 146
The following table illustrates the applicable South Texas Exchange
Ratio and South Texas Cash Consideration for each share of South Texas Common
Stock at each price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 29.8316 $99.5167
$11.00 27.1197 $99.5167
$12.00 24.8597 $99.5167
$13.00 22.9474 $99.5167
$14.00 21.3083 $99.5167
$15.00 21.3083 $106.6250
$16.00 21.3083 $113.7334
$17.00 21.3083 $120.8417
$18.00 21.3083 $127.9500
$19.00 21.3083 $135.0583
$20.00 21.3083 $142.1667
</TABLE>

Exchange of South Texas No. 1 Partnership Interests

Upon the consummation of the South Texas No. 1 Exchange, certain
partners of South Texas No. 1 will transfer 99% of the total partnership
interests in South Texas No. 1 in exchange for that aggregate number of shares
of APPI Common Stock (the "South Texas No. 1 Exchange Ratio") and that aggregate
amount of cash (the "South Texas No. 1 Cash Consideration") determined in
accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the South Texas No. 1 Exchange Ratio
shall be 253,221.0000 and the South Texas No. 1 Cash
Consideration shall be $1,181,698.0000;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the South Texas No. 1
Exchange Ratio shall be 253,221.0000 and the South Texas No. 1
Cash Consideration shall be equal to the product of (x)
$1,181,698.0000 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the South Texas No. 1 Exchange
Ratio shall be equal to the product of (x) 253,221.0000
multiplied by (y) the quotient of $14.00 divided by the Initial
Public Offering Price, and the South Texas No. 1 Cash
Consideration shall be $1,181,698.0000.

<PAGE> 147
The following table illustrates the applicable South Texas No. 1
Exchange Ratio and South Texas No. 1 Cash Consideration that such South Texas
No. 1 Partners would receive at each price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 354,509.4000 $1,181,698.0000
$11.00 322,281.2727 $1,181,698.0000
$12.00 295,424.5000 $1,181,698.0000
$13.00 272,699.5385 $1,181,698.0000
$14.00 253,221.0000 $1,181,698.0000
$15.00 253,221.0000 $1,266,105.0000
$16.00 253,221.0000 $1,350,512.0000
$17.00 253,221.0000 $1,434,919.0000
$18.00 253,221.0000 $1,519,326.0000
$19.00 253,221.0000 $1,603,733.0000
$20.00 253,221.0000 $1,688,140.0000
</TABLE>

Conversion of San Antonio Common Stock

At the Effective Time of the San Antonio Merger, the San Antonio Common
Stock shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of San Antonio Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "San Antonio Exchange Ratio") and that amount of cash (the "San Antonio
Cash Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the San Antonio Exchange Ratio shall be
28.4313 and the San Antonio Cash Consideration shall be
$132.6792;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the San Antonio Exchange
Ratio shall be 28.4313 and the San Antonio Cash Consideration
shall be equal to the product of (x) $132.6792 multiplied by (y)
the quotient of the Initial Public Offering Price divided by
$14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the San Antonio Exchange Ratio
shall be equal to the product of (x) 28.4313 multiplied by (y)
the quotient of $14.00 divided by the Initial Public Offering
Price, and the San Antonio Cash Consideration shall be $132.6792.

<PAGE> 148
The following table illustrates the applicable San Antonio Exchange
Ratio and San Antonio Cash Consideration for each share of San Antonio Common
Stock at each price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 39.8038 $132.6792
$11.00 36.1853 $132.6792
$12.00 33.1699 $132.6792
$13.00 30.6183 $132.6792
$14.00 28.4313 $132.6792
$15.00 28.4313 $142.1563
$16.00 28.4313 $151.6338
$17.00 28.4313 $161.1105
$18.00 28.4313 $170.5875
$19.00 28.4313 $180.0646
$20.00 28.4313 $189.5417
</TABLE>

Exchange of San Antonio No. 2 Partnership Interests

Upon the consummation of the San Antonio No. 2 Exchange, certain
partners of San Antonio No. 2 will transfer 99% of the total partnership
interests in San Antonio No. 2 in exchange for that aggregate number of shares
of APPI Common Stock (the "San Antonio No. 2 Exchange Ratio") and that aggregate
amount of cash (the "San Antonio No. 2 Cash Consideration") determined in
accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the San Antonio No. 2 Exchange Ratio
shall be 337,754.0000 and the San Antonio No. 2 Cash
Consideration shall be $1,576,187.0000;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the San Antonio No. 2
Exchange Ratio shall be 337,754.0000 and the San Antonio No. 2
Cash Consideration shall be equal to the product of (x)
$1,576,187.0000 multiplied by (y) the quotient of the Initial
Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the San Antonio No. 2 Exchange
Ratio shall be equal to the product of (x) 337,754.0000
multiplied by (y) the quotient of $14.00 divided by the Initial
Public Offering Price, and the San Antonio No. 2 Cash
Consideration shall be $1,576,187.0000.

<PAGE> 149
The following table illustrates the applicable San Antonio No. 2
Exchange Ratio and San Antonio No. 2 Cash Consideration that such San Antonio
No. 2 Partners would receive at each price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 472,855.6000 $1,576,187.0000
$11.00 429,868.7272 $1,576,187.0000
$12.00 394,046.3333 $1,576,187.0000
$13.00 363,735.0769 $1,576,187.0000
$14.00 337,754.0000 $1,576,187.0000
$15.00 337,754.0000 $1,688,771.7857
$16.00 337,754.0000 $1,801,356.5714
$17.00 337,754.0000 $1,913,941.3571
$18.00 337,754.0000 $2,026,526.1429
$19.00 337,754.0000 $2,139,110.9286
$20.00 337,754.0000 $2,251,695.7143
</TABLE>

Conversion of Pacific Common Stock

At the Effective Time of the Pacific Merger, the Pacific Common Stock
shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of Pacific Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "Pacific Exchange Ratio") and that amount of cash (the "Pacific Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Pacific Exchange Ratio shall be
41.5926 and the Pacific Cash Consideration shall be $194.0989

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Pacific Exchange Ratio
shall be 41.5926 and the Pacific Cash Consideration shall be
equal to the product of (x) $194.0989 multiplied by (y) the
quotient of the Initial Public Offering Price divided by
$14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Pacific Exchange Ratio shall
be equal to the product of (x) 41.5926 multiplied by (y) the
quotient of $14.00 divided by the Initial Public Offering Price,
and the Pacific Cash Consideration shall be $194.0989.

<PAGE> 150
The following table illustrates the applicable Pacific Exchange Ratio
and Pacific Cash Consideration for each share of Pacific Common Stock at each
price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 58.2296 $194.0989
$11.00 52.9360 $194.0989
$12.00 48.5247 $194.0989
$13.00 44.7920 $194.0989
$14.00 41.5926 $194.0989
$15.00 41.5926 $207.9631
$16.00 41.5926 $221.8273
$17.00 41.5926 $235.6915
$18.00 41.5926 $249.5557
$19.00 41.5926 $263.4199
$20.00 41.5926 $277.2841
</TABLE>

Conversion of TMI Common Stock

At the Effective Time of the TMI Merger, the TMI Common Stock shall be
converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of TMI Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "TMI Exchange Ratio") and that amount of cash (the "TMI Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the TMI Exchange Ratio shall be 2.2396 and
the TMI Cash Consideration shall be $10.4515;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the TMI Exchange Ratio shall
be 2.2396 and the TMI Cash Consideration shall be equal to the
product of (x) $10.4515 multiplied by (y) the quotient of the
Initial Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the TMI Exchange Ratio shall be
equal to the product of (x) 2.2396 multiplied (y) the quotient
of $14.00 divided by the Initial Public Offering Price, and the
TMI Cash Consideration shall be $10.4515.

<PAGE> 151
The following table illustrates the applicable TMI Exchange Ratio and
TMI Cash Consideration for each share of TMI Common Stock at each price within
the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 3.1354 $10.4515
$11.00 2.8504 $10.4515
$12.00 2.6129 $10.4515
$13.00 2.4119 $10.4515
$14.00 2.2396 $10.4515
$15.00 2.2396 $11.1980
$16.00 2.2396 $11.9446
$17.00 2.2396 $12.6911
$18.00 2.2396 $13.4376
$19.00 2.2396 $14.1842
$20.00 2.2396 $14.9307
</TABLE>

Conversion of RNM Common Stock

At the Effective Time of the RNM Merger, the shares of RNM shall be
converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of RNM Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "RNM Exchange Ratio") and that amount of cash (the "RNM Cash
Consideration") determined in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the RNM Exchange Ratio shall be 309.5930
and the Cash Consideration shall be $1,444.7674;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the RNM Exchange Ratio shall
be 309.5930 and the RNM Cash Consideration shall be equal to the
product of (x) $1,444.7674 multiplied by (y) the quotient of
the Initial Public Offering Price divided by $14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the RNM Exchange Ratio shall be
equal to the product of (x) 309.5930 multiplied by (y) the
quotient of $14.00 divided by the Initial Public Offering Price
and the RNM Cash Consideration shall be $1,444.7674.

<PAGE> 152
The following table illustrates the applicable RNM Exchange Ratio and
RNM Cash Consideration for each share of RNM Common Stock at each price within
the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 433.4302 $1,444.7674
$11.00 394.0275 $1,444.7674
$12.00 361.1918 $1,444.7674
$13.00 333.4079 $1,444.7674
$14.00 309.5930 $1,444.7674
$15.00 309.5930 $1,547.9651
$16.00 309.5930 $1,651.1627
$17.00 309.5930 $1,754.3604
$18.00 309.5930 $1,857.5581
$19.00 309.5930 $1,960.7558
$20.00 309.5930 $2,063.9534
</TABLE>

Conversion of Common Stock of Entities Comprising Rockland
Radiological Group

At the respective Effective Time of each of the AIOC Merger, CIA Merger,
MRIA Merger, Nyack Merger, Pelham Merger, RRG Merger and WIC Merger, the shares
of each such Entity shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the applicable Effective Time shall remain issued and outstanding from
and after such Effective Time.

(b) Each share of AIOC Common Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common Stock, Pelham Common Stock, RRG Common Stock and WIC Common
Stock issued and outstanding at the Effective Time of the respective Mergers
shall cease to be outstanding and shall be converted into and exchanged for the
right to receive that number of shares of APPI Common Stock (the "Rockland
Exchange Ratio") and that amount of cash (the "Rockland Cash Consideration")
obtained in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Rockland Exchange Ratio shall be
1,589.4231 and the Rockland Cash Consideration shall be
$7,417.3077;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Rockland Exchange Ratio
shall be 1,589.4231 and the Rockland Cash Consideration shall be
equal to the product of (x) $7,417.0377 multiplied by (y) the
quotient of the Initial Public Offering Price divided by $14.00;

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Rockland Exchange Ratio
shall be equal to the product of (x) 1,589.4231 multiplied by
(y) the quotient of $14.00 divided by the Initial Public
Offering Price, and the Rockland Cash Consideration shall be
$7,417.3077.

100
<PAGE> 153
The following table illustrates the applicable Rockland Exchange Ratio
and Rockland Cash Consideration for each share of AIOC Common Stock, CIA Common
Stock, MRIA Common Stock, Nyack Common Stock, Pelham Common Stock, RRG Common
Stock and WIC Common Stock at each price within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 2,225.1923 $7,417.3077
$11.00 2,022.9021 $7,417.3077
$12.00 1,854.3270 $7,417.3077
$13.00 1,711.6864 $7,417.3077
$14.00 1,589.4231 $7,417.3077
$15.00 1,589.4231 $7,947.1154
$16.00 1,589.4231 $8,476.9231
$17.00 1,589.4231 $9,006.7308
$18.00 1,589.4231 $9,536.5385
$19.00 1,589.4231 $10,066.3462
$20.00 1,589.4231 $10,596.1539
</TABLE>

Conversion of Valley Common Stock

At the Effective Time of the Valley Merger, the shares of Valley Common
Stock shall be converted as follows:

(a) Each share of APPI Common Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.

(b) Each share of Common Stock of the subsidiary of APPI issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
converted into one share of APPI Common Stock.

(c) Each share of Valley Common Stock issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and
exchanged for the right to receive that number of shares of APPI Common Stock
(the "Valley Exchange Ratio") and that amount of cash (the "Valley Cash
Consideration") obtained in accordance with the following:

(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Valley Exchange Ratio shall be 29.6972
and the Cash Consideration shall be $138.5868;

(ii) if the Initial Public Offering Price of the APPI Common Stock is
greater than $14.00 per share, then the Valley Exchange Ratio
shall be equal to 29.6972 and the Valley Cash Consideration shall
be equal to the product of (x) $138.5868 multiplied by (y) the
quotient of the Initial Public Offering Price divided by
$14.00; and

(iii) if the Initial Public Offering Price of the APPI Common Stock is
less than $14.00 per share, then the Valley Exchange Ratio shall
be equal to the product of (x) 29.6972 multiplied by (y) the
quotient of $14.00 divided by the Initial Public Offering Price,
and the Valley Cash Consideration shall be $138.5868.

101

<PAGE> 154
The following table illustrates the applicable Valley Exchange Ratio and
Valley Cash Consideration for each share of Valley Common Stock at each price
within the $10 to $20 range:

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 41.5761 $138.5868
$11.00 37.7964 $138.5868
$12.00 34.6467 $138.5868
$13.00 31.9816 $138.5868
$14.00 29.6972 $138.5868
$15.00 29.6972 $148.4859
$16.00 29.6972 $158.3849
$17.00 29.6972 $168.2840
$18.00 29.6972 $178.1830
$19.00 29.6972 $188.0821
$20.00 29.6972 $197.9811
</TABLE>

The total consideration to be paid to each Founding Affiliated Practice
and its respective security holders in connection with the Mergers and Exchanges
was determined by valuing each of the Founding Affiliated Practices using a
consistent methodology. The audited financial statements of the Founding
Affiliated Practices were used as a basis for estimating the consideration to
be paid. Management evaluated each practice's operating cash flows taking into
account expected future trends (e.g., reimbursement trends, potential growth
opportunities and capital needs, etc.). The merger consideration is comprised
of 25% cash and 75% stock. The consideration mix proposed by APPI management
was designed to achieve several objectives, including aligning physicians'
economic interests with the Company's, managing balance sheet ratios and
preserving capital for future growth opportunities.

In addition, the Company has entered into an agreement in principle with
LXL, to purchase substantially all of the assets of LXL for a purchase price of
approximately $532,000.00. The Company intends to pay the entire purchase price
in cash. The closing of the LXL asset purchase transaction is expected to occur
within 90 days following the consummation of the Mergers and Exchanges. Such
transaction is not a part of any Merger or Exchange. Certain shareholders of
Valley, including Peter J. Long, M.D., Cyril J. McDonald, M.D., William T.
McLaughlin, M.D., Richard Silberstein, M.D., Robert Filipi, M.D., Edward
Lebowitz, M.D., Stephen Teng, M.D., James Vaudagna, M.D., Andrew Koo, M.D.,
Franklin Gee, M.D., Keith Fraker, M.D., John Noonan, M.D., and Bruce Hyman,
M.D., collectively own 100% of the partnership interests in LXL.

CONDITIONS OF THE MERGER AGREEMENTS AND EXCHANGE AGREEMENTS

Conditions of the Mergers and Exchanges.

Consummation of the Mergers and Exchanges is subject to the
satisfaction of the following conditions under applicable laws and rules:

(a) Proceedings. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or
prohibit the carrying out of the Merger Transactions or the
Exchange Transactions.

(b) Securities Approvals. The Registration Statement and the Form
S-1 shall have become effective under the Securities Act and no
stop order suspending the effectiveness of such registration
statements shall have been issued, and no proceedings for that
purpose shall have been initiated or threatened by the SEC. At
or prior to the effective date of the Form S-1, APPI shall have
received all state securities and "Blue Sky" permits necessary
to consummate the transactions contemplated by the Merger
Agreements and the Exchange Agreements. The APPI Common Stock
shall have been approved for listing on the Nasdaq National
Market, subject only to official notification of issuance.

(d) Security Holder Approval. Each Merger or Exchange Proposal, as
the case may be, shall have been approved and adopted by the
requisite number of security holders of each respective Entity.

102
<PAGE> 155

Conditions Applicable to the Merger Agreements.

In addition, the obligation of each Merger Entity to consummate each
respective Merger is subject to certain additional conditions, unless waived in
writing by the applicable Merger Entity, which include, without limitation, the
following:

(a) Representations and Warranties. The representations and
warranties of APPI contained in each respective Merger Agreement
shall be accurate.

(b) Covenants. APPI shall have performed the covenants required by
each Merger Agreement.

(d) Service Agreement Analysis. Each Merger Entity shall have
received from Shattock Hammond Partners, Inc. its opinion and
analysis that the terms of the Service Agreement are fair and
commercially reasonable.

(e) Tax Opinion. Each Merger Entity shall have received from Haynes
and Boone a tax opinion in the form set forth in an exhibit to
the forms of Merger Agreement set forth as Appendices B and C to
this Prospectus/Joint Proxy Statement.

In addition, the obligation of APPI to consummate each Merger is subject
to certain conditions, unless waived by APPI, which include, without limitation,
the following:

(a) Representations and Warranties. The representations and
warranties of each Merger Entity contained in the applicable
Merger Agreement shall be accurate.

(b) Covenants. Each Merger Entity shall have performed the covenants
required by the applicable Merger Agreement.

(d) Closing of Mergers and Exchanges. Each of the Mergers and
Exchanges shall have closed.

(e) Consideration Restrictions. Each respective Merger Entity shall
have satisfied its obligations to its security holders regarding
dissenters or related rights under the corporate law of
applicable state, and the sum of the amount which may become due
to the security holders who have dissented to such Merger and
have indicated their intent to seek appraisal rights plus the
cash portion of the consideration paid in the applicable Merger
shall not exceed 25% of the total consideration paid in the
applicable Merger.

(f) Stockholder Representation Letter; Indemnification Agreement.
Each security holder who is a party to each respective Merger
Agreement shall have executed and delivered to APPI a Stockholder
Representation Letter and certain of such security holders shall
have executed and delivered to APPI an Indemnification Agreement.

(g) Transfer of Assets. All of the assets and properties of each
respective Merger Entity and its related entities to be
transferred to each respective NewCo pursuant to each respective
Reorganization and as approved by APPI shall have been
transferred, assigned and conveyed to such NewCo.

103

<PAGE> 156

Conditions Applicable to the Exchange Agreements.

The obligation of each Exchange Entity to consummate each respective
Exchange is also subject to certain additional conditions unless waived by the
applicable Exchange Entity, which conditions include, without limitation, the
following:

(a) Representations and Warranties. The representations and
warranties of APPI contained in each respective Exchange
Agreement shall be accurate.

(b) Covenants. APPI shall have performed the covenants required by
each Exchange Agreement.

(d) Tax Opinion. Each Exchange Entity shall have received a tax
opinion from Haynes and Boone.

In addition, the obligation of APPI to consummate each Exchange is
subject to certain conditions unless waived by APPI, which include, without
limitation, the following:

(a) Representations and Warranties. The representations and
warranties of each Exchange Entity contained in the applicable
Exchange Agreement shall be accurate.

(b) Covenants. Each Exchange Entity shall have performed the
covenants required by the applicable Exchange Agreement.

(d) Closing of Mergers and Exchanges. Each of the Mergers and
Exchanges shall have closed.

CLOSING OF THE MERGERS AND EXCHANGES AND EFFECTIVE TIME OF THE MERGERS

The closing of the transactions provided for in each Exchange Agreement
and each Merger Agreement shall occur on the date on which the transactions
contemplated by the Initial Public Offering are consummated. The Effective Time
of each Merger will occur at the time the applicable Certificate of Merger is
filed with the Secretary of State of the state of California, Delaware, Kansas,
Maryland, New York or Texas, as the case may be, in accordance with such laws,
which filing will be made after satisfaction of certain conditions set forth in
each of the Agreements or at such later time which the parties have agreed upon
and designated in such filing as the effective time of the Merger. See
"Conditions of the Merger Agreements and Exchange Agreements" above.

CONDUCT OF THE MERGER ENTITIES' BUSINESSES PRIOR TO THE MERGERS

Under each respective Merger Agreement, except as required pursuant to
the Reorganizations, where applicable, each Merger Entity has agreed, during the
period from the date of the Merger Agreement and continuing until the earlier of
the termination of such Merger Agreement pursuant to its terms and the Effective
Time, except to the extent that APPI otherwise consents in writing, that each
Merger Entity shall, in all material respects, conduct its business in the
ordinary and usual course consistent with past practices and shall use
reasonable efforts to preserve intact its business and its relationships with
private or governmental entities obligated to render payment to APPI in
consideration of the performance of professional medical or technical services,
referral sources, customers, suppliers, patients, employees and others having
business relations with it; maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the conduct
of the business of the Merger Entity; continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In

104

<PAGE> 157
addition, without the written consent of APPI, the Merger Entity shall not:
amend its articles or certificate of incorporation or bylaws, or other charter
documents; issue, sell or authorize for issuance or sale, shares of any class of
its securities (including, but not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any subscriptions, options,
warrants, rights or convertible securities, or enter into any agreements or
commitments of any character obligating it to issue or sell any such securities;
redeem, purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock or any option, warrant or other right to purchase or acquire any
such shares; declare or pay any dividend or other distribution (whether in cash,
stock or other property) with respect to its capital stock (except as expressly
contemplated herein); voluntarily sell, transfer, surrender, abandon or dispose
of any of its assets or property rights (tangible or intangible) other than the
sale of inventory, if any, in the ordinary course of business consistent with
past practices; grant or make any mortgage or pledge or subject itself or any of
its properties or assets to any lien, charge or encumbrance of any kind, except
liens for taxes not currently due and except for liens which arise by operation
of law; voluntarily incur or assume any liability or indebtedness (contingent or
otherwise), except in the ordinary course of business or which is reasonably
necessary for the conduct of its business; make or commit to make any capital
expenditures which are not reasonably necessary for the conduct of its business;
grant any increase in the compensation payable or to become payable to
directors, officers, consultants or employees other than merit increases to
employees of the Merger Entity who are not directors or officers of the Merger
Entity, except in the ordinary course of business and consistent with past
practices; change in any manner any accounting principles or methods other than
changes which are consistent with generally accepted accounting principles;
enter into any material commitment or transaction other than in the ordinary
course of business; take any action which could reasonably be expected to have a
material adverse effect on the Merger Entity; apply any of its assets to the
direct or indirect payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any affiliate of the
Merger Entity, other than in the ordinary course and consistent with past
practices; agree, whether in writing or otherwise, to do any of the foregoing;
and take any action at the board of director or security holder level to (in any
way) amend, revise or otherwise affect the prior corporate approval and
effectiveness of the applicable Merger Agreement or any of the agreements
attached as exhibits thereto, other than as required to discharge its or their
fiduciary duties.

CONDUCT OF EXCHANGE ENTITIES' BUSINESS PRIOR TO THE EXCHANGES

Under each respective Exchange Agreement, each Exchange Entity has
agreed, during the period from the date of each respective Exchange Agreement
and continuing until the earlier of the termination of such Exchange Agreement
pursuant to its terms and the Exchange Closing Date, except to the extent that
APPI otherwise consents in writing, that each Exchange Entity and each partner
thereof shall use his/her/its best efforts to cause the applicable Exchange
Entity to, in all material respects, conduct the business of the Exchange Entity
in the ordinary and usual course consistent with past practices and shall use
reasonable efforts to preserve intact the Exchange Entity's business and its
relationships with referral sources, customers, suppliers, patients, employees
and others having business relations with it; maintain and keep the Exchange
Entity's properties and assets in good repair and condition consistent with past
practice as is material to the conduct of the business of the Exchange Entity;
continuously maintain insurance coverage substantially equivalent to the
insurance coverage in existence on the date hereof. Without the written consent
of APPI, the Exchange Entity shall not, and each partner thereof shall use
his/her/its best efforts to cause the Exchange Entity not to, amend the Exchange
Entity's Certificate of limited partnership or Partnership Agreement or other
charter documents; issue, sell or authorize for issuance or sale, any
partnership interests of the Exchange Entity (except in connection with the
Exchange Transaction) or any subscriptions, options, warrants, rights or
convertible securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such interests; redeem, purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock or
any option, warrant or other right to purchase or acquire any such shares;
declare or pay

105

<PAGE> 158

any dividend or other distribution (whether in cash, stock or other property)
with respect to its partnership interest (except as expressly contemplated
herein); voluntarily sell, transfer, surrender, abandon or dispose of any of the
Exchange Entity's assets or property rights (tangible or intangible) other than
the sale of inventory, if any, in the ordinary course of business consistent
with past practices; grant or make any mortgage or pledge or subject the
Exchange Entity or any of the Exchange Entity's properties or assets to any
lien, charge or encumbrance of any kind, except liens for taxes not currently
due and except for liens which arise by operation of law; voluntarily incur or
assume any liability or indebtedness (contingent or otherwise), except in the
ordinary course of business or which is reasonably necessary for the conduct of
the Exchange Entity's business; make or commit to make any capital expenditures
which are not reasonably necessary for the conduct of the Exchange Entity's
business; grant any increase in the compensation payable or to become payable to
partners, officers, consultants or employees other than merit increases to
employees of the Exchange Entity who are not partners or officers of the
Exchange Entity, except in the ordinary course of business and consistent with
past practices; change in any manner any accounting principles or methods other
than changes which are consistent with generally accepted accounting principles;
enter into any material commitment or transaction other than in the ordinary
course of business; take any action which could reasonably be expected to have a
material adverse effect on the Exchange Entity; apply any of its assets to the
direct or indirect payment, discharge, satisfaction or reduction of any amount
payable directly or indirectly to or for the benefit of any affiliate of the
Exchange Entity, other than in the ordinary course and consistent with past
practices; agree, whether in writing or otherwise, to do any of the foregoing;
and take any action to in any way amend, revise or otherwise affect the Exchange
Entity's prior approval and effectiveness of the Exchange Agreement or any of
the agreements attached as exhibits thereto, other than as required to discharge
their fiduciary duties.

TERMINATION OF EACH MERGER AGREEMENT

Each Merger Agreement may be terminated and the Merger Transactions may
be abandoned:

(a) at any time prior to the date each of the Form S-1 and the
Registration Statement is declared effective by the SEC (the "Effective Date")
by mutual agreement of all parties;

(b) at any time prior to the Effective Date by APPI if any material
representation or warranty of the Merger Entity or any security holder who is a
party to such agreement contained in each respective Merger Agreement or in any
certificate or other document executed and delivered by the Merger Entity or any
such security holder pursuant to each such Merger Agreement is or becomes untrue
or breached in any material respect or if the Merger Entity or any such security
holder fails to comply in any material respect with any material covenant or
agreement contained therein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 30 days after receipt of
written notice thereof;

(c) at any time prior to the Effective Date by each respective Merger
Entity if any representation or warranty of APPI (or the relevant subsidiary of
APPI) contained in each respective Merger Entity or in any certificate or other
document executed and delivered by APPI (or the relevant subsidiary of APPI)
pursuant to each respective Merger Entity is or becomes untrue in any material
respect of if APPI fails to comply in any material respect with any covenant or
agreement contained therein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 30 days after receipt of
written notice thereof;

(d) at any time prior to the Effective Date by APPI if, as a result of
the conduct of due diligence and regulatory compliance procedures, APPI deems
termination to be advisable; or

106

<PAGE> 159

(e) by APPI or each respective Merger Entity if the respective Merger
shall not have been consummated by November 30, 1997.

TERMINATION OF EACH EXCHANGE AGREEMENT

Each Exchange Agreement may be terminated and each respective Exchange
may be abandoned:

(a) at any time prior to the Exchange Closing Date by mutual agreement
of all parties;

(b) at any time prior to the Exchange Closing Date by APPI if any
material representation or warranty of each respective Exchange Entity or any
partner thereof contained in each respective Exchange Agreement or in any
certificate or other document executed and delivered by each respective Exchange
Entity or any partner thereof pursuant to this Agreement is or becomes untrue or
breached in any material respect or if each respective Exchange Entity or any
Seller fails to comply in any material respect with any material covenant or
agreement contained therein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 30 days after receipt of
written notice thereof;

(c) at any time prior to the Exchange Closing Date by a partner of each
respective Exchange Entity as to such partner if any representation or warranty
of APPI contained in each respective Exchange Agreement or in any certificate or
other document executed and delivered by APPI pursuant to each respective
Exchange Agreement is or becomes untrue in any material respect of if APPI fails
to comply in any material respect with any covenant or agreement contained
therein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 30 days after receipt of written notice thereof;

(d) at any time prior to the Exchange Closing Date by APPI if, as a
result of the conduct of due diligence and regulatory compliance procedures,
APPI deems termination to be advisable; or

(e) by APPI or any partner to each respective Exchange Entity as to such
partner if the applicable Exchange shall not have been consummated by November
30, 1997.

EXPENSES; FEES

EXCHANGE/ISSUANCE OF STOCK CERTIFICATES IN THE MERGERS AND EXCHANGES

At or after the Effective Time of each Merger and on the Closing Date of
each Exchange, APPI will make available, and each holder of Old Shares (other
than those security holders who take required actions to properly assert their
dissenters' rights under the applicable state law) or Old Partnership Interests,
as the case may be, will be entitled to receive, upon surrender to APPI of one
or more certificates evidencing Old Shares for cancellation or upon delivery to
APPI of a bill of sale evidencing the transfer of Old Partnership Interests,
certificates or a similar instrument evidencing the number of shares of APPI
Common Stock into which such Old Shares are converted in each Merger or for
which such Old Partnership Interests are exchanged in each Exchange. Shares of
APPI Common Stock into which Old Shares are to be converted in each Merger shall
be deemed to have been issued at the applicable Effective Time. Shares of APPI
Common Stock for which Old Partnership Interests are exchanged in each Exchange
shall be deemed to have been issued as of the applicable Closing Date.

107

<PAGE> 160
PAYMENT IN LIEU OF FRACTIONAL SHARES

No certificates evidencing fractional shares of APPI Common Stock shall
be issued upon the surrender for exchange of certificates or a similar
instrument evidencing Old Shares or Old Partnership Interests. A holder of Old
Shares or Old Partnership Interests otherwise entitled to receive a fractional
share of APPI Common Stock upon the surrender for exchange of certificates or a
similar instrument evidencing such Old Shares or Old Partnership Interests shall
receive a cash payment in lieu thereof reflecting such holder's proportionate
interest in a share of APPI Common Stock multiplied by the Initial Public
Offering Price of APPI Common Stock.

INTERESTS OF CERTAIN PERSONS IN THE MERGERS AND EXCHANGES

Michael L. Sherman, M.D., a director nominee of APPI and a physician
owner of Advanced, entered into a consulting agreement with APPI in August 1996
pursuant to which Dr. Sherman received an option grant for 20,000 shares of APPI
Common Stock under the Automatic Option Grant Program. The Company and Dr.
Sherman have also entered into a consulting agreement which will go into effect
immediately following the Initial Public Offering for which Dr. Sherman will
receive annual compensation of $100,000. In addition, as part of the Advanced
Merger Transactions, the Company will issue 65,014 shares of APPI Common Stock
and $303,395 in cash to Dr. Sherman in exchange for his ownership interest in
Advanced, subject to the adjustments applicable to changes in the Initial Public
Offering Price as described above.

Less T. Chafen, M.D., Chairman of the Board of Pacific, has been
nominated and approved to serve as a director of APPI effective upon
consummation of the Initial Public Offering. At such time, Dr. Chafen will
receive an option grant for 30,000 shares of APPI Common Stock under the
Company's 1996 Stock Option Plan Automatic Option Grant Program. In addition, as
part of the Pacific and TMI Merger Transactions, the Company will issue 31,994
shares of APPI Common Stock and $149,307 in cash to Dr. Chafen in exchange for
his ownership interests in Pacific and TMI, subject to the adjustments
applicable to changes in the Initial Public Offering Price as described above.

Derace L. Schaffer, M.D., a director of APPI since its inception and
President of Ide, purchased 1,000,000 shares of APPI Common Stock for $125,000.
Dr. Schaffer also owns $107,500 in principal amount of the Convertible Notes.
In addition, on July 25, 1997, Dr. Schaffer and Mr. Pappajohn, a director of
the Company, personally guaranteed a $1,000,000 line of credit for the benefit
of the Company. As a director of the Company, Dr. Schaffer will be eligible to
participate in the Automatic Option Grant Program upon consummation of the
Initial Public Offering. In addition, as part of the Ide Merger Transactions,
APPI will issue 94,256 shares of APPI Common Stock and $439,860.00 in cash to
Dr. Schaffer in exchange for his ownership interest in Ide, subject to the
adjustments applicable to changes in the Initial Public Offering Price as
described above.

108

<PAGE> 161

<TABLE>
<CAPTION>
Consideration to
Be Received
--------------------------------
Assets to be Number of Cash
Security Holder Contributed(1) Shares Distribution
- --------------- -------------- ------ ------------
<S> <C> <C> <C>
Michael L. Sherman, M.D. $ 612,139 $ 65,014 $ 325,068
Derace L. Schaffer, M.D. 326,461 94,256 471,279
Less T. Chafen, M.D. 188,642 31,994 159,972
---------- ---------- ---------

Total $1,127,242 $ 191,264 $ 956,319
========== ========== ==========
</TABLE>

- ------------------

DISSENTERS' RIGHTS REGARDING THE MERGERS

The following discussion is not a complete statement of the laws
pertaining to dissenters' rights under the CCC, KGCC, MGCL, NYBCL and TBCA, and
is qualified in its entirety by the full text of the sections referenced below,
each of which is set forth in its entirety as Appendices G, H, I, J and K
respectively, to this Prospectus/Joint Proxy Statement. Voting against,
abstaining from voting or failing to vote on approval and adoption of any Merger
Proposal or Exchange Proposal will not constitute a demand for fair value within
the meaning of the relevant acts. Dissenting Security Holders are urged to
consult legal counsel with respect to dissenters' rights under the CCC, KGCC,
MGCL, NYBCL and TBCA

Any Dissenting Security Holder who perfects the right to be paid the
fair market value of the shares of an Entity held by such Dissenting Security
Holder will generally recognize gain or loss, if any, for income tax purposes
upon the receipt of cash for such shares. The amount of gain or loss and its
character as ordinary or capital gain or loss will be determined in accordance
with the applicable provisions of the Internal Revenue Code. Advanced, Ide, M&S,
South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham,
RRG, WIC and Valley security holders considering the exercise of dissenters'
rights should consider the information set forth under "Conditions of the Merger
Agreements and Exchange Agreements -- Certain Income Tax Considerations."

Dissenting Security Holders who comply with the applicable procedures
summarized herein will be entitled to receive the fair value of the shares of
the Entities held by such Dissenting Security Holders. For those Entities
organized under the laws of the State of New York (i.e., AIOC, CIA, Ide, MRIA,
Nyack, Pelham, RRG and WIC), such dissenters' rights are detailed in Sections
623 and 910 of the NYBCL. For those Entities organized under the State of Texas
(i.e., M&S, San Antonio and South Texas), such dissenters' rights are detailed
in Articles 5.11 and 5.12 of the TBCA. For those Entities organized under the
State of California (i.e., Pacific, TMI and Valley), such dissenters' rights are
detailed in Sections 1300 through 1304 of the CCC. For RNM, such dissenters'
rights are detailed in Section 17-6712 of the KGCC. For Advanced, such
dissenters' rights are detailed in Sections 3-202 and 3-203 of the MGCL. A
Dissenting Security Holder must follow the applicable steps summarized below
properly and in a timely manner to properly assert the applicable Dissenting
Security Holder's rights.

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UNDER CALIFORNIA STATE LAW

Under Section 1300 of the CCC, any holder of record of shares of Pacific
Common Stock, TMI Common Stock or Valley Common Stock who does not desire to
have such shares converted into shares of APPI Common Stock pursuant to the
applicable Entity's Merger may, alternatively, elect to receive a payment in
cash equal to the value of the shares of the Entity held by such Dissenting
Security Holder, provided that the Dissenting Security Holder complies with the
provisions of Sections 1301 through 1304 of the CCC. A Dissenting Security
Holder contemplating the exercise of these dissenters' rights should carefully
review the provisions of Sections 1300 through 1304 of the CCC, which are
included in Appendix G attached to this Prospectus/Joint Proxy Statement.

Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under
California law. This summary is not intended to be complete and is qualified in
its entirety by reference to Sections 1300 through 1304 of the CCC.

If the Pacific Merger, TMI Merger or Valley Merger is approved by the
required vote of the respective Entity's security holders, each holder of shares
of such Entity's Common Stock who does not vote in favor of the applicable
Merger and who follows the procedures set forth in Section 1301 will be entitled
to have the shares held by such Dissenting Security Holder purchased for cash at
their fair market value. The "fair market value" of the shares of Pacific Common
Stock, TMI Common Stock and/or Valley Common Stock, as applicable, will be
determined as of the day before the first announcement of the terms of each of
the proposed Mergers, excluding any appreciation or depreciation in consequence
of such proposed Merger. Accordingly, the shares of Pacific Common Stock, TMI
Common Stock or Valley Common Stock, as applicable, will be valued as if the
applicable Merger had not occurred.

Within ten days after approval of the Merger of an applicable Entity by
such Entity's security holders, the Entity must mail an Approval Notice to each
Dissenting Security Holder who has not voted in favor of the Merger, together
with a statement of the price determined by such Entity to represent the fair
market value of the shares held by such Dissenting Security Holder, a brief
description of the procedures to be followed in order for such Dissenting
Security Holder to pursue dissenters' rights, and a copy of Sections 1300
through 1304 of the CCC. The statement of price by such Entity constitutes an
offer by that Entity to purchase all shares held by a Dissenting Security Holder
at the stated amount.

A Dissenting Security Holder must, within 30 days after the date on
which the Approval Notice is mailed to such Dissenting Security Holder, mail or
deliver a written demand to the applicable Entity stating that such Dissenting
Security Holder is demanding purchase of the shares of Pacific Common Stock, TMI
Common Stock or Valley Common Stock, as applicable, stating the number of shares
which such Entity must purchase, what the Dissenting Security Holder claims to
be the fair market value of such shares and enclosing the applicable share
certificates for endorsement by such Entity.

If the applicable Entity and the Dissenting Security Holder agree that
such Dissenting Security Holder is entitled to receive payment for the shares of
the Entity held by such Dissenting Security Holder and agree upon the price of
such shares, the Entity must pay the Dissenting Security Holder such agreed upon
price plus interest thereon within 30 days from the later of (i) the date upon
which such price was agreed or (ii) the date all contractual conditions to the
applicable Merger are satisfied.

If the applicable Entity denies that such Dissenting Security Holder is
entitled to receive payment for the shares of the Entity held by such Dissenting
Security Holder or if such Entity and the Dissenting Security Holder fail to
agree upon the fair market value of shares of Pacific Common Stock, TMI Common
Stock or Valley Common Stock, as applicable, then within six months after the
date that the Approval Notice was mailed to the Dissenting Security Holders, any
Dissenting Security Holder who has made a valid written purchase demand and who
has not voted in favor of approval and adoption of the

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applicable Merger may file a complaint in California superior court requesting a
determination as to whether such Dissenting Security Holder is entitled to
receive payment for the shares of the Entity held by such Dissenting Security
Holder or as to the fair market value of such Dissenting Security Holder's
shares of Pacific Common Stock, TMI Common Stock and/or Valley Common Stock, as
applicable.

UNDER KANSAS STATE LAW

Under the KGCC, any holder of record of shares of RNM Common Stock who
does not desire to have such shares converted into shares of APPI Common Stock
pursuant to the RNM Merger may, alternatively, elect to receive a payment in
cash equal to the value of such Dissenting Security Holder's shares of RNM
Common Stock, provided that the Dissenting Security Holder complies with the
provisions of Section 17-6712. A Dissenting Security Holder contemplating the
exercise of these dissenters' rights should carefully review the provisions of
Section 17-6712, which are included in Appendix H attached to this
Prospectus/Joint Proxy Statement.

Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under Kansas
law. This summary is not intended to be complete and is qualified in its
entirety by reference to Section 17-6712 of the KGCC.

Under Section 17-6712, a Dissenting Security Holder must deliver a
written notice of such Dissenting Security Holder's objection to the RNM Merger
to RNM prior to the taking of the vote of security holders on the RNM Merger
Proposal. Any such objection should be sent to RNM at Medical Park West
Building, 823 S. Mulvane Street, Suite 1, Topeka, Kansas 66606, Attention:
President. A Dissenting Security Holder cannot vote the shares of RNM Common
Stock held by such Dissenting Security Holder in favor of the RNM Merger. A
SECURITY HOLDER WHO VOTES SHARES OF RNM COMMON STOCK HELD BY SUCH DISSENTING
SECURITY HOLDER IN FAVOR OF THE RNM MERGER WILL LOSE THE RIGHT TO RECEIVE
PAYMENT FOR SUCH SHARES PURSUANT TO SECTION 17-6712.

If the RNM Merger becomes effective, then Dissenting Security Holders
who have complied with the written objection requirements discussed above will
possess the right to receive payment for the shares of RNM Common Stock
respectively held by them.

Within ten days after the effective date of the RNM Merger, APPI, as
the surviving corporation in the RNM Merger, must give written notice to each
former holder of shares of RNM Common Stock who has complied with the written
objection requirement discussed above that the RNM Merger has become effective.
A Dissenting Security Holder must then deliver a written demand for payment of
the value of the shares of RNM Common Stock held by such Dissenting
Security Holder within 20 days after the date of the mailing of APPI's notice.
Any such demand by a Dissenting Security Holder should be sent to APPI at 901
Main Street, Suite 2301, Dallas, Texas 75202, Attention: President.

Within 30 days after the expiration of the 20 day period in which
Dissenting Security Holders must submit their demands for payment, APPI must pay
to each Dissenting Security Holder who has submitted such a demand the value of
such Dissenting Security Holder's shares of RNM Common Stock. The value of the
Dissenting Security Holders' shares will be the value of the RNM Common Stock as
of the effective date of the RNM Merger, excluding any element of value arising
from the expectation or accomplishment of the RNM Merger.

If APPI and a Dissenting Security Holder cannot agree upon the fair
value for the RNM Common Stock within such 30 day period, then either the
Dissenting Security Holder or APPI may file a petition in the District Court of
Kansas demanding a determination of the value of the RNM Common Stock of all
Dissenting Security Holders entitled to payment. Such a petition must be filed
within four months after the expiration of the 30 day period discussed above.
Because APPI has no obligation to file such a petition,

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the failure of a Dissenting Security Holder to do so within the period specified
may lead to the nullification of such Dissenting Security Holder's written
demand for payment for the shares of RNM Common Stock held by such Dissenting
Security Holder.

If a petition for appraisal described above is filed by a Dissenting
Security Holder, APPI must file with the court a verified list of all Dissenting
Security Holders who have demanded payment for their shares and with whom
agreements as to the value of the shares of RNM Common Stock respectively held
by them has not been reached. The clerk of the court will give APPI and all such
Dissenting Security Holders notice of the date and time for the hearing of such
petition.

After the hearing, the court will determine which Dissenting Security
Holders are entitled to the valuation of and payment for their RNM Common Stock
and will appoint an appraiser to make such an appraisal. The court also will
require the Dissenting Security Holders who are entitled to the valuation of and
payment for their RNM Common Stock to submit their certificates representing
such stock to the clerk of the court, to be held by the clerk until payment by
APPI of the value of such shares. The court will dismiss the proceedings as to
any Dissenting Security Holder who fails to comply with this requirement. Prior
to making a determination of the value of the RNM Common Stock, the appraiser
must afford APPI and all Dissenting Security Holders participating in the
appraisal an opportunity to present evidence relating to the value of the RNM
Common Stock.

Following submission of a report by the appraiser of the value of the
RNM Common Stock, the court will make an ultimate determination of the value of
the shares of RNM Common Stock held by the Dissenting Security Holders. The cost
of such appraisal, including a reasonable fee to and the reasonable expenses of
the appraiser, shall be determined by the court and taxed upon APPI and the
Dissenting Security Holders as the court deems appropriate. Thereafter, the
court will direct APPI to pay each eligible Dissenting Security Holder the value
of the shares of RNM Common Stock held by such Dissenting Security Holder, with
interest thereon if the court so determines.

UNDER MARYLAND STATE LAW

Under Section 3-202, any holder of record of shares of Advanced Common
Stock who does not desire to have such shares converted into shares of APPI
Common Stock pursuant to the Advanced Merger may, alternatively, elect to
receive payment in cash equal to the "fair value" of such Dissenting Security
Holder's shares of Advanced Common Stock, provided that the Dissenting Security
Holder complies with the provisions of Section 3-203. The term "fair value" is
defined in Section 3-202 to mean the value of the shares as of the close of
business of the date upon which the security holders approve the proposed merger
to which the Dissenting Security Holder objects, excluding any appreciation or
depreciation in anticipation of the proposed merger. A Dissenting Security
Holder contemplating the exercise of dissenters' rights under the MGCL should
carefully review the provisions of Sections 3-202 and 3-203, which are included
in Appendix I attached to this Prospectus/Joint Proxy Statement.

Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under
Maryland law. This summary is not intended to be complete and is qualified in
its entirety by reference to Sections 3-202 and 3-203 of the MGCL.

Under Section 3-203, a Dissenting Security Holder must deliver a written
notice of such Dissenting Security Holder's objection to the Advanced Merger
Proposal to Advanced at or prior to the Advanced Meeting. Any such objection
should be sent to Advanced at 7253 Ambassador Road, Baltimore, Maryland 21244,
Attention: President. A Dissenting Security Holder cannot vote the shares of
Advanced Common Stock held by such Dissenting Security Holder in favor of the
Advanced Merger. A SECURITY HOLDER WHO VOTES THE SHARES OF ADVANCED COMMON STOCK
HELD BY SUCH DISSENTING SECURITY HOLDER IN FAVOR OF THE ADVANCED MERGER WILL
LOSE THE RIGHT TO RECEIVE PAYMENT FOR SUCH SHARES.

If the Advanced Merger is approved by the requisite percentage of shares
of Advanced, then Dissenting Security Holders who have complied with the written
objection

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requirements discussed above will possess the right to receive payment for the
shares of Advanced Common Stock respectively held by them.

Promptly after the Effective Time of the Advanced Merger, APPI, as
the surviving corporation in such Merger, must give written notice of the
Effective Time of the Advanced Merger to each former holder of shares of
Advanced Common Stock who has complied with the written objection requirement
discussed above. A Dissenting Security Holder must then deliver a written demand
for payment of the fair value of the shares of Advanced Common Stock held by
such Dissenting Security Holder to APPI within 20 days after the Effective
Time of the Advanced Merger. Any such demand by a Dissenting Security Holder
should be sent to APPI at 901 Main Street, Suite 2301, Dallas, Texas 75202,
Attention: President.

APPI may, at its option, send a written offer to pay each Dissenting
Security Holder who has made demand for payment what APPI considers to be
the fair value of shares held by such Dissenting Security Holder. Such offer
must be accompanied by the following financial information relating to Advanced
and any other information APPI considers pertinent: (i) a balance sheet as
of a date not more than six months prior to the date of the offer and (ii) a
profit and loss statement for the 12 months ending on the date of the balance
sheet.

Within 50 days of the Effective Time of the Advanced Merger, APPI or
any Dissenting Security Holder who has not yet received payment for the shares
of Advanced Common Stock held by such Dissenting Security Holder may petition a
court of equity (in the county in which the principal office of APPI is
located, or, the county in which the resident agent of APPI is located) for an
appraisal to determine the fair value of the Advanced Common Stock. If more
than one such petition is filed, the court will consolidate all of the
proceedings into one proceeding.

If the court determines that a Dissenting Security Holder who has filed
such a petition is entitled to an appraisal, then it will appoint three
disinterested appraisers to determine the fair value of the Advanced Common
Stock. Within 60 days after their appointment, unless the court establishes a
longer time, the appraisers must determine the fair value of the Advanced Common
Stock and must file a report with the court stating their conclusion and the
reasons therefor. Each party to the appraisal proceedings will also receive a
copy of the appraisers' report.

After consideration of the appraisers' report, the court will either
accept, modify or reject the appraisers' conclusion. If the court rejects the
appraisers' conclusion, it may either remit the proceedings to the same or other
appraisers or it may make its own determination of the fair value of the
Advanced Common Stock.

Once the fair value of the Advanced Common Stock is determined, APPI
must pay each Dissenting Security Holder participating in the appraisal
proceedings the judicially determined value of the shares held by such
Dissenting Security Holder, together with interest, if the court so determines.
APPI need not make such payment to a Dissenting Security Holder unless and
until the Dissenting Security Holder surrenders the certificate representing the
shares of Advanced Common Stock to APPI, at the address specified above, or
to the transfer agent of APPI. The costs of the appraisal proceedings shall
be set by the court and assessed against Advanced or, if the court determines
that a Dissenting Security Holder failed to accept an offer for payment by
APPI in good faith, against such Dissenting Security Holder.

UNDER NEW YORK STATE LAW

Under Section 910, any holder of record of shares of Ide Common Stock,
AIOC Common Stock, CIA Common Stock, MRIA Common Stock , Nyack Common Stock,
Pelham Common Stock, RRG Common Stock or WIC Common Stock who does not desire to
have such shares converted into shares of APPI Common Stock pursuant to the
applicable Entity's Merger may, alternatively, elect to receive a payment in
cash equal to the value of the shares of the applicable Entity held by such
Dissenting Security Holder and certain other rights and benefits, provided that
the Dissenting Security Holder complies with the

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provisions of Section 623. A Dissenting Security Holder contemplating the
exercise of these dissenters' rights should carefully review the provisions of
Sections 623 and 910, which are included in Appendix J attached to this
Prospectus/Joint Proxy Statement.

Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under New
York law. This summary is not intended to be complete and is qualified in its
entirety by reference to Sections 623 and 910 of the NYBCL.

Under Section 623, a Dissenting Security Holder must file a written
objection to the applicable Entity's Merger with such Entity prior to such
Entity's Meeting or at such Meeting but prior to the vote on the applicable
Merger Proposal. Such written objection should include the Dissenting Security
Holder's notice of election to dissent, the Dissenting Security Holder's name
and residence address, the number and class of shares as to which such
Dissenting Security Holder dissents and a demand for payment of the fair value
of such shares if the Entity's Merger is approved.

If the security holders of an applicable Entity approve such Entity's
Merger, then the Entity must give written notice of such approval to each
Dissenting Security Holder who filed a written objection and who did not vote in
favor of such Merger Proposal within ten days of the date such Merger Proposal
was approved. A SECURITY HOLDER WHO VOTES IN FAVOR OF AN ENTITY'S MERGER WILL BE
DEEMED TO HAVE ELECTED NOT TO ENFORCE THE RIGHT TO RECEIVE PAYMENT FOR THE
SHARES OF SUCH ENTITY HELD BY SUCH DISSENTING SECURITY HOLDER.

If a Dissenting Security Holder of an Entity holds shares represented by
certificates, such Dissenting Security Holder must submit all applicable
certificates to the Entity or to the applicable transfer agent of such Entity,
within one month after such Dissenting Security Holder files a written notice of
election to dissent. Any Dissenting Security Holder holding shares represented
by certificates who does not submit such certificates in this manner may lose
such Dissenting Security Holder's dissenters' rights under Section 623.

The applicable Entity or, if the Merger of such Entity has been
consummated, APPI must, make a Purchase Offer to each Dissenting Security Holder
to pay the Offer Price which the Entity or APPI, as applicable, believes to be a
"fair value" under Section 623 for the shares of the Entity held by such
Dissenting Security Holder. Such Purchase Offer must be made within 15 days of
the later of (i) the consummation of the applicable Merger or (ii) the
expiration of the period within which security holders may file their notices of
election to dissent. All Dissenting Security Holders holding the same class of
securities of the Entity must be offered the same price per share of such class
of securities.

If the applicable Merger has been consummated at the time the Purchase
Offer is made, APPI must, concurrently with the Purchase Offer, provide to each
Dissenting Security Holder (i) who has submitted the certificates evidencing the
applicable shares of the Entity, as provided above, an advanced payment of an
amount equal to 80% of the Offer Price, and (ii) who has not yet submitted the
requisite certificates, a statement that an advanced payment of an amount equal
to 80% of the Offer Price will be made promptly upon the submission of such
certificates. If the Purchase Offer is made prior to the consummation of the
applicable Merger, then such advanced payments or statements relating to
advanced payments, as the case may be, will be made upon the consummation of the
applicable Merger.

If, within 30 days after the date of a Purchase Offer, a Dissenting
Security Holder accepts the Purchase Offer or if the Dissenting Security Holder
and the Entity or APPI, as applicable, agree upon an alternate value for the
Dissenting Security Holder's shares, then any remaining payments owed to the
Dissenting Security Holder must be made to the Dissenting Security Holder within
60 days after the date of the Purchase Offer or 60 days after the applicable
Merger is consummated, whichever is later.

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If (i) the Entity or APPI, as applicable, fails to make a Purchase Offer
within the required 15-day period discussed above or (ii) a Dissenting Security
Holder rejects the Purchase Offer and such Dissenting Security Holder and the
Entity or APPI, as applicable, cannot within 30 days of the date of the Purchase
Offer agree upon a value for the shares of the Entity held by such Dissenting
Security Holder, then the following procedures will apply:

(1) The Entity or APPI, as applicable, will institute a special
proceeding in the Supreme Court in the judicial district in which
the office of the Entity is located within 20 days after the
expiration of the 15 or 30-day period discussed above, as the
case may be, to determine the rights of the Dissenting Security
Holder and to fix the fair value of such Dissenting Security
Holder's shares.

(2) The court will determine (i) whether the Dissenting Security
Holder is entitled to receive payment for such Dissenting
Security Holder's shares, and (ii) the fair value for such
shares. In determining the fair value for such shares, the court
will consider the nature of the transaction giving rise to the
Dissenting Security Holder's right to receive payment under
Section 623, the concepts and methods customarily used in the
relevant securities and financial markets to determine the value
of the share of a corporation engaging in a similar transaction
under comparable circumstances, and all other relevant factors.

(3) Each party to the proceeding must bear its own costs and
expenses, including attorneys' and experts' fees, unless the
court, in its discretion, assesses all of part of such costs and
expenses against either the Dissenting Security Holder or the
Entity or APPI, as applicable.

(4) Within 60 days after the final determination of the court
proceeding, the Entity or APPI, as applicable, will pay to the
Dissenting Security Holder the amount found by the court to be
owed to such Dissenting Security Holder upon surrender of the
certificates for any such shares represented by such
certificates.

UNDER TEXAS STATE LAW

Any holder of record of shares of M&S Common Stock, San Antonio Common
Stock or South Texas Common Stock who does not desire to have such shares
converted into shares of APPI Common Stock pursuant to the applicable Entity's
Merger may, alternatively, elect to receive the fair value of such shares,
provided that the Dissenting Security Holder complies with the provisions of
Articles 5.11 and 5.12 of the TBCA. The term "fair value" is defined in Article
5.12 to mean the value of the shares as of the day immediately preceding the
applicable Entity's Meeting, excluding any appreciation or depreciation in
anticipation of the proposed Merger. A Dissenting Security Holder contemplating
the exercise of dissenters' rights under the TBCA should carefully review the
provisions of Articles 5.11 and 5.12 which are included in Appendix K attached
to this Prospectus/Joint Proxy Statement.

Set forth below is a brief summary of the procedures that a Dissenting
Security Holder must follow in order to perfect dissenters' rights under Texas
law. This summary is not intended to be complete and is qualified in its
entirety by reference to Articles 5.11 and 5.12 of the TBCA.

A Dissenting Security Holder must file a written objection to an
applicable Entity's Merger with such Entity prior to such Entity's Meeting. Such
written objection should include (i) a statement to the effect that such
Dissenting Security Holder intends to exercise dissenters' rights if the Merger
Proposal is approved, and (ii) the address of such Dissenting Security Holder.

If the applicable Entity's Merger is approved by the requisite
percentage of shares, then APPI, as the surviving corporation in the Merger,
must deliver or mail to

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each Dissenting Security Holder who filed a written objection and did not vote
in favor of such Merger an Approval Notice. A SECURITY HOLDER WHO VOTES IN FAVOR
OF AN ENTITY'S MERGER WILL LOSE THE RIGHT TO RECEIVE PAYMENT FOR THE SHARES OF
SUCH ENTITY'S COMMON STOCK HELD BY SUCH DISSENTING SECURITY HOLDER.

Within ten days from the date of delivery or mailing of the Approval
Notice, a Dissenting Security Holder must make a written demand to APPI for
payment of the fair value of the shares of M&S Common Stock, San Antonio Common
Stock or South Texas Common Stock, as applicable, held by such Dissenting
Security Holder. Such demand must state the number and class of shares owned by
such Dissenting Security Holder and the fair value of such shares as estimated
by the Dissenting Security Holder.

Within 20 days after receipt by APPI of a demand by a Dissenting
Security Holder for payment of the fair value of the shares held by such
Dissenting Security Holder, APPI shall deliver or mail to the Dissenting
Security Holder a written notice to the effect that APPI will pay within 90 days
after the effective date of the Merger (i) the amount claimed, upon the
surrender of the duly endorsed share certificates, or (ii) some other amount as
the fair value, upon receipt of a notice from the Dissenting Security Holder
within 60 days after the date of such offer that such Dissenting Security Holder
will accept such amount in exchange for surrender of the duly endorsed share
certificates. If APPI and the Dissenting Security Holder can agree upon the fair
value, such value will be paid to the Dissenting Security Holder and such
Dissenting Security Holder shall cease to have any interest in such shares or in
either the Entity or APPI. If agreement as to the fair value cannot be reached,
either the Dissenting Security Holder or APPI may, within the time limits
prescribed by Article 5.12, file a petition in Texas court asking for a finding
and determination of the fair value of such shares. Court costs shall be
allocated between the parties in such manner as the court shall determine to be
fair and equitable.

GOVERNMENT AND REGULATORY APPROVALS

It is a condition to the consummation of the transactions contemplated
by each Merger Agreement and Exchange Agreement that each of the Entities must
have received necessary government and regulatory approvals prior to the Merger
or Exchange, as the case may be. At any time before or after the Effective Time
of the Mergers or the Closing Date of the Exchanges, the Federal Trade
Commission or the Antitrust Division of the United States Department of Justice
or any state could take action pursuant to the federal or state antitrust laws
to seek to enjoin the consummation of a particular Merger or Exchange. Private
parties may also seek to take legal action under the antitrust laws. Based on
information available to them, each of Advanced, Ide, M&S, Lexington, Madison,
South Texas, South Texas No. 1 San Antonio, San Antonio No. 2, Pacific, TMI,
RNM, AIOC, CIA MRIA, Nyack, Pelham, RRG, WIC and Valley believes that the Merger
or Exchange applicable to each such Entity can be effected in compliance with
federal and state antitrust laws. Advanced, Ide, M&S, Lexington, Madison, South
Texas, South Texas No. 1, San Antonio, San Antonio No. 2, Pacific, TMI, RNM,
AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley are aware of no governmental
or regulatory approvals required for the consummation of the respective Merger
or Exchange, other than compliance with federal and applicable state securities
and corporate laws, and the required transfer of or amendment to certain of the
Advanced, Ide, M&S, Lexington, Madison, South Texas, South Texas No. 1, San
Antonio, San Antonio No. 2, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham,
RRG, WIC and Valley licenses and permits.

CERTAIN INCOME TAX CONSIDERATIONS

The following is a summary of the federal income tax consequences of
the Mergers, Exchanges and related transactions. Security holders and partners
are urged to consult their own tax advisers as to the particular consequences to
them of the applicable Merger or Exchange, including the application of state,
local and foreign tax laws. This summary may be inapplicable to security holders
or partners who received their APPI Common Stock pursuant to the exercise of
options or as other forms of compensation, who are not citizens or residents of
the United States or who have other special circumstances.

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Haynes and Boone, L.L.P., special counsel to APPI, has, upon the basis
of assumed consummation of the Mergers and Exchanges as described in this
Registration Statement and representations of the officers of APPI, each of the
Entities and the security holders, rendered an opinion that, for federal income
tax purposes, each Merger and Exchange will constitute a tax-free reorganization
under either Section 351 or Section 368(a) of the Internal Revenue Code. If so
treated, each Merger and Exchange will have the following federal income tax
consequences: (i) except as set forth below, no gain or loss will be recognized
by the security holders or partners of any of the Entities who exchange their
Old Shares or Old Partnership Interests for APPI Common Stock pursuant to the
Merger or Exchange, as the case may be, (ii) the aggregate tax basis of APPI
Common Stock received in the Merger or Exchange, as the case may be, will equal
the aggregate tax basis of the Old Shares or Old Partnership Interests, as the
case may be, exchanged therefor, (iii) no gain or loss will be recognized by
each of the Entities in connection with the Merger or Exchange, as the case may
be, (iv) provided that the Old Shares or Old Partnership Interests are held as a
capital asset at the Effective Time of a given Merger or the Closing Date of a
given Exchange, the holding period of APPI Common Stock will include the holding
period of such Old Shares or Old Partnership Interests, and (v) security holders
or partners of any of the Entities will recognize gain only to the extent that
they receive (or are deemed to receive) cash or property other than APPI Common
Stock. An opinion of counsel is not binding on the Internal Revenue Service or
the courts. No assurance can be given that the tax-deferred characterization of
the Mergers and Exchanges will not be challenged or, if challenged, will be
defended successfully. If the tax characterization of the Mergers and Exchanges
is successfully challenged, there may be significant adverse tax consequences to
the Entities and their respective security holders or partners.

ACCOUNTING TREATMENT

SAB 48 states that when a company acquires assets from promoters and
security holders in exchange for stock just prior to, or at the time of, its
initial public offering, such assets should be recorded at the historical cost
to each such promoter or security holder. Each security holder of each of the
Entities is involved as a promoter of its respective Merger or Exchange and the
related Initial Public Offering. Accordingly, the assets and liabilities to be
acquired by APPI or a subsidiary thereof in connection with the Merger
Transactions and Exchange Transactions will be recorded on the APPI balance
sheet in the same amounts as reflected on the balance sheets of the Entities at
the Effective Time of the applicable Merger or Closing Date of the applicable
Exchange. See "-- Interests of Certain Persons in the Mergers and Exchanges."

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

The following unaudited pro forma combined balance sheet gives effect
to the Mergers and Exchanges as a combination of promoter interests, at
historical costs, and is based upon the historical financial statements of APPI
and each of the Founding Affiliated Practices. In addition, the unaudited pro
forma combined balance sheet gives effect to the Initial Public Offering
(assuming an Initial Public Offering Price of $15.00 per share), the conversion
of the Convertible Notes and borrowings of approximately $13.6 million under
the Credit Facility to refinance certain indebtedness previously incurred by
the Founding Affiliated Practices. The unaudited pro forma combined balance
sheet gives effect to the completion of such transactions as if they had
occurred on June 30, 1997. Due to the fact that the Company has had no
significant operations to date, no pro forma statement of operations has been
included in this Prospectus. The amount and composition of costs to be incurred
by the Company related to the provision of management services to the Founding
Affiliated Practices may differ from the costs historically incurred by the
Founding Affiliated Practices; therefore, the costs presented in the individual
financial statements of the Founding Affiliated Practices may not be
representative of the Company's costs on a pro forma basis. The unaudited pro
forma balance sheet and notes thereto should be read in connection with the
other financial information, including the audited financial statements of APPI
and each of the Founding Affiliated Practices and notes thereto, included
elsewhere in this Prospectus.

The unaudited pro forma combined balance sheet is presented for
illustrative purposes only and is not necessarily indicative of the financial
position that would have been achieved if the Mergers and Exchanges, the
conversion of the Convertible Notes and the Initial Public Offering had been
consummated on June 30, 1997.

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AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP
------- --------- ------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 110 $ 185 $ 238 $ 760 $ -- $ 887 $ 369
Accounts receivable, net................... -- 15,042 5,262 3,702 1,934 2,022 2,843
Other receivables.......................... 43 375 -- 192 -- -- --
Other current assets....................... 95 669 125 73 2,296 221 410
------- ------- ------ ------ ------ ------ -------
Total current assets................. 248 16,271 5,625 4,727 4,230 3,130 3,622
Property and equipment, net................. 167 14,860 997 758 1,862 662 5,269
Investments in joint ventures............... -- 1,101 -- 1,420 -- 1,322 --
Deferred income taxes....................... -- -- -- -- -- -- 1,203
Notes receivable............................ -- -- -- -- -- -- --
Intangible assets, net...................... -- -- -- 678 133 -- --
Other assets, net........................... 2,072 7,065 397 46 107 88 2,144
------- ------- ------ ------ ------ ------ -------
Total assets......................... $ 2,487 $39,297 $7,019 $7,629 $6,332 $5,202 $12,238
======= ======= ====== ====== ====== ====== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings...................... $ -- $ 2,900 $ -- $ -- $ -- $1,000 $ --
Accounts payable and accrued expenses...... 2,086 2,007 2,022 257 1,278 209 189
Accrued salaries and benefits.............. -- 1,606 562 153 288 419 541
Due to joint ventures...................... -- 693 -- -- -- -- --
Deferred income taxes...................... -- -- -- -- 855 1,006 573
Current portion of deferred compensation... -- -- -- 83 -- -- --
Current portion of long-term debt.......... 3,500 3,909 436 231 844 119 1,675
Current portion of capital lease
obligations.............................. -- -- -- 13 -- -- 546
Distribution payable....................... -- -- -- -- -- -- --
Other current liabilities.................. -- 749 -- -- -- -- --
------- ------- ------ ------ ------ ------ -------
Total current liabilities............ 5,586 11,864 3,020 737 3,265 2,753 3,524
Deferred income taxes....................... -- -- 1,042 -- 11 -- --
Deferred compensation, net of current
portion.................................... -- -- -- 1,346 -- -- 3,600
Long-term debt, net of current portion...... -- 4,813 1,422 178 2,801 -- 5,563
Capital lease obligations, net of current
portion.................................... -- -- -- 37 -- -- 1,378
Long-term debt -- GE Capital revolving
credit facility............................ -- -- -- -- -- -- --
Other liabilities........................... -- 359 -- -- -- -- --
------- ------- ------ ------ ------ ------ -------
Total liabilities.................... 5,586 17,036 5,484 2,298 6,077 2,753 14,065
------- ------- ------ ------ ------ ------ -------
Minority interests in consolidated
subsidiaries............................... -- 408 -- 506 -- -- --
Stockholders' equity:
Common stock............................... -- -- -- -- -- -- --
Additional paid-in capital................. 250 -- -- -- -- -- --
Accumulated earnings (deficit)............. (3,349) 21,853 1,535 4,825 255 2,449 (1,827)
------- ------- ------ ------ ------ ------ -------
Total stockholders' equity........... (3,099) 21,853 1,535 4,825 255 2,449 (1,827)
------- ------- ------ ------ ------ ------ -------
Total liabilities and stockholders'
equity.............................. $ 2,487 $39,297 $7,019 $7,629 $6,332 $5,202 $12,238
======= ======= ====== ====== ====== ====== =======

<CAPTION>
VALLEY PRO FORMA
RADIOLOGY UNADJUSTED PRO FORMA PRO FORMA DISTRIBUTION ADJUSTED FOR
GROUP TOTAL ADJUSTMENTS COMBINED ADJUSTMENT DISTRIBUTION
--------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>

Current assets:
Cash and cash equivalents.................. $ 386 $ 2,935 $ -- $ 2,935 $ -- $ 2,935

Accounts receivable, net................... 2,076 32,881 -- 32,881 -- 32,881
Other receivables.......................... -- 610 (219)(a) 391 -- 391
Other current assets....................... 8 3,897 (2,182)(a) 1,715 -- 1,715
------ ------- -------- ------- -------- --------
Total current assets................. 2,470 40,323 (2,401) 37,922 -- 37,922
Property and equipment, net................. 1,220 25,795 (88)(a) 25,707 -- 25,707
Investments in joint ventures............... 27 3,870 88(a) 3,958 -- 3,958
Deferred income taxes....................... -- 1,203 (1,111)(b) 92 -- 92
Notes receivable............................ 403 403 -- 403 -- 403
Intangible assets, net...................... -- 811 -- 811 -- 811
Other assets, net........................... 36 11,955 (5,536) 6,419 -- 6,419
------ ------- -------- ------- -------- --------
Total assets......................... $4,156 $84,360 $ (9,048) $75,312 $ -- $ 75,312
====== ======= ======== ======= ======== ========

Current liabilities:
Short-term borrowings...................... $ 678 $ 4,578 $ -- $ 4,578 $ -- $ 4,578
Accounts payable and accrued expenses...... 97 8,145 -- 8,145 -- 8,145
Accrued salaries and benefits.............. 257 3,826 (996)(a) 2,830 -- 2,830
Due to joint ventures...................... -- 693 -- 693 -- 693
Deferred income taxes...................... 372 2,806 5,892(b) 8,698 -- 8,698
Current portion of deferred compensation... -- 83 (83)(a) -- -- --
Current portion of long-term debt.......... 561 11,275 -- 11,275 -- 11,275

Current portion of capital lease
obligations.............................. -- 559 -- 559 559
Distribution payable....................... -- -- -- -- 54,422(a) 54,422
Other current liabilities.................. -- 749 -- 749 -- 749
------ ------- -------- ------- -------- --------
Total current liabilities............ 1,965 32,714 4,813 37,527 54,422 91,949
Deferred income taxes....................... 37 1,090 35(b) 1,125 -- 1,125
Deferred compensation, net of current
portion.................................... -- 4,946 (4,946)(a) -- -- --
Long-term debt, net of current portion...... 167 14,944 (105)(a) 14,839 -- 14,839

Capital lease obligations, net of current
portion.................................... -- 1,415 -- 1,415 -- 1,415
Long-term debt -- GE Capital revolving
credit facility............................ -- -- -- -- -- --
Other liabilities........................... -- 359 -- 359 -- 359
------ ------- -------- ------- -------- --------
Total liabilities.................... 2,169 55,468 (203) 55,265 54,422 109,687
------ ------- -------- ------- -------- --------
Minority interests in consolidated
subsidiaries............................... -- 914 -- 914 -- 914
Stockholders' equity:
Common stock............................... -- -- 1(c) 1 -- 1
Additional paid-in capital................. -- 250 21,573(d) 21,822 -- 21,822
(1)(c)
Accumulated earnings (deficit)............. 1,987 27,728 (8,845)(a)(b) (2,690) (54,422)(a) (57,112)
(21,573)(d)
------ ------- -------- ------- -------- --------
Total stockholders' equity........... 1,987 27,978 (8,845) 19,133 (54,422) (35,289)
------ ------- -------- ------- -------- --------
Total liabilities and stockholders'
equity.............................. $4,156 $84,360 $ (9,048) $75,312 $ -- $ 75,312
====== ======= ======== ======= ======== ========

OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>

Current assets:
Cash and cash equivalents.................. $ 66,656(e) $ 2,935
(54,422)(e)
(12,234)(e)
Accounts receivable, net................... -- 32,881
Other receivables.......................... -- 391
Other current assets....................... -- 1,715
-------- --------
Total current assets................. -- 37,922
Property and equipment, net................. -- 25,707
Investments in joint ventures............... -- 3,958
Deferred income taxes....................... -- 92
Notes receivable............................ -- 403
Intangible assets, net...................... 2,000(g) 2,811
Other assets, net........................... (2,056)(e) 4,363
-------- --------
Total assets......................... $ (56) $ 75,256
======== ========

Current liabilities:
Short-term borrowings...................... $ (4,578)(f) --
Accounts payable and accrued expenses...... (1,764)(e) 6,381
Accrued salaries and benefits.............. -- 2,830
Due to joint ventures...................... -- 693
Deferred income taxes...................... -- 8,698
Current portion of deferred compensation... -- --
Current portion of long-term debt.......... (6,987)(f) 788
(3,500)(h)
Current portion of capital lease
obligations.............................. -- 559
Distribution payable....................... (54,422)(e) --
Other current liabilities.................. -- 749
-------- --------
Total current liabilities............ (71,251) 20,698
Deferred income taxes....................... -- 1,125
Deferred compensation, net of current
portion.................................... -- --
Long-term debt, net of current portion...... (12,234)(e) 2,580
(25)(f)
Capital lease obligations, net of current
portion.................................... -- 1,415
Long-term debt -- GE Capital revolving
credit facility............................ 13,590(f)(g) 13,590
Other liabilities........................... -- 359
-------- --------
Total liabilities.................... (69,920) 39,767
-------- --------
Minority interests in consolidated
subsidiaries............................... -- 914
Stockholders' equity:
Common stock............................... 1(e) 2
Additional paid-in capital................. 66,363(e) 91,685
3,500(h)
Accumulated earnings (deficit)............. -- (57,112)

-------- --------
Total stockholders' equity........... 69,864 34,575
-------- --------
Total liabilities and stockholders'
equity.............................. $ (56) $ 75,256
======== ========
</TABLE>

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AMERICAN PHYSICIAN PARTNERS, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET

APPI was incorporated in April 1996 and has conducted no significant
operations and generated no revenue to date other than in connection with the
Initial Public Offering and the Mergers and Exchanges. The following is a
summary of the adjustments reflected in the Unaudited Pro Forma Consolidated
Balance Sheet assuming the Mergers and Exchanges, the Initial Public Offering
and conversion of the Convertible Notes. The Mergers and Exchanges will be
accounted for as a combination of promoter interests, at historical costs, under
generally accepted accounting principles. APPI will not be acquiring equity
interests in the Founding Affiliated Practices, but will be acquiring
substantially all of the assets of the Founding Affiliated Practices.

Upon completion of the Mergers and Exchanges, the Company will not
consolidate the financial position [or results of operations] of the Founding
Affiliated Practices.

The adjustments reflected in the unaudited pro forma combined balance
sheet are as follows:

(a) To eliminate assets not acquired and liabilities not
assumed by the Company and to reflect the $54.4 million
distribution to the Founding Affiliated Practices. The
Company will not be assuming any physician related assets
and liabilities, such as notes receivable from physicians,
accrued physician compensation, deferred physician
compensation, and assets and liabilities related to other
physician benefit plans.

(b) To record the establishment of deferred income taxes for
the Company after the Mergers and Exchanges.

(d) To record the reclassification of the Founding Affiliated
Practices's earnings (deficit) accumulated prior to the
Initial Public Offering to additional paid-in capital.

(e) To reflect the effects of the Initial Public Offering,
including the use of estimated net cash proceeds from the
issuance of Common Stock, to pay the $54.4 million
distribution to the Founding Affiliated Practices and to
reduce debt.

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<PAGE> 172

(f) To reflect borrowings under the $115,000,000 Credit
Facility with GECC which will occur contemporaneously with
the Initial Public Offering. The proceeds from these
borrowings will be used to refinance all remaining funded
debt, except capital leases and one note payable.

(g) To reflect estimated deferred financing costs related to
the Credit Facility.

(h) To reflect the conversion of all $3,500,000 of Convertible
Notes issued by the Company into 437,500 shares of Common
Stock.

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APPI

APPI was incorporated in April 1996, has generated no revenue to date
and has conducted no significant operations other than in connection with the
Initial Public Offering and the pending Mergers and Exchanges. The following
discusses APPI's business following the Mergers and Exchanges assuming
consummation of such transactions.

OPERATION, MANAGEMENT AND BUSINESS FOLLOWING THE MERGERS AND EXCHANGES

GENERAL

The Company was formed to provide physician practice management and
administrative services to radiology practices with a focus on the development,
consolidation and management of integrated radiology and imaging center
networks. Upon completion of the Initial Public Offering, the Company will
provide practice management services to seven radiology practices consisting of
223 physicians practicing at 42 hospitals and 65 ICs in California, Kansas,
Maryland, New York and Texas. The Company will derive its revenue from service
fees paid by Affiliated Practices for management, administrative, technical
and other non-medical services provided by the Company.

The typical relationship with an Affiliated Practice is expected to
involve the acquisition by the Company of all of the non-medical assets
(tangible and intangible) of the Affiliated Practice and entry into a long-term
Service Agreement with the Affiliated Practice at the time of acquisition
pursuant to which the Company would provide a wide range of management,
administrative, technical and non-medical services in exchange for a service
fee. If the Affiliated Practice owns and operates an IC, the Company would
typically acquire all of the IC-related assets (e.g., x-ray, MRI and CT
equipment). As a result, the Affiliated Practice would rely on the Company to
provide all necessary non-medical business and administrative services and the
Affiliated Practice would continue to employ all of the professional personnel
(i.e. the radiologists) who would continue to provide professional medical
services for and on behalf of the Affiliated Practice.

The Founding Affiliated Practices provide a wide range of diagnostic and
therapeutic services, including x-ray and fluoroscopy, magnetic resonance
imaging, computed tomography, mammography, ultrasound, nuclear medicine,
radiation oncology and interventional radiology. The Founding Affiliated
Practices were selected based on a variety of factors, including: physician and
practice credentials and reputation; competitive market position; subspecialty
mix of physicians; historical financial performance and growth potential; and
willingness to embrace the Company's vision and philosophy regarding the
provision of radiology services. The Company intends to provide Affiliated
Practices with the necessary capital resources and expertise to invest in new
technologies, complete consolidating acquisitions, implement sophisticated
management information systems, promote efficient practice patterns, develop
coordinated marketing efforts and realize purchasing economies of scale.

The Company's objective is to develop integrated networks of radiology
groups and ICs that can provide wide geographic coverage and subspecialty
expertise. The Company intends to provide the networks with sophisticated
management, state-of-the-art information systems and appropriate capital for
expansion. The Company's strategy is to (i) emphasize quality service, (ii)
expand within its selected markets, (iii) improve operating efficiencies within
the Affiliated Practices and (iv) expand into new regional markets through
acquisitions of or affiliations with additional radiology practices and ICs.

In connection with the Mergers, Exchanges and Reorganizations, APPI will
acquire certain assets and liabilities of, and enter into long-term Service
Agreements with, the Founding Affiliated Practices. Pursuant to the Service
Agreements, the Company will provide management, administrative, technical and
non-medical business services to the Founding Affiliated Practices in exchange
for a service fee. The Service Agreements have a 40-year term, subject to
earlier termination under certain circumstances. [See "--Service Agreements" and
"Certain Transactions--The Reorganizations."]

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INDUSTRY BACKGROUND

MARKET OVERVIEW

The Health Care Financing Administration estimates that national health
care spending in 1995 was approximately $1 trillion, including approximately
$200 billion for physician services and an additional $600 billion for health
care expenditures under the control or influence of physicians. According to the
American College of Radiology, an estimated 350 million radiological procedures
were performed in the United States during 1995. Total spending on radiology
services including diagnostic imaging, interventional radiology and radiation
oncology was estimated at $56 to $70 billion according to a 1995 report prepared
by SMG Marketing Group. Diagnostic imaging, including interventional radiology
procedures, accounted for approximately 82% of the aggregate amount spent on
radiological services performed in the United States, with radiation oncology
services accounting for approximately 18%.

Fees charged for diagnostic imaging, interventional radiology and
radiation oncology procedures consist generally of a technical component
relating to facilities, equipment and non-physician personnel and a professional
component consisting of fees paid to physicians for the interpretation of
diagnostic images, the performance of interventional radiology procedures and
the treatment of radiation oncology patients. Technical facilities are located
within hospitals and in approximately 2,200 outpatient centers throughout the
United States. Professional radiology services are provided by board certified
radiologists, general practitioners and other specialists. There are
approximately 3,200 radiology groups in the United States comprised of
approximately 27,000 practicing radiologists. These groups have a typical size
of six members, but vary in size up to approximately 100 physicians serving a
specific market. Approximately 88% of all radiologists perform diagnostic
procedures, including interventional radiology procedures, and approximately 12%
practice radiation oncology.

RADIOLOGY

In general, radiology includes diagnostic imaging, interventional
radiology and radiation oncology. Imaging procedures use energy waves to
penetrate human tissue and generate images of the body, which can be recorded on
film or digitized for display on a video monitor. Diagnostic imaging procedures
are used to diagnose diseases and physical injuries and are performed in
hospitals, physicians' offices, outpatient centers and ICs. Interventional
radiology procedures include the use of radiological methods to monitor and
guide catheters, stents, drains and needles to open clogged vessels, relieve
obstructed kidneys, perform biopsies of mass lesions, drain abscess collections
and lower pressure in certain vessels. Generally, these interventional
procedures are more time efficient, more cost-effective and less invasive than
surgical alternatives and have historically been performed in a hospital setting
to enable utilization of hospital support services. Radiation oncology
procedures use a variety of radiation sources to treat cancer and/or relieve
pain caused by certain tumors and are performed in hospitals and free-standing
outpatient centers.

The principal diagnostic imaging modalities include the following, all
of which are non-invasive:

General Radiology: X-Ray and Fluoroscopy. X-rays utilize roentgen
rays to penetrate the body and record images of organs and structures on
film. Fluoroscopy utilizes ionizing radiation combined with a video
viewing system for real time monitoring of organs. X-ray and fluoroscopy
are the most frequently used imaging modalities.

Computed Tomography. CT utilizes a computer to direct the
movement of an x-ray tube to produce multiple cross sectional images of
a particular organ or area of the body. CT is used to detect tumors and
other conditions affecting bones and internal organs. It is also used to
detect the occurrence of strokes, hemorrhages and infections. CT
provides higher resolution images than

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conventional x-rays, but generally not as well defined as those produced
by magnetic resonance.

Magnetic Resonance Imaging. MRI utilizes a strong magnetic field
in conjunction with low energy electromagnetic waves which are processed
by a computer to produce high-resolution images of body tissue including
the brain, spine, abdomen, heart and extremities. Unlike CT and
conventional x-rays, MRI does not utilize ionizing radiation, which can
cause tissue damage in high doses.

Mammography. Mammography is a specialized form of radiology
utilizing low dosage x-rays to visualize breast tissue and is the
primary screening tool for breast cancer. Mammography procedures also
include the biopsy of cells to assist in the diagnosis of breast cancer.

Ultrasound. Ultrasound imaging utilizes high-frequency sound
waves to develop images of internal organs, unborn fetuses and the
vascular system. Ultrasound has widespread applications, particularly
for procedures in obstetrics, gynecology and cardiology.

Nuclear Medicine. Nuclear medicine utilizes short-lived
radioactive isotopes which release small amounts of radiation that can
be recorded by a gamma camera and processed by a computer to produce an
image of various anatomical structures or to assess the function of
various organs such as the heart, kidneys, thyroid and bones. Nuclear
medicine is used primarily to study anatomic and metabolic functions.

TRENDS IN RADIOLOGY

Technological Advancements. The Company believes that advances in
technology, including the development and continued enhancements of MRI, CT,
nuclear medicine, ultrasound and interventional radiology have contributed to
the growth of the diagnostic imaging industry. These technological advances have
resulted in increased professional and technical utilization and have produced
diagnostic procedures that are safer, more accurate and less-invasive than
techniques previously utilized. While traditional x-rays continue to be the
primary imaging modality based on the number of procedures performed, the use of
advanced diagnostic imaging modalities such as MRI and CT has increased rapidly
in recent years because these modalities allow physicians to diagnose a wide
variety of diseases and injuries quickly and accurately without exploratory
surgery or other surgical or invasive procedures, which are usually more
expensive, involve greater risk to the patient and result in longer
rehabilitation time. As a result, hospital days are shortened or eliminated and
time lost from work is significantly reduced. In addition, diagnostic imaging is
increasingly used as a screening tool for preventive care. The Company believes
that future technological advances will enhance the ability of radiologists to
diagnose and direct treatment, thereby lowering overall health care costs.

Recent technological advancements include: magnetic resonance
spectroscopy, which can differentiate malignant from benign lesions; magnetic
resonance angiography, which can produce three-dimensional images of body parts
and assess the status of blood vessels; spiral computed tomography, which
permits three-dimensional images of body parts; monoclonal antibody studies
utilizing nuclear medicine to localize certain cancers that would otherwise be
difficult to detect or treat; and the development of teleradiology, which
digitally transmits radiological images from one location to another for
interpretation. The Company believes that the utilization of both the diagnostic
and therapeutic capabilities of radiology will continue to increase because of
its cost-effective, time-efficient and risk/benefit advantages over alternative
procedures (including surgery) and that newer technologies and future
technological advancements will result in further subspecialization and
increased utilization of professional and technical radiological services.

Reimbursement Patterns. Payment for radiology services comes primarily
from third-party payors such as private insurers (including traditional
indemnity insurance

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plans), managed care plans (including HMOs and PPOs) and governmental payors
(including Medicare and Medicaid). Historically, radiologists and other
physicians generally provided medical services on a fee-for-service basis. The
fee-for-service model provides few incentives for the efficient utilization of
resources and has contributed to increases in health care costs at rates
significantly higher than inflation. As managed care entities and other payors
have focused on providing care in a more cost-effective manner, they have
demanded and received significant discounts from fee-for-service rates charged
for radiological procedures. As a result, physicians have seen a decrease in per
procedure reimbursements from managed care and governmental entities for such
procedures. More recently, payors have focused on shifting more of the financial
risk for the provision of cost-effective services to providers through
capitation and other risk-sharing arrangements. Significant changes of this type
will require the Company to become more actively involved in assisting its
Affiliated Practices in developing practice guidelines and appropriateness
criteria and managing the utilization of radiological procedures.

The Company believes that the shift in financial risk from payors to
providers decreases the attractiveness of under-utilized imaging equipment
within a general practitioner's office and will accelerate the centralization of
resources to high-volume centers. According to an article published in the
American Journal of Radiology in 1993, approximately 64% of all radiological
procedures (primarily x-rays and ultrasound) performed in freestanding ICs and
physicians' offices were performed by non-radiologist physicians including
internists, family and general practitioners and orthopedists. The Company
believes that the general diagnostic imaging services performed by
non-radiologists may be directed to radiologists by managed care entities
seeking to have services performed at the lowest overall cost. As a result, the
Company believes that managed care entities provided with utilization reports
will focus on reducing costs by shifting radiological procedures performed by
non-radiologists to radiologists.

Consolidation of ICs. Concurrent with the growth of managed care and
strict controls on Medicare reimbursement for inpatient costs, diagnostic
imaging services began to shift from hospital settings to ICs in the early
1980s. While many of these ICs were developed by physicians and hospitals, a
subsequent change in federal law restricted the referral of patients by a
physician to a facility in which the physician maintained an ownership interest.
As a result, many physicians sold their interests in ICs to hospitals,
radiologists and companies engaged exclusively in the ownership, operation and
management of ICs. The Company believes that many of these entities have and
will continue to consolidate the ownership of ICs.

Referral Sources. Non-radiologists, including specialists and primary
care physicians, direct the utilization of radiology services. Most industry
marketing has been focused on developing relationships with these referring
physicians. As more patients move to managed care plans, the Company believes
physicians will have fewer referral options for diagnostic imaging procedures.
In addition, the Company believes that managed care entities will increasingly
demand that providers of radiology services share in the financial risks
associated with providing services for the lives covered by the managed care
entities. As the choices for radiology referrals decrease, the Company believes
that quality of care, subspecialty expertise and patient and referring physician
satisfaction will be important factors in determining referral patterns.

Trends in Radiology Organizations. The trends toward managed care, cost
containment and health care consolidation have combined to limit the number of
positions available and the salaries paid to radiologists. In addition, small
independent physician groups and individual practices are typically at a
competitive disadvantage to larger associations or networks of physicians
because they lack the capital necessary to (i) expand the geographic coverage of
the practice and the imaging modalities offered, (ii) develop state-of-the-art
information systems and (iii) purchase costly new imaging technologies, each of
which can improve quality of care and reduce costs. Generally, they also lack
the cost accounting and quality management systems necessary to allow physicians
to price and monitor complex risk-sharing

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arrangements with third-party payors. Additionally, small to medium-sized groups
and individual practices often do not have contractual ties with other providers
nor do they have the ability to offer a broad range of subspecialty imaging
services. Small practices often have higher operating costs (since overhead must
be spread over a relatively small revenue base) and minimal vendor purchasing
power. In order to remain competitive in the changing medical service
environment, radiologists are beginning to affiliate with or create larger
organizations by adding radiologists to their groups, creating or joining a
network or an independent physician association or affiliating with a physician
practice management entity such as the Company.

BUSINESS STRATEGY

EMPHASIZE QUALITY SERVICE

The Company plans to make patient service and referring physician
satisfaction a key element of its strategy. The Company intends to form regional
service networks and invest in advanced teleradiology technologies to provide
greater geographic coverage, improve response time and increase overall patient
accessibility. The Company will seek to offer, through its Affiliated Practices,
subspecialty expertise such as interventional radiology and radiation oncology
to address the full range of radiology service needs of patients, referring
physicians, hospitals and payors. The Company also intends to provide capital to
the Affiliated Practices to upgrade existing imaging equipment and purchase
equipment for newer modalities. In addition, the Company plans to implement
information systems which will provide the Company's payors and referral sources
with outcomes data, cost analyses, utilization management data and other
analyses, in each case with the objective of maximizing patient, referring
physician, hospital and payor satisfaction.

EXPAND WITHIN EXISTING REGIONAL MARKETS

A key element of the Company's strategy is to expand and leverage the
resources and capabilities of its Affiliated Practices to offer high-quality,
comprehensive and competitively priced diagnostic, interventional and
therapeutic radiology programs within selected markets. The Company believes
that cost-conscious payors, particularly those interested in utilizing or
implementing risk sharing or global capitation arrangements, will prefer to
contract with a single provider for a full range of radiology services within
select geographic markets. The Company plans to acquire and affiliate with
additional complementary radiology practices and, when feasible, acquire,
operate and manage ICs to broaden the range of, and increase the capacity to
deliver, services within its markets. The Company intends to market its
comprehensive service offerings and geographic coverage to obtain payor
contracts.

IMPROVE OPERATING EFFICIENCIES

The Company intends to utilize its management infrastructure and the
collective knowledge of and information generated by its Affiliated Practices to
identify and promote practice operating efficiencies that benefit all Affiliated
Practices. The Company believes that information technology is critical to such
efforts and plans to implement sophisticated management and financial
information systems to obtain and disseminate information relating to practice
patterns, equipment utilization, facilities and personnel and operating
profitability. The Company believes such information will enable Affiliated
Practices to enhance quality of care, increase revenue, improve cash management
and more effectively control costs. The Company

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<PAGE> 178

believes that the establishment of systems that promote "best practices" and
operating efficiencies can provide the Company and its Affiliated Practices with
a competitive advantage in negotiating and obtaining managed care contracts. In
addition, the Company intends to capitalize on the size and purchasing power of
the combined Affiliated Practices to take advantage of economies of scale and to
reduce the cost of administering and operating such practices.

EXPAND INTO NEW MARKETS

The Company plans to expand into new geographic markets by acquiring and
affiliating with profitable radiology practices that have strong reputations and
competitive positions in their local markets. The Company intends to focus on
markets where there are significant prospects for physician networking and
practice consolidation, high patient-provider ratios and favorable overall
economic conditions. The Company intends to focus on acquiring and affiliating
with platform practices allowing the Company to pursue the expansion strategy
discussed above. The Company believes that it will be attractive to potential
Affiliated Practices because of its (i) exclusive focus on radiology, (ii)
governance structure which promotes physician input, (iii) service fee structure
which aligns the Company's revenue growth incentives with those of the
Affiliated Practices and (iv) transaction structure which permits physicians to
become stockholders of the Company and further aligns the interests of the
Company and the Affiliated Practices. The Company expects that its Affiliated
Practices will be instrumental in identifying potential acquisitions and
affiliations with future Affiliated Practices or ICs.

AFFILIATION STRUCTURE

APPI was formed to provide physician practice management and
administrative services to radiology practices and to own, operate and manage
ICs. The Company's business model is based on a "partnership" with its
Affiliated Practices in which the Company manages the non-medical functions of
the Affiliated Practices in a manner that promotes physician participation and
input in areas such as practice enhancement and operating efficiencies,
marketing and long-term strategy development. The Company believes that its
partnering approach (i.e., shared ownership, economic interest and governance)
enables physicians to provide input in the management and affairs of their
practice and aligns the interests of physicians in the Affiliated Practices with
those of the Company in promoting practice growth and operating efficiencies.
The Company believes its model will be attractive to potential practice
acquisition candidates. For a discussion of the contractual arrangements between
the Company and its Affiliated Practices, see "APPI -- Operation, Management and
Business Following the Merger and Exchanges -- Service Agreements."

In connection with the Mergers and Exchanges, the Company will acquire
certain tangible and intangible assets and assume certain liabilities of the
Founding Affiliated Practices. The Company will pay the purchase price for such
transactions in shares of its Common Stock and, to a lesser extent, cash. At the
time of the Mergers and Exchanges, the Company will enter into a 40-year Service
Agreement with each Founding Affiliated Practice pursuant to which the Company
will provide a wide range of management, administrative, technical and
non-medical services. For providing services under the Service Agreement, the
Company will receive a fee which is structured to align the interests of the
Company and the Founding Affiliated Practices. Additionally, the Service
Agreements restrict the Founding Affiliated Practices from competing with the
Company and other Affiliated Practices within a specified geographic area during
the term of the Service Agreements and also require each Affiliated Practice to
obtain and enforce similar restrictive covenants with the full-time physicians
affiliated with their practices. As part of its growth strategy, the Company
intends to acquire the assets of and enter into similar long-term Service
Agreements with additional radiology practices based on the partnership model it
has established with the Founding Affiliated Practices.

Additionally, pursuant to the Mergers and Exchanges, the Company will
acquire interests in certain joint venture arrangements currently held by the
Founding

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Affiliated Practices and certain physicians associated with the Founding
Affiliated Practices. The joint venture arrangements represent partnerships with
various hospitals or health systems serviced by certain of the Founding
Affiliated Practices and were formed for the purpose of owning and operating
ICs. Professional services at the joint venture ICs are performed by certain of
the Founding Affiliated Practices. With respect to the six joint venture
interests acquired from Advanced Radiology, LLC, the Company will acquire a 50%
interest in five joint ventures and a controlling interest in one joint venture.
With respect to M&S X-Ray Practices, the Company will acquire a controlling
interest in two joint ventures and a minority interest in three joint ventures.
With respect to Radiology and Nuclear Medicine, P.A., the Company will acquire
a minority interest in one joint venture.

The Company believes a shared governance approach is critical to the
long-term success of a physician practice management company. While the Company
will have the primary responsibility for managing the non-medical functions of
its Affiliated Practices, it will operate within a governance structure which
promotes physician involvement in the direction and management of the Affiliated
Practices and the Company. This will be accomplished by the Company and each
Affiliated Practice establishing a Joint Planning Board consisting of three to
six members. The Joint Planning Boards will have responsibility for (i)
establishing payor contracting guidelines, (ii) making recommendations with
respect to operating budgets and capital expenditures and (iii) developing
marketing strategies and long-term objectives for their respective practices.
The Company believes the Joint Planning Boards will promote participation by
physicians in the overall management of their practices and serve as a means for
the Company and its Affiliated Practices to communicate effectively and exchange
information. In addition, the Company intends to establish a Physician Advisory
Board, the primary focus of which will be to enhance the quality of services
provided by the Company and its Affiliated Practices. The Physician Advisory
Board will consist of 9 to 12 practicing physicians from the Affiliated
Practices and will be chaired by the Company's Senior Vice President of
Physician Affairs. This board will serve as a forum in which members can discuss
and make recommendations regarding clinical applications, practice protocols,
appropriateness criteria, utilization guidelines, best practices and managed
care issues. Recommendations will be communicated to all Affiliated Practice
physicians; however, the adoption of such recommendations will be at the
discretion of the Affiliated Practices.

OPERATIONS AND DEVELOPMENT

GENERAL

The Founding Affiliated Practices consist of seven radiology practices,
comprised of 223 radiologists, located in five states. All of the Founding
Affiliated Practices provide professional services, which consist of the
supervision, performance and interpretation of radiological procedures in
hospitals, ICs or other settings. As a result of the Mergers and Exchanges, the
Company will own and operate 54 ICs and operate and manage 11 additional ICs
through joint venture relationships. In addition, the Founding Affiliated
Practices currently provide professional radiology services to 42 hospitals. In
the aggregate, the Founding Affiliated Practices will provide all subspecialty
diagnostic and interventional radiology and radiation oncology services.
Substantially all of the 223 radiologists are board certified.

The number and type of modalities offered at the Company's owned,
operated or managed ICs are determined by the demand for such services within
their respective market areas. Presently, 55 of these ICs offer multiple
modalities including various combinations of MRI, CT, mammography, ultrasound,
nuclear medicine, fluoroscopy and traditional radiography. By offering a wide
spectrum of imaging modalities, the Company intends to market itself as a
full-service provider of diagnostic imaging services. In addition to the ICs,
the Founding Affiliated Practices provide professional services to hospitals,
hospital outpatient facilities, physicians' offices, mobile imaging units and
nursing homes.

The Company intends to expand its operations into new markets
principally through the acquisition of platform practices. Prior to entering a
new market, the Company will

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consider various factors including the population, demographics, market
potential, competitive environment, degree of managed care penetration, supply
of radiologists, existing imaging services and general economic conditions
within the market. The Company will seek to identify and affiliate with group
practices which have a significant market presence or which the Company believes
can achieve such a presence in the near term. The Company will identify
potential acquisition candidates through a variety of means, including targeted
contacts of radiologists by the Company, participation in professional
conferences, referrals from Affiliated Practices and direct inquiries by
radiologists.

Set forth below are the locations and certain other information with
respect to the Founding Affiliated Practices as of June 30, 1997:

<TABLE>
<CAPTION>
IMAGING CENTERS
------------------------
OWNED AND TOTAL
PRACTICE HOSPITAL OPERATED JOINT NON-PHYSICIAN
LOCATION PHYSICIANS AFFILIATIONS(1) SITES VENTURES(2) PERSONNEL
- -------- ---------- --------------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
Baltimore, MD 87 10 23 6 518
Rochester, NY 30 5 8 0 127
Oakland, CA 24 5 7 0 60
San Jose, CA 24 4 6 0 72
San Antonio, TX 20 5 3 4 107
Topeka, KS 24 11 2 1 49
New City, NY 14 2 5 0 147
--- -- -- -- -----
Totals 223 42 54 11 1,080
=== == == == =====
</TABLE>

(1) Hospital affiliations represent contractual or other relationships
with hospitals where the Founding Affiliated Practices provide diagnostic and
interventional radiology or radiation oncology services. In 41 of the 42
hospitals, the Founding Affiliated Practices provide substantially all of the
diagnostic and interventional radiology services provided by radiologists at
such hospitals.

(2) Joint ventures represent partnerships with various hospitals or
health systems serviced by certain of the Founding Affiliated Practices and were
formed for the purpose of owning and operating ICs. Professional services at the
joint venture ICs are performed by certain of the Founding Affiliated Practices.

The Founding Affiliated Practices were selected based on a variety of
factors, including: physician and practice credentials and reputation;
competitive market position; subspecialty mix of physicians; historical
financial performance and growth potential; and willingness to embrace the
Company's vision and philosophy regarding the provision of radiology services.

SERVICES

The Company intends to provide its Affiliated Practices with management
expertise and the capital necessary to compete in a managed care environment.
Specifically, the Company intends to support the Affiliated Practices with
management expertise in the following areas:

<TABLE>
<CAPTION>
MANAGEMENT EXPERTISE APPLICATION
- -------------------- -----------
<S> <C>
Strategic Management Provision of
strategic advice and guidance
through the proactive
management of practice
operations and pursuit of new
market opportunities.

Reimbursement Management Implementation of
billing, collection,
reporting and negotiation
processes, procedures and
performance standards in
order to maximize practice
revenue and
</TABLE>

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<PAGE> 181

<TABLE>
<S> <C>
create new or improved contracting
opportunities.

Information Management Use of advanced technology,
networking, communications,
systems integration and data
base development/management
tools and skills to increase
physician and practice
productivity and
effectiveness.

Practice Management Identification of operational
savings opportunities and
implementation of programs to
enhance practice revenue and
operating performance.

Practice Marketing Implementation of radiology
marketing techniques and
concepts to focus on
increasing imaging revenue
and customer satisfaction.

Technical Operations Management Implementation of systems,
procedures, management
techniques and standards to
increase the effectiveness,
efficiency and profitability
of a practice's technical
operations and to improve
productivity and
relationships with patients,
physicians and payors.

Materials Management/Purchasing Development and
implementation of a national
group purchasing arrangement
to provide cost savings
related to equipment
purchasing, leasing and
maintenance and the purchase
of supplies.
</TABLE>

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<PAGE> 182

The Company intends to provide its Affiliated Practices with capital for
(i) technological advances, including teleradiology and upgraded diagnostic
imaging equipment, (ii) information systems and (iii) additional ICs and imaging
equipment. Set forth below are specific areas in which the Company intends to
provide capital resources to the Affiliated Practices:

<TABLE>
<CAPTION>
AREA OF EXPENDITURE OBJECTIVE
- ------------------- ---------
<S> <C>
Advanced Imaging Equipment Provision of high-quality imaging and image
management, including teleradiology, to
maximize facility and equipment utilization
and improve quality and service to
patients, referring physicians, hospitals
and payors.

Financial and Information Systems Integration of disparate clinical and financial
systems into one common data repository and coordination
of centralized scheduling, transcription, utilization
and patient flow functions.

Network/Communications Implementation of technologies to link voice,
data and image Infrastructure transmission capabilities.

ICs Investment in equipment and facilities,
including the construction of new
facilities, the acquisition of existing
facilities or the relocation or
consolidation of existing ICs and related
equipment to achieve the most efficient use
of resources.
</TABLE>

INFORMATION MANAGEMENT

The Company believes that integrated radiology networks require
extensive information management systems to effectively manage operations,
compete for managed care contracts and achieve standardization and economies
of scale. The Company intends to create a network infrastructure, including a
FAS and EIS, which may utilize components of the Founding Affiliated Practices'
existing information systems. The Company is also evaluating the feasibility of
deploying other standard information systems, including a managed care system
and a radiology information system.

The Company intends to implement its initial information management
plans in two phases. During the first phase, the Company intends to focus on
building a basic infrastructure. Specifically, the Company intends to create a
network communications infrastructure and implement the FAS during the remainder
of 1997. The network communications infrastructure will provide access to the
FAS and EIS, facilitate the gathering of key operational data and increase
internal communications capabilities through the enterprise-wide deployment of
standard office automation applications. The Company expects that the network
infrastructure will provide the foundation for the sharing and utilization of
certain information among the Affiliated Practices and the Company. The network
will be created with standard components to be managed centrally in order to
minimize the need for local information systems personnel.

The Company intends to deploy the FAS to facilitate timely and accurate
financial reporting throughout the Company. Specifically, the Company intends to
deploy general ledger, accounts payable, payroll and materials management
systems at each of the Affiliated Practices. The FAS will be designed to
facilitate the consistent, efficient reporting of financial information across
all practices using one standard chart of accounts with a single set of
accounting practices and financial controls. The Company

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expects that the deployment of the FAS will streamline and simplify the
financial reporting process and will provide a tool for managing practice
efficiency benchmarks.

During phase two, the Company expects to focus on assimilating and
analyzing data from its Affiliated Practices' disparate information systems. In
this phase, the Company intends to deploy an EIS that will facilitate the
management reporting of key operational data. The Company anticipates that the
EIS will provide a repository to store pertinent encounter data and initially
will use the Affiliated Practices' practice management systems, radiology
information systems and the FAS as primary data sources. It is anticipated that
the EIS will provide variance, utilization, reimbursement efficiency and trend
analysis reporting capabilities. The Company believes that the EIS will enable
Affiliated Practices to enhance the quality of information, increase revenue,
improve operating efficiencies and more effectively control costs. There can be
no assurance that the Company will be able to implement the FAS or EIS on a
timely basis, if at all, that it will not encounter delays in the implementation
or that these systems will produce the expected benefits. See "Risk Factors --
Dependence on Information Systems."

SERVICE AGREEMENTS

Upon consummation of the Mergers and Exchanges, the Company will be a
party to a Service Agreement with each Founding Affiliated Practice under which
the Company will become the exclusive manager and administrator of non-medical
services relating to the operation of the Founding Affiliated Practice. The
following summary of the Service Agreement is intended to be a brief description
of the standard form of the Service Agreement that the Company will be a party
to with each Founding Affiliated Practice. The Service Agreements may vary from
the description below depending on the requirements of local regulations and
negotiations with the individual Founding Affiliated Practices. The Company
expects to enter into agreements with similar provisions with Affiliated
Practices in the future.

The service fees payable to the Company by the Affiliated Practices
under the Service Agreements vary based on fair market value, as determined in
arms' length negotiations, and the nature and extent of services provided. Where
state law allows, service fees due under the Service Agreements are derived from
two distinct revenue streams: (i) the Affiliated Practice pays a service fee
based on a negotiated percentage (Founding Affiliated Practice service fees
range from 20% to 25%) of the adjusted professional revenues as defined in the
Service Agreement; and (ii) the Affiliated Practice pays a service fee based on
100% of the adjusted technical revenues as defined in the Service Agreement,
which equals the fair value of the services provided. In states where the law
requires a flat fee structure, the Company has negotiated a base service fee,
which is equal to the fair market value of the services provided under the
Service Agreement and which is renegotiated each year to equal the fair market
value of the services provided under the Service Agreement. Adjusted
professional revenues and adjusted technical revenues are determined by
deducting certain contractually agreed-upon expenses (non-physician salaries and
benefits, rent, depreciation, insurance, interest and other non-physician costs)
from physician groups revenue of the Affiliated Practice. In addition, the
Company will receive income from joint ventures in which the Company will hold
ownership interests. Revenues will be billed by the Company on behalf of the
Affiliated Practices. Payments will be received by the Affiliated Practice and
transferred to the Company on a daily basis. On a monthly basis the Company will
calculate the amount of service fees due and remit to the Affiliated Practices
an amount equal to the difference between the net revenues of the Affiliated
Practice and the service fees calculated by the Company. See "--Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."

Set forth below is a sample calculation of the service fees under the
two fee structures described above and the respective income statements of a
hypothetical Affiliated Practice and the Company related to such service fee
calculation. The following examples are for illustrative purposes only and do
not represent the actual or potential service fee that would be payable by any
Affiliated Practice, the operating results of any Affiliated Practice or the
relationship of revenues and expenses.

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<PAGE> 184

SAMPLE SERVICE FEE CALCULATION

Negotiated Percentage Structure Base Fee Structure
---------------------------------------- -----------------------------------
Professional Technical Total Profession Technical Total
------------ --------- ----- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Physician group revenue, net. $1,200 $800 $2,000 $1,200 $800 $2,000
Agreed-upon expenses(1)...... 170 594 764 170 594 764
------ ---- ------ ------ ---- ------
Adjusted Professional/
Technical Revenues......... $1,030 $206 $1,236 $1,030 $206 $1,236
====== ==== ====== ====== ==== ======

Negotiated service fee %..... 20% 100% NA NA NA
Service Fee.................. $ 206 $206 $ 412 --
====== ====
Base Service Fee............. -- $ 412
Reimbursement of expenses.... 764 764
------ ------
Service fee revenue.......... $1,176 $1,176
====== ======

</TABLE>

<TABLE>
<CAPTION>
Affiliated
SAMPLE INCOME STATEMENT Practice APPI Subsidiary
---------- ---------------
<S> <C> <C>
Physician group revenue, net........................................ $2,000 $2,000
Less: amounts retained by physician group........................... -- (824)
------ ------
Service fee revenue ............................................... 2,000 1,176
Cost of physician services ......................................... 824 --
Operating expenses(1)............................................... 764 764
APPI service fee ................................................... 412 --
------ ------
Total costs and expenses ................................... 2,000 764
Income before taxes ............................................... $ -- $ 412
====== ======
</TABLE>
- ---------------
(1) Expenses include non-physician salaries and benefits, rent,
depreciation, insurance, interest, and other non-physician costs.

Pursuant to the Service Agreement, the Company will, among other things:
(i) act as the exclusive manager and administrator of non- physician services
relating to the operation of the Founding Affiliated Practice, subject to
matters reserved to the Founding Affiliated Practice or referred to the Joint
Planning Board; (ii) aid in the billing of hospitals, insurance companies and
other third-party payors and collect on behalf of the Founding Affiliated
Practice the fees for professional medical and other services rendered by the
Founding Affiliated Practice; (iii) provide, as necessary, clerical, accounting,
purchasing, payroll, legal, bookkeeping and computer services and personnel,
information management, preparation of certain tax returns and medical
transcribing services; (iv) supervise and maintain custody of substantially all
files and records; (v) provide facilities for the Founding Affiliated Practice;
(vi) prepare, in consultation with the Joint Planning Board and the Founding
Affiliated Practice, all annual operating and capital budgets; (vii) order and
purchase inventory and supplies as necessary; (viii) implement, in consultation
with the Joint Planning Board and the Founding Affiliated Practice, national and
local public relations or advertising programs; (ix) provide financial and
business assistance in the negotiation, establishment, supervision and
maintenance of contracts and relationships with managed care and other similar
providers and payors; and (x) assist the Founding Affiliated Practice with
obtaining medical malpractice insurance for its physicians and other medical
professionals.

The Service Agreements require the Company and each Founding Affiliated
Practice to establish a Joint Planning Board consisting of not less than three
nor more than six members; two designees of the Company (each with one vote) and
no less than one or more than four designee(s) of the Founding Affiliated
Practice (representing two votes in the aggregate). Each Joint Planning Board
will have responsibilities that include developing long-term strategic
objectives relating to practice expansion and payor contracting guidelines,
promoting practice efficiencies, recommending capital expenditures and generally
serving as a means by which the Company and each of the Founding Affiliated
Practices will communicate and exchange information. The Company intends to
continue to establish Joint Planning Boards in the future, some of which may be
on a regional level.

Under the Service Agreements, each Founding Affiliated Practice will
remain responsible for (i) hiring and compensating its physicians and certain
other medical professionals, (ii) the licensing, credentialling and
certification necessary to conduct its practice, (iii) obtaining and maintaining
medical malpractice insurance for the professional entity and its physician
employees, (iv) providing professional radiological services and (v) complying
with federal and state laws, regulations and other ethical standards applicable
to the practice of radiology. Pursuant to the

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Service Agreements, the Founding Affiliated Practices will maintain full control
over the provision of professional radiological services. The Company will not
engage in the practice of medicine or provide professional radiological
services. In addition, the Service Agreements with the Founding Affiliated
Practices also contain provisions whereby both the Company and each Founding
Affiliated Practice have agreed to certain restrictions on accepting or pursuing
radiology opportunities within a 15-mile radius (decreasing to ten miles upon
the expiration of 12 months) of any of the Company's owned, operated or managed
ICs at which the Founding Affiliated Practice provides professional radiology
services or any hospital at which a Founding Affiliated Practice provides
on-site professional radiology services. Each Service Agreement also restricts
the applicable Founding Affiliated Practice from competing with the Company and
other Affiliated Practices within a specified geographic area during the term of
such Service Agreement. In addition, the Service Agreements require the Founding
Affiliated Practices to enter into and enforce agreements with the stockholders
and full-time radiologists at each Founding Affiliated Practice (subject to
certain exceptions) that include covenants not to compete with the Company for a
period of two years after termination of employment.

The Service Agreements are for an initial term of 40 years, with
automatic extensions of five years unless notice of termination is given. The
Service Agreements may be terminated by either party if (i) the other party (a)
files a petition in bankruptcy or other similar events occur or (b) defaults in
the performance of a material duty or obligation, which default continues for a
specified period after notice or (ii) an opinion is rendered by a law firm of
nationally-recognized expertise in health care law that a material term of the
Service Agreement is in violation of applicable law (or a court or regulatory
agency finds as such) and such violation cannot be cured.

Each Service Agreement may also be terminated by the Company if the
Founding Affiliated Practice or a physician employee engages in conduct, or is
formally accused of conduct, for which the physician employee's license to
practice medicine reasonably would be expected to be subject to revocation or
suspension or is otherwise disciplined by any licensing, regulatory or
professional entity or institution, the result of any of which (in the absence
of termination of such physician or other action to monitor or cure such act or
conduct) does or reasonably would be expected to materially adversely affect the
Founding Affiliated Practice. In addition, the Company may terminate a
Service Agreement with any Founding Affiliated Practice if, during the first
five years of the Service Agreement, more than 33 1/3% of the total number of
physicians employed or retained by such practice are no longer employed or
retained by such practice other than because of certain events, including death,
permanent disability, pre-qualified retirement or involuntary loss of hospital
contracts or privileges.

Upon termination of a Service Agreement with a Founding Affiliated
Practice, depending upon the termination event, the Company may have the right
to require such Founding Affiliated Practice to purchase and assume, or the
Founding Affiliated Practice may have the right to require the Company to sell,
assign and transfer to it, the assets and related liabilities and obligations
associated with the professional and technical radiology services provided by
the Founding Affiliated Practice immediately prior to such termination. The
purchase price for such assets, liabilities and obligations will be the lesser
of fair market value thereof or the return of the consideration received in the
Merger or Exchange as the case may be; provided, however, that the purchase
price shall not be less than the net book value of the assets being purchased.

PRACTICE MARKETING

The Company intends to focus its marketing efforts on referring
physicians, hospitals and managed care organizations. Prior to the Mergers and
Exchanges, the Founding Affiliated Practices' marketing efforts were based
primarily upon the professional reputations and individual efforts of such
practices and its radiologists. The Company believes there is an opportunity to
capitalize on the professional

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reputations of the Founding Affiliated Practices by applying professional sales
and marketing techniques to increase the Affiliated Practices' volume of
business and expand the potential geographic market for each Affiliated Practice
beyond its local physician community.

In addition, the Company will seek to secure new contracts and expand
existing contracts with managed care organizations for the provision of
radiology services. The Company is prepared to negotiate flexible arrangements
with managed care organizations on behalf of the Affiliated Practices.

GOVERNMENT REGULATION AND SUPERVISION

General

The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which the Company operates will not
change significantly in the future. The ability of the Company to operate
profitably will depend in part upon the Company, the Affiliated Practices and
their affiliated physicians obtaining and maintaining all necessary licenses,
certificates of need and other approvals and operating in compliance with
applicable health care regulations. The Company believes that health care
regulations will continue to change and, therefore, intends to monitor
developments in health care law and the Company expects to modify its operations
from time to time as the business and regulatory environment changes. There can
be no assurance that the Company will be able to modify its operations so as to
address changes in the regulatory environment.

Licensing and Certification Laws

Every state imposes licensing requirements on individual physicians and
on facilities operated, or services performed, by physicians and others. In
addition, federal and state laws regulate HMOs and other managed care
organizations with which Affiliated Practices or their affiliated physicians
may have contracts. Many states require regulatory approval, including
certificates of need and/or licensing, before establishing or expanding
certain types of health care facilities, offering certain services or making
expenditures in excess of statutory thresholds for health care equipment,
facilities or programs. In connection with the expansion of existing operations
and the entry into new markets, the Company, the Affiliated Practices or their
affiliated physicians may become subject to additional regulation.

In addition to existing government health care regulation, there have
been numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services. The
Company believes that such initiatives will continue during the foreseeable
future. Certain aspects of these reforms as proposed in the past, such as
further reductions in Medicare and Medicaid payments and additional prohibitions
on physician ownership, directly or indirectly, of facilities to which they
refer patients, if adopted, could adversely affect the Company. Concern about
the potential effects of such reform measures has contributed to the volatility
of stock prices of many companies in health care and related industries and may
similarly affect the market price of the Common Stock.

Federal regulatory and law enforcement authorities have recently
increased enforcement activities with respect to Medicare and Medicaid fraud and
abuse regulations and other reimbursement laws and rules, including laws and
regulations that govern the Company's activities. There can be no assurance that
the Company's activities will not be investigated, that claims will not be made
against the Company or that these increased enforcement activities will not
directly or indirectly have an adverse effect on the Company's business,
financial condition and results of operations.

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<PAGE> 187

Fee-Splitting; Corporate Practice of Medicine

The laws of many states (including each of the states in which the
Founding Affiliated Practices are located) prohibit physicians from splitting
fees with non-physicians and prohibit non-physician entities from practicing
medicine. These laws vary from state to state and are enforced by the courts and
by regulatory authorities with broad discretion. Although the Company intends to
structure its proposed operating structures and methods as described in the Form
S-1 so as to comply with existing applicable laws, the Company's business
operations have not been the subject of judicial or regulatory interpretation.
There can be no assurance that a review of the Company's business by courts or
regulatory authorities will not result in determinations that could adversely
affect the operations of the Company or that the health care regulatory
environment will not change so as to restrict the Company's planned operations
and expansion. In addition, the regulatory framework of certain jurisdictions
may limit the Company's expansion into such jurisdictions if the Company is
unable to modify its operational structure to conform with such regulatory
framework.

Medicare Physician Payment System

The Company believes that regulatory trends in cost containment will
continue to result in a reduction from historical levels in per-patient revenue
for medical practices. The federal government has implemented, through the
Medicare program, the RBRVS payment methodology for physician services. The
RBRVS is a fee schedule that, except for certain geographical and other
adjustments, pays similarly situated physicians the same amount for the same
services. The RBRVS is adjusted each year and is subject to increases or
decreases at the discretion of Congress. To date, the implementation of the
RBRVS has reduced payment rates for certain of the procedures historically
provided by the Founding Affiliated Practices. BBA 97 provides for reductions in
the rate of growth of payments for physician services, including services
historically provided by the Affiliated Practices, in the amount of $5.3 billion
over a five-year period ending in 2002. In addition, BBA 97 provides for the
implementation of a resource-based methodology for payment of physician practice
expenses under the physician fee schedule over a four-year period beginning in
1999. Adoption of this methodology is expected to reduce payments for services
historically provided by the Affiliated Practices. There can be no assurance
that any reduced operating margins could be offset by the Company through cost
reductions, increased volume, the introduction of additional procedures or
otherwise. Private third-party payors and Medicare and Medicaid have increased
their use of managed care as a means of cost containment. Increasingly, private
third-party payors negotiate discounts from established physician and hospital
charges or require capitation or other risk sharing arrangements as a condition
of patient referral to physician groups such as the Affiliated Practices. BBA 97
also includes provisions designed to increase the enrollment of Medicare and
Medicaid participants in managed care programs. The inability of the Company to
negotiate satisfactory arrangements with managed care companies would have a
material adverse effect on the Company's business, financial condition and
results of operation.

Rates paid by non-governmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician and hospital
charges and are generally higher than Medicare payment rates. A change in the
makeup of the patient mix of the medical practices that results in a decrease in
patients covered by private insurance plans could adversely affect the Company's
revenue and income.

Medicare and Medicaid have increased their use of managed care as a
means of cost containment. As with private third-party payors, Medicare and
Medicaid managed care contractors negotiate discounts from established physician
and hospital charges or require capitation or other risk sharing arrangements as
a condition of patient referral to physician groups such as the Affiliated
Practices. BBA 97 includes provisions designed to increase the enrollment of
Medicare and Medicaid participants in managed care programs. The inability of
the Company to negotiate satisfactory

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<PAGE> 188

arrangements with Medicare and Medicaid managed care contractors could have a
material adverse effect on the Company's business, financial condition and
results of operation.

Medicare and Medicaid Fraud and Abuse

Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, (i) the referral of a
person, (ii) the furnishing or arranging for the furnishing of items or services
reimbursable under Medicare, Medicaid or other governmental programs or (iii)
the purchase, lease or order or arranging or recommending purchasing, leasing
or ordering of any item or service reimbursable under the Medicare, Medicaid or
other governmental. Pursuant to this anti-kickback law, the federal government
has recently announced a policy of increased scrutiny of joint ventures and
other transactions among health care providers in an effort to reduce potential
fraud and abuse relating to Medicare costs. The applicability of these
provisions to many business transactions in the health care industry has not
yet been subject to judicial and regulatory interpretation. Noncompliance with
the federal anti-kickback legislation can result in exclusion from the Medicare,
Medicaid or other governmental programs and civil and criminal penalties.

The Company believes that although it will receive fees under the
Service Agreements for management and administrative services, it is not in a
position to make or influence referrals of patients or services reimbursed under
the Medicare, Medicaid or other governmental programs to Affiliated Practices
or their affiliated physicians, or to receive such referrals. Such service fees
are intended by the Company to be consistent with fair market value in arms'
length transactions for the nature and amount of management and administrative
services rendered. For these reasons, the Company does not believe that fees
payable to it should be viewed as remuneration for referring or influencing
referrals of patients or services covered by such programs as prohibited by
statute. If, however, the Company is deemed to be in a position to make,
influence or receive referrals from or to physicians, or the Company is deemed
to be a provider under the Medicare or Medicaid programs, the operations of the
Company could be subject to scrutiny under federal and state anti-kickback and
anti-referral laws and the Company's operations could be materially and
adversely affected.

Significant prohibitions against physician referrals have been enacted
by Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically enlarging
the field of physician-owned or physician-interested entities to which the
referral prohibitions apply. Stark II prohibits a physician from referring
Medicare or Medicaid patients to an entity providing "designated health
services", including without limitation radiology services, in which the
physician has an ownership or investment interest, or with which the physician
has entered into a compensation arrangement. The penalties for violating Stark
II include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme." The Company believes that although it
will receive fees under the Service Agreements for management and administrative
services, it is not in a position to make or influence referrals of patients. To
the extent that the Company or any Affiliated Practice is deemed to be subject
to the prohibitions contained in Stark II for services, the Company believes its
activities fall within the permissible activities defined in Stark II.

In addition, the Company intends to structure its acquisition of the
assets of existing practices so as to not violate the anti-kickback and Stark II
laws and regulations. Specifically, the Company believes the consideration paid
by the Company to physicians to acquire the tangible and intangible assets
associated with their practices is consistent with fair market value in arms'
length transactions and not intended to induce the referral of patients. Should
this practice be deemed to constitute an arrangement designed to induce the
referral of Medicare or Medicaid patients, then the Company's acquisitions could
be viewed as possibly violating anti-kickback and anti-referral laws and
regulations. A determination of liability under any such laws could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Federal regulatory and law enforcement authorities have recently
increased enforcement activities with respect to Medicare and Medicaid fraud
and abuse regulations and other reimbursement laws and rules, including laws
and regulations that govern the Company's contemplated activities will not be
investigated, that claims will not be made against the Company or that these
increased enforcement activities will not directly or indirectly have an
adverse effect on the Company's business, financial condition and results of
operation.

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<PAGE> 189

Health Care Reform Initiatives

Compliance Program

With the assistance of the Company's special health care regulatory
counsel, the Company intends to implement a program to monitor compliance with
federal and state laws and regulations applicable to health care entities. The
Company intends to appoint a compliance officer who will be charged with
implementing and supervising the Company's compliance program, which will
involve the adoption of (i) "Standards of Conduct" for its employees and
affiliates and (ii) an "Ethics Process" that will specify how employees,
affiliates and others may report regulatory or ethical concerns to the Company's
compliance officer. As part of the Ethics Process, the Company intends to
introduce various methods designed to facilitate the reporting of any regulatory
and ethical issues to the compliance officer for investigation or appropriate
corrective action. In addition, the Company intends to conduct or have its
special health care regulatory counsel conduct periodic audits of various
aspects of its operations, including the Affiliated Practices. The Company also
intends to initiate a training program designed to familiarize its employees
with the regulatory requirements and the elements of the Company's compliance
program.

Insurance Laws and Regulation

Certain states have enacted statutes or adopted regulations affecting
risk assumption in the health care industry, including statutes and regulations
that subject any physician or physician network engaged in risk-based
contracting to applicable insurance laws and regulations, which may include,
among other things, laws and regulations providing for minimum capital
requirements and other safety and soundness requirements. The Company believes
that it and the Affiliated Practices are currently in compliance with such
insurance laws and regulations. However, implementation of additional
regulations or compliance requirements could result in substantial costs to the
Company and the Affiliated Practices. The inability to enter into capitated or
other risk-sharing arrangements or the cost of complying with certain applicable
laws that would permit expansion of the Company's risk-based contracting
activities could have a material adverse effect on the Company's business,
financial condition and results of operations.

COMPETITION

The Affiliated Practices and the Company's owned, operated or managed
ICs will compete with local radiologists and technical and imaging service
providers, including for profit and non-profit hospitals and health systems, in
each of the markets served

137

<PAGE> 190

by the Company. The Company believes that changes in governmental and private
reimbursement policies and other factors have resulted in increased competition
among providers for medical services to consumers and that cost, accessibility,
quality and scope of services provided are the principal factors that affect
competition. There can be no assurance that the Affiliated Practices and the
Company's owned, operated or managed ICs will be able to compete effectively in
the markets that they serve, which inability to compete could adversely affect
the Company.

The Company believes that the current trends in the hospital industry
have resulted in increased competition by radiology groups for hospital
contracts. Each of the Founding Affiliated Practices provides radiology services
to hospitals. These relationships can be affected through competition with other
radiology groups, the outsourcing of the radiology and imaging functions within
the hospital or closure of the hospital due to consolidation or financial
instability. There can be no assurance that each of the Founding Affiliated
Practices will maintain its current hospital relationships and be able to renew
or extend its current arrangements under favorable terms or effectively compete
for new relationships.

The Company is under competitive pressures for the acquisition and
retention of the assets of, and the provision of management, technical and
administrative services to, additional radiology practices, MSOs and ICs. There
are a number of publicly-traded companies focused on owning or managing ICs,
including U.S. Diagnostic Labs Inc., Medical Resources, Inc. and Health Images
(a division of HEALTHSOUTH Corporation). The Company is aware of two
privately-held physician practice management companies focused on professional
and technical radiology services. Several companies, both publicly and privately
held, that have established operating histories and, in some instances, greater
resources than the Company are pursuing the acquisition of general and specialty
physician practices (including radiology in the case of TeamHealth) and the
management of such practices. Additionally, some hospitals, clinics, health
care companies, HMOs and insurance companies engage in activities similar to
those of the Company. There can be no assurance that the Company will be able
to compete effectively with such competitors for the acquisition of, or
affiliation with, radiology practices, that additional competitors will not
enter the market, that such competition will not make it more difficult or
expensive to acquire the assets of, and provide management, administrative,
technical and non-medical services to, radiology practices on terms beneficial
to the Company or that competitive pressures will not otherwise adversely
affect the Company.

FACILITIES AND EMPLOYEES

The Company's corporate headquarters are located at 2301 NationsBank
Plaza, 901 Main Street, Dallas, Texas 75202, in approximately 13,349 square feet
occupied under a lease which expires on September 30, 2001. As of September 12,
1997, the Company had 19 employees and, upon consummation of the Mergers and
Exchanges, the Company expects that it will have approximately 1,100 employees,
of which approximately 30 of which will be employed at the Company's
headquarters and regional offices and the remainder of which will be employed at
the Founding Affiliated Practices. The Company believes that its relationship
with its employees is good. See "APPI -- Operation, Management and Business
Following the Mergers and Exchanges -- Operations and Development."

CORPORATE LIABILITY AND INSURANCE

The Founding Affiliated Practices maintain professional liability
insurance coverage primarily on a claims made basis. Such insurance provides
coverage for claims asserted when the policy is in effect regardless of when the
events that caused the claim occurred. As a result of the Mergers and Exchanges,
the Company will in some cases succeed to certain liabilities of the Founding
Affiliated Practices. Therefore, claims may be asserted after the Mergers and
Exchanges against the Company for events which occurred prior to the Mergers and
Exchanges. Following the Mergers and Exchanges, the Company and the Affiliated
Practices intend to maintain insurance coverage similar to the coverage
previously maintained by the Founding Affiliated Practices. On September 1,
1997, a new law became effective in the state of Texas that permits

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<PAGE> 191

injured patients to sue health insurance carriers, HMOs and other managed care
entities for medical malpractice. There can be no assurance that this law will
not increase the cost of liability insurance to the Company for services
provided in Texas or any other states in which the Company does business if
similar legislation is adopted in those states.

The provision of medical services entails an inherent risk of
professional malpractice and other similar claims. The Company's intent is to
not influence or control the practice of medicine by physicians or have
responsibility for compliance with certain regulatory and other requirements
directly applicable to physicians and physician groups. As a result of the
relationship between the Company and the Affiliated Practices, however, the
Company may become subject to medical malpractice actions under various
theories, including successor liability. There can be no assurance that claims,
suits or complaints relating to services provided by Affiliated Practices will
not be asserted against the Company in the future. The Company expects to
maintains insurance coverage that it believes will be adequate. The Company
anticipates that such insurance will extend to professional liability claims
that may be asserted against employees of the Company that work on site at
Affiliated Practice locations. In addition, pursuant to the Service Agreements,
the Founding Affiliated Practices are required (and the Company intends to
require any other Affiliated Practices) to maintain comprehensive professional
liability insurance. The availability and cost of such insurance is affected by
various factors, many of which are beyond the control of the Company and
Affiliated Practices. The cost of such insurance to the Company and the
Affiliated Practices may have an adverse effect on the Company's operations. In
addition, successful malpractice or other claims asserted against Affiliated
Practices or the Company that exceed applicable policy limits could have a
material adverse effect on the Company.

In connection with the Mergers and Exchanges, the security holders of
the Founding Affiliated Practices have agreed to indemnify the Company for
certain claims. There can be no assurance that the Company will be able to
receive payments under any such indemnity agreements or that the failure to
fully recover such amounts will not have a material adverse effect on the
Company's business, financial condition or results of operations.

Following the Mergers and Exchanges, the Founding Affiliated Practices
will be required by the terms of the Service Agreements to maintain medical
malpractice liability insurance consistent with minimum limits mandated in their
hospital contracts or by applicable state law. It is anticipated that minimum
amounts to be maintained will be $1 million per occurrence and $3 million in the
aggregate. The Company intends to maintain general liability and umbrella
coverage of $5 million per occurrence and $5 million in the aggregate.
Additionally, the Company will maintain workers' compensation insurance on all
employees. Coverage will be placed on a statutory basis and will respond to each
state's specific requirements.

LEGAL PROCEEDINGS

The Company is not a party to any suits or complaints relating to
services provided by the Company or the Founding Affiliated Practices, although
there can be no assurances that claims will not be asserted against the Company
in the future. The Company will become subject to certain pending claims as the
result of successor liability in connection with the Mergers and Exchanges;
however, the Company believes that the ultimate resolution of such claims will
not have a material adverse effect on the business, financial condition or
results of operations of the Company.

Although the Company has not been named in any of the lawsuits against a
Founding Affiliated Practice, there can be no assurance that the Company will
not subsequently be named as a defendant in one or more of these lawsuits
following consummation of the Mergers and Exchanges. Each Founding Affiliated
Practice has retained responsibility for, and agreed to indemnify the Company in
full against, the liabilities associated with these lawsuits. In the event the
Company is subsequently added as a party in any of these lawsuits, or a monetary
judgment is entered against the Company and

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<PAGE> 192

indemnification is unavailable for any reason, the Company's business, financial
condition and results of operations could be materially adversely affected.

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<PAGE> 193
APPI SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for APPI has been derived from the Company's
financial statements. APPI was incorporated in April 1996 and has conducted no
significant operations and generated no revenue to date other than in
conjunction with the Initial Public Offering and the pending Mergers and
Exchanges. The selected financial data presented below for the six months ended
June 30, 1997 have been prepared on the same basis as the audited financial
statements included herein and, in the opinion of management of the Company,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein. Results for
interim periods are not necessarily indicative of those to be expected for a
full fiscal year. The selected financial information should be read in
conjunction with "APPI Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the unaudited financial statements of
APPI and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FROM
INCEPTION
(APRIL 30,
1996) SIX MONTHS
THROUGH ENDED
DEC. 31, JUNE 30,
1996 1997
-------- -----------
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $ -- $ --
Expenses:
Salaries, wages and benefits 546 901
Depreciation and amortization 3 13
Other expenses 1,101 785
------- -----
Total expenses 1,650 1,699
------- -------
Net loss $(1,650) $(1,699)
======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets $ 2,486
Total debt 3,500
Stockholders' deficit (3,099)
</TABLE>

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<PAGE> 194

APPI MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
as well as those discussed elsewhere in this Prospectus. The historical results
set forth in this discussion and analysis are not indicative of trends with
respect to any actual or projected future financial performance of the Company.
This discussion and analysis should be read in conjunction with the audited
financial statements of APPI and Notes thereto included elsewhere in this
Prospectus.

Overview

APPI has conducted no significant operations to date but will be
acquiring, in connection with the Mergers, Exchanges and Reorganizations and the
Initial Public Offering, tangible and intangible assets and liabilities of, and
entering into Service Agreements with, the Founding Affiliated Practices.
Through the Service Agreements, the Company will be providing management,
administrative, technical and non-medical services to the Affiliated Practices
in return for service fees. The service fees represent the physician groups
revenue, net less amounts retained by physician groups. Physician groups
revenue, net consists of the revenue of the Affiliated Practices reported at the
estimated realizable amounts from patients, third-party payors and others for
services rendered, net of contractual and other adjustments. The service fees
payable to the Company by the Affiliated Practices under the Service Agreements
vary based on the fair market value, as determined in arms' length negotiations,
and the nature and extent of services provided. Where state law allows, the
service fees due under the Service Agreements are derived from two distinct
revenue streams: (i) the Affiliated Practice pays a service fee based on a
negotiated percentage (Founding Affiliated Practice service fees range from 20%
to 25%) of the adjusted professional revenues as defined in the Service
Agreement; and (ii) the Affiliated Practice pays a service fee based on 100% of
the adjusted technical revenues as defined in the Service Agreement, which
equals the fair value of the services provided. In states where the law requires
a flat fee structure, the Company has negotiated a base service fee, which is
equal to the fair market value of the services provided under the Service
Agreement and which is renegotiated each year to equal the fair market value of
the services provided under the Service Agreement. As structured, the base
service fee will result in the Company receiving substantially the same amount
of service fee as it would have received under its negotiated percentage fee
structure. The service fees received by the Company under either fee structure
provide the Company with a net profits or equivalent interest in the Affiliated
Practices and, as a result, the Company will display the revenues, net of the
amounts retained by physicians, and expenses of the Affiliated Practices in its
historical consolidated statement of operations once the Mergers and Exchanges
have occurred. The aggregate initial base service fees in states where the law
requires a flat fee structure are $9,261,000. Adjusted professional revenues and
adjusted technical revenues are determined by deducting certain contractually
agreed-upon expenses (non-physician salaries and benefits, rent, depreciation,
insurance, interest and other non-physician costs) from physician groups revenue
of the Affiliated Practice. In addition, the Company receives income from joint
ventures in which the Affiliated Practices hold ownership interests. Physician
compensation is determined by the Affiliated Practices pursuant to employment
arrangements between the Affiliated Practice and the individual physicians. The
Company does not participate in the negotiation of physician employment
arrangements.

The Company expects that the expenses incurred by the Company associated
with its obligations under the Service Agreements will generally be the same as
the operating costs and expenses that would have otherwise been incurred by the
Founding Affiliated Practices, including: the salaries, wages and benefits of
non-physician personnel; medical supplies expenses involved in administering
technical aspects of the practices;

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<PAGE> 195

the office (general and administrative) expenses of the practices; depreciation
and amortization of assets acquired from the Affiliated Practices; and certain
other items. As further described in "APPI -- Operation, Management and Business
Following the Mergers and Exchanges -- Business Strategy," the Company intends
to implement measures designed to reduce these operating costs and expenses
through purchase discounts, economies of scale, benchmarking programs and more
effective equipment utilization. In addition to the operating costs and expenses
discussed above, the Company will be incurring additional personnel and
administrative expenses in connection with establishing and maintaining
corporate and regional offices, which will provide management, administrative,
marketing and acquisition services.

In accordance with SAB 48, "Transfers of Nonmonetary Assets by Promoters
or Shareholders," published by the SEC, the acquisition of the assets and
assumption of certain liabilities for all of the Founding Affiliated Practices
pursuant to the Mergers and Exchanges is accounted for by the Company at the
transferors' historical cost basis with the shares of Common Stock to be issued
in those transactions being valued at the historical cost of the non-monetary
assets acquired net of liabilities assumed. Each of the security holders of the
Founding Affiliated Practices is deemed to be a promoter of the Initial Public
Offering. The cash consideration will be reflected as a dividend by APPI to the
owners of the Founding Affiliated Practices. SAB 48 will not be applicable to
any acquisitions made by the Company subsequent to the Initial Public Offering.
It is currently anticipated that the Company's future acquisitions of certain
assets and liabilities of Affiliated Practices may result in substantial annual
non-cash amortization charges for intangible assets in the Company's statements
of operations.

An integral part of the Company's business strategy is to grow through
acquisitions and to expand the Affiliated Practices. Although the Company is
currently engaged in discussions with several such potential acquisition
candidates, except as disclosed in this Prospectus/Joint Proxy Statement, the
Company has not entered into any letters of intent or definitive purchase
agreements with respect to any such acquisitions. No assurance can be provided
that any such acquisitions will be consummated.

Results of Operations

APPI has conducted no significant operations to date and will not
conduct significant operations until the Mergers and Exchanges and the Initial
Public Offering are completed. APPI has incurred and continues to incur various
legal, accounting, travel and marketing costs in connection with the Mergers and
Exchanges and the Initial Public Offering. As of June 30, 1997, such expenses
had been funded primarily by the proceeds received from the issuance of $3.5
million in Convertible Notes. In addition, during 1996, APPI borrowed $0.4
million in the form of notes from its stockholders. As of June 30, 1997, these
notes were fully repaid.

APPI has recorded a full valuation allowance against its deferred tax
assets because of its current financial condition, its limited operating history
and its operating losses recorded to date. If the Company does achieve
profitability in the future, the valuation allowance will be reduced by a credit
to income.

Liquidity and Capital Resources

If the Mergers and Exchanges and the Initial Public Offering had
occurred on June 30, 1997, the Company would have had pro forma working capital
of $17.2 million (assuming an Initial Offering Price of $15.00 per share and
after giving effect to the use of proceeds from the Initial Public Offering).

The Company anticipates making capital expenditures during the remainder
of 1997 of approximately $7.0 million, primarily for the purchase of imaging and
teleradiology equipment. In addition to these capital expenditures, the Company
is working to establish relationships with third-party vendors regarding the
potential purchase and implementation of management information systems that
could involve additional

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<PAGE> 196

expenditures of approximately $2.4 million during the remainder of 1997 and
thereafter. The Company also expects to make acquisitions of the assets of
practices during 1997 that will involve the use of cash and Common Stock.

The Company has executed a $115 million Credit Facility with GECC, as
agent, and other lenders, which Credit Facility is expected to become effective
upon consummation of the Mergers and Exchanges and completion of the Initial
Public Offering. Under the terms of the Credit Facility, the Company may borrow,
repay and reborrow amounts during the first three years of the Credit Facility.
Amounts outstanding under the Credit Facility at the end of three years are
required to be repaid in quarterly installments of varying amounts commencing
September 30, 2000. The Credit Facility expires and all loans thereunder mature
on the sixth anniversary of the closing date of the Credit Facility. Borrowings
under the Credit Facility at any time may not exceed three times the
consolidated EBITDA of the Company giving pro forma effect to acquisitions made
with such borrowings. At the Company's option, the interest rate shall be (i) an
adjusted LIBOR rate plus an applicable margin which can vary from 1.0% to 1.75%
or (ii) the prime rate plus an applicable margin which can vary from 0 to .75%.
In each case the applicable margin varies based on financial ratios maintained
by the Company. The Credit Facility will include certain restrictive covenants
including prohibitions on the payment of dividends and the maintenance of
certain financial ratios (including minimum debt-service coverage and maximum
debt-to-EBITDA, as defined). Borrowings under the Credit Facility are secured by
all Service Agreements to which APPI is or becomes a party and a pledge of the
stock of APPI's subsidiaries.

Upon consummation of the Initial Public Offering, the Company intends to
borrow approximately $17,000,000 under the Credit Facility to refinance existing
indebtedness of the Founding Affiliated Practices and fund working capital. The
Company anticipates that it will use future borrowings under the Credit Facility
to fund capital expenditures for the Affiliated Practices, make acquisitions and
for general corporate purposes.

The availability of the Credit Facility is subject to satisfaction of a
number of closing conditions, including consummation of the Initial Public
Offering with Net Proceeds to the Company of at least $60 million,
consummation of the Mergers and Exchanges and other closing and borrowing
conditions. There can be no assurance that borrowing capacity under the Credit
facility will be available to the Company when needed.

The Company anticipates that funds generated from the Initial Public
Offering, after giving effect to the use of proceeds from the Initial Public
Offering in the manner set forth in "Use of Proceeds" in the Form S-1, funds
generated from operations, cash and cash equivalents, and funds expected to be
available under the Credit Facility will be sufficient to meet the Company's
working capital requirements and debt obligations and to finance any necessary
capital expenditures through the end of 1998. Expansion of the Company's
business through acquisitions may require additional funds, which, to the extent
not provided by internally-generated sources, cash, and the Credit Facility,
would require the Company to seek additional debt or equity financing.

The Company intends to call the Convertible Notes for redemption upon
completion of the Initial Public Offering. Upon the call, the Convertible Notes
may, at the election of the noteholders of at least 50% of the outstanding
principal amount, be converted into shares of Common Stock at a conversion price
of $8.00 per share. The Company believes that all of the holders of the
Convertible Notes will elect to convert to Common Stock prior to the redemption.
In the event that some or all of the holders of the Convertible Notes fail to
convert their respective Convertible Notes into Common Stock, the Company
intends to make the redemption payment of up to $3,500,000 plus accrued interest
with the proceeds from the proposed Credit Facility.

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<PAGE> 197

MANAGEMENT AND EXECUTIVE COMPENSATION

MANAGEMENT

The following table sets forth certain information with respect to the executive
officers and directors of APPI:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gregory L. Solomon(1)(2) 52 President, Chief Executive Officer and
Director
Lawrence R. Muroff, M.D.(1)(2) 54 Chairman of the Board of Directors and
Senior Vice President of Physician
Affairs
Mark S. Martin 37 Senior Vice President and Chief
Operating Officer
Sami S. Abbasi 32 Senior Vice President and Chief
Financial Officer
Paul M. Jolas 33 Senior Vice President, General Counsel
and Secretary
John W. Colloton (3)(4) 66 Director
John Pappajohn(2)(4) 69 Director
Derace L. Schaffer, M.D.(1)(3) 50 Director
Less T. Chafen, M.D 55 Director Nominee
Michael L. Sherman, M.D 55 Director Nominee
</TABLE>

(1) Member of the Executive Committee of the Board of Directors.

(2) Member of the Acquisition Committee of the Board of Directors.

(3) Member of the Compensation and Stock Plan Administration Committee of
the Board of Directors.

(4) Member of the Audit Committee of the Board of Directors.

Gregory L. Solomon has served as President, Chief Executive Officer and
a director of the Company since its inception. From April 1995 through September
1995, Mr. Solomon served as Chairman of the Board of Directors and Chief
Executive Officer of Physicians Resource Group, Inc., a publicly-traded
physician practice management company which provides management and
administrative services to ophthalmic and optometric practices. Physicians
Resource Group, Inc. became a public company in June 1995 and is listed on the
New York Stock Exchange. From December 1994 through April 1995, Mr. Solomon
served as a consultant to Physicians Resource Group, Inc. From February 1991
through December 1994, Mr. Solomon served as Chairman of the Board of Directors
and Chief Executive Officer of Associated Optical, Inc., a company that provided
optical laboratory services and distributed contact lenses to private
practitioners, retailers and third-party providers of eye care. From March 1983
through February 1991, he served as President, Chief Executive Officer and a
director of Allco Chemical Corporation, a manufacturer of specialty chemicals
serving the electronic and aerospace industries. Mr. Solomon received his M.B.A.
in finance from Indiana University and his B.S. in economics from Xavier
University.

Lawrence R. Muroff, M.D. has served as Chairman of the Board of
Directors and Senior Vice President of Physician Affairs of the Company since
its inception. In connection with the Mergers and Exchanges, the Company will
establish a Physician Advisory Board and Dr. Muroff will serve as its chairman.
Dr. Muroff has served as President of Educational Symposia, Inc., an educational
company which provides qualified teaching credits to radiologists and certain
referring physicians, since January 1975. He has also served as President of
Imaging Consultants, Inc., a company which provides consulting services to
radiology groups, hospital corporations and other entities involved in
diagnostic imaging, since May 1994. Dr. Muroff holds appointments as Clinical
Professor of Radiology at the University of South Florida, College of

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<PAGE> 198

Medicine (from 1982 to the present); the University of Florida, College of
Medicine (from 1988 to the present); and the H. Lee Moffitt Cancer Center &
Research Institute (from 1994 to the present). From 1974 through 1994, Dr.
Muroff was a partner in Sheer, Ahearn & Associates, a radiology group based in
Florida. Dr. Muroff received his M.D. from Harvard Medical School; his B.M.Sc.
in basic medical science from Dartmouth Medical School; and his A.B. in liberal
arts from Dartmouth College.

Mark S. Martin has served as Chief Operating Officer and Senior Vice
President of the Company since June 1996. From January 1993 through June 1996,
Mr. Martin served as Executive Vice President of Practice Management Development
and Support for Medaphis Physician Services Corporation, a subsidiary of
Medaphis Corporation, a publicly-traded company which provides business and
information services to physicians, physician group practices and hospitals.
From October 1987 through December 1992, he served as Vice President of
Financial Services for CompMed, Inc., a company which provided comprehensive
management and administrative services to hospital-based physicians and
physician groups, with a primary emphasis on radiology. From 1982 through 1987,
Mr. Martin was employed by KPMG Peat Marwick as a tax manager. Mr. Martin was
licensed as a Certified Public Accountant in 1982. He received his B.A. in
accounting from Capital University.

Sami S. Abbasi has served as Chief Financial Officer and Senior Vice
President of the Company since August 1996. From January 1995 through July 1996,
Mr. Abbasi served as Vice President in the Health Care Group of Robertson,
Stephens & Company. His responsibilities included investment banking business
development and transaction execution with emerging growth publicly-held and
privately-held companies in the health care industry, with specific emphasis on
physician practice management companies. From 1988 through January 1995, he held
various positions with Citicorp Securities, Inc., including Vice President and
Senior Analyst -- Health Care Group. Mr. Abbasi received his M.B.A. from the
University of Rochester and his B.A. in economics from the University of
Pennsylvania.

Paul M. Jolas has served as General Counsel and Senior Vice President of
the Company since August 1996 and as Secretary of the Company since October
1996. From September 1989 through July 1996, Mr. Jolas was an attorney with the
law firm of Haynes and Boone, L.L.P. in Dallas, Texas, where he practiced in the
corporate finance section and was responsible for a broad range of corporate and
securities transactions including numerous initial and secondary public
offerings of equity and debt securities, mergers and acquisitions and public
company reporting requirements. Mr. Jolas received his J.D. from Duke University
School of Law and his B.A. in economics from Northwestern University.

John W. Colloton became a director of the Company in June 1997. Mr.
Colloton served as the director of the University of Iowa Hospitals and Clinics
from 1971 to 1993, and since 1993, has been Vice President for Statewide Health
Services for the University of Iowa. He also serves as a director of the
following companies: Baxter International, Inc.; MidAmerican Energy, Inc.;
Wellmark, Inc. (Blue Cross and Blue Shield of Iowa and South Dakota); OncorMed,
Inc.; and Iowa State Bank and Trust Company. Mr. Colloton is also a trustee of
the University of Pennsylvania Medical Center. Mr. Colloton, who earned his M.A.
in Hospital and Health Administration from the University of Iowa, has been
elected to the Institute of Medicine of the National Academy of Sciences and has
received Distinguished Service Awards from both the American Hospital
Association and the Association of American Medical Colleges.

John Pappajohn has been a director of the Company since its inception.
Since 1969, Mr. Pappajohn has been the President and principal stockholder of
Equity Dynamics, Inc., a financial consulting firm, and the sole owner of
Pappajohn Capital Resources, a venture capital firm, both located in Des Moines,
Iowa. He also serves as a director of the following public companies: Core,
Inc.; Drug Screening Systems, Inc.; Fuisz Technologies Ltd.; OncorMed, Inc.; The
Care Group, Inc.; PACE HealthManagement Systems, Inc.; Patient InfoSystems,
Inc.; and HealthDesk Corporation. Mr. Pappajohn received his Bachelors degree in
business from the University of Iowa.

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<PAGE> 199

Derace L. Schaffer, M.D. has been a director of the Company since its
inception. Dr. Schaffer is President of Ide, one of the Founding Affiliated
Practices, as well as the Lan Group, a venture capital firm. He also serves as a
director of the following public companies: The Care Group, Inc.; Oncor, Inc.;
and Patient InfoSystems, Inc. He is also a director of several private
companies, including Automated Dispatch Solutions, Inc., Medical Records
Corporation, NeuralMed, Inc., NeuralTech, Inc. and Preferred Oncology Networks
of America, Inc. Dr. Schaffer is a board certified radiologist. He received his
postgraduate radiology training at the Harvard Medical School and Massachusetts
General Hospital, where he served as Chief Resident. Dr. Schaffer is a member of
Alpha Omega Alpha, the national medical honor society, and is a Clinical
Professor of Radiology at the University of Rochester School of Medicine.

Less T. Chafen, M.D. has been nominated and approved to serve as a
director of the Company effective upon consummation of the Initial Public
Offering. Since 1978, Dr. Chafen has served as the Chairman of the Board of
Pacific, one of the Founding Affiliated Practices. Dr. Chafen received his M.D.
from Loma Linda University and his B.A. in zoology and chemistry from Columbia
Union College.

Michael L. Sherman, M.D. has been nominated and approved to serve as a
director of the Company effective upon consummation of the Initial Public
Offering. Since 1995, Dr. Sherman has served as the President of Advanced, one
of the Founding Affiliated Practices. From 1992 to 1995, Dr. Sherman served as
the Managing Partner of Drs. Copeland, Hyman & Shackman. Dr. Sherman received
his M.D. from the University of Maryland Medical School and his A.B. in history
and pre-medicine from Duke University.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the
compensation paid by APPI for services rendered in all capacities to APPI during
the 1996 fiscal year to the Named Executive Officers of the Company.

Summary Compensation Table

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
Annual Compensation ------
---------------------------------- Securities All Other
Other Annual Underlying Compen-
Name and Principal Position Salary($) Bonus($) Compensation($) Options(#) sation($)
- --------------------------- --------- ------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Gregory L. Solomon $142,500 __ __ 250,000 $ 4,518(1)
President and Chief Executive Officer

Lawrence R. Muroff, M.D. 75,000 __ __ 230,000 __
Chairman of the Board of Directors and
Senior Vice President of Physician Affairs

Mark S. Martin 84,529 __ __ 180,000 25,274(2)
Senior Vice President and
Chief Operating Officer

Sami S. Abbasi 66,667 __ __ 180,000 5,619(3)
Senior Vice President and
Chief Financial Officer

Paul M. Jolas 58,333 __ __ 140,000 945(4)
Senior Vice President and
General Counsel
</TABLE>

(1) Represents amount of health insurance premiums reimbursed by the
Company.

(2) Represents amount of health insurance premiums and $24,399 in relocation
expenses reimbursed by the Company.

(3) Represents amount of health insurance premiums and $4,103 in relocation
expenses reimbursed by the Company.

(4) Represents amount of health insurance premiums reimbursed by the
Company.

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<PAGE> 200

STOCK OPTION PLAN

In May 1996, the Board of Directors adopted, and the stockholders of the
Company subsequently approved, the Company's 1996 Stock Option Plan. The purpose
of the Plan is to provide directors, key employees and certain advisors with
additional incentives by increasing their proprietary interest in the Company.
Under the Plan, the aggregate amount of APPI Common Stock with respect to which
options may be granted may not exceed 3,000,000 shares. The Plan is intended to
qualify for favorable treatment under Section 16 of the Exchange Act, pursuant
to Rule 16b-3 promulgated thereunder.

The Plan provides for the grant of ISOs, as defined in Section 422 of
the Internal Revenue Code, and non-qualified stock options. Following the
consummation of the Initial Public Offering, the Plan will be administered by
the Committee, which will be comprised of two or more non-employee directors who
are "disinterested" within the meaning of Rule 16b-3. Prior to the consummation
of the Initial Public Offering, the Plan has been administered by the Company's
full Board of Directors. The Board of Directors currently has, and the Committee
will have, following consummation of the Initial Public Offering, subject to the
terms of the Plan, the sole authority to grant Awards under the Plan, to
construe and interpret the Plan and to make all other determinations and take
any and all actions necessary or advisable for the administration of the Plan.

All of the Company's employees, non-employee directors and advisors are
eligible to receive Awards under the Plan, but only employees of the Company are
eligible to receive ISOs. Options will be exercisable during the period
specified in each option agreement and will generally be exercisable in
installments pursuant to a vesting schedule to be designated by the Committee.
Notwithstanding the provisions of any option agreement, options will become
immediately exercisable in the event of a "change in control" (as defined in the
Plan) of the Company and in the event of certain mergers and reorganizations of
the Company. No option will remain exercisable later than ten years after the
date of grant (or five years from the date of grant in the case of ISOs granted
to holders of more than 10% of the Common Stock).

The exercise price for ISOs granted under the Plan may be no less than
the fair market value of the Common Stock on the date of grant (110% of fair
market value in the case of ISOs granted to holders of more than 10% of the
Company's Common Stock). The exercise price for nonqualified options granted
under the Plan may be no less than 85% of the fair market value of the APPI
Common Stock on the date of grant.

The Plan provides for automatic grants of non-qualified options to
purchase 30,000 shares of Common Stock to non-employee directors at the time a
director is first elected or appointed as a non-employee director which vest
with respect to 10,000 shares on the first anniversary of the date of the grant
and the remaining shares become exercisable in 24 equal monthly installments
over the next 24 months, provided that such person continues to serve as a
director of the Company. In addition, upon expiration of the 36-month period
following the initial option grant to such non-employee director, such
non-employee director shall automatically be granted at each annual stockholders
meeting a non-qualified option to purchase 10,000 shares of APPI Common Stock
vesting over a term of 12 months. Each such option entitles the director to
purchase shares of APPI Common Stock at an exercise price equal to the fair
market value of the APPI Common Stock on the automatic grant date. Each option
shall have a ten year term measured from the automatic grant date.

The Plan will also permit the Company to grant stock options to advisors
and consultants of the Company who are employed as physicians of an Affiliated
Practice. Generally, such options will expire upon the termination of employment
with the Affiliated Practice or the advisory or consultant relationship with the
Company or on the day prior to the tenth anniversary of the date of grant,
whichever occurs first.

The Company anticipates that upon the consummation of the Initial Public
Offering it will have outstanding options to purchase a total of approximately
1,681,000 shares of Common Stock to its employees, directors and consultants.
Generally, the outstanding options are exercisable based on a monthly vesting
schedule over 60 months. The Company anticipates that it will issue additional
options concurrently with or shortly

148
<PAGE> 201

following consummation of the Initial Public Offering. Such options will be
exercisable at the fair market value of the Common Stock on the date of grant.

OPTION GRANTS DURING 1996

The following table presents information regarding 1996 grants of
options to purchase shares of Common Stock for each of the Company's Named
Executive Officers:

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED EXERCISE OR PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION OPTION TERM(3)
NAME GRANTED(1) IN FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
- ---- ---------- -------------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Solomon 250,000(4) 21.7% $0.125 04/30/06 $19,653 $49,804
Lawrence R. Muroff, M.D 230,000(5) 20.0 0.125 04/30/06 18,081 45,820
Mark S. Martin 180,000(4) 15.6 0.125 06/11/06 14,150 35,859
Sami S. Abbasi 180,000(4) 15.6 0.125 07/31/06 14,150 35,859
Paul M. Jolas 140,000(6) 12.2 0.125 07/31/06 11,006 27,890
</TABLE>

(1) All options were granted at fair market value at the date of grant, as
determined by the Company's Board of Directors. These options vest
monthly over a five-year period.

(2) The option exercise price may be paid in shares of Common Stock owned by
the executive officer, in cash, or in any other form of valid
consideration as determined by the Committee in its discretion.

(3) The dollar amounts in these columns represent the potential realizable
value that might be realized upon exercise of the options immediately
prior to the expiration of their term, assuming that the market price of
Common Stock appreciates in value from the date of grant at assumed
annual rates of 5% and 10%. These assumed rates of appreciation are
prescribed by the rules and regulations of the SEC, and therefore are
not intended to forecast possible future appreciation, if any, of the
price of the APPI Common Stock. These numbers do not take into account
provisions of certain options providing for termination of the option
following termination of employment, nontransferability or vesting over
periods.

(4) Upon consummation of the Initial Public Offering, this option becomes
exercisable with respect to the greater of 50% of the shares covered
thereby or the actual number of shares that have vested. The remainder
of the shares underlying the option become exercisable in equal monthly
installments over the remaining vesting period. These numbers do not
take into account provisions of certain options providing for
termination of the option following termination of employment,
nontransferability or vesting over periods.

(5) As to 200,000 shares, upon consummation of the Initial Public Offering,
this option becomes exercisable with respect to the greater of 100,000
shares or the actual number of shares that have vested, and the
remainder of such shares become exercisable in equal monthly
installments over the remaining vesting period. As to 30,000 shares,
10,000 shares become exercisable on the first anniversary of the date of
grant and the remaining shares become exercisable in 24 equal monthly
installments over the next 24 months. These numbers do not take into
account provisions of certain options providing for termination of the
option following termination of consulting relationships, cessation of
services as a director of the Company or nontransferability.

(6) Upon consummation of the Initial Public Offering, this option becomes
exercisable with respect to the greater of 25% of the shares covered
thereby or the actual number of shares that have vested upon
consummation of the Initial Public Offering. The remainder of the shares
underlying the option become exercisable in equal monthly installments
over the remaining vesting period. These numbers do not take into
account provisions of certain options providing for termination

149
<PAGE> 202

of the option following termination of employment, nontransferability or
vesting over periods.

AGGREGATED OPTION EXERCISES DURING 1996 AND YEAR-END OPTION VALUES

No stock options were exercised by the Company's Named Executive
Officers during the fiscal year ended December 31, 1996. The following table
sets forth certain information regarding unexercised stock options held by each
of the Named Executive Officers as of December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
-------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gregory L. Solomon 29,166 220,834 $433,844 $3,284,906
Lawrence R. Muroff, M.D 23,333 206,667 347,078 3,074,172
Mark S. Martin 18,000 162,000 267,750 2,409,750
Sami S. Abbasi 12,000 168,000 178,500 2,499,000
Paul M. Jolas 9,333 130,667 138,828 1,943,672
</TABLE>

(1) Based on an assumed Initial Public Offering Price of $15.00 per share,
less the option exercise price.

CASH BONUS PROGRAM

In April 1997, the Board of Directors adopted, and the stockholders of
the Company subsequently approved, the Company's Cash Bonus Program. The purpose
of the Program is to establish a bonus plan pursuant to which eligible employees
will be entitled to receive cash bonuses based on the performance of the
Company. Those employees eligible to receive cash bonuses under the Program
include the executive officers of the Company and certain key employees whose
responsibilities and activities are closely connected to the Company's overall
performance.

Under the Program, cash bonuses are calculated as a percentage of each
eligible employee's base salary, with such percentage being determined based
upon the annual increase in the Company's earnings per share. In addition, each
eligible employee may receive a cash bonus based upon the achievement of certain
individual objectives and the Company's overall performance. The Program will
become effective upon consummation of the Initial Public Offering and will be
administered by the Committee.

EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

APPI has entered into employment agreements with Gregory L. Solomon,
Mark S. Martin, Sami S. Abbasi and Paul M. Jolas, each of whom shall receive
following the Initial Public Offering annual salaries at the rate of $225,000,
$190,000, $190,000 and $150,000, respectively. Each employment agreement has a
term of one year with automatic successive one-year renewal periods. Each
employment agreement provides that in the event of a termination of employment
by the Company (i) other than for cause, (ii) upon disability or (iii) upon
voluntary termination by employee due to an adverse change in duties, such
employee shall be entitled to receive from the Company a payment equal to
one-half of the amount of such employee's then current annual base salary, to be
paid in one lump sum, plus a payment for all accrued but unpaid wages and
expense reimbursements. Such employment agreements provide that in the event
such employee's employment terminates following a change in control transaction
(as defined in such employment agreements) of the Company, the Company shall pay
such employee two times such employee's then current annual base salary. Each
such employment agreement contains a covenant-not-to-compete with the Company
for a period of one year following termination of employment.

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<PAGE> 203

APPI PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the
beneficial ownership of APPI Common Stock as of September 12, 1997, and as
adjusted, to give effect to the Mergers and Exchanges, the conversion of the
Convertible Notes and completion of the Initial Public Offering, by (i) all
persons known to the Company to be the beneficial owner of 5% or more of the
Company's Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer, and (iv) all directors and executive officers as a group.
This table does not include shares of APPI Common Stock that may be purchased
pursuant to options not exercisable within 60 days of the consummation of the
Initial Public Offering. All persons listed have sole voting and investment
power with respect to their shares unless otherwise indicated.

<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED(2)
- ---- -------- --------
<S> <C> <C>
Gregory L. Solomon(3)(4) 135,682 6.4%
Lawrence R. Muroff, M.D.(3)(5) 124,545 5.9
Mark S. Martin(3)(6) 94,000 4.5
Sami S. Abbasi(3)(7) 93,830 4.5
Paul M. Jolas(3)(8) 39,468 1.9
Derace L. Schaffer, M.D.(3)(9) 1,122,694 50.7
John Pappajohn(3)(10) 1,046,250 51.1
John W. Colloton(3) 0 *
Michael L. Sherman, M.D.(3)(11) 85,014 1.0
Less T. Chafen, M.D.(3)(12) 31,994 *
Edgewater Private Equity Fund, II, L.P.(13) 250,000 11.1
All directors and executive officers as a
group (10 persons)(14) 2,773,477 100.0
</TABLE>

* Less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of September 12, 1997 are
deemed outstanding and to be beneficially owned by the person holding
such option or security for purposes of computing such person's
percentage ownership, but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. Except for
shares held jointly with a person's spouse or subject to applicable
community property laws, or as indicated in the footnotes to this table,
each stockholder identified in the table possesses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder.

(2) Applicable percentage of ownership is based on 2,000,000 shares of
Common Stock outstanding as of September 12, 1997 and 18,321,982 shares
of Common Stock outstanding upon consummation of the Initial Public
Offering, the Mergers and Exchanges and conversion of the Convertible
Notes.

(3) The address of Messrs. Solomon, Martin, Abbasi, Jolas, Pappajohn and
Colloton and Drs. Muroff, Schaffer, Chafen and Sherman is c/o American
Physician Partners, Inc., 2301 NationsBank Plaza, 901 Main Street,
Dallas, Texas 75202.

(4) Includes 5,000 shares of Common Stock into which $40,000 in certain
Convertible Notes issued by the Company and held by Mr. Solomon are
convertible. See "Description of Capital Stock -- Convertible Notes."
Also includes 130,682 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of
September 12, 1997.

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<PAGE> 204

(5) Includes 5,000 shares of Common Stock into which $40,000 in certain
Convertible Notes issued by the Company and held by Dr. Muroff are
convertible. See "Description of Capital Stock -- Convertible Notes."
Also includes 104,545 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of September 12, 1997; and
exercisable options to purchase 15,000 shares of Common Stock in
connection with service as a Director of the Company.

(6) Includes 94,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.

(7) Includes 93,830 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.

(8) Includes 39,468 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of September 12, 1997.

(9) Includes 13,468 shares of Common Stock into which $107,500 in certain
Convertible Notes issued by the Company and held by Dr. Schaffer are
convertible. Also includes exercisable option to purchase 14,167 shares
of Common Stock in connection with service as a Director of the Company
exercisable within 60 days of September 12, 1997. Also includes 94,256
shares received in connection with the Ide Merger Transactions.

(10) Includes 31,250 shares of Common Stock into which $250,000 in certain
Convertible Notes issued by the Company and held by Mr. Pappajohn are
convertible. Also includes exercisable option to purchase 14,167 shares
of Common Stock in connection with service as a Director of the Company
exercisable within 60 days of September 12, 1997. Also includes 200,000
shares held by Halkis Ltd., a sole proprietorship owned by Mr.
Pappajohn, 150,000 owned by Thebes Ltd., a sole proprietorship owned by
Mr. Pappajohn's spouse, Mary Pappajohn, and 150,000 shares owned
directly by Mary Pappajohn. Mr. Pappajohn disclaims beneficial ownership
of the shares owned by Thebes Ltd. and by Mary Pappajohn.

(11) Includes exercisable options to purchase 20,000 shares of Common Stock
in connection with service as a consultant to the Company. Also includes
65,014 shares received in connection with the Advanced Merger
Transactions.

(12) Includes 31,994 shares of Common Stock received in connection with the
Pacific Merger Transactions.

(13) Includes 250,000 shares of Common Stock into which $2,000,000 in certain
Convertible Notes issued by the Company and held by Edgewater are
convertible.

(14) Includes 538,525 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of September 12, 1997 and 54,688
shares of Common Stock issuable upon conversion of Convertible Notes.

152
<PAGE> 205
APPI CERTAIN TRANSACTIONS

On April 30, 1996, Derace L. Schaffer, M.D., a director of the Company,
purchased 1,000,000 shares of APPI Common Stock for $125,000 and John Pappajohn,
a director of the Company, and his affiliates purchased 1,000,000 shares of APPI
Common Stock for $125,000. During August 1996, Mr. Pappajohn and Dr. Schaffer
advanced a total of $400,000 to the Company as loans which were repaid on
October 31, 1996, out of the proceeds of the Company's private placement of the
Convertible Notes. Dr. Schaffer owns $107,500 in principal amount of the
Convertible Notes. Mr. Pappajohn owns $250,000 in principal amount of the
Convertible Notes. On July 17, 1997, Mr. Pappajohn advanced $150,000 to the
Company as a loan bearing interest at an annual rate of 6%. On July 25, 1997,
Mr. Pappajohn and Dr. Schaffer personally guaranteed a $1,000,000 line of credit
for the benefit of the Company. The Company repaid the $150,000 loan from Mr.
Pappajohn on August 21, 1997 out of the proceeds of the $1,000,000 line of
credit. On October 3, 1997, Mr. Pappajohn advanced $100,000 to the Company as a
loan bearing interest at an annual rate of 6%. Mr. Pappajohn has agreed to loan
an additional $250,000 to the Company on the same terms prior to the
consummation of the Initial Public Offering, if needed by the Company. The
Company intends to repay the $100,000 and any such additional amounts borrowed
from Mr. Pappajohn upon the consummation of the Initial Public Offering through
borrowings under the Credit Facility.

The Company and Lawrence R. Muroff, M.D., Chairman of the Board of
Directors of the Company and Senior Vice President of Physician Affairs, entered
into a consulting agreement in October 1997 pursuant to which Dr. Muroff will
receive annual compensation of $112,500 (prorated for actual months worked) in
exchange for rendering consulting services to the Company. The agreement will
become effective on the date following the consummation of the Initial Public
Offering. In 1996, Dr. Muroff received an option grant for 200,000 shares of
Common Stock in connection with his employment by the Company. In addition, he
received option grants for 30,000 shares for his services as a member of the
Company's Board of Directors. See "APPI -- Operation, Management and Business
Following the Mergers and Exchanges -- Management and Executive Compensation."
Dr. Muroff owns $40,000 in principal amount of the Convertible Notes.

The Company and Michael L. Sherman, M.D., a director nominee of the
Company, entered into a consulting agreement in August 1996 pursuant to which
Dr. Sherman received an option grant for 20,000 shares of APPI Common Stock. In
addition, the Company and Dr. Sherman have entered into a consulting agreement
which will go into effect immediately following the Initial Public Offering for
which Dr. Sherman will receive annual compensation of $100,000. The Company has
agreed to nominate Dr. Sherman for election to the Board of Directors at the
next two annual meetings of stockholders.

Mr. Solomon, the President, Chief Executive Officer and a director,
owns $40,000 in principal amount of the Convertible Notes.

In connection with the Advanced Merger Transactions, Ide Merger
Transactions, Pacific Merger Transactions and TMI Merger Transactions, Dr.
Sherman will receive 65,014 shares of Common Stock and $303,395, Dr. Schaffer
will receive 94,256 shares of Common Stock and $471,278 and Dr. Less T. Chafen
will receive 31,994 shares of Common Stock and $149,307, respectively.

<TABLE>
<CAPTION>
Consideration to
Be Received
-----------------------------------
Assets to Be Number of Cash
Security Holder Contributed(1) Shares Distribution
- --------------- -------------- ------ ------------
<S> <C> <C> <C>
Michael L. Sherman, M.D. $ 612,139 $ 65,014 $ 325,068
Derace L. Schaffer, M.D. 326,461 94,256 471,279
Less T. Chafen, M.D. 188,642 31,994 159,972
---------- ---------- ---------
Total $1,127,242 $ 191,264 $ 956,319
========== ========== ==========
</TABLE>

- ------------------

COMPANY POLICY

It is anticipated that future transactions with affiliates of the
Company will be minimal, will be approved by a majority of the disinterested
members of the Board of Directors and will be made on terms no less favorable to
the Company than could be obtained from unaffiliated third parties. The Company
does not intend to make any loans to, or incur any indebtedness to, any of its
executive officers or directors.

153
<PAGE> 206

ADVANCED RADIOLOGY
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

Advanced Radiology operates a professional medical radiology practice
formed in July 1997 that was organized as a Maryland professional association.
Advanced Radiology represents the merger of seven radiology practices. Advanced
Radiology provides two types of services: (1) Professional Services and (2)
Imaging Services, both of which are reimbursed on a prepaid or fee-for-service
basis. Advanced Radiology operates in the Greater Baltimore Metropolitan Area.
Advanced Radiology contracts directly with hospitals, health plans, physician
groups and insurance carriers to provide Professional Services and Imaging
Services to enrollees and patients. Through contracts with various health plans,
physician groups and hospitals, Advanced provided approximately 1 million
patient examinations during 1996. Advanced Radiology operates 23 Professional
Service locations and ten hospital-based locations within the Advanced Service
Area.

Advanced Radiology owns all of the membership interests of Advanced
Radiology, LLC. Advanced Radiology, LLC owns a 75.353% interest in MRI at St.
Joseph Medical Center, LLC, a 50% interest in two partnerships, Franklin Imaging
Joint Venture and Advanced Imaging of Carroll County limited partnership, each
of which perform radiology and imaging healthcare services. Advanced Radiology,
LLC owns 66 2/3% of the common stock of Advanced Medical Imaging, Inc. which
enters into and administers managed care contracts for radiology services.
Advanced Radiology, LLC also is a 50% member in Poole Road Imaging, LLC and
Health Systems Imaging, LLC, each of which owns and operates diagnostic imaging
centers.

STRATEGY

Advanced Radiology's strategy is to continue penetration of its existing
markets, expand into other markets, create strategic alliances with hospitals
and other Imaging Service providers, increase the operational efficiency of, and
reduce costs associated with, the Advanced Radiology operations.

The future growth of Advanced Radiology in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using Advanced Radiology for Professional Services. This growth may
come, with respect to Professional Services, from the development or acquisition
of additional facilities and the development of affiliations with medical groups
serving enrollees or patients in existing markets, increased enrollment in
health plans currently contracting with Advanced Radiology and its medical
affiliates, and contracts with new health plans or hospitals. It actively
recruits new providers and seeks to enter into new hospital-based or managed
care contracts in order to enlarge the potential patient base in its service
areas.

Advanced Radiology's principal strategy for expanding into new markets
is through acquisitions (through merger, purchase, or otherwise) of medical
groups. Advanced Radiology generally seeks providers that have established
reputations for providing quality medical care.

GOVERNMENT REGULATION

Advanced Radiology is subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to

154
<PAGE> 207

entities with which they have financial relationships. While Advanced Radiology
believes it is in material compliance with applicable laws, there is no
assurance that its present or past operations will not be subjected to scrutiny
or legal challenges.

SERVICES PROVIDED

Advanced Radiology operates a total of 33 facilities that are staffed by
either Professional Service providers or Imaging Service providers. As of April
30, 1997, Advanced Radiology employed 87 Professional Service providers and 212
Imaging Service providers.

Advanced Radiology provides approximately 15% of its Professional
Service and Imaging Service under capitated contracts and 85% under
fee-for-service or hospital contracts. Under capitated contracts, Advanced
Radiology provides or arranges for all physician services and Advanced Radiology
receives a fixed monthly capitation payment from health plans for each member
who utilize an Advanced Radiology physician.

During 1996, approximately 1 million patient examinations were performed
by Advanced Radiology. Advanced Radiology is under contract with the following
hospitals and with more than 100 health plans: Carroll County General Hospital,
Church Home Hospital, Franklin Square Hospital, Greater Baltimore Medical
Center, Harbor Hospital Medical Center, Liberty Medical Center, North Arundel
Hospital, Northwest Hospital Center, St. Agnes Hospital and St. Joseph Hospital.

Advanced conducts an extensive and ongoing utilization review program
under the direction of a committee of physician members, which program includes
both prospective and retrospective analysis of utilization.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

EMPLOYEES

Professional Service Provider Employees

Advanced Radiology physicians enter into employment contracts. These
contracts offer a specified guaranteed salary and an incentive bonus. Physicians
are also eligible to receive benefits such as health, dental and life insurance,
paid time off and an allowance for continuing medical education and other
professional expenses. Advanced Radiology, as of April 30, 1997, employed 87
physicians (79 full-time and eight part-time).

Imaging Service Provider Employees

As of April 30, 1997, Advanced employed 212 imaging service providers
(126 full-time and 86 part-time).

Non-Provider Employees

As of April 30, 1997, Advanced Radiology had approximately 518
non-physician employees. None of Advanced Radiology's employees are represented
by a labor union. Management of Advanced Radiology believes its employee
relations are good.

INSURANCE

Advanced Radiology maintains insurance coverage for various perils and
from various carriers. In addition to property and casualty, worker's
compensation, directors and officers liability and other coverage Advanced
Radiology believes to be customary and reasonable for a business of its kind,
Advanced Radiology maintains

155
<PAGE> 208

Liability Policies with ITT Hartford, Standard Security Life, Medical Mutual
Liability, Royal Insurance and Mid-Atlantic Medical. Each professional of
Advanced Radiology, at each location, is covered under the Liability Policies.

PROPERTIES AND FACILITIES

Advanced Radiology leases approximately 32 facilities. The real property
leases range from 1,000 square feet to 38,000 square feet. Advanced Radiology
leases real property for its corporate operations, Professional Services and
Imaging Services.

INFORMATION SYSTEMS

Advanced Radiology believes that the effective analysis of medical and
financial data is essential in today's managed care environment. Accordingly,
Advanced Radiology is committed to the development of a fully-integrated MIS for
practice management. Advanced Radiology's MIS capabilities include medical
charting and tracking analysis of practice management information and financial
data. Practice management functions of the current MIS include registration,
centralized scheduling and appointments, electronic claims submission and
remittance. Managed care functions include referrals, eligibility,
determination, claim management and payment functions.

TELERADIOLOGY

Advanced owns and operates a state-of-the-art teleradiology system which
currently allows for contemporaneous interpretation of all of the images
obtained in its ten hospital emergency rooms during night-time hours (10:00 p.m.
to 7:00 a.m.). Approximately 50,000 exams have been interpreted using this
system since its installation in September 1996. This system is one of the
largest operating teleradiology systems in the United States.

LEGAL PROCEEDINGS

Advanced Radiology is engaged in the defense of lawsuits arising in the
ordinary course and conduct of its business, including an employee
discrimination suit involving two former physicians. Advanced Radiology believes
that such actions will not have a material adverse effect on Advanced Radiology.

156
<PAGE> 209
ADVANCED RADIOLOGY SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information has been derived from the financial statements
of Advanced LLC, and should be read in conjunction with "Advanced Radiology
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of Advanced Radiology and the
notes thereto included elsewhere in this document.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................... $22,451 $ 38,833 $ 52,882 $ 23,765 $ 31,560
Expenses:
Costs of affiliated physician services.... 8,756 812 2,293 1,589 2,308
Practice salaries, wages and benefits..... 6,325 10,051 12,318 5,567 7,684
Depreciation and amortization............. 1,879 3,023 3,450 1,745 1,979
Other practice expenses................... 5,757 9,998 12,531 5,885 7,425
------- -------- -------- ------- -------
Total expenses.............................. 22,717 23,884 30,592 14,786 19,396
------- -------- -------- ------- -------
Equity in earnings of investments........... 762 635 1,207 680 642
Minority interests in income of
consolidated subsidiaries................. -- -- (18) 9 (26)
------- -------- -------- ------- --------
Income before income taxes.................. $ 496 $ 15,584 $ 23,479 $ 9,668 $ 12,780
======= ======== ======== ======= ========
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................. $33,762
Total debt................................................................... 11,622
Stockholders' equity......................................................... 16,317
</TABLE>

157
<PAGE> 210
ADVANCED RADIOLOGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to the historical operations of
Advanced and should be read in conjunction with the audited financial statements
of Advanced and the notes thereto appearing elsewhere in this Prospectus/Joint
Proxy Statement. For purposes of the following discussion, medical service
revenue, net represents the estimated realizable amount to be received from
patients, third-party payors and others for the provision of medical services.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996

Medical service revenue, net increased by $7.9 million or 34% to $31.1
million for the six month period ended June 30, 1997 from $23.2 million for the
six month period ended June 30, 1996. This increase was attributable to the
addition of two new radiology groups in April 1996 and January 1997, new
hospital management contracts and an increase in procedures and/or covered lives
at existing facilities.

Costs of affiliated physician services of $2.3 million and $1.6 million
(remained consistent at 7% of medical service revenue, net) for the six months
ended June 30, 1997 and 1996, respectively, included all compensation to
non-owner physicians, as well as certain benefits, educational and travel costs
paid to non-owner and owner physicians. The increase was due to additional
non-owner physician salaries paid in relation to hospital management contracts.
Physician owners' compensation was recorded as a distribution of Advanced's
equity. Such amounts were determined based on cash earnings available for
distribution, including cash to be realized from the collection of accounts
receivable.

Practice salaries, wages and benefits increased by $2.1 million or 38%
to $7.7 million for the six months ended June 30, 1997 from $5.6 million for the
six months ended June 30, 1996. This change resulted from increases in the
number of employees required to support the additional radiology practices and
new hospital management contracts. The percentage of practice salaries, wages
and benefits to medical service revenue, net was 25% and 24% for the six months
ended June 30, 1997 and 1996, respectively.

Practice supplies of $1.8 million and $1.6 million for the six months
ended June 30, 1997 and 1996, respectively, were 6% and 7%, respectively, of
medical service revenue, net. Practice rent and lease expense of $1.6 million
and $1.3 million for the six months ended June 30, 1997 and 1996, respectively,
remained consistent at 5% of medical service revenue, net. Depreciation and
amortization expense of $2.0 million and $1.7 million for the six months ended
June 30, 1997 and 1996, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$3.5 million and $2.7 million for the six months ended June 30, 1997 and 1996,
respectively, remained consistent at 11% of medical service revenue, net.
Interest expense increased by $0.1 million or 45% to $0.4 million for the six
months ended June 30, 1997 from $0.3 million for the six months ended June 30,
1996 due to an increase in debt attributable to the addition of a radiology
group in April 1996 and teleradiology equipment purchased in 1996.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased by $14.3 million or 38% to $51.7
million for the year ended December 31, 1996 from $37.4 million for the year
ended December 31, 1995. This increase was attributable to the addition of a
radiology group in April 1996, new hospital management contracts and an increase
in procedures and/or covered lives at existing facilities.

Costs of affiliated physician services of $2.3 million (4% of medical
service revenue, net) and $0.8 million (2% of medical service revenue, net) for
the years ended

158
<PAGE> 211

December 31, 1996 and 1995, respectively, included all compensation to non-owner
physicians, as well as certain benefits, educational and travel costs paid to
non-owner and owner physicians. The increase was due to additional non-owner
physician salaries paid in relation to hospital management contracts. In
addition, during 1996, the company acquired a radiology practice whose
physicians were paid a salary during a portion of the year. Physician owners'
compensation was recorded as a distribution of Advanced's equity. Such amounts
were determined based on cash earnings available for distribution, including
cash to be realized from the collection of accounts receivable.

Practice salaries, wages and benefits increased by $2.3 million or 23%
to $12.3 million for the year ended December 31, 1996 from $10.1 million for the
year ended December 31, 1995. This increase resulted from the increase of
employees related to the addition of a radiology practice and the addition of
employees required to support new hospital management contracts. The percentage
of practice salaries, wages and benefits to medical service revenue, net was 24%
for the year ended December 31, 1996 and 27% for the year ended December 31,
1995.

Practice supplies of $3.2 million and $2.6 million for the years ended
December 31, 1996 and 1995, respectively, were 6% and 7%, respectively, of
medical service revenue, net. Practice rent and lease expense of $2.3 million
and $2.2 million for the years ended December 31, 1996 and 1995, respectively,
were 4% and 6%, respectively, of medical service revenue, net. Depreciation and
amortization expense of $3.4 million and $3.0 million for the years ended
December 31, 1996 and 1995, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$6.3 million and $4.2 million for the years ended December 31, 1996 and 1995,
respectively, were 12% and 11%, respectively, of medical service revenue, net.
Interest expense decreased by $0.3 million or 25% to $0.8 million for the year
ended December 31, 1996 from $1.0 million for the year ended December 31, 1995
due to a decrease in the average cost of funds to Advanced.

Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994

Advanced was formed through the merger of five existing radiology
practices and began operations on January 1, 1995. Each practice contributed
certain assets (primarily fixed assets and investments in joint ventures) and
the debt related to those assets in exchange for ownership interests in
Advanced. The initial formation was accounted for using purchase accounting
under the provisions of APB No. 16. Based on the asset sizes of the individual
contributed radiology practices, one practice was identified as the acquirer,
and, accordingly, all balances prior to January 1, 1995, represent the
activities of this practice on a stand-alone basis. All significant changes in
operations for the year ended December 31, 1995 as compared to the year ended
December 31, 1994, other than as discussed below are the result of this
organizational change.

Costs of affiliated physician services decreased $7.9 million or 91% to
$0.8 million for the year ended December 31, 1995 from $8.8 million for the year
ended December 31, 1994. As a result of the merger discussed above, Advanced
changed its methodology of paying physician owners. In 1994, compensation and
benefits paid or payable to owner and non-owner physicians was recorded as an
expense. In 1995, physician owners' compensation was recorded as a distribution
of Advanced's equity.

159
<PAGE> 212
ADVANCED PAST COMPENSATION FOR CONTINUING DIRECTORS

If the Mergers and Exchanges close, Michael L. Sherman, M.D. will be
appointed to the APPI Board of Directors. During 1996, Dr. Sherman entered into
a consulting agreement with APPI pursuant to which Dr. Sherman received an
option to purchase 20,000 shares of APPI Common Stock at $0.125 per share,
expiring July 31, 2006. See "APPI -- Operation, Management and Business
Following The Mergers and Exchanges -- APPI Certain Transactions."

ADVANCED RADIOLOGY PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the
proposed beneficial ownership of Advanced Common Stock as of July 31, 1997 as
to (i) each person who will beneficially own more than 5% of the outstanding
shares of Advanced Common Stock, (ii) each person will be a director of
Advanced, (iii) each person who will be a Named Executive Officer of Advanced
and (iv) all directors and executive officers as a group. Except as noted the
persons named in the table have sole voting and investment power with respect
to the shares owned by them, subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
- ---- -------- --------
<S> <C> <C>
Neil Borelli, M.D. 5497 1.2%
Edward Carter, M.D. 5497 1.2
Valeriano Fugoso, M.D. 5497 1.2
Richard Harr, M.D. 5497 1.2
Harry Knipp, M.D. 5497 1.2
Nathan Stoffberg, M.D. 5035 1.1
Larry Snyder, M.D. 8626 1.8
Samuel Andelman, M.D. 8626 1.8
Sheldon Bearman, M.D. 8626 1.8
Michael Sherman, M.D. 8626 1.8
Charles Weiner, M.D. 8626 1.8
Bruce Berlanstein, M.D. 8626 1.8
John A. Reeder, M.D. 8626 1.8
Jack Copeland, M.D. 6037 1.3
Edward Mishner, M.D. 8626 1.8
Blair Andrew, M.D. 8626 1.8
Anuradha Bhasin, M.D. 8626 1.8
Bennett Sweren, M.D. 8626 1.8
Laurence Goldstein, M.D. 8626 1.8
James Winthrop, M.D. 8626 1.8
Robert Van Besien, M.D. 8626 1.8
Danllo Espinola, M.D. 8626 1.8
Judy Destouet, M.D. 8626 1.8
W. David McNeely, M.D. 8516 1.8
Christopher Feifarek, M.D. 8516 1.8
Douglas Brunner, M.D. 8516 1.8
J. Stephen Cunat, M.D. 8516 1.8
J. Thayer Simmons, M.D. 8516 1.8
J. Dave Faison, M.D. 8516 1.8
Daniel Aronson, M.D. 6914 1.5
Paul Barnett, M.D. 6914 1.5
Barbara Braitman, M.D. 6914 1.5
Barton Cockey, M.D. 6914 1.5
Colleene Cooke, M.D. 6914 1.5
Lynn Harris-McCorkie, M.D. 6914 1.5
Malonnie Kinnison, M.D. 6914 1.5
Henry Munitz, M.D. 6914 1.5
Margaret Lynch-Nyhan, M.D. 6914 1.5
Rogello Naraval, M.D. 6914 1.5
</TABLE>

160
<PAGE> 213

<TABLE>
<S> <C> <C>
Henry Wang, M.D. 6914 1.5
Richard Rosenbaum, M.D. 8598 1.8
Allan Skrenta, M.D 8598 1.8
Lee Goodman, M.D. 8598 1.8
Fred C. Ashman, M.D. 4299 *
Luther Wells, Jr., M.D. 8598 1.8
Frank Giargiana, M.D. 8598 *
N. Nourmohammadi, M.D. 5410 1.8
Russell Gelman, M.D. 5410 1.8
Martin Auster, M.D. 5410 1.1
Philip E.B. Byrd, Jr., M.D. 5410 1.1
David M. Elder, M.D. 5410 1.1
Allan Keramati, M.D. 5410 1.1
Sanford D. Minken, M.D. 5410 1.1
Pedro P. Purcell, M.D. 5410 1.1
Marcos Roffe, M.D. 5410 1.1
David J. Safferman, M.D. 5410 1.1
Lyle T. Saylor, M.D. 5410 1.1
Robert M. Stroud, Jr., M.D. 5410 1.1
Jack Arnold, M.D. 10362 2.2
Stewart Axlebaum, M.D. 10362 2.2
John Bodine, M.D. 10362 2.2
Carlton Jenkins, M.D. 10362 2.2
Henry Lewis, M.D. 10362 2.2
Allison Oldfield, M.D. 5181 1.1
All directors and executive officers as a
group (64 persons) 475,000 100
</TABLE>

* Less than one percent

(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of May 31, 1997 are deemed
outstanding and to be beneficially owned by the person holding such
option or security for purposes of computing such person's percentage
ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for shares held
jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
stockholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such stockholder.

(2) Applicable percentage of ownership is based on 475,000 shares of
Common Stock outstanding as of July 1, 1997.

161

<PAGE> 214

THE IDE GROUP
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

The Ide Group is a professional medical radiology group formed in 1980
and organized as a New York professional corporation. The Ide Group provides two
types of services: (1) Professional Services and (2) Imaging Services, both of
which are reimbursed on a prepaid or fee-for-service basis. The Ide Group
operates in the greater Rochester, New York area. The Ide Group contracts
directly with hospitals, health plans and physician groups to provide
Professional Services and Imaging Services to enrollees and patients. The Ide
Group operates eight Professional Service and Imaging Service locations and five
hospital-based locations within the Ide Service Area.

The Ide Group has grown through the recruitment of individual associate
physicians in needed practice areas.

STRATEGY

The Ide Group's strategy is to continue penetration of its existing
markets, expand into other markets, create strategic alliances with hospitals
and other Imaging Service providers, increase the operational efficiency of, and
reduce costs associated with, The Ide Group operations.

The future growth of The Ide Group in its existing markets is dependent
in part on the continued increase of health plan enrollees and patients using
The Ide Group for Professional Services. This growth may come, with respect to
Professional Services, from the development or acquisition of additional
facilities and the development of affiliations with medical groups serving
enrollees or patients in existing markets, increased enrollment in health plans
currently contracting with The Ide Group and its medical affiliates, and
contracts with new health plans or hospitals. It actively recruits new providers
and seeks to enter into new hospital-based or managed care contracts in order to
enlarge the potential patient base in its service areas.

GOVERNMENT REGULATION

The Ide Group is subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While The Ide Group believes it is in material
compliance with applicable laws, there is no assurance that its present or past
operations will not be subjected to scrutiny or legal challenges.

SERVICES PROVIDED

The Ide Group operates a total of 13 facilities that are staffed by The
Ide Group Professional Service providers and Imaging Service providers. As of
April 30, 1997, The Ide Group employed 30 Professional Service providers.

162
<PAGE> 215

The Ide Group provides its Professional Service and Imaging Service
under capitated contracts and fee-for-service or hospital contracts. Under
capitated contracts, The Ide Group provides or arranges for all physician
services and The Ide Group receives a fixed monthly capitation payment from
health plans for each member who utilizes The Ide Group physician.

The Ide Group has significant contracts with the following health plans:
Blue Cross/Blue Shield of Greater Rochester, Blue Choice, Preferred Care,
Medicare and Medicaid.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

EMPLOYEES

Professional Service Provider Employees

The Ide Group physicians enter into employment contracts. These
contracts offer a specified guaranteed salary and an incentive bonus. Physicians
are also eligible to receive benefits such as health, dental and life insurance,
paid time off and an allowance for continuing medical education and other
professional expenses. The Ide Group, as of April 30, 1997, employs 30
physicians.

Non-Provider Employees

As of April 30, 1997, The Ide Group had approximately 127 non-physician
employees. None of The Ide Group's employees are represented by a labor union.
Management of The Ide Group believes its employee relations are good.

INSURANCE

The Ide Group maintains insurance coverage for various perils and from
various carriers. In addition to property and casualty, worker's compensation,
directors and officers liability and other coverage The Ide Group believes to be
customary and reasonable for a business of its kind, The Ide Group maintains
Liability Policies with Royal Insurance, Massachusetts Mutual and Travelers.
Each professional of The Ide Group, at each location, is covered under the
Liability Policies.

PROPERTIES AND FACILITIES

The Ide Group leases approximately eight facilities. The square footage
of these real property leases ranges from 265 square feet to 7,737 square feet.
Real property leases are used for The Ide Group's corporate operations,
Professional Services and Imaging Services.

INFORMATION SYSTEMS

The Ide Group believes that the effective analysis of medical and
financial data is essential in today's managed care environment. Accordingly,
The Ide Group is committed to the development of a fully-integrated MIS for
practice management. The Ide Group's MIS capabilities include medical charting
and tracking analysis of practice management information and financial data.
Practice management functions of the current MIS include registration,
centralized scheduling and appointments, electronic claims submission and
remittance. Managed care functions include referrals, eligibility,
determination, claim management and payment functions.

163
<PAGE> 216

LEGAL PROCEEDINGS

The Ide Group is engaged in the defense of lawsuits arising in the
ordinary course and conduct of its business. The Ide Group believes that such
actions will not have a material adverse effect on The Ide Group.

164
<PAGE> 217
IDE SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for Ide has been derived from the financial
statements of Ide, and should be read in conjunction with "Ide Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of Ide and the notes thereto included elsewhere
in this document.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue......................................... $25,534 $26,020 $26,903
Expenses:
Costs of affiliated physician services.............. 10,936 11,483 15,280
Practice salaries, wages and benefits............... 3,141 3,081 3,204
Depreciation and amortization....................... 839 835 532
Other practice expenses............................. 8,598 8,716 8,534
------- ------- -------
Total expenses........................................ 23,514 24,115 27,550
------- ------- -------
Equity in earnings of investments..................... -- -- --
Minority interests in income of
consolidated subsidiaries........................... -- -- --
------- ------- -------
Income before income taxes............................ $ 2,020 $ 1,905 $ (647)
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
<S> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $7,019
Total debt........................................................................ 1,858
Stockholders' equity.............................................................. 1,535
</TABLE>

165
<PAGE> 218
IDE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion relates to the historical operations of Ide and
should be read in conjunction with the audited financial statements of Ide and
the notes thereto appearing elsewhere in this Prospectus/Joint Proxy Statement.
For purposes of the following discussion, medical service revenue, net
represents the estimated realizable amount to be received from patients,
third-party payors and others for the provision of medical services.

RESULTS OF OPERATIONS

Year Ended June 30, 1997 as Compared to Year Ended June 30, 1996

Revenues increased $0.9 million or 3% to $26.9 million for the year
ended June 30, 1997 from $26.0 million for the year ended June 30, 1996 due to
an increase in the number of procedures performed.

Costs of affiliated physician services of $15.1 million and $11.5
million for the years ended June 30, 1997 and 1996, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution. Such amounts were 56% and 44%,
respectively, of medical service revenue, net for the years ended June 30, 1997
and 1996.

Practice salaries, wages and benefits of $3.2 million and $3.1 million
for the years ended June 30, 1997 and 1996 remained consistent at 12% of medical
service revenue, net. Depreciation and amortization expense of $0.5 million and
$0.8 million for the years ended June 30, 1997 and 1996, respectively, reflects
no material changes in the composition of fixed assets or depreciation methods.
Other practice expenses decreased $0.3 million or 7% to $3.1 million for the
year ended June 30, 1997 from $3.4 million for the year ended June 30, 1996 due
to cost savings from new equipment maintenance contracts.

Year Ended June 30, 1996 as Compared to Year Ended June 30, 1995

Revenues increased $0.5 million or 2% to $26.0 million for the year
ended June 30, 1996 from $25.5 million for the year ended June 30, 1995 due to
an increase in the number of procedures performed which resulted from the
establishment of a new facility.

Costs of affiliated physician services of $11.5 million and $10.9
million for the years ended June 30, 1996 and 1995, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution. Such amounts remained consistent at 44% and
43%, respectively, of medical service revenue, net for the years ended June 30,
1996 and 1995.

Practice salaries, wages and benefits of $3.1 million for each of the
years ended June 30, 1996 and 1995 remained consistent at 12% of medical service
revenue, net. Depreciation and amortization expense of $0.8 million for each of
the years ended June 30, 1996 and 1995 reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$3.4 million and $3.2 million for the years ended June 30, 1996 and 1995,
respectively, remained consistent at 13% of medical service revenue, net.

Year Ended June 30, 1995 as Compared to Year Ended June 30, 1994

Revenues increased $1.2 million or 5% to $25.5 million for the year
ended June 30, 1995 from $24.3 million for the year ended June 30, 1994 due to
an increase in the number of procedures performed.

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<PAGE> 219

Costs of affiliated physician services of $10.9 million and $10.3
million for the years ended June 30, 1995 and 1994, respectively, included
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on cash
earnings available for distribution. Such amounts remained consistent at 43% and
42%, respectively, of medical service revenue, net for the years ended June 30,
1995 and 1994.

Practice salaries, wages and benefits of $3.1 million and $3.0 million
for the years ended June 30, 1995 and 1994, respectively, remained consistent at
12% of medical service revenue, net. Depreciation and amortization expense of
$0.8 million and $0.7 million for the years ended June 30, 1995 and 1994,
respectively, reflects no material changes in the composition of fixed assets or
depreciation methods. Other practice expenses of $3.2 million and $2.8 million
for the years ended June 30, 1995 and 1994, respectively, were 13% and 12%,
respectively, of medical service revenue, net.

IDE PAST COMPENSATION FOR CONTINUING DIRECTORS

Derace L. Schaffer, M.D., a director of APPI and President of Ide,
purchased 1,000,000 shares of APPI Common Stock for $125,000. Dr. Schaffer also
owns $107,500 in principal amount of the Convertible Notes. As a director of the
Company, Dr. Schaffer will be eligible to participate in the Automatic Option
Grant Program upon consummation of the Initial Public Offering. In addition, as
part of the Ide Merger Transaction, APPI will issue 94,256 shares of Common
Stock and $439,860.00 in cash to Dr. Schaffer in exchange for his ownership
interest in Ide.

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<PAGE> 220

IDE PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Ide Common Stock as of July 1, 1997 as to (i) each
person who is known to Ide to beneficially own more than five percent of the
outstanding shares of Ide Common Stock, (ii) each director of Ide, (iii) each
Named Executive Officer of Ide and (iv) all directors and executive officers of
Ide as a group. Except as noted the persons named in the table, to Ide's
knowledge, have sole voting and investment power with respect to the shares
owned by them, subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
- ---- -------- --------
<S> <C> <C>
Ted D. Barnett, M.D., Director 100 4.7%
Laurence W. Betts, M.D., Director 100 4.7
Frederick S. Cohn, M.D., Director 100 4.7
Nancy A. Gadziala, M.D., Director 100 4.7
Ronald L. Hainen, M.D., Director 100 4.7
Steven G. Herbert, M.D., Director 100 4.7
Francis M. Kelley, M.D., Director 100 4.7
John D. Kennedy, M.D., Director 100 4.7
Michael E. Lebowitz, M.D., Vice President-
Finance and Director 100 4.7
David J. Millet, M.D., Director 100 4.7
George W. Parker, M.D., Executive Vice President
and Director 100 4.7
Kenneth D. Pearsen, M.D., Secretary and Director 100 4.7
Victor S. Regenbogen, M.D., Director 100 4.7
Derace L. Schaffer, M.D., President and Director 100 4.7
W. Winslow Schrank, M.D., Director 100 4.7
Robert F. Spataro, M.D., Director 100 4.7
Bruce J. Thaler, M.D., Treasurer and Director 100 4.7
Richard E. Tobin, M.D., Director 100 4.7
Rosemary Utz, M.D., Director 100 4.7
Herman A. Wallinga, M.D., Director 100 4.7
David M. Wolf, M.D., Director 100 4.7
All directors and executive officers as a
group (21 persons) 2,100 98.7
</TABLE>

(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of May 31, 1997 are deemed
outstanding and to be beneficially owned by the person holding such
option or security for purposes of computing such person's percentage
ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for shares held
jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
shareholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such shareholder.

(2) Applicable percentage of ownership is based on 2,150 shares of Common
Stock outstanding as of July 1, 1997.

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<PAGE> 221

M&S X-RAY PRACTICES
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

M&S X-Ray Practices consist of a professional medical radiology group
formed in 1990 and organized as a Texas professional association and six other
related entities. M&S X-Ray Practices provide two types of services: (1)
Professional Services and (2) Imaging Services, both of which are reimbursed on
a prepaid or fee-for-service basis. M&S X-Ray Practices operate in the San
Antonio, Texas Metropolitan area. M&S X-Ray Practices' contracts directly with
hospitals and health plans to provide Professional Services and Imaging Services
to enrollees and patients. M&S X-Ray Practices operate three Professional
Service locations, four Imaging Service locations and five hospital-based
locations within the M&S Service Area.

M&S X-Ray Practices have grown through a combination of acquisitions of
medical practices that complement its services and recruitment of individual
associate physicians in needed practice areas.

M&S X-Ray Practices own three limited partnership units in Stone Oak
limited partnership and a 49% interest in Southeast Baptist Imaging Center,
Northeast Baptist Imaging Center and Baptist Imaging Center. In addition, one of
the related entities of M&S X-Ray Practices holds a 60% interest in Lexington MR
Ltd. Each of these joint ventures owns and operates diagnostic imaging centers.

STRATEGY

M&S X-Ray Practices' strategy is to continue penetration of its existing
markets, expand into other markets, create strategic alliances with hospitals
and other Imaging Service providers, increase the operational efficiency of, and
reduce costs associated with, the M&S X-Ray Practices operations.

The future growth of M&S X-Ray Practices in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using M&S X-Ray Practices for Professional Services. This growth may
come, with respect to Professional Services, from the development or acquisition
of additional facilities and the development of affiliations with medical groups
serving enrollees or patients in existing markets, increased enrollment in
health plans currently contracting with M&S X-Ray Practices and their medical
affiliates, and contracts with new health plans or hospitals. M&S X-Ray
Practices actively recruit new providers and seek to enter into new
hospital-based or managed care contracts in order to enlarge the potential
patient base in its service areas.

M&S X-Ray Practices' principal strategy for expanding into new markets
is through acquisitions (through purchase, merger, or otherwise) of medical
groups. M&S X-Ray Practices generally seek providers that have established
reputations for providing quality medical care.

GOVERNMENT REGULATION

M&S X-Ray Practices are subject to federal and state laws regulating the
relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While M&S X-Ray Practices believe that they are in
material compliance with applicable laws, there is no

169
<PAGE> 222

assurance that their present or past operations will not be subjected to
scrutiny or legal challenges.

SERVICES PROVIDED

M&S X-Ray Practices operate a total of 12 facilities that are staffed by
M&S X-Ray Practices Professional Service providers and M&S X-Ray Practices
Imaging Service providers. As of April 30, 1997, M&S X-Ray Practices employed 20
Professional Service providers.

M&S X-Ray Practices provide their Professional Services and Imaging
Services under capitated contracts and fee-for-service or hospital contracts.
Under capitated contracts, M&S X-Ray Practices provide or arrange for all
physician services and M&S X-Ray Practices receive a fixed monthly capitation
payment from health plans for each member who utilize an M&S X-Ray Practices
physician.

From January 1, 1997 through April 30, 1997, over 120,000 patients were
serviced by M&S X-Ray Practices. M&S X-Ray Practices have significant contracts
with the Baptist Health System.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

EMPLOYEES

Professional Service Provider Employees

M&S X-Ray Practices' physicians enter into employment contracts. These
contracts offer a specified guaranteed salary and an incentive bonus. Physicians
are also eligible to receive benefits such as health, dental and life insurance,
paid time off and an allowance for continuing medical education and other
professional expenses. M&S X-Ray Practices, as of April 30, 1997, employs 20
physicians.

Imaging Service Provider Employees

As of April 30, 1997, M&S X-Ray Practices employed 34 service
technologists.

Non-Provider Employees

As of April 30, 1997, M&S X-Ray Practices had approximately 107
non-physician employees. None of M&S X-Ray Practices' employees are represented
by a labor union. Management of M&S X-Ray Practices believes its employee
relations are good.

INSURANCE

M&S X-Ray Practices maintain insurance coverage for various perils and
from various carriers. In addition to property and casualty, worker's
compensation, directors and officers liability and other coverage M&S X-Ray
Practices believe to be customary and reasonable for a business of its kind, M&S
X-Ray Practices maintain Liability Policies with EMC Mutual Assurance, Potomac
Insurance, Insurance Corp. of America and United National. Each professional of
M&S X-Ray Practices, at each location, is covered under the Liability Policies.

PROPERTIES AND FACILITIES

M&S X-Ray Practices lease approximately six facilities. The square
footage of such facilities range from 1,750 square feet to 5,662 square feet.
The real property leases of M&S X-Ray Practices are utilized for office space.

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<PAGE> 223

INFORMATION SYSTEMS

M&S X-Ray Practices believe that the effective analysis of medical and
financial data is essential in today's managed care environment. Accordingly,
M&S X-Ray Practices are committed to the development of a fully-integrated MIS
for practice management. M&S X-Ray Practices' MIS capabilities include medical
charting and tracking analysis of practice management information and financial
data. Practice management functions of the current MIS include registration,
electronic claims submission and remittance. Managed care functions include
referrals, eligibility, determination, claim management and payment functions.

LEGAL PROCEEDINGS

M&S X-Ray Practices are engaged in the defense of lawsuits arising in
the ordinary course and conduct of their businesses. M&S X-Ray Practices believe
that such actions may have a material adverse effect on M&S X-Ray Practices.

171
<PAGE> 224
M&S X-RAY PRACTICES SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for M&S X-Ray Practices has been derived from
the financial statements of M&S X-Ray Practices, and should be read in
conjunction with "M&S X-Ray Practices Management Discussion and Analysis of
Financial Condition and Results of Operations" and the audited financial
statements of M&S X-Ray Practices and the notes thereto included elsewhere in
this document. The information for the year ended December 31, 1994 for M&S
X-Ray Practices has been derived from the unaudited financial statements which,
in the opinion of management, includes all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such information.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................................$ 17,341 $ 15,068 $ 15,198 $ 7,712 $ 7,220
Expenses:
Costs of affiliated physician services....... 9,240 8,866 8,703 3,939 3,485
Practice salaries, wages and benefits........ 2,001 1,228 1,338 402 999
Depreciation and amortization................ 883 963 671 333 148
Other practice expenses...................... 2,921 2,777 2,466 1,735 1,097
------- ------- -------- ------- -------
Total expenses................................. 15,045 13,834 13,178 6,409 5,729
------- ------- -------- ------- -------
Equity in earnings of investments.............. 98 213 605 273 427
Minority interests in income of
consolidated subsidiaries.................... (220) (216) (249) (122) (160)
------- ------- -------- ------- -------
Income before income taxes..................... $ 2,174 $ 1,231 $ 2,376 $ 1,454 $ 1,758
======= ======= ======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets..........................................................................$7,628
Total debt............................................................................ 459
Stockholders' equity.................................................................. 4,825
</TABLE>

172
<PAGE> 225
M&S X-RAY PRACTICES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to the historical operations of M&S
X-Ray Practices and should be read in conjunction with the audited financial
statements of M&S X-Ray Practices and the notes thereto appearing elsewhere in
this Prospectus/Joint Proxy Statement. For purposes of the following discussion,
medical service revenue, net represents the estimated realizable amount to be
received from patients, third-party payors and others for the provision of
medical services.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996

Medical service revenue, net decreased by $0.5 million or 6% to $7.0
million for the six months ended June 30, 1997 from $7.5 million for the six
months ended June 30, 1996. The decrease was attributable to a decrease in the
number of procedures performed.

Costs of affiliated physician services of $3.5 million (50% of medical
service revenue, net) and $3.9 million (53% of medical service revenue, net) for
the six months ended June 30, 1997 and 1996, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits increased $0.6 million or 148% to
$1.0 million for the six months ended June 30, 1997 from $0.4 million for the
six months ended June 30, 1996. For the six months ended June 30, 1996, an
outside management company paid all administrative salaries of M&S. During 1997,
these salaries were paid by M&S.

Practice rent and lease expense remained consistent at 2% of medical
service revenue, net for the six months ended June 30, 1997 and 1996.
Depreciation and amortization expense decreased $0.2 million or 56% to $0.1
million for the six months ended June 30, 1997 from $0.3 million for the six
months ended June 30, 1996 as certain assets became fully depreciated. M&S had
no material changes in the composition of fixed assets or depreciation methods.
Other practice expenses decreased $0.7 million or 53% to $0.6 million for the
six months ended June 30, 1997 from $1.3 million for the six months ended June
30, 1996 due to a reduction in fees paid to an outside management company.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased by $0.1 million or 0.4% to $14.8
million for the year ended December 31, 1996 from $14.7 million for the year
ended December 31, 1995 reflecting a consistent level of operations.

Investment income from joint ventures of $0.6 million and $0.2 million
for the years ended December 31, 1996 and 1995, respectively, represented M&S'
49% interest in the earnings of three joint ventures. The increase was
attributable to increased volume at each of the joint ventures.

Other revenue increased by $0.1 million or 21% to $0.4 million for the
year ended December 31, 1996 from $0.3 million for the year ended December 31,
1995 due to increased management fees earned from joint ventures. Management
fees were computed as a percentage of cash collections; therefore, as earnings
of the joint ventures increase, the related management fees also increase.

Costs of affiliated physician services of $8.7 million (59% of medical
service revenue, net) and $8.9 million (60% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included compensation
and benefits paid

173
<PAGE> 226

or payable to owner and non-owner physicians during the period. The physician
owners determined such payments based on cash earnings available for
distribution.

Practice salaries, wages and benefits increased $0.1 million or 9% to
$1.3 million for the year ended December 31, 1996 from $1.2 million for the year
ended December 31, 1995. For seven months of 1995, an outside management company
paid all administrative salaries of M&S. During 1996, five months of
administrative salaries were paid by the outside management company.

Practice supplies increased $0.1 million or 18% to $0.6 million for the
year ended December 31, 1996 from $0.5 million for the year ended December 31,
1995 due to increased costs of certain supplies. Practice rent and lease expense
remained consistent at 2% of medical service revenue, net for the years ended
December 31, 1996 and 1995. Depreciation and amortization expense decreased $0.3
million or 30% to $0.7 million for the year ended December 31, 1996 from $1.0
million for the year ended December 31, 1995 as certain assets became fully
depreciated. The company had no material changes in the composition of fixed
assets or depreciation methods. Other practice expenses decreased $0.4 million
or 19% to $1.5 million for the year ended December 31, 1996 from $1.9 million
for the year ended December 31, 1995 due to a reduction in fees paid to an
outside management company.

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<PAGE> 227

M&S PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of M&S Common Stock as of July 1, 1997 as to (i) each
person who is known to M&S to beneficially own more than five percent of the
outstanding shares of M&S Common Stock, (ii) each director of M&S, (iii) each
Named Executive Officer of M&S and (iv) all directors and executive officers of
M&S as a group. Except as noted, the persons named in the table have sole voting
and investment power with respect to the shares owned by them, subject to
community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME(1) OWNED(2) OWNED(3)
- ------- -------- --------
<S> <C> <C>
F. Joseph Carabin, M.D., Director 10 5.3%
Robert W. Daehler, M.D., Director 10 5.3
Morgan G. Dunne, M.D., Director 10 5.3
Gregory C. Godwin, M.D. Director 10 5.3
Polly B. Hansen, M.D., Director 10 5.3
Michael D. Howard, M.D., Director 10 5.3
Philip S. Kline, M.D., Director 10 5.3
Julio C. Otazo, M.D., Director 10 5.3
R.K. Daniel Peterson, M.D., Director 10 5.3
Randall S. Preissig, M.D., Director 10 5.3
Rise P. Ross, M.D., Director 10 5.3
Jose A. Saldana, M.D., Director 10 5.3
Anthony F. Smith, M.D., Director 10 5.3
Robert L. Thompson, M.D., Director 10 5.3
A. Kenneth Trevino, M.D., Director 10 5.3
Howard R. Unger, Jr., M.D., Director 10 5.3
Jeremy N. Wiersig, M.D., Director 10 5.3
Gary L. Wilson, M.D., Director 10 5.3
W. Gregory Wojcik, M.D., Director 10 5.3
Terry A. Brown, Chief Executive Officer -- --
Kathy Jordan, Chief Financial Officer -- --
All directors and executive officers
as a group (21 persons) 190 100.0
</TABLE>

(1) The address for each of the persons listed in the table is M&S X-Ray
Associates, P.A., 730 North Main Street, Suite B109, San Antonio, Texas
78205.

(2) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of May 31, 1997 are deemed
outstanding and to be beneficially owned by the person holding such
option or security for purposes of computing such person's percentage
ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for shares held
jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
shareholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such shareholder.

(3) Applicable percentage of ownership is based on 190 shares of Common
Stock outstanding as of July 1, 1997.

175
<PAGE> 228
LEXINGTON PARTNERSHIP INTEREST HOLDERS

The following table sets forth certain information regarding the
beneficial ownership of partnership interests in Lexington as of July 1, 1997.
Except as noted, the persons named in the table have sole voting and investment
power with respect to the partnership interests owned by them, subject to
community property laws.

<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
- ---- ---------------
<S> <C>
Neil J. Bowie, M.D., limited partner 2.10% (3)
Polly B. Hansen, M.D., limited partner 1.40 (3)
Philip S. Kline, M.D., limited partner 1.48 (3)
Julio C. Otazo, M.D., limited partner 2.10 (3)
R.K. Daniel Peterson, M.D., limited partner 2.10 (3)
Randall S. Preissig, M.D., limited partner 2.10 (3)
Jose A. Saldana, M.D., limited partner 2.10 (3)
Anthony F. Smith, M.D., limited partner 0.44 (3)
Jeremy N. Wiersig, M.D., limited partner 1.75 (3)
Robert L. Thompson, M.D., limited partner 2.10 (3)
W. Gregory Wojeik, M.D., limited partner 1.31 (3)
Baptist Memorial Hospital System, limited partner (1) 21.10
San Antonio No. 2, general partner (2) 60.00
</TABLE>

(1) The address of such beneficial owner is Baptist Memorial Hospital System.

(2) The address of such beneficial owner is San Antonio MRI Partnership San
Antonio No. 2, Ltd., 730 North Main Avenue, Suite B109, San Antonio,
Texas 78205.

(3) Includes a .00083% ownership interest indirectly owned by such
beneficial owner in his or her capacity as a security holder of San
Antonio (See "South Texas and San Antonio Principal Shareholders").

176
<PAGE> 229

MADISON PARTNERSHIP INTEREST HOLDERS

The following table sets forth certain information regarding the
beneficial ownership of partnership interests in Madison as of July 1, 1997.
Except as noted, the persons named in the table have sole voting and investment
power with respect to the partnership interests owned by them, subject to
community property laws.

<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
- ---- ---------------
<S> <C>
Neil Bowie, M.D., general partner(1) 7.8%
F. Joseph Carabin, M.D., general partner(1) 6.8
Gregory C. Godwin, M.D., general partner 2.2
Michael D. Howard, M.D., general partner(1) 7.8
Philip S. Kline, M.D., general partner(1) 6.8
Julio C. Otazo, M.D., general partner(1) 5.4
R.K. Daniel Peterson, M.D., general partner(1) 7.8
Randall S. Preissig, M.D., general partner(1) 29.1
Jose A. Saldana, M.D., general partner(1) 7.8
Anthony F. Smith, M.D., general partner 3.2
Robert L. Thompson, M.D., general partner 3.1
Jeremy N. Wiersig, M.D., general partner(1) 5.4
Frank Wilson, M.D., general partner(1) 6.8
</TABLE>

(1) The address of such beneficial owner is Madison Square Joint Venture,
730 North Main Avenue, Suite B109, San Antonio, Texas 78205.

177
<PAGE> 230
SOUTH TEXAS NO. 1 PARTNERSHIP INTEREST HOLDERS

The following table sets forth certain information regarding the
beneficial ownership of partnership interests in South Texas No. 1 as of July 1,
1997. Except as noted, to South Texas No. 1's knowledge the persons named in the
table have sole voting and investment power with respect to the partnership
interests owned by them, subject to community property laws.

<TABLE>
<CAPTION>
PERCENT OF
NAME TOTAL INTERESTS
- ---- ---------------
<S> <C>
Neil Bowie, M.D., limited partner (1) 8.3% (2)
Joseph F. Carabin, M.D., limited partner (1) 8.3 (2)
Gregory C. Godwin, M.D., limited partner (1) 8.3 (2)
Michael D. Howard, M.D., limited partner (1) 8.3 (2)
Philip S. Kline, M.D., limited partner (1) 8.3 (2)
Julio C. Otazo, M.D., limited partner (1) 8.3 (2)
R.K. Daniel Peterson, M.D., limited partner (1) 8.3 (2)
Randall S. Preissig, M.D., limited partner (1) 8.3 (2)
Rise P. Ross, M.D., limited partner (1) 8.3 (2)
Jose A. Saldana, M.D., limited partner (1) 8.3 (2)
Robert L. Thompson, M.D., limited partner (1) 8.3 (2)
W. Gregory Wojeik, M.D., limited partner (1) 8.3 (2)
South Texas, general partner 1.0
</TABLE>

(1) The address of such beneficial owner is South Texas No. 1 MRI limited
partnership, 730 North Main Avenue, Suite B109, San Antonio, Texas
78205.

(2) Includes an 8.25% ownership interest owned by such beneficial owner in
his capacity as a limited partner of South Texas No. 1 and a .00083%
ownership interest indirectly owned by such beneficial owner in his
capacity as a security holder of South Texas (See "South Texas and San
Antonio Principal Shareholders").

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SAN ANTONIO NO. 2 PARTNERSHIP INTEREST HOLDERS

The following table sets forth certain information regarding the
beneficial ownership of partnership interests in San Antonio No. 2 as of July 1,
1997. Except as noted, to San Antonio No. 2's knowledge the persons named in the
table have sole voting and investment power with respect to the partnership
interests owned by them, subject to community property laws.

(1) The address of such beneficial owner is San Antonio MRI Partnership No.
2, Ltd., 730 North Main Avenue, Suite B109, San Antonio, Texas 78205.

(2) Includes an 8.25% ownership interest owned by such beneficial owner in
his capacity as a Limited Partner of San Antonio No. 2 and a .00083%
ownership interest indirectly owned by such beneficial owner in his
capacity as a security holders of San Antonio (See "South Texas and San
Antonio Principal Shareholders").

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<PAGE> 232

SOUTH TEXAS AND SAN ANTONIO PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of South Texas and San Antonio Common Stock as of July 1,
1997 as to (i) each person who is known to each of South Texas and San Antonio
to beneficially own more than five percent of the outstanding shares of South
Texas and San Antonio Common Stock, (ii) each director of each of South Texas
and San Antonio, (iii) each Named Executive Officer of each of South Texas and
San Antonio and (iv) all directors and executive officers of South Texas and San
Antonio as a group. Except as noted, to the knowledge of South Texas and San
Antonio, the persons named in the table have sole voting and investment power
with respect to the shares owned by them, subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME(1) OWNED(2) OWNED(3)
- ------- -------- --------
<S> <C> <C>
Neil Bowie, M.D., Director 10 8.3%
F. Joseph Carabin, M.D., Director 10 8.3
Gregory C. Godwin, M.D. Director 10 8.3
Julio C. Otazo, M.D., Director 10 8.3
R.K. Daniel Peterson, M.D., Director 10 8.3
Randall S. Preissig, M.D., Director 10 8.3
Rise P. Ross, M.D., Director 10 8.3
Jose A. Saldana, M.D., Director 10 8.3
Anthony F. Smith, M.D., Director 10 8.3
Robert L. Thompson, M.D., Director 10 8.3
W. Gregory Wojeik, M.D., Director 10 8.3
All directors and executive officers
as a group (12 persons) 120 100.0
</TABLE>

(1) The address for each of the persons listed in the table is South Texas
MR, Inc., or San Antonio MR, Inc., 730 North Main Avenue, Suite B109,
San Antonio, Texas 78205.

(3) Applicable percentage of ownership is based on 120 shares of South Texas
Common Stock and San Antonio Common Stock outstanding as of July 1,
1997.

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<PAGE> 233

PACIFIC IMAGING CONSULTANTS
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

Pacific Imaging Consultants is comprised of a professional medical
radiology group formed in 1978 and organized as a California professional
medical corporation and Total Medical Imaging, Inc., a California corporation.
Pacific Imaging Consultants provides two types of services: (1) Professional
Services and (2) Imaging Services, both of which are reimbursed on a prepaid and
fee-for-service basis. Pacific Imaging Consultants operates in the greater
Oakland Metropolitan area, San Francisco Bay area and in the Hi-Desert area of
Southern California. Pacific Imaging Consultants contracts directly with
hospitals and health plans to provide Professional Services and Imaging Services
to enrollees and patients. Through contracts with various health plans and
hospitals, as of April 30, 1997, Pacific Imaging Consultants physicians were
responsible for the Professional Services and Imaging Services to approximately
360,000 health plan enrollees or patients. Pacific Imaging Consultants operates
five Professional Service locations and seven Imaging Service locations.

Pacific Imaging Consultants has grown through a combination of
acquisitions of medical practices that complement its services and recruitment
of individual associate physicians in needed practice areas.

STRATEGY

Pacific Imaging Consultants' strategy is to continue penetration of its
existing markets, expand into other markets, create strategic alliances with
hospitals and other Imaging Service providers, increase the operational
efficiency of, and reduce costs associated with, the Pacific Imaging Consultants
operations.

The future growth of Pacific Imaging Consultants in its existing markets
is dependent in part on the continued increase of health plan enrollees and
patients using Pacific Imaging Consultants for Professional Services. This
growth may come, with respect to Professional Services, from the development or
acquisition of additional facilities and the development of affiliations with
medical groups serving enrollees or patients in existing markets, increased
enrollment in health plans currently contracting with Pacific Imaging
Consultants and its medical affiliates, and contracts with new health plans or
hospitals. It actively recruits new providers and seeks to enter into new
hospital-based or managed care contracts in order to enlarge the potential
patient base in the Pacific Service Area.

Pacific Imaging Consultants' principal strategy for expanding into new
markets is through acquisitions (through purchase, merger, or otherwise) of
medical groups. Pacific Imaging Consultants generally seeks providers that have
established reputations for providing quality medical care.

GOVERNMENT REGULATION

Pacific Imaging Consultants is subject to federal and state laws
regulating the relationships among providers of health care services, physicians
and other clinicians. These laws include the fraud and abuse provisions of the
Medicare and Medicaid statutes, which prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration for the referral of
Medicare or Medicaid patients or for the recommending, leasing, arranging,
ordering or purchasing of Medicare or Medicaid covered services. Other laws
impose significant penalties for false or improper billings for physician
services and impose restrictions on physician referrals for designated health
services reimbursable under the Medicare or Medicaid programs to entities with
which they have financial relationships. While Pacific Imaging Consultants
believes it is in material compliance with applicable laws, there is no
assurance that its present or past operations will not be subjected to scrutiny
or legal challenges.

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<PAGE> 234

SERVICES PROVIDED

Pacific Imaging Consultants operates a total of 12 facilities that are
staffed by Pacific Imaging Consultants Professional Service providers and
Pacific Imaging Consultants Imaging Service providers. As of April 30, 1997,
Pacific Imaging Consultants employed 24 Professional Service providers and 28
Imaging Service providers. Pacific Imaging Consultants provides the following
specialty radiology services: diagnostic and interpretive, x-ray, fluoroscopy,
computed tomography, mammography, CT, magnetic resonance imaging, nuclear
medicine, ultrasound and interventional.

Pacific Imaging Consultants provides approximately 20% of its
Professional Service and Imaging Service under capitated contracts and 80% under
fee-for-service or hospital contracts. Under capitated contracts, Pacific
Imaging Consultants provides or arranges for all physician services and Pacific
Imaging Consultants receives a fixed monthly capitation payment from health
plans for each member who utilize a Pacific Imaging Consultants physician.

At April 30, 1997, over 360,000 patients were serviced by Pacific
Imaging Consultants. Pacific Imaging Consultants is under contract with the
following significant hospitals or health plans: Summit Medical Center, St.
Luke's Hospital, St. Rose Hospital, San Ramon Regional Medical Center, Hill
Physicians, Blue Cross and Blue Shield.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

EMPLOYEES

Professional Service Provider Employees

Pacific Imaging Consultants physicians enter into employment contracts.
These contracts offer a specified guaranteed salary and an incentive bonus.
Physicians are also eligible to receive benefits such as health, dental and life
insurance, paid time off and an allowance for continuing medical education and
other professional expenses. Pacific Imaging Consultants, as of April 30, 1997,
employed 24 full-time physicians and engaged four or five physicians as
independent contractors on a part-time basis.

Imaging Service Provider Employees

Pacific Imaging Consultants employs approximately 28 Imaging Service
providers, of which 12 are employed on a full-time basis and 16 are employed on
a part-time basis.

Non-Provider Employees

As of April 30, 1997, Pacific Imaging Consultants had approximately 60
non-physician employees, of which 41 are employed on a full-time basis and 19
are employed on a part-time basis. None of Pacific Imaging Consultants'
employees are represented by a labor union. Management of Pacific Imaging
Consultants believes its employee relations are good.

INSURANCE

Pacific Imaging Consultants maintains insurance coverage for various
perils and from various carriers. In addition to property and casualty, worker's
compensation and other coverage Pacific Imaging Consultants believes to be
customary and reasonable for a business of its kind, Pacific Imaging Consultants
maintains Liability Policies with Medical Insurance Exchange, Employers First
Insurance, Unigard, Safeco, Aetna, Unum and

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<PAGE> 235

Hofferman. Each professional of Pacific Imaging Consultants, at each location,
is covered under the Liability Policies.

PROPERTIES AND FACILITIES

Pacific Imaging Consultants leases approximately seven facilities. Such
real property leases are utilized for corporate operations, Professional
Services and Imaging Services.

INFORMATION SYSTEMS

Pacific Imaging Consultants believes that the effective analysis of
medical and financial data is essential in today's managed care environment.
Accordingly, Pacific Imaging Consultants is committed to the development of a
fully-integrated MIS for practice management. Pacific Imaging Consultants' MIS
capabilities include medical charting and tracking analysis of practice
management information and financial data. Practice management functions of the
current MIS include registration, centralized scheduling and appointments,
electronic claims submission and remittance. Managed care functions include
referrals, eligibility, determination, claim management and payment functions.

LEGAL PROCEEDINGS

Pacific is engaged in the defense of lawsuits arising in the ordinary
course and conduct of its business. Pacific believes that such actions will not
have a material adverse effect on Pacific.

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<PAGE> 236

PACIFIC IMAGING CONSULTANTS SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for Pacific Imaging Consultants has been
derived from the financial statements of Pacific Imaging Consultants, and should
be read in conjunction with "Pacific Imaging Consultants Management's discussion
and Analysis of Financial Condition and Results of Operations" and the audited
financial statements of Pacific Imaging Consultants and the notes thereto
included elsewhere in this document. The information for the year ended December
31, 1994 for Pacific Imaging Consultants has been derived from the unaudited
financial statements which, in the opinion of management, includes all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of such information.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- --------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................................. $8,806 $11,448 $13,295 $5,634 $7,052
Expenses:
Costs of affiliated physician
services............................... 2,992 5,897 7,215 2,860 4,056
Practice salaries, wages
and benefits........................... 1,004 1,604 1,840 842 966
Depreciation and amortization.............. 1,082 996 981 488 475
Other practice expenses.................... 4,269 3,055 3,204 1,479 1,595
------ ------- ------- ------ ------
Total expenses................................. 9,347 11,552 13,240 5,669 7,092
------ ------- ------- ------ ------
Equity in earnings of investments.............. -- -- -- -- --
Minority interests in income of
consolidated subsidiaries.................. -- -- -- -- --
------ ------- ------- ------ ------
Income (loss) before income taxes.............. $ (541) $ (104) $ 55 $ (35) $ (40)
====== ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets.................................................................... $6,332
Total debt ..................................................................... 3,645
Stockholders' equity........................................................... 255
</TABLE>

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<PAGE> 237

PACIFIC IMAGING CONSULTANTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to the historical operations of Pacific
Imaging Consultants and should be read in conjunction with the audited financial
statements of Pacific Imaging Consultants and the notes thereto appearing
elsewhere in this Prospectus/Joint Proxy Statement. For purposes of the
following discussion, medical service revenue, net represents the estimated
realizable amount to be received from patients, third-party payors and others
for the provision of medical services.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 As Compared to Six Months Ended June 30, 1996

Medical service revenue, net increased $1.4 million or 26% to $7.0
million for the six months ended June 30, 1997 from $5.6 million for the six
months ended June 30, 1996. This increase is largely attributable to the
addition of a new hospital contract which resulted in an increase in the number
of procedures performed.

Costs of affiliated physician services of $4.1 million (58% of medical
service revenue, net) and $2.9 million (52% of medical service revenue, net) for
the six months ended June 30, 1997 and 1996, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution. This increase is primarily due to the
hiring of three new physicians and two other employees subsequent to June 30,
1996.

Practice salaries, wages and benefits of $1.0 million and $0.8 million
for the six months ended June 30, 1997 and 1996, respectively, were 14% and 15%,
respectively, of medical service revenue, net. Practice supplies of $0.2 million
for each of the six months ended June 30, 1997 and 1996 remained consistent at
4% of medical service revenue, net. Depreciation and amortization expense of
$0.5 million for each of the six months ended June 30, 1997 and 1996 reflects no
material changes in the composition of fixed assets or depreciation methods.
Other practice expenses of $1.0 million and $0.8 million for the six months
ended June 30, 1997 and 1996, respectively, were 14% and 15%, respectively, of
medical service revenue, net. Interest expense of $0.2 million for each of the
six months ended June 30, 1997 and 1996, was 2% and 4%, respectively, of medical
service revenue, net.

Year Ended December 31, 1996 As Compared to Year Ended December 31, 1995

Medical service revenue, net increased $1.9 million or 17% to $13.1
million for the year ended December 31, 1996 from $11.2 million for the year
ended December 31, 1995 due primarily to increased revenue under capitated
contracts. In September 1995, Pacific signed a significant capitation contract.
Revenues under this contract were $1.4 million greater for the year ended
December 31, 1996 as compared to the year ended December 31, 1995. The remaining
increase in revenue was the result of an increased number of procedures
performed and covered lives.

Costs of affiliated physician services of $7.2 million (55% of medical
service revenue, net) and $5.9 million (52% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution.

Practice salaries, wages and benefits were $1.8 million and $1.6 million
for the years ended December 31, 1996 and 1995, respectively, representing 14%
of medical service revenue, net for each year. Practice supplies of $0.6 million
and $0.5 million for the years ended December 31, 1996 and 1995, respectively,
remained consistent at 4% of medical service revenue, net. Practice rent and
lease expense of $0.4 million for each of the years ended December 31, 1996 and
1995 remained consistent at 3% of medical

185
<PAGE> 238

service revenue, net. Depreciation and amortization expense of $1.0 million for
each of the years ended December 31, 1996 and 1995 reflects no material changes
in the composition of fixed assets or depreciation methods. Other practice
expenses of $1.9 million and $1.7 million for the years ended December 31, 1996
and 1995, respectively, remained consistent at 15% of medical service revenue,
net. Interest expense decreased $0.2 million or 34% to $0.3 million for the year
ended December 31, 1996 from $0.5 million for the year ended December 31, 1995
due to a decrease in the average debt outstanding, as well as a reduction in the
average interest rates applied. These reductions were achieved through a debt
refinancing which occurred in August 1996.

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<PAGE> 239

PACIFIC IMAGING CONSULTANTS PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Pacific Common Stock as of July 1, 1997 as to (i) each
person who is known to Pacific to beneficially own more than five percent of the
outstanding shares of Pacific Common Stock, (ii) each director of Pacific, (iii)
each Named Executive Officer of Pacific and (iv) all directors and executive
officers of Pacific as a group. Except as noted, the persons named in the table,
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
- ---- -------- --------
<S> <C> <C>
John W. Barr, M.D., Director 500 4.6%
Richard S. Breiman, M.D., Director 500 4.6
Less T. Chafen, M.D., Chairman and Director 500 4.6
Frederick K. Chin, M.D., Director 500 4.6
Richard H. Culhane, M.D., Director 500 4.6
Edward Drasin, M.D., Director 500 4.6
Hayden Evans, M.D., Director 500 4.6
Michael J. Faer, M.D., Vice President and Director 500 4.6
Charles E. Fiske, M.D., Director 500 4.6
Steven B. Hammerschlag, M.D., Director 500 4.6
David C. Hansen, M.D., Director 500 4.6
Allen V. Havener, M.D., Director 500 4.6
Ira E. Kanter, M.D., Director 500 4.6
Richard J. Keene, M.D., Director 500 4.6
Carl J. Mani, M.D., Director 500 4.6
Susan C. Marks, M.D., Director 500 4.6
Jeremy A. McCreary, M.D.,
Assistant Vice President and Director 500 4.6
Patrick J. Perkins, M.D., President and Director 500 4.6
Philip J. Rich, M.D.,
Assistant Vice President and Director 500 4.6
Douglas C. Riehle, M.D., Director 500 4.6
Gary G. Shrago, M.D., Director 500 4.6
Juanit O. Villanueva, M.D., Director 500 4.6
All directors and executive officers
as a group (22 Persons) 11,000 100.0
</TABLE>

(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of May 31, 1997 are deemed
outstanding and to be beneficially owned by the person holding such
option or security for purposes of computing such person's percentage
ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for shares held
jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
shareholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such shareholder.

(2) Applicable percentage of ownership is based on 11,000 shares of Pacific
Common Stock outstanding as of July 1, 1997.

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<PAGE> 240
TMI PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of TMI Common Stock as of July 1, 1997 as to (i) each
person who is known to TMI to beneficially own more than five percent of the
outstanding shares of TMI Common Stock, (ii) each director of TMI, (iii) each
Named Executive Officer of TMI and (iv) all directors and executive officers of
TMI as a group. Except as noted, the persons named in the table to the knowledge
of TMI have sole voting and investment power with respect to the shares owned by
them, subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
- ---- -------- --------
<S> <C> <C>
John W. Barr, M.D., Director 5,000 4.6%
Richard S. Breiman, M.D., Director 5,000 4.6
Less T. Chafen, M.D., Chairman and Director 5,000 4.6
Frederick K. Chin, M.D., Director 5,000 4.6
Richard H. Culhane, M.D., Director 5,000 4.6
Edward Drasin, M.D., Director 5,000 4.6
Hayden Evans, M.D., Director 5,000 4.6
Michael J. Faer, M.D.,
Vice President and Director 5,000 4.6
Charles E. Fiske, M.D., Director 5,000 4.6
Steven B. Hammerschlag, M.D., Director 5,000 4.6
David C. Hansen, M.D., Director 5,000 4.6
Allen V. Havener, M.D., Director 5,000 4.6
Ira E. Kanter, M.D., Director 5,000 4.6
Richard J. Keene, M.D., Director 5,000 4.6
Carl J. Mani, M.D., Director 5,000 4.6
Susan C. Marks, M.D., Director 5,000 4.6
Jeremy A. McCreary, M.D.,
Assistant Vice President and Director 5,000 4.6
Patrick J. Perkins, M.D., President and Director 5,000 4.6
Philip J. Rich, M.D.,
Assistant Vice President and Director 5,000 4.6
Douglas C. Riehle, M.D., Director 5,000 4.6
Gary G. Shrago, M.D., Director 5,000 4.6
Juanit O. Villanueva, M.D., Director 5,000 4.6
All directors and executive officers
as a group (22 persons) 110,000 100.0
</TABLE>

(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of May 31, 1997 are deemed
outstanding and to be beneficially owned by the person holding such
option or security for purposes of computing such person's percentage
ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for shares held
jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
shareholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such shareholder.

(2) Applicable percentage of ownership is based on 110,000 shares of TMI
Common Stock outstanding as of July 1, 1997.

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<PAGE> 241

RADIOLOGY AND NUCLEAR MEDICINE
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

RNM is a professional association. RNM was formed in 1959 as "Radiology
and Nuclear Medicine, an association," the entity as it exists today is the
result of a 1967 merger of the original entity into a Kansas professional
association named "Radiology and Nuclear Medicine, a Professional Association."
RNM provides two types of services: (1) Professional Services and (2) Imaging
Services, both of which are reimbursed on a prepaid or fee-for-service basis.
RNM operates in the greater Topeka, Kansas area. RNM contracts directly with
hospitals and health plans to provide Professional Services and Imaging Services
to enrollees and patients. RNM operates two Imaging Service locations and
provides Professional Services at those locations and at 11 hospital-based
locations within the RNM Service Area.

RNM has grown through expansion of its service area and extending
services to additional outreach locations within the RNM Service Area.

RNM owns a 22% interest in Magnetic Resonance Imaging Center of Kansas,
a Kansas limited partnership.

STRATEGY

RNM's strategy is to continue penetration of its existing markets,
expand into other markets, create strategic alliances with hospitals and other
Imaging Service providers, increase the operational efficiency of, and reduce
costs associated with, the RNM operations.

The future growth of RNM in its existing markets is dependent in part
on the continued increase of health plan enrollees and patients using RNM
physicians for Professional Services. This growth may come, with respect to
Professional Services, from the development or acquisition of additional
facilities, and the development of associations with medical groups serving
enrollees or patients in existing markets, increased enrollment in health plans
currently contracting with RNM or parties with which RNM is associated and
contracts with new health plans or hospitals. It actively recruits new providers
and seeks to enter into new hospital-based or managed care contracts in order to
enlarge the potential patient base in its service areas.

RNM's principal strategy for expanding into new markets is through
acquisitions (through purchase, merger, or otherwise) of medical groups. RNM
generally seeks providers that have established reputations for providing
quality medical care.

GOVERNMENT REGULATION

RNM is subject to federal and state laws regulating the relationships
among providers of health care services, physicians and other clinicians. These
laws include the fraud and abuse provisions of the Medicare and Medicaid
statutes, which prohibit the solicitation, payment, receipt or offering of any
direct or indirect remuneration for the referral of Medicare or Medicaid
patients or for the recommending, leasing, arranging, ordering or purchasing of
Medicare or Medicaid covered services. Other laws impose significant penalties
for false or improper billings for physician services and impose restrictions on
physician referrals for designated health services reimbursable under the
Medicare or Medicaid programs to entities with which they have financial
relationships. While RNM believes it is in material compliance with applicable
laws, there is no assurance that its present or past operations will not be
subjected to scrutiny or legal challenges.

SERVICES PROVIDED

RNM provides physician staffing to a total of 14 facilities, including
its two wholly-owned ICs. As of April 30, 1997, RNM employed 19 diagnostic
radiologists. RNM

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<PAGE> 242

also provides radiation oncology services and, as of April 30, 1997, employed
five professional service providers (radiation oncologists). RNM provides all of
its Professional Service and Imaging Service under fee-for-service or hospital
contracts.

At April 30, 1997, approximately 140,000 patients were serviced by RNM.
RNM is under contract with the following significant hospitals or health plans:
MediCare, Kansas Medicaid, Heartland/Horizons Health Plan, Blue Shield of
Kansas, Premier Blue, Prudential, CHAMPUS, Century Health Solutions, St. Francis
Hospital P.H.O. and HealthNet.

RNM undertakes concurrent review of cases which are reevaluated for
radiologic interpretation, adequate film technique and positioning, and typing
accuracy. A follow-up file of cases with significant pathology, including
suspected malignancy, is maintained to determine outcome.

MARKETING AND DEVELOPMENT

Radiology and Nuclear Medicine's marketing and development plans include
participation in health fairs and business fairs, brochure advertising,
sponsorship of local activities and events and direct marketing to referring
physicians and their staffs by providing educational materials of use and
interest to them in their practices.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

RNM is the leading provider of diagnostic imaging and radiation therapy
services within its service area. There is one other professional radiology
group operating in each of the Kansas cities of Atchison, Manhattan, Lawrence
and Emporia. In Topeka and other portions of the service area, RNM's competition
is limited to non-specialists.

EMPLOYEES

Professional Service Provider Employees

RNM physicians enter into employment contracts. These contracts offer a
specified guaranteed salary and an incentive bonus. Physicians are also eligible
to receive benefits such as health, dental and life insurance, paid time off and
an allowance for continuing medical education and other professional expenses.
RNM, as of April 30, 1997, employed 24 full-time physicians.

Non-Provider Employees

As of April 30, 1997, RNM had approximately 45 non-physician employees
(40 full time and five part-time). None of RNM's employees are represented by a
labor union. Management of RNM believes its employee relations are good.

INSURANCE

RNM maintains insurance coverage for various perils and from various
carriers. In addition to property and casualty, worker's compensation and other
coverage, RNM believes to be customary and reasonable for a business of its
kind, RNM maintains Liability Policies with Kansas Medical Mutual and Cincinnati
Insurance. Each professional of RNM at each location is covered under the
Liability Policies.

PROPERTIES AND FACILITIES

RNM leases two facilities for office space. The square footage of such
real property leases are 3,572 square feet and 13,865 square feet, respectively.

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<PAGE> 243

INFORMATION SYSTEMS

RNM believes that the effective analysis of medical and financial data
is essential in today's managed care environment. Accordingly, RNM is committed
to the development of a fully-integrated MIS for practice management. RNM's MIS
capabilities include tracking analysis of practice management information and
financial data. Practice management functions of the current MIS include patient
registration, referral tracking, physician scheduling and productivity, and
electronic claims submission and remittance.

LEGAL PROCEEDINGS

RNM is engaged in the defense of lawsuits arising in the ordinary course
and conduct of its business. RNM believes that such actions will not have a
material adverse effect on RNM.

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<PAGE> 244

RNM SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for RNM has been derived from the financial
statements of RNM, and should be read in conjunction with "RNM Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements of RNM and the notes thereto included elsewhere
in this document. The information for the year ended December 31, 1994 for RNM
has been derived from the unaudited financial statements which, in the opinion
of management, includes all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such information.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.......................... $ 13,379 $ 13,849 $ 13,572 $ 6,620 $ 6,961
Expenses:
Costs of affiliated
physician services................. 9,662 10,700 10,265 3,965 4,132
Practice salaries,
wages and benefits................. 1,718 1,807 1,744 658 682
Depreciation and
amortization....................... 133 188 202 89 90
Other practice expenses.............. 1,921 1,530 1,459 759 768
-------- ------- ------- ------- -------
Total expenses......................... 13,434 14,225 13,670 5,471 5,672
-------- ------- ------- ------- -------
Equity in earnings
of investments....................... 273 311 292 190 192
Minority interests in
income of consolidated
subsidiaries......................... -- -- -- -- --
-------- ------- ------- ------- -------
Income (loss) before
income taxes......................... $ 218 $ (65) $ 194 $ 1,339 $ 1,481
======== ======== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30,
1997
----
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets...................................................................... $5,202
Total debt........................................................................ 1,119
Stockholders' equity ............................................................. 2,449
</TABLE>

192
<PAGE> 245

RNM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following discussion relates to the historical operations of RNM and
should be read in conjunction with the audited financial statements of RNM and
the notes thereto appearing elsewhere in this Prospectus/Joint Proxy Statement.
For purposes of the following discussion, medical service revenue, net
represents the estimated realizable amount to be received from patients,
third-party payors and others for the provision of medical services.

Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996

Medical service revenue, net increased $0.3 million or 5% to $6.9
million for the six months ended June 30, 1997 from $6.6 million for the six
months ended June 30, 1996. This increase was attributable to the addition, in
July 1996, of a new hospital at which RNM provided services.

Costs of affiliated physician services of $4.1 million and $4.0 million
remained consistent at 60% of medical service revenue, net) for the six months
ended June 30, 1997 and 1996, respectively, included compensation and benefits
paid or payable to owner and non-owner physicians during the period. The
physician owners determined such payments based on physician performance, taking
into account the amount of cash available for such payments.

Practice salaries, wages and benefits remained consistent at $0.7
million for each of the six months ended June 30, 1997 and 1996. Such amounts
remained consistent at 10% of medical service revenue, net. Other practice
expenses of $0.4 million for each of the six months ended June 30, 1997 and 1996
remained consistent at 6% of medical service revenue, net.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net decreased $0.3 million or 2% to $13.4
million for the year ended December 31, 1996 from $13.7 million for the year
ended December 31, 1995. Although RNM had a slight increase in volume of
services rendered, reimbursement rates from certain payor groups declined.

Costs of affiliated physician services of $10.3 million (76% of medical
service revenue, net) and 10.7 million (78% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits of $1.7 million and $1.8 million
for the years ended December 31, 1996 and 1995, respectively, remained
consistent as 13% of medical service revenue, net. Practice supplies of $0.3
million and $0.4 million for the years ended December 31, 1996 and 1995,
respectively, were 2% and 3% of medical service revenue, net, respectively.
Depreciation and amortization expense of $0.2 million for each of the years
ended December 31, 1996 and 1995 reflects no material changes in the composition
of fixed assets or depreciation methods. Other practice expenses of $0.8 million
for each of the years ended December 31, 1996 and 1995 remained consistent at 6%
of medical service revenue, net.

193
<PAGE> 246

RNM PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of RNM Common Stock as of July 1, 1997 as to (i) each
person who is known to RNM to beneficially own more than five percent of the
outstanding shares of RNM Common Stock, (ii) each director of RNM, (iii) each
Named Executive Officer of RNM and (iv) all directors and executive officers of
RNM as a group. Except as noted, to RNM's knowledge, the persons named in the
table have sole voting and investment power with respect to the shares owned by
them, subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OWNED(1) OWNED(2)
- ---- -------- --------
<S> <C> <C>
Stephen D. Coon, M.D., Director
and First Vice President 129 4.2%
Russell Clay Harvey, M.D., Director 129 4.2
Richard Meidinger, M.D., Director 129 4.2
Dennis C. Petterson, M.D., Director and
Secretary-Treasurer 129 4.2
Peter E. Schloesser, M.D., Director(3) 129 4.2
William J. Walls, M.D., President 129 4.2
All directors and executive officers as a group
(6 persons) 774 25.0
</TABLE>

(1) Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to securities.
Shares of Common Stock issuable upon the exercise or conversion of stock
options or other securities currently exercisable or convertible, or
exercisable or convertible within 60 days of May 31, 1997 are deemed
outstanding and to be beneficially owned by the person holding such
option or security for purposes of computing such person's percentage
ownership, but are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Except for shares held
jointly with a person's spouse or subject to applicable community
property laws, or as indicated in the footnotes to this table, each
stockholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such stockholder.

(2) Applicable percentage of ownership is based on 3,096 shares of RNM
Common Stock outstanding as of July 1, 1997.

(3) All such shares of RNM Common Stock are held by Peter E. Schloesser,
M.D. in his capacity as Trustee of the Peter E. Schloesser Trust u/t/a
dated October 16, 1996, the owner of record of such shares.

194
<PAGE> 247

ROCKLAND RADIOLOGICAL GROUP
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

Rockland Radiological Group is comprised of seven professional medical
radiology groups, each of which is organized as a New York professional
corporation. Rockland Radiological Group provides two types of services: (1)
Professional Services and (2) Imaging Services, both of which are reimbursed on
a prepaid or fee-for-service basis. Rockland Radiological Group operates in the
Dutchess, Orange, Rockland, Ulster and Westchester County areas of the State of
New York and the Bergen County area of the State of New Jersey. Rockland
Radiological Group contracts directly with hospitals and health plans to provide
Professional Services and Imaging Services to enrollees and patients. Rockland
Radiological Group operates five Professional Service and Imaging Service
locations and two hospital-based locations within the Rockland Service Area.

Rockland Radiological Group has grown through a combination of
acquisitions of medical practices that complement its services and recruitment
of individual associate physicians in needed practice areas. On March 11, 1997,
Wallkill Radiology Associates, P.C. and Mid-Hudson Radiology Associates, P.C.
agreed to contribute all of their assets to Rockland Radiological Group. In
April 1997, Rockland Radiological Group entered into an agreement to purchase
certain assets of Kingston Diagnostic Radiology, P.C.

STRATEGY

Rockland Radiological Group's strategy is to continue penetration of its
existing markets, expand into other markets, create strategic alliances with
hospitals and other Imaging Service providers, increase the operational
efficiency of, and reduce costs associated with, the Rockland Radiological Group
operations.

The future growth of Rockland Radiological Group in its existing markets
is dependent in part on the continued increase of health plan enrollees and
patients using Rockland Radiological Group for Professional Services. This
growth may come, with respect to Professional Services, from the development or
acquisition of additional facilities; and the development of affiliations with
medical groups serving enrollees or patients in existing markets, increased
enrollment in health plans currently contracting with Rockland Radiological
Group and its medical affiliates, and contracts with new health plans or
hospitals. It actively recruits new providers and seeks to enter into new
hospital-based or managed care contracts in order to enlarge the potential
patient base in its Service Area.

Rockland Radiological Group's principal strategy for expanding into new
markets is through acquisitions (through purchase, merger, or otherwise) of
medical groups. Rockland Radiological Group generally seeks providers that have
established reputations for providing quality medical care.

GOVERNMENT REGULATION

Rockland Radiological Group is subject to federal and state laws
regulating the relationships among providers of health care services, physicians
and other clinicians. These laws include the fraud and abuse provisions of the
Medicare and Medicaid statutes, which prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration for the referral of
Medicare or Medicaid patients or for the recommending, leasing, arranging,
ordering or purchasing of Medicare or Medicaid covered services. Other laws
impose significant penalties for false or improper billings for physician
services and impose restrictions on physician referrals for designated health
services reimbursable under the Medicare or Medicaid programs to entities with
which they have financial relationships. While Rockland Radiological Group
believes it is in material compliance with applicable laws, there is no
assurance that its present or past operations will not be subjected to scrutiny
or legal challenges.

195
<PAGE> 248

SERVICES PROVIDED

Rockland Radiological Group operates a total of seven facilities that
are staffed by Rockland Radiological Group Professional Service providers and
Rockland Radiological Group Imaging Service providers. As of April 30, 1997,
Rockland Radiological Group employed 14 Professional Service providers.

Rockland Radiological Group provides approximately 11% of its
Professional Services and Imaging Services under capitated contracts and 8%
under fee-for-service or hospital contracts. Under capitated contracts, Rockland
Radiological Group provides or arranges for all physician services and Rockland
Radiological Group receives a fixed monthly capitation payment from health plans
for each member who utilizes a Rockland Radiological Group physician.

At April 30, 1997, over 18,000 patients were serviced by Rockland
Radiological Group under a capitated plan.

Rockland Radiological Group provides an extensive and ongoing
utilization review process under the direction of a committee of physician
members. The program includes both prospective and retrospective analysis of
utilization.

MARKETING AND DEVELOPMENT

Rockland Radiological Group employs a staff of full-time and part-time
marketing and development personnel. This staff works with physicians and
physician groups, health plans and hospitals to familiarize them with the
facilities and services of the Rockland Radiological Group. The Rockland
Radiological Group actively solicits statewide regional contracts in health
plans and other third-party payors.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

EMPLOYEES

Professional Service Provider Employees

Rockland Radiological Group physicians enter into employment contracts.
These contracts offer a specified guaranteed salary. Physicians are also
eligible to receive benefits such as health, dental and life insurance, paid
time off and an allowance for continuing medical education and other
professional expenses. Rockland Radiological Group, as of April 30, 1997,
employs 14 physicians (13 full-time and one part-time).

Imaging Service Provider Employees

Rockland Radiological Group employs approximately 50 Imaging Service
providers.

Non-Provider Employees

As of April 30, 1997, Rockland Radiological Group had approximately 160
non-physician employees (140 full-time and 20 part-time). None of Rockland
Radiological Group's employees are represented by a labor union. Management of
Rockland Radiological Group believes its employee relations are good.

INSURANCE

Rockland Radiological Group maintains insurance coverage for various
perils and from various carriers. In addition to property and casualty, worker's
compensation, directors and officers liability and other insurance coverage,
Rockland Radiological Group believes it to be customary and reasonable for a
business of its kind, Rockland

196
<PAGE> 249

Radiological Group maintains Liability Policies. Each professional of Rockland
Radiological Group, at each location, is covered under the Liability Policies.

PROPERTIES AND FACILITIES

Rockland Radiological Group leases six facilities utilized for corporate
operations, Professional Services and Imaging Services.

INFORMATION SYSTEMS

Rockland Radiological Group believes that the effective analysis of
medical and financial data is essential in today's managed care environment.
Accordingly, Rockland Radiological Group is committed to the development of a
fully-integrated MIS for practice management. Rockland Radiological Group's MIS
capabilities include medical charting and tracking analysis of practice
management information and financial data. Practice management functions of the
current MIS include registration, centralized scheduling and appointments,
electronic claims submission and remittance. Managed care functions include
referrals, eligibility, determination, claim management and payment functions.

LEGAL PROCEEDINGS

Rockland Radiological Group is engaged in the defense of lawsuits
arising in the ordinary course and conduct of its business. Rockland
Radiological Group believes that such actions will not have a material adverse
effect on Rockland Radiological Group.

197
<PAGE> 250
ROCKLAND RADIOLOGICAL GROUP SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for Rockland Radiological Group has been
derived from the financial statements of Rockland Radiological Group, and should
be read in conjunction with "Rockland Radiological Group Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the audited
financial statements of Rockland Radiological Group and the notes thereto
included elsewhere in this document.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................... $15,080 $17,824 $17,333 $11,764 $13,667
Expenses:
Costs of affiliated physician
services............................ 3,674 7,074 6,051 4,825 4,799
Practice salaries, wages and
benefits............................ 3,917 4,118 4,252 2,967 3,543
Depreciation and amortization........... 1,605 1,628 1,350 975 1,110
Other practice expenses................. 5,439 6,050 5,417 3,351 4,323
------- ------- ------- ------- -------
Total expenses ............................. 14,635 18,870 17,070 12,118 13,775
------- ------- ------- ------- -------
Equity in earnings of investments........... -- -- -- -- --
Minority interests in income of
consolidated subsidiaries............... -- -- -- -- --
------- ------- ------- ------- -------
Income (loss) before income taxes........... $ 445 $(1,046) $ 263 $ (354) $ (108)
======= ======= ======= ====== =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $12,237
Total debt.............................................................. 9,162
Stockholders' deficit................................................... (1,827)
</TABLE>

198
<PAGE> 251

ROCKLAND RADIOLOGICAL GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to the historical operations of RRG and
should be read in conjunction with audited financial statements of RRG and the
notes thereto appearing elsewhere in this Prospectus/Joint Proxy Statement. For
purposes of the following discussion, medical service revenue, net represents
the estimated realizable amount to be received from patients, third-party payors
and others for the provision of medical services.

RESULTS OF OPERATIONS

Nine Months Ended June 30, 1997 as Compared to Nine Months Ended June 30,
1996

Medical service revenue, net increased by $2.0 million or 17% to $13.6
million for the nine months ended June 30, 1997 from $11.6 million for the nine
months ended June 30, 1996. This increase was attributable to the addition of
new equipment at the company's imaging centers which resulted in an increase in
procedures performed.

Costs of affiliated physician services of $4.8 million for each of the
nine months ended June 30, 1997 and 1996, were 35% and 42%, respectively, of
medical service revenue, net. Such amounts included compensation and benefits
paid or payable to owner and non-owner physicians during the period. The
physician owners determined such payments based on cash earnings available for
distribution.

Practice salaries, wages and benefits of $3.5 million and $3.0 million
for the nine months ended June 30, 1997 and 1996, respectively, remained
consistent at 26% of medical service revenue, net. Practice supplies of $1.0
million and $0.9 million for the nine months ended June 30, 1997 and 1996,
respectively, remained consistent at 7% of medical service revenue, net.
Depreciation and amortization expense of $1.1 million and $1.0 million for the
nine months ended June 30, 1997 and 1996, respectively, reflects no material
changes in the composition of fixed assets or depreciation methods. Other
practice expenses of $2.6 million and $1.9 million for the nine months ended
June 30, 1997 and 1996, respectively, were 19% and 16%, respectively, of medical
service revenue, net.

Year Ended September 30, 1996 as Compared to Year Ended September 30, 1995

Medical service revenue, net decreased by $0.5 million or 3% to $17.3
million for the year ended September 30, 1996 from $17.8 million for the year
ended September 30, 1995. Although the company had a slight increase in volume
of services rendered, reimbursement rates from certain payor groups declined.

Costs of affiliated physician services of $6.1 million (35% of medical
service revenue, net) and $7.1 million (40% of medical service revenue, net) for
the years ended September 30, 1996 and 1995, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits of $4.3 million and $4.1 million
for the years ended September 30, 1996 and 1995, respectively, were 25% and 23%,
respectively, of medical service revenue, net. Practice supplies of $1.1 million
and $1.2 million for the years ended September 30, 1996 and 1995, respectively,
remained consistent at 7% of medical service revenue, net. Practice rent and
lease expense of $0.1 million and $0.2 million for the years ended September 30,
1996 and 1995, respectively, remained consistent at 1% of medical service
revenue, net. Depreciation and amortization expense of $1.4 million and $1.6
million for the years ended September 30, 1996 and 1995, respectively, reflects
no material changes in the composition of fixed assets or depreciation methods.
Other practice expenses of $3.6 million and $4.0 million for the years ended
September 30, 1996 and 1995, respectively, were 21% and 22%, respectively, of
medical service revenue, net. Interest expense decreased $0.1 million or 17% to

199
<PAGE> 252

$0.6 million for the year ended September 30, 1996 from $0.7 million for the
year ended September 30, 1995 due to reduced interest costs on capital lease
obligations.

Year Ended September 30, 1995 as Compared to Year Ended September 30, 1994

Medical service revenue, net increased $2.7 million or 18% to $17.8
million for the year ended September 30, 1995 from $15.1 million for the year
ended September 30, 1994. This increase was attributable to increased procedures
performed at existing facilities, as well as the addition of contracts to
perform radiological services at new facilities.

Costs of affiliated physician services of $7.1 million (40% of medical
service revenue, net) and $3.7 million (24% of medical service revenue, net) for
the years ended September 30, 1995 and 1994, respectively, included compensation
and benefits paid or payable to owner and non-owner physicians during the
period. The physician owners determined such payments based on cash earnings
available for distribution.

Practice salaries, wages and benefits increased $0.2 million or 5% to
$4.1 million for the year ended September 30, 1995 from $3.9 million for the
year ended September 30, 1994. These expenses were 23% and 26% of medical
service revenue, net.

Practice supplies increased $0.6 million or 96% to $1.2 million for the
year ended September 30, 1995 from $0.6 million for the year ended September 30,
1994 due to an increased volume of procedures. Practice rent and lease expense
of $0.2 million for each of the years ended September 30, 1995 and 1994 remained
consistent at 1% of medical service revenue, net. Depreciation and amortization
expenses of $1.6 million for each of the years ended September 30, 1995 and 1994
reflects no material changes in the composition of fixed assets or depreciation
methods. Other practice expenses of $4.0 million and $3.6 million for the years
ended September 30, 1995 and 1994, respectively, were 22% and 24%, respectively,
of medical service revenue, net. Interest expense decreased $0.4 million to $0.7
million for the year ended September 30, 1995 from $1.1 million for the year
ended September 30, 1994 due to reduced interest costs on capital lease
obligations.

200
<PAGE> 253

ROCKLAND RADIOLOGICAL GROUP PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Common Stock of each of AIOC, CIA, MRIA, Nyack, Pelham,
RRG and WIC as of July 1, 1997 as to (i) each person who is known to AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC to beneficially own more than five percent of
the outstanding shares of Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC, (ii) each director of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC,
(iii) each Named Executive Officer of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC and (iv) all directors and executive officers of such Entities as a group.
Except as noted, to the knowledge of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC
the persons named in the table have sole voting and investment power with
respect to the shares owned by them, subject to community property laws.

<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME(1) OWNED(2) OWNED(3)
- ------- -------- --------
<S> <C> <C>
Herbert Z. Geller, M.D., Director 10 7.7%
Hector L. Correa, M.D., Director 10 7.7
Nancy A. Sussman, M.D., Director 10 7.7
Robert F. Mackey, M.D., Director 10 7.7
Elliot V. Handler, M.D., Director 10 7.7
Daniel J. Cohen, M.D., Director 10 7.7
Steven I. Klein, M.D., Director 10 7.7
Mark E. Geller, M.D., Director 10 7.7
Leslie M. Ossip, M.D., Director 10 7.7
Joel M. Schwarz, M.D., Director 10 7.7
Kenneth I. Blumberg, M.D., Director 10 7.7
Roger J. Frey, M.D., Director 10 7.7
Clara Chudow, M.D., Director 10 7.7
All directors and executive officers as a group
(13 persons) 130 100.0
</TABLE>

(1) The address of each of the persons listed in the table is Rockland
Radiological Group, P.C., 18 Squadron Boulevard, New City, New York
10956.

(3) Applicable percentage of ownership is based on 130 shares of Common
Stock outstanding as of July 1, 1997.

201

<PAGE> 254

VALLEY RADIOLOGY GROUP
OPERATION, MANAGEMENT AND BUSINESS

GENERAL

Valley Radiology Group is comprised of a professional medical radiology
group formed in 1969 and organized as a California professional corporation and
LXL, LTD., a California partnership. Valley Radiology Group provides two types
of services: (1) Professional Services and (2) Imaging Services, both of which
are reimbursed on a prepaid and fee-for-service basis. Valley Radiology Group
operates in the greater San Jose Metropolitan area and the San Francisco Bay
area. Valley Radiology Group contracts directly with hospitals, health plans and
others to provide Professional Services and Imaging Services to enrollees and
patients. Valley Radiology Group provides professional services at 20
Professional Service and Imaging Service locations within the Valley Service
Area.

STRATEGY

Valley Radiology Group's strategy is to continue penetration of its
existing markets, expand into other markets, create strategic alliances with
hospitals and other Imaging Service providers, increase the operational
efficiency of, and reduce costs associated with, the Valley Radiology Group
operations.

The future growth of Valley Radiology Group in its existing markets is
dependent in part on the continued increase of health plan enrollees and
patients using Valley Radiology Group providers for Professional Services. This
growth may come, with respect to Professional Services, from the development or
acquisition of additional facilities, the development of affiliations with
medical groups serving enrollees or patients in existing markets, increased
enrollment in health plans currently contracting with Valley Radiology Group and
its medical affiliates and contracts with new health plans or hospitals. It
actively recruits new providers and seeks to enter into new hospital-based or
managed care contracts in order to enlarge the potential patient base in the
Valley Service Area.

GOVERNMENT REGULATION

Valley Radiology Group is subject to federal and state laws regulating
the relationships among providers of health care services, physicians and other
clinicians. These laws include the fraud and abuse provisions of the Medicare
and Medicaid statutes, which prohibit the solicitation, payment, receipt or
offering of any direct or indirect remuneration for the referral of Medicare or
Medicaid patients or for the recommending, leasing, arranging, ordering or
purchasing of Medicare or Medicaid covered services. Other laws impose
significant penalties for false or improper billings for physician services and
impose restrictions on physician referrals for designated health services
reimbursable under the Medicare or Medicaid programs to entities with which they
have financial relationships. While Valley Radiology Group believes it is in
material compliance with applicable laws, there is no assurance that its present
or past operations will not be subjected to scrutiny or legal challenges.

SERVICES PROVIDED

Valley Radiology Group operates a total of ten facilities that are
staffed by Valley Radiology Group Professional Service providers and Valley
Radiology Group Imaging Service providers. As of July 1, 1997, Valley Radiology
Group employed 24 Professional Service providers and 30 Imaging Service
providers.

Valley Radiology Group provides all of its Professional Service and
Imaging Service under fee-for-service or hospital contracts.

At April 30, 1997, over 200,000 patients were serviced by Valley
Radiology Group annually. Valley Radiology Group is under contract with the
following significant

202
<PAGE> 255

hospitals or health plans: Santa Clara County Valley Medical Center, Community
Hospital of Los Gatos, Santa Teresa-Kaiser, Alexian Brothers Hospital,
Lifeguard, San Jose Medical Group and Blue Cross and Blue Shield.

MARKETING AND DEVELOPMENT

Valley's principal marketing strategy is to combine hospitals and
offices in a larger regional setting to make the group more attractive to major
payors such as group health plans and workers' compensation programs. Valley's
major marketing efforts are aimed directly at referring physicians and emphasize
services provided, scheduling, technology and alleviation of patient concerns.

COMPETITION

The health care industry is highly competitive. The industry is also
subject to continuing changes in the services that are provided and how
providers are selected and paid.

The Valley Radiology Group is in a market dominated by hospitals,
including those operated by Columbia (four hospitals), Kaiser (two hospitals),
and other independent community hospitals. Valley has professional reading
contracts in four hospitals (approximately half of the hospitals in the area).
Valley also operates six out-patient offices. Most out-patient clinic providers
in the area are limited to one or two sites. Valley estimates that it has a
market share of approximately 40% of all radiology services in the area.

EMPLOYEES

Professional Service Provider Employees

Valley Radiology Group physicians enter into employment contracts. These
contracts offer a specified guaranteed salary for non-security holder
physicians, but not for security holder physicians. Physicians are also eligible
to receive benefits such as health, dental and life insurance, paid time off and
an allowance for continuing medical education and other professional expenses.
Valley Radiology Group, as of April 30, 1997, employs 24 physicians (20
full-time and four part-time).

Imaging Service Provider Employees

As of April 30, 1997, Valley Radiology Group employs 30 Imaging Service
providers.

Non-Provider Employees

As of April 30, 1997, Valley Radiology Group had approximately 72
non-physician employees (49 full time and 23 part-time). None of Valley
Radiology Group's employees are represented by a labor union. Management of
Valley Radiology Group believes its employee relations are good.

INSURANCE

Valley Radiology Group maintains insurance coverage for various perils
and from various carriers. In addition to property and casualty, worker's
compensation, directors and officers liability and other coverage Valley
Radiology Group believes to be customary and reasonable for a business of its
kind, Valley Radiology Group maintains Liability Policies with CIGNA, Republic
Indemnity, Federal Insurance and NORCAL. Each professional of Valley Radiology
Group, at each location, is covered under the Liability Policies.

203
<PAGE> 256

PROPERTIES AND FACILITIES

Valley Radiology Group leases approximately nine facilities. The real
property leases are utilized for corporate operations, Professional Services and
Imaging Services.

LEGAL PROCEEDINGS

Valley Radiology Group is engaged in the defense of lawsuits arising in
the ordinary course and conduct of its business. Valley Radiology Group believes
that such actions will not have a material adverse effect on Valley Radiology
Group.

204
<PAGE> 257

VALLEY RADIOLOGY GROUP SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for Valley has been derived from the financial
statements of Valley, and should be read in conjunction with "Valley
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of Valley and the notes thereto
included elsewhere in this document. The information for the year ended December
31, 1994 for Valley has been derived from the unaudited financial statements
which, in the opinion of management, includes all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such
information.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- ---------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................... $13,557 $10,507 $11,174 $5,570 $5,954
Expenses:
Costs of affiliated physician
services............................ 6,012 5,511 5,384 2,549 2,708
Practice salaries, wages and
benefits............................ 3,172 2,269 2,593 1,143 1,248
Depreciation and amortization .......... 220 169 223 112 166
Other practice expenses................. 3,765 2,100 2,149 1,148 1,171
------- ------- ------- ------- ------
Total expenses.............................. 13,169 10,049 10,349 4,952 5,293
------- ------- ------- ------- ------
Equity (loss) in earnings of
investments............................. 84 14 (19) -- --
Minority interests in income of
consolidated subsidiaries............... -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes.................. $ 472 $ 472 $ 806 $ 618 $ 661
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets............................................................ $4,155
Total debt.............................................................. 1,406
Stockholders' equity.................................................... 1,987
</TABLE>

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<PAGE> 258

VALLEY RADIOLOGY GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to the historical operations of Valley
and the audited financial statements of Valley and the notes thereto appearing
elsewhere in this Prospectus/Joint Proxy Statement. For purposes of the
following discussion, medical service revenue, net represents the estimated
realizable amount to be received from patients, third party payors and others
for the provision of medical services.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996

Medical service revenue, net increased $0.4 million or 8% to $5.9
million for the six months ended June 30, 1997 from $5.5 million for the six
months ended June 30, 1996 due primarily to the opening of an imaging center in
March 1996.

Costs of affiliated physician services of $2.7 million (46% of medical
service revenue, net) and $2.6 million (47% of medical service revenue, net) for
the six months ended June 30, 1997 and 1996, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The increase is related to the opening of another imaging
center in March 1996. The physician owners determined such payments based on
earnings available for distribution.

Practice salaries, wages and benefits of $1.2 million and $1.1 million
for the six months ended June 30, 1997 and 1996, respectively, remained
consistent at 21% of medical service revenue, net. Practice rent and lease
expense of $0.2 million for each of the six months ended June 30, 1997 and 1996,
respectively, remained consistent at 4% of medical service revenue, net. Other
practice expenses of $0.7 million for each of the six months ended June 30, 1997
and 1996, were 12% and 13%, respectively, of medical service revenue, net.

Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995

Medical service revenue, net increased $0.8 million or 8% to $11.0
million for the year ended December 31, 1996 from $10.2 million for the year
ended December 31, 1995 due to an increase in volume of services provided as a
result of the establishment of a new facility.

Costs of affiliated physician services of $5.4 million (49% of medical
service revenue, net) and $5.5 million (54% of medical service revenue, net) for
the years ended December 31, 1996 and 1995, respectively, included physician
compensation and benefits paid or payable to owner and non-owner physicians
during the period. The physician owners determined such payments based on
earnings available for distribution.

Practice salaries, wages and benefits of $2.6 million and $2.3 million
for the years ended December 31, 1996 and 1995, respectively, were 24% and 22%,
respectively, of medical service revenue, net. Practice supplies of $0.4 million
and $0.2 million for the years ended December 31, 1996 and 1995, respectively,
were 3% and 2%, respectively, of medical service revenue, net. Practice rent and
lease expense of $0.4 million and $0.5 million for the years ended December 31,
1996 and 1995, respectively, were 4% and 5%, respectively, of medical service
revenue, net. Depreciation and amortization expense of $0.2 million for each of
the years ended December 31, 1996 and 1995 reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses of
$1.3 million and $1.4 million for the years ended December 31, 1996 and 1995,
respectively, were 12% and 14%, respectively, of medical service revenue, net.
Interest expense of $0.1 million for each of the years ended December 31, 1996
and 1995, respectively, remained consistent at 1% of medical service revenue,
net.

206
<PAGE> 259

VALLEY PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of Valley Common Stock as of July 1, 1997 as to (i) each
person who is known to Valley to beneficially own more than five percent of the
outstanding shares of Valley Common Stock, (ii) each director of Valley, (iii)
each Named Executive Officer of Valley and (iv) all directors and executive
officers of Valley as a group. Except as noted, the persons named in the table,
have sole voting and investment power with respect to the shares owned by them,
subject to community property laws.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME(1) OWNED(2) OWNED(3)
- ------- -------- --------
<S> <C> <C>
Richard Baxter, M.D., Director 1000 5.0%
Robert Filpi, M.D., Director 1000 5.0
Keith Fraker, M.D., Director 1000 5.0
Franklin Gee, M.D., Director 1000 5.0
Bruce Hyman, M.D., Director 1000 5.0
Stephen Kahn, M.D., Director 1000 5.0
Young Kang, M.D., Vice President and Director 1000 5.0
Andrew Koo, M.D., Director 1000 5.0
Edward Lebowitz, M.D., Director 1000 5.0
Peter Long, M.D., Director 1000 5.0
Cyril McDonald, M.D., Director 1000 5.0
Michael Myers, M.D., Secretary and Director 1000 5.0
John Noonan, M.D., Director 1000 5.0
Harjit Sekhon, M.D., Director 1000 5.0
Richard Silberstein, M.D., President and Director 1000 5.0
Drew Sullivan, M.D., Treasurer and Director 1000 5.0
Stephen Teng, M.D., Director 1000 5.0
Eric Trefelner, M.D., Director 1000 5.0
James Vaudagna, M.D., Director 1000 5.0
William T. McLaughlin, M.D., Director 937.5 4.7
All directors and executive
officers as a group (20 persons) 19,937.5 100.0
</TABLE>

(1) The address of each beneficial owner is Valley Radiologists Medical
Group, Inc., 1101 South Winchester Boulevard, Suite J220, San Jose,
California 95128.

(3) Applicable percentage of ownership is based on 19,937.5 shares of Valley
Common Stock outstanding as of July 1, 1997.

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<PAGE> 260

COMPARISON OF CAPITAL STOCK
DESCRIPTION OF CAPITAL STOCK OF APPI

GENERAL

The Company's authorized capital stock consists of 50,000,000 shares of
APPI Common Stock and 10,000,000 shares of Preferred Stock.

As of the date of this Prospectus/Joint Proxy Statement and giving
effect to the Mergers and Exchanges, the conversion of the Convertible Notes,
and the completion of the Initial Public Offering, the Company will have
outstanding 18,151,625 shares of APPI Common Stock (assuming an Initial Public
Offering Price of $15.00 per share) and no shares of Preferred Stock.

COMMON STOCK

The holders of APPI Common Stock are entitled to one vote for each share
on all matters voted upon by stockholders, including the election of directors.

Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of APPI Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of APPI Common Stock are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of APPI Common Stock have no preemptive rights to
purchase shares of stock of the Company. Shares of APPI Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of APPI Common Stock are, and
the shares of APPI Common Stock being offered hereby will be, upon payment of
consideration therefor, fully paid and nonassessable.

PREFERRED STOCK

Preferred Stock may be issued from time to time at the discretion of the
Board of Directors as shares of one or more series. Subject to the provisions of
the Company's Restated Certificate of Incorporation and limitations prescribed
by law, the Board of Directors is expressly authorized to adopt resolutions to
issue the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of Preferred Stock, in each case without any further action or vote by
the stockholders.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of APPI
Common Stock. For example, Preferred Stock issued by the Company may have
priority over APPI Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of APPI Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for APPI Common Stock at a premium to, or may otherwise
adversely affect, the market price of the APPI Common Stock.

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<PAGE> 261

CONVERTIBLE NOTES

The following summaries of certain provisions of the Convertible Notes
and the Registration Rights Agreement between the Company and each of the
holders of the Convertible Notes do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Convertible Notes and the Registration Rights Agreement, respectively.

GENERAL

The Convertible Notes represent unsecured general obligations of the
Company and are convertible into APPI Common Stock as described below. The
Convertible Notes bear interest at the annual rate of 6%, and all accrued but
unpaid interest shall be due and payable upon the closing of the Initial Public
Offering. In the event the Convertible

Notes are not converted into APPI Common Stock by January 31, 1998, all
accrued interest is due and payable immediately and the interest rate will
increase to the prime rate as published in The Wall Street Journal plus 2% per
annum thereafter, payable quarterly. Interest will be computed on the basis of a
360-day year comprised of 12 30-day months. As of the date of this
Prospectus/Joint Proxy Statement, the outstanding principal amount of the
Convertible Notes was $3,500,000.

OPTIONAL REDEMPTION

The Convertible Notes are redeemable at the option of the Company, in
whole or in part, at the time of or any time after the Initial Public Offering
on at least 15 days' written notice, together with accrued and unpaid interest.
The Company intends to call the Convertible Notes for redemption as soon as
practicable following the date of this Prospectus/Joint Proxy Statement.

CONVERSION RIGHTS

Upon receipt of written notice of redemption by the Company, the holders
may convert the principal amount of the Convertible Notes into APPI Common Stock
upon approval of the holders of at least 50% of the outstanding principal amount
of the Convertible Notes. Upon conversion, holders of the Convertible Notes will
receive shares of Common Stock at the rate of one share of Common Stock for each
$8.00 of Convertible Note principal (the "Conversion Price"). Proportional
adjustments shall be made to the conversion ratio for splits, dividends,
recapitalizations, and other distributions of the APPI Common Stock. The
Conversion Price shall be reduced, subject to several exceptions, if the Company
sells any of its APPI Common Stock for less than $8.00 per share, to a price
determined by dividing (i) an amount equal to the sum of (A) the number of
shares of APPI Common Stock outstanding immediately prior to such sale
(including as outstanding all shares of APPI Common Stock issuable upon
conversion of Convertible Notes) multiplied by the then existing Conversion
Price, and (B) the consideration, if any, received by the Company upon such
sale, by (ii) the total number of shares of APPI Common Stock outstanding
immediately after the sale, including those issuable upon conversion of the
Convertible Notes. No adjustment will be made to the Conversion Price for
options granted to officers, employees, directors and consultants of the Company
pursuant to any stock option plan of the Company, including the Plan.

Each Convertible Note may be converted into shares of APPI Common Stock
at the then effective Conversion Price (i) prior to January 31, 1998, upon
approval of the holders of at least 50% of the outstanding principal amount of
the Convertible Notes following the closing of an initial public offering of
APPI Common Stock pursuant to an effective registration statement under the
Securities Act in which the aggregate gross proceeds received by the Company
equals or exceeds $10,000,000, or (ii) upon approval of the holders of at least
50% of the outstanding principal amount of the Convertible Notes on or after
January 31, 1998.

If the Company sells shares of APPI Common Stock for less than $14.00
per share in the Initial Public Offering, the conversion rate shall be adjusted
so that at the

209
<PAGE> 262

time of conversion the aggregate market value of the APPI Common Stock into
which the Convertible Notes are converted will equal the principal of the
Convertible Notes times 1.75.

LOCK-UP

Each of the holders of the Convertible Notes has entered into a lock-up
agreement with the Company, pursuant to which each such holder has agreed with
the Company not to sell the Convertible Notes or the shares of APPI Common Stock
issued or issuable upon conversion thereof owned by them at the time for a
period of 24 months following issuance of such Convertible Notes (which
Convertible Notes were issued between September 30 and December 31, 1996). The
Company has agreed with the Underwriters not to waive this lock-up agreement for
180 days following the date of this Prospectus.

REGISTRATION RIGHTS

The holders of the Convertible Notes have certain registration rights
upon conversion of the Convertible Notes into APPI Common Stock. At any time
from and after 12 months following the Initial Public Offering, and not later
than September 30, 2001, holders owning 50% or more of the aggregate of the
shares of APPI Common Stock into which any of the Convertible Notes have been or
can be converted shall have the right on one occasion to require the Company to
prepare and file a registration statement under the Securities Act covering such
shares of APPI Common Stock, and the Company, at its expense, will use its best
efforts to cause such registration statement to become effective as soon as
possible.

In addition, the holders of Convertible Notes shall be entitled, subject
to the approval of the underwriter, to two "piggyback" registrations at the
Company's expense, as part of a registration by the Company of its shares of
APPI Common Stock at any time subsequent to 12 months after the date of the
Initial Public Offering, but prior to September 30, 2001. Holders of the
Convertible Notes are granted the right on up to two occasions at the Company's
expense, and prior to September 30, 2001, to have their shares registered on
Form S-3, if such form is available for use by the Company and such holder or
holders. The registration rights are subject to a number of terms and
conditions, including but not limited to, requirements as to minimum offering
size and reaching satisfactory underwriting terms.

DESCRIPTION OF CAPITAL STOCK OF ADVANCED

The authorized capital stock of Advanced consists of [ ] shares of
Advanced Common Stock, $[ ] par value per share. As of the date of this
Prospectus/Joint Proxy Statement, there were [ ] shares of Common Stock
outstanding and held of record by [ ] security holders.

COMMON STOCK

The holders of Advanced Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by security holders. The
directors of Advanced may be elected by a plurality of the votes cast by holders
of shares entitled to vote in the election of such directors at a meeting of
security holders at which a quorum is present. There is no cumulative voting
with respect to the election of directors. Accordingly, holders of a plurality
of the shares entitled to vote for the election of directors can elect all of
the directors. The holders of Advanced Common Stock are entitled to receive
dividends when, as and if declared by the Advanced Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of Advanced, the holders of Advanced Common Stock are entitled to
share ratably in all assets remaining available to distribution to them after
payment of liabilities. Holders of shares of Advanced Common Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Advanced Common Stock. All of the
outstanding shares of Advanced Common Stock are fully paid and nonassessable.

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<PAGE> 263

PREFERRED STOCK

Advanced is not authorized to issue preferred stock.

DESCRIPTION OF CAPITAL STOCK OF IDE

The authorized capital stock of Ide consists of 20,000 shares of Ide
Common Stock, $1.00 par value per share. As of the date of this Prospectus/Joint
Proxy Statement, there were 2,150 shares of Ide Common Stock outstanding and
held of record by 21 security holders.

COMMON STOCK

The holders of Ide Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by security holders. There is no
cumulative voting with respect to the election of directors. Accordingly,
holders of more than 50% of the shares entitled to vote for the election of
directors can elect all of the directors. The holders of Ide Common Stock are
entitled to receive dividends when, as and if declared by the Ide Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of Ide, the holders of Ide Common Stock are entitled
to share ratably in all assets remaining available to distribution to them after
payment of liabilities. Holders of shares of Ide Common Stock, as such, have no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to the Ide Common Stock. All of the outstanding shares of
Ide Common Stock are fully paid and nonassessable.

PREFERRED STOCK

Ide is not authorized to issue preferred stock.

DESCRIPTION OF CAPITAL STOCK OF M&S, SOUTH TEXAS AND SAN ANTONIO

The authorized capital stock of M&S consists of 1,000 shares of Common
Stock, $1.00 par value per share. The authorized capital stock of each of South
Texas and San Antonio consists of 100,000 shares of South Texas Common Stock,
$0.10 par value per share and San Antonio Common Stock, $0.10 par value per
share, respectively. As of the date of this Prospectus/Joint Proxy Statement,
there were 190 shares of M&S Common Stock outstanding and held of record by 19
security holders, 120 shares of San Antonio Common Stock outstanding and held of
record by 12 security holders and 120 shares of South Texas Common Stock
outstanding and held of record by 12 security holders.

COMMON STOCK

The holders of the Common Stock of M&S are each entitled to one vote on
all matters to be voted on all matters to be voted on the security holders of
M&S, regardless of the number of shares of M&S Common Stock held by such
holders. The holders of the Common Stock of San Antonio and South Texas,
respectively, are entitled to one vote for each share held of record on all
matters to be voted on by the respective security holders of San Antonio and
South Texas. There is no cumulative voting with respect to the election of
directors of South Texas and San Antonio. Accordingly, in any election of the
respective directors of San Antonio and South Texas, holders of more than 50% of
the shares of South Texas Common Stock and San Antonio Common Stock,
respectively, can elect all of the directors of South Texas and San Antonio,
respectively. The holders of the Common Stock of M&S, San Antonio and South
Texas are entitled to receive dividends when, as and if declared by their
respective Boards of Directors out of funds legally available therefor. In the
event of liquidation, dissolution or winding up of M&S, San Antonio and South
Texas, the respective holders of the Common Stock of M&S, San Antonio and South
Texas are entitled to share ratably in all assets remaining available to
distribution to them after payment of liabilities. Holders of shares of the
Common Stock of M&S, San Antonio and South Texas, as such, have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Common Stock of M&S, San Antonio

211
<PAGE> 264

or South Texas. All of the outstanding shares of the Common Stock of M&S, San
Antonio and South Texas are fully paid and non assessable.

PREFERRED STOCK

M&S, San Antonio and South Texas are not authorized to issue preferred
stock.

DESCRIPTION OF CAPITAL STOCK OF PACIFIC AND TMI

The authorized capital stock of each of Pacific and TMI consists of
1,000,000 shares of Pacific Common Stock, no par value and TMI Common Stock, no
par value, respectively. As of the date of this Prospectus/Joint Proxy
Statement, Pacific had 11,000 shares of Common Stock outstanding and held of
record by 22 security holders, and TMI had 110,000 shares of Common Stock
outstanding and held of record by 22 security holders.

COMMON STOCK

The holders of the Common Stock of Pacific and TMI, respectively, are
entitled to one vote for each share held of record on all matters to be voted on
by the respective security holders of Pacific and TMI, and have the right to
cumulate their votes in the election of directors upon giving notice as required
by law. Accordingly, in any election of the respective directors of Pacific and
TMI, each security holder of Pacific or TMI, as the case may be, may give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of shares held by such security holder, or such
security holder may distribute such number of votes among as many candidates as
the security holder sees fit. The holders of the Common Stock of Pacific and TMI
are entitled to receive dividends when, as and if declared by their respective
Boards of Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of Pacific or TMI, the holders of the
Common Stock of Pacific and TMI, respectively, are entitled to share ratably in
all assets remaining available to distribution to them after payment of
liabilities. Holders of shares of the Common Stock of Pacific and TMI, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock of either Pacific or TMI.
All of the outstanding shares of the Common Stock of Pacific and TMI are fully
paid and nonassessable.

PREFERRED STOCK

Neither Pacific nor TMI is authorized to issue preferred stock.

DESCRIPTION OF CAPITAL STOCK OF RNM

The authorized capital stock of RNM consists of 5,000 shares of Common
Stock, $100.00 par value per share. As of the date of this Prospectus/Joint
Proxy Statement, there were 3,096 shares of Common Stock outstanding and held of
record by 24 security holders.

COMMON STOCK

The holders of RNM Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by security holders. There is no
cumulative voting with respect to the election of directors. Accordingly,
holders of more than 50% of the shares entitled to vote for the election of
directors can elect all of the directors. The holders of RNM Common Stock are
entitled to receive dividends when, as and if declared by the RNM Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of RNM, the holders of RNM Common Stock are entitled
to share ratably in all assets remaining available for distribution to them
after payment of liabilities. Holders of shares of RNM Common Stock, as such,
have no conversion, preemptive or other subscription rights, and, except as
provided in a shareholders' agreement, there are no redemption provisions
applicable to RNM Common

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<PAGE> 265

Stock. All of the outstanding shares of RNM Common Stock are fully paid and
nonassessable.

PREFERRED STOCK

RNM is not authorized to issue preferred stock.

DESCRIPTION OF CAPITAL STOCK OF AIOC, CIA, MRIA, NYACK, PELHAM, RRG AND WIC

The authorized capital stock of each of AIOC, CIA, MRIA, Nyack, Pelham,
RRG and WIC consists of 200 shares of Common Stock, no par value. As of the date
of this Prospectus/Joint Proxy Statement, each of AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC had 130 shares of Common Stock outstanding and held of
record by 13 security holders.

COMMON STOCK

The holders of the Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC, respectively, are entitled to one vote for each share held of record on
all matters to be voted on by the respective security holders of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC. Except as otherwise required by law, the
respective directors of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC may be
elected by a plurality of the votes cast by holders of shares entitled to vote
in the election of such directors at a meeting of security holders at which a
quorum is present. There is no cumulative voting with respect to the election of
the respective directors of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC.
Accordingly, holders of a plurality of the shares entitled to vote for the
election of the directors of AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC can
elect all of the directors of such Entity. The holders of the Common Stock of
AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are entitled to receive dividends
when, as and if declared by their respective Boards of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, the respective holders of
Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are entitled to
share ratably in all assets remaining available to distribution to them after
payment of liabilities. Holders of shares of the Common Stock of AIOC, CIA,
MRIA, Nyack, Pelham, RRG and WIC, as such, have no conversion, preemptive or
other subscription rights and there are no redemption provisions applicable to
the Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC. All of the
outstanding shares of Common Stock of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC are fully paid and non assessable.

PREFERRED STOCK

AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC are not authorized to issue
preferred stock.

DESCRIPTION OF CAPITAL STOCK OF VALLEY

The authorized capital stock of Valley consists of 200,000 shares of
Common Stock, no par value per share. As of the date of this Prospectus/Joint
Proxy Statement, there were 18,937.5 shares of Common Stock outstanding and held
of record by 19 security holders.

COMMON STOCK

The holders of Valley Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by security holders and have
the right to cumulate their votes in the election of directors upon giving
notice as required by law. Accordingly, in any election of directors, each
security holder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by such security
holder, or such security holder may distribute such number of votes among as
many candidates as the security holder sees fit. The holders of Valley Common
Stock are entitled to receive dividends when, as and if declared by the Valley
Board of Directors out of funds legally available therefor.

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<PAGE> 266

In the event of liquidation, dissolution or winding up of Valley, the holders of
Valley Common Stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities. Holders of
shares of Valley Common Stock, as such, have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to Valley
Common Stock, except that when a security holder employee's employment with
Valley terminates, Valley is required to purchase, and the terminated employee
is required to sell, all shares of Valley Common Stock he or she then owns. All
of the outstanding shares of Valley Common Stock are fully paid and non
assessable.

PREFERRED STOCK

Valley is not authorized to issue preferred stock.

COMPARISON OF RIGHTS OF SECURITY HOLDERS OF APPI AND THE ENTITIES

Upon consummation of the Mergers and Exchanges, the holders of Advanced
Common Stock, Ide Common Stock, M&S Common Stock, Lexington partnership
interests, Madison partnership interests, South Texas Common Stock, South Texas
No. 1 partnership interests, San Antonio Common Stock, San Antonio No. 1
partnership interests, Pacific Common Stock, TMI Common Stock, RNM Common Stock,
AIOC Common Stock, CIA Common Stock, MRIA Common Stock, Nyack Common Stock,
Pelham Common Stock, RRG Common Stock, WIC Common Stock and Valley Common Stock
will become holders of APPI Common Stock. APPI is a Delaware corporation and is
bound by the DGCL, whereas each of the Entities is bound by the corporate law of
the state in which each such Entity was organized. In addition, the APPI
Certificate and APPI Bylaws differ from the Corporate Governance Documents of
each such Merger Entity and the Partnership Governance Documents of each such
Exchange Entity. The differences between the APPI Certificate and APPI Bylaws
and the Governance Documents of each Entity and between the DGCL and the
corporate law of each state in which each Entity was organized, will ultimately
result in changes in the rights of holders of Common Stock of each of the
Entities.

The following is a summary of some of the important distinctions between
the rights of the security holders of APPI and the security holders of each of
Advanced, Ide, M&S, Lexington, Madison, South Texas, South Texas No. 1, San
Antonio, San Antonio No. 2, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham,
RRG, WIC and Valley. Such description does not purport to be a complete
explanation of all such differences. Furthermore, the identification of specific
differences is not meant to indicate that other differences do not exist. The
following summary is also qualified in its entirety by reference to the DGCL,
the Governance Documents, the APPI Certificate and the APPI Bylaws.

LIMITATION OF DIRECTORS' OR PARTNERS' LIABILITY

Under the DGCL, a Delaware corporation is permitted to adopt a provision
in its certificate of incorporation reducing or eliminating the liability of a
director to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, provided that such liability does not
arise from certain prohibited conduct (including intentional misconduct and
breach of the duty of loyalty). California corporations, Kansas corporations,
Maryland corporations, New York corporations and Texas corporations are
permitted to adopt similar provisions under the CCC, KGCC, MGCL, NYBCL and TCBA,
respectively. The TRPA and the TRPLA similarly provide that Texas general
partnerships and Texas limited partnerships may limit the liability of a partner
to the partnership.

The APPI Certificate provides that the liability of the directors of
APPI will be limited to the fullest extent permitted under the DGCL. The
Corporate Governance Documents of each of Advanced, Ide, M&S, South Texas, San
Antonio, Pacific, TMI and Valley contain similar provisions limiting the
liability of the respective directors of each such Entity to the fullest extent
permitted under applicable state law. On the other hand, the Corporate
Governance Documents of each of RNM, AIOC, CIA, MRIA, Nyack,

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Pelham, RRG and WIC do not contain provisions which limit the liability of the
respective directors of each such Entity.

The Partnership Governance Documents of Lexington limit the liability of
the General Partner to the partnership and partners of Lexington for any actions
taken in good faith by the General Partner. However, the General Partner of
Lexington will remain liable for its willful misconduct, gross negligence or
breach of fiduciary obligations under the Lexington partnership agreement. The
Partnership Governance Documents of Madison do not contain provisions which
limit the liability of the partners of Madison to the partnership or to one
another. The Partnership Governance Documents of each of South Texas No. 1 and
San Antonio No. 2 limit the liability of the General Partner of each such
Entity, and the respective directors and officers of the General Partner, to the
applicable partnership and the partners of such partnership to the fullest
extent permitted under Texas law. However, the General Partners of South Texas
No. 1 and San Antonio No. 2, and the respective directors and officers of such
General Partners, will remain liable to the applicable partnership and the
partners of such partnership to the extent that it is proven that such persons
actually derived an improper benefit from their actions or to the extent that a
judgment is rendered against any such person based on a finding that such
person's actions were the result of active and deliberate dishonesty.

INDEMNIFICATION OF DIRECTORS OR PARTNERS

Under the DGCL, a Delaware corporation may also indemnify its directors
and officers against any liabilities that they may incur in such capacities,
provided that such directors and officers have acted in good faith and in such a
manner that they reasonably believed was in, or not opposed to, the best
interests of the corporation. California corporations, Kansas corporations,
Maryland corporations, New York corporations and Texas corporations also may
indemnify the directors and officers of such corporations under the CCC, KGCC,
MGCL, NYBCL and TBCA, respectively. Under the TRPA, partners of a Texas general
partnership may adopt a provision in their partnership agreement which requires
such partnership to indemnify the partners for liabilities incurred in their
capacity as such, subject to any restrictions imposed by Texas law. Under the
TRLPA a Texas limited partnership may also indemnify the partners of such
partnership against any liabilities such partners may incur in such capacity,
provided that the partners have acted in good faith and in such manner that they
reasonably believed was in, or not opposed to, the best interests of such
limited partnership.

APPI's Bylaws provide that APPI will indemnify its directors and
officers to the fullest extent permitted by the DGCL and require APPI to advance
litigation expenses upon receipt by APPI of an undertaking by a director or
officer to repay such advances if it is ultimately determined that such director
or officer is not entitled to indemnification. The Corporate Governance
Documents of each of Advanced, Ide, M&S, South Texas, San Antonio, Pacific and
TMI provide that each such Entity will indemnify its respective directors and
officers to the fullest extent permitted under applicable state law. The
Partnership Governance Documents of each of Lexington, South Texas No. 1 and San
Antonio No. 2 similarly provide that each such Entity will indemnify the General
Partner of each such Entity to the fullest extent permitted under Texas law. The
Madison Partnership Governance Documents provide that Madison will indemnify its
Managing Partner against reasonable expenses incurred in connection with a
pending or threatened action in which such Managing Partner is a named defendant
due to the fact that he or she is, or was, the Managing Partner of Madison, so
long as such Managing Partner is successful in the defense of such action. On
the other hand, the Corporate Governance Documents of RNM, AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC and Valley do not contain provisions which require
the applicable Entity to indemnify its respective directors and officers.

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VOTING REQUIREMENTS

Under the DGCL, any action requiring the approval of the stockholders of
a Delaware corporation, other than the election of directors, must be approved
by holders of a majority of shares who are present in person or represented by
proxy at a meeting of stockholders and who are entitled to vote thereon, or by
the written consent of holders of a majority of the outstanding shares of stock
entitled to vote thereon, unless the DGCL or the corporate governance documents
of such corporation provide otherwise. Directors of a Delaware corporation may
be elected by a plurality of votes cast by holders of shares who are present in
person or represented by proxy at a meeting of stockholders and entitled to vote
on the election of directors, unless the Corporate Governance Documents of such
corporation provide otherwise. Under the CCC, any action requiring the approval
of security holders of a California corporation, including the election of
directors, must be approved by a majority of shares represented and voting at a
duly held meeting at which a quorum is present, or by the written consent of
holders of a majority of the outstanding shares entitled to vote thereon, unless
the CCC or corporate governance documents of such corporation provide otherwise.
Any action requiring the approval of the security holders of a Kansas
corporation, a Maryland corporation, a New York corporation or a Texas
corporation, other than the election of directors, must be approved by a
majority of shares present in person or represented by proxy at a meeting of
security holders entitled to vote on such action, or by the written consent of
holders of all of the outstanding shares entitled to vote thereon, unless the
applicable state law or the corporate governance documents of such corporation
provide otherwise. The directors of a Kansas corporation, a Maryland
corporation, a New York corporation or a Texas corporation may be elected by a
plurality of votes cast by holders of shares entitled to vote thereon at a duly
held meeting of security holders at which a quorum is present, unless the
corporate governance documents of such corporation provide otherwise.

Under the TRPA, the partnership agreement of a Texas general partnership
may grant voting rights on certain matters to partners and may specify the vote
required to approve such matters. The TRLPA provides that the partnership
agreement of a Texas limited partnership may grant voting rights to the limited
partners of such partnership. If the limited partners of a limited partnership
are granted any voting rights, then the partnership agreement of such
partnership may designate the vote required to approve an action and any other
matter relating to the exercise of the right to vote.

APPI's Corporate Governance Documents are consistent with the DGCL with
respect to security holder voting requirements. Likewise, the Corporate
Governance Documents of each of Advanced, South Texas, San Antonio, Pacific,
TMI, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley are consistent with
applicable state law with respect to security holder voting requirements. In
addition to the requirements imposed by applicable law, the Corporate Governance
Documents of (i) Ide provide that, unless otherwise required by New York law, an
action requiring Ide security holder approval must be approved by three-quarters
of the outstanding shares of Ide Common Stock or by the written consent of
holders of all of the outstanding Ide Common Stock; (ii) M&S provide that,
unless otherwise required by Texas law, an action requiring M&S security holder
approval generally must be approved by a majority of the outstanding shares but
certain specified actions must be approved by two-thirds of the outstanding
shares of M&S Common Stock, or by the written consent of all holders of the
outstanding M&S Common Stock; and (iii) RNM provide that, unless otherwise
required by Kansas law, an action requiring RNM security holder approval must be
approved by a majority of the outstanding RNM Common Stock, except for a vote to
approve amendments to RNM's Bylaws or to remove a director from office, which
actions require the approval of three-quarters of the outstanding shares of RNM
Common Stock.

Under the Partnership Governance Documents (i) the General Partner of
Lexington generally may manage the affairs of Lexington, except that such
General Partner may not take certain specified actions without the approval of
one or more limited partners who own, in the aggregate, more than 50% of the
partnership interests then owned by all limited partners; (ii) the Managing
Partner of Madison may manage the affairs of

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Madison, except that such Managing Partner may not take certain specified
actions without the approval of partners holding at least 66% of the partnership
interests of Madison; (iii) the General Partner of South Texas No. 1 may manage
the affairs of the partnership, except that such General Partner may not take
certain actions without the approval of one or more limited partners who own, in
the aggregate, at least 66.67% of the partnership interests then held by all of
the limited partners; and (iv) the General Partner of San Antonio No. 2 may
manage the affairs of the partnership, except that such General Partner may not
take certain actions without the approval of one or more limited partners who
own, in the aggregate, at least 66.67% of the partnership interests then held by
all of the limited partners.

SPECIAL MEETINGS OF SECURITY HOLDERS

Under the DGCL, a special meeting of security holders of a Delaware
corporation may be called by the board of directors of such corporation or by
any other person authorized to do so in the corporate governance documents of
such corporation. Notice of any such special meeting must be given not less than
ten nor more than 60 days before the date of the meeting to each security holder
entitled to vote at such meeting, unless otherwise provided in the corporate
governance documents. In contrast, under the CCC, a special meeting of security
holders of a California corporation may be called by the board of directors, the
chairman of the board, the president, holders of shares entitled to cast not
less than 10% of the votes at such meeting or by any other person authorized to
do so in the corporate governance documents of such corporation. Unless
otherwise provided in the corporate governance documents of such corporation,
notice of any such meeting must be given not less than ten nor more than 60 days
before the date of the meeting to each security holder entitled to vote at such
meeting. The KGCC, like the DGCL, provides that a special meeting of security
holders of a Kansas corporation may be called by the board of directors or by
any other person authorized to do so in the corporate governance documents of
such corporation. Notice of any such meeting must be given not less than ten nor
more than 60 days before the date of the meeting to each security holder
entitled to vote at such meeting, unless otherwise provided in the corporate
governance documents, except that certain special meetings, including meetings
called for the purpose of voting to approve an agreement of merger or exchange,
require at least 20 days prior notice. Under the MGCL, a special meeting of
security holders of a Maryland corporation may be called by the board of
directors, the president or any other person authorized to do so in the
corporate governance documents of such corporation, or upon the written demand
of holders of shares entitled to cast not less than 25% of the votes at such
meeting. Notice of any such meeting must be given not less than ten nor more
than 90 days before the date of the meeting to each security holder entitled to
vote at such meeting, unless otherwise provided in the corporate governance
documents. The NYBCL, like the DGCL, provides that a special meeting of security
holders of a New York corporation may be called by the board of directors or any
other person authorized to do so in the corporate governance documents of such
corporation. Notice of any such meeting must be given not less than ten nor more
than 50 days before the date of such meeting to each security holder entitled to
vote at such meeting, unless otherwise provided in the corporate governance
documents. Under the TBCA, a special meeting of security holders of a Texas
corporation may be called by the board of directors, the president, any other
person authorized to do so in the corporate governance documents of such
corporation or by holders of shares entitled to cast not less than ten percent
of the votes at such meeting, unless otherwise provided in the corporate
governance documents. Unless otherwise provided in the corporate governance
documents of such corporation, notice of any such meeting must be given not less
than ten nor more than 60 days before the date of the meeting to each security
holder entitled to vote at such meeting, except that certain special meetings,
including meetings called for the purpose of voting to approve an agreement of
merger or exchange, require at least 20 days' prior notice.

The TRPA provides that the manner of calling a meeting of partners of a
Texas general partnership and any notice requirements for such meeting may be
established by the partners in the partnership agreement for such partnership.
Similarly, under the TRLPA, if the limited partners of a Texas limited
partnership have voting rights, then the manner of calling a meeting for the
partners of such partnership and any notice

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requirements for such meeting may be set forth in the partnership agreement of
such partnership.

The APPI Certificate provides that special meetings of security holders
of APPI may be called only by the APPI Board or a committee of the APPI Board
empowered to do so. Accordingly, each of the security holders of Advanced, Ide,
M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG, WIC and Valley will be subject to a more restrictive standard as
security holders of APPI with respect to the calling of special meetings of
security holders after each of the Mergers. The notice requirements for any such
meeting are consistent with the notice requirements under the DGCL. The APPI
Bylaws also establish advance notice procedures with regard to the nomination,
other than by or at the direction of the board of directors, of persons for
election as directors. The APPI Bylaws require nominations for the election of
directors at an annual meeting to be in writing and received by the Secretary of
APPI, not less than 60 days prior to the meeting. The notice of nomination must
set forth certain information with respect to the security holder and each
nominee for director. Although these procedures do not give the APPI Board any
power to approve or disapprove security holder nominations for election of
directors, they may have the effect of precluding a nomination for election of
directors, if the proper procedures are not followed, and could discourage or
deter a third party from conducting a solicitation of proxies to elect its own
slate of directors, even if such solicitation might be beneficial to APPI or its
security holders. Accordingly, these provisions may have certain anti-takeover
effects to which the security holders of each of Advanced, Ide, M&S, South
Texas, San Antonio, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC
and Valley and partners of each of Lexington, Madison, South Texas No. 1 and San
Antonio No. 2 are not currently subject.

Under the Corporate Governance Documents, (i) any special meetings of
Advanced security holders may be called for any purpose upon written demand of
the holders of all of the outstanding shares entitled to vote at such meeting
and the notice of any such meeting is required to be delivered not less than 20
nor more than 60 days before the date of the meeting, (ii) any special meetings
of Ide security holders may be called for any purpose by the Ide Board, the
president or upon written demand of the holders of not less than 25% of all of
the outstanding shares entitled to vote at such meeting and the notice of any
such meeting is required to be delivered not less than ten days nor more than 50
days before the date of the meeting, (iii) any special meetings of M&S security
holders may be called for any purpose by the M&S Board, the president or by
holders of not less than ten percent of all of the outstanding shares entitled
to vote at such meeting and the notice of any such meeting is required to be
delivered not less than ten days nor more than 60 days before the date of the
meeting, except that certain special meetings, including meetings called for the
purpose of voting to approve an agreement of merger or exchange, require at
least 20 days' prior notice, (iv) any special meetings of South Texas security
holders may be called for any purpose by the South Texas Board, the president or
by holders of not less than ten percent of all of the outstanding shares
entitled to vote at such meeting and the notice of any such meeting is required
to be delivered not less than ten days nor more than 60 days before the date of
the meeting, unless otherwise provided by Texas law, (v) any special meetings of
San Antonio security holders may be called for any purpose by the San Antonio
Board, the president or by holders of not less than ten percent of all of the
outstanding shares entitled to vote at such meeting and the notice of any such
meeting is required to be delivered not less than ten days nor more than 60 days
before the date of the meeting, unless otherwise provided by Texas law, (vi) any
special meetings of Pacific security holders may be called for any purpose by
the Pacific Board, the chairman of the board, the president or any
vice-president or by holders of at least ten percent of all of the outstanding
shares entitled to vote at such meeting and the notice of any such meeting is
required to be delivered not less than ten nor more than 60 days before the date
of the meeting, (vii) any special meetings of TMI security holders may be called
for any purpose by the TMI Board, the chairman of the board, the president or
any vice-president or by holders of at least ten percent of all of the
outstanding shares entitled to vote at such meeting and the notice of any such
meeting is required to be delivered not less than ten nor more than 60 days
before the date of the meeting, (viii) any special meetings of RNM security

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holders may be called for any purpose by the RNM Board, the president or in the
absence of the president, the vice-president or upon written demand of the
holders of a majority of all outstanding shares entitled to vote thereon and the
notice of any such meeting is required to be delivered not less than 10 nor more
than 60 days before the date of the meeting except that certain special
meetings, including those called for the purpose of voting to approve an
Agreement of Merger to which RNM is a party, require at least 20 days' prior
notice, (ix) any special meetings of AIOC security holders may be called for any
purpose by the AIOC Board, the president or upon written demand of the holders
of a majority of all of the issued and outstanding shares entitled to vote at
such meeting and the notice of any such meeting is required to be delivered not
less than ten days nor more than 50 days before the date of the meeting, (x) any
special meetings of CIA security holders may be called for any purpose by the
CIA Board, the president or upon written demand of the holders of a majority of
all of the issued and outstanding shares entitled to vote at such meeting and
the notice of any such meeting is required to be delivered not less than ten
days nor more than 50 days before the date of the meeting, (xi) any special
meetings of MRIA security holders may be called for any purpose by the MRIA
Board, the president or upon written demand of the holders of a majority of all
of the issued and outstanding shares entitled to vote at such meeting and the
notice of any such meeting is required to be delivered not less than ten days
nor more than 50 days before the date of the meeting, (xii) any special meetings
of Nyack security holders may be called for any purpose by the Nyack Board, the
president or upon written demand of the holders of a majority of all of the
issued and outstanding shares entitled to vote at such meeting and the notice of
any such meeting is required to be delivered not less than ten days nor more
than 50 days before the date of the meeting, (xiii) any special meetings of
Pelham security holders may be called for any purpose by the Pelham Board, the
president or upon written demand of the holders of a majority of all of the
issued and outstanding shares entitled to vote at such meeting and the notice of
any such meeting is required to be delivered not less than ten days nor more
than 50 days before the date of the meeting, (xiv) any special meetings of RRG
security holders may be called for any purpose by the RRG Board, president or
upon written demand of the holders of a majority of all of the issued and
outstanding shares entitled to vote at such meeting and the notice of any such
meeting is required to be delivered not less than ten days nor more than 50 days
before the date of the meeting, (xv) any special meetings of WIC security
holders may be called for any purpose by the WIC Board, the president or upon
written demand of the holders of a majority of all of the issued and outstanding
shares entitled to vote at such meeting and the notice of any such meeting is
required to be delivered not less than ten days nor more than 50 days before the
date of the meeting, and (xvi) any special meetings of Valley security holders
may be called for any purpose in accordance with the provisions of the CCC and
the notice of any such meeting is required to be delivered not less than ten nor
more than 60 days before the date of the meeting.

Under the Partnership Governance Documents, (i) any meeting of the
partners of Lexington may be called by the General Partner or by one or more
limited partners who own, in the aggregate, more than 50% of the partnership
interests held by all limited partners of Lexington and notice of any such
meeting must be given not less than three nor more than 30 days from the date of
such meeting; (ii) any meeting of the partners of South Texas No. 1 may be
called by the General Partner or upon the written demand of one or more limited
partners who own at least 15% of the partnership interests of South Texas No. 1
and notice of any such meeting must be given not less than five nor more than 60
days before the date of such meeting; and (iii) any meeting of the partners of
San Antonio may be called by the General Partner or upon the written demand of
one or more limited partners who own, in the aggregate, at least 15% of the
partnership interests of San Antonio and notice of any such meeting must be
given not less than five nor more than 60 days before the date of such meeting.
The Madison Partnership Governance Documents do not contain any provisions
relating to who may call a special meeting of partners or what notice, if any,
must be given to partners prior to such a meeting.

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SIZE OF THE BOARDS OF DIRECTORS

The DGCL permits the board of directors of a Delaware corporation to
change the authorized number of directors by an amendment to the bylaws or in
the manner provided in the bylaws, unless the number of directors is fixed in
the certificate of incorporation of such corporation, in which case a change in
the number of directors may be made only by an amendment of the certificate of
incorporation. Under the CCC, although changes in the number of directors
generally must be approved by the shareholders, the board of directors may fix
the exact number of directors within a stated range set forth in the articles of
incorporation or bylaws. The KGCC, like the DGCL, permits the board of directors
of a Kansas corporation to change the authorized number of directors by an
amendment to the bylaws or in the manner specified in the bylaws, unless the
number of directors is fixed in the articles of incorporation, in which case a
change in the number of directors may only be made by an amendment of the
articles of incorporation. Under the MGCL, the bylaws of a Maryland corporation
may empower a majority of the entire board of directors to alter within
specified limits the number of directors fixed in the corporate governance
documents of such corporation. Under the NYBCL, a New York corporation may
authorize its board of directors to change the number of directors by an
amendment to the bylaws of such corporation or in the manner specified in such
bylaws, provided that such change in the number of directors is approved by a
majority of the entire board of directors. The TBCA, like the DGCL, permits the
board of directors of a Texas corporation to change the authorized number of
directors by an amendment to the bylaws or in the manner specified in the
bylaws, unless the number of directors is set forth in the articles of
incorporation of such corporation, in which case a change in the number of
directors may be made only by an amendment of the articles of incorporation.

The number of directors of APPI is currently fixed at seven. The APPI
Bylaws provide that the number of directors may be changed by resolution of the
Board of Directors or by the security holders of APPI at an annual meeting of
security holders.

The Corporate Governance Documents of each of the respective Merger
Entities provide that (i) the number of directors on the Advanced Board may be
increased or decreased by the affirmative vote of the holders of a majority of
the outstanding shares of Advanced Common Stock; (ii) the number of directors on
the Ide Board may be increased or decreased by an amendment to the Ide Bylaws
adopted by holders of three-quarters of the outstanding shares of Common Stock
or by three-quarters of the directors then in office; (iii) the number of
directors on the M&S Board may be increased or decreased by an amendment to the
M&S Bylaws adopted by the affirmative vote of the holders of two-thirds of the
shares of M&S Common Stock present or represented at such meeting and entitled
to vote thereat; (iv) the number of directors on the South Texas Board may be
increased or decreased by an amendment to the South Texas Bylaws adopted by the
affirmative vote of the holders of a majority of the shares of South Texas
Common Stock entitled to vote thereon or by the South Texas Board; (v) the
number of directors on the San Antonio Board may be increased or decreased by an
amendment to the San Antonio Bylaws adopted by the affirmative vote of the
holders of a majority of the shares of San Antonio Common Stock entitled to vote
thereon or by the San Antonio Board; (vi) the number of directors on the Pacific
Board may be fixed by a resolution of the Pacific Board so long as such number
is within the stated range set forth in the Pacific Bylaws, which stated range
may only be changed by an amendment of the Bylaws adopted by the affirmative
vote of the holders of a majority of the outstanding shares of Pacific Common
Stock or the Pacific Board; (vii) the number of directors on the TMI Board may
be fixed by a resolution of the TMI Board so long as such number is within the
stated range set forth in the TMI Bylaws, which stated range may only be changed
by an amendment of the Bylaws adopted by the affirmative vote of the holders of
a majority of the outstanding shares of TMI Common Stock or the TMI Board;
(viii) the number of directors on the RNM Board may be increased or decreased by
the affirmative vote of the holders of a majority of the outstanding shares of
RNM Common Stock to amend RNM's Corporate Governance Documents to provide for
such change; (ix) the number of directors on the AIOC Board may be increased or
decreased by an amendment of the AIOC Bylaws adopted by a majority of the
outstanding shares entitled to vote thereon, or by the AIOC Board; (x) the
number of directors on the CIA Board may

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be increased or decreased by an amendment of the CIA Bylaws adopted by a
majority of the outstanding shares entitled to vote thereon, or by the CIA
Board; (xi) the number of directors on the MRIA Board may be increased or
decreased by an amendment of the MRIA Bylaws adopted by a majority of the
outstanding shares entitled to vote thereon, or by the MRIA Board; (xii) the
number of directors on the Nyack Board may be increased or decreased by an
amendment of the Nyack Bylaws adopted by a majority of the outstanding shares
entitled to vote thereon, or by the Nyack Board; (xiii) the number of directors
on the Pelham Board may be increased or decreased by an amendment of the Pelham
Bylaws adopted by a majority of the outstanding shares entitled to vote thereon,
or by the Pelham Board; (xiv) the number of directors on the RRG Board may be
increased or decreased by an amendment of the RRG Bylaws adopted by a majority
of the outstanding shares entitled to vote thereon, or by the RRG Board; (xv)
the number of directors on the WIC Board may be increased or decreased by an
amendment of the WIC Bylaws adopted by a majority of the outstanding shares
entitled to vote thereon, or by the WIC Board; and (xvi) the number of directors
on the Valley Board may be increased or decreased by an amendment of the Valley
Bylaws adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Valley Common Stock.

CUMULATIVE VOTING FOR DIRECTORS

Under the DGCL, security holders of a Delaware corporation do not have
the right to cumulate their votes in the election of directors unless the
certificate of incorporation of such corporation specifically provides for
cumulative voting in the election of directors. In an election of directors
under cumulative voting, each share of stock normally having one vote is
entitled to a number of votes equal to the number of directors to be elected. A
security holder may then cast all such votes for a single candidate or may
allocate them among as many candidates as the security holder sees fit. The KGCC
and NYBCL contain similar provisions to those found in the DGCL with respect to
the ability of security holders to cumulate their votes in the election of
directors. In contrast, the CCC provides that security holders of a California
corporation are entitled to cumulate their votes in the election of directors
upon proper notice to such corporation of their intention to do so. However, a
California corporation with (1) outstanding securities listed on the New York or
American Stock Exchange or (2) a class of securities designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. may eliminate security holders'
cumulative voting rights pursuant to the CCC. Security holders of a Maryland
corporation also have cumulative voting rights in the election of directors
under the MGCL. Similarly, under the TBCA, security holders of a Texas
corporation are entitled to cumulate their votes in the election of directors
upon proper notice to such corporation of their intention to do so, unless the
articles of incorporation of such corporation provide otherwise.

APPI has not provided for cumulative voting in the APPI Certificate.
Accordingly, security holders of APPI do not have cumulative voting rights with
respect to the election of directors. Similarly, Ide, RNM, AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC have not provided for cumulative voting in their
respective Corporate Governance Documents and, thus, the security holders of
each such Entity do not have cumulative voting rights with respect to the
election of directors. The Corporate Governance Documents of M&S expressly
eliminate the ability of the holders of M&S Common Stock to cumulative votes in
the election of directors. On the other hand, security holders of Advanced,
South Texas, San Antonio, Pacific, TMI and Valley have the right to cumulate
votes with respect to the election of their respective directors under
applicable state law.

REMOVAL OF DIRECTORS

Under the DGCL, any or all of the directors of a Delaware corporation
that does not have a classified board of directors may be removed, with or
without cause, by the holders of a majority of the shares entitled to vote at an
election of directors, unless the corporate governance documents of such
corporation require a supermajority vote to remove directors. If, however, the
security holders of such corporation have cumulative voting rights with respect
to the election of directors, then no director

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may be removed (unless the entire board is removed) if the number of votes cast
against the removal of such director would be sufficient to elect the director
under cumulative voting. The CCC, KGCC, MGCL and TBCA contain provisions
relating to the removal of directors that are substantially similar to the
provisions of the DGCL. Under the NYBCL, any or all of the directors of a New
York corporation that does not have a classified board of directors may be
removed for cause and, if the corporate governance documents of such corporation
so provide, without cause, by the holders of a majority of shares entitled to
vote at an election of directors, unless the corporate governance documents of
such corporation require a supermajority vote to remove directors. If, however,
the security holders of such corporation have cumulative voting rights with
respect to the election of directors, then no director may be removed (unless
the entire board is removed) if the number of votes cast against the removal of
such director would be sufficient to elect the director under cumulative voting.

The APPI Corporate Governance Documents do not require a supermajority
vote by security holders to remove directors from the APPI Board. Accordingly,
the APPI directors may be removed in accordance with the provisions of the DGCL.
The Corporate Governance Documents of each of the Merger Entities provide that
(i) member of the Advanced Board may be removed with [or without] cause by the
holders of a majority of the shares entitled to vote thereon; (ii) a member of
the Ide Board may be removed, with or without cause, by the affirmative vote of
the holders of not less than three-quarters of the issued and outstanding shares
entitled to vote at an election of directors or by three-quarters of the
directors then in office; (iii) a member of the M&S Board may be removed, with
or without cause, by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares entitled to vote at an election of
directors; (iv) a member of the South Texas Board may be removed, with or
without cause, by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote at an election of directors; (v) a member of
the San Antonio Board may be removed, with or without cause, by the affirmative
vote of the holders of a majority of the outstanding shares entitled to vote at
an election of directors; (vi) a member of the Pacific Board may be removed,
with or without cause, by the affirmative vote of the holders of not less than a
majority of the outstanding shares entitled to vote at an election of directors,
provided, however, that no director may be removed if the votes cast against
such director's removal would be sufficient to elect such director under
cumulative voting; (vii) a member of the TMI board may be removed, with or
without cause, by the affirmative vote of the holders of not less than a
majority of the outstanding shares entitled to vote at an election of directors,
provided, however, that no director may be removed if the votes cast against
such director's removal would be sufficient to elect such director under
cumulative voting; (viii) a member of the RNM Board may be removed, with or
without cause, by the affirmative vote of the holders of not less than
three-quarters of the outstanding shares entitled to vote at an election of
directors; (ix) a member of the AIOC Board may be removed with cause by the
affirmative vote of holders of a majority of shares entitled to vote thereon or
by the AIOC Board, but such member may only be removed without cause by the
affirmative vote of holders of a majority of shares entitled to vote thereon;
(x) a member of the CIA Board may be removed with cause by the affirmative vote
of holders of a majority of shares entitled to vote thereon or by the CIA Board,
but such member may only be removed without cause by the affirmative vote of
holders of a majority of shares entitled to vote thereon; (xi) a member of the
MRIA Board may be removed with cause by the affirmative vote of holders of a
majority of shares entitled to vote thereon or by the MRIA Board, but such
member may only be removed without cause by the affirmative vote of holders of a
majority of shares entitled to vote thereon; (xii) a member of the Nyack Board
may be removed with cause by the affirmative vote of holders of a majority of
shares entitled to vote thereon or by the Nyack Board, but such member may only
be removed without cause by the affirmative vote of holders of a majority of
shares entitled to vote thereon; (xiii) a member of the Pelham Board may be
removed with cause by the affirmative vote of holders of a majority of shares
entitled to vote thereon or by the Pelham Board, but such member may only be
removed without cause by the affirmative vote of holders of a majority of shares
entitled to vote thereon; (xiv) a member of the RRG Board may be removed with
cause by the affirmative vote of holders of a majority of shares entitled to
vote thereon or by the RRG Board, but such member may only be removed without
cause by the affirmative vote of holders of a majority of

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shares entitled to vote thereon; (xv) a member of the WIC Board may be removed
with cause by the affirmative vote of holders of a majority of shares entitled
to vote thereon or by the WIC Board, but such member may only be removed without
cause by the affirmative vote of holders of a majority of shares entitled to
vote thereon; and (xvi) a member of the Valley Board may be removed, with or
without cause, by holders of a majority of shares entitled to vote at an
election of directors.

AMENDMENTS TO THE GOVERNANCE DOCUMENTS

The DGCL provides that a Delaware corporation may amend its certificate
of incorporation so long as a proposed amendment is approved (i) first by the
board of directors and (ii) then by a majority of the total outstanding stock
entitled to vote thereon and a majority of the outstanding stock of each class
entitled to vote thereon, unless the certificate of incorporation requires a
super-majority vote. The provisions of the CCC, KGCC and NYBCL relating to
amendments of the articles or certificate of incorporation of a corporation, as
the case may be, are substantially similar to the provisions of the DGCL. In
contrast, under the MGCL and TBCA, an amendment of the articles of incorporation
must be approved (i) first by the board of directors and (ii) then by holders of
two-thirds of the total outstanding shares entitled to vote thereon and by
holders of at least two-thirds of the shares within each class of outstanding
shares entitled to vote thereon, unless the articles of incorporation require
the vote of a larger proportion of the total outstanding shares or any class
thereof.

The APPI Certificate does not contain supermajority voting requirements
with respect to amendments of the APPI Certificate. Accordingly, holders of a
majority of the outstanding APPI Common Stock may amend the APPI Certificate.
The articles or certificate of incorporation, as the case may be, of each of
Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley also do
not contain supermajority voting requirements, and, thus, holders of a majority
of the outstanding Common Stock of each such Entity may also amend such Entity's
applicable articles or certificate of incorporation. The articles of Advanced,
M&S, South Texas and San Antonio also do not impose greater voting requirements
for the amendment of such Entity's articles than those imposed by applicable
state law. Accordingly, amendments to the articles of each such Entity may be
made by holders of two-thirds of the outstanding Common Stock of such Entity.
However, Ide's certificate of incorporation does impose a greater voting
requirement than that imposed by the NYBCL. Holders of at least three-quarters
of the outstanding shares of Ide Common Stock must approve certain amendments to
the Ide certificate of incorporation.

Under the DGCL, the bylaws of a Delaware corporation may be amended only
by the stockholders of such corporation, unless the corporate governance
documents of such corporation expressly authorize the board of directors to
amend the bylaws as well. The provisions of the KGCC, MGCL and NYBCL relating to
amendment of a corporation's bylaws are substantially similar to the provisions
of the DGCL. In contrast, bylaws of a California corporation or a Texas
corporation may be amended by either the security holders or the board of
directors of such corporation under the CCC and TBCA, respectively. However, the
corporate governance documents of a California corporation or Texas corporation
may restrict or eliminate the power of the board of directors to amend the
bylaws of such corporation.

The APPI Certificate does not expressly authorize the APPI Board to
amend the APPI Bylaws. Accordingly, only the security holders of APPI may amend
the APPI Bylaws. Under the Corporate Governance Documents of each of the
Entities, (i) the Bylaws of Advanced may be amended by the affirmative vote of
the holders of at least a majority of the outstanding shares of Advanced Common
Stock with the consent of (ii) the Ide Bylaws may be amended by the affirmative
vote of the holders of three-quarters of the outstanding shares of Ide Common
Stock entitled to vote thereon or by the vote of three-quarters of the directors
then in office, (iii) the M&S Bylaws may be amended by the affirmative vote of
the holders of two-thirds of the outstanding shares of M&S Common Stock or by
the M&S Board, (iv) the South Texas Bylaws may be amended by the affirmative
vote of the holders of a majority of the outstanding shares of South Texas
Common Stock or by the South Texas Board, (v) the San Antonio Bylaws may be
amended by

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the affirmative vote of the holders of a majority of the outstanding shares of
San Antonio Common Stock or by the San Antonio Board, (vi) the Pacific Bylaws
may be amended by the affirmative vote of the holders of a majority of the
outstanding shares of Pacific Common Stock or by the Pacific Board, subject to
certain restrictions, (vii) the TMI Bylaws may be amended by the affirmative
vote of the holders of a majority of the outstanding shares of TMI Common Stock
or by the TMI Board, subject to certain restrictions, (viii) the RNM Bylaws may
be amended by the affirmative vote of the holders of three-quarters of the
outstanding shares of RNM Common Stock, (ix) the AIOC Bylaws may be amended by
holders of a majority of the shares entitled to vote thereon or by the AIOC
Board, (x) the CIA Bylaws may be amended by holders of a majority of the shares
entitled to vote thereon or by the CIA Board, (xi) the MRIA Bylaws may be
amended by holders of a majority of the shares entitled to vote thereon or by
the MRIA Board, (xii) the Nyack Bylaws may be amended by holders of a majority
of the shares entitled to vote thereon or by the Nyack Board, (xiii) the Pelham
Bylaws may be amended by holders of a majority of the shares entitled to vote
thereon or by the Pelham Board, (xiv) the RRG Bylaws may be amended by holders
of a majority of the shares entitled to vote thereon or by the RRG Board, (xv)
the WIC Bylaws may be amended by holders of a majority of the shares entitled to
vote thereon or by the WIC Board, and (xvi) the Valley Bylaws may be amended by
the affirmative vote of the holders of a majority of the outstanding shares of
Valley Stock.

The partnership agreement of a Texas general partnership or a Texas
limited partnership may only be amended upon the consent of all partners, unless
the partnership agreement of such partnership provides otherwise under the TRPA
and TRLPA, respectively.

The Partnership Governance Documents of (i) Lexington provide that the
Lexington Partnership Agreement may be amended with the consent of the General
Partner and of limited partners holding a majority of the partnership interests
then held by all of the limited partners; (ii) Madison provide that the Madison
Partnership Agreement may be amended only upon the written consent of partners
holding 66% of the total partnership interests of Madison; (iii) South Texas No.
1 provide that the South Texas No. 1 Partnership Agreement may generally be
amended only upon the consent of the General Partner and of limited partners
holding two-thirds of the partnership interests then held by all of the limited
partners, although there are certain amendments which may be made by the General
Partner alone; (iv) San Antonio No. 2 provides that the San Antonio No. 2
Partnership Agreement may generally be amended only upon the consent of the
General Partner and of limited partners holding two-thirds of the partnership
interests then held by all of the limited partners, although there are certain
amendments which may be made by the General Partner alone.

DISSOLUTION

Under the DGCL, a dissolution of a Delaware corporation must be approved
by security holders holding 100% of the total voting power of such corporation,
unless the board of directors initiated and approved the proposal to dissolve,
in which case the dissolution may be approved by a simple majority of the
outstanding shares of capital stock entitled to vote thereon. Under the CCC,
security holders holding 50% or more of the total voting power of a California
corporation may authorize the dissolution of such corporation, with or without
the approval of the board of directors, and this right may not be modified by
the articles of incorporation. The KGCC provides that the dissolution of a
Kansas corporation must be approved (i) first by a resolution adopted by a
majority of the entire board of directors declaring such dissolution to be
advisable and (ii) then by the affirmative vote of a majority of the outstanding
shares entitled to vote thereon. Similarly, the MGCL provides that a Maryland
corporation may be dissolved only if it is approved (i) first by the affirmative
vote of a majority of the entire board of directors and (ii) then by the
affirmative vote of two-thirds of all the outstanding shares entitled to vote
thereon. Under the NYBCL, a New York corporation may be dissolved only with the
approval of two-thirds of all outstanding shares entitled to vote thereon,
unless the certificate of incorporation of such corporation provides otherwise.
The certificate of incorporation may provide that any security holder, or the
holders of any specified number or proportion of shares may

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require the dissolution of such corporation at will or upon the occurrence of
any specified event. Under the TBCA, a corporation may be dissolved upon the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of the corporation after the board of directors adopts a resolution recommending
that the corporation be dissolved.

Under the TRPA, partners of a Texas general partnership may adopt a
provision in their partnership agreement which provides that the partnership
must dissolve upon the expiration of a specified term or the completion of a
particular undertaking or upon the occurrence of a specified event. If the
partnership agreement of such partnership does contain such a provision, then
such partnership must dissolve (i) as specified in the partnership agreement,
unless the partners vote to continue the partnership, or (ii) if all of the
partners elect to dissolve. If the partnership agreement does not contain any
such provision, then the partnership may be dissolved at the express will of
holders of a majority of the partnership interests of such partnership. Under
the TRLPA, a Texas limited partnership must dissolve on (i) the occurrence of an
event which the partnership agreement specifies will cause the dissolution of
such partnership; (ii) the written consent of all of the partners; (iii) the
withdrawal of a General Partner or such partnership; or (iv) the entry of a
decree of judicial dissolution. The Lexington partnership agreement provides
that Lexington will be dissolved upon the occurrence of certain specified events
or if all of the partners consent in writing to the dissolution of the
partnership. The Madison partnership agreement provides that Madison may be
dissolved at any time upon the agreement of partners holding at least 66% of the
partnership interests of Madison. The partnership agreement of each of South
Texas No. 1 and San Antonio No. 2 provides that each such partnership will be
dissolved upon the occurrence of certain specified events, or if the General
Partner and limited partners holding at least two-thirds of the partnership
interests then held by all limited partners of such partnership consent in
writing to the dissolution of such partnership.

EXPERTS

The financial statements of American Physician Partners, Inc. as of
December 31, 1996 and for the period from inception (April 30, 1996) to December
31, 1996, included in this Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

The consolidated financial statements of Advanced Radiology, LLC, the
combined financial statements of M&S X-Ray Practices, the combined financial
statements of Pacific Imaging Consultants, the financial statements of Radiology
and Nuclear Medicine, P.A., the combined financial statements of Rockland
Radiological Group, and the combined financial statements of Valley Radiology
Group included in this Registration Statement, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.

The combined financial statements of The Ide Group, P.C. and Ide
Diagnostic Imaging Associates included in this Registration Statement have been
audited by DeJoy, Knauf & Blood LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.

LEGAL MATTERS

The validity of the APPI Common Stock issuable pursuant to the Mergers
and Exchanges will be passed on by Brobeck, Phleger & Harrison LLP. Haynes and
Boone L.L.P. will issue legal opinions to AIOC, Advanced, CIA, Ide,
Lexington, M&S, Madison, MRIA, Nyack, Pacific, Pelham, RNM, RRG, San Antonio,
San Antonio No. 2, South Texas, South Texas No. 1, Valley and WIC regarding
certain federal income tax matters.

Peter G. Angelos, P.C. is acting as counsel for Advanced in connection
with certain legal matters relating to the Advanced Merger and the transactions
contemplated thereby.

Underberg & Kessler LLP is acting as counsel for Ide in connection with
certain legal matters relating to the Ide Merger and the transactions
contemplated thereby.

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Looper, Reed, Mark and McGraw Incorporated and Oppenheimer, Blend,
Harrison & Tate, Inc. are acting as counsel for the Entities comprising the M&S
X-Ray Practices in connection with certain legal matters relating to the M&S,
South Texas and San Antonio Mergers and the transactions contemplated thereby,
and the Lexington, Madison, South Texas No. 1 and San Antonio No. 2 Exchanges
and the transactions contemplated thereby.

Wendel, Rosen, Black & Dean, LLP is acting as counsel for Pacific and
TMI in connection with certain legal matters relating to the Pacific and TMI
Mergers and the transactions contemplated thereby.

Lathrop & Gage L.C. is acting as counsel for RNM in connection with
certain legal matters relating to the RNM Merger and the transactions
contemplated thereby.

Drake, Sommers, Loeb, Tarshis & Catania, P.C. is acting as counsel for
the Entities comprising the Rockland Radiological Group in connection with
certain legal matters relating to the AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC Mergers and the transactions contemplated thereby.

Hoge, Fenton, Jones & Appel, Inc., San Jose, California is acting as
counsel for Valley in connection with certain legal matters relating to the
Valley Merger and the transactions contemplated thereby.

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GLOSSARY OF TERMS

<TABLE>
<S> <C>
Advanced Board................................. The Board of Directors of Advanced.

Advanced Cash Consideration.................... The amount of cash that will be paid
for each share of Advanced Common
Stock converted pursuant to the
Advanced Merger Transactions.

Advanced Common Stock.......................... Common Stock of Advanced.

Advanced Exchange Ratio........................ The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of
Advanced Common Stock
converted pursuant to the
Advanced Merger Transactions.

Advanced Meeting............................... A special meeting of Advanced
security holders which will be
held at [PLACE] located at
[ADDRESS] on [DATE], 1997 at
[TIME] to approve and adopt
the Advanced Merger Proposal.

Advanced Merger................................ The merger of Advanced with and
into APPI pursuant to the Advanced
Merger Agreement.

Advanced Merger Agreement...................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
Advanced.

Advanced Merger Proposal....................... The proposal to approve the Advanced
Merger Transactions.

Advanced Merger Transactions................... The actions APPI and Advanced will
take to merge pursuant to the
Advanced Merger Agreement.

Advanced NewCo................................. The NewCo formed by Advanced.

Advanced Radiology or Advanced................. Ad Rad, Inc., a Maryland corporation.

Advanced Record Date........................... The close of business on [DATE].

Advanced Reorganization........................ The reorganization of Advanced by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Advanced Service Area.......................... Greater Baltimore Metropolitan Area.

Affiliated Practices........................... The Founding Affiliated Practices and
such additional radiology practices,
management service organizations, ICs
and other related businesses that the
Company may acquire in the future.
</TABLE>

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<TABLE>
<S> <C>
AIOC........................................... Advanced Imaging of Orange County,
P.C., a New York professional
corporation.

AIOC Board..................................... The Board of Directors of AIOC.

AIOC Common Stock.............................. Common Stock of AIOC and, following
the F Reorganization of AIOC, the
Common Stock of AIOC New Sub.

AIOC Meeting................................... A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

AIOC Merger.................................... The merger of AIOC with and into APPI
pursuant to the AIOC Merger Agreement.

AIOC Merger Agreement.......................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
AIOC.

AIOC Merger Proposal........................... The proposal to approve the AIOC
Merger Transactions.

AIOC Merger Transactions....................... The actions APPI and AIOC will take
to merge pursuant to the AIOC Merger
Agreement.

AIOC New Sub................................... The New Sub formed by AIOC.

AIOC NewCo..................................... The NewCo formed by AIOC.

AIOC Record Date............................... The close of business on [DATE].

AIOC Reorganization............................ The reorganization of AIOC by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

APPI Certificate............................... Certificate of Incorporation of APPI,
as amended.

APPI Common Stock.............................. Common stock, par value $.0001 per
share, of APPI.

APPI or the Company............................ American Physician Partners, Inc., a
Delaware corporation.

Approval Notice................................ A notice of the approval of the
Merger of an Entity mailed by such
Entity within ten days after such
approval by such Entity's security
holders to each Dissenting Security
Holder who did not vote in favor of
such Merger.

Automatic Option Grant Program................. The Company's 1996 Stock Option Plan
automatic option grant program.

Awards......................................... ISOs and non-qualified stock options.

BBA97.......................................... Balanced Budget Act of 1997.
</TABLE>

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<TABLE>
<S> <C>
CCC............................................ California Corporations Code.

CIA............................................ Central Imaging Associates, P.C., a
New York professional corporation.

CIA Board...................................... The Board of Directors of CIA.

CIA Common Stock............................... Common Stock of CIA and, following
the F Reorganization of CIA, the
Common Stock of CIA New Sub.

CIA Meeting.................................... A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

CIA Merger..................................... The merger of CIA with and into APPI
pursuant to one CIA Merger Agreement.

CIA Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
CIA.

CIA Merger Proposal............................ The proposal to approve the CIA
Merger Transactions.

CIA Merger Transactions........................ The actions APPI and CIA will take to
merge pursuant to the CIA Merger
Agreement.

CIA New Sub.................................... The New Sub formed by CIA.

CIA NewCo...................................... The NewCo formed by CIA.

CIA Record Date................................ The close of business on [DATE].

CIA Reorganization............................. The reorganization of CIA by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Committee...................................... Compensation and Stock Plan
Administration Committee.

Conversion Price............................... The price at which holders of the
Convertible Notes will receive shares
of APPI Common Stock, based on the
rate of one share of APPI Common
Stock for each $8.00 of Convertible
Note principal, upon conversion.

Convertible Notes.............................. Outstanding $3,500,000 principal
balance of Convertible Promissory
Notes bearing interest at 6%
per annum.

Corporate Governance Documents................. Articles and bylaws of each Merger
Entity.

Credit Facility................................ $115 million revolving credit facility
with GECC and other lenders.

CT............................................. Computed tomography.
</TABLE>

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<TABLE>
<S> <C>
DGCL........................................... Delaware General Corporation Law.

Dissenting Security Holders.................... Collectively, holders of record of
Advanced Common Stock, Ide Common
Stock, M&S Common Stock, South Texas
Common Stock, San Antonio Common
Stock, Pacific Common Stock, TMI
Common Stock, RNM Common Stock, AIOC
Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock,
Pelham Common Stock, RRG Common
Stock, WIC Common Stock and Valley
Common Stock who comply with the
applicable procedures to exercise
their dissenters' rights under the
applicable state law.

Effective Date................................. The date each of the Form S-1 and the
Registration Statement is
declared effective by the SEC.

Effective Time................................. The time each Merger will become
effective, which is upon the
completion of the filing of a
properly executed Certificate of
Merger with the appropriate
Secretaries of State as required by
the applicable Merger Agreement.

EIS............................................ Executive Information System.

Entities....................................... Collectively, the Merger Entities and
the Exchange Entities.

Exchange Act................................... Securities Exchange Act of 1934.

Exchange Agreements............................ Collectively, the Lexington Exchange
Agreement, the Madison Exchange
Agreement, the South Texas No. 1
Exchange Agreement and the San
Antonio No. 2 Exchange Agreement.

Exchange Closing Date or Closing Date.......... The day on which the transactions
contemplated by the Exchange
Agreements are closed.

Exchange Entities.............................. Collectively, Lexington, Madison,
South Texas No. 1 and San Antonio No.
2.

Exchange Entity................................ Each of the following: Lexington,
Madison, South Texas No. 1 and San
Antonio No. 2.

Exchange Proposals............................. Collectively, the Lexington Exchange
Proposal, the Madison Exchange
Proposal, the South Texas No. 1
Exchange Proposal and the San Antonio
No. 2 Exchange Proposal.

Exchange Transactions.......................... Collectively, the Lexington Exchange
Transaction, the Madison Exchange
Transaction, the South Texas No. 1
Exchange Transaction, and the San
Antonio No. 2 Exchange Transaction.
</TABLE>

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<TABLE>
<S> <C>
Exchanges...................................... The acquisition by APPI of each of
Lexington, Madison, South Texas No. 1
and San Antonio No. 2 by undertaking
the applicable Exchange Transactions.

F Reorganization............................... Reorganization pursuant to Internal
Revenue Code Section 368(a)(2)(F).

FAS............................................ Financial Accounting System.

Form S-1....................................... Registration Statement on Form S-1
filed by APPI with the SEC.

Founding Affiliated Practices.................. Collectively, Advanced, Ide, M&S X-
Ray Practices, Pacific Imaging
Consultants, RNM, Rockland
Radiological Group and Valley.

Founding Affiliated Practice................... Each of the following: Advanced, Ide,
M&S X-Ray Practices, Pacific Imaging
Consultants, RNM, Rockland
Radiological Group and Valley.

GECC........................................... GE Capital Corporation.

Governance Documents........................... Collectively, the Corporate
Governance Documents and the
Partnership Governance Documents.

Haynes and Boone............................... Haynes and Boone L.L.P., special
counsel to APPI.

HMOs........................................... Health maintenance organizations.

ICs............................................ Diagnostic imaging centers.

Ide Board...................................... The Board of Directors of Ide.

Ide Cash Consideration......................... The amount of cash that will be paid
for each share of Ide Common
Stock converted pursuant to
the Ide Merger Transactions.

Ide Common Stock............................... Common Stock of Ide and, following
the F Reorganization of Ide, the
Common Stock of Ide New Sub.

Ide Exchange Ratio............................. The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of Ide
Common Stock converted pursuant to
the Ide Merger Transactions.
</TABLE>

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<TABLE>
<S> <C>
Ide Meeting.................................... A special meeting of Ide security
holders which will be held at
[PLACE] located at [ADDRESS]
on [DATE], 1997 at [TIME] to
approve and adopt the Ide
Merger Proposal.

Ide Merger..................................... The merger of Ide with and into APPI
pursuant to the Ide Merger Agreement.

Ide Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
Ide.

Ide Merger Proposal............................ The proposal to approve the Ide
Merger Transactions.

Ide Merger Transactions........................ The actions APPI and Ide will take to
merge pursuant to the Ide Merger
Agreement.

Ide New Sub.................................... The New Sub formed by Ide.

Ide NewCo...................................... The NewCo formed by Ide.

Ide Record Date................................ The close of business on [DATE].

Ide Reorganization............................. The reorganization of Ide by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Ide Service Area............................... Greater Rochester, New York area.

Imaging Services............................... Imaging services, including x-ray,
fluoroscopy, computed tomography,
magnetic resonance imaging, nuclear
medicine, mammography and ultrasound.

Indemnification Agreement...................... Indemnification Agreement in
substantially the form of Appendix F
to this Prospectus/Joint Proxy
Statement.

Initial Public Offering........................ The initial underwritten public
offering of APPI Common Stock
contemplated by the Form S-1.

Initial Public Offering Price.................. The price per share of APPI Common
Stock received by APPI in connection
with the Initial Public Offering
before deduction of any underwriting
commissions, discounts or other fees
relating thereto.

IRS............................................ Internal Revenue Service.

ISOs........................................... Incentive stock options, as defined
in Section 422 of the Internal
Revenue Code.

KGCC........................................... Kansas General Corporation Code.

Lexington...................................... Lexington MR Ltd., a Texas limited
partnership.
</TABLE>

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<TABLE>
<S> <C>
Lexington Cash Consideration................... The aggregate amount of cash that
will be paid for the partnership
interests in Lexington transferred
pursuant to the Lexington Exchange
Transactions.

Lexington Exchange............................. The acquisition of certain partnership
interests in Lexington by APPI pursuant
to the Lexington Exchange Agreement.

Lexington Exchange Agreement................... The Agreement and Plan of Exchange
dated as of June 27, 1997 by
and between APPI and holders
of certain limited partnership
interests of Lexington.

Lexington Exchange Proposal.................... The proposal to approve the Lexington
Exchange Transactions.

Lexington Exchange Ratio....................... The aggregate number of shares of
APPI Common Stock that will be
issued and exchanged for the
partnership interests in Lexington
transferred pursuant to the Lexington
Exchange Transactions.

Lexington Exchange Transaction................. The acquisition of Lexington by APPI
by exchanging cash and shares of APPI
Common Stock for partnership
interests of Lexington.

Lexington Meeting.............................. A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

Lexington Partners............................. The eleven (11) individual
limited partners of Lexington
(Neil J. Bowie, M.D., Polly
Hansen, M.D., Philips Klein,
M.D., Julio C. Otazo, M.D.,
R.K. Daniel Peterson, M.D.,
Randall Preissig, M.D., Jose
Saldana, M.D., Anthony Smith,
M.D., Jeremy N. Wiersig, M.D.,
Robert Thompson, M.D. and
W. Gregory Wojeik, M.D.) who,
together, own 18.95% of the
total interests of Lexington.

Lexington Record Date.......................... The close of business on [DATE].

Liability Policies............................. General and professional liability
insurance policies.

LXL............................................ LXL Group, Ltd., a California
limited partnership.

M&S............................................ M&S X-Ray Associates, P.A., a Texas
professional association.
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M&S Board...................................... The Board of Directors of M&S.

M&S Cash Consideration......................... The amount of cash that will be paid
for each share of M&S Common
Stock converted pursuant to
the M&S Merger Transactions.

M&S Common Stock............................... Common Stock of M&S.

M&S Exchange Ratio............................. The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of M&S
Common Stock converted pursuant to
the M&S Merger Transactions.

M&S Meeting.................................... A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

M&S Merger..................................... The merger of M&S with and into APPI
pursuant to the M&S Merger Agreement.

M&S Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
M&S.

M&S Merger Proposal............................ The proposal to approve the M&S
Merger Transactions.

M&S Merger Transactions........................ The actions APPI and M&S will take to
merge pursuant to the M&S Merger
Agreement.

M&S NewCo...................................... The NewCo formed by M&S.

M&S Record Date................................ The close of business on [DATE].

M&S Reorganization............................. The reorganization of M&S by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

M&S Service Area............................... San Antonio, Texas Metropolitan area.

M&S X-Ray Practices ........................... A radiology practice which includes
seven related entities, consisting of
M&S, Lexington, Madison, South Texas,
South Texas No. 1, San Antonio, and
San Antonio No. 2.

Madison........................................ Madison Square Joint Venture, a Texas
general partnership.
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Madison Cash Consideration..................... The aggregate amount of cash that
will be paid for the partnership
interests in Madison transferred
pursuant to the Madison Exchange
Transactions.

Madison Exchange............................... The acquisition of partnership
interests in Madison by APPI
pursuant to the Madison Exchange
Agreement.

Madison Exchange Agreement..................... The Agreement and Plan of Exchange
dated as of June 27, 1997 by and
between APPI and holders of all of
the limited partnership interests of
Madison.

Madison Exchange Proposal...................... The proposal to approve the Madison
Exchange Transactions.

Madison Exchange Ratio......................... The aggregate number of shares of
APPI Common Stock that will be
issued and exchanged for the
partnership interests in Madison
transferred pursuant to the Madison
Exchange Transactions.

Madison Exchange Transaction................... The acquisition of Madison by APPI by
exchanging cash and shares of APPI
Common Stock for partnership
interests of Madison.

Madison Meeting................................ A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

Madison Partners............................... The thirteen (13) general partners of
Madison (Neil Bowie, M.D., F. Joseph
Carabin, M.D., Gregory Godwin, M.D.,
Michael Howard, M.D., Philip Kline,
M.D., Michael Howard, M.D., Philip
Kline, M.D., Julio Otazo, M.D., R.K.
Daniel Peterson, M.D., Randall
Preissig, M.D., Jose Saldana, M.D.,
Anthony Smith, M.D., Robert Thompson,
M.D., Jeremy Wiersig, M.D., and Frank
Wilson, M.D.) who, together, own 100%
of the total interests of Madison.

Madison Record Date............................ The close of business on [DATE].

MSO............................................ A management service organization.
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Merger Agreements.............................. Collectively, the Advanced Merger
Agreement, the Ide Merger Agreement,
the M&S Merger Agreement, the South
Texas Merger Agreement, the San
Antonio Merger Agreement, the Pacific
Merger Agreement, the TMI Merger
Agreement, the RNM Merger Agreement,
the AIOC Merger Agreement, the CIA
Merger Agreement, the MRIA Merger
Agreement, the Nyack Merger
Agreement, the Pelham Merger
Agreement, the RRG Merger Agreement,
the WIC Merger Agreement and the
Valley Merger Agreement.

Merger Entities................................ Collectively, Advanced, Ide, M&S,
South Texas, San Antonio, Pacific,
TMI, RNM, AIOC, CIA, MRIA, Nyack,
Pelham, RRG, WIC and Valley.

Merger Entity.................................. Each of the following: Advanced,
Ide, M&S, South Texas, San Antonio,
Pacific, TMI, RNM, AIOC, CIA, MRIA,
Nyack, Pelham, RRG, WIC and Valley.

Merger Proposals............................... Collectively, the Advanced Merger
Proposal, the Ide Merger Proposal,
the M&S Merger Proposal, the South
Texas Merger Proposal, the San
Antonio Merger Proposal, the Pacific
Merger Proposal, the TMI Merger
Proposal, the RNM Merger Proposal,
the AIOC Merger Proposal, the CIA
Merger Proposal, the MRIA Merger
Proposal, the Nyack Merger Proposal,
the Pelham Merger Proposal, the RRG
Merger Proposal, the WIC Merger
Proposal and the Valley Merger
Proposal.

Merger Transactions............................ Collectively, the Advanced Merger
Transactions, the Ide Merger
Transactions, the M&S Merger
Transactions, the South Texas Merger
Transactions, the San Antonio Merger
Transactions, the Pacific Merger
Transactions, the TMI Merger
Transactions, the RNM Merger
Transactions, the AIOC Merger
Transactions, the CIA Merger
Transactions, the MRIA Merger
Transactions, the Nyack Merger
Transactions, the Pelham Merger
Transactions, the RRG Merger
Transactions, the WIC Merger
Transactions and the Valley Merger
Transactions.
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Mergers........................................ The mergers of APPI and each of
Advanced, Ide, M&S, South Texas, San
Antonio, Pacific, TMI, RNM, AIOC,
CIA, MRIA, Nyack, Pelham, RRG, WIC
and Valley by undertaking the
applicable Merger Transactions.

MGCL........................................... Maryland General Corporation Law.

MIS............................................ Management information system.

MRI............................................ Magnetic resonance imaging.

MRIA........................................... Mid Rockland Imaging Associates,
P.C., a New York professional
corporation.

MRIA Board..................................... The Board of Directors of MRIA.

MRIA Common Stock.............................. Common Stock of MRIA and, following
the F Reorganization of MRIA, the
Common Stock of MRIA New Sub.

MRIA Meeting................................... A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

MRIA Merger.................................... The merger of MRIA with and into
APPI pursuant to the MRIA Merger
Agreement.

MRIA Merger Agreement.......................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
MRIA.

MRIA Merger Proposal........................... The proposal to approve the MRIA
Merger Transactions.

MRIA Merger Transactions....................... The actions APPI and MRIA will take
to merge pursuant to the MRIA Merger
Agreement.

MRIA New Sub................................... The New Sub formed by MRIA.

MRIA NewCo..................................... The NewCo formed by MRIA.

MRIA Record Date............................... The close of business on [DATE].

MRIA Reorganization............................ The reorganization of MRIA by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

MSOs........................................... Management service organizations.

Named Executive Officers....................... The Chief Executive Officer and the
four other most highly paid executive
officers of the Company.

Nasdaq National Market......................... Nasdaq Stock Market's National
Market.
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New Sub........................................ A New York business corporation
subsidiary formed to effectuate an F
Reorganization.

NewCo.......................................... A newly-incorporated or newly-
organized entity capable of
practicing the profession of medicine
in its respective state.

NewCos......................................... Collectively, Advanced NewCo, Ide
NewCo, M&S NewCo, Pacific NewCo, TMI
NewCo, RNM NewCo, AIOC NewCo, CIA
NewCo, MRIA NewCo, Nyack Newco,
Pelham NewCo, RRG NewCo, WIC NewCo
and Valley NewCo.

Nyack.......................................... Nyack Magnetic Resonance Imaging,
P.C., a New York professional
corporation.

Nyack Board.................................... The Board of Directors of Nyack.

Nyack Common Stock............................. Common Stock of Nyack and, following
the F Reorganization of Nyack, the
Common Stock of Nyack New Sub.

Nyack Meeting.................................. A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

Nyack Merger................................... The merger of Nyack with and into APPI
pursuant to the Nyack Merger Agreement.

Nyack Merger Agreement......................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
Nyack.

Nyack Merger Proposal.......................... The proposal to approve the Nyack
Merger Transactions.

Nyack Merger Transactions...................... The actions APPI and Nyack will take
to merge pursuant to the Nyack Merger
Agreement.

Nyack New Sub.................................. The New Sub formed by Nyack.

Nyack NewCo.................................... The NewCo formed by Nyack.

Nyack Record Date.............................. The close of business on [DATE].

Nyack Reorganization........................... The reorganization of Nyack by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

NYBCL.......................................... New York Business Corporation Law.

Offer Price.................................... The price APPI shall offer to pay in
its Purchase Offer for the shares
held by Dissenting Security Holders.
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Old Partnership Interests...................... Collectively, certain outstanding
Lexington limited partnership
interests, Madison partnership
interests, South Texas No. 1 limited
partnership interests and San Antonio
No. 2 limited partnership interests.

Old Shares..................................... Collectively, Advanced Common Stock;
M&S Common Stock, South Texas Common
Stock, San Antonio Common Stock,
Pacific Common Stock, TMI Common
Stock, RNM Common Stock, AIOC Common
Stock, CIA Common Stock, MRIA Common
Stock, Nyack Common Stock, Pelham
Common Stock, RRG Common Stock, WIC
Common Stock and Valley Common Stock.

Pacific........................................ Pacific Imaging Consultants, A
Medical Group, Inc., a California
professional medical corporation.

Pacific Board.................................. The Board of Directors of Pacific.

Pacific Cash Consideration..................... The amount of cash that will be paid
for each share of Pacific Common
Stock converted pursuant to the
Pacific Merger Transactions.

Pacific Common Stock........................... Common Stock of Pacific.

Pacific Exchange Ratio......................... The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of
Pacific Common Stock converted
pursuant to the Pacific Merger
Transactions.

Pacific Imaging Consultants.................... A radiology practice which includes
two related entities, consisting of
Pacific and TMI.

Pacific Meeting................................ A joint special meeting of the
security holders of each of Pacific
and TMI which will be held at [PLACE]
located at [ADDRESS] on [DATE], 1997
at [TIME].

Pacific Merger................................. The merger of a separate subsidiary
of APPI with and into Pacific pursuant
to the Pacific Merger Agreement.

Pacific Merger Agreement....................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
Pacific.

Pacific Merger Proposal........................ The proposal to approve the Pacific
Merger Transactions.
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Pacific Merger Transactions.................... The actions APPI and Pacific will
take to merge pursuant to the Pacific
Merger Agreement.

Pacific NewCo.................................. The NewCo formed by Pacific.

Pacific Record Date............................ The close of business on [DATE].

Pacific Reorganization......................... The reorganization of Pacific by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Pacific Service Area........................... Greater Oakland Metropolitan area,
San Francisco Bay area and the
Hi-Desert area of Southern
California.

Partnership Governance Documents............... The Partnership agreement and other
governance documents of each Exchange
Entity.

Pelham......................................... Pelham Imaging Associates, P.C., a
New York professional corporation.

Pelham Board................................... The Board of Directors of Pelham.

Pelham Common Stock............................ Common Stock of Pelham and, following
the F Reorganization of Pelham, the
Common Stock of Pelham New Sub.

Pelham Meeting................................. A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

Pelham Merger.................................. The merger of Pelham with and into
APPI pursuant to the Pelham Merger
Agreement.

Pelham Merger Agreement........................ The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
Pelham.

Pelham Merger Proposal......................... The proposal to approve the Pelham
Merger Transactions.

Pelham Merger Transactions..................... The actions APPI and Pelham will take
to merge pursuant to the Pelham
Merger Agreement.

Pelham New Sub................................. The New Sub formed by Pelham.

Pelham NewCo................................... The NewCo formed by Pelham.

Pelham Record Date............................. The close of business on [DATE].

Pelham Reorganization.......................... The reorganization of Pelham by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Plan........................................... The Company's 1996 Stock Option Plan.
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PPMs........................................... Physician practice management
companies.

Preferred Stock................................ Preferred stock, par value $.0001 per
share, of APPI.

Professional Services.......................... Professional diagnostic and
interpretive services.

Program........................................ The Company's Cash Bonus Program.

Purchase Offer................................. Written offer by APPI to each
Dissenting Security Holder to
pay a specified price for the
shares held by such Dissenting
Security Holder.

Radiology and Nuclear Medicine or RNM.......... Radiology and Nuclear Medicine, a
Professional Association, a Kansas
professional association.

RBRVS.......................................... Resource-based relative value scale.

Registration Statement......................... Registration Statement on Form S-4
filed by APPI with the SEC.

Regulation S-K................................. Regulation S-K of the Securities Act.

Reorganizations................................ Collectively, the Advanced
Reorganization, the Ide
Reorganization, the M&S
Reorganization, the Pacific
Reorganization, the TMI
Reorganization, the RNM
Reorganization, the AIOC
Reorganization, the CIA
Reorganization, the MRIA
Reorganization, the Nyack
Reorganization, the Pelham
Reorganization, the RRG
Reorganization, the WIC
Reorganization and the Valley
Reorganization.

RNM Board...................................... The Board of Directors of RNM.

RNM Cash Consideration......................... The amount of cash that will be paid
for each share of RNM Common
Stock converted pursuant to
the RNM Merger Transactions.

RNM Common Stock............................... Common Stock of RNM.
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RNM Exchange Ratio............................. The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of RNM
Common Stock converted pursuant to
the RNM Merger Transactions.

RNM Meeting.................................... A special meeting of RNM security
holders which will be held at [PLACE]
located at [ADDRESS] on [DATE], 1997
at [TIME].

RNM Merger..................................... The merger of RNM with and into APPI
pursuant to the RNM Merger Agreement.

RNM Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
RNM.

RNM Merger Proposal............................ The proposal to approve the RNM
Merger Transactions.

RNM Merger Transactions........................ The actions APPI and RNM will take to
merge pursuant to the RNM Merger
Agreement.

RNM NewCo...................................... The NewCo formed by RNM.

RNM Record Date................................ The close of business on [DATE].

RNM Reorganization............................. The reorganization of RNM by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

RNM Service Area............................... Greater Topeka, Kansas area
and Northeast Kansas/Southeast
Nebraska area.

Rockland Cash Consideration.................... The amount of cash that will be paid
for each share of AIOC Common Stock,
CIA Common Stock, MRIA Common Stock,
Nyack Common stock, Pelham Common
Stock, RRG Common Stock and WIC
Common Stock converted pursuant to
each Merger Entity's respective
Merger Transactions.

Rockland Exchange Ratio........................ The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of AIOC
Common Stock, CIA Common Stock, MRIA
Common Stock, Nyack Common Stock,
Pelham Common Stock, RRG Common Stock
and WIC Common Stock converted
pursuant to each Merger Entity's
respective Merger Transactions.
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Rockland Radiological Group.................... A radiology practice which includes
seven related entities, consisting of
AIOC, CIA, MRIA, Nyack, Pelham, RRG,
and WIC.

Rockland Service Area.......................... Duchess, Orange, Rockland, Ulster and
Westchester County areas of
the State of New York and the
Bergen County area of the
State of New Jersey.

RRG............................................ Rockland Radiological Group, P.C., a
New York professional corporation.

RRG Board...................................... The Board of Directors of RRG.

RRG Common Stock............................... Common Stock of RRG and, following
the F Reorganization of RRG, the
Common Stock of RRG New Sub.

RRG Meeting.................................... A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

RRG Merger..................................... The merger of RRG with and into APPI
pursuant to the RRG Merger Agreement.

RRG Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
RRG.

RRG Merger Proposal............................ The proposal to approve the RRG
Merger Transactions.

RRG Merger Transactions........................ The actions APPI and RRG will take to
merge pursuant to the RRG Merger
Agreement.

RRG New Sub.................................... The New Sub formed by RRG.

RRG NewCo...................................... The NewCo formed by RRG.

RRG Record Date................................ The close of business on [DATE].

RRG Reorganization............................. The reorganization of RRG by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Rule 16b-3..................................... Rule 16b-3 of Section 16 of the
Exchange Act.

SAB 48......................................... Staff Accounting Bulletin No. 48,
"Transfers of Nonmonetary Assets by
Promoters or Shareholders," published
by the SEC.

San Antonio.................................... San Antonio MR, Inc., a Texas
corporation.
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San Antonio Board.............................. The Board of Directors of San
Antonio.

San Antonio Cash Consideration................. The amount of cash that will be paid
for each share of San Antonio
Common Stock converted
pursuant to the San Antonio
Merger Transactions.

San Antonio Common Stock....................... Common Stock of San Antonio.

San Antonio Exchange Ratio..................... The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of San
Antonio Common Stock converted
pursuant to the San Antonio Merger
Transactions.

San Antonio Meeting............................ A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

San Antonio Merger............................. The merger of San Antonio with and
into APPI pursuant to the San
Antonio Merger Agreement.

San Antonio Merger Agreement................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
San Antonio.

San Antonio Merger Proposal.................... The proposal to approve the San
Antonio Merger Transactions.

San Antonio Merger Transactions................ The actions APPI and San Antonio will
take to merge pursuant to the San
Antonio Merger Agreement.

San Antonio No. 2 Exchange Transaction......... The acquisition of San Antonio No. 2
by APPI by exchanging cash and shares
of APPI Common Stock for partnership
interests of San Antonio No. 2.

San Antonio No. 2.............................. San Antonio MRI Partnership No. 2,
Ltd., a Texas limited partnership.

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San Antonio No. 2 Cash Consideration........... The aggregate amount of cash that
will be paid for the partnership
interests in San Antonio No. 2
transferred pursuant to the San
Antonio No. 2 Exchange Transactions.

San Antonio No. 2 Exchange..................... The acquisition of certain partnership
interests in San Antonio No. 2 by
APPI pursuant to the San Antonio No. 2
Exchange Agreement.

San Antonio No. 2 Exchange Agreement........... The Agreement and Plan of Exchange
dated as of June 27, 1997 by and
between APPI and holders of all of
the limited partnership interests of
San Antonio No. 2.

San Antonio No. 2 Exchange Ratio............... The aggregate number of shares of
APPI Common Stock that will be
issued and exchanged for the
partnership interests in San Antonio
No. 2 transferred pursuant to the San
Antonio No. 2 Exchange Transactions.

San Antonio No. 2 Meeting...................... A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

San Antonio No. 2 Partners..................... The twelve (12) limited partners of
San Antonio No. 2 (Neil Bowie, M.D.,
Joseph Carabin, M.D., Gregory Godwin,
M.D., Michael Howard, M.D., Philip
Kline, M.D., Julio Otazo, M.D., R.K.
Daniel Peterson, M.D., Randall
Preissig, M.D., Rise Ross, M.D., Jose
Saldana, M.D., Robert Thompson, M.D.
and Gregory Wojeik, M.D.) who,
together, own 99% of the total
interests of San Antonio No. 2.

San Antonio No. 2 Record Date.................. The close of business on [DATE].

San Antonio No. 2 Exchange Proposal............ The proposal to approve the San
Antonio No. 2 Exchange Transactions.

San Antonio Record Date........................ The close of business on [DATE].

SEC............................................ Securities and Exchange Commission.

Section 17-6712................................ Section 17-6712 of the KGCC.

Section 3-202.................................. Section 3-202 of the MGCL.

Section 3-203.................................. Section 3-203 of the MGCL.

Section 623.................................... Section 623 of the NYBCL.

Section 910.................................... Section 910 of the NYBCL.

Securities Act................................. Securities Act of 1933, as amended.
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Service Agreement.............................. A 40-year Service Agreement with
APPI.

South Texas.................................... South Texas MR, Inc., a Texas
corporation.

South Texas Board.............................. The Board of Directors of South
Texas.

South Texas Cash Consideration................. The amount of cash that will be paid
for each share of South Texas
Common Stock converted
pursuant to the South Texas
Merger Transactions.

South Texas Common Stock....................... Common Stock of South Texas.

South Texas Exchange Ratio..................... The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of South
Texas Common Stock converted pursuant
to the South Texas Merger
Transactions.

South Texas Meeting............................ A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

South Texas Merger............................. The merger of South Texas with and
into APPI pursuant to the South
Texas Merger Agreement.

South Texas Merger Agreement................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
South Texas.

South Texas Merger Proposal.................... The proposal to approve the South
Texas Merger Transactions.

South Texas Merger Transactions................ The actions APPI and South Texas will
take to merge pursuant to the South
Texas Merger Agreement.

South Texas No. 1.............................. South Texas No. 1 MRI Limited
Partnership, a Texas limited
partnership.

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South Texas No. 1 Cash Consideration........... The aggregate amount of cash that
will be paid for the partnership
interests in South Texas No. 1
transferred pursuant to the South
Texas No. 1 Exchange Transactions.

South Texas No. 1 Exchange..................... The acquisition of certain
partnerships in South Texas No. 1
by APPI pursuant to the South Texas
No. 1 Exchange Agreement.

South Texas No. 1 Exchange Agreement........... The Agreement and Plan of Exchange
dated as of June 27, 1997 by and
between APPI and holders of all of
the limited partnership interests of
South Texas No. 1.

South Texas No. 1 Exchange Proposal............ The proposal to approve the South
Texas No. 1 Exchange Transactions.

South Texas No. 1 Exchange Ratio............... The aggregate number of shares of
APPI Common Stock that will be
issued and exchanged for the
partnership interests in South Texas
No. 1 transferred pursuant to the
South Texas No. 1 Exchange
Transactions.

South Texas No. 1 Exchange Transaction......... The acquisition of South Texas No. 1
by APPI by exchanging cash and shares
of APPI Common Stock for partnership
interests of South Texas No. 1.

South Texas No. 1 Meeting...................... A joint special meeting of the
security holders of each of M&S,
Lexington, Madison, South Texas,
South Texas No. 1, San Antonio and
San Antonio No. 2 which will be held
at [PLACE] located at [ADDRESS] on
[DATE], 1997 at [TIME].

South Texas No. 1 Partners..................... The twelve (12) limited partners of
South Texas No. 1 (Neil Bowie, M.D.,
Joseph Carabin, M.D., Gregory Godwin,
M.D., Michael Howard, M.D., Philip
Kline, M.D., Julio Otazo, M.D., R.K.
Daniel Peterson, M.D., Randall
Preissig, M.D., Rise Ross, M.D., Jose
Saldana, M.D., Robert Thompson, M.D.
and Gregory Wojeik, M.D.) who,
together, own 99% of the total
interests of South Texas No. 1.

South Texas No. 1 Record Date.................. The close of business on [DATE].

South Texas Record Date........................ The close of business on [DATE].

Stark I........................................ Omnibus Budget Reconciliation Act of
1989.

Stark II....................................... Omnibus Budget Reconciliation Act of
1993.

Stark Law...................................... Collectively, Stark I and Stark II.
</TABLE>

247
<PAGE> 300

<TABLE>
<S> <C>
Stockholder Representation Letter.............. Stockholder Representation Letter in
substantially the form of Appendix E
to this Prospectus/Joint Proxy
Statement.

TBCA........................................... Texas Business Corporation Act.

The Ide Group or Ide........................... The Ide Group, P.C., a New York
professional corporation.

TMI............................................ Total Medical Imaging, Inc., a
California corporation.

TMI Board ..................................... The Board of Directors of TMI.

TMI Cash Consideration......................... The amount of cash that will be paid
for each share of TMI Common
Stock converted pursuant to
the TMI Merger Transactions.

TMI Common Stock............................... Common Stock of TMI.

TMI Exchange Ratio............................. The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of TMI
Common Stock converted pursuant to
the TMI Merger Transactions.

TMI Meeting.................................... A joint special meeting of the
security holders of each of Pacific
and TMI which will be held at [PLACE]
located at [ADDRESS] on [DATE], 1997
at [TIME].

TMI Merger..................................... The merger of a separate subsidiary
of APPI with and into TMI pursuant
to the TMI Merger Agreement.

TMI Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
TMI.

TMI Merger Proposal............................ The proposal to approve the TMI
Merger Transactions.

TMI Merger Transactions........................ The actions APPI and TMI will take to
merge pursuant to the TMI Merger
Agreement.

TMI NewCo...................................... The NewCo formed by TMI.

TMI Record Date................................ The close of business on [DATE].

TMI Reorganization............................. The reorganization of TMI by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.
</TABLE>

248
<PAGE> 301

<TABLE>
<S> <C>
TRPA........................................... The Texas Revised Partnership Act.

TRPLA.......................................... The Texas Revised Limited Partnership
Act.

Underwriters................................... Underwriters named in the Form S-1.

Valley Board................................... The Board of Directors of Valley.

Valley Cash Consideration...................... The amount of cash that will be paid
for each share of Valley
Common Stock converted
pursuant to the Valley Merger
Transactions.

Valley Exchange Ratio.......................... The number of shares of APPI Common
Stock that will be issued and
exchanged for each share of Valley
Common Stock converted pursuant to
the Valley Merger Transactions.

Valley Meeting................................. A special meeting of Valley security
holders which will be held at [PLACE]
located at [ADDRESS] on [DATE], 1997
at [TIME].

Valley Merger.................................. The merger of a separate subsidiary
of APPI with and into Valley pursuant
to the Valley Merger Agreement.

Valley Merger Agreement........................ The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
Valley.

Valley Merger Proposal......................... The proposal to approve the Valley
Merger Transactions.

Valley Merger Transactions..................... The actions APPI and Valley will take
to merge pursuant to the Valley
Merger Agreement.

Valley NewCo................................... The NewCo formed by Valley.

Valley Radiology Group or Valley............... Valley Radiologists Medical Group,
Inc., a California
professional medical
corporation.

Valley Reorganization.......................... The reorganization of Valley by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.

Valley Service Area............................ Greater San Jose Metropolitan area
and the San Francisco Bay area.

WIC............................................ Women's Imaging Consultants, P.C., a
New York professional corporation.
</TABLE>

249
<PAGE> 302

<TABLE>
<S> <C>
WIC Board...................................... The Board of Directors of WIC.

WIC Common Stock............................... Common Stock of WIC and, following
the F Reorganization of WIC, the
Common Stock of WIC New Sub.

WIC Meeting.................................... A joint special meeting of the
security holders of each of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC
which will be held at the corporate
offices of such Entities located at
18 Squadron Boulevard, New City, New
York on [DATE], 1997 at [TIME].

WIC Merger..................................... The merger of WIC with and into APPI
pursuant to the WIC Merger Agreement.

WIC Merger Agreement........................... The Agreement and Plan of
Reorganization and Merger dated as of
June 27, 1997 by and between APPI and
WIC.

WIC Merger Proposal............................ The proposal to approve the WIC
Merger Transactions.

WIC Merger Transactions........................ The actions APPI and WIC will take to
merge pursuant to the WIC Merger
Agreement.

WIC New Sub.................................... The New Sub formed by WIC.

WIC NewCo...................................... The NewCo formed by WIC.

WIC Record Date................................ The close of business on [DATE].

WIC Reorganization............................. The reorganization of WIC by
incorporating a NewCo,
transferring to such NewCo
certain assets and liabilities
and entering into a Service
Agreement with APPI.
</TABLE>

250
<PAGE> 303
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMERICAN PHYSICIAN PARTNERS, INC.
Report of Independent Public Accountants.................. F-3
Balance Sheets as of December 31, 1996, and June 30, 1997
(unaudited)............................................ F-4
Statements of Income for the period from inception (April
30, 1996) to December 31, 1996, and the six months
ended June 30, 1997 (unaudited)........................ F-5
Statements of Stockholders' Deficit for the period from
inception (April 30, 1996) to December 31, 1996, and
the six months ended June 30, 1997 (unaudited)......... F-6
Statement of Cash Flows for the period from inception
(April 30, 1996) to December 31, 1996, and the six
months ended June 30, 1997 (unaudited)................. F-7
Notes to Financial Statements............................. F-8
ADVANCED RADIOLOGY, LLC AND SUBSIDIARY
Report of Independent Public Accountants.................. F-12
Consolidated Balance Sheets as of December 31, 1995 and
1996, and June 30, 1997
(unaudited)............................................ F-13
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-14
Consolidated Statements of Owners' Equity for the years
ended December 31, 1994, 1995 and 1996, and the six
months ended June 30, 1997 (unaudited)................. F-15
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the six months
ended June 30, 1996 and 1997 (unaudited)............... F-16
Notes to Consolidated Financial Statements................ F-17
THE IDE GROUP, P.C. AND IDE DIAGNOSTIC IMAGING ASSOCIATES
Independent Auditors' Report.............................. F-25
Combined Balance Sheets as of June 30, 1995,
1996 and 1997 ......................................... F-26
Combined Statements of Income for the years ended June 30,
1995, 1996 and 1997.................................... F-27
Combined Statements of Changes in Stockholders' Equity and
Partners' Capital for the years ended June 30,
1995, 1996 and 1997 ................................... F-28
Combined Statements of Cash Flows for the years ended June
30, 1995, 1996 and 1997 ............................... F-29
Notes to Combined Financial Statements.................... F-30
M & S X-RAY PRACTICES
Report of Independent Public Accountants.................. F-36
Combined Balance Sheets as of December 31, 1995 and 1996,
and June 30, 1997 (unaudited).......................... F-37
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-38
Combined Statements of Owners' Equity for the years ended
December 31, 1995 and 1996, and the six months ended
June 30, 1997 (unaudited).............................. F-39
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)..................... F-40
Notes to Combined Financial Statements.................... F-41
</TABLE>

F-1
<PAGE> 304
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PACIFIC IMAGING CONSULTANTS
Report of Independent Public Accountants.................. F-47
Combined Balance Sheets as of December 31, 1995 and 1996,
and June 30, 1997
(unaudited)............................................ F-48
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-49
Combined Statements of Owners' Equity (Deficit) for the
years ended December 31, 1995 and 1996, and the six
months ended June 30, 1997 (unaudited)................. F-50
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)..................... F-51
Notes to Combined Financial Statements.................... F-52
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
Report of Independent Public Accountants.................. F-58
Balance Sheets as of December 31, 1995 and 1996, and June
30, 1997 (unaudited)................................... F-59
Statements of Income for the years ended December 31, 1995
and 1996, and the six months ended June 30, 1996 and
1997 (unaudited)....................................... F-60
Statements of Owners' Equity for the years ended December
31, 1995 and 1996, and the six months ended June 30,
1997 (unaudited)....................................... F-61
Statements of Cash Flows for the years ended December 31,
1995 and 1996, and the six months ended June 30, 1996
and 1997 (unaudited)................................... F-62
Notes to Financial Statements............................. F-63
ROCKLAND RADIOLOGICAL GROUP
Report of Independent Public Accountants.................. F-68
Combined Balance Sheets as of September 30, 1995 and 1996,
and June 30, 1997
(unaudited)............................................ F-69
Combined Statements of Income for the years ended
September 30, 1994, 1995 and 1996, and the nine months
ended June 30, 1996 and 1997 (unaudited)............... F-70
Combined Statements of Owners' Equity (Deficit) for the
years ended September 30, 1994, 1995 and 1996, and the
nine months ended June 30, 1997 (unaudited)............ F-71
Combined Statements of Cash Flows for the years ended
September 30, 1994, 1995 and 1996, and the nine months
ended June 30, 1996 and 1997 (unaudited)............... F-72
Notes to Combined Financial Statements.................... F-73
VALLEY RADIOLOGY GROUP
Report of Independent Public Accountants.................. F-78
Combined Balance Sheets as of December 31, 1995 and 1996,
and June 30, 1997
(unaudited)............................................ F-79
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the six months ended June 30,
1996 and 1997 (unaudited).............................. F-80
Combined Statements of Owners' Equity for the years ended
December 31, 1995 and 1996, and the six months ended
June 30, 1997 (unaudited).............................. F-81
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)..................... F-82
Notes to Combined Financial Statements.................... F-83
</TABLE>

F-2
<PAGE> 305

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
American Physician Partners, Inc.:

We have audited the accompanying balance sheet of American Physician
Partners, Inc. -- A Development Stage Company (a Delaware corporation) as of
December 31, 1996, and the related statements of income, stockholders' deficit,
and cash flows for the period from inception (April 30, 1996) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Physician Partners,
Inc. -- A Development Stage Company as of December 31, 1996, and the results of
its operations and its cash flows for the period from inception (April 30, 1996)
to December 31, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
April 10, 1997

F-3
<PAGE> 306

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,490,679 $ 110,237
Prepaid expenses.......................................... 15,002 137,859
----------- -----------
Total current assets.............................. 2,505,681 248,096
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $2,612 and $15,303 at December 31, 1996 and June 30,
1997, respectively........................................ 57,405 166,654
DEFERRED IPO COSTS.......................................... -- 2,055,766
OTHER ASSETS................................................ 14,480 15,711
----------- -----------
Total assets...................................... $ 2,577,566 $ 2,486,227
=========== ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses.......................................... $ 477,109 $ 2,085,169
CONVERTIBLE NOTES PAYABLE................................... 3,500,000 3,500,000
----------- -----------
Total liabilities................................. 3,977,109 5,585,169

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred stock, $.0001 par value; 10,000,000 shares
authorized; no shares outstanding...................... -- --
Common stock, $.0001 par value; 50,000,000 shares
authorized; 2,000,000 shares issued and outstanding.... 200 200
Additional paid-in capital................................ 249,800 249,800
Accumulated deficit....................................... (1,649,543) (3,348,942)
----------- -----------
Total stockholders' deficit....................... (1,399,543) (3,098,942)
----------- -----------
Total liabilities and stockholders' deficit....... $ 2,577,566 $ 2,486,227
=========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-4
<PAGE> 307

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(APRIL 30, 1996) JANUARY 1, 1997,
TO TO
DECEMBER 31, JUNE 30,
1996 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $ -- $ --
COSTS AND EXPENSES:
Salaries and benefits..................................... 545,949 901,065
Rent and lease expense.................................... 57,015 114,134
General and administrative................................ 299,585 412,494
Depreciation.............................................. 2,612 12,691
Interest expense.......................................... 36,031 104,792
Professional services..................................... 607,482 143,859
Marketing expense......................................... 114,067 43,499
----------- -----------
Total costs and expenses.......................... 1,662,741 1,732,534
----------- -----------
INTEREST INCOME............................................. 13,198 33,135
----------- -----------
NET LOSS.................................................... $(1,649,543) $(1,699,399)
=========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE> 308

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 30, 1996 (inception)..... -- $ -- $ -- $ -- $ --
Issuance of common stock.............. 2,000,000 200 249,800 -- 250,000
Net loss.............................. -- -- -- (1,649,543) (1,649,543)
--------- ---- -------- ----------- -----------
BALANCE, December 31, 1996.............. 2,000,000 200 249,800 (1,649,543) (1,399,543)
Net loss (unaudited).................. -- -- -- (1,699,399) (1,699,399)
--------- ---- -------- ----------- -----------
BALANCE, June 30, 1997 (unaudited)...... 2,000,000 $200 $249,800 $(3,348,942) $(3,098,942)
========= ==== ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-6
<PAGE> 309

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(APRIL 30,
1996) TO SIX MONTHS
DECEMBER 31, ENDED
1996 JUNE 30, 1997
--------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,649,543) $(1,699,399)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation........................................... 2,612 12,691
Changes in assets and liabilities --
Prepaid expenses..................................... (15,002) (122,857)
Intangible asset..................................... -- (2,055,766)
Other assets......................................... (14,480) (1,231)
Accrued expenses..................................... 477,109 1,608,060
----------- -----------
Net cash used in operating activities............. (1,199,304) (2,258,502)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (60,017) (121,940)
----------- -----------
Net cash used in investing activities............. (60,017) (121,940)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable................... 400,000 --
Payments on notes payable................................. (400,000) --
Proceeds from issuance of convertible notes payable....... 3,500,000 --
Issuance of common stock.................................. 250,000 --
----------- -----------
Net cash provided by financing activities......... 3,750,000 --
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 2,490,679 (2,380,442)
CASH AND CASH EQUIVALENTS, at inception..................... -- 2,490,679
----------- -----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 2,490,679 $ 110,237
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period
Interest............................................... $ 7,104 $ --
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-7
<PAGE> 310

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. DESCRIPTION OF BUSINESS:

American Physician Partners, Inc. -- A Development Stage Company (the
"Company"), a Delaware corporation, is a radiology practice management entity.
The Company is a development stage company which through December 31, 1996, had
no revenue or significant operations. During the period from inception (April
30, 1996) to December 31, 1996, the Company reported a net loss of approximately
$1.6 million primarily as a result of general and administrative expenses
incurred during its startup and organizational stage. The Company's operating
prospects are dependent upon a number of factors including the ability to
attract physicians to its business concept and integrate their operations,
competition from similar entities as the Company and overall trends in the
healthcare industry (including the effects of government regulation and
reimbursement trends).

2. SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The financial statements have been prepared on the accrual basis of
accounting and include the accounts of the Company.

The Company's financial statements have been prepared in anticipation of an
initial public offering of the Company's common stock (the "offering").

Cash and Cash Equivalents

The Company considers all highly liquid investments with original
maturities of three months or less when purchased to be cash equivalents.

Property and Equipment

Property and equipment, consisting of furniture, fixtures, and equipment,
are stated at cost. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets (five years).

Net Loss Per Share

Net loss per share data has not been presented as historical information
does not reflect the distribution to the promoters (see Note 8) which will occur
in conjunction with the offering and will be paid with the proceeds thereof.

In February 1997, the Financial Accounting Standards Board issued Statement
128, "Earnings Per Share" (FASB No. 128.) This Statement simplifies the
standards for computing earnings per share previously found in APB No. 15,
"Earnings Per Share," and applies to entities with publicly held common stock or
potential publicly held common stock. FASB No. 128 is effective for financial
statements for both interim and annual periods ending after December 31, 1997,
early application is not permitted.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

F-8
<PAGE> 311

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Basis of Presentation -- Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim period from January 1, 1997, to June 30, 1997, has been included
herein. The results of operations for the interim period is not necessarily
indicative of the results for the full year.

3. CONVERTIBLE NOTES PAYABLE:

During 1996, the Company issued $3,500,000 in convertible notes (the
"Notes"). As of December 31, 1996, $40,000 and $357,000 of the Notes are held by
employees and shareholders, respectively. The interest rate on the Notes is 6%
and they mature on January 31, 1998. The Notes may, at the election of the
noteholders of at least 50% of the outstanding principal amount, be converted
into shares of common stock at a conversion price of $8 per share, subject to
certain limitations, as defined in the Note agreement. In addition, upon or
after the effective date of the offering, the Company may redeem the Notes at
par in whole or in part. The Company expects that the note holders will elect
conversion upon the Company's request for redemption.

If the Notes remain outstanding at January 31, 1998, the interest rate
increases to the prime rate plus 2% per annum.

The Company issued $400,000 in notes to stockholders during 1996. The
interest rate on these notes was the bank base lending rate. These notes were
paid in full prior to December 31, 1996.

4. COMMON STOCK AND STOCK OPTION PLAN:

Common Stock

During 1996, the Company's Board of Directors issued 2,000,000 shares of
common stock. No shares of stock were held by employees at December 31, 1996.

Stock Option Plan

During 1996, the Company's Board of Directors approved a Stock Option Plan
(the "Plan") under which 3,000,000 options to purchase shares of the Company's
common stock may be granted to key directors, employees and other health care
professionals associated with the Company, as defined by the Plan. Options
granted under the Plan may be either incentive stock options (ISO) or
nonqualified stock options (NQSO). The option price per share under the Plan may
not be less than 100% of the fair market value at the grant date for ISO and may
not be less than 85% of the fair market value at the grant date for NQSO.
Generally, options vest over a 5-year period.

The Company accounts for its stock-based compensation arrangements under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25). In 1995, Financial Accounting Standards
Board Statement No. 123, "Accounting for Stock-Based Compensation" (FASB No.
123), was issued, whereby companies may elect to account for stock-based
compensation using a fair value based method or continue measuring compensation
expense using the intrinsic value method prescribed in APB No. 25. FASB No. 123
requires that companies electing to continue to use the intrinsic

F-9
<PAGE> 312

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

value method make pro forma disclosure of net income and net income per share as
if the fair value based method of accounting had been applied.

The Company used the minimum value method to estimate the fair value of
options. For purposes of the minimum value method, the Company used U.S.
Treasury strip rates for its risk-free interest rates, assumed no volatility or
future dividends, and assumed the expected life of the options through the
applicable expiration dates. The pro forma effects of adopting FASB No. 123's
fair value based method for the period ended December 31, 1996 were not
materially different from the corresponding APB No. 25 intrinsic value
methodology because the weighted average grant-date fair value of options
granted during the period was negligible. However, the effects of applying FASB
No. 123 during 1996 are not likely to be representative of the effects on pro
forma net income for future years because the vesting of options will cause
additional incremental expense to be recognized in future periods.

As of December 31, 1996, 1,210,000 options were granted and 1,790,000
options were available to be granted under the Plan. The weighted average
exercise prices for total granted options and total exercisable options were
$.74 and $.20, respectively, at December 31, 1996. The following table
summarizes information for the significant option groups outstanding at December
31, 1996:

<TABLE>
<CAPTION>
EXERCISE OPTIONS REMAINING EXERCISABLE
PRICE OUTSTANDING LIFE OPTIONS
- -------- ----------- ----------- -----------
(YEARS)
<S> <C> <C> <C>
$ .125 1,115,000 10 99,083
8.00 95,000 10 917
</TABLE>

Upon the effective date of the offering, the vesting period of 480,000
options will accelerate. Acceleration of the vesting period does not change the
measurement date pursuant to the provisions of APB 25 and accordingly no
compensation expense will be recognized.

5. INCOME TAXES:

The Company has incurred losses since inception. At December 31, 1996, the
Company has a net operating loss carryforward for income tax purposes of
approximately $1,647,000 available to reduce future amounts of taxable income.
If not utilized to offset future taxable income, the net operating loss
carryforward will expire in 2011.

The deferred tax benefit of approximately $600,000 generated during 1996
has been fully offset by a valuation allowance. The Company has recorded a full
valuation allowance against its deferred tax asset because of the Company's
current financial condition, its limited operating history, and its operating
losses recorded to date. If the Company does achieve profitability in the
future, the valuation allowance will be reduced by a credit to income.

6. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Instruments," requires disclosure about the fair value of
financial instruments. The carrying amounts and the estimated fair values for
these financial instruments as of December 31, 1996, were as follows:

<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents................................... $2,490,679 $2,490,679
Convertible notes payable................................... 3,500,000 3,421,687
</TABLE>

F-10
<PAGE> 313

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES:

Leases

Lease expense of $57,015 for the period ended December 31, 1996, consists
of corporate office space and corporate equipment.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1996:

8. SUBSEQUENT EVENTS:

The Company plans to reorganize and complete an initial public offering. As
part of this transaction, all nonmonetary assets and certain monetary assets
(primarily accounts receivable, cash, and other monetary assets such as
inventory, deposits, prepaids and miscellaneous other receivables, but excluding
notes receivable from physicians) and liabilities, excluding those liabilities
payable to physicians such as accrued or defined physician compensation, and
certain other liabilities payable to physicians related to other benefit plans
of seven radiology practices (the "Founding Affiliated Practices") will be
exchanged for the Company's common stock and cash. Each of the stockholders of
the Founding Affiliated Practices is deemed to be a promoter of the offering.
The exchange will be accounted for at the historical cost basis with the stock
being valued at the historical cost of the net assets exchanged. The cash
payments to the owners of the Founding Affiliated Practices will be reflected as
dividends paid by the Company. Concurrent with these exchanges, the physicians
will create new medical professional corporations (PC's) which will enter into
40-year service agreements with the Company. Additionally, all physicians will
enter into employment and noncompete agreements with the new PC's.

As of the closing date, the Company will agree to pay the owners of the
Founding Affiliated Practices amounts equal to their existing cash and net
accounts receivable, less certain accounts payable and accrued liabilities of
the Founding Affiliated Practices.

The following summarized unaudited pro forma information assumes the
exchange between the Company and the Founding Affiliated Practices, but does not
give effect to the offering or the distribution to promoters. This pro forma
information assumes the exchanges occurred on June 30, 1997 (in thousands):

<TABLE>
<S> <C>
Balance sheet --
Working capital........................................... $ 3,895
Total assets.............................................. 75,524
Long-term debt and capital leases, net of current
maturities............................................. 19,754
Stockholders' equity...................................... 19,264
</TABLE>

This pro forma information may not be indicative of actual results if the
transactions had occurred on the dates indicated or which may be realized in the
future.

F-11
<PAGE> 314

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Advanced Radiology, LLC:

We have audited the accompanying consolidated balance sheets of Advanced
Radiology, LLC (a Maryland limited liability company) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of income,
owners' equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Advanced Radiology, LLC and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
February 21, 1997

F-12
<PAGE> 315

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,822,724 $ 3,048,169 $ 184,677
Accounts receivable, net of allowances of
$11,656,529, $13,591,727, and $14,922,987 at
December 31, 1995 and 1996 and June 30, 1997 ,
respectively................................... 9,957,828 12,041,297 15,042,029
Other receivables................................. -- 229,162 374,624
Other current assets.............................. 406,753 1,509,912 669,365
----------- ----------- -----------
Total current assets...................... 12,187,305 16,828,540 16,270,695
PROPERTY AND EQUIPMENT, net......................... 12,871,519 13,950,022 14,860,394
INVESTMENTS IN AFFILIATED ENTITIES.................. 497,345 743,586 1,101,109
OTHER ASSETS, net................................... 6,130,486 7,888,383 7,064,871
----------- ----------- -----------
Total assets.............................. $31,686,655 $39,410,531 $39,297,069
=========== =========== ===========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Revolving credit facilities....................... $ 1,700,000 $ 4,000,000 $ 2,900,000
Accounts payable and accrued expenses............. 2,591,707 625,224 2,007,387
Accrued salaries and benefits..................... 2,073,807 1,328,370 1,605,918
Due to joint ventures............................. 1,162,296 1,430,415 693,257
Current portion of long-term debt................. 2,357,143 3,999,473 3,909,343
Other current liabilities......................... -- 248,450 748,789
----------- ----------- -----------
Total current liabilities................. 9,884,953 11,631,932 11,864,694
----------- ----------- -----------
LONG-TERM DEBT, net of current portion.............. 5,142,857 6,708,214 4,812,573
OTHER LIABILITIES................................... -- 359,012 359,012
----------- ----------- -----------
Total liabilities......................... 15,027,810 18,699,158 17,036,279
MINORITY INTEREST................................... -- 381,698 408,103
OWNERS' EQUITY...................................... 16,658,845 20,329,675 21,852,687
----------- ----------- -----------
Total liabilities and owners' equity...... $31,686,655 $39,410,531 $39,297,069
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-13
<PAGE> 316

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical service revenue,
net........................ $19,277,956 $37,357,073 $51,692,004 $23,241,501 $31,103,238
Other revenue................. 3,173,533 1,476,239 1,189,986 524,288 456,914
----------- ----------- ----------- ----------- -----------
Total revenue......... 22,451,489 38,833,312 52,881,990 23,765,789 31,560,152
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Distributions to physician
owners..................... 8,755,971 12,355,000 20,563,799 8,600,000 12,199,998
Costs of affiliated physician
services................... -- 811,926 2,293,233 1,589,158 2,308,427
Practice salaries, wages and
benefits................... 6,325,282 10,051,129 12,317,949 5,567,355 7,683,633
Practice supplies............. 1,145,397 2,626,338 3,206,294 1,576,699 1,838,344
Practice rent and lease
expense.................... 862,257 2,184,472 2,301,575 1,306,004 1,598,479
Depreciation and
amortization............... 1,879,420 3,268,977 3,695,649 1,868,353 2,102,488
Other practice expenses....... 3,338,356 4,184,188 6,272,470 2,694,655 3,542,759
Interest expense.............. 410,752 1,003,042 751,086 307,409 445,779
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 22,717,435 36,485,072 51,402,055 23,509,633 31,719,907
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY IN
EARNINGS OF INVESTMENTS....... (265,946) 2,348,240 1,479,935 256,156 (159,755)
EQUITY IN EARNINGS OF
INVESTMENTS................... 761,999 634,659 1,207,670 680,447 642,367
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES..... -- -- (18,055) 9,239 (26,405)
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 496,053 $ 2,982,899 $ 2,669,550 $ 945,842 $ 456,207
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-14
<PAGE> 317

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1993.................................. $10,638,485
Capital contributions..................................... 1,200
Net income................................................ 496,053
-----------
BALANCE, December 31, 1994.................................. 11,135,738
Assets contributed, net of distribution to Copeland....... 240,208
Capital contributions..................................... 2,300,000
Net income................................................ 2,982,899
-----------
BALANCE, December 31, 1995.................................. 16,658,845
Contribution of practice net assets....................... 1,001,280
Net income................................................ 2,669,550
-----------
BALANCE, December 31, 1996.................................. 20,329,675
Capital Contributions (unaudited)......................... 1,066,805
Net income (unaudited).................................... 456,207
-----------
BALANCE, June 30, 1997 (unaudited).......................... $21,852,687
===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-15
<PAGE> 318

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 496,053 $ 2,982,899 $ 2,669,550 $ 945,842 $ 456,207
Adjustments to reconcile net income to net cash
provided by operating activities --
Minority interest in income of consolidated
subsidiaries............................... -- -- 18,055 (9,239) 26,405
Depreciation and amortization................ 1,879,420 3,268,977 3,695,649 1,868,353 2,102,488
Investment (income) loss from affiliated
entities................................... (761,999) (634,659) (1,207,670) (680,447) (642,367)
(Gain) loss on sale of assets................ (19,665) 12,302 379 -- --
Changes in assets and liabilities
(Increase) decrease in --
Accounts receivable, net................... (208,451) (9,957,828) (2,083,469) (731,663) (3,000,732)
Other receivables and other current
assets.................................. 96,924 (724,734) (261,143) (1,548,458) 695,085
Other noncurrent assets.................... (112,541) (242,636) (2,023,516) (1,208,878) --
Increase (decrease) in --
Accounts payable and accrued expenses...... 265,456 2,307,168 (1,966,483) 992,615 1,382,163
Accrued salaries and benefits.............. 138,042 2,073,806 (745,436) (2,012,306) 277,548
Due to joint ventures...................... 216,766 1,608,528 268,119 (269,952) (737,158)
Other liabilities.......................... (91) -- 248,450 -- 500,338
----------- ------------ ----------- ----------- -----------
Net cash provided by operating
activities............................ 1,989,914 693,823 (1,387,515) (2,654,133) 1,059,977
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of capital equipment.... 30,200 -- -- -- --
Purchases of capital equipment................. (2,133,526) (1,821,663) (3,295,696) (1,333,481) (2,189,347)
Contributions to partnerships.................. -- (61,198) (265,426) -- (302,772)
Distributions received from affiliated
entities..................................... 818,482 59,407 1,246,214 655,043 587,616
----------- ------------ ----------- ----------- -----------
Net cash used in investing activities... (1,284,844) (1,823,454) (2,314,908) (678,438) (1,904,503)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................... 1,069,512 9,000,000 5,114,881 -- --
Repayment of long-term debt.................... (1,885,125) (10,047,645) (2,850,656) (239,873) (1,985,771)
Net increase in line of credit................. -- 1,700,000 2,300,000 1,778,000 (1,100,000)
Contributions from members..................... -- 2,300,000 -- -- 1,066,805
Distribution to Copeland shareholders.......... -- (5,466) -- -- --
Proceeds from the sale of stock................ 1,200 -- -- -- --
Minority interest contribution to joint
venture...................................... -- -- 363,643 363,644 --
----------- ------------ ----------- ----------- -----------
Net cash used in financing activities... (814,413) 2,946,889 4,927,868 1,901,771 (2,018,966)
----------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (109,343) 1,817,258 1,225,445 (1,430,800) (2,863,492)
CASH AND CASH EQUIVALENTS, beginning of period... 114,809 5,466 1,822,724 1,822,724 3,048,169
----------- ------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period......... $ 5,466 $ 1,822,724 $ 3,048,169 $ 391,924 $ 184,677
=========== ============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Cash interest paid............................. $ 410,752 $ 1,003,000 $ 751,086 $ 307,409 $ 445,779
=========== ============ =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-16
<PAGE> 319

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Advanced Radiology, LLC (the "Company") is a Maryland limited liability
company organized to provide radiology and imaging healthcare services. Its
offices are located in the Baltimore, Maryland, metropolitan area. The Company
was organized in October 1994 and began providing healthcare services in January
1995.

The consolidated financial statements include the accounts of the Company
and its seventy-three percent owned subsidiary, MRI at St. Joseph Medical
Center, LLC ("MRI"). All significant intercompany accounts and transactions have
been eliminated in consolidation.

The Company was formed through the contribution of assets and medical
business of five existing radiology practices -- Drs. Copeland, Hyman, and
Shackman, P.A. ("Copeland"); Drs. Thomas, Wallop, Kim, and Lewis, P.A.
("Arundel"); Diagnostic Imaging Associates, P.A. (DIAPA); Drs. DeCarlo, Lyon,
Hearn, and Pazourek, P.A. ("DeCarlo"); and Carroll Imaging Associates, P.A.
("Carroll") (collectively, the "Practices"). Effective January 1, 1995, the
Practices contributed certain assets (primarily fixed assets and investments in
joint ventures) and the debt related to those assets in exchange for ownership
interests in the Company. The Company did not acquire the ownership interests of
the Practices; however, the Company became the sole provider of medical
services. The Practices remain in existence and continue to employ all
physician-owners. Distributions are made by the Company to the Practices, who
then pay all physician-owner salaries. Such distributions have been included as
operating expenses in the consolidated statements of income.

The initial formation of the Company has been accounted for as a purchase
under APB No. 16. Based on the asset sizes of the individual contributed
radiology practices, Copeland was identified as the accounting acquirer, and
accordingly, all balances prior to January 1, 1995, represent the activities of
Copeland on a stand alone basis. The net assets contributed by Arundel, DIAPA,
DeCarlo, and Carroll were recorded at the estimated fair value of the assets
contributed and liabilities assumed. The excess purchase price (goodwill) was
determined based upon the fair value of the ownership interest received relative
to Copeland less the fair value of net assets contributed. Following are the
assets and liabilities, by practice.

<TABLE>
<CAPTION>
ARUNDEL DIAPA DECARLO CARROLL TOTAL
----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Fixed assets.................... $ 2,082,667 $ 931,433 $ 502,922 $ 37,939 $ 3,554,961
Investments in joint venture.... -- -- -- (336,732) (336,732)
Debt............................ (1,705,357) (670,203) (262,405) (20,998) (2,658,963)
Other........................... 19,732 (19,414) 923 875 2,116
----------- --------- --------- --------- -----------
Total................. $ 397,042 $ 241,816 $ 241,440 $(318,916) 561,382
=========== ========= ========= ========= -----------
Excess purchase price
(goodwill).................... 6,150,426
-----------
Total estimated fair market
value contributed............. $ 6,711,808
===========
</TABLE>

In addition, as part of the initial formation of the Company, all of the
assets and liabilities of Copeland, other than fixed assets, debt, and certain
miscellaneous assets, were maintained by Copeland and were not contributed to
the Company. Net assets in the amount of $6,471,600 (consisting primarily of
accounts receivable) were not contributed to the Company by Copeland. This
amount, less the $6,711,808 described above, has been reflected as a
contribution of $240,208 in the accompanying consolidated statements of owners'
equity.

F-17
<PAGE> 320

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Each of the Practices received Class B membership interests in the Company.
Such Class B interests represent in excess of 99% of the Company's ownership.
The Class A members are approximately 50 physicians, each owning an .01%
interest. The Class B members appoint the Management Committee, which has the
authority to manage regular operations of the Company.

In April 1996, Harbor Radiologists, P.A. ("Harbor") was admitted as a
14.30% Class B member of the Company. Its shareholders were also admitted as
Class A members. The estimated fair market values of assets and liabilities
contributed by Harbor in exchange for an interest in the Company are as follows:

<TABLE>
<S> <C>
Fixed Assets............................................. $1,921,376
Debt..................................................... (943,461)
Other.................................................... 23,365
----------
Estimated fair market value.............................. $1,001,280
==========
</TABLE>

The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts.

Property and Equipment

Property and equipment is recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Investments in Affiliated Entities

Investments in joint venture partnerships are accounted for using the
equity method. In addition, the Company holds two investments in entities
accounted for under the cost method.

Other Assets

Other assets include loan origination costs, organization costs, deposits
and other assets. Loan origination costs are being amortized on a straight-line
basis over a four-year period. Organizations costs are being amortized on a
straight-line basis over a five-year period. Goodwill is being amortized over a
twenty-five year life.

F-18
<PAGE> 321

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of the
Company's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.

All physician owners are employed by the Practices. Distributions are made
by the Company to the Practices, who then pay all physician owner salaries. Such
distributions have been included as an operating expense in the consolidated
statements of income.

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include all compensation to
non-owner physicians, as well as certain benefits, educational and travel costs
paid to non-owner physicians and physician owners.

Income Taxes

There is no provision for income taxes in the accompanying consolidated
financial statements. The members include their respective share of Company
profits and losses in their individual and corporate tax returns. In 1994,
Copeland was an S corporation, and accordingly all profits and losses were
reported by the individual physicians in their individual corporate returns.

Concentration of Credit Risk

The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.

F-19
<PAGE> 322

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. INVESTMENTS IN AFFILIATED ENTITIES:

In 1995, investments in affiliated entities consist of 50% interests in two
partnerships (Franklin Imaging Joint Venture ("Franklin") and Advanced Imaging
of Carroll County Limited Partnership (AICC)), which perform radiology and
imaging healthcare services, and 50% of the common stock of a corporation
(Advanced Medical Imaging, Inc. (AMI)) which enters into and administers managed
care contracts for radiology services.

In January 1996, the Company became a 50% member in Poole Road Imaging, LLC
("Poole"), which was organized to perform radiology and imaging healthcare
services in the Carroll County General Hospital service area. The Company's
initial capital contribution consisted primarily of the fixed assets at its
Poole Road office, which had a net book value of approximately $712,000 at
December 31, 1995. The Poole Road office is now operated by Poole. In August,
1996, the Company became a 50% member in Health Systems Imaging, LLC, which owns
and operates diagnostic imaging centers. These investment balances at December
31 are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Franklin.................................................... $ 856,535 $539,843
AICC........................................................ (330,555) (71,075)
AMI......................................................... (33,635) 17,424
Health Systems Imaging, LLC................................. -- 107,598
Poole....................................................... -- 64,796
Other....................................................... 5,000 85,000
--------- --------
$ 497,345 $743,586
========= ========
</TABLE>

Summary information from the unaudited financial statements of Franklin as
of and for the year ended December 31, 1996, is as follows:

<TABLE>
<S> <C>
Current assets.............................................. $2,981,926
Total assets................................................ 3,123,695
Current liabilities......................................... 1,275,441
Total liabilities........................................... 1,662,751
Partners' equity............................................ 1,460,944
Revenue..................................................... $5,202,128
Net income.................................................. $1,567,258
</TABLE>

4. PROPERTY AND EQUIPMENT:

Property and equipment at December 31 consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
(YEARS) 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Medical equipment.......................... 5-10 $ 19,312,384 $ 24,716,479
Leasehold improvements..................... 3-19 5,267,811 5,900,495
Furniture and fixtures..................... 5-7 4,156,432 5,078,959
------------ ------------
28,736,627 35,695,933
Accumulated depreciation and
amortization............................. (15,865,108) (21,745,911)
------------ ------------
Property and equipment, net.............. $ 12,871,519 $ 13,950,022
============ ============
</TABLE>

F-20
<PAGE> 323

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt as of December 31 is as follows:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Mercantile Safe Deposit and Trust -- prime plus 1/4% (8.5%
at December 31, 1996), due December 31, 1998............. $ 7,500,000 $ 5,142,858
Mercantile Safe Deposit and Trust -- prime (8.25% at
December 31, 1996), due June 30, 2001.................... -- 2,706,667
Mercantile Safe Deposit and Trust -- prime (8.25% at
December 31, 1996), due 2001............................. -- 2,214,882
First National Bank of Maryland notes -- 30 day LIBOR plus
2.25% (8.03% at December 30, 1996), due March 1999....... -- 643,280
----------- -----------
Total long-term debt....................................... 7,500,000 10,707,687
Less current maturities.................................... (2,357,143) (3,999,473)
----------- -----------
Total long term debt, net of current portion............... $ 5,142,857 $ 6,708,214
=========== ===========
</TABLE>

The Company has a $5,000,000 revolving line of credit for working capital
purposes with Mercantile Safe Deposit and Trust Company ("Mercantile"). At
December 31, 1996, the Company had $4,000,000 outstanding under the line. In
addition, the Company has a $15,000,000 revolving credit facility with
Mercantile for equipment purchases. Advances under the credit facilities bear
interest at bank's prime rate, payable monthly. The interest rate at December
31, 1996, was 8.25%. The maturity date is July 3, 1997 or on such later date as
the bank may elect; however, on an annual basis, the bank may approve a one-year
extension. Advances under the credit facility, when combined with any
outstanding balances on two of the term loan note payables described above, are
limited to $20,000,000 in total. At December 31, 1996, the maximum amount of
funds available under the credit facility approximated $8,200,000. Advances are
collateralized by a first lien on all assets of the Company and the guarantees
of the five Class B members.

In connection with the term and revolving credit facility to Mercantile,
the Company is required to maintain a liabilities to net worth ratio not
exceeding 1 to 1, and a minimum cash flow coverage ratio of at least 1.25 to 1.
In addition, the agreement provides that at no time shall total debt to
Mercantile exceed 80% of the fair market value of the Company's fixed assets,
plus the Company's and guarantors' eligible accounts receivable (as defined).

Future maturities of long-term debt at December 31, 1996, are as follows:

F-21
<PAGE> 324

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LEASES:

The Company leases office facilities and certain equipment under various
noncancelable operating leases that expire at various dates through 2004.
Certain of the office leases provide for renewal options. Future minimum lease
payments under noncancelable operating leases at December 31, 1996, are as
follows:

<TABLE>
<S> <C>
1997..................................................... $1,608,947
1998..................................................... 1,319,045
1999..................................................... 952,888
2000..................................................... 552,661
2001..................................................... 498,810
----------
Total.......................................... $4,932,351
==========
</TABLE>

Total rent expense was approximately $862,000 in 1994, $2,069,000 in 1995,
and $2,156,000 in 1996.

The Company has also entered into a three-year agreement, expiring in April
1998, whereby it pays a quarterly fee for selection, procurement, repair and
maintenance of its radiology and imaging equipment. Total fees paid under this
arrangement approximate $950,000 per year, and are subject to adjustment to
reflect changes in the equipment and clinical needs of the Company.

7. EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) plan for employees of the Company and its
five corporate members who have completed one year of service and are at least
age 21. The plan does not provide for employer matching contributions, but does
allow discretionary employer contributions. The Company's contribution in 1995
was $1,911,000, which was remitted in February 1996. Included in this amount is
$1,455,000 relating to Class A members, which is included in distributions to
owners in the accompanying statement of owners' equity. The Company's
contribution for 1996 was $2,136,000, which was remitted in March 1997. Included
in this amount is $1,605,000 relating to Class A members, which is included in
distributions.

8. RELATED-PARTY TRANSACTIONS:

As indicated in Note 3, the Company has 50% partnership interests in
Franklin, AICC, and Poole. A Class B member of the Company has a 50% partnership
interest in Greater Baltimore Diagnostic Imaging Partnership (GBDIP). Under
agreements with these partnerships (Franklin, AICC, GBDIP, and Poole), the
Company performs professional, billing, and management services. These services
are billed to the partnerships based primarily upon agreed-upon percentages of
the partnerships' cash basis revenue. Management and professional fees earned
from these partnerships are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Franklin............................... $2,016,579 $1,678,000 $1,851,000
AICC................................... -- 162,000 204,000
GBDIP.................................. -- 149,000 474,000
Poole.................................. -- -- 364,000
---------- ---------- ----------
$2,016,579 $1,989,000 $2,893,000
========== ========== ==========
</TABLE>

F-22
<PAGE> 325

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also collects the receivables of the partnerships and
periodically remits the collections to them. In addition, the Company pays
certain expenses on behalf of the partnerships and is periodically reimbursed by
them.

Amounts due to/(from) affiliated entities at December 31 are as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Franklin.................................................... $ 980,183 $ 687,226
AICC........................................................ (61,800) 186,303
GBDIP....................................................... 243,913 110,298
Poole....................................................... -- 99,644
Health Systems Imaging, LLC................................. -- 346,944
---------- ----------
$1,162,296 $1,430,415
========== ==========
</TABLE>

The Company performs radiology and imaging healthcare services under
managed care contracts entered into and administered by AMI (see Note 3), and
remits a management fee to AMI. Such management fees were not significant in
1995 and 1996. In addition, the Company pays certain expenses on behalf of AMI
and is periodically reimbursed. There are no significant amounts due from or to
AMI at December 31, 1995 and 1996.

The Company leases seven of its office facilities from entities in which
certain of the Company's members have ownership interests. Rent expense relating
to such facilities was approximately $800,000 in 1995 and $796,000 in 1996.
There were no such arrangements during 1994.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. The carrying amounts of accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short maturity of these
instruments. The carrying amount of the Company's long-term debt also
approximates fair value.

10. MEMBERSHIP REDEMPTION OPTION:

Under the terms of the Company's operating agreement, at any time on or
after October 17, 1999, the Company has the option to redeem the membership
interests of all of the Class B members (which are the corporate members of the
Company) at a price equal to the then positive capital account balances of such
members, or, if such balances are zero or negative, for a price of $10.
Twenty-five percent of the redemption price is to be paid no later than six
months after the exercise of the option with the remainder generally being paid
in three annual installments, including interest.

11. CONTINGENCIES:

The Company is a defendant in certain claims arising from alleged acts of
malpractice. Legal counsel for the Company is of the opinion that such claims
are adequately covered by malpractice insurance.

The Company is a defendant in a lawsuit brought by two former employees of
a Class B member alleging employment discrimination. Total damages claimed are
$80 million. The case has been compelled to binding arbitration; however, no
Scheduling Order has been issued, and no substantive discovery has taken place.
In the opinion of management, the ultimate disposition of this case will not
have a material adverse effect on the Company's financial condition or results
of operations.

F-23
<PAGE> 326

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1996, the Company became self-insured for employee health insurance
benefits. Stop-loss insurance coverage has been purchased which covers all
claims exceeding $35,000 per family with an aggregate maximum limit of 125% of
expected claims, as determined by the insurance company (approximately $684,000
in 1996).

12. SUBSEQUENT EVENTS:

On August 13, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
leases and other general operating expenses.

Effective January 1, 1997, Drs. Perilla, Sindler & Associates, P.A. (PSA)
contributed certain assets and liabilities to the Company in exchange for an
11.39% ownership interest. This transaction will be accounted for using the
purchase method.

F-24
<PAGE> 327

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
The Ide Group, P.C.:

We have audited the accompanying combined balance sheets of The Ide Group,
P.C. (a New York professional corporation) and Ide Diagnostic Imaging Associates
(a New York general partnership) as of June 30, 1997, 1996 and 1995, and the
related combined statements of income, changes in stockholders' equity and
partners' capital, and cash flows for the three years then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The Ide Group, P.C.
and Ide Diagnostic Imaging Associates as of June 30, 1997, 1996, and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

DEJOY, KNAUF & BLOOD LLP

Rochester, New York,
August 5, 1997

F-25
<PAGE> 328

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $ 238,071 $ 199,048 $ 268,854
Accounts receivable, net of allowance
for doubtful accounts and
contractual adjustments of
$1,185,000, $1,857,000 and
$2,425,000 at June 30, 1997, 1996
and 1995, respectively.............. 5,261,378 4,770,648 4,235,067
Supplies on hand...................... 81,988 116,938 99,177
Prepaids and deposits................. 43,649 23,085 65,247
----------- ----------- -----------
Total current assets............ 5,625,086 5,109,719 4,668,345
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Radiology equipment................... 4,625,916 5,147,974 5,000,123
Furniture and fixtures................ 1,385,415 1,560,388 1,534,760
Leasehold improvements................ 409,119 409,862 555,785
----------- ----------- -----------
6,420,450 7,118,224 7,090,668
Less -- Accumulated depreciation...... (5,423,810) (5,787,413) (5,104,880)
----------- ----------- -----------
996,640 1,330,811 1,985,788
----------- ----------- -----------
OTHER ASSETS:
Cash surrender value of life insurance
policies............................ 348,649 337,326 314,591
Refundable bonds...................... 10,000 43,950 50,950
Other assets.......................... 38,541 38,541 10,274
----------- ----------- -----------
397,190 419,817 375,815
----------- ----------- -----------
TOTAL ASSETS............................ $7,018,916 $ 6,860,347 $ 7,029,948
=========== =========== ===========

LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Line of credit........................ $ -- $ -- $ 200,000
Accounts payable...................... 1,633,103 755,391 759,743
Current portion of long-term debt..... 436,440 380,000 841,463
Accrued liabilities................... 388,877 355,346 77,628
Accrued profit sharing................ 198,820 -- 240,678
Accrued vacation...................... 362,864 342,579 320,027
----------- ----------- -----------
Total current liabilities....... 3,020,104 1,833,316 2,439,539
----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt........................ 1,250,227 1,361,667 1,145,650
Life insurance loans payable.......... 171,379 171,379 167,613
Deferred income taxes................. 1,041,833 1,185,742 811,965
----------- ----------- -----------
2,463,439 2,718,788 2,125,228
----------- ----------- -----------
STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL:
Common stock ($1 par, 20,000 shares
authorized, 2,400 shares issued and
outstanding)........................ 2,400 2,400 2,300
Additional paid-in capital............ 3,268 3,268 3,268
Retained earnings..................... 1,529,955 2,034,754 1,594,827
Partners' capital..................... -- 268,071 865,036
Less -- Treasury stock................ (250) (250) (250)
----------- ----------- -----------
Total stockholders' equity and
partners' capital............. 1,535,373 2,308,243 2,465,181
----------- ----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND PARTNERS'
CAPITAL....................... $7,018,916 $ 6,860,347 $ 7,029,948
=========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these balance sheets.

F-26
<PAGE> 329

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Medical service revenue, net......................... $26,892,138 $25,996,948 $25,521,062
Other revenue........................................ 11,323 22,736 12,692
----------- ----------- -----------
26,903,461 26,019,684 25,533,754
----------- ----------- -----------
COSTS AND EXPENSES:
Costs of affiliated physician services............... 15,279,935 11,483,239 10,935,981
Practice salaries wages and benefits................. 3,203,763 3,080,586 3,141,263
Practice supplies.................................... 1,289,106 1,558,493 1,597,236
Practice rent and lease expense...................... 3,982,938 3,598,904 3,532,920
Depreciation and amortization........................ 532,053 835,326 838,919
Other practice expenses.............................. 3,150,236 3,356,050 3,241,889
Interest expense..................................... 111,569 202,195 225,447
----------- ----------- -----------
Total costs and expenses..................... 27,549,600 24,114,793 23,513,655
----------- ----------- -----------
INCOME (LOSS) BEFORE (PROVISION FOR) BENEFIT FROM
DEFERRED INCOME TAXES................................ (646,139) 1,904,891 2,020,099
(PROVISION FOR) BENEFIT FROM DEFERRED INCOME TAXES..... 141,340 (374,977) 182,454
----------- ----------- -----------
NET INCOME (LOSS)...................................... $ (504,799) $ 1,529,914 $ 2,202,553
=========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these statements.

F-27
<PAGE> 330

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED PARTNERS' TREASURY
SHARES AMOUNT CAPITAL EARNINGS CAPITAL STOCK TOTAL
------ ------ ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1994..... 2,000 2,000 3,268 1,665,141 1,509,174 (100) 3,179,483
Net income (loss).......... -- -- -- (70,314) 2,272,867 -- 2,202,553
Sale of stock.............. 300 300 -- -- -- -- 300
Purchase of stock.......... -- -- -- -- -- (150) (150)
Capital distributions...... -- -- -- -- (2,917,005) -- (2,917,005)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, June 30, 1995..... 2,300 2,300 3,268 1,594,827 865,036 (250) 2,465,181
Net income................. -- -- -- 439,927 1,089,987 -- 1,529,914
Sale of stock.............. 100 100 -- -- -- -- 100
Capital contributions...... -- -- -- -- 68,661 -- 68,661
Capital distributions...... -- -- -- -- (1,755,613) -- (1,755,613)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, June 30, 1996..... 2,400 2,400 3,268 2,034,754 268,071 (250) 2,308,243
Net loss................... -- -- -- (504,799) -- -- (504,799)
Capital distributions...... -- -- -- -- (268,071) -- (268,071)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, June 30, 1997..... 2,400 $2,400 $3,268 $1,529,955 $ -- $(250) $1,535,373
===== ====== ====== ========== ========== ===== ==========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these statements.

F-28
<PAGE> 331

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (504,799) $ 1,529,914 $ 2,202,553
---------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 532,053 835,326 838,919
Deferred taxes......................................... (143,909) 373,777 (191,327)
(Increase) decrease in accounts receivable............. (490,730) (535,581) 377,070
Decrease (increase) in prepaids and deposits........... (20,564) 42,162 172,264
(Increase) decrease in supplies on hand................ 34,950 (17,761) 16,233
(Increase) decrease in other assets.................... -- (28,267) 4,514
Increase (decrease) in accounts payable................ 877,712 (4,352) 74,873
Increase (decrease) in accrued profit sharing.......... 198,820 (240,678) 240,678
Increase (decrease) in accrued liabilities............. 53,816 300,270 12,428
---------- ----------- -----------
Total adjustments................................. 1,042,148 724,896 1,545,652
---------- ----------- -----------
Net cash provided by operating activities......... 537,349 2,254,810 3,748,205
---------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (197,882) (180,349) (1,281,275)
(Increase) decrease in purchase deposits.................. -- -- 459,168
Decrease in refundable bonds.............................. 33,950 7,000 2,100
Capital contributions and net stock purchases............. -- 68,761 150
Capital distributions..................................... (268,071) (1,755,613) (2,917,005)
Increase in cash surrender value of life insurance
policies............................................... (11,323) (22,735) (12,692)
---------- ----------- -----------
Net cash used by investing activities............. (443,326) (1,882,936) (3,749,554)
---------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit.......................... -- (200,000) (400,000)
Principal payments on long-term debt...................... (380,000) (633,585) (910,767)
Net proceeds from issuance of long-term debt.............. 325,000 391,905 455,000
---------- ----------- -----------
Net cash provided (used) by financing activities....... (55,000) (441,680) (855,767)
---------- ----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 39,023 (69,806) (857,116)

CASH AND CASH EQUIVALENTS, beginning of year................ 199,048 268,854 1,125,970
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 238,071 $ 199,048 $ 268,854
========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these statements.

F-29
<PAGE> 332

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Presentation and Principles of Combination

The accompanying combined financial statements present the combined
financial position, results of operations, and cash flows of The Ide Group, P.C.
("Ide"), a New York professional corporation, and Ide Diagnostic Imaging
Associates ("IDIA"), a New York general partnership. Ide was formed to practice
medicine specializing in radiology and radiation oncology in the Rochester, New
York region. IDIA provided magnetic resonance imaging services in the Rochester,
New York region. Effective January 1, 1996, substantially all of the operations
of IDIA were assumed by Ide.

Ide and IDIA are affiliated through common ownership. All material
intercompany balances and transactions are eliminated in combination.

Basis of Accounting

The accompanying financial statements are prepared using the accrual basis
of accounting.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from these estimates.

Revenue Recognition

Revenue is recognized when the related service is performed. Revenue is
recorded net of allowances for contractual adjustments and estimated
uncollectible accounts.

Supplies on Hand

Supplies on hand are stated at the lower of cost, determined on the
first-in, first-out basis, or market.

Property and Equipment

Depreciation and amortization of property and equipment are computed using
methods and lives prescribed under the Internal Revenue Code, which are as
follows:

<TABLE>
<S> <C>
Radiology equipment......................................... 5 years
Furniture and fixtures...................................... 5-7 years
Leasehold improvements...................................... 4-39 years
</TABLE>

F-30
<PAGE> 333

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

2. LONG-TERM DEBT:

Long-term debt consisted of the following at June 30:

<TABLE>
<CAPTION>
TERMS 1997 1996 1995
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
M&T Bank-
Term loan agreement....................... (a) $1,361,667 $1,741,667 $ --
Term loan agreement....................... (b) 325,000 -- --
Chase Manhattan Bank-Term loan agreement.... (c) -- -- 1,987,113
---------- ---------- ----------
1,686,667 1,741,667 1,987,113
Less- Current portion..................... (436,440) (380,000) (841,463)
---------- ---------- ----------
Long-term portion......................... $1,250,227 $1,361,667 $1,145,650
========== ========== ==========
</TABLE>

- ---------------

(a) During fiscal 1996, Ide refinanced its term loan agreement with M&T Bank
("The Bank"). The term loan agreement requires 60 equal monthly principal
payments of $31,667 through January 2001 plus interest. Interest on the
term loan is fixed at 7.74%. The term loan is secured by substantially all
of Ide's assets. Ide has received a commitment from the Bank to allow
borrowings up to a maximum of $3,000,000.

(b) The term loan agreement requires 60 equal monthly installments of $6,674
including interest through June 2002. Interest on the term loan is fixed at
8.54%. The term loan is secured by substantially all of Ide's assets.

As part of the financial covenants contained in Ide's agreements with M&T
Bank, Ide must generate no less than zero taxable income as reflected in
Ide's federal tax return and tangible net worth is not to decline by more
than 20% during any fiscal year. At June 30, 1997, Ide was in default of
both of these covenants. Waivers of these defaults have been obtained from
the bank.

The aggregate annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1998........................................................ $ 436,440
1999........................................................ 439,446
2000........................................................ 444,726
2001........................................................ 292,142
2002........................................................ 73,913
----------
$1,686,667
==========
</TABLE>

3. LINES OF CREDIT:

Ide has a line of credit facility with M&T Bank under which Ide may borrow
up to $1,300,000 at the prime rate (8.5% at June 30, 1997). There were no
borrowings outstanding under this line at June 30, 1997 and 1996. The line of
credit agreement requires that there be no outstanding borrowings under the line
for at least thirty consecutive days each year.

F-31
<PAGE> 334

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Ide previously had an agreement with Chase Manhattan Bank, N.A. which
permitted Ide to borrow up to $600,000 through February 28, 1996. Borrowings
under the agreement were $200,000 at June 30, 1995. The note was repaid in full
and terminated in February 1996.

4. LIFE INSURANCE LOANS PAYABLE:

Ide's life insurance loans payable are secured by the cash surrender value
of the related policies. These policies bear interest at rates which range from
a fixed rate of five percent to rates which float with the prime rate. It is
Ide's intention to not repay these loans during the next year. Therefore, the
loans are reflected as a long-term liability in the accompanying balance sheets.

5. INCOME TAXES:

Ide follows the provisions of Statement of Financial Accounting Standards
Number 109, "Accounting for Income Taxes."

Deferred taxes are recognized for temporary differences between the basis
of assets and liabilities for financial statement and income tax purposes. The
differences result from the use of the cash basis of accounting for income tax
purposes and the use of the accrual basis of accounting for financial statement
purposes, and consist primarily of accounts receivable, accounts payable,
accrued liabilities and net operating loss carryforwards. It is Ide's intention
in future years to pay compensation to employees in amounts sufficient to reduce
taxable income to zero each year.

For federal tax return purposes, Ide has approximately $500,000 of net
operating loss carryforwards as of June 30, 1997, which expire in the years 2006
through 2012.

The results of the Partnerships' operations are reported in the individual
federal and state income tax returns of the partners. The Partnership files
informational returns and, therefore, no provision for income taxes is recorded.

6. REFUNDABLE BONDS:

Refundable bonds consist of deposits required for each Ide physician by
Ide's medical malpractice mutual insurance carrier. The bonds are refundable
from the free and divisible surplus of the insurance company upon cessation of
medical practice of the Ide physician. The bonds earn interest at the rate of
6%.

7. EMPLOYEE BENEFIT PLANS:

Ide maintains a discretionary qualified defined contribution 401(k) and
profit sharing plan ("the Plan"), covering substantially all employees of Ide
and IDIA who have attained the age of 21 and who have met certain minimum
eligibility requirements. The plan is subject to provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The plan also
provides that participants will be able to contribute up to 15% of their
compensation not to exceed $9,500. Ide contributes an amount equal to 25% of an
employee elective deferrals up to 4% of each employee's compensation.

In addition, Ide maintains a qualified discretionary supplemental profit
sharing plan which is subject to provisions of ERISA. The profit sharing expense
under these plans was $490,769, $539,737 and $518,107 for the years ended June
30, 1997, 1996 and 1995, respectively.

F-32
<PAGE> 335

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

Deferred Compensation Agreements

Each Ide shareholder physician's employment contract contains a deferred
compensation agreement. Under the terms of these agreements, these individuals
will receive payments at retirement or death for past services performed. At
June 30, 1997, 1996 and 1995 the vested amount of deferred compensation balances
total approximately $8,966,681, $9,015,593, and $7,329,000, respectively. These
balances will be paid out over time at indeterminable future dates and in
indeterminable future amounts. As such, the amount of liability that would be
recorded in the balance sheet is not reasonably estimable.

Leases

Ide occupies certain offices under lease agreements expiring at various
dates through December, 2000. The minimum rental commitment under all leases in
effect at June 30, 1997 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- --------
<S> <C> <C>
1998................................................................ $505,021
1999................................................................ 230,818
2000................................................................ 155,514
2001................................................................ 64,797
--------
$956,150
========
</TABLE>

The Partnership leases office space under leases expiring through 1998. The
Partnership is fully reimbursed for its office space rental expense under the
terms of its agreement with MICA (see Note 12).

9. RELATED PARTIES:

On January 1, 1996, Ide purchased the property and equipment of a related
entity, IDIA.

Ide has an agreement with an affiliated company whereby the affiliate
performs billing and collection functions for services rendered by Ide. Ide pays
the affiliate a fee based on the amount of billings collected. Payments to this
affiliate were $1,348,805, $1,547,143, and $1,324,882 in fiscal 1997, 1996 and
1995, respectively.

10. CREDIT RISK CONCENTRATIONS:

Ide and IDIA maintain bank account balances which, at times, exceeded the
federally insured limit during the years ended June 30, 1997, 1996 and 1995. The
Companies have not experienced losses related to these deposits and management
does not believe that the Companies are exposed to any significant credit risk
with respect to these accounts.

At June 30, 1997, Ide has approximately $1,465,416 of accounts receivable
due from Health Maintenance Organizations ("HMOs") which is subject to
retrospective adjustment. This amount represents withholdings by the HMOs to be
used against any operating losses incurred by the HMO. In fiscal 1996, Ide
received 80% of funds withheld under its contract with one HMO relating to
calendar 1995. Other than fiscal 1996, Ide has historically collected the full
amount of withheld funds each year.

Substantially all of the Companies' revenue is derived from services
performed in the greater Rochester, New York metropolitan area.

F-33
<PAGE> 336

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Substantially all of the Companies' revenue is derived from providing
medical services to patients covered under contracts with Blue Cross/Blue Shield
of Greater Rochester or affiliates, Blue Choice, Preferred Care, Medicare, or
Medicaid. Changes in the reimbursement rates Ide receives under these contracts
could have a material effect on Ide's financial position and operations.

Subsequent to June 30, 1996, Ide's management became aware of the intention
of the Rochester Community Individual Practice Association and the Rochester
Individual Practice Association, with whom Ide is a participating provider, to
adopt Resource-Based Relative Value Scale ("RBRVS") fee schedule methodologies.
These fee schedules will be implemented effective October 1, 1997. These
Individual Practice Associations ("IPA's") contract with Blue Choice and
Preferred Care, respectively. Approximately 60% of Ide's revenue is derived from
services provided to patients of Blue Choice and Preferred Care. The IPA's have
proposed community-wide budgets for imaging services based upon 1996
community-wide reimbursement levels. These budgets may reflect reductions in
community-wide imaging reimbursement of 12% in 1998 and 26% in 1999 and
thereafter.

11. SUPPLEMENTARY CASH FLOW DISCLOSURES:

Ide considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.

Cash payments for income taxes and interest are as follows for the years
ended June 30:

<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income taxes....................................... $ 2,569 $ 1,200 $ 8,873
-------- -------- --------
Interest........................................... $126,763 $202,798 $224,452
======== ======== ========
</TABLE>

12. EXCLUSIVE SUPPLY AGREEMENT:

On January 1, 1996, Ide assumed the obligations of an agreement between
IDIA and MICA Imaging and Medical Imaging Centers of America, Inc. ("MICA") in
which IDIA agreed to sell to MICA its magnetic resonance imaging ("MRI")
equipment and not to compete with MICA for the provision of MRI services in the
City of Rochester ("City") and within a twenty-five mile radius of the City.
This covenant not to compete also applies to all shareholders of Ide for the
duration of their participation as shareholders and for two years thereafter.

In accordance with the agreement, Ide has the right of first refusal for
the thirty year term of the agreement to provide professional radiology services
at facilities located in specified states in the Northeast except under certain
circumstances as outlined in the agreement.

MICA has the right of first refusal to provide MRI equipment, cryogens
and/or maintenance at any location in specific states in the Northeast where Ide
obtains the right to provide MRI equipment, cryogens and/or maintenance or where
Ide owns, leases or subleases office space for the purposes of providing MRI
services.

Ide also has assumed equipment leases with MICA covering equipment sold by
IDIA to MICA and other MRI equipment operated in private offices located on the
campuses of certain Rochester area hospitals. These lease terms range from five
to thirty years. The rental payments are based upon the aggregate number of MRI
scans performed by Ide using the leased MRI equipment.

If certain events occur under this agreement, Ide may be required to
purchase all fixed and mobile MRI equipment owned by MICA and leased to Ide as
well as to assume leases for fixed MRI equipment leased by

F-34
<PAGE> 337

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

MICA and subleased to Ide by MICA. Ide also may be required to pay MICA a
pro-rata portion of the amount for the exclusive supply contract.

13. ACQUISITION AGREEMENT:

During fiscal 1997, the Company entered into an acquisition agreement with
American Physician Partners, Inc. ("APPI") under which APPI will acquire all of
the non-medical assets of Ide through a merger transaction.

The non-medical assets consist of cash, imaging equipment, accounts
receivable, supplies on hand and other assets. These non-medical assets will be
separated from the medical assets through a reorganization of Ide to be
completed before the transaction with APPI. This reorganization will result in
the creation of a new entity ("New Ide") to provide regulated medical services.
APPI will assume certain liabilities of Ide pursuant to the agreement.

Completion of the transaction is subject to certain conditions, including
the execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to New Ide for a negotiated service fee. All
non-professional employees shall become employees of APPI. In addition, APPI
will assume responsibility for all maintenance, repairs, improvements, lease and
other general operating expenses.

The President of the Company is also a Shareholder of APPI.

F-35
<PAGE> 338

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
M&S X-Ray Practices:

We have audited the accompanying combined balance sheets of M&S X-Ray
Practices (see Note 1) as of December 31, 1996 and 1995, and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of M&S X-Ray Practices as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
March 5, 1997

F-36
<PAGE> 339

M&S X-RAY PRACTICES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 435,968 $ 425,619 $ 759,813
Accounts receivable, net of allowances of $5,650,732,
$4,887,279 and $5,282,236 at December 31, 1995 and
1996 and June 30, 1997, respectively.............. 3,138,151 3,182,876 3,701,703
Other receivables.................................... 44,472 33,859 192,255
Prepaid expenses and other current assets............ 99,141 73,896 73,068
---------- ---------- ----------
Total current assets......................... 3,717,732 3,716,250 4,726,839
PROPERTY AND EQUIPMENT, net............................ 1,252,330 746,268 757,540
INVESTMENT IN JOINT VENTURES........................... 1,023,079 1,170,953 1,419,785
OTHER ASSETS, net...................................... 733,529 698,269 723,643
---------- ---------- ----------
Total assets................................. $6,726,670 $6,331,740 $7,627,807
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable..................................... $ 422,362 $ 190,036 $ 257,337
Accrued expenses..................................... 382,943 24,669 --
Accrued salaries and benefits........................ 112,440 144,961 151,632
Current portion of deferred compensation............. 160,718 83,000 83,000
Current portion of long-term debt.................... 908,626 351,645 230,541
Current portion of capital lease obligations......... 11,773 12,783 12,783
---------- ---------- ----------
Total current liabilities.................... 1,998,862 807,094 735,293
DEFERRED COMPENSATION, net of current portion.......... 1,285,458 1,345,817 1,345,817
CAPITAL LEASE OBLIGATIONS, net of current portion...... 50,018 37,235 37,235
LONG-TERM DEBT, net of current portion................. 541,842 212,408 178,221
---------- ---------- ----------
Total liabilities............................ 3,876,180 2,402,554 2,296,566
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES........ 314,858 346,033 506,203
OWNERS' EQUITY......................................... 2,535,632 3,583,153 4,825,038
---------- ---------- ----------
Total liabilities and owners' equity......... $6,726,670 $6,331,740 $7,627,807
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-37
<PAGE> 340

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $14,720,403 $14,776,742 $7,458,604 $7,011,550
Other revenue......................... 347,765 421,603 253,084 208,527
----------- ----------- ---------- ----------
Total revenue................. 15,068,168 15,198,345 7,711,688 7,220,077
COSTS AND EXPENSES:
Cost of affiliated physician
services........................... 8,866,396 8,703,013 3,938,889 3,485,918
Practice salaries, wages and
benefits........................... 1,227,517 1,337,633 402,249 998,893
Practice supplies..................... 495,959 583,610 272,042 316,495
Practice rent and lease expense....... 249,568 271,677 118,114 148,683
Depreciation and amortization......... 963,148 670,617 332,729 147,923
Other practice expense................ 1,907,070 1,541,530 1,304,450 615,682
Interest expense...................... 123,958 69,694 40,814 16,210
----------- ----------- ---------- ----------
Total costs and expenses...... 13,833,616 13,177,774 6,409,287 5,729,804
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS AND
EQUITY IN EARNINGS OF INVESTMENTS..... 1,234,552 2,020,571 1,302,401 1,490,273
EQUITY IN EARNINGS OF INVESTMENTS....... 212,751 604,625 273,172 427,350
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES............. (216,452) (249,365) (122,266) (160,170)
----------- ----------- ---------- ----------
NET INCOME.............................. $ 1,230,851 $ 2,375,831 $1,453,307 $1,757,453
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-38
<PAGE> 341

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $ 2,624,570
Issuance of stock......................................... 100,000
Purchases of stock........................................ (56,418)
Distributions to stockholders............................. (1,363,371)
Net income................................................ 1,230,851
-----------
BALANCE, December 31, 1995.................................. 2,535,632
Issuance of stock......................................... 100,000
Distributions to stockholders............................. (1,428,310)
Net income................................................ 2,375,831
-----------
BALANCE, December 31, 1996.................................. 3,583,153
Issuance of stock (unaudited)............................. 78,408
Distributions to shareholders (unaudited)................. (593,976)
Net income (unaudited).................................... 1,757,453
-----------
BALANCE, June 30, 1997 (unaudited).......................... $ 4,825,038
===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-39
<PAGE> 342

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 1,230,851 $ 2,375,831 $1,453,307 $1,757,453
Adjustments to reconcile net income to net
cash provided by operating activities --
Minority interest in income of consolidated
subsidiaries............................. 216,452 249,365 122,266 160,170
Depreciation and amortization.............. 963,148 670,617 332,729 147,923
Investment income from joint ventures...... (212,751) (604,625) (273,172) (427,350)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net................. (417,068) (44,725) (268,012) (518,827)
Prepaid expenses and other current
assets................................ (33,748) 35,858 (219,557) (211,386)
Increase (decrease) in --
Accounts payable and accrued expenses.... 383,567 (590,600) 37,605 42,632
Accrued salaries and benefits............ (58,284) 15,162 30,683 6,671
----------- ----------- ---------- ----------
Net cash provided by operating
activities.......................... 2,072,167 2,106,883 1,215,849 957,286
----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (60,437) (99,295) (6,255) (130,751)
Distributions received from joint ventures.... 188,790 426,751 287,271 178,518
----------- ----------- ---------- ----------
Net cash provided by investing
activities.......................... 128,353 327,456 281,016 47,767
----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.................. 30,000 96,000 -- 89,000
Repayment of long-term debt................... (974,392) (982,415) (498,022) (244,291)
Principal payments on capital lease
obligation................................. (5,534) (11,773) -- --
Proceeds from sale of stock................... 100,000 100,000 172,423 78,408
Purchases of stock............................ (56,418) -- -- --
Distributions to stockholders and minority
interest holders........................... (1,633,511) (1,646,500) (722,660) (593,976)
----------- ----------- ---------- ----------
Net cash used in financing
activities.......................... (2,539,855) (2,444,688) (1,048,259) (670,859)
----------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (339,335) (10,349) 448,606 334,194
CASH AND CASH EQUIVALENTS, beginning of year.... 775,303 435,968 435,968 425,619
----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of year................................... $ 435,968 $ 425,619 $ 884,574 $ 759,813
=========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Interest paid................................. $ 122,937 $ 68,294 $ 40,814 $ 16,210
</TABLE>

NONCASH FINANCING ACTIVITY:

A capital lease obligation of $67,325 was incurred during 1995 when the Company
entered into a lease for new equipment.

The accompanying notes are an integral part of these combined financial
statements.

F-40
<PAGE> 343

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying combined financial statements combine the accounts of five
entities under common ownership: M&S X-ray Associates ("M&S"), a Texas
professional association, Madison Square Joint Venture ("Madison"), South Texas
MR, Inc. ("South Texas"), San Antonio MR Inc. ("San Antonio"), and Lexington MR
Ltd. ("Lexington") (collectively the "Company"), all of which are located in San
Antonio, Texas. M&S, a company specializing in radiological medicine, has and an
eight percent investment in Stone Oak Limited Partnership, a real estate limited
partnership. In addition, M&S holds forty-nine percent interest in Southeast
Baptist Imaging Center, a joint venture which owns and operates a diagnostic
imaging center. Madison is also engaged in the practice of radiological
medicine. South Texas holds a forty-nine percent interest in two joint ventures
which own and operate diagnostic imaging centers -- Northeast Baptist MRI Center
and Baptist Imaging Center. San Antonio holds a sixty percent interest in
Lexington, a company which owns and operates diagnostic imaging centers. An
additional nineteen percent of Lexington is owned by individual radiologists
included in the common ownership group. All intercompany transactions have been
eliminated.

The accompanying combined financial statements have been prepared on the
accrual basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.

Accounts Receivable

Property and Equipment

Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Investments in Joint Ventures

Investments in joint ventures are accounted for using the equity method. In
addition, the Company holds an investment in a limited partnership which is
accounted for using the cost method.

Other Assets

Other assets are comprised of organization costs, loan origination costs
and goodwill. Loan origination costs are amortized on a straight-line basis over
the term of the loan. Organization costs are amortized on a straight-line basis
over a five-year period. Goodwill is amortized on a straight-line basis over 15
years.

F-41
<PAGE> 344

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred Compensation

Under the terms of the physician employment agreements, physicians who have
completed a minimum of five years of service are entitled to a payment equal to
two-thirds of their final compensation upon retirement or when they cease to be
employees of the Company. These payments are made in sixty equal monthly
payments beginning upon attainment of age 70 or the date when the physician
leaves the Company. The estimated present value of these liabilities is accrued
ratably during the five year service period.

Medical Service Revenues

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

As each of the consolidated entities is a non-taxable entity, there is no
provision for income taxes in the accompanying financial statements. The
individual owners include their respective share of Company profits and losses
in their tax returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

F-42
<PAGE> 345

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Company with respect to the results of its operations for the interim periods
from January 1, 1996, to June 30, 1996, and from January 1, 1997, to June 30,
1997, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.

3. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ----------- -----------
<S> <C> <C> <C>
Equipment................................. 5 $ 5,587,074 $ 5,670,340
Leasehold improvements.................... 1-15 448,734 448,734
Furniture and fixtures.................... 5 390,014 390,014
Computer software......................... 3-5 111,797 124,081
----------- -----------
6,537,619 6,633,169
Less -- Accumulated depreciation and
amortization............................ (5,285,289) (5,886,901)
----------- -----------
Property and equipment, net..... $ 1,252,330 $ 746,268
=========== ===========
</TABLE>

4. INVESTMENTS IN JOINT VENTURES:

Investments in joint ventures consist of 49% interests in three joint
ventures, each of which perform radiology and imaging healthcare services, and
an 8% interest in a real estate limited partnership. The carrying amounts of
these investments at December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Southeast Baptist Imaging Center............................ $ 666,365 $ 735,770
Baptist Imaging Center...................................... 206,061 140,770
Northeast Baptist MRI Center................................ 77,835 229,996
Stone Oak Limited Partnership............................... 72,818 64,417
---------- ----------
$1,023,079 $1,170,953
========== ==========
</TABLE>

Summary information from the unaudited financial statements of the three
joint ventures, accounted for under the equity method, as of and for the year
ended December 31, 1996, is as follows:

<TABLE>
<CAPTION>
SOUTHEAST
BAPTIST BAPTIST NORTHEAST
IMAGING IMAGING BAPTIST
CENTER CENTER MRI CENTER
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $1,338,915 $292,712 $ 623,320
Total assets....................................... 3,209,657 324,022 660,898
Current liabilities................................ 915,634 28,785 188,984
Total liabilities.................................. 1,684,905 28,785 188,984
Partners' equity................................... 1,524,752 295,237 471,914
Revenues........................................... $3,173,674 $776,433 $2,054,265
Net income......................................... $ 143,974 $266,003 $ 826,283
Distributions to shareholders...................... $ -- $400,000 $ 515,000
</TABLE>

F-43
<PAGE> 346

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Note payable to related party, bearing interest at prime
(8.5% at December 31, 1995), due in 1996. Paid in full.... $ 30,000 $ --
Note payable to bank, bearing interest at 6.4%, due in 1998.
Quarterly payments of $49,000 plus interest,
collateralized by certain equipment....................... 539,000 343,000
Note payable to bank, bearing interest at 6.25%, due in
1996. Monthly payments of $2,780, collateralized by
certain equipment. Paid in full........................... 5,355 --
Note payable to bank, bearing interest at 6.25%, due in
1997. Monthly payments of $7,779, collateralized by
certain equipment......................................... 111,869 23,117
Note payable to bank, bearing interest at 8.25%, due in
2000. Monthly payments of $2,361, collateralized by
certain equipment......................................... -- 85,557
Note payable to bank, bearing interest at 6.25%, due in
1997. Monthly payments of $47,656, collateralized by
certain equipment......................................... 641,591 94,421
Note payable, bearing interest at 6.25%, due in 1997.
Monthly payments of $9,118, collateralized by certain
equipment................................................. 122,653 17,958
---------- ---------
Long-term debt.................................... 1,450,468 564,053
Less-current portion.............................. (908,626) (351,645)
---------- ---------
Long-term debt, net of current portion............ $ 541,842 $ 212,408
========== =========
</TABLE>

Future maturities of long-term debt at December 31, 1996, are as follows:

6. CAPITAL LEASE OBLIGATIONS:

The following represents the Company's outstanding capital lease
obligations at December 31:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Capital lease for computer software, due in 2000, payable in
monthly installments of $1,369 collateralized by the
equipment................................................. $61,791 $50,018
======= =======
</TABLE>

F-44
<PAGE> 347

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1996, the minimum annual lease commitments under capital
lease obligations are as follows:

<TABLE>
<S> <C>
1997........................................................ $ 16,433
1998........................................................ 16,433
1999........................................................ 16,433
2000........................................................ 8,496
--------
Total minimum lease payments due............................ $ 57,795
Less -- Amounts representing interest..................... (7,777)
--------
Present value of minimum lease payments..................... $ 50,018
Less -- Current portion................................... (12,783)
--------
Long-term obligations, net of current portion............... $ 37,235
========
</TABLE>

7. LEASES:

The Company leases office facilities under various noncancelable operating
leases that expire at various dates through 1998. The Company leases office
space from Stone Oak Limited Partners (see Note 4) under a lease that expires in
1997. Certain of the office leases provide for renewal options. Future minimum
lease payments under noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
RELATED
PARTIES OTHER
------- --------
<S> <C> <C>
1997........................................................ $59,252 $111,345
1998........................................................ -- 24,485
------- --------
Total............................................. $59,252 $135,830
======= ========
</TABLE>

Total rent expense in 1995 and 1996 was $240,395 and $260,067,
respectively. Included in rent expense was rent paid to related parties in the
amount of $88,878 in both 1995 and 1996.

8. EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) profit sharing plan. Employees of the Company
who are at least age 21 may participate in the 401(k) plan after one year of
service and are eligible for profit sharing after two years of service. The plan
provides for employer matching and profit sharing contributions. The Company's
contributions for 1995 and 1996 were $86,080 and $100,259, respectively.

9. RELATED-PARTY TRANSACTIONS:

Under agreements with affiliated joint ventures (Southeast Baptist Imaging
Center, Baptist Imaging Center, and Northeast Baptist MRI Center), the Company
performs professional, billing, and management services for these joint
ventures. These services are billed to the joint ventures based primarily upon
agreed-upon percentages of the joint ventures' cash basis revenue. Management
fee income from joint ventures is included in other revenue in the accompanying
combined statements of income and consist as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Southeast Baptist Imaging Center............................ $138,658 $183,212
Baptist Imaging Center...................................... 12,375 12,000
Northeast Baptist MRI Center................................ 96,750 96,100
-------- --------
$247,783 $291,312
======== ========
</TABLE>

F-45
<PAGE> 348

M&S X-RAY PRACTICES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company also collects the receivables of the joint ventures, and then
periodically remits the collections to them. In addition, the Company pays
certain expenses on behalf of the joint ventures, and is periodically reimbursed
by them. At December 31, 1996, there were no significant balances due from (to)
the joint ventures.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable and accrued expenses approximate fair value due to the short maturity of
these instruments. The carrying amount of the Company's long-term debt and
capital lease obligations also approximates fair value.

11. CONTINGENCIES:

The Company is subject to various claims and legal actions which arise in
the ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.

12. SUBSEQUENT EVENTS:

On September 24, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

F-46
<PAGE> 349

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Pacific Imaging Consultants:

We have audited the accompanying combined balance sheets of Pacific Imaging
Consultants (see Note 1) as of December 31, 1995 and 1996, and the related
combined statements of income, owners' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pacific Imaging Consultants
as of December 31, 1995 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
March 19, 1997

F-47
<PAGE> 350

PACIFIC IMAGING CONSULTANTS

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ -- $ -- $ --
Accounts receivable, net of allowances of $1,358,461,
$2,107,857 and $2,115,899 at December 31, 1995 and
1996 and June 30, 1997, respectively............... 1,310,879 1,878,911 1,933,826
Prepaid pension expense............................... 197,049 2,100,113 2,100,113
Prepaid expenses and other............................ 62,072 197,251 195,619
---------- ---------- ----------
Total current assets.......................... 1,570,000 4,176,275 4,229,558
PROPERTY AND EQUIPMENT, net............................. 2,851,444 2,260,861 1,862,327
INTANGIBLE ASSETS, net.................................. 145,601 133,251 133,251
OTHER ASSETS, net....................................... 121,641 190,502 107,212
---------- ---------- ----------
Total assets.................................. $4,688,686 $6,760,889 $6,332,348
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................... $ 412,823 $ 898,582 $ 787,863
Accrued salaries and benefits......................... 240,402 287,512 287,512
Accrued liabilities................................... 444,034 490,882 490,155
Deferred income tax liability......................... 165,440 868,958 854,803
Current portion of long-term debt..................... 1,522,779 844,241 844,241
---------- ---------- ----------
Total current liabilities..................... 2,785,478 3,390,175 3,264,574
DEFERRED INCOME TAX LIABILITY........................... 10,871 11,268 11,268
LONG-TERM DEBT, net of current portion.................. 2,742,162 3,133,004 2,801,226
OWNERS' EQUITY (DEFICIT)................................ (849,825) 226,442 255,280
---------- ---------- ----------
Total liabilities and owners' equity
(deficit)................................... $4,688,686 $6,760,889 $6,332,348
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-48
<PAGE> 351

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $11,245,044 $13,119,112 $5,552,390 $6,978,357
Other revenue......................... 203,296 175,408 81,772 73,422
----------- ----------- ---------- ----------
Total revenue................. 11,448,340 13,294,520 5,634,162 7,051,779
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 5,896,675 7,214,725 2,859,709 4,055,877
Practice salaries, wages and
benefits........................... 1,604,303 1,839,889 842,225 965,805
Practice supplies..................... 485,942 568,235 242,416 258,417
Practice rent and lease expense....... 355,073 384,615 209,742 195,362
Depreciation and amortization......... 996,058 981,289 488,370 474,546
Other practice expenses............... 1,739,436 1,939,384 829,491 985,557
Interest expense...................... 475,007 311,377 197,632 155,534
----------- ----------- ---------- ----------
Total costs and expenses...... 11,552,494 13,239,514 5,669,585 7,091,098
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE TAXES, UNUSUAL ITEM
AND EXTRAORDINARY ITEM................ (104,154) 55,006 (35,423) (39,319)
UNUSUAL ITEM -- gain on curtailment of
defined benefit pension plan.......... -- 1,903,064 1,903,064 --
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... (104,154) 1,958,070 1,867,641 (39,319)
INCOME TAX EXPENSE (BENEFIT)............ 104,194 715,493 672,351 (14,155)
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM.................................. (208,348) 1,242,577 1,195,290 (25,164)
EXTRAORDINARY ITEM -- gain on
refinancing of debt................... -- 134,084 -- --
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (208,348) $ 1,376,661 $1,195,290 $ (25,164)
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-49
<PAGE> 352

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $ (612,553)
Sale of stock............................................. 36,076
Net loss.................................................. (208,348)
Distributions............................................. (65,000)
----------
BALANCE, December 31, 1995.................................. (849,825)
Repurchase of stock....................................... (22,394)
Net income................................................ 1,376,661
Distributions............................................. (278,000)
----------
BALANCE, December 31, 1996.................................. 226,442
Net income (unaudited).................................... (25,164)
Contributions from Owners (unaudited)..................... 72,000
Repurchase of Stock (unaudited)........................... (17,998)
----------
BALANCE, June 30, 1997 (unaudited).......................... $ 255,280
==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-50
<PAGE> 353

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ -------------------------
1995 1996 1996 1997
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ (208,348) $ 1,376,661 $ 1,195,290 $ (25,164)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization........ 996,058 981,289 488,370 474,546
Deferred income taxes................ 104,194 703,915 672,351 (14,155)
Gain on refinancing of debt.......... -- 134,084 -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........ (114,465) (568,032) 276,173 (54,915)
Prepaid pension expense......... 4,666 (1,903,064) (1,903,064) --
Prepaid expenses and other...... 33,991 (135,179) (3,630) 1,632
Other assets, net............... (72,334) (68,861) (336,021) 83,290
Increase (decrease) in --
Accounts payable................ 40,282 485,759 153,049 (110,719)
Accrued salaries and benefits... (4,595) 47,110 (112,901) --
Accrued liabilities............. 360,805 46,848 382,487 (727)
---------- ----------- ----------- -----------
Net cash provided by operating
activities.................... 1,140,254 1,100,530 812,104 353,788
---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (388,595) (378,356) (43,174) (76,012)
---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............ 198,992 585,868 -- --
Repayment of long-term debt............. (921,727) (1,007,648) (490,930) (331,778)
Contributions from (distributions to)
owners............................... (65,000) (278,000) (278,000) 72,000
Sale (purchases) of stock............... 36,076 (22,394) -- (17,998)
---------- ----------- ----------- -----------
Net cash used in financing
activities.................... (751,659) (722,174) (768,930) (277,776)
---------- ----------- ----------- -----------
NET CHANGE IN CASH........................ -- -- -- --
CASH, beginning of year................... -- -- -- --
---------- ----------- ----------- -----------
CASH, end of year......................... $ -- $ -- $ -- $ --
========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid...................... $ 477,736 $ 283,081 $ 197,632 $ 155,534
Cash paid for income taxes.............. $ -- $ 11,578 $ 9,975 $ 8,593
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-51
<PAGE> 354

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements combine the accounts of three
entities under common ownership: Pacific Imaging Consultants, A Medical Group,
Inc. ("Pacific"), a California corporation formerly known as East Bay Medical
Imaging; Total Medical Imaging (TMI), a California S-corporation; and Lafayette
Medical Imaging Health Services (LMI), a California general partnership
(collectively the "Company"), all of which are located in the San Francisco Bay
area. The Company specializes in radiological medicine and the operation of
diagnostic imaging equipment. All intercompany transactions have been
eliminated.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable

Property and Equipment

Intangible Assets

Intangible assets are comprised of organization costs and noncompete
agreements. Organization costs are being amortized on a straight-line basis over
a five-year period. Noncompete agreements are amortized on a straight-line basis
over the life of the agreements.

Other Assets

Other assets are comprised of equity investments in affiliated entities,
deposits and other receivables. Investments in affiliated entities are being
accounted for under the cost method and equity method as appropriate, based on
percentage of ownership and control of the entity. Such investments are not
material at December 31, 1996.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. The revenue are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenue are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.

F-52
<PAGE> 355

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

Pacific accounts for income taxes under the liability method which states
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial reporting and income tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions are based on the changes to the asset or liability from period to
period. TMI is an S-corporation and LMI is a general partnership, and
accordingly, there is no provision for income taxes related to these entities.
The individual owners include their respective share of profits and losses in
their tax returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.

F-53
<PAGE> 356

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ----------- -----------
<S> <C> <C> <C>
Building.................................. 39 $ 122,645 $ 123,817
Automobiles............................... 5 22,818 22,818
Leasehold improvements.................... 5-10 670,479 670,479
Furniture and equipment................... 5-7 5,873,926 6,251,110
----------- -----------
6,689,868 7,068,224
Less -- Accumulated depreciation and
amortization............................ (3,838,424) (4,807,363)
----------- -----------
Property and equipment, net............... $ 2,851,444 $ 2,260,861
=========== ===========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Notes payable to Third Party, bearing interest at 7.5%, due
in 1999. Monthly payments of $5,009 including interest... $ 196,545 $ 136,648
Note payable to Service Provider, noninterest bearing,
balance due in 1996...................................... 13,405 --
Note payable to Bank, bearing interest at the U.S. Treasury
Securities rate plus 3.25% (9.125% at December 31, 1996),
due in 2003. Monthly payments of $1,052 including
interest................................................. 71,502 65,584
Notes payable to Bank, bearing interest at prime (8.5% at
December 31, 1995), due at various dates through 2001.
Monthly payments of $4,509 plus interest................. 443,615 --
Note payable to Bank, bearing interest at prime plus .25%
(8.75% at December 31, 1995), due in 1999. Monthly
payments of $6,636 including interest.................... 633,157 --
Note payable to Bank, bearing interest at prime plus 1%
(9.5% at December 31, 1995), due in 1998. Monthly
payments of $10,411 plus interest........................ 324,999 --
Notes payable to Finance Company, bearing interest ranging
from 8.97% to 9.72%, due in 1998, secured by accounts
receivable and certain property and equipment. Monthly
payments of $97,299 including interest................... 2,581,718 --
Note payable to Bank, bearing interest at the U.S. Treasury
Securities rate plus 2% (7.92% at December 31, 1996),
secured by accounts receivable and certain property and
equipment, due in 2001. Monthly payments of $92,017
including interest....................................... $ -- $3,775,013
----------- ----------
4,264,941 3,977,245
Less -- Current maturities................................. (1,522,779) (844,241)
----------- ----------
$ 2,742,162 $3,133,004
=========== ==========
</TABLE>

F-54
<PAGE> 357

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

In August 1996, the Company refinanced all outstanding bank debt. The
previous notes had interest rates ranging from the prime rate to a fixed rate of
9.25%. The new note bears interest at the rate of U.S. Treasury securities plus
2%. The refinancing resulted in a gain of $134,084, which has been reflected as
an extraordinary item in the accompanying financial statements.

Future maturities of long-term debt at December 31, 1996, are as follows:

5. OPERATING LEASES:

The Company leases seven facilities under various noncancelable operating
leases that expire at various dates through 2000. Future minimum lease payments
under noncancelable leases are as follows:

<TABLE>
<S> <C>
1997...................................................... $231,936
1998...................................................... 222,312
1999...................................................... 184,492
2000...................................................... 133,418
2001...................................................... 150,206
Thereafter................................................ 67,695
--------
$990,059
========
</TABLE>

6. INCOME TAXES:

The provisions for income taxes consist of the following:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current income tax expense..................... $ -- $ 11,578
Deferred income tax expense.................... 104,194 703,915
-------- --------
Total income tax expense....................... $104,194 $715,493
======== ========
</TABLE>

Significant components of the Company's deferred tax liabilities as of
December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued liabilities............... $ 131,425 $ 180,275
Deferred tax (liabilities) --
Accounts receivable, net............................... (296,865) (402,191)
Prepaid pension expense................................ -- (647,042)
--------- ---------
Total net current deferred tax liabilities........ $(165,440) $(868,958)
========= =========
Noncurrent:
Deferred tax (liabilities) --
Depreciation........................................... $ (10,871) $ (11,268)
========= =========
</TABLE>

F-55
<PAGE> 358

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The differences between the provision for income taxes and the amounts
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes are due to the income (losses) of S-Corporations and
partnerships included in these combined financial statements.

7. EMPLOYEE BENEFIT PLAN:

The Company has a defined benefit pension plan covering all physician
employees and shareholders. The benefits are based on the final pay of each
physician, with minimum flat dollar limits. The Company's funding policy is to
contribute annually the maximum amount that can be deducted for federal income
tax purposes. Contributions are intended to provide not only for benefits
attributed service to date but also for those expected to be earned in the
future.

Effective May 31, 1996, the Company curtailed the benefits under the plan
through Board of Director resolution to terminate the Plan. Plan benefits were
effectively frozen at this date and physicians will earn no additional defined
benefits for future services. All unrecognized prior service cost and
unrecognized net obligation from the initial application of SFAS 87 have been
reduced to zero as of the effective date of the curtailment, resulting in a gain
from curtailment of approximately $1.9 million. The plan of settlement has not
been determined and subsequent gain or loss may be recorded upon settlement.

The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at December 31,

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefits obligations:
Accumulated benefit obligation, including vested
benefits of $3,556,952 and $4,723,679,
respectively......................................... $(3,594,203) $(4,723,679)
=========== ===========
Projected benefit obligation for service rendered to
date................................................. $(4,392,486) $(4,723,679)
Plan assets at fair value, primarily...................... 6,345,352 6,823,792
----------- -----------
Plan assets in excess of projected benefit obligations.... 1,952,866 2,100,113
Unrecognized net obligation at initial adoption of SFAS
No. 87.................................................. (1,755,817) --
----------- -----------
Prepaid pension cost included in other assets............. $ 197,049 $ 2,100,113
=========== ===========
</TABLE>

Net periodic pension cost for 1995 and 1996 included the following
components (in thousands)

<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Service cost-benefits earned during the period............. $ 828,307 $ --
Interest cost on projected benefit obligation.............. 286,658 331,193
Actual return on plan assets............................... (269,853) (478,440)
Net amortization........................................... (39,035) (1,755,817)
--------- -----------
Net periodic pension cost (benefit)........................ $ 806,077 $(1,903,064)
========= ===========
Weighted average discount rate............................. 7.39% 7.54%
Rate of increase in future compensation.................... 3.00% N/A
Expected long-term rate of return on assets................ 7.39% 7.54%
</TABLE>

In 1996, the Company began sponsoring a 401(k) and profit sharing plan for
employees of the Company and its two corporate members, who have completed one
year of service and are at least age 21. The 401(k) plan provides for employer
matching contributions equal to three percent of gross salary for eligible
employees. The Company made no contributions to the plan in 1996. Physician
shareholders contributed $88,688 on behalf of the employees of the Company.

F-56
<PAGE> 359

PACIFIC IMAGING CONSULTANTS

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

8. RELATED-PARTY TRANSACTIONS:

The Company has a non-interest bearing note receivable from an employee.
Amounts outstanding at December 31, 1995 and 1996 were $85,000 and $94,836,
respectively. The note has no stated maturity date.

The Company has a note receivable from a physician which bears interest at
8.5% and matures in August, 1995. Amounts outstanding at December 31, 1995 and
1996 were $38,936 and $36,173, respectively.

At December 31, 1995, the Company had a $25,000 note receivable from a
physician. This note was paid in full in 1996.

At December 31, 1996, the Company had a $10,000 note receivable from a
physician which bears interest at 8.25% and matures in 1997. In addition, in
1996, the Company made non-interest bearing advances totaling $70,287 to certain
physicians. These advances are to be repaid in 1997.

The Company has an ownership interest in a real estate partnership. Rent
paid to this partnership was $49,752 in 1995 and 1996.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS:

10. CONTINGENCIES:

11. SUBSEQUENT EVENTS:

On February 26, 1997, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

Effective January 1, 1997, the Company and Valley Radiology Group, a group
of radiologists in San Jose, California, formed a management services
organization to manage their operations.

F-57
<PAGE> 360

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Radiology and Nuclear Medicine, P.A.:

We have audited the accompanying balance sheets of Radiology and Nuclear
Medicine, P.A., (a Kansas corporation) as of December 31, 1995 and 1996 and the
related statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Radiology and Nuclear
Medicine, P.A., as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
February 21, 1997

F-58
<PAGE> 361

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 223,067 $ 173,258 $ 887,376
Accounts receivable, net of allowances of $1,664,580,
$1,922,264 and $2,281,491 at December 31, 1995, 1996
and June 30, 1997, respectively....................... 1,596,469 1,756,271 2,021,553
Prepaid expenses and other current assets............. 230,531 220,937 220,937
---------- ---------- ----------
Total current assets............................. 2,050,067 2,150,466 3,129,866

PROPERTY AND EQUIPMENT, net................................ 626,684 572,172 662,005

INVESTMENTS IN JOINT VENTURES.............................. 1,251,110 1,269,545 1,321,507

OTHER ASSETS, net.......................................... 85,361 88,368 88,451
---------- ---------- ----------
Total assets..................................... $4,013,222 $4,080,551 $5,201,829
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable......................................... $ 65,064 $ 64,561 $ 64,561
Accrued expenses......................................... 35,943 48,322 144,026
Accrued salaries and benefits............................ 399,750 361,571 419,087
Deferred income taxes.................................... 489,332 536,241 1,005,735
Short-term borrowings.................................... 1,400,000 1,400,000 1,000,000
Current portion of long-term debt........................ 174,371 186,611 119,399
---------- ---------- ----------
Total current liabilities........................ 2,564,460 2,597,306 2,752,808
LONG-TERM DEBT, net of current portion..................... 234,528 45,784 --
---------- ---------- ----------
Total liabilities................................ 2,798,988 2,643,090 2,752,808
COMMITMENTS AND CONTINGENCIES

OWNERS' EQUITY............................................. 1,214,234 1,437,461 2,449,021
---------- ---------- ----------
Total liabilities and owners' equity............. $4,013,222 $4,080,551 $5,201,829
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-59
<PAGE> 362

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF INCOME

COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 10,700,150 10,265,121 3,965,406 4,132,057
Practice salaries, wages and
benefits........................... 1,807,179 1,743,761 657,808 682,530
Practice supplies..................... 385,666 293,545 166,273 134,796
Practice rent and lease expense....... 260,347 272,617 130,173 130,173
Depreciation and amortization......... 187,612 202,058 89,358 90,241
Other practice expenses............... 816,860 822,598 405,116 444,782
Interest expense...................... 67,542 70,530 57,805 57,884
----------- ----------- ---------- ----------
Total costs and expenses...... 14,225,356 13,670,230 5,471,939 5,672,463
----------- ----------- ---------- ----------

INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY IN EARNINGS OF INVESTMENTS..... (376,726) (98,050) 1,147,616 1,288,850

EQUITY IN EARNINGS OF INVESTMENTS....... 311,311 292,442 189,665 192,204

INCOME TAX EXPENSE (BENEFIT)............ (33,212) 57,305 423,918 469,494
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (32,203) $ 137,087 $ 913,363 $1,011,560
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-60
<PAGE> 363

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $1,270,173
Net loss.................................................. (32,203)
Dividends paid............................................ (23,736)
----------
BALANCE, December 31, 1995.................................. 1,214,234
Sale of treasury stock.................................... 104,716
Net income................................................ 137,087
Dividends paid............................................ (18,576)
----------
BALANCE, December 31, 1996.................................. 1,437,461
Net income (unaudited).................................... 1,011,560
----------
BALANCE, June 30, 1997 (unaudited).......................... $2,449,021
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-61
<PAGE> 364

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- --------------------------
1995 1996 1996 1997
---------- ---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ (32,203) $ 137,087 $ 913,363 $1,011,560
Adjustments to reconcile net income (loss)
to net cash used in operating
activities --
Depreciation and amortization........... 187,612 202,058 89,358 90,241
Deferred income taxes................... (63,815) 46,909 424,007 469,494
Equity in earnings of investments....... (311,311) (292,440) (189,665) (192,204)
Gain on sale of assets.................. (2,410) (6,519) -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........... 196,804 (159,802) 58,156 (265,282)
Prepaid expenses and other current
assets........................... (14,393) 9,594 -- --
Other assets....................... (6,231) (3,007) (308) (83)
Increase (decrease) in --
Accounts payable and accrued
expenses......................... (19,073) 11,876 96,605 95,704
Accrued salaries and benefits...... 52,323 (38,178) (205,733) 57,516
--------- --------- ----------- ----------
Net cash provided by (used in)
operating activities.......... (12,697) (92,422) 1,185,783 1,266,946
--------- --------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment,
net..................................... (296,206) (147,547) (21,786) (180,074)
Proceeds from sale of fixed assets......... 2,410 7,020 -- --
Distributions from investments............. 515,447 273,502 373 140,242
--------- --------- ----------- ----------
Net cash provided by (used in)
investing activities.......... 221,651 132,975 (21,413) (39,832)
--------- --------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................ (185,023) (176,502) (108,010) (112,996)
Repayment of short-term borrowings......... -- -- (1,000,000) (400,000)
Sale of treasury stock..................... -- 104,716 -- --
Dividends paid............................. (23,736) (18,576) -- --
--------- --------- ----------- ----------
Net cash used in financing
activities.................... (208,759) (90,362) (1,108,010) (512,996)
--------- --------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 195 (49,809) 56,360 714,118
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 222,872 223,067 223,067 173,258
--------- --------- ----------- ----------
CASH AND CASH EQUIVALENTS,
end of period.............................. $ 223,067 $ 173,258 $ 279,427 $ 887,376
========= ========= =========== ==========
SUPPLEMENTAL DISCLOSURE:
Cash interest paid......................... $ 67,542 $ 70,530 $ 57,805 $ 57,884
Cash income taxes paid..................... $ 30,603 $ 17,616 $ -- $ 1,108
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-62
<PAGE> 365

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Radiology and Nuclear Medicine, a Professional Association (the "Company"),
is a professional corporation organized under the laws of the State of Kansas to
provide diagnostic radiology medical imaging and radiation oncology services.
Its offices are located in Topeka, Kansas and the surrounding area.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.

Accounts Receivable

Property and Equipment

Property and equipment are recorded at cost. Depreciation on furniture,
fixtures and equipment is computed using straight-line methods over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the noncancelable lease term or
estimated useful life of the asset. However, if the noncancelable lease term
expires in the near future and if the lease contains a renewal option of which
management is reasonably assured of exercising, the amortization period is the
shorter of the lease term including the renewal option period or the estimated
useful life.

Investments in Affiliated Entities

The Company has investments in two partnerships, Magnetic Resonance Imaging
Center of Kansas ("MRI") and Medical Building West Associates, LP ("MBW") which
are accounted for using the equity method and the cost method, respectively (see
Note 3).

Other Noncurrent Assets

Other noncurrent assets consist of deposits with insurance companies and a
note receivable.

Medical Service Revenues

Medical service revenue are accounted for in the period in which the
services are provided. Revenues are reported at the estimated realizable amounts
from patients, third party payors and others. Provisions for estimated third
party payor adjustments are estimated and recorded in the period the related
services are provided. Any adjustment to the amounts is recorded in the period
in which the revised amount is determined. A significant portion of the
Company's medical service revenue are related to Medicare and other governmental
programs. Medicare and other governmental programs reimburse physicians based on
fee schedules which are determined by the related governmental agency.
Additionally, the Company participates in agreements with managed care
organizations to provide services at negotiated rates.

F-63
<PAGE> 366

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

The Company accounts for income taxes under the liability method which
states that deferred income taxes are to be determined based on the estimated
future tax effects of differences between the financial reporting and income tax
bases of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions are based on the changes to the asset or
liability from period to period.

Concentration of Credit Risk

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Basis of Presentation - Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.

3. INVESTMENTS:

Investments in affiliated entities primarily consist of a 22% interest in
MRI and a 15% interest in MBW. The purpose of MRI is to own and operate real and
personal property. The purpose of MBW is to acquire/own land for the production
of income. The initial amount contributed to MBW was $1,000,000.

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
MBW......................................................... $ 966,667 $ 966,667
MRI......................................................... 283,948 302,878
Other....................................................... 495 --
---------- ----------
$1,251,110 $1,269,545
========== ==========
</TABLE>

F-64
<PAGE> 367

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
(YEARS) 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Equipment........................................ 5 - 10 $ 3,715,478 $ 3,781,288
Leasehold improvements........................... 10 319,532 319,532
Furniture and fixtures........................... 5 62,447 116,758
----------- -----------
4,097,457 4,217,578
Less -- Accumulated depreciation and
amortization................................... (3,470,773) (3,645,406)
----------- -----------
Property and equipment, net.................... $ 626,684 $ 572,172
=========== ===========
</TABLE>

5. SHORT-TERM BORROWINGS:

At December 31, 1995 and 1996, the Company had $1,400,000 of short-term
working capital notes outstanding. The interest rate on these borrowings was
8.5% and 8.25% at December 31, 1995 and 1996, respectively and the notes are due
within a one year period.

6. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Note payable to physician, bearing interest at 5.35%, due in
1998. Annual payments of $20,870 plus interest............ 62,607 41,737
Note payable to physician, bearing interest at 6.34%, due in
1997. Annual payments of $21,347 plus interest............ 42,694 21,347
Note payable to bank, bearing interest at the index of the
weekly average yield on U.S. Treasury securities plus 2%
(8.34% and 7.56% at December 31, 1995 and 1996,
respectively), due in 1998. Monthly payments of $12,912
and $12,643 in 1995 and 1996, respectively, secured by the
Company's interest in a limited partnership............... 303,598 169,311
-------- --------
Long-term debt.................................... 408,899 232,395
Less -- Current maturities........................ (174,371) (186,611)
-------- --------
Long-term debt, net of current maturities......... $234,528 $ 45,784
======== ========
</TABLE>

Future maturities of long-term debt at December 31, 1996, are as follows:

Under the terms of a Stock Purchase Agreement between the Company and its
stockholders, the Company is required to repurchase the stock of each
stockholder upon retirement or at any time the stockholder ceases to be an
employee of the Company. The purchase price is based upon the then accounts
receivable balances of the Company, tax-effected, plus owners' equity of the
Company as of the end of the previous year, with certain defined adjustments.
The purchase price is paid in annual installments, not to

F-65
<PAGE> 368

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

exceed five years, with unpaid balances bearing interest at the lesser of 9% or
the U.S. Treasury Note rate. At December 31, 1996, the Company had $63,084
payable under these arrangements.

7. INCOME TAXES:

The provisions for income taxes for the years ended December 31, consist of
the following:

<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Current income tax expense.................................. $ 30,603 $10,396
Deferred income tax expense (benefit)....................... (63,815) 46,909
-------- -------
Total income tax expense (benefit)................ $(33,212) $57,305
======== =======
</TABLE>

Significant components of the Company's net deferred tax assets as of
December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Depreciation.............................................. $ 44,576 $ 50,331
Accounts payable and accrued liabilities.................. 87,272 85,679
Deferred tax liabilities:
Accounts receivable....................................... (542,800) (597,133)
Other..................................................... (78,380) (75,118)
--------- ---------
Net deferred tax liabilities........................... $(489,332) $(536,241)
========= =========
</TABLE>

The differences between the provision (benefit) for income taxes and the
amounts computed by applying the statutory Federal income tax rate to income
(loss) before income taxes are due to disallowed passive losses from certain
investments.

8. LEASES:

The Company leases office facilities under various noncancelable operating
leases that expire in 2007. Future minimum lease payments under noncancelable
operating leases are as follows:

<TABLE>
<S> <C>
1997..................................................... $ 177,396
1998..................................................... 149,742
1999..................................................... 149,742
2000..................................................... 149,742
2001..................................................... 149,742
Thereafter............................................... 885,974
----------
$1,662,338
==========
</TABLE>

The Company has also entered into various agreements, expiring in April
1997, whereby it pays a monthly fee for selection, procurement, repair and
maintenance of its radiology and imaging equipment. The fees paid are expected
to approximate $57,000 per year.

9. EMPLOYEE BENEFIT PLAN:

The Company sponsors a defined contribution pension plan for employees of
the Company who have completed one year of service, with a minimum of 1,000
hours worked. The plan provides for employer contributions of 10% of
compensation up to a maximum eligible compensation of $150,000. The Company's
contribution for 1995 and 1996 was approximately $472,000 and $477,000,
respectively.

F-66
<PAGE> 369

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company also sponsors a 401(k) plan for employees of the Company who
have completed one year of service, with a minimum 1,000 hours worked. The plan
provides for employer matching contributions of one-half of employee
contributions, up to 2% of the employee's salary. The plan also allows for
employer discretionary contributions. The Company's contributions for 1995 and
1996 were approximately $189,000 and $185,000, respectively.

10. RELATED-PARTY TRANSACTIONS:

As indicated in Note 3, the Company has a 15% partnership interest in MBW
from which the Company leases its office space. Rent expense relating to such
facilities was approximately $150,000 in 1995 and 1996.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the carrying amounts of accounts receivable, accounts
payable, accrued expenses, short-term borrowings and long-term debt approximate
fair value due to the short maturity of these instruments.

12. CONTINGENCIES:

Litigation

Insurance

The Company is self-insured for employee health benefits. Stop-loss
insurance coverage has been purchased to cover claims exceeding certain
retention limits. At December 31, 1996, the Company's maximum exposure for
health insurance claims was $20,000 per family with an aggregate maximum limit
of 125% of expected claims, as determined by the insurance company
(approximately $379,000 in 1996.) An estimate of the amount due and payable on
existing claims for which the Company is liable is included in accrued expenses.

13. SUBSEQUENT EVENTS:

On January 20, 1997, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

F-67
<PAGE> 370

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Rockland Radiological Group:

We have audited the accompanying combined balance sheets of Rockland
Radiological Group (Note 1) as of September 30, 1995 and 1996, and the related
combined statements of income, owners' equity (deficit), and cash flows for each
of the three years in the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rockland Radiological Group
as of September 30, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1996,
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
March 19, 1997

F-68
<PAGE> 371

ROCKLAND RADIOLOGICAL GROUP

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 198,387 $ 226,579 $ 368,633
Accounts receivable, net of allowances of $2,457,694,
$2,614,800 and $3,840,588 at September 30, 1995 and
1996 and June 30, 1997, respectively............... 2,686,087 2,995,190 2,842,436
Prepaid expenses and other current assets............. 194,872 212,011 409,638
----------- ----------- -----------
Total current assets.......................... 3,079,346 3,433,780 3,620,707
PROPERTY AND EQUIPMENT, net............................. 3,811,459 4,152,971 5,268,947
DEFERRED INCOME TAX ASSET............................... 854,993 1,029,209 1,203,425
OTHER ASSETS, net....................................... 30,626 2,000 2,143,996
----------- ----------- -----------
Total assets.................................. $ 7,776,424 $ 8,617,960 $12,237,075
=========== =========== ===========

LIABILITIES AND OWNERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable...................................... $ 202,486 $ 196,728 $ 188,710
Accrued salaries and benefits......................... 604,948 541,492 541,492
Deferred income tax liability......................... 533,921 639,961 572,785
Current portion of long-term debt..................... 719,078 944,199 1,675,146
Current portion of capital lease obligations.......... 1,077,848 1,193,100 545,557
----------- ----------- -----------
Total current liabilities..................... 3,138,281 3,515,480 3,523,690
DEFERRED COMPENSATION................................... 2,592,054 3,167,979 3,599,923
CAPITAL LEASE OBLIGATIONS, net of current portion....... 2,557,615 1,364,515 1,377,890
LONG-TERM DEBT, net of current portion.................. 1,832,526 2,548,330 5,562,941
----------- ----------- -----------
Total liabilities............................. 10,120,476 10,596,304 14,064,444
OWNERS' EQUITY (DEFICIT)................................ (2,344,052) (1,978,344) (1,827,369)
----------- ----------- -----------
Total liabilities and owners' equity
(deficit)................................... $ 7,776,424 $ 8,617,960 $12,237,075
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-69
<PAGE> 372

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
--------------------------------------- ---------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $15,078,280 $17,823,023 $17,302,049 $11,560,883 $13,541,174
Other revenues........................ 2,023 1,110 30,759 203,442 126,251
----------- ----------- ----------- ----------- -----------
Total revenues................ 15,080,303 17,824,133 17,332,808 11,764,325 13,667,425
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 3,674,505 7,074,008 6,051,448 4,824,530 4,799,315
Practice salaries, wages and
benefits........................... 3,916,578 4,118,141 4,251,812 2,967,423 3,542,507
Practice supplies..................... 603,087 1,181,653 1,146,608 856,491 1,033,193
Practice rent and lease expense....... 188,399 163,878 110,413 78,347 90,281
Depreciation and amortization......... 1,605,316 1,628,181 1,350,324 974,819 1,110,446
Other practice expenses............... 3,565,411 4,001,394 3,577,232 1,883,911 2,607,857
Interest expense...................... 1,082,044 702,967 581,786 531,967 591,243
----------- ----------- ----------- ----------- -----------
Total costs and expenses...... 14,635,340 18,870,222 17,069,623 12,117,488 13,774,842
NET INCOME (LOSS) BEFORE INCOME TAXES... 444,963 (1,046,089) 263,185 (353,163) (107,417)
INCOME TAX EXPENSE (BENEFIT)............ 57,662 (335,568) (71,023) (439,332) (258,392)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....................... $ 387,301 $ (710,521) $ 334,208 $ 86,169 $ 150,975
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-70
<PAGE> 373

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF OWNERS' EQUITY (DEFICIT)

<TABLE>
<S> <C>
BALANCE, September 30, 1993................................. $(2,059,332)
Sale of stock............................................. 11,000
Net income................................................ 387,301
-----------
BALANCE, September 30, 1994................................. (1,661,031)
Sale of stock............................................. 27,500
Net loss.................................................. (710,521)
-----------
BALANCE, September 30, 1995................................. (2,344,052)
Sale of stock............................................. 31,500
Net income................................................ 334,208
-----------
BALANCE, September 30, 1996................................. (1,978,344)
Net income (unaudited).................................... 150,975
-----------
BALANCE, June 30, 1997 (unaudited).......................... $(1,827,369)
===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-71
<PAGE> 374

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------------------ -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................... $ 387,301 $ (710,521) $ 334,208 $ 86,169 $ 150,975
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities --
Depreciation and amortization........... 1,605,316 1,628,181 1,350,324 974,819 1,110,446
Deferred income taxes................... 57,662 (335,568) (71,023) (410,148) (241,392)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........... (602,918) (163,544) (309,103) 141,781 152,754
Prepaid expenses and other current
assets........................... (175,810) 234,131 (17,139) (350,186) (197,627)
Other assets....................... 27,569 39,814 28,626 (10,787) (2,141,996)
Increase (decrease) in --
Accounts payable................... 277,466 (296,427) (5,758) (1) (8,018)
Accrued salaries and benefits...... 10,656 280,840 (63,456) 142,956 --
Deferred compensation.............. 46,693 753,358 575,925 565,019 431,944
---------- ---------- ---------- ----------- -----------
Net cash provided by (used in)
operating activities.......... 1,633,935 1,430,264 1,822,604 1,139,622 (742,914)
---------- ---------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment....... (683,491) (275,043) (1,688,989) (1,471,184) (2,226,422)
---------- ---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............... 2,877,000 132,750 1,710,030 1,689,933 4,088,000
Repayment of long-term debt................ (3,018,703) (235,524) (769,105) (501,973) (342,442)
Principal payments on capital lease
obligations............................. (657,836) (1,231,754) (1,077,848) (684,363) (634,168)
Proceeds from sale of stock................ 11,000 27,500 31,500 -- --
---------- ---------- ---------- ----------- -----------
Net cash provided by (used in)
financing activities.......... (788,539) (1,307,028) (105,423) 503,597 3,111,390
---------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 161,905 (151,807) 28,192 172,035 142,054
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 188,289 350,194 198,387 198,387 226,579
---------- ---------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period..... $ 350,194 $ 198,387 $ 226,579 $ 370,422 $ 368,633
========== ========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid......................... $ 602,225 $ 700,180 $ 607,321 $ 531,967 $ 591,243
Cash income taxes paid..................... $ -- $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-72
<PAGE> 375

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995, AND 1996

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements combine the accounts of nine entities
under common ownership: Mid Rockland Imaging Associates, P.C. ("MRI"), Rockland
Radiological Group, P.C. ("RRG"), Nyack Magnetic Resonance Imaging, P.C.
("NMR"), Central Imaging Associates, P.C., Advanced Imaging of Bergen, P.A.,
Pelham Imaging Associates, P.C., Women's Imaging Consultants, P.C., Montvale
Regional Imaging of Bergen, P.A., and Advanced Imaging of Orange County, P.C.
(collectively the "Company"), all of which are located in the states of New York
and New Jersey and specialize in the practice of radiological medicine. All
intercompany items and transactions have been eliminated.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and cash equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.

Accounts Receivable

Property and Equipment

Deferred Compensation

Under the terms of the physician employment agreements, physicians who have
completed a minimum of eight years of service are entitled to a payment of up to
one hundred percent of their final compensation upon retirement or when they
cease to be employees of the Company. The percentage of salary received by the
physician varies based upon the number of years of service. These payments are
made in 36 equal monthly payments beginning upon attainment of age 70 or the
date when the physician leaves the Company. The estimated present value of these
obligations is being accrued ratably during the eight year service period.

Medical Service Revenue

Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of the
Company's medical service revenues are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee

F-73
<PAGE> 376

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

schedules which are determined by the related governmental agency. Additionally,
the Company participates in agreements with managed care organizations to
provide services at negotiated rates.

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

MRI and RRG account for income taxes under the liability method which
states that deferred income taxes are to be determined based on the estimated
future tax effects of differences between the financial reporting and income tax
basis of assets and liabilities given the provisions of enacted tax laws.
Deferred income tax provisions are based on the changes to the asset or
liability from period to period. The remaining companies included in the
accompanying combined financial statements are S corporations, and accordingly,
there is no provision for income taxes related to these entities. The individual
owners include their respective share of Company profits and losses in their tax
returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Basis of Presentation -- Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from October 1, 1995, to June 30, 1996, and from October
1, 1996, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.

F-74
<PAGE> 377

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT:

Property and equipment at September 30, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES (YEARS) 1995 1996
--------------- ---------- -----------
<S> <C> <C> <C>
Equipment.................................. 5 $6,852,399 $ 8,348,140
Leasehold improvements..................... 15 640,515 782,200
Furniture and fixtures..................... 7 642,978 679,762
Capitalized building lease................. 15 2,634,333 2,648,401
---------- -----------
10,770,225 12,458,503
Less -- Accumulated depreciation and
amortization............................. (6,958,766) (8,305,532)
---------- -----------
Property and equipment, net...... $3,811,459 $ 4,152,971
========== ===========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following as of September 30:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable to related party, bearing interest at 10%, due
in 1997. Monthly payments of $6,453 including interest.... $ 90,642 $ 19,042
Note payable to previous shareholder, bearing interest at
8%, due in 1996. Monthly payment of $4,000 plus
interest.................................................. 12,000 --
Note payable to vendor, bearing interest at 10.36%, due in
1998. Monthly payments of $1,339 including interest....... 34,448 20,712
Note payable to vendor, bearing interest at 8.26%, due in
2001. Monthly payments of $8,955 including interest....... -- 396,552
Note payable to Bank, bearing interest at 8.34%, due in
1999. Monthly payments of $49,603 plus interest, secured
by accounts receivable and certain property and
equipment................................................. 2,281,764 1,686,528
Note payable to Bank, bearing interest at 8.21%, due in
2000, secured by accounts receivable and certain property
and equipment. Monthly payments of $2,250 plus
interest.................................................. 132,750 105,750
Note payable to Bank, bearing interest at 8.95%, due in
2001. Monthly payments of $24,881 including interest...... -- 1,200,000
Note payable to vendor, bearing interest at 9.53%, due in
2001. Monthly payments of $1,419 including interest....... -- 63,945
---------- ----------
Total long-term debt...................................... 2,551,604 3,492,529
Less -- Current maturities................................ (719,078) (944,199)
---------- ----------
Total long-term debt, net of current portion.............. $1,832,526 $2,548,330
========== ==========
</TABLE>

Future maturities of long-term debt at September 30, 1996, are as follows:

F-75
<PAGE> 378

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. CAPITAL LEASES:

The Company leases certain medical equipment and facilities under capital
leases. These leases have been capitalized using the implicit rate stated in
each lease. Future payments due under capital leases as of September 30, 1996,
are as follows:

<TABLE>
<S> <C>
1997.................................................... $ 1,412,563
1998.................................................... 1,389,510
1999.................................................... 60,374
-----------
Total minimum lease payments due........................ 2,862,447
Less -- Amounts representing interest................. (304,832)
-----------
Present value of minimum lease payments................. 2,557,615
Less -- Current portion............................... (1,193,100)
-----------
Long-Term obligation.................................... $ 1,364,515
===========
</TABLE>

6. INCOME TAXES:

The provisions for income taxes consist of the following:

<TABLE>
<CAPTION>
1994 1995 1996
------- --------- --------
<S> <C> <C> <C>
Current income tax expense......................... $ -- $ -- $ --
Deferred income tax expense (benefit).............. 57,662 (335,568) (71,023)
------- --------- --------
Total income tax expense (benefit)....... $57,662 $(335,568) $(71,023)
======= ========= ========
</TABLE>

Significant components of the Company's net deferred tax assets and
liabilities as of September 30, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ----------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued liabilities............... $ 248,176 $ 241,283
Deferred tax (liabilities) --
Accounts receivable.................................... (773,933) (870,234)
Other.................................................. (8,164) (11,010)
--------- ----------
Total net current deferred tax liabilities........ $(533,921) $ (639,961)
========= ==========
Noncurrent:
Deferred tax assets --
Deferred compensation.................................. $ 881,298 $1,077,113
Deferred tax (liabilities) --
Depreciation........................................... (26,305) (47,904)
--------- ----------
Total net noncurrent deferred tax assets.......... $ 854,993 $1,029,209
========= ==========
</TABLE>

The differences between the provision (benefit) for income taxes and the amounts
computed by applying the statutory Federal income tax rate to income (loss)
before income taxes are due to the income (losses) of S-Corporations included in
these combined financial statements.

7. OPERATING LEASES:

The Company leases two facilities under various noncancelable operating
leases that expire at various dates through 1999. The Company leases a portion
of the MRI building under a lease that expires in 1998, and

F-76
<PAGE> 379

ROCKLAND RADIOLOGICAL GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

also maintains a lease at the Nyack Hospital through NMR. Future minimum lease
payments under noncancelable leases at September 30, are as follows:

8. EMPLOYEE BENEFIT PLAN:

The Company sponsors a profit sharing and 401(k) plan for employees of the
Company, who have completed one year of service and are at least age 21. The
plan provides for employer profit sharing contributions, depending upon the
level of the employee. The plan also provides for employees matching
contributions of 100% of employee contributions, up to 3% of the employee's
salary. The Company's contributions for 1994, 1995, and 1996 were $253,656,
$363,809, and, $404,047 respectively.

9. RELATED-PARTY TRANSACTIONS:

The Company leases office space from a limited partnership. Two
shareholders own an interest in this limited partnership. The Company paid rent
related to these leases of $659,500, $698,500, and $726,310 for the years ended
December 31, 1994, 1995, and 1996, respectively.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS:

11. CONTINGENCIES:

12. SUBSEQUENT EVENTS:

On November 15, 1996, the Company entered into a letter of intent with
American Physician Partners, Inc. (APPI) under which APPI will acquire certain
assets and liabilities of the Company in exchange for common stock and cash.
Completion of the transaction is subject to certain conditions, including the
execution of a forty-year service agreement, stockholder approval by both
parties and successful completion of an initial public offering by APPI. Under
the terms of the service agreement, APPI will provide practice management,
administration and other services to the physicians for a negotiated service
fee. All nonprofessional employees shall become employees of APPI. In addition,
APPI will assume responsibility for all maintenance, repairs, improvements,
lease and other general operating expenses.

In April, 1997, the Company entered into an agreement to purchase certain
assets of Kingston Diagnostic Radiology, P.C. for $2,000,000 in cash and certain
assumed liabilities of approximately $1,850,000. Completion of the transaction
is subject to execution of a five-year service contract.

On March 11, 1997, Wallkill Radiology Associates, P.C. ("Wallkill")
contributed all of its assets to the Company. In exchange, the sole stockholder
of Wallkill was made an equal partner of the Company. At December 31, 1996,
Wallkill had total assets of approximately $480,000. For the year ended December
31, 1996, Wallkill had total revenues of approximately $1,480,000.

F-77
<PAGE> 380

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Valley Radiology Group:

We have audited the accompanying combined balance sheets of Valley
Radiology Group (Note 1) as of December 31, 1995 and 1996, and the related
combined statements of income, owners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Valley Radiology Group as of
December 31, 1995 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Dallas, Texas,
March 19, 1997

F-78
<PAGE> 381

VALLEY RADIOLOGY GROUP

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $1,212,535 $1,014,649 $ 386,310
Accounts receivable, net of allowances
of $1,624,631, $2,021,861 and
$2,293,536 at December 31, 1995 and
1996 and June 30, 1997,
respectively....................... 1,632,342 1,616,645 2,076,098
Prepaid expenses and other............ 9,228 28,414 7,650
---------- ---------- ----------
Total current assets.......... 2,854,105 2,659,708 2,470,058
PROPERTY AND EQUIPMENT, net............. 198,263 1,253,425 1,219,586
INVESTMENTS IN AFFILIATED ENTITIES...... 369,172 104,031 26,720
NOTES RECEIVABLE........................ 428,448 405,500 402,500
OTHER ASSETS, net....................... 163,353 61,440 36,003
---------- ---------- ----------
Total assets.................. $4,013,341 $4,484,104 $4,154,867
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable...................... $ 229,216 $ 94,550 $ 94,822
Accrued salaries and benefits......... 944,296 757,428 257,322
Deferred income tax liability......... 156,004 259,988 372,329
Line of credit payable................ 57,000 825,100 678,333
Current portion of long-term debt..... 298,298 329,028 560,604
---------- ---------- ----------
Total current liabilities..... 1,684,814 2,266,094 1,963,410
DEFERRED INCOME TAX LIABILITY........... 8,344 37,261 37,261
LONG-TERM DEBT, net of current
portion............................... 675,142 395,065 167,188
---------- ---------- ----------
Total liabilities............. 2,368,300 2,698,420 2,167,859
OWNERS' EQUITY.......................... 1,645,041 1,785,684 1,987,008
---------- ---------- ----------
Total liabilities and owners'
equity...................... $4,013,341 $4,484,104 $4,154,867
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-79
<PAGE> 382

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $10,156,958 $10,974,993 $5,461,462 $5,895,340
Other revenues........................ 350,331 198,605 109,023 59,057
----------- ----------- ---------- ----------
Total revenues................ 10,507,289 11,173,598 5,570,485 5,954,397
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 5,510,802 5,383,728 2,549,462 2,708,341
Practice salaries, wages and
benefits........................... 2,268,596 2,592,672 1,143,074 1,247,927
Practice supplies..................... 176,051 355,777 211,656 160,382
Practice rent and lease expense....... 466,155 420,260 228,310 232,769
Depreciation and amortization......... 168,900 223,248 111,624 165,919
Other practice expenses............... 1,385,743 1,337,118 702,027 723,317
Interest expense...................... 53,387 73,475 30,773 55,840
(Gain) loss on sale of equipment...... 20,099 (37,386) (24,930) (930)
----------- ----------- ---------- ----------
Total costs and expenses...... 10,049,733 10,348,892 4,951,996 5,293,565
INCOME BEFORE TAXES AND EQUITY IN
EARNINGS OF INVESTMENTS............... 457,556 824,706 618,489 660,832
EQUITY IN EARNINGS (LOSS) OF
INVESTMENTS........................... 13,698 (18,997) -- --
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES.............. 471,254 805,709 618,489 660,832
INCOME TAX EXPENSE (BENEFIT)............ (110,919) 132,901 105,143 112,341
----------- ----------- ---------- ----------
NET INCOME.............................. $ 582,173 $ 672,808 $ 513,346 $ 548,491
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-80
<PAGE> 383

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF OWNERS' EQUITY

<TABLE>
<S> <C>
BALANCE, December 31, 1994.................................. $1,270,013
Sale of stock............................................. 1,304
Net income................................................ 582,173
Distributions............................................. (208,449)
----------
BALANCE, December 31, 1995.................................. 1,645,041
Purchase of stock......................................... (165)
Net income................................................ 672,808
Distributions............................................. (532,000)
----------
BALANCE, December 31, 1996.................................. 1,785,684
Net income (unaudited).................................... 548,491
Distributions (unaudited)................................. (346,250)
Purchase of stock (unaudited)............................. (917)
----------
BALANCE, June 30, 1997 (unaudited).......................... $1,987,008
==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-81
<PAGE> 384

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31 SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 582,173 $ 672,808 $ 513,346 $ 548,491
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 168,900 223,248 111,624 165,919
Deferred income taxes............................ (110,919) 132,901 105,142 112,341
Investment income from affiliated entities....... (13,698) 18,997 5,470 77,311
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net....................... 242,584 15,697 (309,189) (459,453)
Prepaid expenses and other..................... (8,284) (19,186) (11,882) 20,764
Other assets................................... 10,508 28,242 34,156 4,240
Increase (decrease) in --
Accounts payable............................... (9,662) (134,666) 526 272
Accrued liabilities............................ (609,468) -- -- --
Accrued salaries and benefits.................. 703,728 (186,868) (754,595) (500,106)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities................................ 955,862 751,173 (305,402) (30,221)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (14,671) (1,204,739) (297,307) (110,883)
Proceeds from notes receivable...................... 26,826 22,948 19,948 3,000
Distributions from affiliated entities.............. 297,000 246,144 -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities................................ 309,155 (935,647) (277,359) (107,883)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 745,000 300,000 300,000 185,000
Repayment of long-term debt......................... (731,144) (549,347) (159,075) (181,301)
Net change in line of credit payable................ (143,000) 768,100 (57,000) (146,767)
Distributions to owners............................. (208,449) (532,000) (292,500) (346,250)
Sales (purchases) of stock.......................... 1,304 (165) (32) (917)
---------- ---------- ---------- ----------
Net cash used in financing activities....... (336,289) (13,412) (208,607) (490,235)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH....................... 928,728 (197,886) (791,368) (628,339)
CASH AND CASH EQUIVALENTS, beginning of year.......... 283,807 1,212,535 1,212,535 1,014,649
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year................ $1,212,535 $1,014,649 $ 421,167 $ 386,310
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid.................................. $ 80,134 $ 73,475 $ 30,773 $ 55,840
Cash income taxes paid.............................. $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-82
<PAGE> 385

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

The accompanying financial statements combine the accounts of three
entities under common ownership: Valley Radiologists Medical Group, Inc.
("Valley"), a California corporation; LXL, Ltd. ("LXL"), a California general
partnership; and LXL Building Partnership ("LXLB"), a California general
partnership (collectively the "Company"), all of which are located in northern
California and specialize in the practice of radiological medicine and the
ownership and operation of diagnostic imaging equipment. All intercompany
transactions have been eliminated.

The accompanying financial statements have been prepared on the accrual
basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash and Cash equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.

Accounts Receivable

Property and Equipment

Investments in Affiliated Entities

Investments in affiliated entities are accounted for using the equity
method.

Other Assets

Other assets are comprised of organization costs, noncompete agreements and
security deposits. Organization costs are being amortized on a straight-line
basis over a five-year period. Noncompete agreements are amortized on a
straight-line basis over the life of the agreements.

Medical Service Revenues

Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third party payors and others. Provisions for estimated
third party payor adjustments are estimated and recorded in the period in which
the related services are provided. Any adjustment to the amounts is recorded in
the period in which the revised amount is determined. A significant portion of
the Company's medical service revenues are related to Medicare and other
governmental programs. Medicare and other governmental programs reimburse
physicians based on fee schedules which are determined by the related
governmental agency. Additionally, the Company participates in agreements with
managed care organizations to provide services at negotiated rates.

F-83
<PAGE> 386

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

Costs of Affiliated Physician Services

Costs of Affiliated Physician Services include physician compensation and
benefits paid or payable to owner and non-owner physicians during the period.

Income Taxes

Valley accounts for income taxes under the liability method which states
that deferred income taxes are determined based on the estimated future tax
effects of differences between the financial reporting and income tax basis of
assets and liabilities given the provisions of enacted tax laws. Deferred income
tax provisions are based on the changes to the asset or liability from period to
period. LXL and LXLB are partnerships, and accordingly, there is no provision
for income taxes related to these entities. The individual owners include their
respective share of profits and losses in their tax returns.

Concentration of Credit Risk

Use of Estimates

The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Basis of Presentation - Interim Financial Statements

The interim financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of Accounting Principles Board
("APB") Opinion No. 28, "Interim Financial Reporting." Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to APB Opinion No. 28; nevertheless, management of the Company
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial position of the Company with respect to the results of its operations
for the interim periods from January 1, 1996, to June 30, 1996, and from January
1, 1997, to June 30, 1997, have been included herein. The results of operations
for the interim periods are not necessarily indicative of the results for the
full year.

3. NOTES RECEIVABLE:

Notes receivable primarily consist of a $400,000 note receivable from a
third party, due July 18, 1999 with monthly interest only payments until that
date. The note bears interest of 8.0%.

4. INVESTMENTS IN AFFILIATED ENTITIES:

Investments in affiliated entities primarily consist of 40% interests in
two partnerships (Santa Clara Valley MRI ("Santa Clara") and Sunnyvale MRI
("Sunnyvale"), each of which perform radiology and

F-84
<PAGE> 387

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

imaging healthcare services. These investments are being accounted for under the
equity method of accounting. Balances at December 31 are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Santa Clara................................................. $387,564 $ --
Sunnyvale................................................... (20,734) 98,089
Other....................................................... 2,342 5,942
-------- --------
$369,172 $104,031
======== ========
</TABLE>

5. PROPERTY AND EQUIPMENT:

Property and equipment at December 31, consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS) 1995 1996
---------------- ---------- ----------
<S> <C> <C> <C>
Equipment................................... 5 $4,236,818 $4,056,426
Leasehold improvements...................... 5-13 370,130 413,604
Furniture and fixtures...................... 5-7 109,415 113,561
---------- ----------
4,716,363 4,583,591
Less -- Accumulated depreciation and
amortization.............................. (4,518,100) (3,330,166)
---------- ----------
Property and equipment, net....... $ 198,263 $1,253,425
========== ==========
</TABLE>

F-85
<PAGE> 388

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

6. LONG-TERM DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to Bank, bearing interest at prime plus .5%
(8.75% on December 31, 1996), due March 1, 2000, secured
by accounts receivable and certain property and equipment.
Monthly payments of $12,420 plus interest. ............... $ 606,700 $ 244,962
Note payable to Bank, bearing interest at prime plus .5%
(8.75% on December 31, 1996), due May 1, 2001, secured by
accounts receivable and certain property and equipment.
Monthly payments of $5,000 including interest. ........... -- 261,649
Note payable to physician, bearing interest at prime,
adjustable every April 1 and October 1, (8.75% on December
31, 1995), due March 31, 1996. Monthly payments of $4,201
plus interest. ........................................... 12,604 --
Note payable to physician, bearing interest at prime,
adjustable every May 1 and November 1, (8.75% on December
31, 1995), due April 30, 1996. Monthly payments of $4,167
plus interest. ........................................... 16,666 --
Note payable to physician, noninterest bearing, due December
31, 1998. Monthly payments of $6,250. .................... 225,000 150,000
Note payable to physician, noninterest bearing, due June 30,
1998. Monthly payments of $3,749. ........................ 112,470 67,482
--------- ---------
Total long-term debt........................................ 973,440 724,093
Less -- Current maturities.................................. (298,298) (329,028)
--------- ---------
Total long-term debt, net of current portion................ $ 675,142 $ 395,065
========= =========
</TABLE>

Future maturities of long-term debt at December 31, 1996, are as follows:

During 1995, the Company maintained a $300,000 line of credit for working
capital purposes bearing interest at the prime rate (8.5% on December 31, 1995).
The amount outstanding at December 31, 1995 was $57,000. The Company currently
maintains a $900,000 line of credit bearing interest at the prime rate (8.25% on
December 31, 1996). The amount outstanding at December 31, 1996 was $825,100.

Under the terms of the physician employment agreements, any physician who
is a shareholder in the Company and has been employed as a full-time
professional for a continuous four year period is entitled to a payout upon
retirement or when they cease to be employees of the Company. The payout is
equal to the physician's pro rata share of 80% of accounts receivable less
amounts owed to former shareholders. Payments are made in forty-eight equal
monthly amounts beginning the month after employment ceases. At December 31,
1996, the Company had $217,482 payable under these arrangements.

F-86
<PAGE> 389

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

Notes payable to physicians outstanding at December 31, 1995 represents
amounts paid to two former physicians for non-compete agreements.

7. INCOME TAXES:

The provisions for income taxes for the years ended December 31, consist of
the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current income tax expense................................. $ -- $ --
Deferred income tax expense (benefit)...................... (110,919) 132,901
--------- ---------
Total income tax expense (benefit)............... $(110,919) $ 132,901
========= =========
</TABLE>

Significant components of the Company's deferred tax assets and liabilities
as of December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Current:
Deferred tax assets --
Accounts payable and accrued salaries and benefits.... $ 398,993 $ 289,672
Deferred tax (liabilities) --
Accounts receivable, net.............................. (554,997) (549,660)
--------- ---------
Total net current deferred tax liabilities....... $(156,004) $(259,988)
========= =========
Noncurrent:
Deferred tax liabilities --
Depreciation.......................................... $ (8,344) $ (37,261)
========= =========
</TABLE>

The differences between the provision (benefit) for income taxes and the
amounts computed by applying the statutory Federal income tax rate to income
before income taxes are due to disallowed passive losses from certain
investments.

8. EMPLOYEE BENEFIT PLAN:

The Company sponsors a profit sharing plan for employees of the Company,
who have completed one year of service. The plan provides for discretionary
employer contributions. The Company's contributions for 1995 and 1996 were
$480,858 and $500,000, respectively.

9. OPERATING LEASES:

The Company leases various facilities under noncancelable operating leases
that expire at various dates through 1999. Future minimum lease payments under
noncancelable leases are as follows:

<TABLE>
<S> <C>
1997..................................................... $ 348,256
1998..................................................... 293,206
1999..................................................... 220,521
2000..................................................... 156,802
2001..................................................... 156,802
Thereafter............................................... 370,016
----------
$1,545,603
==========
</TABLE>

F-87
<PAGE> 390

VALLEY RADIOLOGY GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1996

10. RELATED-PARTY TRANSACTIONS:

As indicated in Note 4, the Company has 40% partnership interests in Santa
Clara and Sunnyvale. Under agreements with these partnerships, the Company
performs professional and management services. Management fees are billed to the
partnership based primarily upon agreed-upon rates per case. Management and
professional fees earned from these partnerships are as follows:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Santa Clara................................................. $198,327 $ 25,664
Sunnyvale................................................... 343,698 266,338
-------- --------
$542,025 $292,002
======== ========
</TABLE>

11. FAIR VALUE OF FINANCIAL INSTRUMENTS:

12. CONTINGENCIES:

13. SUBSEQUENT EVENTS:

On March 6, 1997, the Company entered into a letter of intent with American
Physician Partners, Inc. (APPI) under which APPI will acquire certain assets and
liabilities of the Company in exchange for common stock and cash. Completion of
the transaction is subject to certain conditions, including the execution of a
forty-year service agreement, stockholder approval by both parties and
successful completion of an initial public offering by APPI. Under the terms of
the service agreement, APPI will provide practice management, administration and
other services to the physicians for a negotiated service fee. All
nonprofessional employees shall become employees of APPI. In addition, APPI will
assume responsibility for all maintenance, repairs, improvements, lease and
other general operating expenses.

In 1997, the Company refinanced its $900,000 line of credit with a term
note. The term note provides for borrowings of $925,000 due February 2002.

Effective January 1, 1997, the Company and Pacific Imaging Consultants, a
group of radiologists in Oakland, California, formed a management services
organization to manage their operations.

F-88
<PAGE> 391

================================================================================

AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

dated as of

June 27, 1997

by and among

AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),

[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a Maryland corporation),

and

CARROLL IMAGING ASSOCIATES, P.A.
DIAGNOSTIC IMAGING ASSOCIATES, P.A.
DRS. THOMAS, WALLOP, KIM & LEWIS, P.A.
DRS. COPELAND, HYMAN & SHACKMAN, P.A.
DRS. DECARLO, LYON, HEARN & PAZOUREK, P.A.
HARBOR RADIOLOGISTS, P.A.
PERILLA, SINDLER & ASSOCIATES, P.A.; and

(each a Maryland professional association)

================================================================================
<PAGE> 392
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares of the Company Common Stock . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE III Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . 9
Section 3.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>

i
<PAGE> 393
<TABLE>
<S> <C> <C>
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.27 Licenses, Authorization and Provider Programs . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.29 Proprietary Rights and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.31 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.15 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE V Closing Date Representations and Warranties of each Company . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE VI Closing Date Representations and Warranties Regarding . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.1 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.3 No Business, Agreements, Assets or Liabilities . . . . . . . . . . . . . . . . . . . . . 27

ARTICLE VII Covenants of each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.1 Conduct of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>

ii
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<TABLE>
<S> <C> <C>
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.5 Compliance With Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.9 Obligations of Company and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE VIII Covenants of APP and APP Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.2 Requirements to Effect the Merger and Acquisitions . . . . . . . . . . . . . . . . . . . 31
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE IX Covenants of APP, APP Sub and each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.2 Amendments of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.7 Registration Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.6 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.9 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement . . . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.15 Merger Into Merger PC; Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE XI Conditions Precedent of each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>

iii
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<TABLE>
<S> <C> <C>
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.5 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.7 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.11 Tax Opinion

ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.1 Further Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.3 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by each Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.2 Indemnification by APP and APP Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 14.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . 44
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.6 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . 44
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>

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<PAGE> 396
<TABLE>
<S> <C> <C>
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>

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<PAGE> 397
EXHIBITS

<TABLE>
<S> <C>
Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>

Exhibit 1.1 - List of Stockholders
Exhibit 2.6 - List of Directors
Exhibit 2.7 - List of Officers
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion

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<PAGE> 398
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

This Agreement and Plan of Reorganization and Merger (this
"Agreement"), dated as of June __, 1997, is by and among AMERICAN PHYSICIAN
PARTNERS, INC., a Delaware corporation ("APP"); [AMERICAN PHYSICIAN PARTNERS
SUBSIDIARY, INC.], a ________________ corporation and a wholly- owned
subsidiary of APP ("APP Sub"); and Carroll Imaging Associates, P.A., a Maryland
professional association; Diagnostic Imaging Associates, P.A., a Maryland
professional association; Drs. Thomas, Wallop, Kim & Lewis, P.A., a Maryland
professional association; Drs. Copeland, Hyman & Shackman, P.A., a Maryland
professional association; Drs. DeCarlo, Lyon, Hearn & Pazourek, P.A., a
Maryland professional association; Harbor Radiologists, P.A., a Maryland
professional association; and Perilla, Sindler & Associates, P.A., a Maryland
professional association, and each Company Subsidiaries (each individually
referred to as a "Company").

RECITALS

A. Each Company owns and operates (i) a professional medical
practices specializing in radiology and (ii) diagnostic imaging centers. All
of the shares of the common stock of each Company (the "Company Common Stock")
are owned beneficially and of record by the Stockholders.

B. APP Sub is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.

C. Pursuant to this Agreement, APP, APP Sub, and each Company
intend that APP Sub be merged with and into each Company, and that each Company
be the sole surviving corporation (sometimes referred to hereinafter as the
"Surviving Corporation"), and APP Sub be the disappearing corporation
(sometimes referred to hereinafter as the "Disappearing Corporation").

D. APP, APP Sub and each Company have each determined to engage
in the transactions contemplated hereby, pursuant to which (i) APP Sub will
merge with and into each Company upon the terms and conditions set forth herein
and in accordance with the laws of the State of Maryland, (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein, and (iii) each Company shall become a wholly-owned
subsidiary of APP.

E. Prior to the Merger, each Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
newly formed professional association ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction").

F. APP and APP Subsidiaries have entered into, or intend to enter
into, an Agreement and Plan of Reorganization and Merger or other acquisition
agreements (collectively, the "Other Agreements") similar to this Agreement
with interest holders (together with the Stockholders, the "Target Interest
Holders") of each of the entities listed on Exhibit A (together with each
Company, the "Target Companies").

G. The parties intend for the transaction contemplated by this
Agreement along with the transactions contemplated by the Other Agreements to
qualify as a tax-free exchange within the meaning of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
promulgated thereunder.

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<PAGE> 399
AGREEMENT

NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:

ARTICLE I

Definitions

Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:

"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.

"Agreement" shall have the meaning set forth in the preamble to this
Agreement.

"APP" shall have the meaning set forth in the preamble to this
Agreement.

"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.

"APP Group" shall mean APP, APP Sub, NewCo and each of their
Affiliates.

"APP Sub" shall have the meaning set forth in the preamble to this
Agreement.

"APP Subsidiaries" shall have the meaning set forth in Section 4.5.

"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of each Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of each Company, it
shall mean the knowledge of any of the Stockholders listed on Exhibit 1.1,
director or executive officer of each Company actually possesses without the
necessity of any special inquiry as to the matters which are the subject
thereof.

"Claim Notice" shall have the meaning set forth in Section 14.3(a).

"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.

"Closing Date" shall have the meaning set forth in Section 2.2.

"Code" shall have the meaning set forth in the recitals to this
Agreement.

"Company" shall have the meaning set forth in the preamble to this
Agreement and specifically includes each Company's Subsidiaries.

"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of each Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of each Company and its Subsidiaries for the year ended December 31, 1996.

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<PAGE> 400
"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.

"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.

"Company Current Financial Statements" shall mean the related
statements of income, stockholders' equity and statements of cash flows of each
Company and each Company Subsidiaries for the _____ (__) month period then
ended and each Company Current Balance Sheet.

"Company Financial Statements" shall mean collectively each Company
Audited Financial Statements and each Company Current Financial Statements.

"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which each Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.

"Company Subsidiaries" shall have the meaning set forth in Section
3.7.

"Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person,
including, but not limited to, information derived from reports, processes,
data, know-how, software programs, improvements, inventions, strategies,
compensation structures, reports, investigations, research, work in progress,
codes, marketing and sales programs and plans, financial projections, cost
summaries, formulae, contract analyses, financial information, forecasts,
confidential filings with any state or federal agency, and all other
confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.

"Controlled Group" shall have the meaning set forth in Section
3.20(g).

"Damages" shall have the meaning set forth in Section 14.1.

"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.

"Disclosure Schedules" shall mean the schedules attached hereto as of
the date hereof or otherwise delivered by any party hereto pursuant to the
terms hereof, as such may be amended or supplemented from time to time pursuant
to the provisions hereof.

"DOJ" shall mean the United States Department of Justice.

"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.

"Effective Time" shall have the meaning set forth in Section 2.3.

"Election Period" shall have the meaning set forth in Section 14.3(a).

"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).

"Encumbrance" shall mean any charge, claim, community property
interest, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.

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<PAGE> 401
"Environmental Laws" shall have the meaning set forth in Section
3.21(e).

"ERISA" shall have the meaning set forth in Section 3.18.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

"Form S-1" shall mean the Form S-1 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with its Initial
Public Offering.

"Form S-4" shall mean the Form S-4 Registration Statement filed with
the SEC by APP pursuant to the Securities Act in connection with the offering
of APP Common Stock as consideration under the Merger and other mergers
contemplated by the Other Agreements.

"Founding Company" shall mean a Target Company that is either a party
to this Agreement or an Other Agreement that has not been terminated prior to
Closing.

"FTC" shall mean the United States Federal Trade Commission.

"Indemnified Party" shall have the meaning set forth in Section
14.3(a).

"Indemnifying Party" shall have the meaning set forth in Section
14.3(a).

"Indemnity Notice" shall have the meaning set forth in Section
14.3(d).

"Initial Public Offering" shall mean the initial underwritten public
offering of APP Common Stock contemplated by the Form S-1.

"Initial Public Offering Price" shall mean the price per share of APP
Common Stock received by APP before underwriting commissions, discounts or
other fees in connection with its Initial Public Offering.

"Insurance Policies" shall have the meaning set forth in Section 3.23.

"IRS" shall mean the Internal Revenue Service.

"Lease Agreements" shall have the meaning set forth in Section 3.14.

"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, operations, condition (financial or otherwise),
liabilities or results of operations of the Person or Persons being referred
to, taken as a whole (including its consolidated subsidiaries, if any), in
consideration of all relevant facts and circumstances.

"Medical Waste" shall mean (i) pathological waste, (ii) blood, (iii)
sharps, (iv) wastes from surgery or autopsy, (v) dialysis waste, including
contaminated disposable equipment and supplies, (vi) cultures and stocks of
infectious agents and associated biological agents, (vii) contaminated animals,
(viii) isolation wastes, (ix) contaminated equipment, (x) laboratory waste,
(xi) any substance, pollutant, material, or contaminant listed or regulated
under any Medical Waste Law, and (xii) other biological waste and discarded
materials contaminated with or exposed to blood, excretion, or secretions from
human beings or animals.

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<PAGE> 402
Act, 29 USCA Section Section 651 et seq., (v) the United States Department of
Health and Human Services, National Institute for Occupational Safety and
Health, Infectious Waste Disposal Guidelines, Publication No. 88-119, and (vi)
any other federal, state, regional, county, municipal, or other local laws,
regulations, and ordinances insofar as they are applicable to any of each
Company's assets or operations and purport to regulate Medical Waste or impose
requirements related to Medical Waste.

"Merger" shall have the meaning set forth in Section 2.1.

"Merger Consideration" shall have the meaning set forth in Section
2.8(a).

"Merger PC" shall have the meaning set forth in Section 7.13.

"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Section Section 6992, et seq.

"NewCo" shall have the meaning set forth in the recitals to this
Agreement.

"NewCo Common Stock" shall mean the common stock[, $_____ par value
per share,] of NewCo.

"New Qualified Plan" shall have the meaning set forth in Section 8.5.

"Ordinary course of business" shall mean the usual and customary way
in which the particular entity has conducted its business in the past.

"Other Agreements" shall have the meaning set forth in the recitals to
this Agreement.

"Payors" shall mean any and all private or governmental Persons,
obligated by contract or by law to render payment to each Company or NewCo in
consideration of the performance of professional medical or technical services
including, but not limited to, Medicare and Medicaid Programs (as defined in
Section 3.27(a)), insurance companies, health maintenance organizations,
preferred provider organizations, independent practice associations, hospitals,
hospital systems, integrated delivery systems and CHAMPUS.

"Person" shall mean any natural person, corporation, partnership,
joint venture, limited liability company, association, group, organization or
other entity.

"Physician Employee" shall mean each radiologist employed by each
Company or NewCo, as the case may be.

"Physician Employment Agreements" shall have the meaning set forth in
Section 10.14.

"Registration Statements" shall mean the Form S-1 and the Form S-4.

"Regulated Activity" shall have the meaning set forth in Section
3.21(e).

"Related Acquisitions" shall mean, collectively, the Merger and the
mergers and acquisitions of each Founding Company and its related entities and
assets contemplated by the Other Agreements.

"Reorganization" shall have the meaning set forth in Section 13.2.

"Security Agreement" shall have the meaning set forth in the Service
Agreement.

"SEC" shall mean the Securities and Exchange Commission.

"Securities Act" shall mean the Securities Act of 1933, as amended.

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<PAGE> 403
"Service Agreement" shall have the meaning set forth in Section
12.1(j).

"Spin-Off Transaction" shall have the meaning set forth in the
recitals to this Agreement.

"Stockholders" shall mean the stockholders of each Company immediately
prior to the Effective Time.

"Stockholder Release" shall have the meaning set forth in Section
12.1(m).

"Surviving Corporation" shall have the meaning set forth in the
recitals to this Agreement.

"Target Companies" shall have the meaning set forth in the recitals to
this Agreement.

"Target Interest Holders" shall have the meaning set forth in the
recitals to this Agreement.

"Tax Returns" shall include all federal, state, local or foreign
income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).

"Third Party Claim" shall have the meaning set forth in Section
14.3(a).

Section 1.2 Rules Of Interpretation. The definitions set forth
in Section 1.1 shall be equally applicable to both the singular and the plural
forms of the terms therein defined and shall cover both genders.

Unless otherwise indicated, "herein," "hereby," "hereunder," "hereof,"
"hereinabove," "hereinafter" and other equivalent words refer to this Agreement
and not solely to the particular Article, Section or subdivision hereof in
which such word is used.

Unless otherwise indicated, reference herein to an Article number
(e.g., Article IV) or a Section number (e.g., Section 6.2) shall be construed
to be a reference to the designated Article number or Section number of this
Agreement.

ARTICLE II

The Merger

Section 2.1 The Merger. Subject to the terms and conditions of
this Agreement, at the Effective Time, APP Sub shall be merged with and into
each Company in accordance with this Agreement and the separate corporate
existence of the Disappearing Corporation shall thereupon cease (the "Merger").
Each Company shall be the Surviving Corporation in the Merger and shall
continue to be governed by the laws of the State of Maryland, and the separate
corporate existence of each Company with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the Merger,
except as set forth herein. The Surviving Corporation may, at any time
concurrent with and/or after the Effective Time, take any action in the name of
or on behalf of the Disappearing Corporation in order to effectuate the
transactions contemplated by this Agreement.

Section 2.2 The Closing. The closing (the "Closing") shall take
place at 10:00 a.m., local time, at the offices of APP located at 2301
NationsBank Plaza, 901 Main Street, Dallas, Texas on the day on which the
transactions contemplated by the Initial Public Offering are consummated. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."

Section 2.3 Effective Time. If all the conditions to the Merger
set forth in Articles XI and XII shall have been fulfilled or waived in
accordance herewith and this Agreement shall not have been

6
<PAGE> 404
terminated in accordance with Article XVI, the parties hereto shall cause to be
properly executed and filed on the Closing Date, Certificates of Merger meeting
the requirements of Section 3-109 of the Maryland General Corporation Law. The
Merger shall become effective at the time of the filing of such documents with
the Secretary of State of the State of Maryland, in accordance with such law or
at such later time which the parties hereto have theretofore agreed upon and
designated in such filings as the effective time of the Merger (the "Effective
Time").

Section 2.4 Certificate of Incorporation of Surviving
Corporation. Effective at the Effective Time, the articles or certificate of
incorporation of each Company in effect immediately prior to the Effective Time
shall be amended and restated in a manner satisfactory to APP. The
certificate of Incorporation, as so amended and restated, shall be the
certificate of incorporation of the Surviving Corporation.

Section 2.5 Bylaws of Surviving Corporation. The Bylaws of APP
Sub in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation without any amendment or modification as a result of
the Merger, until duly amended in accordance with applicable laws.

Section 2.6 Directors of the Surviving Corporation. The persons
who are directors of each Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time. The directors of the Surviving Corporation following
the Effective Time shall be set forth in Exhibit 2.6.

Section 2.7 Officers of the Surviving Corporation. The persons
who are officers of each Company immediately prior to the Effective Time shall
submit a written resignation in form and substance acceptable to APP, effective
as of the Effective Time. The officers of the Surviving Corporation following
the Effective Time shall be set forth in Exhibit 2.7.

Section 2.8 Conversion of Company Common Stock. The manner of
converting shares of Company Common Stock in the Merger shall be as follows:

(a) As a result of the Merger and without any action on
the part of the holder thereof, all shares of Company Common Stock issued and
outstanding at the Effective Time (excluding shares held by APP pursuant to
Section 2.8(d) hereof) shall cease to be outstanding and shall be cancelled and
retired and shall cease to exist, and each holder of a certificate or
certificates representing any such shares of Company Common Stock shall
thereafter cease to have any rights with respect to such shares of Company
Common Stock, except the right to receive, without interest, (i) cash and (ii)
validly issued, fully paid and nonassessable shares of APP Common Stock, all as
determined in accordance with the provisions of Exhibit B attached hereto (the
"Merger Consideration").

(b) Each share of Company Common Stock held in the
Company's treasury, if any, at the Effective Time, by virtue of the Merger,
shall be cancelled and retired without payment of any consideration therefor
and shall cease to exist.

(c) Each Company Right outstanding at the Effective Time
shall be terminated and cancelled, without payment of any consideration
therefor, and shall cease to exist.

(d) Each share of common stock of APP Sub issued and
outstanding at the Effective Time shall be converted to one share of Company
Common Stock.

(e) At the Effective Time, each share of APP Common Stock
issued and outstanding as of the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, continue unchanged
and remain outstanding as a validly issued, fully paid and nonassessable share
of APP Common Stock.

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<PAGE> 405
Section 2.9 Exchange of Certificates Representing Shares of the
Company Common Stock.

(a) At or after the Effective Time and at the Closing (i)
the Stockholders, as holders of a certificate or certificates representing
shares of each Company's Common Stock, shall upon surrender of each certificate
or certificates (or completion of appropriate affidavit of lost certificate and
indemnity) receive such allocation of Merger Consideration as determined in
accordance with the provisions of Exhibit B attached hereto; and (ii) until
each certificate or certificates representing Company Common Stock have been
surrendered by the Stockholders, the certificates for Company Common Stock
shall, for all purposes, represent solely the right to receive Merger
Consideration as determined in accordance with the provisions of Exhibit B
attached hereto and Section 2.10 hereof, if applicable. At the Effective Time,
each share of Company Common Stock converted into Merger Consideration shall by
virtue of the Merger and without any action on the part of the holders thereof,
cease to be outstanding, be cancelled and returned and all shares of APP Common
Stock issuable to the Stockholders in the Merger as part of the Merger
Consideration shall be deemed for all purposes to have been issued by APP at
the Effective Time.

(b) Each Stockholder shall deliver to APP at the Closing
the certificates representing Company Common Stock owned by him, her or it,
duly endorsed in blank by the Stockholder, or accompanied by duly executed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at the Stockholder's expense, affixed and cancelled. Each
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to such Company
Common Stock or with respect to the stock powers accompanying any Company
Common Stock. Upon such delivery (or completion of appropriate affidavit of
lost certificate and indemnity), each Stockholder shall receive in exchange
therefor the Merger Consideration pursuant to Exhibit B and Section 2.10
hereof, if applicable.

Section 2.10 Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of APP Common Stock will be issued and
any Stockholder otherwise entitled to receive a fractional share of APP Common
Stock as part of the Merger Consideration hereunder shall receive a cash
payment in lieu thereof reflecting such Stockholder's proportionate interest in
a share of APP Common Stock multiplied by the Initial Public Offering Price.

ARTICLE III

Representations and Warranties of the Company

As an inducement to APP and APP Sub to enter into this Agreement and
to consummate the Merger and except as set forth in the Disclosure Schedules
attached hereto and incorporated herein by this reference, each Company and
Company Subsidiary individually represents and warrants to APP and APP Sub both
as of the date hereof and as of the Effective Time as follows:

Section 3.1 Organization and Good Standing; Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation, with all requisite corporate
power and authority to own, operate and lease its assets and properties and to
carry on its business as currently conducted. The Company and each Company
Subsidiary is in good standing in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary, except where such failure to be so qualified or in
good standing would not have a Material Adverse Effect on the Company. Copies
of the articles or certificates of incorporation and all amendments thereto of
the Company and each Company Subsidiary and the bylaws of the Company and each
Company Subsidiary, as amended, and copies of the corporate minutes of the
Company, all of which have been or will be made available to APP for review,
are true and complete as in effect on the date of this Agreement, and in the
case of the corporate minutes, accurately reflect all material proceedings of
the Stockholders and directors of the Company (and all committees thereof).
The stock record books of the Company, which have been or will be made
available to APP for review, contain true, complete and

8
<PAGE> 406
accurate records of the stock ownership of record of the Company and the
transfer record of the shares of its capital stock.

Section 3.2 Authorization and Validity. The Company has all
requisite corporate power to enter into this Agreement and all other agreements
entered into in connection with the transactions contemplated hereby and to
consummate the transactions contemplated hereby. The execution, delivery and,
subject to approval of this Agreement and the Merger by the Stockholders,
performance by the Company of this Agreement and the agreements contemplated
herein, and the consummation by the Company of the transactions contemplated
hereby and thereby are within the Company's respective corporate powers and
have been duly authorized by all necessary action on the part of the Company's
Board of Directors. Subject to the approval of this Agreement and the Merger
by the Stockholders, this Agreement has been duly executed by the Company, and
this Agreement and all other agreements and obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Company is a party constitute, or upon execution will constitute, valid and
binding agreements of the Company, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
or other laws affecting the enforcement of creditors' rights generally, or by
general equity principles, or by public policy.

Section 3.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger (as
contemplated by Section 2.3) and any other required documents related to the
Merger, and other than consents, filings or notifications required to be made
or obtained solely by APP or APP Sub (including, without limitation, in
connection with the Initial Public Offering, Form S-4 or any Hart-Scott-Rodino
filing to be made by APP, if any), the execution, delivery and performance by
the Company of this Agreement and the agreements provided for herein, and the
consummation of the transactions contemplated hereby and thereby by the Company
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.

Section 3.4 Capitalization. The authorized capital stock and
shares issued and outstanding are listed in the Disclosure Schedules. The
Stockholders collectively are and will be immediately prior to the Effective
Time the record and beneficial owners of all the issued and outstanding Company
Common Stock, free and clear of all Encumbrances, in the respective amounts set
forth in the Disclosure Schedules. Each outstanding share of Company Common
Stock has been legally and validly issued and is fully paid and nonassessable,
and was issued pursuant to a valid exemption from registration under (i) the
Securities Act of 1933, as amended, and (ii) all applicable state securities
laws. No shares of Company Common Stock are owned by the Company in treasury.
No shares of Company Common Stock have been issued or disposed of in violation
of any preemptive rights, rights of first refusal or similar rights of any of
the Stockholders. Other than Company Common Stock, the Company has no
securities, bonds, debentures, notes or other obligations the holders of which
have the right to vote (or are convertible into or exercisable for securities
having the right to vote) with the Stockholders on any matter.

Section 3.5 Transactions in Capital Stock. There exist no
Company Rights. The Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative
ownership of shares among any of its Stockholders has been altered or changed
in contemplation of the Merger within the two (2) years preceding the date of
this Agreement.

Section 3.6 Continuity of Business Enterprise. There has not
been any sale, distribution or spin-off of significant assets of the Company or
any of its Affiliates other than in the ordinary course of business within the
(2) two years preceding the date of this Agreement.

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Section 3.7 Subsidiaries and Investments. The Company does not
own, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (each a "Company Subsidiary").

Section 3.8 Absence of Conflicting Agreements or Required
Consents. Subject to approval of this Agreement and the Merger by the
Stockholders of the Company, the execution, delivery and performance by the
Company of this Agreement and any other documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (i) do not require
the consent of any governmental or regulatory body or authority or any other
third party except for such consents, for which the failure to obtain would not
result in a Material Adverse Effect on the Company; (ii) will not conflict with
or result in a violation of any provision of the Company's articles or
certificate of incorporation or bylaws, (iii) will not conflict with, result in
a violation of, or constitute a default under any law, rule, ordinance,
regulation or any ruling, decree, determination, award, judgment, order or
injunction of any court or governmental instrumentality which is applicable to
the Company or by which the Company or its properties are subject or bound;
(iv) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or modify, or permit any person to accelerate or modify, any performance
required by the terms of any agreement, instrument, license or permit, to which
the Company is a party or by which the Company or any of its properties are
subject or bound except for such conflict, termination, breach or default, the
occurrence of which would not result in a Material Adverse Effect on the
Company; and (v) except as contemplated by this Agreement, will not create any
Encumbrance or restriction upon the Company Common Stock or any of the assets
or properties of the Company.

Section 3.9 Intentionally omitted.

Section 3.10 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, the Company has conducted
its business only in the ordinary course and has not:

(a) suffered any change or changes in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (whether or not covered by insurance) that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on the Company;

(b) paid, discharged or satisfied any material liability,
other than the payment, discharge or satisfaction of liabilities in the
ordinary course of business;

(d) except in the ordinary course of business and
consistent with past practice, cancelled or compromised any debts or waived or
permitted to lapse any claims or rights or sold, transferred or otherwise
disposed of any of its properties or assets;

(e) entered into any commitment or transaction not in the
ordinary course of business that is material to the Company, taken as a whole,
or made any capital expenditure or commitment in excess of $25,000;

(f) made any change in any method of accounting or
accounting practice, credit practices, collection policies, or payment
policies;

(g) except in the ordinary course of business consistent
with past practice, incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of $10,000 individually or $25,000 in the aggregate;

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(h) mortgaged, pledged, subjected or agreed to subject,
any of its assets, tangible or intangible, to any claim or Encumbrance, except
for liens for current personal property taxes not yet due and payable
mechanics, landlords, materialmen, and other statutory liens, purchase money
security interests, sale-leaseback interests granted and all other Encumbrances
granted in similar transactions;

(i) sold, redeemed, acquired or otherwise transferred any
equity or other interest in itself;

(j) increased any salaries, wages or any employee
benefits for any employee of the Company, except in the ordinary course of
business and consistent with past practice;

(k) hired, committed to hire or terminated any employee
except in the ordinary course of business;

(l) declared, set aside or made any payments, dividends
or other distributions to any Stockholder or any other holder of capital stock
of the Company (except as expressly contemplated herein); or

(m) agreed, whether in writing or otherwise, to take any
action described in this Section 3.10.

Section 3.11 No Undisclosed Liabilities. To the best of its
knowledge, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted except for liabilities or obligations reflected or reserved against
in the Company's Current Balance Sheet.

Section 3.12 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of the
Company, threatened against, or affecting the Company, any Company Subsidiary,
any Stockholder, the Physician Employees or any other licensed professional or
other individual affiliated with the Company affecting or that would reasonably
be likely to affect the Company Common Stock or the operations, business
condition, (financial or otherwise), or results of operations of the Company
which (i) if successful, may, individually or in the aggregate, have a Material
Adverse Effect on the Company or (ii) could adversely affect the ability of the
Company or any Company Subsidiary to effect the transactions contemplated
hereby, and to the knowledge of the Company there is no basis for any such
action or any state of facts or occurrence of any event which would reasonably
be likely to give rise to the foregoing. There are no unsatisfied judgments
against the Company or any Company Subsidiary or any licensed professional or
other individual affiliated with the Company or any Company Subsidiary relating
to services provided on behalf of the Company or any Company Subsidiary or any
consent decrees to which any of the foregoing is subject. Each of the matters,
if any, set forth in this Section 3.12 is fully covered by policies of
insurance of the Company or any Company Subsidiary as in effect on the date
hereof.

Section 3.13 No Violation of Law. Neither the Company nor any
Company Subsidiary has been, nor shall be as of the Effective Time (by virtue
of any action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever), in violation of any applicable local,
state or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency, authority or court
binding on it, or relating to its properties, assets or business or its
advertising, sales or pricing practices, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company.

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operation of its business and which requires payments in excess of $12,000 per
year (the "Lease Agreements"). The Company has delivered to APP true and
complete copies of all of the Lease Agreements. Each Lease Agreement is valid,
effective and in full force in accordance with its terms, and there is not
under any such lease (i) any existing or claimed material default by the
Company or any Company Subsidiary (as applicable) or event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by the Company or any Company Subsidiary (as applicable) and,
individually or in the aggregate, may reasonably result in a Material Adverse
Effect on the Company, or, (ii) to the knowledge of the Company, any existing
material default by any other party under any of the Lease Agreements or any
event of material default or event which with notice or lapse of time, or both,
would constitute a material default by any such party. To the knowledge of the
Company, there is no pending or threatened reassessment of any property covered
by the Lease Agreements. The Company or any Company Subsidiary will use
reasonable good faith efforts to obtain, prior to the Effective Time, the
consent of each landlord or lessor whose consent is required to the assignment
of the Lease Agreements and will use reasonable good faith efforts to deliver
to APP or APP Sub in writing such consents as are necessary to effect a valid
and binding transfer or assignment of the Company's or any Company Subsidiary's
rights thereunder. The Company has a good, clear, valid and enforceable
leasehold interest under each of the Lease Agreements. The Lease Agreements
comply with the exceptions to ownership interests and compensation arrangements
set out in 42 U.S.C. Section 1395nn, 42 C.F.R. Section 1001.952, and any
similar applicable state law safe harbor or other exemption provisions.

Section 3.15 Real and Personal Property.

(a) Neither the Company nor any Company Subsidiary owns
any interest (other than the Lease Agreements) in real property.

(b) The Company and any Company Subsidiary (i) has good
title to all of its properties and assets (real, personal and mixed, tangible
and intangible) and any rights or interests therein which it purports to own
including, without limitation, all the property and assets reflected in the
Company Current Financial Statements; and (ii) owns such rights, interests,
assets and property free and clear of all Encumbrances, title defects or
objections (except for taxes not yet due and payable). The personal property
presently used in connection with the operation of the business of the Company
and the Company Subsidiaries constitutes the necessary personal property assets
to continue operation of the Company and any Company Subsidiary.

Section 3.16 Indebtedness for Borrowed Money. Except for trade
payables incurred in the ordinary course of business, the Company does not have
any direct or indirect indebtedness for borrowed money, including indebtedness
by way of lease-purchase arrangements or guarantees, and is not obligated in
any manner (actual or contingent) to assume or guarantee any indebtedness or
obligation of another Person.

Section 3.17 Contracts and Commitments.

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Company would be required to make, aggregate future payments in excess of
$10,000 in any fiscal year or $25,000 in the aggregate, (iii) all agreements
for capital improvements or acquisitions involving an amount of $75,000 in any
fiscal year or $75,000 in the aggregate, (iv) all agreements containing a
covenant limiting the freedom of the Company (or any provider employee of the
Company) to compete in any line of business with any person or entity or in any
geographic area or (v) all written contracts and commitments providing for
future payments by the Company in excess of $10,000 in any fiscal year or
$25,000 in the aggregate and that are not cancelable by providing notice of
sixty (60) days or less. All such contracts, agreements or other instruments
are in full force and effect, there has been no threatened cancellation
thereof, there are no outstanding disputes thereunder, each is with unrelated
third parties and was entered into on an arms-length basis and, assuming the
receipt of the appropriate consents, all will continue to be binding in
accordance with their terms after consummation of the transaction contemplated
herein; there are no contracts, agreements or other instruments to which the
Company is a party or is bound (other than physician employment contracts and
insurance policies) which could either singularly or in the aggregate have a
Material Adverse Effect on the value to APP or APP Sub of the assets and
properties to be acquired by APP or APP Sub from the Company, or which could
inhibit or prevent the Company from transferring to or vesting in APP or APP
Sub good and sufficient title to the assets and properties to be acquired by
APP or APP Sub and the Surviving Corporation except where the failure to
transfer would not have a Material Adverse Effect on APP or APP Sub. In every
instance where consent is necessary, the Company shall, on or before the
Closing Date, use reasonable good faith efforts to obtain and deliver to APP or
APP Sub in writing, effective as of the Closing Date, such consents as are
necessary to enable the Surviving Corporation to enjoy all of the rights now
enjoyed by the Company under such contracts. Any and all such consents shall
be in a form reasonably acceptable to APP and shall contain an acknowledgment
by the consenting party that the Company has fully complied with and is not in
default under any provision of the particular contract or agreement.
Notwithstanding the foregoing, the Company shall not transfer to APP or APP Sub
any contracts or agreements relating to the provision of professional medical
services or other such agreements and contracts that APP consents to in writing
to be transferred to NewCo in the Spin-off Transaction. No contract with a
health care provider or Payor has been materially amended or terminated within
the last twelve (12) months.

(b) The Company (i) has not received notice of any plan
or intention of any other party to exercise any right to cancel or terminate
any contract, agreement or instrument required to be disclosed pursuant to
Section 3.17(a), and to the knowledge of the Company there are no fact(s) that
would justify the exercise of such a right; and (ii) does not currently
contemplate, or have reason to believe any other Person currently contemplates,
any amendment or change to any such contract, agreement or instrument.

Section 3.18 Employee Matters. The Company is not currently a
party to any employment contract (except for oral employment agreements which
are terminable at will), consulting or collective bargaining contracts,
deferred compensation, pension plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit
sharing, bonus, stock option, stock purchase or other nonqualified benefit or
compensation commitments, benefit plans, arrangements or plans (whether written
or oral), including all welfare plans (as defined in Section 3(1) of ERISA) of
or pertaining to the Company and any of its present or former employees, or any
predecessors in interest. As of April 30, 1997, the Company employed the
number of part-time and full-time employees listed in the Disclosure Schedules.
The Disclosure Schedules list each employee of, or consultant to, the Company
who received combined salary, benefits (other than those offered generally to
all other employees) and bonuses for 1996 in excess of $50,000 or who is
expected to receive combined salary, benefits (other than those offered
generally to all other employees) and bonuses in 1997 in excess of $50,000.
The Company is not delinquent in payment to any of its employees or Physician
Employees for wages, salaries, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of employment of any employee
or Physician Employee, no severance or other payments will become due and the
Company has no policy, past practice or plan of paying severance on termination
of employment.

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Section 3.19 Labor Relations.

(a) To the knowledge of the Company, the Company is in
material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety and health, and is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;

(b) To the knowledge of the Company, there is no unfair
labor practice, charge or complaint or any other employment- related matter
against or involving the Company pending or threatened before the National
Labor Relations Board or any federal, state or local agency, authority or
court;

(c) To the knowledge of the Company, there are no
charges, investigations, administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, national origin, the making of workers' compensation claims, sexual
preference, handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court against the Company. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the knowledge of the
Company, no basis for any such audit exists which, if conducted would result in
a Material Adverse Effect on the Company;

(d) The Company is in material compliance with the
Immigration Reform and Control Act of 1986, as amended, and all applicable
regulations promulgated thereunder; and

(e) To the knowledge of the Company, there are no
inquiries, investigations or monitoring activities of any licensed, registered,
or certified professional personnel employed or retained by, credentialed or
privileged, or otherwise affiliated with the Company pending or threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners.

Section 3.20 Employee Benefit Plans.

(a) Identification. The Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided to APP copies of all plan documents (as they may have been
amended to the date hereof), determination letters, pending determination
letter applications, trust instruments, insurance contracts or policies related
to an Employee Benefit Plan, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to APP a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of ERISA, each of the
Employee Benefit Plans can be terminated or amended at will by the Company
without any further liability or obligation on the part of such entity to make
further contributions or payments in connection therewith following such
termination. No unwritten amendment exists with respect to any Employee
Benefit Plan.

(b) Administration. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect.

(c) Examinations. The Company has not received any
notice that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency or authority.

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(d) Prohibited Transactions. No prohibited transactions
(within the meaning of Section 4975 of the Code or Section 406 of ERISA) have
occurred with respect to any Employee Benefit Plan. There has been no breach
of any duty under ERISA or applicable law (including, without limitation, any
health care contractor requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which would be
reasonably likely to result, directly or indirectly, (including through any
obligation of indemnification or contribution), in any taxes, penalties or
other liability to APP or any of its Affiliates.

(e) Claims and Litigation. No pending or, to the
Company's knowledge, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.

(f) Qualification. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) or
501(c)(9) of the Code and/or tax-exempt within the meaning of Section 501(a) of
the Code and, to the best knowledge of the Company and each Stockholder, has
been continually qualified under the applicable Section of the Code since the
effective date of such Employee Benefit Plan. No proceedings exist or, to the
Company's knowledge, have been threatened that could result in the revocation
of any such favorable determination letter or ruling.

(g) Funding Status. No accumulated funding deficiency
(within the meaning of Section 412 of the Code), whether waived or unwaived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Code) in which the Company is a member (a "Controlled Group"). With respect to
each Employee Benefit Plan subject to Title IV of ERISA, the assets of each
such plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. With respect to each
Employee Benefit Plan described in Section 501(c)(9) of the Code, the assets of
each such plan are at least equal in value to the present value of accrued
benefits, based upon the most recent actuarial valuation as of a date no more
than ninety (90) days prior to the date hereof. The Disclosure Schedules
contain a complete and accurate statement of all actuarial assumptions applied
to determine the present value of accrued benefits under all Employee Benefit
Plans subject to actuarial assumptions.

(h) Excise Taxes. Neither the Company nor any member of
a Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.

(i) Multiemployer Plans. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA or any other
Employee Benefit Plan which has been subject to Title IV of ERISA or Section
412 of the Code.

(j) PBGC. No facts or circumstances are known to the
Company that would result in the imposition of liability against APP, APP Sub
or any of its Affiliates by the Pension Benefit Guaranty Corporation ("PBGC")
as a result of any act or omission by the Company or any member of a Controlled
Group. No reportable event (within the meaning of Section 4043 of ERISA) for
which the notice requirement has not been waived has occurred with respect to
any Employee Benefit Plan subject to the requirements of Title IV of ERISA.

(k) Retirees. The Company has no obligation or
commitment to provide medical, dental or life insurance benefits to or on
behalf of any of its employees who may retire or any of its former employees
who have retired except as may be required pursuant to the continuation of
coverage provisions of Section 4980B of the Code and the applicable provisions
of ERISA.

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(l) Other Compensation Arrangements. Neither the Company
nor, to the Company's knowledge, any Stockholder or Physician Employee is a
party to any compensation or debt arrangement with any Person relating to the
provision of health care related services other than arrangements with the
Company.

Section 3.21 Environmental Matters.

(a) Neither the Company nor any Company Subsidiary has,
within the five (5) years preceding the date hereof, through the Effective
Time, received from any federal, state or local governmental body, agency,
authority or entity, or any other Person, any written notice, demand, citation,
summons, complaint or order or any notice of any penalty, lien or assessment,
and to the knowledge of the Company no investigation or review is pending by
any governmental entity, with respect to any (i) alleged violation by the
Company of any Environmental Law (as defined in subsection (e) below) (ii)
alleged failure by the Company to have any environmental permit, certificate,
license, approval, registration or authorization required pursuant to any
Environmental Law in connection with the conduct of its business; or (iii)
alleged illegal Regulated Activity (as defined in subsection (e) below) by the
Company.

(b) Neither the Company nor any Company Subsidiary has
used, transported, disposed of or arranged for the disposal of (as those terms
are defined in and construed under the Comprehensive Environmental Response,
Compensation and Liability Act) any Hazardous Substance (as defined herein)
that would be reasonably likely to give rise to any Environmental Liabilities
(as defined in subsection (e) below) for the Company under any applicable
Environmental Law that had, or would reasonably be likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any Company Subsidiary
has engaged in any activity or failed to undertake any activity which action or
failure to act has given, or would reasonably be likely to give, rise to any
Environmental Liabilities or enforcement action by any federal, state or local
regulatory agency or authority, or has resulted, or would reasonably be likely
to result, in any fine or penalty imposed pursuant to any Environmental Law.
The Disclosure Schedules list any known presence of asbestos in or on the
Company's or any Company Subsidiary's owned or leased premises. To the
knowledge of the Company, there is no friable asbestos in or on the Company's
or any Company Subsidiary's owned or leased premises.

(c) To the knowledge of the Company, no soil or water in
or under any assets currently or formerly held for use or sale by the Company
or any Company Subsidiary is or has been contaminated by any Hazardous
Substance while such assets or premises were owned, leased, operated or
managed, directly or indirectly by the Company or any Company Subsidiary, where
such contamination had, or would be reasonably likely to have, a Material
Adverse Effect on the Company.

(d) There have been no environmental audits and other
similar reports which have been prepared by, for or, to the knowledge of the
Company, concerning the Company or any Company Subsidiary within the five (5)
years preceding the date hereof through the Effective Time with respect to any
real property now or previously owned or leased by the Company, any Company
Subsidiary or any of its predecessors, true and complete copies of which have
been provided to APP.

(e) For the purposes of this Section 3.21, the following
terms have the following meanings:

"Environmental Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders
(including without limitation, Medical Waste Laws) that are intended
to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste, hazardous,
toxic, or radioactive substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public in each case as in
effect on the date hereof.

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"Environmental Liabilities" shall mean all liabilities of the
Company or any Company Subsidiary, whether contingent or fixed, which
(i) have arisen, or would reasonably be likely to arise, under
Environmental Laws and (ii) relate to actions occurring or conditions
existing on or prior to the date hereof or the Effective Time.

"Hazardous Substances" shall mean any toxic or hazardous
substances, material or waste, including Medical Waste, or any
pollutant or contaminant, or infectious or radioactive substance or
material, including without limitation, those substances, materials
and wastes defined in or regulated under any Environmental Laws.

"Regulated Activity" shall mean any generation, treatment,
storage, recycling, transportation, disposal or release of any
Hazardous Substances.

Section 3.22 Filing Reports. All returns, reports, plans and
filings of any kind or nature necessary to be filed by the Company with any
governmental agency or authority have been properly completed and timely filed
in compliance with all applicable requirements, except where failure to so file
would not have a Material Adverse Effect on the Company.

Section 3.23 Insurance Policies. The Disclosure Schedules list
and briefly describe the Company's policies of insurance to which the Company
or any Company Subsidiary is a party or under which the Company or any Company
Subsidiary, officer or director thereof is or has been covered at any time
during the last five (5) years preceding the date of this Agreement relating to
the business of the Company or any Company Subsidiary (the "Insurance
Policies"). All of the Insurance Policies are valid, outstanding and
enforceable policies, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies and all premiums with respect thereto which
are due and payable are currently paid. All Insurance Policies currently
maintained by the Company or any Company Subsidiary ("Current Policies") taken
together, (i) provide adequate insurance coverage for the assets, properties
and operations of the Company and its Affiliates for all risks normally insured
against by a Person carrying on a substantially similar business or businesses
as the Company and its Affiliates, (ii) are sufficient for compliance with
legal and contractual requirements to which the Company or any of its
Affiliates is a party or by which any of them may be bound, and (iii) shall be
maintained in force (including the payment of all premiums and compliance with
their terms) without interruption up to and including the Closing Date. True,
complete and correct copies of all Insurance Policies have been provided to
APP. Neither the Company nor any Company Subsidiary nor any officer or
director thereof has received any notice or other written communication from
any issuer of any Current Policy cancelling such policy, materially increasing
any deductibles or retained amounts thereunder, or materially increasing the
annual or other premiums payable thereunder and, to the knowledge of the
Company, no such cancellation or increase of deductibles, retainages or
premiums is threatened. There are no outstanding claims, settlements or
premiums owed against any Insurance Policy, and all required notices have been
given and all known potential or actual claims under any Insurance Policy have
been presented in due and timely fashion. Within the five (5) years preceding
the Agreement, neither the Company nor any Company Subsidiary has filed a
written application for any professional liability insurance coverage which has
been denied by an insurance agency or carrier. The Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of $10,000
per occurrence filed by the Company or any Company Subsidiary during the
immediately preceding three-year period. Each Physician Employee has, at all
times while a Physician Employee, maintained or been covered by professional
malpractice insurance in such types and amounts as are customary for such a
physician practicing the same type of medicine in the same geographic area.

Section 3.24 Accounts Receivable; Payors.

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as bad debts and, are, to the extent still uncollected, to the knowledge of the
Company collectible in the ordinary course of business, net of reserves for
doubtful and uncollectible accounts shown in the Company Financial Statements
or on the accounting records of the Company (which reserves are calculated
consistent with generally accepted accounting principles and past practice).

(b) The Disclosure Schedules set forth (i) a true,
correct and complete list of the names and addresses of each Payor of the
Company as of such date, which accounted for more than 5% of the revenues of
the Company in the fiscal year ended December 31, 1996, or which is reasonably
expected to account for more than 5% of the revenues of the Company for the
fiscal year to end December 31, 1997, and (ii) a single line item listing for
all private-pay patients in the aggregate of the Company. The Company has
satisfactory relations with such Payors set forth in (i) above and none of such
Payors has notified the Company that it intends to discontinue its relationship
with the Company or to deny any payments due from, or any claims for payment
submitted to any such party.

Section 3.25 Accounts Payable; Suppliers.

(a) The Disclosure Schedules set forth a true and
complete (i) list of the accounts payable of the Company as of March 31, 1997,
and (ii) list of each individual indebtedness owed by the Company of $5,000 or
more, setting forth the payee and the amount of indebtedness.

(b) The Disclosure Schedules set forth a true, correct
and complete list of the names and addresses of each of the providers/suppliers
of products or services to the Company (including, without limitation all
non-Physician Employee providers of care to patients) which accounted for a
dollar volume of purchases paid for by the Company in excess of $25,000 for the
fiscal year ended December 31, 1996, or which is reasonably expected to account
for a dollar volume of purchases paid for by the Company in excess of $25,000
for the fiscal year to end December 31, 1997.

Section 3.26 Inventory. All items of inventory on the Company
Current Balance Sheet contained in the Company Financial Statements consisted,
and all such items on hand on the date of this Agreement consist, and all such
items on hand at the Effective Time will consist, net of all applicable
reserves with respect thereto (calculated consistent with past practice), of
items of a quality and a quantity usable and saleable in the ordinary course of
the Company's business and conform to generally accepted standards in the
industry of which the Company is a part. The value of the inventories
reflected on the Company Current Balance Sheet contained in the Company
Financial Statements are net of adequate reserves for damaged, excess, and
unusable items. Purchase commitments of the Company for inventory are not
materially in excess of normal requirements, and none of such purchase
commitments are at prices in excess of prevailing market prices at the time of
such purchase commitment.

Section 3.27 Licenses, Authorization and Provider Programs.

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<PAGE> 416
provider numbers and participating physician contracts under 1842(h) of the
Social Security Act), and provider agreements, is set forth in the Disclosure
Schedules, true, complete and correct copies of which have been provided to
APP. No violation, default, order or deficiency exists with respect to any of
the items listed in the Disclosure Schedules except for such violations,
defaults, orders or deficiencies which would not be reasonably likely to have a
Material Adverse Effect on the Company, and there is no action pending or to
the Company's knowledge recommended by any state or federal agencies having
jurisdiction over the items listed in the Disclosure Schedules, either to
revoke, withdraw or suspend any material license or to terminate the
participation of the Company in any Governmental Program or Private Program,
and no event has occurred which, with or without notice or lapse of time, or
both, would constitute grounds for a violation, order or deficiency with
respect to any of the items listed in the Disclosure Schedules to revoke,
withdraw or suspend any material license to operate its business as is
presently being conducted by it. To the knowledge of the Company, there has
been no decision not to renew any existing agreement with any provider or Payor
relating to the Company's business as presently being conducted by it. Neither
the Company nor any Physician Employee (i) has had his/her/its professional
license, Drug Enforcement Agency number, Medicare/Medicaid provider status or
staff privileges at any hospital or diagnostic imaging center suspended,
relinquished, terminated or revoked (including orders that have been entered by
any such entities but stayed), (ii) has been reprimanded in writing, sentenced,
or disciplined by any licensing board, state agency, regulatory body or
authority, hospital, Payor or specialty board (including orders that have been
entered by any such entities but stayed), or (iii) is the subject of an initial
or final determination by any federal or state authority that could result in
any demand or reimbursement under the Medicare, Medicaid or Government Programs
or any exclusion or which monetary penalty under federal or state law or (iv)
has had a final judgment or settlement entered against him/her/it in connection
with a malpractice or similar action.

(b) The Company is not required, or for the 72-month
period prior to the Effective Time was not required, to file any cost reports
or other reports with any Governmental Program or Private Program.

Section 3.28 Inspections and Investigations. Neither the right of
the Company, or any Physician Employee, nor the right of any licensed
professional or other individual affiliated with the Company to receive
reimbursements pursuant to any Governmental Program or Private Program has been
terminated or otherwise materially and adversely affected as a result of any
investigation or action whether by any federal or state governmental regulatory
authority or other third party. No Physician Employee, licensed professional
or other individual affiliated with the business has, during the past three (3)
years prior to the Effective Time, had their professional license or staff
privileges limited, suspended or revoked by any governmental regulatory
authority or agency, hospital, integrated delivery system, trade association,
professional review organization, accrediting organization or certifying agency
(including orders that have been entered by any such entities but stayed).
True, correct and complete copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced in this Section
3.28 have been provided to APP.

Section 3.29 Proprietary Rights and Information.

(a) Set forth in the Disclosure Schedules is a complete
and accurate list and summary description of the following: (i) all trademarks
(registered and unregistered), trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, currently owned in whole or part, or used by the Company or any
Company Subsidiary, (ii) all patents and applications therefor and inventions
and discoveries that may be patentable currently owned, in whole or in part, or
used by the Company or any Company Subsidiary, (iii) all licenses, royalties,
and assignments thereof to which the Company or any Company Subsidiary are a
party (iv) all copyrights (for published and unpublished works) currently owned
in whole or part, or used by the Company or any Company Subsidiary and (v)
other similar agreements relating to the foregoing to which the Company or any
Company Subsidiary is a party (including expiration date if applicable)
(collectively, the "Proprietary Rights").

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(b) The Disclosure Schedules contain a complete and
accurate list and summary description of all agreements relating to technology,
trade secrets, know-how or processes that the Company is licensed or authorized
to use by others (other than technology, know-how or processes generally
available to other health care providers) or which it licenses or authorizes
others to use, true, correct and complete copies of which have been provided to
APP. There are no outstanding and, to the Company's knowledge, any threatened
disputes or disagreements with respect to any such agreement.

(c) The Company owns or has the legal right to use the
Proprietary Rights without conflicting with, infringing or violating the rights
of any other Person. No consent of any person will be required for the use
thereof by APP upon consummation of the transactions contemplated hereby and
the Proprietary Rights are freely transferable. To the knowledge of the
Company, no claim has been asserted by any person to the ownership of or for
infringement by the Company of any Proprietary Right of any other Person, and
neither the Company nor any Stockholder is aware of any valid basis for any
such claim. To the best knowledge of the Company, no proceedings have been
threatened which challenge the Proprietary Rights of the Company. The Company
has the right to use, free and clear of any adverse claims or rights of others,
all trade secrets, customer lists and proprietary information required for the
performance and marketing of all medical services.

Section 3.30 Taxes.

(a) Filing of Tax Returns. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed with the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All
such Tax Returns or reports are complete and accurate in all material respects
and properly reflect the taxes of the Company for the periods covered thereby.

(b) Payment of Taxes. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in Schedule 3.30(b), (i) the Company has
paid all taxes, penalties, assessments and interest that have become due with
respect to any Tax Returns that it has filed and has properly accrued on its
books and records in accordance with generally accepted accounting principles
for all of the same that have not yet become due and payable and (ii) the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.

(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company and to the best knowledge of
the Company, there is no threat of such assertion. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could reasonably be likely to
be asserted by any taxing authority. There is no taxing authority audit of the
Company pending, or to the actual knowledge of the Company, threatened within
the last five (5) years, and the results of any completed audits are properly
reflected in the Company Financial Statements. The Company has not violated
any applicable federal, state, local or foreign tax law. There are no security
interests or liens on any assets of the Company or any Company Subsidiary which
have resulted from any failure to pay (or alleged failure to pay) taxes.

(d) No Extension of Limitation Period. The Company has
not granted an extension to any taxing authority of the statute of limitation
period during which any tax liability may be assessed or collected.

(e) All Withholding Requirements Satisfied. All monies
required to be withheld by the Company and paid to governmental agencies for
all income, social security, unemployment insurance, sales, excise, use, and
other taxes have been collected or withheld and paid to the respective
governmental agencies.

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(f) Foreign Person. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code and Treasury Regulations Section 1.1445-2.

(g) Safe Harbor Lease. None of the properties or assets
of the Company constitutes property that the Company, APP, APP Sub or any
Affiliate of APP, will be required to treat as being owned by another person
pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of the Code
prior to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.

(h) Tax Exempt Entity. None of the assets or properties
of the Company are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Code.

(i) Collapsible Corporation. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Code apply to
it.

(j) Boycotts. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Code.

(k) Parachute Payments. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.

(l) S Corporation. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Code.

(m) Personal Holding Companies. The Company is not or
has not been a personal holding company within the meaning of Section 542 of
the Code.

Section 3.31 Related Party Arrangements. The Disclosure Schedules
set forth a description of any interest held, directly or indirectly, by any
officer, director or other Affiliate of the Company in any property, real or
personal or mixed, tangible or intangible, used in or pertaining to the
Company's business and any arrangement or agreement with any such person
concerning the provision of goods or services or other matters pertaining to
the Company's business. There is no commitment to, and no income reflected in
the Company Financial Statements that has been derived from, an Affiliate, and
following the Closing the Company shall not have any obligation of any kind or
designation to any such Affiliate.

Section 3.32 Banking Relations. Set forth in the Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the Person or Persons authorized in respect thereof.

Section 3.33 Fraud and Abuse and Self Referral. Neither the
Company nor any Company Subsidiary has engaged and, to the knowledge of the
Company, neither the Company's officers and directors nor the Physician
Employees or other Persons and entities providing professional services for or
on behalf of the Company have engaged, in any activities which are prohibited
under 42 U.S.C. Section Section 1320a 7, 7a or 7b or 42 U.S.C. Section 1395nn
(subject to the exceptions or safe harbor provisions set forth in such
legislation), or the regulations promulgated thereunder or pursuant to similar
state or local statutes or regulations, or which are prohibited by applicable
rules of professional conduct or 18 U.S.C. Section Section 24, 287, 371, 664,
669, 1001, 1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.

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Company Subsidiary or the continuation of that medical practice in the future
by NewCo, any acquisition of property by the Company, any Company Subsidiary or
the conduct of business by the Company or any Company Subsidiary.

Section 3.35 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in the Company's Disclosure Schedules delivered hereunder are
valid and binding, and are in full force and effect and are enforceable in
accordance with their terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy or other laws affecting the
enforcement of creditors' rights generally, or by general equity principles, or
by public policy. There is no pending or, to the knowledge of the Company,
threatened bankruptcy, insolvency or similar proceeding with respect to any
other party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by the Company or any other party
thereto. No contract with a Physician Employee has been terminated in the last
twelve (12) months.

Section 3.36 Statements True and Correct. No representation or
warranty made herein by the Company or any Stockholder, nor any statement,
certificate, information, exhibit or instrument to be furnished by the Company
or any Stockholder to APP, APP Sub or any of their respective representatives
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.

Section 3.37 Disclosure Schedules. All Disclosure Schedules
required by Article III hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.

Section 3.38 Finders' Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
any of the Stockholders or the Company who is entitled to any fee or commission
upon consummation of the transactions contemplated by this Agreement or
referred to herein.

ARTICLE IV

Representations and Warranties of APP

As inducement to each Company and the Stockholders to enter into this
Agreement and to consummate the Merger and except as set forth in the
Disclosure Schedules attached hereto and incorporated herein by this reference,
APP represents and warrants to each Company and the Stockholders both as of the
date hereof and as of the Effective Time as follows:

Section 4.1 Organization and Good Standing; Qualification. APP
is a corporation duly organized, validly existing and in good standing under
the laws of the state of Delaware, with all requisite corporate power and
authority to own, operate and lease its assets and properties and to carry on
its business as currently conducted. APP is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where such failure to be so
qualified or in good standing would not have a Material Adverse Effect on APP.
Copies of the certificate of incorporation and all amendments thereto of APP
and the bylaws of APP, as amended, and copies of the corporate minutes of APP
regarding the Merger and the transactions contemplated hereby, all of which
have been or will be made available to the Company for review, are true,
correct and complete as in effect on the date of this Agreement and accurately
reflect all material proceedings of the stockholders and directors of APP (and
all committees thereof) regarding the Merger and the transactions contemplated
hereby. The stock record books of APP, which have been or will be made
available to each Company for review, contain true, complete and accurate
records of the stock ownership of APP and the transfer of the shares of its
capital stock.

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Section 4.2 Authorization and Validity. APP has all requisite
corporate power to execute and deliver this Agreement and the Other Agreements
and to consummate the Merger and the transactions contemplated hereby. The
execution, delivery and performance by APP of this Agreement and the agreements
provided for herein, including the Other Agreements and the consummation by APP
of the transactions contemplated hereby and thereby are within APP's corporate
powers and have been duly authorized by all necessary action on the part of
APP's Board of Directors. This Agreement has and the Other Agreements have
been duly executed by APP. This Agreement and all other agreements and
obligations entered into and undertaken in connection with the Merger and the
transactions contemplated hereby to which APP is a party constitute, or upon
execution will constitute, valid and binding agreements of APP, enforceable
against it in accordance with their respective terms, except as may be limited
by bankruptcy or other laws affecting creditors' rights generally, or by
general equity principles, or by public policy.

Section 4.3 Governmental Authorization. Other than complying
with the provisions of the applicable state corporate laws regarding the
approval of the Merger and the filing of the Certificates of Merger and any
other required documents related to the Merger, and other than consents,
filings or notifications required to be made or obtained solely by each
Company, the execution, delivery and performance by APP of this Agreement and
the agreements provided for herein, and the consummation of the Merger and the
transactions contemplated hereby and thereby by APP requires no action by or in
respect of, or filing with, any governmental body, agency, official or
authority.

Section 4.4 Capitalization. The authorized capital stock of APP
consists of 20,000,000 shares of APP Common Stock, of which 2,000,000 shares
are issued and outstanding and 10,000,000 shares of APP Preferred Stock, none
of which are outstanding. Each outstanding share of APP Common Stock has been
legally and validly issued and is fully paid and nonassessable, and was issued
pursuant to a valid exemption from registration under (i) the Securities Act of
1933, as amended, and (ii) all applicable state securities laws. No shares of
capital stock are owned by APP in treasury. No shares of capital stock of APP
have been issued or disposed of in violation of the preemptive rights, rights
of first refusal or similar rights of any stockholders of APP. APP has no
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having the
right to vote) with the stockholders of APP on any matter. There exist no
options, warrants, subscriptions, calls, commitments or other rights to
purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of APP and no option, warrant,
subscription, call, or commitment or commission right of any kind exists which
obligates APP to issue any of its authorized but unissued capital stock. APP
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof.

Section 4.5 Subsidiaries and Investments. APP does not own,
directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any corporation, partnership, association, trust, joint
venture or other entity (the "APP Subsidiaries").

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breach or default, the occurrence of which would not result in a Material
Adverse Effect on APP; and (v) will not create any Encumbrance or restriction
upon APP Common Stock or any of the assets or properties of APP. The financial
statements of APP contained in the Registration Statements (a) have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated therein or in the notes
thereto), (b) present fairly the financial position of APP and APP Subsidiaries
as of the dates indicated and present fairly the results of APP's and APP
Subsidiaries' operations for the periods then ended, and (c) are in accordance
with the books and records of APP and APP Subsidiaries, which have been
properly maintained and are complete and correct in all material respects.

Section 4.7 Absence of Changes. Except as permitted or
contemplated by this Agreement, since March 31, 1997, there has not been (i)
any change in the working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations of APP that has had or is
reasonably likely to have a Material Adverse Effect on APP; or (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the APP Common Stock.

Section 4.8 No Undisclosed Liabilities. Except as set forth in
the Form S-4 or reflected or reserved for in the financial statements included
therein, APP does not have any material liability or obligation accrued,
contingent or otherwise, that is reasonably likely to have a Material Adverse
Effect on APP.

Section 4.9 Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or, to the knowledge of APP,
threatened against, or affecting APP. There are no unsatisfied judgments
against APP or any consent decrees to which APP is subject. Each of the
matters, if any, set forth in the Disclosure Schedules are fully covered by
policies of insurance of APP as in effect on that date.

Section 4.10 No Violation of Law. APP has not been, nor shall be
as of the Effective Time (by virtue of any action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever), in
violation of any applicable local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any governmental body,
agency or authority or court binding on it, or relating to its property or
business or its advertising, sales or pricing practices, except for violations
which are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on APP.

Section 4.11 Employee Matters. Except as set forth in the Form
S-4, APP does not have any material arrangements, agreements or plans with any
person with respect to the employment by APP of such person or whereby such
person is to serve as an officer or director of APP.

Section 4.12 Taxes.

(a) Filing of Tax Returns. APP has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed with the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of APP for the periods covered thereby.

(b) Payment of Taxes. Except for such items as APP may
be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Disclosure Schedules, (i) APP has paid all taxes,
penalties, assessments and interest that have become due with respect to any
Tax Returns that it has filed and has properly accrued on its books and records
for all of the same that have not yet become due and (ii) APP is not delinquent
in the payment of any tax, assessment or governmental charge.

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(c) No Pending Deficiencies, Delinquencies, Assessments
or Audits. APP has not received any notice that any tax deficiency or
delinquency has been asserted against APP. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of APP that could be asserted by any taxing authority. There is
no taxing authority audit of APP pending, or to the knowledge of APP,
threatened, and the results of any completed audits are properly reflected in
the financial statements of APP. APP has not violated any federal, state,
local or foreign tax law.

(d) No Extension of Limitation Period. APP has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.

(e) All Withholding Requirements Satisfied. All monies
required to be withheld by APP and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.

(f) Foreign Person. Neither APP nor any holders of APP
Common Stock is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.

(g) Tax Exempt Entity. None of the assets of APP are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Code.

(h) Collapsible Corporation. APP has not at any time
consented, and the holders of APP Common Stock will not permit APP to elect, to
have the provisions of Section 341(f)(2) of the Code apply to it.

(i) Boycotts. APP has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Code.

(j) Parachute Payments. No payment required or
contemplated to be made by APP will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.

(k) S Corporation. APP has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Code.

(l) Personal Holding Companies. APP is not or has not
been a personal holding company within the meaning of Section 542 of the Code.

Section 4.13 Related Party Arrangements. The Disclosure Schedules
or Form S-4 sets forth a description of any interest held, directly or
indirectly, by any officer, director or other Affiliate of APP in any property,
real or personal or mixed, tangible or intangible, used in or pertaining to
APP's business and any arrangement or agreement with any such person concerning
the provision of goods or services or other matters pertaining to APP's
business.

Section 4.14 Statements True and Correct. No representation or
warranty made herein by APP, nor any statement, certificate, information,
exhibit or instrument to be furnished by APP to each Company or a Stockholder
pursuant to this Agreement, contains or will contain as of the Effective Time
any untrue statement of material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.

Section 4.15 Disclosure Schedules. All Disclosure Schedules
required by Article IV hereof and attached hereto are true, correct and
complete in all material respects as of the date of this Agreement.

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Section 4.16 Finder's Fees. No investment banker, broker, finder
or other intermediary has been retained by or is authorized to act on behalf of
APP who is entitled to any fee or commission upon consummation of the
transactions contemplated by this Agreement or referred to herein.

Section 4.17 Agreements in Full Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to, or required to be
referred to, in APP's Disclosure Schedules delivered hereunder are valid and
binding, and are in full force and effect and are enforceable in accordance
with their terms, except to the extent that the validity or enforceability
thereof may be limited by bankruptcy or other laws affecting the enforcement of
creditors' rights generally, or by general equity principles, or by public
policy. There is no pending or, to the knowledge of APP, threatened
bankruptcy, insolvency or similar proceeding with respect to any other party to
such agreements, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by APP or any other party thereto.

ARTICLE V

Closing Date Representations and Warranties of each Company

Each Company represents and warrants that the following will be true
and correct on the Closing Date as if made on that date:

Section 5.1 Organization and Good Standing; Qualification. NewCo
is a professional corporation duly organized, validly existing and in good
standing under the laws of its state of organization, with all requisite
corporate power and authority to carry on the business in which it intends to
engage, to own the properties it intends to own, and to execute and deliver the
Service Agreement, the Security Agreement and the Physician Employment
Agreements and consummate the transactions and perform the services
contemplated thereby. NewCo is duly qualified and licensed to do business and
is in good standing in all jurisdictions where the nature of its intended
business makes such qualification necessary, which jurisdictions are listed in
the Disclosure Schedules, except where the failure to be so qualified shall not
have a Material Adverse Effect on NewCo.

Section 5.2 Capitalization. The authorized capital stock of
NewCo consists of [_____] shares of NewCo Common Stock, of which [______]
shares are issued and outstanding, and no shares of capital stock of NewCo are
held in treasury. The Stockholders own all of the issued and outstanding
shares of NewCo Common Stock, free and clear of any Encumbrance. Each
outstanding share of NewCo Common Stock has been legally and validly issued and
is fully paid and nonassessable. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of NewCo. No
shares of capital stock of NewCo have been issued or disposed of in violation
of the preemptive rights, rights of first refusal or similar rights of any of
NewCo's stockholders.

Section 5.3 Corporate Records. The copies of the articles or
certificate of incorporation and bylaws, and all amendments thereto, of NewCo
that have been delivered or made available to APP are true, correct and
complete copies thereof, as in effect on the Closing Date.

Section 5.4 Authorization and Validity. The execution, delivery
and performance by NewCo of the Service Agreement, the Security Agreement, the
Physician Employment Agreements and the other agreements contemplated thereby,
and the consummation of the transactions and provision of services contemplated
thereby, have been duly authorized by the Board of Directors of NewCo. The
Service Agreement, the Security Agreement, the Physician Employment Agreements
and each other agreement contemplated thereby will be as of the Closing Date
duly executed and delivered by NewCo and will constitute valid and binding
obligations of NewCo enforceable against NewCo in accordance with their
respective terms, except as may be limited by applicable bankruptcy, or other
laws affecting creditors' rights generally, or by general equity principles, or
by public policy.

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Section 5.5 No Violation. Neither the execution, delivery or
performance of the Service Agreement, the Security Agreement, the Physician
Employment Agreements or the other agreements contemplated thereby nor the
consummation of the transactions or provision of services contemplated thereby
will (a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the articles or
certificate of incorporation or bylaws of NewCo, or (b) violate or conflict
with any applicable local, state or federal law, ordinance, regulation, order,
injunction or decree, or any other requirement of any governmental body, agency
or authority or court binding on it, or relating to its property or business.

Section 5.6 No Business, Agreements, Assets or Liabilities.
NewCo has not commenced business since its incorporation. Other than its
articles or certificate of incorporation and bylaws, and as of the Closing
Date, the Service Agreement, the Security Agreement, the Physician Employment
Agreements, and the other contracts and agreements assigned to NewCo as part of
the Spin-Off Transaction, NewCo is not a party to or subject to any agreement,
indenture or other instrument. NewCo does not own any assets (tangible or
intangible) other than the consideration received upon the issuance of shares
of its capital stock or pursuant to the Spin-Off Transaction, and NewCo does
not have any liabilities, accrued, contingent or otherwise (known or unknown
and asserted or unasserted) other than those assumed pursuant to the Spin-Off
Transaction.

Section 5.7 Compliance with Laws. NewCo has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where failure
to so comply or file would not, individually or in the aggregate, have a
Material Adverse Effect on NewCo.

ARTICLE VI

Closing Date Representations and Warranties Regarding APP Sub

APP and APP Sub, jointly and severally, represent and warrant that the
following will be true and correct on the Closing Date as if made on that date:

Section 6.1 Authorization and Validity. The execution, delivery
and performance by APP Sub of this Agreement and the consummation of the
transactions contemplated thereby, have been duly authorized by APP Sub. This
Agreement will be as of the Closing Date duly executed and delivered by APP Sub
and will constitute the legal, valid and binding obligation of APP Sub
enforceable against APP Sub in accordance with its respective terms, except as
may be limited by bankruptcy or other laws affecting creditors' rights
generally, or by equity principles, or by public policy.

Section 6.2 No Violation. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby will conflict with, or result in a violation or breach of
the terms, conditions or provisions of, or constitute a default under, the
certificate of incorporation or bylaws of APP Sub.

Section 6.3 No Business, Agreements, Assets or Liabilities. APP
Sub has not commenced business since its incorporation. APP Sub does not own
any assets (tangible or intangible) other than the consideration received upon
the issuance of shares of its capital stock and APP Sub does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted) other than those assumed pursuant to this Agreement.

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ARTICLE VII

Covenants of each Company

Each Company makes the covenants and agreements as set forth in this
Article VII, which shall apply with respect to the period from the date hereof
to the Effective Time and, to the extent contemplated herein, thereafter and
agree that:

Section 7.1 Conduct of the Company. Except as required pursuant
to the Spin-Off Transaction, from the date hereof until the Effective Time, the
Company shall, in all material respects, conduct its business in the ordinary
and usual course consistent with past practices and shall use reasonable
efforts to:

(a) preserve intact its business and its relationships
with Payors, referral sources, customers, suppliers, patients, employees and
others having business relations with it;

(b) maintain and keep its properties and assets in good
repair and condition consistent with past practice as is material to the
conduct of the business of the Company;

(c) continuously maintain insurance coverage
substantially equivalent to the insurance coverage in existence on the date
hereof. In addition, without the written consent of APP, the Company shall
not:

(1) amend its articles or certificate of
incorporation or bylaws, or other charter documents;

(2) issue, sell or authorize for issuance or
sale, shares of any class of its securities (including, but
not limited to, by way of stock split, dividend,
recapitalization or other reclassification) or any
subscriptions, options, warrants, rights or convertible
securities, or enter into any agreements or commitments of any
character obligating it to issue or sell any such securities;

(3) redeem, purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such
shares;

(4) declare or pay any dividend or other
distribution (whether in cash, stock or other property) with
respect to its capital stock (except as expressly contemplated
herein);

(5) voluntarily sell, transfer, surrender,
abandon or dispose of any of its assets or property rights
(tangible or intangible) other than the sale of inventory, if
any, in the ordinary course of business consistent with past
practices;

(6) grant or make any mortgage or pledge or
subject itself or any of its properties or assets to any lien,
charge or encumbrance of any kind, except liens for taxes not
currently due and except for liens which arise by operation of
law;

(7) voluntarily incur or assume any liability or
indebtedness (contingent or otherwise), except in the ordinary
course of business or which is reasonably necessary for the
conduct of its business;

(8) make or commit to make any capital
expenditures which are not reasonably necessary for the
conduct of its business;

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(9) grant any increase in the compensation
payable or to become payable to directors, officers,
consultants or employees other than merit increases to
employees of the Company who are not directors or officers of
the Company, except in the ordinary course of business and
consistent with past practices;

(10) change in any manner any accounting
principles or methods other than changes which are consistent
with generally accepted accounting principles;

(11) enter into any material commitment or
transaction other than in the ordinary course of business;

(12) take any action which could reasonably be
expected to have a Material Adverse Effect on the Company;

(13) apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any
amount payable directly or indirectly to or for the benefit of
any Affiliate of the Company, other than in the ordinary
course and consistent with past practices;

(14) agree, whether in writing or otherwise, to do
any of the foregoing; and

(15) take any action at the Board of Director or
Stockholder level to (in any way) amend, revise or otherwise
affect the prior corporate approval and effectiveness of this
Agreement or any of the agreements attached as exhibits
hereto, other than as required to discharge its or their
fiduciary duties.

Section 7.2 Title to Assets; Indebtedness. As of the Effective
Time, the Company shall (i) except for sales of assets held as inventory, if
any, in the ordinary course of business prior to the Effective Time and except
as otherwise specifically described in the Disclosure Schedules to this
Agreement, have good and valid title to all of its assets free and clear of all
Encumbrances of any nature whatsoever, except for current year ad valorem taxes
and liens which arise by operation of law, and (ii) have no direct or indirect
indebtedness except for indebtedness disclosed in the Company Financial
Statements, the Disclosure Schedules hereto or for normal and recurring accrued
obligations of the Company arising in connection with its business operations
in the ordinary course of business and which arise from the purchase of
merchandise, supplies, inventory and services used in connection with the
provision of services.

Section 7.3 Access. At all times prior to the Effective Time,
APP's employees, attorneys, accountants, agents and other authorized and
designated representatives will be allowed full access upon reasonable prior
notice and during regular business hours (and at such other times as the
parties may reasonably agree) to the properties, books and records of the
Company, including, without limitation, deeds, title documents, leases, patient
lists, insurance policies, minute books, share certificate books, share
registers, accounts, tax returns, financial statements and all other data that,
in the reasonable opinion of APP, are required for APP to make such
investigation as it may desire of the properties and business of the Company.
APP shall also be allowed full access upon reasonable prior notice and during
regular business hours (and at such other times as the parties may reasonably
agree) to consult with the officers, employees (after announcement by the
Company of the Merger to its employees which shall occur no later than three
(3) days subsequent to execution hereof by the Company), accountants, counsel
and agents of the Company in connection with such investigation of the
properties and business of the Company. No investigation by APP shall diminish
or otherwise affect any of the representations, warranties, covenants or
agreements of the Company under this Agreement. Any access or investigation
referred to in this Section 7.3 shall be conducted in such a manner as to
minimize the disruption to the Company's ongoing business operations.

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Section 7.4 Acquisition Proposals. The Company shall not, and
shall cause each of its directors, officers, employees or agents not to
directly or indirectly:

(a) solicit, initiate, encourage or participate in any
negotiations or discussions with respect to any offer or proposal to acquire
all or a substantial portion of the business, properties or capital stock of
the Company, whether by merger, consolidation, share exchange, business
combination, purchase of assets or otherwise; or

(b) except as required by law or pursuant to subpoena or
court order, disclose to any Person, other than APP or its agents, any
information not customarily disclosed concerning the business, assets,
liabilities, properties and personnel of the Company, or, without APP's prior
written approval, afford to any Person other than APP and its agents access to
the properties, books or records of the Company. If the Company receives any
offer or proposal after the date hereof, written or otherwise, of the type
referred to above, the Company shall promptly inform APP of such offer or
proposal, decline such offer and furnish APP with a copy thereof if such offer
or proposal is in writing.

Section 7.5 Compliance With Obligations. Prior to the Effective
Time, the Company shall comply in all material respects with (i) all applicable
federal, state, local and foreign laws, rules and regulations; (ii) all
material agreements and obligations, including its articles or certificate of
incorporation or charter documents, by which it or its properties or its assets
(real, personal or mixed, tangible or intangible) may be bound; and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to the Company, and its respective properties or assets.

Section 7.6 Notice of Certain Events. The Company shall promptly
notify APP of:

(a) any notice or other communication from any Person or
entity alleging that the consent of such Person or entity is or may be required
in connection with the transactions contemplated by this Agreement;

(b) any employment of any new non-hourly employee by the
Company who is expected to receive annualized compensation of at least $50,000
in 1997;

(c) any termination of employment by, or threat to
terminate employment received from, any salaried or non-hourly, skilled
employee of the Company;

(d) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement;

(e) any actions, suits, claims, investigations or
proceedings commenced or threatened against, relating to or involving or
otherwise affecting the Company which, if pending on the date of this
Agreement, would have been required to have been disclosed to APP hereunder or
which relate to the consummation of the transactions contemplated by this
Agreement;

(f) any material adverse change in the operation of the
Company, including but not limited to any licensure or certification
deficiencies, or violations; limitations on a license or a provider agreement;
freeze or reduction in MediCare or Medicaid rates, notice of overpayment; being
the subject of any investigation relating to patient abuse, fraud, kickbacks,
false claims or other alleged illegal payment practices under the Fraud and
Abuse Statutes; and

(g) any notice or other communication indicating a
material deterioration in the relationship with any Payor or supplier or key
employee of the Company and, if requested by APP, will exert its reasonable
best efforts to restore the relationship.

Section 7.7 Intentionally omitted.

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Section 7.8 Stockholders' Consent. The Company shall use its
best efforts to obtain the unanimous approval of its Stockholders to the
Merger. In seeking the approval of its Stockholders, the Company shall provide
each Stockholder with the Form S-4 which shall include information as may be
required by applicable law or as APP shall deem appropriate. The Board of
Directors of the Company shall recommend the approval of the Merger by the
Stockholders of the Company. If the Stockholders' approval is not unanimous,
the Company shall give notice to the nonconsenting Stockholders of the action
taken by the consenting Stockholders as may be required by applicable law.

Section 7.9 Obligations of Company and Stockholders. Subject to
Section 7.8 hereof, the Company will take all action reasonably necessary to
cause the Company to perform its obligations under this Agreement and all
related agreements and to consummate the Merger and other transactions
contemplated hereby and thereby on the terms and conditions set forth in this
Agreement and such agreements provided, however, that this covenant shall not
require the Company to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein..

Section 7.10 Funding of Accrued Employee Benefits. The Company
hereby covenants and agrees that it will take whatever steps are necessary to
pay for or fund completely any accrued benefits, where applicable, or vested
accrued benefits for which the Company or any entity might have any liability
whatsoever arising from any tax-qualified plan as required under applicable
law. The Company acknowledges that the purpose and intent of this covenant is
to assure that APP Sub shall have no liability whatsoever at any time after the
Closing Date with respect to any such tax-qualified plan, unless such plan is
merged with a plan sponsored by APP or APP Sub.

Section 7.11 Accounting and Tax Matters. The Company will not
change in any material respect the accounting methods or practices followed by
the Company (including any material change in any assumption underlying, or any
method of calculating, any bad debt, contingency or other reserve), except as
may be required by generally accepted accounting principles. The Company will
not make any material tax election except in the ordinary course of business
consistent with past practice, change any material tax election already made,
adopt any tax accounting method except in the ordinary course of business
consistent with past practice, change any tax accounting method, enter into any
closing agreement, settle any tax claim or assessment or consent to any tax
claim or assessment or any waiver of the statute of limitations for any such
claim or assessment. The Company will duly, accurately and timely (without
regard to any extensions of time) file all returns, information statements and
other documents relating to taxes of the Company required to be filed by it,
and pay all taxes required to be paid by it, on or before the Closing Date.

Section 7.12 Spin-Off Transaction. The Company shall form,
organize and incorporate NewCo in the state of Maryland, and the articles or
certificate of incorporation and bylaws of NewCo shall be in form and substance
reasonably satisfactory to APP. Except for consummating the Spin-Off
Transaction, NewCo shall not commence business until the Closing Date. On or
prior to the Closing, the Company shall take all actions and execute all
documents, agreements or instruments necessary pursuant to and in compliance
with applicable law to effect the Spin-Off Transaction, including without
limitation, the following: Prior to the Closing, the Company shall transfer to
NewCo good, valid and marketable title to all of the Company's right, title and
interest in and to the Employee Benefit Plans, all contracts and agreements and
other assets listed on the Disclosure Schedules (to be delivered by the Company
prior to Closing, which schedule will be subject to the approval of APP, which
approval shall not be unreasonably withheld) which by law either cannot be
acquired or cannot be used by APP because they relate to the practice of
medicine or radiology, and shall contribute to NewCo such other consideration
and assets of the Company as may be required under applicable law, in exchange
for the issuance by NewCo of shares of NewCo Common Stock, such shares being
all of the issued and outstanding shares of NewCo Common Stock. The Company
shall then distribute the shares of NewCo Common Stock to the Stockholders in
proportion to their respective ownership interest in the Company.

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Section 7.13 Merger of Each Company Prior to the Closing. Each
Company shall form, organize and incorporate a new professional corporation in
the State of Maryland ("Merger PC"). Each Company shall merge with and into
Merger PC on or before the Closing. Each Company hereby agrees to prepare, and
each Company and each Stockholder shall execute, any and all documentation
necessary to effectuate the merger transaction between each Company and Merger
PC in accordance with Maryland General Corporation Law. Each Company agrees to
amend this Agreement to effectuate the changes which result from the merger
with and into Merger PC.

ARTICLE VIII

Covenants of APP and APP Sub

APP and APP Sub agree that between the date hereof and the Closing:

Section 8.1 Consummation of Agreement. APP and APP Sub will take
all action reasonably necessary to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions and take all
corporate and other action necessary to approve the Merger; provided, however,
that this covenant shall not require APP and APP Sub to make any expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.

Section 8.2 Requirements to Effect the Merger and Acquisitions.
APP and APP Sub will use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.

Section 8.3 Access. APP and APP Sub shall, at reasonable times
during normal business hours and on reasonable notice, permit each Company and
its authorized representatives of each Company reasonable access to, and make
available for inspection, all of the assets and business of APP and APP Sub,
including its executive officers, and permit each Company and their authorized
representatives to inspect and, at the Company's sole expense, make copies of
all documents, records and information with respect to the affairs of APP and
APP Sub as each Company and their representatives may reasonably request, all
for the sole purpose of permitting each Company to become familiar with the
business and assets and liabilities of APP and APP Sub. No investigation by
each Company or the Stockholders shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of APP under this
Agreement.

Section 8.4 Notification of Certain Matters. APP and APP Sub
shall promptly inform each Company in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by APP subsequent to the date of
this Agreement and prior to the Effective Time under any contract, agreement or
investment material to APP's or APP Sub's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; (b) any
material adverse change in APP's condition (financial or otherwise),
operations, assets, liabilities or business or (c) defaults or disputes
regarding Other Agreements.

Section 8.5 Qualified Retirement Plans. APP and APP Sub shall
use their best efforts to establish a qualified plan and trust for NewCo,
within the meaning of Section 401(a) and 501(a), respectively, of the Code
("New Qualified Plan") that will provide benefits comparable (as determined
under Section 401(a)(4) of the Code) to the benefits provided under the
qualified plans referenced in the Disclosure Schedules, if any, sponsored by
the Company as of March 31, 1997. APP will file for a favorable determination
letter from the IRS on the New Qualified Plan and request a favorable
determination from the IRS that NewCo is not a member of an affiliated service
group (as defined in Section 414(m) of the Code) or a recipient organization of
leased employee services (as defined in Section 414(n) of the Code). Any
benefits provided under the New Qualified Plan shall be conditioned on a
favorable determination letter from the IRS. Costs associated with the
establishment and design of the New

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Qualified Plan shall be paid by APP or APP Sub. NewCo shall be responsible for
funding any contributions to, or any ongoing administrative costs of, the New
Qualified Plan.

ARTICLE IX

Covenants of APP, APP Sub and each Company

APP, APP Sub and each Company agree as follows:

Section 9.1 Filings; Other Action.

(a) Each Company shall cooperate with APP and APP Sub to promptly
prepare and file with the SEC the Registration Statements on Form S-1 and Form
S-4 (or other appropriate Forms) to be filed by APP in connection with its
Initial Public Offering and offering of the shares of APP Common Stock to the
Target Interest Holders pursuant to the transactions contemplated by this
Agreement and the Other Agreements (including the prospectus constituting parts
thereof, the "Registration Statements"). APP shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. Each Company shall cooperate with
APP in the preparation of the Registration Statements and shall furnish all
information concerning each Company and NewCo as may be reasonably requested in
connection with any such action in a timely manner.

(b) Each Company, APP and APP Sub and each separately represent
and warrant that (i) in the case of each Company, none of the written
information or documents supplied or to be supplied by it specifically for
inclusion in the Registration Statements, by exhibit or otherwise and (ii) in
the case of APP or APP Sub, will, at the time the Registration Statements and
each amendment and supplement thereto, if any, becomes effective under the
Securities Act, none of them contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Each Company shall be entitled to review the
Registration Statements and each of the amendments thereto, if any, prior to
the time each becomes effective under the Securities Act. Each Company shall
have no responsibility for information contained in the Registration Statements
except for information provided by each Company specifically for inclusion
therein. Each Company's review of the Registration Statements shall not
diminish or otherwise affect the representations, covenants and warranties of
APP and APP Sub contained in this Agreement.

(c) Each Company shall, upon request, furnish APP with all
information concerning itself, its subsidiaries, directors, officers, partners,
Stockholders and NewCo, and such other matters as may be reasonably requested
by APP in connection with the preparation of the Registration Statements and
each of the amendments or supplements thereto, or any other statement, filing,
notice or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the Merger and the
other transactions contemplated by this Agreement.

Section 9.2 Amendments of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to supplement or amend promptly the Disclosure Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Disclosure Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Disclosure Schedule that constitutes or
reflects a Material Adverse Effect on each Company may be made unless APP
consents to such amendment or supplement, and no amendment or supplement to a
Disclosure Schedule that constitutes or reflects a Material Adverse Effect on
APP may be made unless each Company consents to such amendment or supplement.
For purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have
been fulfilled, the Disclosure Schedules hereto shall be deemed to be the
Disclosure Schedules as amended or supplemented pursuant to this Section

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9.2. In the event that each Company seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2 and APP does not consent to such
amendment or supplement, or APP seeks to amend or supplement a Disclosure
Schedule pursuant to this Section 9.2, and each Company does not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
15.1(a) hereof.

Section 9.3 Actions Contrary to Stated Intent. No party hereto
will knowingly, either before or after the Merger, take any action that would
prevent the Merger from qualifying as a tax-free exchange within the meaning of
Section 351 of the Code.

Section 9.4 Public Announcements. The parties hereto will
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable law, will not issue any
such press release or make any such public statement prior to such
consultation, although the foregoing shall not apply to any disclosure by APP
in any filing with the DOJ, FTC or SEC.

Section 9.5 Expenses. Each party to this Agreement shall be
solely responsible for their own fees and expenses with respect to the
transactions contemplated herein including, without limitation, the fees
charged by attorneys, accountants and financial advisors retained by such
parties. The fees and expenses incurred by each Company and NewCo in
connection with the Merger shall be paid by each Company in full immediately
prior to the Closing and such expenses shall be the sole responsibility of the
Stockholders following the Closing Date and not APP.

Section 9.6 Patient Confidentiality. APP and APP Sub shall agree
to keep all records and information regarding the patients of each Company and
NewCo confidential in accordance with all applicable laws.

Section 9.7 Registration Statements. APP shall prepare and file
the Registration Statements with the SEC, and shall use its reasonable good
faith efforts to cause the Registration Statements to become effective under
the Securities Act and take any action required to be taken under the
applicable state Blue Sky or other securities laws in connection with the
issuance of the shares of APP Common Stock upon consummation of the Merger.

ARTICLE X

Conditions Precedent of APP and APP Sub

Except as may be waived in writing by APP, the obligations of APP and
APP Sub hereunder are subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:

Section 10.1 Representations and Warranties. The representations
and warranties of each Company contained herein and each Stockholder contained
in the Stockholders Representation Letter (as delivered pursuant to Section
10.12 hereof) shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects as of the
Effective Date.

Section 10.2 Covenants. Each Company shall have performed and
complied in all material respects with all covenants required by this Agreement
to be performed and complied with by each Company prior to the Effective Date.

Section 10.3 Legal Opinion. Counsel to each Company shall have
delivered to APP their opinion, dated as of the Effective Date, in form and
substance substantially in the form set forth in Exhibit 10.3.

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Section 10.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.

Section 10.5 No Material Adverse Effect. No Material Adverse
Effect on each Company shall have occurred since March 31, 1997, whether or not
such change shall have been caused by the deliberate act or omission of the
Company or any Stockholder.

Section 10.6 Government Approvals and Required Consents. Each
Company, the Stockholders, NewCo and APP shall have obtained all licenses,
permits and all necessary government and other third-party approvals and
consents required under any law, statements, rule, regulation or ordinance to
consummate the transactions contemplated by this Agreement.

Section 10.7 Securities Approvals. The Registration Statements
shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statements shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC. At or prior to the Effective Date, APP shall have
received all state securities and "Blue Sky" permits necessary to consummate
the transactions contemplated hereby. The APP Common Stock shall have been
approved for listing on the Nasdaq National Market, subject only to official
notification of issuance.

Section 10.8 Closing Deliveries. APP shall have received all
Disclosure Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to APP, referred to in Section 12.1.

Section 10.9 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.

Section 10.10 Closing of Related Acquisitions. Each of the Related
Acquisitions shall have closed.

Section 10.11 Dissenter's Rights. Each Company shall have
satisfied each of its obligations to its Stockholders regarding dissenters or
related rights under Maryland General Corporation Law, and the sum of the
amount which may become due to the Stockholders who have dissented to the
Merger and have indicated their intent to seek appraisal rights plus the cash
portion of the Merger Consideration shall not exceed 25% of the total Merger
Consideration due hereunder.

Section 10.12 Stockholder Representation Letter; Indemnification
Agreement. Each Stockholder receiving Merger Consideration hereunder shall
have executed and delivered to APP the Stockholder Representation Letter in
substantially the form of Exhibit C. Each Stockholder shall have executed and
delivered to APP the Indemnification Agreement in substantially the form of
Exhibit D.

Section 10.13 Transfer of Assets. All of the assets and properties
of each Company and its related entities to be transferred to NewCo pursuant to
the Spin-Off Transaction and as approved by APP shall have been transferred,
assigned and conveyed to NewCo in order to effectuate the transactions
contemplated by this Agreement.

Section 10.14 Physician Employment Agreements. Each Physician
Employee and such other radiologists whose names are set forth on the
Disclosure Schedules shall have entered into a Physician Employment Agreement
between NewCo and each such Physician Employee in a form reasonably consistent
to the form attached as Exhibit E and satisfactory to APP in its sole
discretion (the "Physician Employment Agreements").

Section 10.15 Merger Into Merger PC; Amendment. The merger of each
Company with and into Merger PC shall have been filed and approved by the
Secretary of State of the State of Maryland. This

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Agreement shall be amended to reflect the changes which result from each
Company's merger into Merger PC.

ARTICLE XI

Conditions Precedent of each Company

Except as may be waived in writing by each Company, the obligations of
each Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:

Section 11.1 Representations and Warranties. The representations
and warranties of APP and APP Sub contained herein shall be true and correct in
all material respects when initially made and shall be true and correct in all
material respects as of the Effective Date.

Section 11.2 Covenants. APP and APP Sub shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Effective
Date.

Section 11.3 Legal Opinions. Counsel to APP and APP Sub shall
have delivered to the Company their opinion, dated as of the Effective Date, in
form and substance substantially in the form set forth in Exhibit 11.3.

Section 11.4 Proceedings. No action, proceeding or order by any
court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.

Section 11.5 Government Approvals and Required Consents. Each
Company, the Stockholders, NewCo, APP and APP Sub shall have obtained all
licenses, permits and all necessary government and other third-party approvals
and consents required under any law, contracts or any statute, rule, regulation
or ordinances to consummate the transactions contemplated by this Agreement.

Section 11.6 "Blue Sky" Approvals; Nasdaq Listing. The
Registration Statements shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Registration Statements
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC. At or prior to the Effective Date, APP
shall have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the Effective
Date, the APP Common Stock shall have been approved for listing on the Nasdaq
National Market, subject only to official notification of issuance.

Section 11.7 Closing of Initial Public Offering. The Initial
Public Offering shall have closed.

Section 11.8 Closing Deliveries. The Company shall have received
all Schedules, documents, assignments and agreements, duly executed and
delivered in form reasonably satisfactory to the Company referred to in Section
12.2.

Section 11.9 No Material Adverse Effect. No Material Adverse
Effect on APP or APP Sub shall have occurred since __________, 1997, whether or
not such change shall have been caused by the deliberate act or omission of APP
or APP Sub.

Section 11.10 Service Agreement Analysis. Each Company shall have
received from Shattuck Hammond Partners, Inc. its opinion and analysis, in form
satisfactory to the Company, that the terms of the Service Agreement are fair
and commercially reasonable.

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Section 11.11 Tax Opinion. The Company shall have received from
Haynes and Boone, L.L.P., a tax opinion, substantially in the form set forth in
Exhibit 11.11.

ARTICLE XII

Closing Deliveries

Section 12.1 Deliveries of the Company. At or prior to the
Effective Date, each Company shall deliver to APP the following, all of which
shall be in a form reasonably satisfactory to APP:

(a) a copy of resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement and the Service Agreement and all related documents and agreements
and consummation of the Merger, each certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;

(b) a copy of resolutions of the Board of Directors of
NewCo authorizing the execution, delivery and performance of the Service
Agreement, the Security Agreement and the Physician Employment Agreements each
certified by the Secretary of NewCo as being true and correct copies of the
originals thereof subject to no modifications or amendments;

(c) a certificate of the President of the Company dated
the Closing Date, as to the truth and correctness of the representations and
warranties of the Company contained herein on and as of the Effective Date;

(d) a certificate of the President of the Company dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Effective Date and (ii) certifying that all conditions precedent required by
the Company to be satisfied shall have been satisfied;

(e) a certificate of the Secretary of the Company and the
Secretary of NewCo certifying as to the incumbency of the directors and
officers of such corporation and as to the signatures of such directors and
officers who have executed documents delivered at the Closing on behalf of that
corporation;

(f) certificates, dated within ten (10) days prior to
the Effective Date, of the Secretary of State of Maryland for the Company and
NewCo establishing that each such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in the state of Maryland;

(g) certificates, dated within ten (10) days prior to the
Effective Date, of the Secretaries of State of the states in which either the
Company or NewCo is qualified to do business, to the effect that each such
corporation is qualified to do business and, if applicable, is in good standing
as a foreign corporation in each of such states;

(h) all authorizations, consents, approvals, permits and
licenses referenced in Section 3.27;

(i) the resignations of the directors and officers of the
Company as requested by APP;

(j) the executed Service Agreement in substantially the
form attached hereto as Exhibit F, as revised in accordance with changes
reasonably deemed necessary or advisable by legal counsel retained by APP, the
Company and NewCo in the State of Maryland to address regulatory and compliance
issues (the "Service Agreement");

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(k) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;

(l) a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Code, of each Stockholder, signed under a
penalty of perjury and dated as of the Closing Date, to the effect that such
Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder's United States taxpayer
identification number;

(m) an executed Stockholder Release by the Stockholders
in substantially the form attached hereto as Exhibit G (the "Stockholder
Release");

(n) Intentionally omitted; and

(o) such other instrument or instruments of transfer
prepared by APP as shall be necessary or appropriate, as APP or its counsel
shall reasonably request, to carry out and effect the purpose and intent of
this Agreement.

Section 12.2 Deliveries of APP. At or prior to the Effective
Date, APP shall deliver to each Company the following, all of which shall be in
a form reasonably satisfactory to each Company:

(a) a copy of resolutions of the Board of Directors of
APP authorizing the execution, delivery and performance of this Agreement, and
all related documents and agreements, certified by APP's Secretary as being
true and correct copies of the originals thereof subject to no modifications or
amendments;

(b) a copy of resolutions of the Board of Directors of
APP Sub authorizing the execution, delivery and performance of this Agreement,
the Service Agreement and the Security Agreement, each certified by the
Secretary of APP Sub as being true correct copies of the originals thereof
subject to no modifications or amendments;

(c) a certificate of the President of APP and APP Sub
dated the Closing Date as to the truth and correctness of the representations
and warranties of APP and APP Sub contained herein on and as of the Effective
Date;

(d) a certificate of the President of APP and APP Sub
dated the Closing Date, (i) as to the performance and compliance by APP or APP
Sub with all covenants contained herein on and as of the Effective Date and
(ii) certifying that all conditions precedent required to be satisfied by APP
and APP Sub shall have been satisfied;

(e) a certificate of the Secretary of APP and APP Sub
certifying as to the incumbency and to the signatures of the officers of APP or
APP Sub who have executed documents delivered at the Closing on behalf of APP
or APP Sub;

(f) a certificate, dated within ten (10) days prior to
the Effective Date, of the secretary of state of incorporation establishing
that APP and APP Sub are, respectively, in existence, have paid all franchise
or similar taxes, if any, and otherwise are in good standing to transact
business in the state of Delaware;

(g) certificates (or photocopies thereof), dated within
ten (10) days prior to the Effective Date, of the Secretaries of State of the
states in which either APP and APP Sub is qualified to do business, to the
effect that APP and APP Sub is qualified to do business and is in good standing
as a foreign corporation in such state;

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(h) the executed Service Agreement as revised in
accordance with the changes specified in Section 12.1(j);

(i) executed Certificates of Merger necessary to effect
the Merger referred to in Section 2.1;

(j) the Merger Consideration in accordance with Article II and Exhibit B
hereof; and

(k) such other instrument or instruments of transfer
prepared by the Company as shall be necessary or appropriate, as the Company or
its counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.

ARTICLE XIII

Post Closing Matters

Section 13.1 Further Instruments of Transfer. Following the
Closing, at the request of APP or the Surviving Corporation and at APP's sole
cost and expense, the Stockholders and each Company shall deliver any further
instruments of transfer and take all reasonable action as may be necessary or
appropriate to carry out the purpose and intent of this Agreement. Following
the Closing, at the request of NewCo and at NewCo's sole cost and expense, APP
or the Surviving Corporation shall deliver any further instruments of transfer
and take all reasonable action as may be necessary and appropriate to carry out
the purpose and intent of this Agreement.

Section 13.2 Merger Tax Covenant.

(a) The parties intend that the Merger will qualify as a tax-free
transaction under Section 351 of the Code in which each Company will not
recognize gain or loss, and pursuant to which any gain recognized by a
Stockholder as a result of the Merger will not exceed the amount of any cash
received by a Stockholder in the Merger (a "Reorganization").

(b) Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Code, to
report the Merger as a Reorganization and such opinion either is furnished
prior to the Effective Time or is based on facts or events not known at the
Effective Time. Each party shall provide to each other party such tax
information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.

(c) The parties agree that no Stockholder shall be liable for any
taxes incurred by each Company and for which APP has successor liability
therefor which arise solely as a result of the Merger or the consummation of
the transactions contemplated hereby; provided that the foregoing shall not
limit or otherwise be deemed a waiver of any right of indemnification under
Section 14.1 for a breach of any representation, warranty or covenant of each
Company or any Stockholder.

Section 13.3 Current Public Information. APP shall cause the
requirements of Rule 144(c) under the Securities Act to be met with respect to
APP for so long as those requirements must be met to enable sales by the
Stockholders who are affiliates of each Company to meet the requirements of
Rule 145(d) under the Securities Act.

ARTICLE XIV

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Remedies

Section 14.1 Indemnification by each Company. Subject to the
terms and conditions of this Article XIV, each Company agrees to indemnify,
defend and hold APP and the Surviving Corporation and their respective
directors, officers, stockholders, employees, agents, attorneys, consultants
and Affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (including, without limitation, all costs of
experts and all costs incidental to or in connection with any appellate
process) (collectively, "Damages") asserted against or incurred by such
individuals and/or entities arising out of or resulting from:

(a) a breach by the Company of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of the
Company contained in this Agreement or in any Disclosure Schedule or
certificate delivered thereunder;

(b) any violation (or alleged violation) by the Company
and/or any of its past or present directors, officers, partners, stockholders,
employees (including, without limitation, any Physician Employee), agents,
attorneys, consultants and Affiliates of any state or federal law governing
health care fraud and abuse or prohibition on referral of patients to Persons
in which a licensed professional has a financial or other form of interest
(including, but not limited to, fraud and abuse in the Medicare and Medicaid
Programs) occurring on or before the Closing Date, or any overpayment or
obligation (or alleged overpayment or obligation) arising out of or resulting
from claims submitted to any Payor on or before the Closing Date; and

(c) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any (i) untrue
statement of material fact in any Registration Statement or any prospectus
forming or part thereof, or any amendment thereof or supplement thereto
relating to the Company (including any Company Subsidiary) or NewCo required to
be stated therein or (ii) failure to state information necessary to make the
statements therein not misleading, which untrue statement or failure to state
information arises or results solely from information provided in writing to
APP or its counsel by the Company or any Stockholder or their agents
specifically for inclusion in any such Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto.

Section 14.2 Indemnification by APP and APP Sub. Subject to the
terms and conditions of this Article XIV, APP and APP Sub jointly and severally
hereby agree to indemnify, defend and hold the Stockholders, the Company and
NewCo and their respective directors, officers, stockholders, employees,
agents, attorneys, consultants and Affiliates harmless from and against all
Damages asserted against or incurred by such individuals and/or entities
arising out of or resulting from:

(a) a breach by APP or APP Sub of any representation or
warranty (without giving effect to any Material Adverse Effect qualifier
contained as part of any such representation or warranty) or covenant of APP or
APP Sub contained in this Agreement or in any schedule or certificate delivered
hereunder; and

(b) any liability under the Securities Act, the Exchange
Act or any other federal or state "blue sky" or securities law or regulation,
at common law or otherwise, arising out of or based upon any untrue statements
of material fact in any Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or required to be
stated therein or failure to state information necessary to make the statements
therein not misleading (except for any liability based upon any actual or
alleged untrue statement of material fact or an omission to state a material
fact relating to NewCo, the Company or any Stockholder to the extent derived
from any information provided in writing by the Company or a Company Subsidiary
or any of their agents contained in the representations and

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warranties set forth in this Agreement or any certificate, exhibit, schedule or
instrument required to be delivered under this Agreement.)

Notwithstanding anything contained in either Sections 14.1 or
14.2 herein to the contrary, nothing contained in this Agreement shall relieve
of any of the parties hereto of liability or limit any liability that it may
have in the case of fraud in connection with the transactions contemplated by
this Agreement.

Section 14.3 Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:

(a) Any party claiming indemnification under the
Agreement (an "Indemnified Party") shall promptly (and, in the event, at least
ten (10) days prior to the due date for any responsive pleadings, filings or
other documents) (i) notify the party for whom indemnification is sought (the
"Indemnifying Party) of any third-party claim or claims asserted against the
Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of Damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. The failure to promptly deliver a Claim
Notice shall not relieve any Indemnifying Party of its obligations to any
Indemnified Party with respect to the related Third Party Claim except to the
extent that the resulting delay is materially prejudicial to the defense of
such claim. Within thirty (30) days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(x) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIV with respect to such Third Party Claim
and (y) whether the Indemnifying Party desires, at the sole cost and expense of
such Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.

(b) If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have
the right to defend, at their sole cost and expense, with counsel reasonably
acceptable to such Indemnified Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 14.3(b). Except as set
forth in Section 14.3(f) below, the Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement
thereof. The Indemnified Party is hereby authorized, at the sole cost and
expense of the Indemnifying Party (but only if the Indemnified Party is
entitled to indemnification hereunder), to file, during the Election Period,
any motion, answer or other pleadings that the Indemnified Party shall deem
necessary or appropriate to protect its interests or those of the Indemnifying
Party and not prejudicial to the Indemnifying Party. If requested by the
Indemnifying Party, the Indemnified Party agrees, at the sole cost and expense
of the Indemnifying Party, to cooperate with the Indemnifying Party and their
counsel in contesting any Third Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this Section 14.3(b) and shall bear its
own costs and expenses with respect to such participation; provided, however,
that if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be

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liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party. Notwithstanding the foregoing, the
Indemnifying Party shall be prohibited from confessing or settling any criminal
allegations brought against the Indemnified Party without the express written
consent of the Indemnified Party.

(c) If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 14.3(b), or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
14.3(b) but fails diligently and promptly to prosecute or settle the Third
Party Claim, then the Indemnified Party shall have the right to defend, at the
sole cost and expense of the Indemnifying Party (if the Indemnified Party is
entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes their
potential liability to the Indemnified Party under this Article XIV and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.

(d) In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within sixty (60) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes such claim, the claim specified by
the Indemnified Party in the Indemnity Notice shall be deemed a liability of
the Indemnifying Party hereunder. If the Indemnifying Party has timely
disputed such claim, as provided above, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction if the parties do
not reach a settlement of such dispute within thirty (30) days after notice of
a dispute is given.

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(f) The Indemnifying Party shall provide the Indemnified
Party with written notice of any firm offer that is made to settle or
compromise a Third Party Claim against an Indemnified Party. If a firm offer
is made to settle such a claim solely by the payment of money damages and the
Indemnifying Party notifies the Indemnified Party in writing that the
Indemnifying Party agrees to such settlement, but the Indemnified Party elects
not to accept and agree to it, the Indemnified Party may continue to contest or
defend such Third Party Claim and, in such event, the total maximum liability
of the Indemnifying Party to indemnify or otherwise reimburse the Indemnified
Party hereunder with respect to such a claim shall be limited to and shall not
exceed the amount of such settlement offer, plus reasonable out-of-pocket costs
and reasonable expenses (including reasonable attorneys' fees and
disbursements) to the date of notice that the Indemnifying Party desired to
accept such settlement.

(g) Notwithstanding any provision herein to the contrary,
the obligation of an Indemnifying Party to provide indemnification to an
Indemnified Party for breach of any representation or warranty as provided in
Sections 14.1(a) or 14.2(a) hereof shall not take effect unless and until the
Damages asserted against or incurred in the aggregate and on a collective basis
by the Indemnified Parties pursuant to either Section 14.1 or 14.2 (as
applicable) as a result of such a breach or breaches exceeds [$____________].

Section 14.4 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.

Section 14.5 Tax Benefits; Insurance Proceeds. The total amount
of any indemnity payments owed by one party to another party to this Agreement
shall be reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified with
respect to recovery from third parties or insurance proceeds, and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.

ARTICLE XV

Termination

Section 15.1 Termination. This Agreement may be terminated and
the Merger and the Acquisitions may be abandoned:

(a) at any time prior to the Effective Date by mutual
agreement of all parties;

(b) at any time prior to the Effective Date by APP if any
material representation or warranty of the Company or any Stockholder contained
in this Agreement or in any certificate or other document executed and
delivered by the Company or any Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or any
Stockholder fails to comply in any material respect with any material covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;

(c) at any time prior to the Effective Date by the
Company if any representation or warranty of APP or APP Sub contained in this
Agreement or in any certificate or other document executed and delivered by APP
or APP Sub pursuant to this Agreement is or becomes untrue in any material
respect of if APP fails to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within thirty (30) days after receipt
of written notice thereof;

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(d) at any time prior to the Effective Date by APP if, as
a result of the conduct of due diligence and regulatory compliance procedures,
APP deems termination to be advisable; or

(e) by APP or the Company if the Merger shall not have
been consummated by September 30, 1997.

Section 15.2 Effect of Termination. Except as set forth in
Section 16.3, in the event this Agreement is terminated pursuant to this
Article XV, this Agreement shall forthwith become void.

ARTICLE XVI

Nondisclosure of Confidential Information

Section 16.1 Non-Disclosure Covenant. Each Company and NewCo
recognize and acknowledge that each has in the past, currently has, and in the
future may possibly have, access to certain Confidential Information of APP and
the Surviving Corporation that is valuable, special and a unique asset of such
entity's business. APP and APP Sub acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
Confidential Information of each Company and NewCo that is valuable, special
and a unique asset of each such business. Each Company, NewCo, APP, and APP
Sub, severally, agree that they will not disclose such Confidential Information
to any person, firm, corporation, association or other entity for any purpose
or reason whatsoever, except (a) to authorized representatives of APP, APP Sub,
Surviving Corporation, NewCo and each Company and (b) to counsel and other
advisers to APP, APP Sub, Surviving Corporation, NewCo and each Company
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 16.1, unless (i) such information becomes available
to or known by the public generally through no fault of the Company, NewCo, APP
or APP Sub, as the case may be, (ii) disclosure is required by law or the order
of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (iii) each Company, NewCo,
APP or APP Sub, as the case may be, shall, if possible, give prior written
notice thereof to the Company, NewCo, APP or APP Sub and provide each Company,
APP or APP Sub with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach
or threatened breach by each Company, on the one hand, and APP or APP Sub, on
the other hand, of the provisions of this Section, APP, APP Sub, the Surviving
Corporation, NewCo and each Company shall be entitled to an injunction
restraining the other party, as the case may be, from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting any of such parties from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages.

Section 16.2 Damages. Because of the difficulty of measuring
economic losses as a result of the breach of the foregoing covenants, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, APP, APP Sub, the Surviving
Corporation, NewCo and each Company agree that, in the event of a breach by
either of them of the foregoing covenant, the covenant may be enforced against
them by injunctions and restraining orders.

Section 16.3 Survival. The obligations of the parties under this
Article XVI shall survive the termination of this Agreement.

ARTICLE XVII

Miscellaneous

Section 17.1 Amendment; Waivers. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms

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and conditions hereof must be in writing, and signed by the parties hereto.
The waiver of any of the terms and conditions of this Agreement shall not be
construed as a waiver of any other terms and conditions hereof.

Section 17.2 Assignment. Neither this Agreement nor any right
created hereby or in any agreement entered into in connection with the
transactions contemplated hereby shall be assignable by any party hereto,
except by APP to a wholly owned subsidiary of APP; provided that any such
assignment shall not relieve APP of its obligations hereunder.

Section 17.3 Parties in Interest; No Third Party Beneficiaries.
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. APP and APP Sub
acknowledge and agree that the rights and remedies of each Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of each Company under this Agreement,
including, without limitation, the rights and remedies under Article 14 hereof
to indemnification from APP and APP Sub against Damages incurred by the
Stockholders resulting from a breach by APP or APP Sub of any representation,
warranty or covenant of APP or APP Sub contained herein. Except as provided in
the preceding sentence or as otherwise provided herein, neither this Agreement
nor any other agreement contemplated hereby shall be deemed to confer upon any
person not a party hereto or thereto any rights or remedies hereunder or
thereunder.

Section 17.4 Entire Agreement. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding
the subject matter hereof, and supersede all prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.

Section 17.5 Severability. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.

Section 17.6 Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein
shall survive the Closing and all statements contained in any certificate,
exhibit or other instrument delivered by or on behalf of each Company, any
Stockholder, APP or APP Sub pursuant to this Agreement shall be deemed to have
been representations and warranties by the Company, such Stockholder, APP and
APP Sub. Notwithstanding any provision in this Agreement to the contrary, the
representations and warranties contained herein shall survive the Closing until
the second anniversary of the Closing Date except that (a) the representations
and warranties set forth in Section 3.21 with respect to environmental matters
shall survive for a period of ten (10) years, (b) the representations and
warranties set forth in Section 3.30 with respect to tax matters shall survive
until such time as the limitations period has run for all tax periods ended
prior to the Closing Date, (c) the representations and warranties contained in
Section 3.27 and Section 3.33 with respect to healthcare matters shall survive
for a period of six (6) years and (d) solely for purposes of Section 14.1(c)
and Section 14.2(c), and solely to the extent that any party to be indemnified
pursuant to such provisions actually incurs liability under the Securities Act,
the Exchange Act or any other federal or state securities law, the
representations and warranties set forth therein shall survive until the
expiration of any applicable limitations period.

Section 17.7 Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN

45
<PAGE> 443
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF MARYLAND.

Section 17.8 Captions. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.

Section 17.9 Gender and Number. When the context requires, the
gender of all words used herein shall include the masculine, feminine and
neuter and the number of all words shall include the singular and plural.

Section 17.10 Intentionally omitted.

Section 17.11 Confidentiality; Publicity and Disclosures. Each
party shall keep this Agreement and its terms confidential, and shall make no
press release or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge and
consent of the other parties hereto; provided that the foregoing shall not
prohibit any disclosure (a) by press release, filing or otherwise that APP has
determined in its good faith judgment and after advice of legal counsel to be
required by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by APP in connection with the conduct of
its Initial Public Offering and conducting an examination of the operations and
assets of the Companies; provided that APP shall reasonably promptly provide
notice of any release. In the event that the transactions contemplated hereby
are not consummated for any reason whatsoever, the parties hereto agree not to
disclose or use any Confidential Information they may have concerning the
affairs of the other parties, except for information that is required by law to
be disclosed; provided that should the transactions contemplated hereby not be
consummated, nothing contained in this Section shall be construed to prohibit
the parties hereto from operating businesses in competition with each other.

Section 17.12 Notice. Whenever this Agreement requires or permits
any notice, request, or demand from one party to another, the notice, request
or demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by telex,
telegram or courier service, when delivered to the party to whom notice is
sent, (ii) if delivered by facsimile transmission, when so sent and receipt
acknowledged by receipt or (iii) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):

If to APP and APP Sub: American Physician Partners, Inc.
901 Main Street
2301 NationsBank Plaza
Dallas, Texas 75202
Fax No.: (214) 761-3150
Attn: Gregory L. Solomon, President

with a copy to: Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.

If to the Company
or any Stockholder: Advanced Radiology, LLC
7253 Ambassador Road

46
<PAGE> 444
Baltimore, Maryland 21244
Fax No.: (410) 281-2560
Attn: Michael L. Sherman, M.D.

with a copy to: Law Offices of Peter G. Angelos
300 East Lombard, 18th Floor
Baltimore, Maryland 21202-3219
Fax No.: (410) 659-1780
Attn: Theodore W. Hirsh, Esq.

Section 17.13 No Waiver; Remedies. No party hereto shall by any
act (except by written instrument pursuant to Section 17.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in
this Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.

Section 17.14 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.

Section 17.15 Defined Terms. Terms used in Exhibit A, Exhibit B,
Exhibit C, Exhibit D Exhibit E, Exhibit F, Exhibit G and the Disclosure
Schedules attached hereto with their initial letter capitalized and not
otherwise defined therein shall have the meanings as assigned to such terms in
this Agreement.

[SIGNATURES CONTAINED ON NEXT PAGE]

47
<PAGE> 445
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.

APP:

AMERICAN PHYSICIAN PARTNERS, INC.

By:
----------------------------------
Gregory L. Solomon, President

APP SUB:

[AMERICAN PHYSICIAN PARTNERS,
SUBSIDIARY, INC.]

By:
----------------------------------
Its:
---------------------------------

HARBOR RADIOLOGISTS, P.A.

By:
----------------------------------
Its:
---------------------------------

DRS. THOMAS, WALLOP, KIM & LEWIS, P.A.

By:
----------------------------------
Its:
---------------------------------

CARROLL IMAGING ASSOCIATES, P.A.

By:
----------------------------------
Its:
---------------------------------

DRS. COPELAND, HYMAN & SHACKMAN, P.A.

By:
----------------------------------
Its:
---------------------------------

[SIGNATURES CONTINUE ON NEXT PAGE]

48
<PAGE> 446

DRS. DECARLO, LYON, HEARN & PAZOUREK,
P.A.

By:
----------------------------------
Its:
---------------------------------

PERILLA, SINDLER & ASSOCIATES, P.A.

By:
----------------------------------
Its:
---------------------------------

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

By:
----------------------------------
Its:
---------------------------------

49
<PAGE> 447
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

TARGET COMPANIES

A-1
<PAGE> 448
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

MERGER CONSIDERATION

B-1
<PAGE> 449
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

SHAREHOLDER REPRESENTATION LETTER

C-1
<PAGE> 450
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

INDEMNIFICATION AGREEMENT

D-1
<PAGE> 451
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

PHYSICIAN EMPLOYMENT AGREEMENT

E-1
<PAGE> 452
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

SERVICE AGREEMENT

F-1
<PAGE> 453
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

STOCKHOLDER RELEASE

G-1
<PAGE> 454
DISCLOSURE SCHEDULES
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED AS OF ________________, 1997

The following Disclosure Schedules and the disclosures set forth
therein are delivered in connection with that certain Agreement and Plan of
Reorganization and Merger dated ____________, 1997, by and between American
Physician Partners, Inc. and the Company (the "Agreement").

The section numbers set forth on the following Disclosure Schedules
correspond to the section numbers in the Agreement. If disclosures made
pursuant to one section number can reasonably be interpreted by other parties
to be a disclosure to another section number, such disclosure shall constitute
disclosure for purposes of such additional section number. Capitalized terms
used herein have the meanings assigned to such terms in the Agreement.

To the extent that the following Disclosure Schedules contain
exceptions to the representations and warranties set forth in Article III of
the Agreement, the inclusion of an item on these Disclosure Schedules shall not
be deemed an admission by American Physician Partners, Inc. that such item is
material to American Physician Partners, Inc., APP Sub, the Company, NewCo or
any Company Subsidiary or that it will have a material adverse effect on
American Physician Partners, Inc., APP Sub, the Company, NewCo or any Company
Subsidiary.

<PAGE> 455

AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

This Amendment No. 1 to the Agreement and Plan of Reorganization and
Merger (this "Amendment No. 1"), dated as of September 30, 1997, is by and among
AMERICAN PHYSICIAN PARTNERS, INC., a Delaware corporation ("APP") and CARROLL
IMAGING ASSOCIATES, P.A., DIAGNOSTIC IMAGING ASSOCIATES, P.A., DRS. THOMAS,
WALLOP, KIM & LEWIS, P.A., DRS. COPELAND, HYMAN & SHACKMAN, P.A., DRS. DECARLO,
LYON, HEARN & PAZOUREK, P.A., HARBOR RADIOLOGISTS, P.A., AND PERILLA, SINDLER &
ASSOCIATES, P.A., each a Maryland professional association (the "Company").

RECITALS

A. APP and the Company entered into that certain Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 (the "Agreement").

B. APP and the Company desire to amend the Agreement in accordance with
the terms and conditions of this Amendment No. 1.

NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:

1. Amendment to Section 15.1(e). APP and the Company hereby agree to
amend Section 15.1(e) to the Agreement in its entirety, as follows:

(e) by APP or the Company if the Merger shall not have
been consummated by November 30, 1997.

2. No Other Amendments. Except as set forth in this Amendment No. 1, the
Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 as of the date first written above.

APP:

AMERICAN PHYSICIAN PARTNERS, INC.

By:_________________________________
Gregory L. Solomon, President

[signatures continued on next page]

<PAGE> 456

================================================================================

AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

dated as of

June 27, 1997

by and between

AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)

and

THE IDE GROUP, P.C.
(a New York professional corporation)

================================================================================
<PAGE> 457
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Rules Of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE II The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Certificate of Incorporation of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Bylaws of Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Directors of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.7 Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 Conversion of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Exchange of Certificates Representing Shares of the Company Common Stock . . . . . . . . . . . . 7
Section 2.10 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE III Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 Transactions in Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Continuity of Business Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.12 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.13 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.16 Indebtedness for Borrowed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.17 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.19 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.20 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.22 Filing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.23 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.24 Accounts Receivable; Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.25 Accounts Payable; Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.26 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.27 Licenses, Authorization and Provider Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.28 Inspections and Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.29 Proprietary Rights and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.30 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

i
<PAGE> 458
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 3.31 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.32 Banking Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.33 Fraud and Abuse and Self Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.34 Restrictions on Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.35 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.36 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.37 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.38 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

ARTICLE IV Representations and Warranties of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.2 Authorization and Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.5 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.6 Absence of Conflicting Agreements or Required Consents . . . . . . . . . . . . . . . . . . . . . 23
Section 4.7 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.8 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.9 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13 Related Party Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.14 Statements True and Correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.15 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.16 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Agreements in Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

ARTICLE V Closing Date Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Organization and Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.3 Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4 Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 No Business, Agreements, Assets or Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE VI ARTICLE VI INTENTIONALLY OMITTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

ARTICLE VII Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Conduct of The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.2 Title to Assets; Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.5 Compliance With Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.6 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.7 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.8 Stockholders' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.9 Obligations of Company and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.10 Funding of Accrued Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.11 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>

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Section 7.12 Spin-Off Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.13 "F" Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE VIII Covenants of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.2 Requirements to Effect the Merger and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 8.5 Qualified Retirement Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE IX Covenants of APP and the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.1 Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 9.2 Amendments of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.3 Actions Contrary to Stated Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.4 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.6 Patient Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 9.7 Registration Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

ARTICLE X Conditions Precedent of APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.3 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.5 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.6 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.7 Securities Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.9 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.10 Closing of Related Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.11 Dissenter's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.12 Stockholder Representation Letter; Indemnification Agreement . . . . . . . . . . . . . . . . . . 34
Section 10.13 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 10.15 Completion of "F" Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

ARTICLE XI Conditions Precedent of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.3 Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.4 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.5 Government Approvals and Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 11.6 "Blue Sky" Approvals; Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.7 Closing of Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.8 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.9 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.10 Service Agreement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 11.11 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

ARTICLE XII Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.1 Deliveries of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 12.2 Deliveries of APP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>

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ARTICLE XIII Post Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.1 Further Instruments of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.2 Merger Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 13.3 Current Public Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE XIV Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.1 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.2 Indemnification by APP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 14.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 14.4 Costs, Expenses and Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 14.5 Tax Benefits; Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

ARTICLE XV Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 15.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE XVI Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.1 Non-Disclosure Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.2 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE XVII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.1 Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.3 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.6 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . 43
Section 17.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.10 Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.11 Confidentiality; Publicity and Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.12 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 17.13 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 17.15 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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EXHIBITS

Exhibit A - List of Target Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit B - Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit C - Stockholder Representation Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D - Indemnification Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E - Physician Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F - Service Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G - Stockholder Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
</TABLE>

Exhibit 1.1 - List of Stockholders
Exhibit 10.3 - Legal Opinion (Company Counsel)
Exhibit 11.3 - Legal Opinion (APP Counsel)
Exhibit 11.11 - Tax Opinion

v
<PAGE> 462

AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

RECITALS

A. The Company owns and operates (i) [a] professional medical
practice specializing in radiology and radiation oncology and (ii) diagnostic
imaging centers. All of the shares of the common stock, par value $1.00 per
share, of the Company (the "Company Common Stock") are owned beneficially and
of record by the Stockholders.

B. APP is engaged in the business of owning, operating and
acquiring the assets of, and managing the non-medical aspects of, radiology
practices and diagnostic imaging centers.

C. Pursuant to this Agreement, APP and the Company intend that
the Company be merged with and into APP, and that APP be the sole surviving
corporation (sometimes referred to hereinafter as the "Surviving Corporation"),
and the Company be the disappearing corporation (sometimes referred to
hereinafter as the "Disappearing Corporation").

D. APP and the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) the Company will merge
with and into APP upon the terms and conditions set forth herein and in
accordance with the laws of the State of New York and (ii) the outstanding
shares of the Company Common Stock shall be converted at such time into cash
and shares of common stock, par value $.0001 per share, of APP (the "APP Common
Stock") as set forth herein.

E. Prior to the Merger, the Company intends to transfer certain
of its assets most of which relate solely to the practice of medicine to a
newly formed professional corporation ("NewCo") in exchange for all of the
capital stock of NewCo and to thereafter distribute such NewCo stock to the
Stockholders (the "Spin-Off Transaction"). The Company intends the Spin-Off
Transaction to qualify under Section 355 of the Code.

<PAGE> 463
AGREEMENT

NOW, THEREFORE, in consideration of the preceding recitals and the
mutual representations, warranties, covenants and agreements set forth herein,
the parties agree as follows:

ARTICLE I

Definitions

Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:

"Affiliate" with respect to any person shall mean a person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such person.

"Agreement" shall have the meaning set forth in the preamble to this
Agreement.

"APP" shall have the meaning set forth in the preamble to this
Agreement.

"APP Common Stock" shall have the meaning set forth in the recitals to
this Agreement.

"APP Group" shall mean APP, NewCo and each of their Affiliates.

"APP Subsidiaries" shall have the meaning set forth in Section 4.5.

"Best knowledge" or "to the knowledge of" and similar phrases shall
mean (i) in the case of a natural person, the particular fact was known, or not
known, as the context requires, to such person after reasonable investigation
and inquiry by such person, and (ii) in the case of an entity, the particular
fact was known, or not known, as the context requires, to any of the
Stockholders listed on Exhibit 1.1, director or executive officer of such
entity after reasonable investigation and inquiry by the executive officers of
such entity; provided, however, that to the extent any of the representations,
warranties and statements of the Company made specifically in Section 3.21 is
expressly qualified to the knowledge or best knowledge of the Company, it shall
mean the knowledge of any of the Stockholders listed on Exhibit 1.1, director
or executive officer of the Company actually possesses without the necessity of
any special inquiry as to the matters which are the subject thereof.

"Claim Notice" shall have the meaning set forth in Section 14.3(a).

"Closing" shall mean the closing of the transactions contemplated by
this Agreement as set forth in Section 2.2.

"Closing Date" shall have the meaning set forth in Section 2.2.

"Code" shall have the meaning set forth in the recitals to this
Agreement.

"Company" shall have the meaning set forth in the preamble to this
Agreement.

"Company Audited Financial Statements" shall mean the audited
consolidated balance sheet of the Company as of December 31, 1996 and the
related statements of income, stockholders' equity and statements of cash flows
of the Company and its Subsidiaries for the year ended December 31, 1996.

"Company Common Stock" shall have the meaning set forth in the
recitals to this Agreement.

<PAGE> 464
"Company Current Balance Sheet" shall mean the unaudited consolidated
balance sheet of Company and its Subsidiaries as of March 31, 1997.

"Company Current Financial Statements" shall mean the Company Current
Balance Sheet and the related statements of income, stockholders' equity and
statements of cash flows of Company and the Company Subsidiaries for the _____
(__) month period then ended.

"Company Financial Statements" shall mean collectively the Company
Audited Financial Statements and the Company Current Financial Statements.

"Company Right" shall mean all arrangements, calls, commitments,
agreements, options, rights to subscribe to, scrips, understandings, warrants,
or other binding obligations of any character whatsoever relating to or
securities or rights convertible into or exchangeable for, shares of Company
Common Stock, or by which the Company is or may be bound to issue additional
shares of Company Common Stock or other Company Rights.

"Company Subsidiaries" shall have the meaning set forth in Section
3.7.

"Controlled Group" shall have the meaning set forth in Section
3.20(g).

"Damages" shall have the meaning set forth in Section 14.1.

"Disappearing Corporation" shall have the meaning set forth in the
recitals to this Agreement.

"DOJ" shall mean the United States Department of Justice.

"Effective Date" shall mean the date that the Registration Statement
is declared effective by the SEC.

"Effective Time" shall have the meaning set forth in Section 2.3.

"Election Period" shall have the meaning set forth in Section 14.3(a).

"Employee Benefit Plans" shall have the meaning set forth in Section
3.20(a).

"Environmental Laws" shall have the meaning set forth in Section
3.21(e).

<PAGE> 465
"ERISA" shall have the meaning set forth in Section 3.18.