AMERICAN PHYSICIAN PARTNERS INC, S-4, 1997-07-18

AMERICAN PHYSICIAN PARTNERS INC
S-4, 1997-07-18
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 1997
REGISTRATION NO. 333-_____________

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

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>
<CAPTION>
DELAWARE 8099 75-2648089
<S> <C> <C>
(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 AND SENIOR VICE PRESIDENT
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.
RICHARD J. BABCOCK, ESQ. LAW OFFICES OF VENABLE, BAETJIR & HOWARD LLP
BROBECK, PHLEGER & HARRISON LLP PETER G. ANGELOS, P.C. 1800 MERCANTILE BANK &
4675 MACARTHUR COURT, SUITE 1000 ONE CHARLES CENTER, 22ND FLOOR TRUST BLDG.
NEWPORT BEACH, CALIFORNIA 92660 100 NORTH CHARLES STREET 2 HOPKINS PLAZA
(714) 752-7535 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

JEROME B. COHEN, ESQ.
OPPENHEIMER, BLEND, HARRISON &
TATE, INC.
711 NAVARRO, 6TH FLOOR
SAN ANTONIO, TEXAS 78205-1796
(210) 224-2000
</TABLE>
<PAGE> 2
---------------------

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES
TO THE PUBLIC:
Upon consummation of the Mergers and Exchanges described herein.

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. [ ]

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

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $0.0001
per share 12,809,907 shares $2.06 $26,429,000 $8,009
===========================================================================================================
</TABLE>

(1) The amount of Common Stock, par value $0.0001 per share, of American
Physician Partners, Inc. to be registered hereby is based upon what the
registrant believes to be a reasonable assumption of the maximum number
of shares of Common Stock issuable upon consummation of the
transactions contemplated in this Registration Statement (the "Mergers
and Exchanges") with Advanced Radiology, P.A. ("Advanced" or "Advanced
Radiology"), The Ide Group, P.C. ("Ide" or "The Ide Group"), M & S
X-Ray Practices, Pacific Imaging Consultants, Radiology and Nuclear
Medicine, a Professional Association ("RNM"), Rockland Radiological
Group and the Valley Radiologists Medical Group, Inc. ("Valley" or
"Valley Radiology Group").

(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended
(the "Securities Act"), based upon the book value of the securities to
be cancelled or exchanged pursuant to the Mergers and Exchanges,
calculated as the aggregate of the $16,110,000 book value of such
securities of Advanced ( as reflected on the Advanced March 31, 1997
balance sheet), the $2,798,000 book value of such securities of Ide (as
reflected on the Ide March 31, 1997 balance sheet), the $4,107,000 book
value of such securities of the M & S X-Ray Practices (as reflected on
the M & S X-Ray Practices March 31, 1997 balance sheet) the $259,000
book value of such securities of Pacific Imaging Consultants (as
reflected on the Pacific Imaging Consultants March 31, 1997 balance
sheet) the $2,008,000 book value of such securities of RNM (as
reflected on the RNM March 31, 1997 balance sheet) the $(892,000) book
value of such securities of Rockland Radiological Group (as reflected
on the Rockland Radiological Group March 31, 1997 balance sheet) the
$2,039,000 book value of such securities of Valley (as reflected on the
Valley March 31, 1997 balance sheet). The proposed maximum offering
price per share is based upon the proposed maximum aggregate offering
price divided by the number of shares to be registered.

(3) The registration fee of $8,009 has been calculated pursuant to Rule
457(f)(2) as follows: 1/33 of one percent of the aggregate book value,
as of March 31, 1997 of the securities to be cancelled or exchanged
pursuant to the Mergers and Exchanges.

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

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 Advanced Radiology, P.A., a Maryland
professional association ("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) a
separate subsidiary of APPI will merge with and into Advanced and such
subsidiary 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 a form 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
ADVANCED RADIOLOGY, P.A.

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

To the security holders of
Advanced Radiology, P.A.:

NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting")
of the security holders of Advanced Radiology, P.A. ("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) a separate subsidiary of
APPI will merge with and into Advanced and such subsidiary 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 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 (the "Initial Public Offering Price") of APPI Common Stock
received by APPI in connection with the initial underwritten public offering of
APPI Common Stock contemplated by the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission by APPI, before deduction of any
underwriting commissions, discounts or fees relating thereto. At a minimum, each
share of Advanced Common Stock will be converted into [__________] shares of
APPI Common Stock and $[__________] in cash.

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.

Security holders of Advanced who do not vote in favor of the Advanced
Merger and who comply with other requirements of Sections 3-202 and 3-203 of
the Maryland General Corporation Law will have the right to demand payment for,
and appraisal of, the value of their shares. See "The Mergers, Exchanges and
Related Transactions -- Dissenters' Rights Regarding the Mergers" 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 Advanced at 7253 Ambassador Road,
Baltimore, Maryland 21244.

By Order of the Board of Directors,

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

[CITY, STATE]
[DATE]
<PAGE> 5
[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 a
form of the Ide Merger Agreement is attached as Appendix B 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 RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL
AND ADOPTION OF THE IDE MERGER AGREEMENT 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> 6

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 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 (the "Initial Public Offering Price") of APPI Common Stock received by
APPI in connection with the initial underwritten public offering of APPI Common
Stock contemplated by the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission by APPI, before deduction of any underwriting
commissions, discounts or fees relating thereto. At a minimum, each share of
Ide Common Stock will be converted into 942.56 shares of APPI Common Stock and
$4,398.60 in cash.

For illustrative purposes only, assuming that (i) the Initial Public
Offering Price of the APPI Common Stock is $15.00 (although there can be no
assurance that it will be so), and (ii) that no security holder of Ide takes
required actions to properly assert dissenters' rights under New York state
law, each share of Ide Common Stock will be converted into 942.56 shares of
APPI Common Stock and $4,712.79 in cash.

The Ide Merger Agreement requires the approval of the holders of
three-quarters of the outstanding shares of Ide Common Stock.

Security holders of Ide who do not vote in favor of the Ide Merger and
who comply with other 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 their shares. See "Approval of the Mergers, Exchanges and Related
Transactions -- Dissenters' Rights Regarding the Mergers" 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 Ide at 2273 South Clinton Avenue,
Rochester, New York 14618.

By Order of the Board of Directors,

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

[CITY, STATE]
[DATE]
<PAGE> 7
[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 text of a form of the M&S
Merger Agreement, the South Texas Merger Agreement and the San Antonio Merger
Agreement is attached as Appendix B to the Prospectus/Joint Proxy Statement.

The Board of Directors of each of M&S, South Texas and San Antonio,
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 M&S, South Texas and San
Antonio, 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.

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.

<PAGE> 8

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

Sincerely,

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

<PAGE> 9

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 M&S Merger, South Texas Merger and San Antonio
Merger, respectively, will not be determined until the closing of each of the
respective mergers. 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 (the
"Initial Public Offering Price") of APPI Common Stock received by APPI in
connection with the initial underwritten public offering of APPI Common Stock
contemplated by the Registration Statement on Form S-1 filed with the Securities
and Exchange Commission by APPI, before deduction of any underwriting
commissions, discounts or fees relating thereto. At a minimum, each share of
M&S Common Stock will be converted into 3,868.13 shares of APPI Common Stock and
$18,051.27 in cash; each share of South Texas Common Stock will be converted
into 21.31 shares of APPI Common Stock and $99.52 in cash; and each share of San
Antonio Common Stock will be converted into 30.47 shares of APPI Common Stock
and $142.10 in cash.

For illustrative purposes only, assuming that (1) the Initial Public
Offering Price of the APPI Common Stock is $15.00 (although there can be no
assurance that it will be so), and (2) that no security holder of M&S, South
Texas or San Antonio takes required actions to properly assert dissenters'
rights under Texas state law, each share of M&S Common Stock will be converted
into 3,868.13 shares of APPI Common Stock and $19,340.61 in cash; each share of
South Texas Common Stock will be converted into 21.31 shares of APPI Common
Stock and $106.63 in cash; and each share of San Antonio Common Stock will be
converted into 30.47 shares of APPI Common Stock and $152.25 in cash.
<PAGE> 10

The approval of each of the M&S Merger Agreement, the South Texas
Merger Agreement and the San Antonio Merger Agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of each respective
entity's Common Stock.

Security holders of M&S, South Texas and San Antonio who do not vote
in favor of the M&S Merger, South Texas Merger and San Antonio Merger,
respectively, and who comply with other 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 their shares. See "The Mergers, Exchanges
and Related Transactions -- Dissenters' Rights Regarding the Mergers" 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.

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> 11
[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
text of a form 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 is attached as Appendix C 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> 12

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> 13

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"),
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 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 exact number of shares of APPI Common Stock
and the exact amount of cash for which the partnership interests of each of
Lexington, Madison, South Texas No. 1 and San Antonio No. 2 will be converted by
reason of the Lexington Exchange, the Madison Exchange, the South Texas No. 1
Exchange and the San Antonio No. 2 Exchange, respectively, will not be
determined until the closing of such exchanges. 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 (the "Initial Public Offering Price") of APPI
Common Stock received by APPI in connection with the initial underwritten public
offering of APPI Common Stock contemplated by the Registration Statement on Form
S-1 filed with the Securities and Exchange Commission by APPI, before deduction
of any underwriting commission, discounts or fees relating thereto. At a
minimum, the Interests of Lexington will be converted into 115,843.00 shares of
APPI Common Stock and $540,598.00 in cash. At a minimum, the Interests of
Madison will be converted into 123,502.00 shares of APPI Common Stock and
$576,340.00 in cash. At a minimum, the Interests of South Texas No. 1 will be
converted into 253,221.00 shares of APPI Common Stock and $3,545,104 in cash.
At a minimum, the Interests of San Antonio No. 2 will be converted into
361,901.00 shares of APPI Common Stock and $1,688,884.00 in cash.

For illustrative purposes only, assuming that the Initial
Public Offering Price of the APPI Common Stock is $15.00 (although there can be
no assurance that it will be so), the Interests of Lexington will be converted
into 115,843.00 shares of APPI Common Stock and $579,210.00 in cash.
<PAGE> 14
For illustrative purposes only, assuming that the Initial
Public Offering Price of the APPI Common Stock is $15.00 (although there can be
no assurance that it will be so), the Interests of Madison will be converted
into 123,502.00 shares of APPI Common Stock and $617,505 in cash.

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> 15

[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 a form 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 a form 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.

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> 16
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, 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 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, 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 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 the closing of the Pacific Merger and the TMI Merger,
respectively. 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 (the "Initial Public Offering
Price") of APPI Common Stock received by APPI in connection with the initial
underwritten public offering of APPI Common Stock contemplated by the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission by APPI, before deduction of any underwriting commissions, discounts
or fees relating thereto. At a minimum, each share of Pacific Common Stock will
be converted into 41.59 shares of APPI Common Stock and $194.10 in cash, and
each share of TMI Common Stock will be converted into 2.24 shares of APPI Common
Stock and $10.45 in cash.

For illustrative purposes only, assuming that (1) the Initial Public
Offering Price of the APPI Common Stock is $15.00 (although there can be no
assurance that it will be so), and (2) that no security holder of Pacific or TMI
takes required actions to properly assert dissenters' rights under California
state law, each share of Pacific Common Stock will be converted into 41.59
shares of APPI Common Stock and $207.96 in cash, and each share of TMI Common
Stock will be converted into 2.24 shares of APPI Common Stock and $11.20 in
cash.

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.

Security holders of Pacific and TMI who do not vote in favor of the
Pacific Merger and TMI Merger, respectively, and who comply with other
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 their
shares. See "The Mergers, Exchanges and Related Transactions -- Dissenters'
Rights Regarding the Mergers" in the accompanying Prospectus/Joint Proxy
Statement.

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> 18
[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 a form of the RNM Merger Agreement is attached as Appendix B 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 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> 19
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, RNM will merge with and into APPI
and will cease to exist as a separate entity (the "RNM Merger") and 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
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
(the "Initial Public Offering Price") of APPI Common Stock received by APPI in
connection with the initial underwritten public offering of APPI Common Stock
contemplated by the Registration Statement on Form S-1 filed with the Securities
and Exchange Commission by APPI, before deduction of any underwriting
commissions, discounts or fees relating thereto. At a minimum, each share of
RNM Common Stock will be converted into 309.59 shares of APPI Common Stock and
$1,444.77 in cash.

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.

Security holders of RNM who do not vote in favor of the RNM Merger and
who comply with other 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 their shares. See "The Mergers, Exchanges and Related
Transactions -- Dissenters' Rights Regarding the Mergers" 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> 20
[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, AIOC'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 "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; CIA'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
"CIA Merger Agreement") by and between APPI and CIA and the transactions
contemplated by the CIA Merger Agreement; MRIA'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 "MRIA Merger
Agreement") by and between APPI and MRIA and the transactions contemplated by
the MRIA Merger Agreement; Nyack'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 "Nyack Merger Agreement") by and between
APPI and Nyack and the transactions contemplated by the Nyack Merger Agreement;
Pelham'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 "Pelham Merger Agreement") by and between APPI and Pelham and the
transactions contemplated by the Pelham Merger Agreement; RRG'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 "RRG
Merger Agreement") by and between APPI and RRG and the transactions
contemplated by the RRG Merger Agreement; WIC'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 "WIC Merger
Agreement") by and between APPI and WIC and the transactions contemplated by
the WIC Merger Agreement.

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 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 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 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 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 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 will be converted into the right to receive shares
of APPI
<PAGE> 21

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 will be converted
into the right to receive shares of APPI Common Stock and cash.

The terms and conditions of each of the AIOC Merger Agreement, the CIA
Merger Agreement, the MRIA Merger Agreement, the Nyack Merger Agreement, the
Pelham Merger Agreement, the RRG Merger Agreement and the WIC Merger Agreement
are described in the accompanying Notice of Special Meeting of Security Holders
and Prospectus/Joint Proxy Statement. The complete text of a form of each of
the AIOC Merger Agreement, the CIA Merger Agreement, the MRIA Merger Agreement,
the Nyack Merger Agreement, the Pelham Merger Agreement, the RRG Merger
Agreement and the WIC Merger Agreement is attached as Appendix B to the
Prospectus/Joint Proxy Statement.

The Board of Directors of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG
and WIC, after careful consideration of many factors, has determined that the
AIOC Merger, the CIA Merger, the MRIA Merger, the Nyack Merger, the Pelham
Merger, the RRG Merger and the WIC Merger, respectively, is fair to, and in the
best interests of, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, respectively,
and the security holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC,
respectively. ACCORDINGLY, THE BOARD OF DIRECTORS OF EACH OF AIOC, CIA, MRIA,
NYACK, PELHAM, RRG AND WIC HAS APPROVED THE AIOC MERGER AGREEMENT AND THE AIOC
MERGER, THE CIA MERGER AGREEMENT AND THE CIA MERGER, THE MRIA MERGER AGREEMENT
AND THE MRIA MERGER AGREEMENT, THE NYACK MERGER AGREEMENT AND NYACK MERGER, THE
PELHAM MERGER AGREEMENT AND THE PELHAM MERGER, THE RRG MERGER AGREEMENT AND THE
RRG MERGER AND THE WIC MERGER AGREEMENT AND THE WIC MERGER, RESPECTIVELY, AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE
APPLICABLE MERGER AGREEMENT AND MERGER AT THE SPECIAL MEETING.

We look forward to seeing you at the Special Meeting on August ___,
1997.

Sincerely,

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

<PAGE> 22
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.

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

<PAGE> 23
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 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 by reason of the AIOC Merger, CIA Merger, MRIA
Merger, Nyack Merger, Pelham Merger, RRG Merger and WIC Merger, respectively,
will not be determined until the closing of each of the respective mergers.
The number of shares of APPI Common Stock and the amount of cash into which
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 will depend on the price per share (the "Initial Public Offering
Price") of APPI Common Stock received by APPI in connection with the initial
underwritten public offering of APPI Common Stock contemplated by the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission by APPI, before deduction of any underwriting commissions, discounts
or fees relating thereto. At a minimum, 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 1,589.42 shares of
APPI Common Stock and $7,417.31 in cash.

For illustrative purposes only, assuming that (1) the Initial Public
Offering Price of the APPI Common Stock is $15.00 (although there can be no
assurance that it will be so), and (2) that no security holder of AIOC, CIA,
MRIA, Nyack, Pelham, RRG or WIC takes required actions to properly assert
dissenters' rights under New York state law, 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 1,589.42 shares of
APPI Common Stock and $7,947.12 in cash.

Approval of each of the AIOC Merger Agreement, the CIA Merger
Agreement, the MRIA Merger Agreement, the Nyack Merger Agreement, the Pelham
Merger Agreement, the RRG Merger Agreement and the WIC Merger Agreement
requires the affirmative vote of the holders of two-thirds of the outstanding
shares of each such entity's Common Stock.

Security holders of AIOC, CIA, MRIA, Nyack, Pelham, RRG or WIC who do
not vote in favor of the AIOC Merger, the CIA Merger, the MRIA Merger, the Nyack
Merger, the Pelham Merger, the RRG Merger, the WIC Merger, respectively, and who
comply with other 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 their shares. See "The Mergers, Exchanges and Related Transactions --
Dissenters' Rights Regarding the Mergers" 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.

<PAGE> 24

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> 25
[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 a form 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> 26
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 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 (the "Initial Public Offering Price") of APPI Common Stock received by
APPI in connection with the initial underwritten public offering of APPI Common
Stock contemplated by the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission by APPI, before deduction of any underwriting
commissions, discounts or fees relating thereto. At a minimum, each share of
Valley Common Stock will be converted into 33.46 shares of APPI Common Stock and
$115.19 in cash.

Approval of the Valley Merger Agreement requires the affirmative vote
of the holders of a majority of the shares of Valley's Common Stock entitled to
vote thereon.

Security holders of Valley who do not vote in favor of the Valley
Merger and who comply with other 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 their shares. See "The Mergers, Exchanges and
Related Transactions -- Dissenters' Rights Regarding the Mergers" 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> 27
AMERICAN PHYSICIAN PARTNERS, INC.
PROSPECTUS
FOR 12,809,907 SHARES
OF COMMON STOCK

--------

JOINT PROXY STATEMENT
FOR
ADVANCED RADIOLOGY, P.A.
THE IDE GROUP, P.C.
M&S X-RAY ASSOCIATES, P.A.
LEXINGTON MR LTD.
MADISON SQUARE JOINT VENTURE
SOUTH TEXAS MR, INC.
SOUTH TEXAS NO. 1 MRI LIMITED PARTNERSHIP
SAN ANTONIO MR, INC.
SAN ANTONIO MRI PARTNERSHIP NO. 2, LTD.
PACIFIC IMAGING CONSULTANTS, A MEDICAL GROUP, INC.
TOTAL MEDICAL IMAGING, INC.
RADIOLOGY AND NUCLEAR MEDICINE, A PROFESSIONAL ASSOCIATION
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.
VALLEY RADIOLOGISTS MEDICAL GROUP, INC.

--------

This Prospectus/Joint Proxy Statement is provided in connection with the
solicitation of proxies from the security holders of 20 entities which comprise
seven radiology practices located in California, Kansas, Maryland, New York and
Texas (each radiology practice a "Founding Affiliated Practice" and,
collectively, the "Founding Affiliated Practices") as follows:

(i) Advanced Radiology, P.A., a Maryland professional association
("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"):

(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");

i
<PAGE> 28
(c) Mid Rockland Imaging Associates, P.C., a New York
professional corporation ("MRIA");

(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").

Advanced, Ide, M&S, South Texas, San Antonio, Pacific, TMI, RNM, AIOC,
CIA, MRIA, Nyack, Pelham, RRG, WIC and Valley shall each sometimes hereinafter
be referred to as a "Merger Entity" and, collectively, as the "Merger Entities"
and Lexington, Madison, South Texas No. 1 and San Antonio No. 2 shall each
sometimes hereinafter be referred to as an "Exchange Entity" and, collectively,
as the "Exchange Entities." The Merger Entities and the Exchange Entities shall
sometimes hereinafter be collectively referred to as the "Entities."

This Prospectus/Joint Proxy Statement also constitutes the prospectus
under the Securities Act of 1933, as amended (the "Securities Act"), for the
issuance of Common Stock, par value $.0001 per share ("APPI Common Stock"), of
American Physician Partners, Inc., a Delaware corporation ("APPI" or the
"Company"), (i) into which the outstanding shares of Common Stock of Advanced
("Advanced Common Stock"), Ide Common Stock (as defined herein), Common Stock
of M&S ("M&S Common Stock"), Common Stock of South Texas ("South Texas Common
Stock"), Common Stock of San Antonio ("San Antonio Common Stock"), Common Stock
of Pacific ("Pacific Common Stock"), Common Stock of TMI ("TMI Common Stock"),
Common Stock of RNM ("RNM Common Stock"), AIOC Common Stock (as defined
herein), CIA Common Stock (as defined herein), MRIA Common Stock (as defined
herein), Nyack Common Stock (as defined herein), Pelham Common Stock (as
defined herein), RRG Common Stock (as defined herein), WIC Common Stock (as
defined herein) and Valley Common Stock (as defined herein) (referred to
herein, collectively, as the "Old Shares") will be converted upon consummation
of the Merger Transactions (as defined herein) and (ii) for which certain
outstanding Lexington limited partnership interests, Madison partnership
interests, South Texas No. 1 limited partnership interests and San Antonio No.
2 limited partnership interests (referred to herein, collectively, as the "Old
Partnership Interests") will be exchanged upon consummation of the Exchange
Transactions (as defined herein).

The term "Ide Common Stock" shall mean the Common Stock of Ide and,
following the F Reorganization (as defined herein) of Ide, the Common Stock of
Ide New Sub. The term "AIOC Common Stock" shall mean the Common Stock of AIOC
and, following the F Reorganization (as defined herein) of AIOC, the Common
Stock of AIOC New Sub. The term "CIA Common Stock" shall mean the Common Stock
of CIA and, following the F Reorganization (as defined herein) of CIA, the
Common Stock of CIA New Sub. The term "MRIA Common Stock" shall mean the
Common Stock of MRIA and, following the F Reorganization (as defined herein) of
MRIA, the Common Stock of MRIA New Sub. The term "Nyack Common Stock" shall
mean the Common Stock of Nyack and, following the F Reorganization (as defined
herein) of Nyack, the Common Stock of Nyack New Sub. The term "Pelham Common
Stock" shall mean the Common Stock of Pelham and, following the F
Reorganization (as defined herein) of Pelham, the Common Stock of Pelham New
Sub. The term "RRG Common Stock" shall mean the Common Stock of RRG and,
following the F Reorganization (as defined herein) of RRG, the Common Stock of
RRG New Sub. The term "WIC Common Stock" shall mean the Common Stock of WIC
and, following the F Reorganization (as defined herein) of WIC, the Common
Stock of WIC New Sub.

If the security holders of each of the Entities approve the respective
Merger Proposal (as defined herein) or Exchange Proposal (as defined herein),
as the case may be, and if the other conditions specified in each respective
Merger Agreement (as defined herein) or Exchange Agreement (as defined herein),
as the case may be, are satisfied or waived, (i) each of 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 Advanced, 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.

Upon the consummation of each Merger (as defined herein), each
outstanding share of Advanced Common Stock will be converted into the right to
receive ______ shares of APPI Common Stock and $____ in cash; each outstanding
share of Ide Common Stock will be converted into the right to receive 942.56
shares of APPI Common Stock and $4,398.60 in cash; each outstanding share of
M&S Common Stock will be converted into the right to receive 3,868.13 shares of
APPI Common Stock and $18,051.27 in cash; each outstanding share of South Texas
Common Stock will be converted into the right to receive 21.31 shares of APPI
Common Stock and $99.52 in cash; each outstanding share of San Antonio Common
Stock will be converted into the right to receive 30.47 shares of

ii
<PAGE> 29
APPI Common Stock and $142.10 in cash; each outstanding share of Pacific Common
Stock will be converted into the right to receive 41.59 shares of APPI Common
Stock and $194.10 in cash; each outstanding share of TMI Common Stock will be
converted into the right to receive 2.24 shares of APPI Common Stock and $10.45
in cash; each outstanding share of RNM Common Stock will be converted into the
right to receive 309.59 shares of APPI Common Stock and $1,444.77 in cash; each
outstanding share of AIOC Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; each
outstanding share of CIA Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; each
outstanding share of MRIA Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; each
outstanding share of Nyack Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; each
outstanding share of Pelham Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; each
outstanding share of RRG Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; each
outstanding share of WIC Common Stock will be converted into the right to
receive 1,589.42 shares of APPI Common Stock and $7,417.31 in cash; and each
outstanding share of Valley Common Stock will be converted into the right to
receive 33.46 shares of APPI Common Stock and $115.19 in cash. 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 (as defined herein) of APPI
Common Stock.(1)

Such Mergers are more fully described in the Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 by and between APPI and
Advanced (the "Advanced Merger Agreement"), the Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 by and between APPI and Ide
(the "Ide Merger Agreement"), the Agreement and Plan of Reorganization and
Merger dated as of June 27, 1997 by and between APPI and M&S (the "M&S Merger
Agreement"), the Agreement and Plan of Reorganization and Merger dated as of
June 27, 1997 by and between APPI and South Texas (the "South Texas Merger
Agreement"), the Agreement and Plan of Reorganization and Merger dated as of
June 27, 1997 by and between APPI and San Antonio (the "San Antonio Merger
Agreement"), the Agreement and Plan of Reorganization and Merger dated as of
June 27, 1997 by and between APPI and Pacific (the "Pacific Merger Agreement"),
the Agreement and Plan of Reorganization and Merger dated as of June 27, 1997
by and between APPI and TMI (the "TMI Merger Agreement"), the Agreement and
Plan of Reorganization and Merger dated as of June 27, 1997 by and between APPI
and RNM (the "RNM Merger Agreement"), the Agreement and Plan of Reorganization
and Merger dated as of June 27, 1997 by and between APPI and AIOC (the "AIOC
Merger Agreement"), the Agreement and Plan of Reorganization and Merger dated
as of June 27, 1997 by and between APPI and CIA (the "CIA Merger Agreement"),
the Agreement and Plan of Reorganization and Merger dated as of June 27, 1997
by and between APPI and MRIA (the "MRIA Merger Agreement"), the Agreement and
Plan of Reorganization and Merger dated as of June 27, 1997 by and between APPI
and Nyack (the "Nyack Merger Agreement"), the Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 by and between APPI and
Pelham (the "Pelham Merger Agreement"), the Agreement and Plan of
Reorganization and Merger dated as of June 27, 1997 by and between APPI and RRG
(the "RRG Merger Agreement"), the Agreement and Plan of Reorganization and
Merger dated as of June 27, 1997 by and between APPI and WIC (the "WIC Merger
Agreement"), the Agreement and Plan of Reorganization and Merger dated as of
June 27, 1997 by and between APPI and Valley (the "Valley Merger Agreement")
(collectively, the "Merger Agreements").

__________________________

(1) The shares of APPI Common Stock and cash to be received by the
Entities upon consummation of each Merger or Exchange, as applicable, set forth
above were determined assuming that (i) the price per share of APPI Common
Stock received by APPI in connection with the Initial Public Offering (as
defined herein), before deduction of any underwriting commissions, discounts or
other fees relating thereto (the "Initial Public Offering Price"), will be
$14.00, (ii) in connection with the Mergers, none of the security holders will
take required actions to properly assert dissenters' rights under applicable
state law and (iii) in connection with the Exchanges, each of the security
holders agrees to exchange his or her partnership interests as contemplated in
each respective Exchange Agreement. 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. 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 be increased. See "The Mergers, Exchanges and Related Transactions --
Terms of the Mergers and Exchanges -- Conversion of Shares and Exchange of
Partnership Interests."

iii
<PAGE> 30

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 A 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 B to this Prospectus/Joint Proxy
Statement.

Upon the consummation of each Exchange (as defined herein), certain
partners of Lexington will exchange 18.98% of the total interests of the
partners in Lexington for 115,843 shares of APPI Common Stock and $540,598 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 $576,340 in
cash; certain partners of South Texas No. 1 will exchange 99% of the total
interests of the partners in South Texas No. 1 for 253,221 shares of APPI
Common Stock and $3,545,104.00 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 361,901 shares of APPI Common Stock and $1,688,884.00 in cash.1

Such Exchanges are more fully described in 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 (the "Lexington Exchange
Agreement"), the Agreement and Plan of Exchange dated as of June 27, 1997 by
and between APPI and the holders of all of the partnership interests of Madison
(the "Madison Exchange Agreement"), the Agreement and Plan of Exchange dated as
of June 27, 1997 by and between APPI and the holders of all of the limited
partnership interests of South Texas No. 1 (the "South Texas No. 1 Exchange
Agreement") and the Agreement and Plan of Exchange dated as of June 27, 1997 by
and between APPI and the holders of all of the limited partnership interests of
San Antonio No. 2 (the "San Antonio No. 2 Exchange Agreement") (collectively,
the "Exchange Agreements").

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

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 _______________, 1997.

iv
<PAGE> 31
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADVANCED MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Advanced Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IDE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Ide Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M&S MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of M&S Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEXINGTON MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Lexington Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MADISON MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Madison Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SOUTH TEXAS MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of South Texas Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SOUTH TEXAS NO. 1 MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of South Texas No. 1 Meeting . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SAN ANTONIO MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of San Antonio Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

v
<PAGE> 32
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SAN ANTONIO NO. 2 MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of San Antonio No. 2 Meeting . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PACIFIC MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Pacific Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMI MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of TMI Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RNM MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of RNM Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AIOC MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of AIOC Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CIA MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of CIA Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MRIA MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of MRIA Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NYACK MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Nyack Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

vi
<PAGE> 33
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PELHAM MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Pelham Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RRG MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of RRG Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WIC MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of WIC Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VALLEY MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date, Time and Place of Valley Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Outstanding Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies; Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE MERGERS, EXCHANGES AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Material Contracts and Board Deliberations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPI's Reasons for the Mergers and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced Radiology's Reasons for the Advanced Merger . . . . . . . . . . . . . . . . . . . . . . . .
Advanced Board's Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Ide Group's Reasons for the Ide Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ide Board's Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M&S X-Ray Practices' Reasons for the M&S, South Texas and
San Antonio Mergers and the Madison, Lexington,
South Texas No. 1 and San Antonio No. 2 Exchanges . . . . . . . . . . . . . . . . . . . . . . . .
Recommendation of the Boards of M&S, South Texas and San Antonio . . . . . . . . . . . . . . . . . .
Pacific Imaging Consultants' Reasons for the Pacific and TMI Mergers . . . . . . . . . . . . . . . .
Recommendations of the Boards of Pacific and TMI . . . . . . . . . . . . . . . . . . . . . . . . . .
Radiology and Nuclear Medicine's Reasons for the RNM Merger . . . . . . . . . . . . . . . . . . . . .
RNM Board's Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rockland Radiological Group's Reasons for the AIOC, CIA,
MRIA, Nyack, Pelham, RRG, and WIC Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recommendations of the Boards of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC . . . . . . . . . . . .
Valley Radiology Group's Reasons for the Valley Merger . . . . . . . . . . . . . . . . . . . . . . .
Valley Board's Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terms of the Mergers and Exchanges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interests of Certain Persons in the Mergers and Exchanges . . . . . . . . . . . . . . . . . . . . . .
Dissenters' Rights Regarding the Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government and Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Income Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .
AMERICAN PHYSICIAN PARTNERS, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business Following the Mergers and Exchanges . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

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<PAGE> 34

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Industry Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Affiliation Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operations and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Practice Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government Regulation and Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Facilities and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Liability and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPI Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPI Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . .
Management and Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Bonus Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment Agreements; Covenants-Not-To-Compete . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPI Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPI Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADVANCED RADIOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced Radiology Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced Radiology Management's Discussion and
Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . .
Advanced Past Compensation for Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced Radiology Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE IDE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ide Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ide Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Ide Past Compensation for Continuing Directors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ide Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M&S X-RAY PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M&S X-Ray Practices Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M&S X-Ray Practices Management's Discussion
and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M&S Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lexington Partnership Interest Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Madison Partnership Interest Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Texas No. 1 Partnership Interest Holders . . . . . . . . . . . . . . . . . . . . . . . . . . .
San Antonio No. 2 Partnership Interest Holders . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Texas and San Antonio Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
PACIFIC IMAGING CONSULTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pacific Imaging Consultants Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . .
Pacific Imaging Consultants Management's
Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pacific Imaging Consultants Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
TMI Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RADIOLOGY AND NUCLEAR MEDICINE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

viii
<PAGE> 35

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RNM Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RNM Management's Discussion and Analysis of
Financial Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . .
RNM Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ROCKLAND RADIOLOGICAL GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rockland Radiological Group Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . .
Rockland Radiological Group Management's
Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rockland Radiological Group Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
VALLEY RADIOLOGY GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operation, Management and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley Radiology Group Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valley Radiology Group Management's Discussion and
Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . .
Valley Principal Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPARISON OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of APPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of Advanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of Ide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of M&S, South Texas and San Antonio . . . . . . . . . . . . . . . . . .
Description of Capital Stock of Pacific and TMI . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of RNM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of AIOC,
CIA, MRIA, Nyack, Pelham, RRG and WIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock of Valley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of Rights of Security Holders of APPI and the Entities . . . . . . . . . . . . . . . . . .
Limitation of Directors' or Partners' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification of Directors or Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Meetings of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Size of the Boards of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative Voting for Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments to the Governance Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

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<PAGE> 36
AVAILABLE INFORMATION

APPI has filed a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act, with the Securities and Exchange
Commission (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
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.

x
<PAGE> 37
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 (as defined herein), each of
Advanced, Ide, M&S, Pacific, TMI, RNM, AIOC, CIA, MRIA, Nyack, Pelham, RRG, WIC
and Valley will perform certain steps to reorganize (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,"
respectively, and, collectively, the "Reorganizations") by (a) incorporating or
organizing a new entity capable of practicing the profession of medicine in its
respective state (each, a "NewCo" or the "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," respectively, and, collectively, the "NewCos"), (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 40-year Service Agreement
with APPI (a "Service Agreement"). The ownership of each NewCo shall be
identical to the ownership of the applicable Merger Entity immediately prior to
the Effective Time (as defined herein) 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 reorganization pursuant to Internal Revenue Code Section
368(a)(2)(F) (a "F Reorganization"), whereby each of Ide, AIOC, CIA, MRIA,
Nyack, Pelham, RRG and WIC shall form a New York business corporation
subsidiary (each a "New Sub" or the "Ide New Sub," the "AIOC New Sub," the "CIA
New Sub," the "MRIA New Sub," the "Nyack New Sub," the "Pelham New Sub," the
"RRG New Sub," and the "WIC New Sub," respectively). 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 term "Reorganizations" shall hereinafter refer to the F
Reorganizations and the Reorganizations.

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 (such transactions, collectively,
shall be referred to as the "Mergers") will merge by undertaking the following
actions: (a) Ide, M&S, South

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<PAGE> 38
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
Advanced, Pacific, TMI and Valley and each of Advanced, Pacific, TMI and Valley
will become a wholly-owned subsidiary of APPI and (b) each outstanding share of
each 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 (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" and, collectively, the "Merger Transactions"). (See "Summary --
The Mergers" for the consideration in the Mergers.) The proposals to approve
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 are referred to herein as 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," respectively, and, collectively, the "Merger Proposals."

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 "Lexington
Exchange Transaction," the "Madison Exchange Transaction," the "South Texas No.
1 Exchange Transaction" and the "San Antonio No. 2 Exchange Transaction,"
respectively, and, collectively, the "Exchange Transactions" or the
"Exchanges"). The proposals to approve the Lexington Exchange Transactions,
the Madison Exchange Transactions, the South Texas No. 1 Exchange Transactions
and the San Antonio No. 2 Exchange Transactions and to approve and adopt the
Lexington Exchange Agreement, the Madison Exchange Agreement, the South Texas
No. 1 Exchange Agreement and the San Antonio No. 2 Exchange Agreement are
referred to herein as the "Lexington Exchange Proposal," the "Madison Exchange
Proposal," the "South Texas No. 1 Exchange Proposal" and the "San Antonio No. 2
Exchange Proposal," respectively, and, collectively, the "Exchange Proposals."

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. See "Risk Factors."

AMERICAN PHYSICIAN PARTNERS, INC.

APPI is a radiology 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 218 physicians practicing at 42 hospitals and
65 diagnostic imaging centers ("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 Founding Affiliated Practices and such additional radiology
practices, management service organizations, ICs and other related businesses
that the Company may acquire in the future (collectively, the "Affiliated
Practices").

THE ENTITIES

ADVANCED RADIOLOGY

Advanced is a Maryland professional association organized in 1997 as a
consolidation of seven practice groups, which collectively own all of the
membership interests of Advanced Radiology, LLC, a Maryland limited liability
company. 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

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executive offices of Advanced are located at 7253 Ambassador Road, Baltimore,
Maryland 21244. The telephone number is (410) 281-9191.

THE IDE GROUP

Ide is a New York professional corporation organized in 1980. 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) 442-9171.

M&S X-RAY PRACTICES

M&S is a Texas professional association organized in 1970. M&S is
comprised of 20 board certified radiologists who provide professional radio-
logical 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. 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. 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. 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.
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. 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. 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. Pacific operates
the professional component of radiology medical practices in northern
California, including a practice at the Summit Medical Center in Oakland,
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. 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.

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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.
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. 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. The
principal executive offices of CIA are located at 18 Squadron Boulevard, New
City, New York 10956. The telephone number is (914) 637-9729.

MRIA is a New York professional corporation organized in 1986. 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. 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. 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. 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. 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. Valley operates six ICs and three magnetic resonance imaging ("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
"Advanced Meeting"). 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 "Ide Meeting").
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 "M&S Meeting," the "Lexington Meeting," the "Madison
Meeting," the "South Texas Meeting,"

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the "South Texas No. 1 Meeting," the "San Antonio Meeting" and the "San Antonio
No. 2 Meeting," respectively). 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.

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 "Pacific Meeting" and the "TMI Meeting,"
respectively). 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 "RNM Meeting"). 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 "AIOC Meeting," the "CIA
Meeting," the "MRIA Meeting," the "Nyack Meeting," the "Pelham Meeting," the
"RRG Meeting" and "WIC Meeting," respectively). 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
"Valley Meeting"). 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.

The Advanced Merger Proposal must be approved by two-thirds of the
shares entitled to vote thereon. The Ide Merger Proposal must be approved by
holders of three-quarters of the outstanding shares of Ide Common Stock. The
M&S Merger Proposal must be approved by two-thirds of the outstanding shares of
M&S Common Stock. 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. 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. The South Texas Merger Proposal must be
approved by two-thirds of the outstanding shares of South Texas Common Stock.
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. The San Antonio
Merger Proposal must be approved by two-thirds of the outstanding shares of San
Antonio Common Stock. 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. The Pacific Merger Proposal must be approved by a majority
of the outstanding shares of Pacific Common Stock. The TMI Merger Proposal must
be approved by a majority of the outstanding shares TMI Common Stock. The RNM
Merger Proposal must be approved by a majority of the outstanding shares of RNM
Common Stock. The AIOC Merger Proposal must be approved by two-thirds of the
outstanding shares of AIOC Common Stock. The CIA Merger Proposal must be
approved by two-thirds of the outstanding shares of CIA Common Stock. The MRIA
Merger Proposal must be approved by two-thirds of the outstanding shares of MRIA
Common Stock. The Nyack Merger Proposal must be approved by two-thirds of the
outstanding shares of Nyack Common Stock. The Pelham Merger Proposal must be
approved by two-thirds of the outstanding shares of Pelham Common Stock. The
RRG Merger Proposal must be approved by two-thirds of the outstanding shares of
RRG Common

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

If the requisite percentage of security holders of any Merger Entity
fail to approve 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.

THE MERGERS

The Merger Agreements for each of 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 Advanced, Pacific, TMI and Valley contemplate that a
separate subsidiary of APPI will merge with and into Advanced, Pacific, TMI and
Valley, respectively, and each of Advanced, 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) will receive cash and shares of APPI Common Stock in exchange for their Old
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 and Valley
Common Stock, respectively, as set forth below.

The number of shares of APPI Common Stock and cash amounts set forth
below were determined assuming that (i) Initial Public Offering Price will be
$14.00 and (ii) none of the security holders will take required actions to
properly assert dissenters' rights under the applicable state law. 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. 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 be increased. 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 $[ ] and [ ] shares of APPI Common Stock.

THE IDE GROUP

- Each outstanding share of Ide Common Stock will be converted into
the right to receive $4,398.00 and 942.56 shares of APPI Common
Stock.

M&S X-RAY PRACTICES

- Each outstanding share of M&S Common Stock will be converted into
the right to receive $18,051.27 and 3,868.13 shares of APPI Common
Stock.

- Each outstanding share of South Texas Common Stock will be converted
into the right to receive $99.52 and 21.31 shares of APPI Common
Stock.

- Each outstanding share of San Antonio Common Stock will be converted
into the right to receive $142.10 and 30.47 shares of APPI Common
Stock.

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PACIFIC IMAGING CONSULTANTS

- Each outstanding share of Pacific Common Stock will be converted
into the right to receive $194.10 and 41.59 shares of APPI Common
Stock.

- Each outstanding share of TMI Common Stock will be converted into
the right to receive $10.45 and 2.24 shares of APPI Common Stock.

RADIOLOGY AND NUCLEAR MEDICINE

- Each outstanding share of RNM Common Stock will be converted into
the right to receive $1,444.77 and 309.59 shares of APPI Common
Stock.

ROCKLAND RADIOLOGICAL GROUP

- Each outstanding share of AIOC Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

- Each outstanding share of CIA Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

- Each outstanding share of MRIA Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

- Each outstanding share of Nyack Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

- Each outstanding share of Pelham Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

- Each outstanding share of RRG Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

- Each outstanding share of WIC Common Stock will be converted into
the right to receive $7,417.31 and 1,589.42 shares of APPI Common
Stock.

VALLEY RADIOLOGY GROUP

- Each outstanding share of Valley Common Stock will be converted into
the right to receive $115.19 and 33.46 shares of APPI Common Stock.

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.

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.

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<PAGE> 44
The number of shares of APPI Common Stock and cash amounts set forth
below were determined assuming that (i) the Initial Public Offering Price will
be $14.00 and (ii) each of the security holders of each Exchange Entity agrees
to exchange each such partner's partnership interests. In the event that the
Initial Public Offering Price of 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. In the event the Initial Public Offering Price 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. 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

- Certain partners of Lexington will exchange 18.98% of the total
interests of the partners in Lexington for $540,598.00 and 115,843
shares of APPI Common Stock.

- Certain partners of Madison will exchange 100% of the total
interests of the partners in Madison for $576,340.00 and 123,502
shares of APPI Common Stock.

- Certain partners of South Texas No. 1 will exchange 99% of the total
interests of the partners in South Texas No. 1 for $3,545,104.00 and
253,221 shares of APPI Common Stock.

- Certain partners of San Antonio No. 2 will exchange 99% of the total
interests of the partners in San Antonio No. 2 for $1,688,884.00 and
361,901 shares of APPI Common Stock.

The complete text of a form of Exchange Agreement is attached as
Appendix C 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.

REASONS FOR THE MERGERS AND EXCHANGES

Each of the Founding Affiliated Practices has identified reasons for
the Mergers and Exchanges, as the case may be. See "The Mergers, Exchanges and
Related Transactions -- Advanced Radiology's Reasons for the Advanced Merger,"
"-- The Ide Group's Reasons for the Ide Merger," "-- M&S X-Ray Practices'
Reasons for the M&S, South Texas and San Antonio Mergers and the Madison,
Lexington, South Texas No. 1 and San Antonio No. 2 Exchanges," "-- Pacific
Imaging Consultants' Reasons for the Pacific and TMI Mergers," "-- Radiology
and Nuclear Medicine's Reasons for the RNM Merger," "-- Rockland Radiological
Group's Reasons for the AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC Mergers,"
"-- Valley Radiology Group's Reasons for the Valley Merger."

The Boards of Directors of APPI and each Merger Entity and the
partners of each Exchange Entity are aware that the potential benefits of the
Merger or Exchange, as the case may be, may not be realized. See "Risk
Factors."

RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE MERGER ENTITIES

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. 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. THE IDE BOARD RECOMMENDS APPROVAL OF THE IDE MERGER PROPOSAL BY ITS
SECURITY HOLDERS.

The M&S Board has approved the M&S Merger Proposal and determined that
the M&S Merger is fair to, and in the best interests of, the security holders
of M&S. THE M&S BOARD RECOMMENDS APPROVAL OF THE M&S MERGER PROPOSAL BY ITS
SECURITY HOLDERS.

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The South Texas Board has approved the South Texas Merger Proposal and
determined that the South Texas Merger is fair to, and in the best interests
of, the security holders of South Texas. THE SOUTH TEXAS BOARD RECOMMENDS
APPROVAL OF THE SOUTH TEXAS MERGER PROPOSAL BY ITS SECURITY HOLDERS.

The San Antonio Board has approved the San Antonio Merger Proposal and
determined that the San Antonio Merger is fair to, and in the best interests
of, the security holders of San Antonio. THE SAN ANTONIO BOARD RECOMMENDS
APPROVAL OF THE SAN ANTONIO MERGER PROPOSAL BY ITS SECURITY HOLDERS.

The Pacific Board has approved the Pacific Merger Proposal and
determined that the Pacific Merger is fair to, and in the best interests of,
the security holders of Pacific. THE PACIFIC BOARD RECOMMENDS APPROVAL OF THE
PACIFIC MERGER PROPOSAL BY ITS SECURITY HOLDERS.

The TMI Board has approved the TMI Merger Proposal and determined that
the TMI Merger is fair to, and in the best interests of, the security holders
of TMI. THE TMI BOARD RECOMMENDS APPROVAL OF THE TMI MERGER PROPOSAL BY ITS
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. THE RNM BOARD RECOMMENDS APPROVAL OF THE RNM MERGER PROPOSAL BY ITS
SECURITY HOLDERS.

The AIOC Board has approved the AIOC Merger Proposal and determined
that the AIOC Merger is fair to, and in the best interests of, the security
holders of AIOC. THE AIOC BOARD RECOMMENDS APPROVAL OF THE AIOC MERGER
PROPOSAL BY ITS SECURITY HOLDERS.

The CIA Board has approved the CIA Merger Proposal and determined that
the CIA Merger is fair to, and in the best interests of, the security holders
of CIA. THE CIA BOARD RECOMMENDS APPROVAL OF THE CIA MERGER PROPOSAL BY ITS
SECURITY HOLDERS.

The MRIA Board has approved the MRIA Merger Proposal and determined
that the MRIA Merger is fair to, and in the best interests of, the security
holders of MRIA. THE MRIA BOARD RECOMMENDS APPROVAL OF THE MRIA MERGER
PROPOSAL BY ITS SECURITY HOLDERS.

The Nyack Board has approved the Nyack Merger Proposal and determined
that the Nyack Merger is fair to, and in the best interests of, the security
holders of Nyack. THE NYACK BOARD RECOMMENDS APPROVAL OF THE NYACK MERGER
PROPOSAL BY ITS SECURITY HOLDERS.

The Pelham Board has approved the Pelham Merger Proposal and determined
that the Pelham Merger is fair to, and in the best interests of, the security
holders of Pelham. THE PELHAM BOARD RECOMMENDS APPROVAL OF THE PELHAM MERGER
PROPOSAL BY ITS SECURITY HOLDERS.

The RRG Board has approved the RRG Merger Proposal and determined that
the RRG Merger is fair to, and in the best interests of, the security holders of
RRG. THE RRG BOARD RECOMMENDS APPROVAL OF THE RRG MERGER PROPOSAL BY ITS
SECURITY HOLDERS.

9
<PAGE> 46
The WIC Board has approved the WIC Merger Proposal and determined that
the WIC Merger is fair to, and in the best interests of, the security holders of
WIC. THE WIC BOARD RECOMMENDS APPROVAL OF THE WIC MERGER PROPOSAL BY ITS
SECURITY HOLDERS.

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. THE VALLEY BOARD RECOMMENDS APPROVAL OF THE VALLEY
MERGER PROPOSAL BY ITS SECURITY HOLDERS.

CONDITIONS TO THE MERGERS AND EXCHANGES

Consummation of the Mergers and Exchanges is subject to the
satisfaction of the following conditions under applicable laws and rules: (i)
no action, proceeding or order by any court, 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, (ii) the Registration Statement and the Registration
Statement on Form S-1 filed with the SEC by APPI (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, (iii) 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, (iv) the APPI Common Stock shall have been
approved for listing on the Nasdaq Stock Market's National Market (the "Nasdaq
National Market"), (v) the initial underwritten public offering of APPI Common
Stock contemplated by the Form S-1 (the "Initial Public Offering") shall have
closed, and (vi) each Merger or Exchange Proposal shall have been approved and
adopted 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, the following:
(i) the representations and warranties of APPI contained in each respective
Merger Agreement shall be accurate, (ii) APPI shall have performed the
covenants required by each Merger Agreement, (iii) each respective Merger
Entity shall have received a legal opinion from counsel to APPI, (iv) 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 and (v) each security holder of each Merger Entity
shall have received a tax opinion from Haynes and Boone, L.L.P. ("Haynes and
Boone"), special counsel to APPI.

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: (i) the representations and warranties of each
Merger Entity contained in the applicable Merger Agreement shall be accurate,
(ii) each Merger Entity shall have performed the covenants required by the
applicable Merger Agreement, (iii) APPI shall have received a legal opinion
from counsel to each respective Merger Entity, (iv) each of the Mergers and
Exchanges shall have closed, (v) each respective Merger Entity shall have
satisfied each of its obligations to its security holders regarding dissenters
or related rights under the corporation 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, (vi) each
security holder who is a party to each respective Merger Agreement shall have
executed and delivered to APPI a Stockholder Representation Letter in
substantially the form of Appendix D to this Prospectus/Joint Proxy Statement
("Stockholder Representation Letter") and certain of such security holders
shall have executed and delivered to APPI the Indemnification Agreement in
substantially the form of Appendix E to this Prospectus/Joint Proxy Statement
(the "Indemnification Agreement"), and (vii) 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 as approved by
APPI shall have been transferred, assigned and conveyed to such NewCo.

The obligation of each Exchange Entity and each partner thereof to
consummate each respective Exchange is also subject to certain additional
conditions unless waived by the applicable Exchange Entity and partners
thereof, which conditions include, without limitation, the following: (i) the
representations and warranties of APPI contained in each respective Exchange
Agreement shall be accurate, (ii) APPI shall have performed the covenants
required by each Exchange Agreement, (iii) each respective Exchange Entity
shall have received a legal opinion from counsel to APPI and (iv) 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: (i) the representations and warranties of each
Exchange Entity and

10
<PAGE> 47

partner contained in the applicable Exchange Agreement shall be accurate, (ii)
each Exchange Entity and partner shall have performed the covenants required by
the applicable Exchange Agreement, (iii) APPI shall have received a legal
opinion from counsel to each respective Exchange Entity and partner, and (iv)
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 contemplated by each Merger Agreement
(the "Merger Closing") will occur on the day on which the transactions
contemplated by the Initial Public Offering are consummated (the "Merger
Transactions Closing Date"). Each Merger will become effective (the "Effective
Time") 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 -- Terms of the Mergers and
Exchanges--Conditions of each Merger Agreement." The closing of the
transactions contemplated by each Exchange Agreement (the "Exchange Closing")
will occur on the day on which the transactions contemplated by the Initial
Public Offering are consummated (the "Exchange Transactions Closing Date").

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 September 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

Due to the benefits to be received by certain individuals who are
officers or directors 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 Mergers and those who are partners of Lexington, Madison, South Texas
No. 1 and San Antonio No. 2 in connection with the Exchanges, 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 or Exchange in
connection with any such person's recommendation of such Merger or Exchange.

For a detailed description of such benefits and compensation, see "The
Mergers, Exchanges and Related Transactions--Interests of Certain Persons in
the Mergers and Exchanges."

11
<PAGE> 48

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 California Corporations Code (the "CCC") will
be entitled to receive the fair market value of shares held by such Dissenting
Security Holders (as defined herein). The term "fair market value" means 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 "The Mergers, Exchanges and Related
Transactions -- Dissenters' Rights Regarding the Mergers."

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 Kansas General Corporation Code (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 "The Mergers, Exchanges and Related Transactions --
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 Maryland General
Corporation Law (the "MGCL") will be entitled to receive the fair value of
shares held by such Dissenting Security Holders. The term "fair value" means
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 "The Mergers, Exchanges and
Related Transactions -- 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 New York Business Corporation Law (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 "The Mergers, Exchanges and Related
Transactions -- 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 Texas Business Corporation Act (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
"The Mergers, Exchanges and Related Transactions -- Dissenter's Rights
Regarding the Merger."

12
<PAGE> 49

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 "The Mergers, Exchanges and
Related Transactions -- Government and Regulatory Approvals."

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 "The
Mergers, Exchanges and Related Transactions -- Certain Income Tax
Considerations."

ACCOUNTING TREATMENT

SEC Staff Accounting Bulletin No. 48 ("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 "The Mergers, Exchanges and
Related Transactions -- Accounting Treatment."

13
<PAGE> 50
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 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 "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>
THREE MONTHS
FROM INCEPTION ENDED
(APRIL 30, 1996) MARCH 31, 1997
THROUGH --------------
DECEMBER 31, 1996 (UNAUDITED)
-----------------
AMERICAN PHYSICIAN PARTNERS, INC.
<S> <C> <C>
SUMMARY OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650 880
----- ---
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,650) $(880)
======= =====

</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,417
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,279)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
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 $12,203 $16,073
Total expenses . . . . . . . . . . . . . . 22,717 23,884 30,592 6,164 9,480
Equity in earnings of investments . . . . . 762 635 1,207 395 273
Minority interests in income of
consolidated subsidiaries . . . . . . . . -- -- (18) 6 6
------- ------- ------- ------- -------
Income before income taxes . . . . . . . . $ 496 $15,584 $23,479 $ 6,440 $ 6,872
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
-------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,342
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,190
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,110
</TABLE>

14
<PAGE> 51
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
THE IDE GROUP
<S> <C> <C> <C> <C> <C>
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
MARCH 31, 1997
------------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,079

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,628
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,798
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -------------------------
1994 1995 1996 1996 1997
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
M&S X-RAY PRACTICES
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . $17,341 $15,068 $15,198 $3,783 $3,494
Total expenses . . . . . . . . . . . . . . 15,045 13,834 13,178 3,102 2,951
Equity in earnings of investments . . . . . 98 213 605 156 178
Minority interests in income of
consolidated subsidiaries . . . . . . . . (220) (216) (249) (56) (77)
------- ------- ------- ------ ------
Income before income taxes . . . . . . . . $ 2,174 $ 1,231 $ 2,376 $ 781 $ 644
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,757
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,107
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ------------------------
1994 1995 1996 1996 1997
------------ ----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED)
PACIFIC IMAGING CONSULTANTS
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . $8,806 $11,448 $13,295 $2,809 $3,622
Total expenses . . . . . . . . . . . . . . 9,347 11,552 13,240 2,646 3,572
Equity in earnings of investments . . . . . -- -- -- -- --
Minority interests in income of
consolidated subsidiaries . . . . . . . . -- -- -- -- --
------ ------ ------ ----- ------
Income (loss) before income taxes . . . . . $ (541) $ (104) $ 55 $ 163 $ 50
====== ====== ====== ===== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C>
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,480
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,790
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
</TABLE>

15
<PAGE> 52

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
RADIOLOGY AND NUCLEAR MEDICINE
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue .............................. $13,379 $13,849 $13,572 $3,101 $3,644
Total expenses ............................. 13,434 14,225 13,670 2,784 2,905
Equity in earnings of investments .......... 273 311 292 96 96
Minority interests in income of consolidated
subsidiaries ............................. -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes ................. $ 218 $ (65) $ 194 $ 413 $ 835
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
-----------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C>
Total assets........................................................................... $5,029
Total debt............................................................................. 1,576
Stockholders' equity................................................................... 2,008
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
ROCKLAND RADIOLOGICAL GROUP
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue ............................. $15,080 $17,824 $17,333 $7,801 $8,897
Total expenses ............................ 14,635 18,870 17,070 7,327 8,041
Equity in earnings of investments ......... -- -- -- -- --
Minority interests in income of
consolidated subsidiaries ................. -- -- -- -- --
------ ------- ------- ------ ------
Income before income taxes ................ $ 445 $(1,046) $ 263 $ 474 $ 856
====== ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
-------------------
(UNAUDITED)
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C>
Total assets..................................................................... $12,811
Total debt....................................................................... 9,378
Stockholders' equity............................................................. (892)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
VALLEY RADIOLOGY GROUP
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue .......................... $13,557 $10,507 $11,174 $2,633 $2,891
Total expenses ......................... 13,169 10,049 10,349 2,381 2,585
Equity (loss) in earnings of investments 84 14 (19) -- --
Minority interests in income of
consolidated subsidiaries .............. -- -- -- -- --
------- ------- ------- ------ ------
Income before income taxes ............. $ 472 $ 472 $ 806 $ 252 $ 306
======= ======= ======= ====== ======
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
---------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C>
Total assets........................................................................... $4,184
Total debt............................................................................. 1,464
Stockholders' equity................................................................... 2,039
</TABLE>

16
<PAGE> 53
PRO FORMA COMBINED FINANCIAL INFORMATION

Upon the completion of the Initial Public Offering and pursuant to the
Merger Transactions and Exchange Transactions, the Company will acquire certain
assets and liabilities of, and enter into Service Agreements with, the Founding
Affiliated Practices. The following pro forma financial data gives effect to
the Reorganizations, the conversion of the outstanding $3,500,000 principal
balance of Convertible Promissory Notes bearing interest at 6% per annum (the
"Convertible Notes"), the completion of the Initial Public Offering (assuming a
public offering price of $15.00 per share) and the application of the estimated
net proceeds therefrom as if they had occurred as of January 1, 1996 in the case
of the statement of operations data and March 31, 1997 in the case of the
balance sheet data. However, APPI and the Founding Affiliated Practices were
not under common control or management during any of such periods. As a result,
this data is not necessarily indicative of the results the Company would have
achieved had these events actually occurred on the dates indicated nor are they
necessarily an indication of the Company's future results. The following pro
forma financial data should be read in conjunction with the information set
forth under "Use of Proceeds," "American Physician Partners, Inc. Unaudited Pro
Forma Combined Financial Data," and "Selected Financial Data" and in the
historical financial statements of APPI and the Founding Affiliated Practices
included elsewhere herein.

<TABLE>
<CAPTION>
Pro Forma
As Adjusted
Three Months
Year Ended Ended
STATEMENT OF OPERATIONS DATA: December 31, 1996 March 31, 1997
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Physician groups revenue, net ................................................... $144,794 $ 40,109
Less: amounts retained by physician groups ..................................... (55,218) (15,301)
-------- --------
Service fee revenue ............................................................. 89,576 24,808
-------- --------
Costs and expenses:
Practice salaries, wages and benefits ........................................ 26,668 7,501
Depreciation and amortization ................................................ 7,409 1,940
Other practice expenses ...................................................... 33,656 8,823
Corporate general and administrative expenses ................................ 1,624 844
-------- --------
Total costs and expenses ....................................... 69,357 19,108
-------- --------
Equity in earnings of investments ............................................... 2,117 568

Minority interests in income of consolidated subsidiaries ....................... (265) (69)
Income tax expense .............................................................. 8,827 2,480
-------- --------
Net income ...................................................................... $ 13,244 $ 3,719
======== ========

Pro forma earnings per share .................................................... $.68 $.19
==== ====

Pro forma weighted average number of common shares outstanding .................. 19,458,583 19,458,583
========== ==========

OTHER DATA (AT MARCH 31, 1997):
Affiliated physicians ........................................................... 218
Affiliated physician groups ..................................................... 7
Number of hospital affiliations ................................................. 42
Number of ICs owned or managed .................................................. 65
Number of states ................................................................ 5
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
MARCH 31, 1997
--------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................................................................... $ 5,594
Working capital ......................................................................................... 8,727
Total assets ............................................................................................ 75,763
Long-term debt and capital leases, net of current portion ............................................... 3,132
Stockholders equity ..................................................................................... 38,475
</TABLE>

17
<PAGE> 54
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
AMERICAN PHYSICIAN PARTNERS, INC.
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical .............................. -- -- (0.45)(1) -- (0.24)
Pro forma equivalent .................... -- -- (0.11) -- (0.06)
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical..................................................................... (0.62)
Pro forma equivalent........................................................... (0.16)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
(UNAUDITED)
ADVANCED RADIOLOGY(2)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical............................... -- -- -- -- --
Pro forma equivalent..................... 0.14 4.37 6.59 1.81 1.93
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical..................................................................... --
Pro forma equivalent........................................................... 4.52
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical..................................................................... --
Pro forma equivalent........................................................... 1.38
</TABLE>

18
<PAGE> 55
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
M&S X-RAY PRACTICES(2)
Income (loss) before taxes per share:
Historical............................... -- -- -- -- --
Pro forma equivalent..................... 1.36 0.77 1.49 0.49 0.40
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical..................................................................... --
Pro forma equivalent........................................................... 2.57
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
PACIFIC IMAGING CONSULTANTS(2)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical................................ -- -- -- -- --
Pro forma equivalent...................... (0.77) (0.15) 0.08 0.23 0.07
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical..................................................................... --
Pro forma equivalent........................................................... 0.37
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
RADIOLOGY AND NUCLEAR MEDICINE(2)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical................................ -- -- -- -- --
Pro forma equivalent...................... 0.29 (0.09) 0.26 0.55 1.10
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical.................................................................. --
Pro forma equivalent........................................................ 2.66
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
ROCKLAND RADIOLOGICAL GROUP(2)(4)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical................................ -- -- -- -- --
Pro forma equivalent...................... 0.31 (0.72) 0.18 0.33 0.59
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical...................................................................... --
Pro forma equivalent............................................................ (0.62)
</TABLE>

19
<PAGE> 56

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- ---------
VALLEY RADIOLOGY GROUP(2)
<S> <C> <C> <C> <C> <C>
Income (loss) before taxes per share:
Historical............................... -- -- -- -- --
Pro forma equivalent..................... 0.76 0.76 1.29 0.40 0.49
</TABLE>

<TABLE>
<CAPTION>
AS OF
Book value per share at period end: MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
Historical..................................................................... --
Pro forma equivalent........................................................... 3.27
</TABLE>

____________________

(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) 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.

(3) The Ide Group fiscal year end is June 30.

(4) The Rockland Radiological Group fiscal year end is September 30.

20
<PAGE> 57
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. Although the pro forma
financial results of the Company for the year ended December 31, 1996 and the
three-months ended March 31, 1997 indicate that the Company generated revenue
and income on a pro forma basis, such pro forma financial results cover periods
when the Founding Affiliated Practices and APPI were not under common control
or management and, therefore, may not be indicative of the Company's future
financial or operating results. 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 such Affiliated
Practices will operate profitably or that the Service Agreements will not be
terminated. Advanced and Ide 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. While the Service Agreements with the Founding Affiliated Practices
will have terms of 40 years and may be terminated by the Founding Affiliated
Practices only for cause, the termination of any of the Founding Affiliated
Practices' Service Agreements would have a material adverse effect on the
Company. In addition, following a termination of a Service Agreement, under
certain circumstances, a Founding Affiliated Practice will have the right to
repurchase from the Company the assets used by, and assume the liabilities
associated with, such Founding Affiliated Practice in the conduct of its
radiology practice. 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, financial condition and results of
operations. See "APPI -- 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 extend 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

21
<PAGE> 58
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."

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 at least 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 at 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. 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 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. If a sufficiently large number of physicians elected at
any time to discontinue referring patients to the ICs affiliated with the
Company, it would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, there is potential
for disruption of 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
health maintenance organizations ("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 the Affiliated
Practices 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

The Company's business strategy includes growth through the acquisition of
radiology practice assets, management service organizations ("MSOs"), ICs and
related businesses and entry into and maintenance of agreements to provide
management and administrative services to radiology practices. 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. 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."

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

22
<PAGE> 59
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. See ""APPI -- Operation, Management and
Business Following the Mergers and Exchanges -- Service Agreements. 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 operating results, diversion of management's attention
and resources, failure to retain key acquired personnel, amortization 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.

Following consummation of the Mergers and Exchanges, 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 obtained a commitment letter for a $100,000,000 credit facility
from GE Capital Corporation, subject to the negotiation of definitive
documentation, due diligence and certain other conditions. The Company
anticipates that such credit facility will be effective concurrently with the
closing of the Initial Public Offering, although there can be no assurance to
that effect. 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 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.

The Company intends to expand both in areas where the Founding Affiliated
Practices currently operate as well as in new markets. Although the Company
believes that it is in compliance with applicable anti-trust 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

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 "anti-kickback" and
"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 or Medicaid patients or for the recommendation, leasing, arranging,
purchasing, ordering or providing of Medicare or Medicaid covered services,
items or equipment. The "anti-referral" laws impose restrictions on
physicians' referrals for designated health services to entities with which
they have financial relationships. Violations of the "anti-kickback" or
"anti-referral" laws may result in substantial civil or criminal penalties for
individuals or entities, including large civil monetary penalties and exclusion
from participation in the Medicare and Medicaid programs. Such exclusion, if
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. 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.

Several states, including states in which some of the Founding Affiliated
Practices are located, have adopted laws similar to the "anti- kickback" and
"anti-referral" laws that cover patients in private programs as well as
government programs. These laws and their interpretations 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.

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

23
<PAGE> 60
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 non-medical services to the
Affiliated Practices in exchange for a service fee. The Company's intent is to
neither practice medicine nor exercise control over the medical judgments or
decisions of the Affiliated Practices or their physicians. Although the Company
believes that it is in compliance with applicable state laws and regulations
relating to the corporate practice of medicine, 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 service
fees paid to the Company by the Affiliated Practices pursuant to the Service
Agreements constitute 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."

Although the Company believes that its operations are in compliance 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 if the
Company is unable 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.

The ownership, construction, operation, expansion and acquisition of ICs
are subject to various federal and state laws, regulations and approvals
concerning the licensing of facilities, personnel, certificates of need and
other required certificates for certain types of health care facilities and
major medical equipment. These laws could limit the Company's ability to
acquire new imaging equipment or expand or replace its equipment at existing
ICs. 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."

In addition to existing 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 during 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 these 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.

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 is, 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.

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

24
<PAGE> 61
(principally, Medicare and Medicaid) and private third-party payors. During
the three month period ended March 31, 1997, approximately 21% of the pro forma
combined revenue of the Founding Affiliated Practices was derived from
government approved health care programs and approximately 79% of the pro forma
combined revenue 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. See "APPI -- APPI Management's Discussion and Analysis
of Financial Condition and Results of Operations." 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
resource-based relative value scale ("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. RBRVS-type payment systems have also
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."

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS

During the three month period ended March 31, 1997, approximately 96% of
the pro forma combined revenue 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 4% of the pro forma
combined revenue 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, be dependent upon 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. Entering into additional risk-sharing arrangements could 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.

COMPETITION

The Company is under competitive pressures for the acquisition and
retention of the assets of, and the provision of 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. 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 and the management of
such

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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 that 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 that 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 does not believe
that any of the services provided by it to the Affiliated Practices pursuant to
the Service Agreements will 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
exposes 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 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 Company for events
that occurred prior to the acquisition of the assets of certain of the
Affiliated Practices.

On May 22, 1997, the state of Texas adopted legislation that permits
injured patients to sue health insurance carriers, health maintenance
organizations and other managed care entities for medical malpractice. The
statute becomes effective September 1, 1997. There can be no assurance that
this legislation 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 or results of operations.

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<PAGE> 63
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 efficiencies of scale,
the Company intends to create a network infrastructure and deploy two
company-wide information systems. The design or selection and implementation
of the various components of these systems and the integration throughout the
Company and the Affiliated Practices and subsequent administration will entail
a significant commitment in capital and management resources. The Company 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 operational and financial
information systems 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 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."

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 18,151,625 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,
10,714,125 shares of Common Stock, assuming an Initial Public Offering Price of
$15.00 per share 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 Common Stock, none of which are being offered by this
Prospectus/Joint Proxy Statement and none of which were acquired in
transactions registered under the Securities Act. Such unregistered shares may
not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. The holders of these 12,714,125
shares of Common Stock have entered into agreements with the Company pursuant
to which such holders have agreed not to sell any shares of Common Stock owned
by them at the time of consummation of the Mergers and Exchanges for a period
of 12 months following the Initial Public Offering, and to thereafter limit the
sale of such Common Stock to 25% of such shares upon expiration of such
12-month period following this the Initial Public Offering; up to an additional
25% of such shares upon expiration of the 18-month period following the Initial
Public Offering, and the remaining 50% of such shares upon expiration of a
24-month period following the Initial Public Offering. 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 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 several underwriters
named in the Form S-1 (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 Common Stock will be eligible for
resale in the public market and the unregistered shares of Common Stock, the
Convertible Notes and the shares of Common Stock issued or issuable upon

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<PAGE> 64
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, its officers and directors and all other holders
of Common Stock and securities convertible into or exercisable or exchangeable
for 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 Common
Stock or any securities convertible into or exercisable or exchangeable for
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 13.8%, and the security holders of the Founding Affiliated
Practices will own approximately 59.0%, of the outstanding shares of Common
Stock. 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 licensed physicians 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 Delaware General Corporation Law (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

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
of $14.00 as assumed throughout this Prospectus/Joint Proxy Statement for
purposes of determining the consideration to be received by the security
holders of the Entities pursuant to the Mergers and Exchanges has been assumed
by the Company after discussions with the Underwriters and may not be
indicative of the market price for the Common Stock at or at any time 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 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.

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<PAGE> 65
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 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 Funding Affiliated Practice. See "APPI --
Operation, Management and Business Following the Mergers and Exchanges --
Service Agreements."

INCOME TAX RISKS

It is a condition to the closing obligations of APPI and the Entities that
such parties receive an opinion from Haynes and Boone 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 Internal Revenue Service (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 "The Mergers,
Exchanges and Related Transactions -- 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," "-- Advanced
Radiology's Reasons for the Advanced Merger," "-- The Ide Group's Reasons for
the Ide Merger," "-- Pacific Imaging Consultants' Reasons for the Pacific and
TMI Mergers," "-- Radiology and Nuclear Medicine's Reasons for the RNM Merger,"
"-- Rockland Radiological Groups Reasons for the AIOC, CIA, MRIA, Nyack,
Pelham, RRG and WIC Mergers," and "-- Valley Radiology Group's Reasons for the
Valley Merger."

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<PAGE> 66
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 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] (the "Advanced Record Date") are entitled to notice of and to
vote at the Advanced Meeting. As of the Advanced Record Date, there were [ ]
Security holders of record of Advanced Common Stock holding an aggregate of [
] shares of Advanced Common Stock. See "Advanced Principal Stockholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the Merger
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 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.

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.

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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 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] (the "Ide Record 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
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 instructions indicated on such proxies. If no
such instructions are indicated, such proxies will be voted (i) FOR
approval of the Ide Merger 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.

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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 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] (the "M&S Record 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
requires the affirmative vote of the holders of two-thirds of the shares of M&S
Common Stock outstanding on 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.

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 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

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<PAGE> 69
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 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] (the "Lexington Record Date") are entitled to notice of and
to vote at the Lexington Meeting. As of the Lexington Record Date, there were
12 limited partners and one general partner holding an aggregate of 100% of the
partnership interests in Lexington. See "Lexington Partnership Interest
Holders."

VOTE REQUIRED

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 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 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

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<PAGE> 70
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].

PURPOSE

The purpose of the Madison Meeting is to vote upon proposals: (i) to
approve the Madison Exchange 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] (the "Madison Record 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

Under Madison's Joint Venture Agreement and Texas Law, 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 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,

34
<PAGE> 71
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 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 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] (the "South Texas Record 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
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 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 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

35
<PAGE> 72
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 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] (the "South Texas No. 1 Record 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

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 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.

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
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

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<PAGE> 73
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 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] (the "San Antonio Record 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."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the Merger
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 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

37
<PAGE> 74
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].

PURPOSE

The purpose of the San Antonio No. 2 Meeting is to vote upon proposals: (i)
to approve the San Antonio No. 2 Exchange 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] (the "San Antonio No. 2 Record 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

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 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
and (ii) FOR approval and adoption of the San Antonio No. 2 Exchange Agreement.

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<PAGE> 75
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,
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 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] (the "Pacific Record 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
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

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<PAGE> 76
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 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 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 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] (the "TMI Record 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
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.

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<PAGE> 77
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 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 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] (the "RNM Record Date") are entitled to notice of and to vote at the RNM
Meeting. As of the RNM Record Date, there were 19 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
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.

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.

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<PAGE> 78
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. RNM 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 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 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 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.

RECORD DATE AND OUTSTANDING SHARES

Security holders of record of AIOC Common Stock at the close of business
on [DATE] (the "AIOC Record 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."

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<PAGE> 79
VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the Merger
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 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.

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 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.

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<PAGE> 80
RECORD DATE AND OUTSTANDING SHARES

Security holders of record of CIA Common Stock at the close of business on
[DATE] (the "CIA Record 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
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 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 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].

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<PAGE> 81
PURPOSE

The purpose of the MRIA Meeting is to vote upon proposals: (i) to approve
the MRIA Merger 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] (the "MRIA Record 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
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 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 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.

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<PAGE> 82
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 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] (the "Nyack Record 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
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.

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 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

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<PAGE> 83
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 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] (the "Pelham Record 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."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the Merger
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 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.

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<PAGE> 84
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].

PURPOSE

The purpose of the RRG Meeting is to vote upon proposals: (i) to approve
the RRG Merger 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] (the "RRG Record 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
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 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

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<PAGE> 85
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.

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 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] (the "WIC Record 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
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 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.

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

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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 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] (the "Valley Record Date") are entitled to notice of and to vote at
the Valley Meeting. As of the Valley Record Date, there were 19 security
holders of record of Valley Common Stock holding an aggregate of 18,937.50
shares of Valley Common Stock. See "Valley Principal Shareholders."

VOTE REQUIRED

Approval and adoption of the Merger Agreement and approval of the Merger
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 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 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.

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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. 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 Advanced, Pacific, TMI and
Valley Merger Agreements. A form of Merger Agreement, which substantially
conforms to the Advanced, Pacific, TMI and Valley Merger Agreements, is
attached to this Prospectus/Joint Proxy Statement 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 APPI are contained in
the 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 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 B. 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 C. 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.

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 were seeking to affiliate with a
physician practice management company like APPI to perform the non-medical
aspects of their practices and provide access to greater capital resources,
more efficient cost structures and more favorable relationships with payors.

During May, June and July 1996, APPI developed a list of potential
radiology practices in different parts of the United States that APPI wanted to
approach regarding possible affiliation with APPI. During this period, APPI
commenced discussions with 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 development
efforts and entered into confidentiality agreements with M&S, RNM and RRG. In
addition, during this period APPI entered into letters of

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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
development efforts with practices that had executed confidentiality agreements
with APPI. APPI entered into letters of intent with RRG and RNM. Following the
execution of these letters of intent, APPI commenced financial audits of those
practices and legal due diligence. Also during this period, APPI distributed
its first draft of the Service Agreement to the Founding Affiliated Practices
under letters of intent and to Pacific as Pacific 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, APPI completed its selection of the
Founding Affiliated Practices following the execution by Pacific and Valley of
letters of intent with APPI. APPI also commenced financial audits of these
practices and legal due diligence. 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 team in Dallas on March 7 and 8 of this year to discuss open issues
in the Service Agreement and the Merger and Exchange Agreements and to plan
strategies for APPI's growth and development. On April 16 and 17 of this year,
lawyers and certain representatives of the Founding Affiliated Practices met in
Dallas to continue their discussions of open points in the Merger and Exchange
Agreements and the Service Agreement.

Also during March and April 1997, APPI selected the underwriters for its
proposed Initial Public Offering. In early April, APPI's management team 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
this time period, APPI commenced work on this Registration Statement.
Additionally, following the execution of the Merger and Exchange Agreements,
APPI began working with the Founding Affiliated Practices on matters that are
required to be completed or resolved prior to closing such Merger and Exchange
transactions.

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.

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.

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ADVANCED RADIOLOGY'S REASONS FOR THE ADVANCED MERGER

In considering the Merger, the security holders of Advanced recognized the
need to adapt to many of the changes affecting the practice of medicine and the
business of providing medical services. The security holders of Advanced
believe that for the following reasons the Advanced Merger will be beneficial to
Advanced:

. Increased capital funding to acquire and upgrade equipment and acquire
new sites

. Economies of scale through increased purchasing power

. Combining with the other Founding Affiliated Practices would enable
Advanced to acquire additional practice sites and practice groups

. Increase in effectiveness in obtaining third-party payor contracts

. The availability of cost effective management, medical records,
billing and similar efficiencies of the practice

The Board of Directors of Advanced weighed the benefits of joining with
APPI and concluded that APPI would allow it, and the other Founding Affiliated
Practices, to further achieve those objectives which originally prompted the
formation of Advanced. These included (i) providing greater access to making
available capital funding; (ii) allowing Advanced to directly share in the
economic benefits of the technical component of its practice, including the
additional facilities made available through such capital funding; (iii)
providing a larger purchasing pool; (iv) providing cost effective management
expertise; (iv) expanding the efficiencies of office and billing functions; and
(v) maintaining strong physician leadership.

ADVANCED BOARD'S RECOMMENDATION

The Advanced Board believes that the Advanced Merger and the terms of the
Advanced Merger Agreement are fair to, and in the best interests of, Advanced
and its security holders and has thus approved the Advanced Merger Proposal.
THE ADVANCED BOARD RECOMMENDS THAT ADVANCED SECURITY HOLDERS VOTE IN FAVOR OF
THE ADVANCED MERGER PROPOSAL.

THE IDE GROUP'S REASONS FOR THE IDE MERGER

The Board of Directors of Ide recognized that significant changes will take
place over the next few years in the area of health care reimbursement for the
country as a whole and the Rochester, New York area in particular. The Board of
Directors of Ide believes that for the following reasons the Ide Merger will be
beneficial to Ide:

. Increased capital, which could no longer be obtained from either
retained earnings or borrowings, would be needed to sustain the
continued growth of the existing operation and enable Ide to consider
the possibility of new facilities. In addition, Ide anticipates
significantly expanded capital requirements as it moves toward
outsourcing entire hospital radiology departments.

. While Ide has seen substantial growth over the past 20 years with the
current physician leadership, to insure the continued longevity of
the practice, it became apparent that the practice would need the
expertise that can only be obtained from physician leadership with a
national core of experience.

. While Ide has been the primary and largest radiology practice in the
Western New York area, to insure the continuation of this status
requires the ability to attract and develop new professional
opportunities while continuing to serve existing relationships.
Given the potential changes in reimbursement and the potential
affiliation of Ide's competitors in the Rochester area, a significant
marketing campaign would need to be undertaken to continue the path
chosen by the Ide Board. This effort can only be accomplished with
the following:

(i) A national organization with the expertise to assist the
physicians in negotiating third party payor contracts.

(ii) The ability to deliver "state of the art" professional and
technical service in the fields of radiology and radiation oncology.

(iii) The ability to assist the physicians in the ongoing
marketing of the practice in order to maintain existing relationships
and develop new opportunities.

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IDE BOARD'S RECOMMENDATION

The Ide Board believes that the Ide Merger and the terms of the Ide Merger
Agreement are fair to, and in the best interests of, Ide and its security
holders and has thus approved the Ide Merger Proposal. THE IDE BOARD RECOMMENDS
THAT IDE SECURITY HOLDERS VOTE IN FAVOR OF THE IDE MERGER PROPOSAL.

M&S X-RAY PRACTICES' REASONS FOR THE M&S, SOUTH TEXAS AND SAN ANTONIO MERGERS
AND THE MADISON, LEXINGTON, SOUTH TEXAS NO. 1 AND SAN ANTONIO NO. 2 EXCHANGES

An association of three radiologists in the late 1960's evolved into the
current radiology practice known as M&S X-Ray Associates, P.A. During this
time, additional growth opportunities were pursued and by the mid 1990's M&S
X-Ray Associates grew to its current complement of twenty radiologists. Its
affiliated corporate and joint venture entities comprise a radiology delivery
system comprised of five hospital professional service contracts and seven
outpatient imaging centers. Concurrent with this growth and development, the
health care delivery system within the San Antonio, Texas Metropolitan area was
undergoing a transformation not unlike that being experienced by other major
metropolitan areas in the country. Significant trends in the practice of
radiology included:

. The impact of managed care and the related decrease in reimbursement
from third party payors.

. The development of medical practice groups that were beginning to
merge and form affiliations, both within radiology and within the
general medical community.

. Technological advancements within radiology that were demanding more
sophisticated equipment with increased risk and cost to the
individuals and corporations investing in new modalities.

The Board of Directors of M&S recognized the need to increase the business
operations, i.e., production, to offset the decreasing revenues. M&S, similar
to other practices, sought assistance from consultants to evaluate and
determine how best to respond to the changing environment, while trying to
preserve corporate revenues. From numerous Board discussions, consultants
reports and other input, a number of conclusions were reached including:

. The status quo will not be maintained. The market will undoubtedly
force changes in the way radiology is practiced.

. Managed care will drive radiology services in the community to embark
upon significant change including mergers, acquisitions and
associations that would create what would previously be regarded as
unlikely alliances.

. Health services will be increasingly centered in non-traditional
hospital/medical center facilities. Product carve-outs inclusive of
radiology services will increase in number and scope.

. Imaging centers must be developed that are strategically located,
offering full modality options, be accessible, and provide value
added services to compete in the emerging market. This must be
accomplished while preserving quality and measuring outcomes.

. Increased managed care will create an over-supply of radiologists in
the marketplace.

. M&S will not be able to generate needed capital from retained
earnings to provide for equipment and managerial support systems, to
preserve revenues and respond to business opportunities.

Given these conclusions, the Board of Directors of M&S determined that an
affiliation with a national organization that could assist in meeting the
realities of the dynamic environment was desirable.

What began as informal discussions with APPI developed into in-depth
analysis and a recognition that the respective corporate cultures and goals
were in concert and could lead to an affiliation that would be mutually
beneficial. It was envisioned that M&S, with APPI, could retain its place of
prominence and secure the necessary market share. It is believed that the
affiliation with APPI will:

. Provide the capital resources necessary to appropriately develop new
alliances and imaging centers as well as enhance existing operations.

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- Provide improved operating efficiency through economies of scale that
could be realized by the affiliation economies of scale to be
achieved in purchasing of routine support supplies for the imaging
centers, as well as major acquisitions of equipment to maintain a
competitive technological edge.

- Through the input APPI's managerial expertise provide:

(i) Strategic planning enhancements to identify opportunities for
expansion into new markets

(ii) Additional contracting and reimbursement expertise

(iii) Marketing support

(iv) The acquisition of appropriate information systems to support
such operations

For these reasons the Board deemed it to be prudent, appropriate and
timely that M&S embark upon this affiliation with the belief and commitment
that it will allow M&S to be in a position to quickly respond to opportunities
and thus emerge as the dominate radiological practice in San Antonio, Texas.
By so doing, the existing practice of M&S can be preserved while allowing for
growth and the preservation and increase of related revenues.

RECOMMENDATION OF THE BOARD OF DIRECTORS OF EACH OF M&S, SOUTH TEXAS AND
SAN ANTONIO

The Board of Directors of each of M&S, South Texas and San Antonio believes
that the M&S Merger, the South Texas Merger and the San Antonio Merger,
respectively, and the terms of the applicable Merger Agreement are fair to, and
in the best interests of, M&S, South Texas and San Antonio, respectively, and
each of their respective security holders and each such Board has thus approved
the M&S Merger Proposal, the South Texas Merger Proposal and the San Antonio
Merger Proposal, respectively. THE BOARD OF EACH OF M&S, SOUTH TEXAS AND SAN
ANTONIO RECOMMENDS THAT EACH SUCH ENTITY'S RESPECTIVE SECURITY HOLDERS VOTE IN
FAVOR OF THE RESPECTIVE MERGER PROPOSAL.

PACIFIC IMAGING CONSULTANTS' REASONS FOR THE PACIFIC AND TMI MERGERS

In anticipation of changes in the business of medicine, Pacific began
focusing on growth through acquisitions of other radiology groups beginning in
1986. In 1989, the security holders of Pacific organized TMI to own and/or
lease the substantial equipment required to operate multiple diagnostic ICs.
However, despite the wide geographic coverage, large numbers of providers and
long-standing managed care experience of Pacific in the San Francisco Bay area,
Pacific's Board recognized the following business conditions:

- Capital Needs: Increased capital, which could no longer be obtained
from retained earnings, would be needed to sustain continued growth
and build increasingly necessary and capital-intensive
infrastructure, including the technological infrastructure necessary
to improve computer capabilities, network multiple Pacific sites and
make a the transition to electronic medical record systems; and
various sources of capital, including debt, venture capital and
existing physician practice management companies ("PPMs") would not
adequately meet the needs of Pacific for capital while maintaining
physician control.

- Physician Leadership: Physicians, especially those in practice
groups, were in a better position than non-physician business people
to guide the direction of changes in medicine and to control costs
because of their unique role as advocates for patients.

- Competition: Competitors in Pacific's market were beginning to
affiliate with PPMs, hospitals and other third parties, giving them
better access to capital; and competition for managed care lives was
increasing in the Northern California market.

In response to these business conditions, in 1996 Pacific's and TMI's
Boards began exploring the possibility of merging with APPI. After a number of
meetings with representatives of APPI, Pacific's and TMI's Boards concluded that
there was a strategic fit with APPI based on the following criteria which
Pacific and TMI had established as essential for selecting a capital partner:
significant physician ownership, physician-controlled governance, national group
practice experience and culture, extensive managed care experience and the
ability to exert local market leverage. Based on additional meetings with APPI
representatives and upon the criteria established, Pacific's and TMI's Boards
determined that the Merger was the preferred option for a strategic and capital
partnership. Accordingly, Pacific's Board and management decided to enter into
discussions with APPI for a possible affiliation among Pacific, TMI and APPI.

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The material favorable, unfavorable and certain neutral factors considered
by Pacific's Board in reaching its decision to approve the Merger Proposal
included: synergies, capital needs, access to capital, physician leadership,
employee benefits, fair value and favorable tax consequences.

In light of these factors, Pacific's and TMI's Boards concluded that the
Merger was fair to, and in the best interests of, Pacific, TMI and their
security holders. Pacific's and TMI's Boards found that the potential negative
effects of the Merger were outweighed by the positive factors and, thus, that
such positive factors were persuasive in recommending approval of the Pacific
Merger Proposal and the TMI Merger Proposal to the security holders of Pacific
and TMI.

RECOMMENDATIONS OF THE BOARDS OF PACIFIC AND TMI

The Board of each of Pacific and TMI believes that the Pacific Merger and
the terms of the Pacific Merger Agreement and the TMI Merger and the terms of
the TMI Merger Agreement, respectively, are fair to, and in the best interests
of, Pacific and TMI, respectively, and each of their respective security
holders and has thus unanimously approved the Pacific Merger Proposal and the
TMI Merger Proposal, respectively. THE BOARD OF EACH OF PACIFIC AND TMI
UNANIMOUSLY RECOMMENDS THAT EACH SUCH ENTITY'S RESPECTIVE SECURITY HOLDERS VOTE
IN FAVOR OF THE RESPECTIVE MERGER PROPOSAL.

RADIOLOGY AND NUCLEAR MEDICINE'S REASONS FOR THE RNM MERGER

In light of anticipated changes in medical technology, reimbursement
methodologies and health care delivery systems in general, RNM believes that
the RNM Merger will provide RNM with the necessary resources to succeed in the
anticipated new health care environment.

The Board of Directors of RNM believe that the RNM Merger will allow RNM to
realize cost and operating efficiencies, including cost savings which are
anticipated to result from pooled purchasing power for supplies and equipment.
RNM will benefit from the comparison of RNM practice results against the results
achieved by the other Merger Entities, which will create a basis for
streamlining operations of RNM. Through these increased economic efficiencies,
RNM believes that its physicians will be able to realize the true economic value
of their practice and still retain a degree of autonomy through an
organizational structure allowing for significant input into management. In
addition, RNM will benefit from increased access to capital following the RNM
Merger.

As a result of the RNM Merger, RNM believes that it will be able to expand
its geographic area of service and will receive necessary assistance in
developing strategic, marketing and business development plans and in
responding to change implemented by private and public payors.

RNM BOARD'S RECOMMENDATIONS

The RNM Board believes that the RNM Merger and the terms of the RNM Merger
Agreement are fair to, and in the best interests of, RNM and its security
holders and has thus approved the RNM Merger Proposal. THE RNM BOARD RECOMMENDS
THAT RNM SECURITY HOLDERS VOTE IN FAVOR OF THE RNM MERGER PROPOSAL.

ROCKLAND RADIOLOGICAL GROUP'S REASONS FOR THE AIOC, CIA, MRIA, NYACK, PELHAM,
RRG AND WIC MERGERS

The Board of Directors of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and
WIC recognized the need to adapt to many of the changes that were affecting the
practice of medicine and the business of providing medical services. These
seven entities function in an affiliated manner. Their affiliation was
prompted for a variety of reasons, including, but not limited to:

. The need for the increased capital funding to acquire and upgrade
equipment and information systems at their current practice sites

. To open new practice sites

. To maintain and update the data bases required to manage their
organization

. The economies of scale obtained by pooling the purchasing of
equipment, supplies and services

. The need to provide cost effective management

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. The need to increase competitiveness in obtaining third party payor
contracts

As a result of their affiliation, such entities continued to recognize that
many of the needs prompting their affiliation continued to exist even though the
affiliation had enabled them to achieve many of their original objectives. When
the Rockland Radiological Group was approached by APPI, the stockholders of such
entities believed that affiliates with a larger entity operating on a national
scope would assist in achieving their objectives.

Following deliberations regarding the positive and negative aspects of the
affiliation with APPI, each of the entities voted in favor of the Merger. The
Board of Directors of each of the entities concluded that APPI would allow it
and the other Founding Affiliated Practices to further achieve their objectives,
including:

. Making available capital funding

. Allowing the groups to directly share in the economic benefit of the
technical component of their practices, including, the additional
facilities made available through such capital funding

. Providing a larger purchasing pool

. Providing cost effective management expertise

. Expanding the efficiencies of office and billing functions

. Increase competitiveness in obtaining third party payor contracts

. Potential to outsource hospital radiology departments using capital
management experience available through APPI

. Maintaining strong leadership as a result of the affiliation with APPI

RECOMMENDATIONS OF THE BOARDS OF AIOC, CIA, MRIA, NYACK, PELHAM, RRG AND WIC

The Board of each of AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC believes
that the Merger and the terms of the Merger Agreement are fair to, and in the
best interests of, AIOC, CIA, MRIA, Nyack, Pelham, RRG and WIC, respectively,
and each of their respective security holders and has thus approved the
respective Merger. THE BOARD OF EACH OF AIOC, CIA, MRIA, NYACK, PELHAM, RRG AND
WIC RECOMMENDS THAT EACH SUCH ENTITY'S RESPECTIVE SECURITY HOLDERS VOTE IN FAVOR
OF THE RESPECTIVE MERGER PROPOSAL.

VALLEY RADIOLOGY GROUP'S REASONS FOR THE VALLEY MERGER

The Valley Board considered the following factors in their decision to
vote in favor of the Valley Merger:

. Increased access to capital, potential to upgrade equipment and
information systems at current practice sites, open new practice
sites, and maintain a database required to manage HMO contracts

. Economies of scale obtained by pooled purchasing of equipment,
supplies and services

. Improved and more cost effective management

. Increased competitiveness in obtaining third party payor consent

. Similarity in culture and quality of practice with other Founding
Affiliated Practices

. Radiologist leadership in governance of APPI

. Tax-free nature of transaction

57
<PAGE> 94
. Exclusive contract to provide professional services for any APPI
practice site within Valley's geographical area

. Advantageous allocation between professional and technical service
revenues

. Potential to outsource hospital radiology departments using capital
and management experience available through APPI

VALLEY BOARD'S RECOMMENDATIONS

The Valley Board believes that the Valley Merger and the terms of the
Valley Merger Agreement are fair to, and in the best interests of, Valley and
its security holders and has thus approved the Valley Merger Proposal. THE
VALLEY BOARD RECOMMENDS THAT VALLEY SECURITY HOLDERS VOTE IN FAVOR OF THE
VALLEY MERGER PROPOSAL.

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 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 Advanced, Pacific, TMI and Valley such that each of Advanced, Pacific,
TMI and Valley will become a wholly-owned subsidiary of APPI. Descriptions of
each Merger Agreement set forth below provide a discussion of all material
terms thereof and are qualified in their entirety by reference to the form of
Merger Agreement set forth as Appendix A hereto and incorporated herein by this
reference.

Each Exchange Agreement was entered into by and between APPI and
Lexington, Madison, South Texas No. 1 or San Antonio No. 2, as the case may be,
in June 1997. The holders of partnership interests of each Exchange Entity
will exchange such interests for shares of APPI Common Stock. Descriptions of
each Exchange Agreement set forth below provide a discussion of all material
terms thereof and are qualified in their entirety by reference to the form of
Exchange Agreement set forth as Appendix B 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. 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.

(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
___________ (the "Advanced Base Exchange Ratio") and the
Advanced Cash Consideration shall be $____________ (the
"Advanced Base Cash Consideration");

58
<PAGE> 95
(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 equal to the Advanced Base Exchange
Ratio and the Advanced Cash Consideration shall be equal to
the product of (x) the Advanced Base Cash Consideration and
(y) a fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the
Advanced Base Exchange Ratio and (y) a fraction the
numerator of which is $14.00 and the denominator of which
is the Initial Public Offering Price and the Advanced Cash
Consideration shall be equal to the Advanced Base Cash
Consideration.

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>
$10.00 $_________
$11.00 $_________
$12.00 $_________
$13.00 $_________
$14.00 $_________
$15.00 $_________
$16.00 $_________
$17.00 $_________
$18.00 $_________
$19.00 $_________
$20.00 $_________
</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 942.56 (the "Ide Base Exchange Ratio") and the Ide
Cash Consideration shall be $4,398.60 (the "Ide Base Cash
Consideration");

(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 equal to the Ide Base Exchange
Ratio and the Ide Cash Consideration shall be equal to the
product of (x) the Ide Base Cash Consideration and (y) a
fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the Ide Base
Exchange Ratio and (y) a fraction

59
<PAGE> 96
the numerator of which is $14.00 and the denominator of
which is the Initial Public Offering Price and the Ide Cash
Consideration shall be equal to the Ide Base Cash
Consideration.

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 1,319.58 $4,398.60
$11.00 1,199.62 $4,398.60
$12.00 1,099.65 $4,398.60
$13.00 1,015.06 $4,398.60
$14.00 942.56 $4,398.60
$15.00 942.56 $4,712.79
$16.00 942.56 $5,026.98
$17.00 942.56 $5,341.16
$18.00 942.56 $5,655.35
$19.00 942.56 $5,969.53
$20.00 942.56 $6,283.72
</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 3,868.13 (the "M&S Base Exchange Ratio") and the
M&S Cash Consideration shall be $18,051.27 (the "M&S Base
Cash Consideration");

(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 equal to the M&S Base Exchange
Ratio and the M&S Cash Consideration shall be equal to the
product of (x) the M&S Base Cash Consideration and (y) a
fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the M&S Base
Exchange Ratio and (y) a fraction the numerator of which is
$14.00 and the denominator of which is the Initial Public
Offering Price and the M&S Cash Consideration shall be
equal to the M&S Base Cash Consideration.

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:

60
<PAGE> 97

<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 5,415.38 $18,051.27
$11.00 4,923.08 $18,051.27
$12.00 4,512.82 $18,051.27
$13.00 4,165.68 $18,051.27
$14.00 3,868.13 $18,051.27
$15.00 3,868.13 $19,340.61
$16.00 3,868.13 $20,629.98
$17.00 3,868.13 $21,919.35
$18.00 3,868.13 $23,208.73
$19.00 3,868.13 $24,498.10
$20.00 3,868.13 $25,787.47
</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
115,843.00 (the "Lexington Base Exchange Ratio") and the
Lexington Cash Consideration shall be $540,598.00 (the
"Lexington Base Cash Consideration");

(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 equal to the Lexington Base Exchange Ratio and the
Lexington Cash Consideration shall be equal to the product of
(x) the Lexington Base Cash Consideration and (y) a fraction the
numerator of which is the Initial Public Offering Price and the
denominator of which is $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) the Lexington Base Exchange
Ratio and (y) a fraction the numerator of which is $14.00 and
the denominator of which is the Initial Public Offering Price
and the Lexington Cash Consideration shall be equal to the
Lexington Base Cash Consideration.

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>
$10.00 162,179.30 $540,598.00
$11.00 147,435.73 $540,598.00
$12.00 135,149.42 $540,598.00
$13.00 124,753.31 $540,598.00
$14.00 115,843.00 $540,598.00
$15.00 115,843.00 $579,210.00
$16.00 115,843.00 $617,824.00
$17.00 115,843.00 $656,438.00
$18.00 115,843.00 $695,052.00
$19.00 115,843.00 $733,666.00
$20.00 115,843.00 $772,280.00
</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:

61
<PAGE> 98
(i) if the Initial Public Offering Price of the APPI Common Stock is
$14.00 per share, then the Madison Exchange Ratio shall be
123,502.00 (the "Madison Base Exchange Ratio") and the Cash
Consideration shall be $576,340.00 (the "Madison Base Cash
Consideration");

(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 equal to the Madison Base Exchange Ratio and the
Madison Cash Consideration shall be equal to the product of (x)
the Madison Base Cash Consideration and (y) a fraction the
numerator of which is the Initial Public Offering Price and the
denominator of which is $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) the Madison Base Exchange
Ratio and (y) a fraction the numerator of which is $14.00 and
the denominator of which is the Initial Public Offering Price
and the Madison Cash Consideration shall be equal to the Madison
Base Cash Consideration.

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>
$10.00 172,901.90 $576,340.00
$11.00 157,183.55 $576,340.00
$12.00 144,084.92 $576,340.00
$13.00 133,001.46 $576,340.00
$14.00 123,502.00 $576,340.00
$15.00 123,502.00 $617,505.00
$16.00 123,502.00 $658,672.00
$17.00 123,502.00 $699,839.00
$18.00 123,502.00 $741,006.00
$19.00 123,502.00 $782,173.00
$20.00 123,502.00 $823,340.00
</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 21.31 (the "South Texas Base Exchange
Ratio") and the South Texas Cash Consideration shall be
$99.52 (the "South Texas Base Cash Consideration");

(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 equal to the South Texas Base
Exchange Ratio and the South Texas Cash Consideration shall
be equal to the product of (x) the South Texas Base Cash
Consideration and (y) a fraction the numerator of which is
the Initial Public Offering Price and the denominator of
which is $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) the
South Texas Base Exchange Ratio and (y) a fraction the
numerator of which is $14.00 and the denominator of which
is the Initial Public Offering Price and the South Texas
Cash Consideration shall be equal to the South Texas Base
Cash Consideration.

62
<PAGE> 99
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 29.83 $99.52
$11.00 27.12 $99.52
$12.00 24.86 $99.52
$13.00 22.95 $99.52
$14.00 21.31 $99.52
$15.00 21.31 $106.63
$16.00 21.31 $113.74
$17.00 21.31 $120.85
$18.00 21.31 $127.95
$19.00 21.31 $135.06
$20.00 21.31 $142.17
</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 (the "South Texas No. 1 Base Exchange Ratio")
and the South Texas No. 1 Cash Consideration shall be
$3,545,104.00(the "South Texas No. 1 Base Cash Consideration");

(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 equal to the South Texas No. 1 Base
Exchange Ratio and the South Texas No. 1 Cash Consideration
shall be equal to the product of (x) the South Texas No. 1 Base
Cash Consideration and (y) a fraction the numerator of which is
the Initial Public Offering Price and the denominator of which
is $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) the South Texas No. 1
Base Exchange Ratio and (y) a fraction the numerator of which is
$14.00 and the denominator of which is the Initial Public
Offering Price and the South Texas No. 1 Cash Consideration
shall be equal to the South Texas No. 1 Base Cash Consideration.

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>
$10.00 354,509.40 $3,545,104.00
$11.00 322,281.27 $3,545,104.00
$12.00 295,424.50 $3,545,104.00
$13.00 272,699.54 $3,545,104.00
$14.00 253,221.00 $3,545,104.00
$15.00 253,221.00 $3,798,325.71
$16.00 253,221.00 $4,051,547.43
$17.00 253,221.00 $4,304,769.14
$18.00 253,221.00 $4,557,990.86
$19.00 253,221.00 $4,811,212.57
$20.00 253,221.00 $5,064,434.29
</TABLE>

63
<PAGE> 100
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 30.47 (the "San Antonio Base Exchange
Ratio") and the San Antonio Cash Consideration shall be
$142.10 (the "San Antonio Base Cash Consideration");

(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 equal to the San Antonio
Base Exchange Ratio and the San Antonio Cash Consideration
shall be equal to the product of (x) the San Antonio Base
Cash Consideration and (y) a fraction the numerator of
which is the Initial Public Offering Price and the
denominator of which is $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) the San
Antonio Base Exchange Ratio and (y) a fraction the
numerator of which is $14.00 and the denominator of which
is the Initial Public Offering Price and the San Antonio
Cash Consideration shall be equal to the San Antonio Base
Cash Consideration.

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 42.66 $142.10
$11.00 38.78 $142.10
$12.00 35.55 $142.10
$13.00 32.81 $142.10
$14.00 30.47 $142.10
$15.00 30.47 $152.25
$16.00 30.47 $162.40
$17.00 30.47 $172.55
$18.00 30.47 $182.70
$19.00 30.47 $192.85
$20.00 30.47 $203.00
</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 361,901 (the "San Antonio No. 2 Base Exchange Ratio")
and the San Antonio No. 2 Cash Consideration shall be
$1,688,884.00 (the "San Antonio No. 2 Base Cash Consideration");

(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 equal to the San Antonio No. 2 Base
Exchange Ratio and the San Antonio No. 2 Cash Consideration
shall be equal to the product of (x) the San Antonio No. 2 Base
Cash Consideration and (y) a fraction the numerator of which is
the Initial Public Offering Price and the denominator of which
is $14.00; and

64
<PAGE> 101
(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) the San Antonio No. 2
Base Exchange Ratio and (y) a fraction the numerator of which is
$14.00 and the denominator of which is the Initial Public
Offering Price and the San Antonio No. 2 Cash Consideration
shall be equal to the San Antonio No. 2 Base Cash Consideration.

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>
$10.00 506,661.40 $1,688,884.00
$11.00 460,601.27 $1,688,884.00
$12.00 422,217.83 $1,688,884.00
$13.00 389,739.54 $1,688,884.00
$14.00 361,901.00 $1,688,884.00
$15.00 361,901.00 $1,809,518.57
$16.00 361,901.00 $1,930,153.14
$17.00 361,901.00 $2,050,787.71
$18.00 361,901.00 $2,171,422.29
$19.00 361,901.00 $2,292,056.86
$20.00 361,901.00 $2,412,691.43
</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 41.59 (the "Pacific Base Exchange Ratio") and the
Pacific Cash Consideration shall be $194.10 (the "Pacific
Base Cash Consideration");

(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 equal to the Pacific Base Exchange
Ratio and the Pacific Cash Consideration shall be equal to
the product of (x) the Pacific Base Cash Consideration and
(y) a fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the
Pacific Base Exchange Ratio and (y) a fraction the
numerator of which is $14.00 and the denominator of which
is the Initial Public Offering Price and the Pacific Cash
Consideration shall be equal to the Pacific Base Cash
Consideration.

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:

65
<PAGE> 102
<TABLE>
<CAPTION>
INITIAL PUBLIC
OFFERING PRICE OF EXCHANGE CASH
APPI COMMON STOCK RATIO CONSIDERATION
----------------- ----- -------------
<S> <C> <C>
$10.00 58.23 $194.10
$11.00 52.93 $194.10
$12.00 48.52 $194.10
$13.00 44.79 $194.10
$14.00 41.59 $194.10
$15.00 41.59 $207.96
$16.00 41.59 $221.83
$17.00 41.59 $235.69
$18.00 41.59 $249.56
$19.00 41.59 $263.42
$20.00 41.59 $277.29
</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 2.24 (the "TMI Base Exchange Ratio") and the TMI
Cash Consideration shall be $10.45 (the "TMI Base Cash
Consideration");

(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 equal to the TMI Base Exchange
Ratio and the TMI Cash Consideration shall be equal to the
product of (x) the TMI Base Cash Consideration and (y) a
fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the TMI Base
Exchange Ratio and (y) a fraction the numerator of which is
$14.00 and the denominator of which is the Initial Public
Offering Price and the TMI Cash Consideration shall be
equal to the TMI Base Cash Consideration.

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 3.14 $10.45
$11.00 2.85 $10.45
$12.00 2.61 $10.45
$13.00 2.41 $10.45
$14.00 2.24 $10.45
$15.00 2.24 $11.20
$16.00 2.24 $11.94
$17.00 2.24 $12.69
$18.00 2.24 $13.44
$19.00 2.24 $14.18
$20.00 2.24 $14.93
</TABLE>

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<PAGE> 103
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 309.59 (the "RNM Base Exchange Ratio") and the
Cash Consideration shall be $1,444.77 (the "RNM Base Cash
Consideration");

(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 equal to the RNM Base Exchange
Ratio and the RNM Cash Consideration shall be equal to the
product of (x) the RNM Base Cash Consideration and (y) a
fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the RNM Base
Exchange Ratio and (y) a fraction the numerator of which is
$14.00 and the denominator of which is the Initial Public
Offering Price and the RNM Cash Consideration shall be
equal to the RNM Base Cash Consideration.

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>
$10.00 433.43 $1,444.77
$11.00 394.03 $1,444.77
$12.00 361.19 $1,444.77
$13.00 333.41 $1,444.77
$14.00 309.59 $1,444.77
$15.00 309.59 $1,547.97
$16.00 309.59 $1,651.16
$17.00 309.59 $1,754.36
$18.00 309.59 $1,857.56
$19.00 309.59 $1,960.76
$20.00 309.59 $2,063.95
</TABLE>

Conversion of RRG Common Stock.

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 1,589.42 (the "Rockland Base Exchange Ratio") and
the Rockland Cash Consideration shall be $7,417.31 (the
"Rockland Base Cash Consideration");

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<PAGE> 104
(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 equal to the Rockland Base Exchange
Ratio and the Rockland Cash Consideration shall be equal to
the product of (x) the Rockland Base Cash Consideration and
(y) a fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the
Rockland Base Exchange Ratio and (y) a fraction the
numerator of which is $14.00 and the denominator of which
is the Initial Public Offering Price and the Rockland Cash
Consideration shall be equal to the Rockland Base Cash
Consideration.

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 2,225.19 $7,417.31
$11.00 2,022.90 $7,417.31
$12.00 1,854.33 $7,417.31
$13.00 1,711.69 $7,417.31
$14.00 1,589.42 $7,417.31
$15.00 1,589.42 $7,947.12
$16.00 1,589.42 $8,476.92
$17.00 1,589.42 $9,006.73
$18.00 1,589.42 $9,536.54
$19.00 1,589.42 $10,066.35
$20.00 1,589.42 $10,596.15
</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 33.46 (the "Valley Base Exchange Ratio") and the
Cash Consideration shall be $115.19 (the "Valley Base Cash
Consideration");

(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 the Valley Base Exchange
Ratio and the Valley Cash Consideration shall be equal to
the product of (x) the Valley Base Cash Consideration and
(y) a fraction the numerator of which is the Initial Public
Offering Price and the denominator of which is $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) the
Valley Base Exchange Ratio and (y) a fraction the numerator
of which is $14.00 and the denominator of which is the
Initial Public Offering Price and the Valley Cash
Consideration shall be equal to the Valley Base Cash
Consideration.

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<PAGE> 105
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 46.84 $115.19
$11.00 42.59 $115.19
$12.00 39.04 $115.19
$13.00 36.03 $115.19
$14.00 33.46 $115.19
$15.00 33.46 $123.42
$16.00 33.46 $131.65
$17.00 33.46 $139.87
$18.00 33.46 $148.10
$19.00 33.46 $156.33
$20.00 33.46 $164.56
</TABLE>

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.

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 form
of Merger Agreement set forth as Appendix A to this Prospectus/Joint
Proxy Statement.

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<PAGE> 106
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) Dissenters' Rights. 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.

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 Certificates of Merger are filed
with the Secretaries of State of the states of California, Delaware, Kansas,
Maryland, New York and Texas, in accordance with such laws, which filings will
be made after satisfaction of certain conditions set forth in the Agreements or
at such later time which the parties have

70
<PAGE> 107
agreed upon and designated in such filings as the effective time of the Merger.
See "Conditions of the Reorganization and Merger Agreement" below.

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 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 partnerhip 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 any dividend or other distribution (whether in cash, stock or
other property) with respect to its

71
<PAGE> 108
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

(e) by APPI or each respective Merger Entity if the respective
Merger shall not have been consummated by September 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;

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<PAGE> 109
(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
September 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 Old Shares (other
than those security holders who take required actions to properly assist 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.

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 Company's 1996 Stock Option Plan automatic option
grant program (the "Automatic Option Grant Program"). The Company and Dr.
Sherman also entered into a consulting agreement for which Dr. Sherman will
receive annual compensation of $100,000 commencing on the date following
consummation of the Initial Public Offering. In addition, as part of the
Advanced Merger Transaction, the Company will issue [__________] shares of
Common Stock and $[__________] in cash to Dr. Sherman in exchange for his
ownership interest in Advanced, assuming an Initial Public Offering Price of
$14.00 per share.

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
Merger Transaction, the Company will issue 20,795 shares of Common Stock and
$97,050.00 in cash to Dr. Chafen in exchange for his ownership interest in
Pacific, assuming an Initial Public Offering Price of $14.00 per share.

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

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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, assuming an Initial
Public Offering Price of $14.00 per share.

DISSENTERS' RIGHTS REGARDING THE MERGERS

The following discussion is not a complete statement of the laws
pertaining to dissenters' rights under the California Corporations Code (the
"CCC"), the Kansas General Corporation Code (the "KGCC"), the Maryland General
Corporation Law (the "MGCL"), the New York Business Corporation Law (the
"NYBCL") and the Texas Business Corporations Act (the "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 F, G, H, I and J,
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 (as
defined herein) are urged to consult legal counsel with respect to dissenters'
rights under the NYBCL, TBCA, CCC, KGCC and MGCL.

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 "The Mergers, Exchanges and
Related Transactions -- Certain Income Tax Considerations."

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 summarized herein (collectively, the "Dissenting Security Holders")
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.

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 F 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

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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 a notice of such approval
(the "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 the 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
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 of the KGCC ("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 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 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 RNM Meeting. 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 is approved by the requisite percentage of shares of
RNM, 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

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written objection requirement discussed above that (i) the RNM Merger has
become effective and (ii) dissenters' rights are available for any or all of
such Dissenting Security Holder's shares of RNM Common Stock. A Dissenting
Security Holder must then deliver a written demand for payment of the fair
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 a 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, 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 provide such Dissenting Security Holder with 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 an appraisal of the value of their RNM Common Stock and
will appoint an appraiser to make such an appraisal. 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. APPI need not make
such a payment to a Dissenting Security Holder unless and until the Dissenting
Security Holder surrenders the certificate representing the shares of RNM
Common Stock to APPI, at the address specified above.

UNDER MARYLAND STATE LAW

Under Section 3-202 of the MGCL ("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 of the MGCL ("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 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
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

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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 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, Advanced, 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 Advanced within 20 days after the Effective Time of the
Advanced Merger. Any such demand by a Dissenting Security Holder should be
sent to Advanced at 7253 Ambassador Road, Baltimore, Maryland 21244, Attention:
President.

Advanced may, at its option, send a written offer to pay each Dissenting
Security Holder who has made demand for payment what Advanced 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 Advanced 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, Advanced 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 Advanced 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, Advanced
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.
Advanced 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 Advanced, at the address specified
above, or to the transfer agent of Advanced. 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 Advanced in good faith, against such Dissenting Security Holder.

UNDER NEW YORK STATE LAW

Under Section 910 of the NYBCL ("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 provisions of Section 623 of the NYBCL ("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 I attached to this Prospectus/Joint Proxy Statement.

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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 written offer (the "Purchase Offer") to each
Dissenting Security Holder to pay a specified price (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.

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.

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(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 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 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 each Dissenting Security Holder who filed a written objection and
did not vote in favor of such Merger a written notice of such approval (the
"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

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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 foregoing summary of the federal income tax consequences of the
Mergers, Exchanges and related transactions is for general information only.
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 are not citizens or
residents of the United States.

Haynes and Boone, L.L.P., special counsel to APPI, upon the basis of
assumed consummation of the Mergers and Exchanges and representations of the
officers of APPI, each of the Entities and the security holders will render an
opinion as of the Effective Time of each Merger and the Closing Date of each
Exchange that 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 general 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.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements give effect
to the Mergers and Exchanges as a combination of promoter interests, at
historical costs, and are based upon the historical financial statements of APPI
and each of the Founding Affiliated Practices. In addition, the unaudited pro
forma combined financial statements give effect to the Initial Public Offering
(assuming an Initial Public Offering Price of $15.00 per share) and the
conversion of the Convertible Notes. The unaudited pro forma combined
statements of operations gives effect to the completion of such transactions as
if they had occurred on January 1, 1996, and the unaudited pro forma combined
balance sheet gives effect to the completion of such transactions as if they had
occurred on March 31, 1997. The unaudited pro forma combined financial
statements for the year ended December 31, 1996 have been prepared using
financial information for the 1996 fiscal years of each of the Founding
Affiliated Practices (which are calendar years except for Rockland Radiological
Group, which has a September 30 fiscal year) other than The Ide Group which has
a June 30 fiscal year and for which

80
<PAGE> 117
information for the twelve month period ended December 31, 1996 has been used
in preparing the unaudited pro forma combined financial statements. The
unaudited pro forma combined financial statements 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 Affiliates Practices and
notes thereto, included elsewhere in this Prospectus.

The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
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 at the beginning of the periods presented, nor are they necessarily
indicative of future operating results of the Company. The pro forma combined
financial information does not give effect to any cost savings or integration
that may result from the Mergers and Exchanges.

AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 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................ $ 1,657 $ 134 $2,051 $ 361 $ -- $ 583 $ 322
Accounts receivable, net................. -- 14,078 4,567 3,377 1,865 2,204 3,241
Other receivables........................ -- 1,160 -- 25 -- -- --
Other current assets..................... 599 1,090 233 74 2,222 218 530
------- ------- ------ ------ ------ ------ -------
Total current assets............... 2,256 16,462 6,851 3,837 4,087 3,005 4,093
Property and equipment, net............... 144 14,041 861 699 2,068 570 5,625
Investments in joint ventures............. -- 899 -- 1,607 -- 1,366 --
Deferred income taxes..................... -- -- -- -- -- -- 1,029
Notes receivable.......................... -- -- -- -- -- -- --
Intangible assets, net.................... -- -- -- 566 133 -- --
Other assets, net......................... 17 1,941 368 48 192 88 2,064
------- ------- ------ ------ ------ ------ -------
Total assets....................... $ 2,417 $33,343 $8,080 $6,757 $6,480 $5,029 $12,811
======= ======= ====== ====== ====== ====== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................... $ -- $ 2,400 $ -- $ -- $ -- $1,400 $ --
Accounts payable and accrued expenses.... 1,197 2,407 1,600 222 1,247 190 187
Accrued salaries and benefits............ -- 1,046 343 145 288 456 541
Due to joint ventures.................... -- 686 -- -- -- -- --
Deferred income taxes.................... -- -- -- -- 886 799 428
Current portion of deferred
compensation........................... -- -- -- 83 -- -- --
Current portion of long-term debt........ -- 4,160 380 224 844 176 1,675
Current portion of capital lease
obligations............................ -- -- -- 13 -- -- 546
Other current liabilities................ -- 183 -- -- -- -- --
------- ------- ------ ------ ------ ------ -------
Total current liabilities.......... 1,197 10,882 2,323 687 3,265 3,021 3,377
Deferred income taxes..................... -- -- 1,711 -- 11 -- --
Deferred compensation, net of current
portion.................................. -- -- -- 1,346 -- -- 3,168
Long-term debt, net of current portion.... 3,500 5,631 1,248 158 2,946 -- 6,620
Capital lease obligations, net of current
portion.................................. -- -- -- 37 -- -- 538
Other liabilities......................... -- 359 -- -- -- -- --
------- ------- ------ ------ ------ ------ -------
Total liabilities.................. 4,697 16,872 5,282 2,228 6,222 3,021 13,703
------- ------- ------ ------ ------ ------ -------
Minority interests in consolidated
subsidiaries............................. -- 361 -- 423 -- -- --
Stockholders' equity:
Common stock............................. -- -- -- -- -- -- --
Additional paid-in capital............... 250 -- -- -- -- -- --
Accumulated earnings (deficit)........... (2,530) 16,110 2,798 4,106 258 2,008 (892)
------- ------- ------ ------ ------ ------ -------
Total stockholders' equity......... (2,280) 16,110 2,798 4,106 258 2,008 (892)
------- ------- ------ ------ ------ ------ -------
Total liabilities and stockholders'
equity........................... $ 2,417 $33,343 $8,080 $6,757 $6,480 $5,029 $12,811
======= ======= ====== ====== ====== ====== =======

<CAPTION>
VALLEY
RADIOLOGY UNADJUSTED PRO FORMA PRO FORMA OFFERING PRO FORMA
GROUP TOTAL ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
--------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Short-term borrowings.................... $ -- $ 3,800 $ -- $ 3,800 $ -- $ 3,800
Accounts payable and accrued expenses.... 92 7,142 -- 7,142 -- 7,142
Accrued salaries and benefits............ 240 3,059 (1,496)(a) 1,563 -- 1,563
Due to joint ventures.................... -- 686 -- 686 -- 686
Deferred income taxes.................... 312 2,425 7,386 (b) 9,811 -- 9,811
Current portion of deferred
compensation........................... -- 83 (83)(a) -- -- --
Current portion of long-term debt........ 612 8,071 -- 8,071 -- 8,071
Current portion of capital lease
obligations............................ -- 559 -- 559 -- 559
Other current liabilities................ -- 183 -- 183 -- 183
------ ------- ------- ------- ------- -------
Total current liabilities.......... 1,256 26,008 5,807 31,815 -- 31,815
Deferred income taxes..................... 37 1,759 (561)(b) 1,198 -- 1,198
Deferred compensation, net of current
portion.................................. -- 4,514 (4,514)(a) -- -- --
Long-term debt, net of current portion.... 852 20,955 (106)(a) 20,849 (18,292)(e)(f) 2,557
Capital lease obligations, net of current
portion.................................. -- 575 -- 575 -- 575
Other liabilities......................... -- 359 -- 359 -- 359
------ ------- ------- ------- ------- -------
Total liabilities.................. 2,145 54,170 626 54,796 (18,292) 36,504
Minority interests in consolidated
subsidiaries............................. -- 784 -- 784 -- 784
Stockholders' equity:
Common stock............................. -- -- 1 (c) 1 1 (e)(f) 2
Additional paid-in capital............... -- 250 26,429 (c)(d) 26,679 18,291 (e)(f) 44,970
Accumulated earnings (deficit)........... 2,039 23,897 (30,394)(a)(b)(c) (6,497) -- (6,497)
------ ------- ------- ------- ------- -------
Total stockholders' equity......... 2,039 24,147 (3,964) 20,183 18,292 38,475
------ ------- ------- ------- ------- -------
Total liabilities and stockholders'
equity........................... $4,184 $79,101 $(3,338) $75,763 $ -- $75,763
====== ======= ======= ======= ======= =======
</TABLE>

81
<PAGE> 118

AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PACIFIC RADIOLOGY ROCKLAND VALLEY
ADVANCED THE IDE M&S X-RAY IMAGING AND NUCLEAR RADIOLOGICAL RADIOLOGY
APPI RADIOLOGY GROUP PRACTICES CONSULTANTS MEDICINE GROUP GROUP
------- --------- --------- --------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Physician groups revenue,
net......................... $ -- $52,882 $25,740 $15,198 $13,295 $13,572 $17,333 $11,174
Less: amounts retained by
physician groups............ -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Service fee revenue.......... -- 52,882 25,740 15,198 13,295 13,572 17,333 11,174
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Costs of affiliated
physician services........ -- 2,293 12,957 8,703 7,215 10,265 6,051 5,384
Practice salaries, wages and
benefits.................. -- 12,318 3,090 1,338 1,840 1,744 4,252 2,593
Practice supplies........... -- 3,206 1,377 583 568 293 1,147 356
Practice rent and lease
expense................... -- 2,302 3,664 272 385 273 111 420
Depreciation and
amortization.............. 3 3,450 668 670 981 201 1,350 223
Other practice expenses..... -- 6,272 3,348 1,542 1,940 823 3,577 1,337
Interest expense............ 23 751 163 70 311 71 582 73
Corporate general and
administrative expense.... 1,624 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 1,650 30,592 25,267 13,178 13,240 13,670 17,070 10,386
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes,
minority interests in income
of consolidated
subsidiaries, and equity in
earnings (loss) of
investments................. (1,650) 22,290 473 2,020 55 (98) 263 788
Equity in earnings (loss) of
investments................. -- 1,207 -- 605 -- 292 -- (19)
Minority interests in income
of consolidated
subsidiaries................ -- (18) -- (249) -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes... (1,650) 23,479 473 2,376 55 194 263 769
Income tax expense
(benefit)................... -- -- 527 -- 715 57 (71) 133
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $(1,650) $23,479 $ (54) $ 2,376 $ (660) $ 137 $ 334 $ 636
======= ======= ======= ======= ======= ======= ======= =======
Pro forma earnings per
share.......................
Pro forma weighted average
number of common shares
outstanding.................

UNADJUSTED PRO FORMA PRO FORMA OFFERING PRO FORMA
TOTAL ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Physician groups revenue,
net......................... $149,194 $ (4,400)(g)(h)(i) $144,794 -- $ 144,794
Less: amounts retained by
physician groups............ -- (55,218)(j) (55,218) -- (55,218)
-------- -------- -------- ------- -----------
Service fee revenue.......... 149,194 (59,618) 89,576 -- 89,576
-------- -------- -------- ------- -----------
Costs and expenses:
Costs of affiliated
physician services........ 52,868 (52,868)(k) -- -- --
Practice salaries, wages and
benefits.................. 27,175 (507)(g) 26,668 -- 26,668
Practice supplies........... 7,530 (418)(g) 7,112 -- 7,112
Practice rent and lease
expense................... 7,427 (145)(g) 7,282 -- 7,282
Depreciation and
amortization.............. 7,546 (137)(g) 7,409 -- 7,409
Other practice expenses..... 18,839 (328)(g)(h) 18,511 -- 18,511
Interest expense............ 2,044 (57)(g)(h) 1,987 (1,236)(m)(n) 751
Corporate general and
administrative expense.... 1,624 -- 1,624 -- 1,624
-------- -------- -------- ------- -----------
Total costs and
expenses............ 125,053 (54,460) 70,593 (1,236) 69,357
-------- -------- -------- ------- -----------
Income (loss) before taxes,
minority interests in income
of consolidated
subsidiaries, and equity in
earnings (loss) of
investments................. 24,141 (5,158) 18,983 1,236 20,219
Equity in earnings (loss) of
investments................. 2,085 32 (g) 2,117 -- 2,117
Minority interests in income
of consolidated
subsidiaries................ (267) 2 (g) (265) -- (265)
-------- -------- -------- ------- -----------
Income (loss) before taxes... 25,959 (5,124) 20,835 1,236 22,071
Income tax expense
(benefit)................... 1,361 6,972 (l) 8,333 494 (l) 8,827
-------- -------- -------- ------- -----------
Net income (loss)............ $ 24,598 $(12,096) $ 12,502 $ 742 $ 13,244
======== ======== ======== ======= ===========
Pro forma earnings per
share....................... $ 0.68
===========
Pro forma weighted average
number of common shares
outstanding................. 19,458,583
===========
</TABLE>

82
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AMERICAN PHYSICIAN PARTNERS, INC.

PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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>
Physician groups revenue, net.......... $ -- $16,073 $6,955 $3,494 $3,622 $3,644 $4,526
Less: amounts retained by physician
groups............................... -- -- -- -- -- -- --
----- ------- ------ ------ ------ ------ ------
Service fee revenue.................... -- 16,073 6,955 3,494 3,622 3,644 4,526
----- ------- ------ ------ ------ ------ ------
Costs and expenses:
Costs of affiliated physician
services........................... -- 1,069 2,352 1,818 2,110 2,105 1,448
Practice salaries, wages and
benefits........................... -- 3,865 724 522 451 367 1,185
Practice supplies.................... -- 831 337 142 104 67 314
Practice rent and lease expense...... -- 811 991 74 110 65 21
Depreciation and amortization........ 5 971 240 83 239 50 307
Other practice expenses.............. -- 1,737 833 303 481 218 823
Interest expense..................... 31 197 38 9 77 34 177
Corporate general and administrative
expense............................ 844 -- -- -- -- -- --
----- ------- ------ ------ ------ ------ ------
Total costs and expenses....... 880 9,481 5,515 2,951 3,572 2,906 4,275
----- ------- ------ ------ ------ ------ ------
Income (loss) before taxes, minority
interests in income of consolidated
subsidiaries, and equity in earnings
of investments....................... (880) 6,592 1,440 543 50 738 251
Equity in earnings of investments...... -- 273 -- 178 -- 96 --
Minority interests in income of
consolidated subsidiaries............ -- 7 -- (77) -- -- --
----- ------- ------ ------ ------ ------ ------
Income (loss) before taxes............. (880) 6,872 1,440 644 50 834 251
Income tax expense..................... -- -- 527 -- 18 265 68
----- ------- ------ ------ ------ ------ ------
Net income (loss)...................... $(880) $ 6,872 $ 913 $ 644 $ 32 $ 569 $ 183
===== ======= ====== ====== ====== ====== ======
Pro forma earnings per share...........
Pro forma weighted average number of
common shares outstanding............

<CAPTION>
VALLEY
RADIOLOGY UNADJUSTED PRO FORMA PRO FORMA OFFERING PRO FORMA
GROUP TOTAL ADJUSTMENTS COMBINED ADJUSTMENT AS ADJUSTED
--------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Physician groups revenue, net.......... $2,891 $41,205 $ (1,096)(g)(h) $ 40,109 $ -- $ 40,109
Less: amounts retained by physician
groups............................... -- -- (15,301)(j) (15,301) -- (15,301)
------ ------- -------- -------- ---- ----------
Service fee revenue.................... 2,891 41,205 (16,397) 24,808 -- 24,808
------ ------- -------- -------- ---- ----------
Costs and expenses:
Costs of affiliated physician
services........................... 1,396 12,298 (12,298)(k) -- -- --
Practice salaries, wages and
benefits........................... 550 7,664 (163)(g) 7,501 -- 7,501
Practice supplies.................... 75 1,870 (95)(g) 1,775 -- 1,775
Practice rent and lease expense...... 116 2,188 (37)(g) 2,151 -- 2,151
Depreciation and amortization........ 72 1,967 (27)(g) 1,940 -- 1,940
Other practice expenses.............. 348 4,743 (91)(g)(h) 4,652 -- 4,652
Interest expense..................... 28 591 (12)(g)(h) 579 (334)(m)(n) 245
Corporate general and administrative
expense............................ -- 844 -- 844 -- 844
------ ------- -------- -------- ---- ----------
Total costs and expenses....... 2,585 32,165 (12,723) 19,442 (334) 19,108
------ ------- -------- -------- ---- ----------
Income (loss) before taxes, minority
interests in income of consolidated
subsidiaries, and equity in earnings
of investments....................... 306 9,040 (3,674) 5,366 334 5,700
Equity in earnings of investments...... -- 547 21 (g) 568 -- 568
Minority interests in income of
consolidated subsidiaries............ -- (70) 1 (g) (69) -- (69)
------ ------- -------- -------- ---- ----------
Income (loss) before taxes............. 306 9,517 (3,652) 5,865 334 6,199
Income tax expense..................... 52 930 1,416 (l) 2,346 134 (l) 2,480
------ ------- -------- -------- ---- ----------
Net income (loss)...................... $ 254 $ 8,587 $ (5,068) $ 3,519 $200 $ 3,719
====== ======= ======== ======== ==== ==========
Pro forma earnings per share........... $ 0.19
Pro forma weighted average number of
common shares outstanding............ 19,458,583
==========
</TABLE>

<PAGE> 120

AMERICAN PHYSICIAN PARTNERS, INC.

NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION

APPI was incorporated in April 1996 and has conducted no significant
operations and generated no revenue to date other than in connection with this
offering and the Reorganizations. The following is a summary of the adjustments
reflected in the Unaudited Pro Forma Consolidated Financial Statements assuming
the Reorganizations, the offering and conversion of the Convertible Notes. The
Reorganizations 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 Reorganizations, the Company will not consolidate
the financial position or results of operations of the Founding Affiliated
Practices. The Company presents physician groups revenue, net and amounts
retained by physician groups from which service fee revenues are derived and
earned by the Company for display purposes only.

PHYSICIAN GROUPS REVENUE, NET

Physician groups revenue, net represents the revenue of the affiliated
physician groups reported at the estimated realizable amounts from patients,
third-party payors and others for services rendered, net of contractual and
other adjustments. Physician groups revenue, net is accounted for and provisions
for estimated third-party payor adjustments are estimated and recorded in the
period in which the services are provided. Any adjustment to the amounts is
recorded in the period in which the revised amount is determined.

SERVICE FEE REVENUE

Service fee revenue represents physician groups revenue, net less amounts
retained by physician groups. 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, of the nature and amount of
services provided. Such fees are payable monthly and consist of various
combinations of the following: (i) a fixed percentage of the practice's revenue
from physician and certain other medical services; (ii) all or a substantial
portion of the revenue derived from facility and non-physician fees generated by
ICs owned, operated or managed by the Company; (iii) operating and non-operating
expenses of the Founding Affiliated Practices paid by the Company; and (iv)
certain negotiated performance and other adjustments. The service fees for two
practices are subject to state law requiring flat fees that are subject to
renegotiation on an annual basis.

PRO FORMA CONSOLIDATED BALANCE SHEET

The adjustments reflected in the unaudited pro forma consolidated balance
sheet are as follows:

(a) To eliminate assets not acquired and liabilities not assumed by the
Company.

(b) To record the establishment of deferred income taxes for the
Company after the Reorganizations.

(d) To record the reclassification of the Founding Affiliated
Practices's earnings (deficit) accumulated prior to the offering to
additional paid-in capital.

(e) To reflect the conversion of all $3,500,000 of Convertible Notes
issued by the Company into 437,500 shares of Common Stock at the
time of the offering.

(f) To reflect the effects of the offering, including the use of
estimated net cash proceeds from the issuance of Common Stock to
reduce debt.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

The adjustments reflected in the unaudited pro forma consolidated
statements of operations for the three months ended March 31, 1997 and year
ended December 31, 1996 are as follows:

(g) As part of the Reorganizations, the Company will own minority
interests in entities that were wholly-owned by the Founding
Affiliated Practices or their shareholders.

84
<PAGE> 121

(h) To eliminate the revenue and related expenses associated with a
division which will no longer be a part of an Affiliated Practice
subsequent to the Reorganizations.

(i) To eliminate a non-recurring gain generated through the receipt of
proceeds from a cash value life insurance policy by one of the
founding Affiliated Practices.

(j) To record amounts retained by physician groups as specified in the
Service Agreements entered into with each of the Founding
Affiliated Practices.

(k) To eliminate the historical costs of affiliated physician services
for each of the Founding Affiliated Practices. The amounts retained
by physician groups will be used to pay physicians' compensation
and benefits pursuant to employment agreements between the practice
and each individual physician.

(l) To record federal and state income taxes at an estimated effective
rate of 40%, which consists of a 34% federal statutory tax rate
and an average state statutory tax rate of 6%. Prior to the
Reorganizations, certain of the Founding Affiliated Practices were
S corporations or general partnerships with such entities owing no
federal or state taxes and the shareholders or partners of each
such entity being responsible for payment of these obligations.

(m) To eliminate interest expense on the $3,500,000 of Convertible
Notes issued by the Company due to their conversion into 437,500
shares of Common Stock at the time of the offering.

(n) To eliminate interest expense on the debt reduced through the use
of estimated net cash proceeds from the issuance of Common Stock at
the time of the offering.

85
<PAGE> 122
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

APPI is a radiology practice management company focused 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 218 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 Affiliated Practices.

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.

The Company was incorporated in Delaware in April 1996, and prior to the
Initial Public Offering has not conducted any significant operations. 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.

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

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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. The Company believes that few radiologists or
radiology groups are currently affiliated with physician practice management
companies.

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"). 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 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 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

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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 of
professional radiological services.

Reimbursement Patterns. Payment for radiology services comes primarily
from third-party payors such as private insurers (including traditional
indemnity insurance 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. The Company believes that this reimbursement trend 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
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

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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 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

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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.

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 comprised of representatives of
the Founding Affiliated Practices, whose focus is to enhance the quality of
medical services provided by the Affiliated Practices.

OPERATIONS AND DEVELOPMENT

GENERAL

The Founding Affiliated Practices consist of seven radiology practices,
comprised of 218 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 218 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.

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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 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 April 30, 1997:

<TABLE>
<CAPTION>
IMAGING CENTERS
-------------------------------
Total
Practice Hospital Owned and Joint Non-Physician
Location Physicians Affiliations(1) Operated 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 . . . . . . . 19 11 2 1 49
New City, NY . . . . . . 14 2 5 0 147
--- -- ---- ----- -------
Totals 218 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.

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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:

MANAGEMENT EXPERTISE APPLICATION
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 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.

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:

AREA OF EXPENDITURE OBJECTIVE

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.

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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 efficiencies of scale.
The Company intends to create a network infrastructure, including a Financial
Accounting System ("FAS") and Executive Information System ("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 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, 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 Founding Affiliated
Practices under the Service Agreements vary based on the fair market value, as
determined in arms' length negotiations, for the nature and scope of services
provided. Such fees are payable monthly and consist of: (i) a fixed percentage
of the practice's revenue from physician and certain other medical services;
(ii) all or a substantial portion of the revenue derived from facility and
non-physician fees generated by ICs owned, operated or managed by the Company;
(iii) operating and non-operating expenses of the Founding Affiliated Practices
paid by the Company; and (iv) certain negotiated performance and other
adjustments. In order to comply with local law, the service fees from two of
the Founding Affiliated Practices will be based on flat fees that are subject to
renegotiation on an annual basis. See "APPI -- APPI Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."

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,

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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 no less than three
or 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 hiring and compensating its physicians and certain other
medical professionals, the licensing, credentialling and certification
necessary to conduct its practice and certain regulatory compliance. 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 each
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.

<PAGE> 131
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 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.

Every state imposes licensing requirements on individual physicians and on
facilities operated, or services performed, by physicians. 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, 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.

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 believes its
proposed operating structures and methods as described in this Prospectus/Joint
Proxy Statement will be in compliance 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.

95
<PAGE> 132
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. 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.

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 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 or Medicaid programs or (iii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid.
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 Medicare and Medicaid
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
Medicare or Medicaid 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 would 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" 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 believes that the methods used to acquire the
assets of existing practices do not violate anti-kickback and anti- referral
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.

96
<PAGE> 133
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 radiology and imaging service providers. The Company
believes that changes in governmental, 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. 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 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 10,500 square
feet occupied under a lease which expires on September 30, 2001. As of May 31,
1997, the Company had 17 employees and, upon consummation of the
Mergers and Exchanges, the Company expects that it will have approximately 1,100
employees, of which approximately 30 will be employed at the Company's
headquarters and regional offices and the remainder 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 May 22, 1997,
the state of Texas adopted legislation that permits injured patients to sue
health insurance carriers, health maintenance organizations and other managed
care entities for medical

97
<PAGE> 134
malpractice. The statute becomes effective September 1, 1997. There can be no
assurance that this legislation 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 maintain
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.

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.

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<PAGE> 135
APPI SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following information for APPI has been derived from the financial
statements of APPI, and should be read in conjunction with the audited financial
statements of APPI and the notes thereto included elsewhere in this document.
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. Results for interim
periods are not necessarily indicative of those to be expected for a full fiscal
year.

<TABLE>
<CAPTION>
FROM INCEPTION THREE MONTHS
(APRIL 30, 1996) ENDED
THROUGH MARCH 31, 1997
--------------
DECEMBER 31, 1996 (UNAUDITED)
-----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
Expenses:
Salaries, wages and benefits . . . . . . . . . . . . . . . . . . . 546 410
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 3 5
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,101 465
----- ---
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650 880
----- ---
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,650) $ (880)
======= =====
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,417

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,279)
</TABLE>

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

The following discussion relates to the historical and pro forma combined
operations of APPI, the entity whose Common Stock is being issued in connection
with the Mergers and Exchanges and the Initial Public Offering. The following
discussion of the pro forma combined results of operations and financial
position of the Company should be read in conjunction with the financial
statements of APPI and the Company's unaudited pro forma combined financial
statements and notes thereto appearing elsewhere in this Prospectus. The pro
forma financial results of the Company included herein cover periods when the
Founding Affiliated Practices and APPI were not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. There can be no assurance that the Company will
be profitable on a quarterly or annual basis in the future.

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. Such fees are
payable monthly and consist of the following: (i) a percentage of the revenue
relating to physician services and certain other medical services; (ii) all or
a substantial portion of the revenue derived from facility

<PAGE> 136
and non-physician fees generated by ICs owned, operated or managed by the
Company; (iii) operating and non-operating expenses of the Founding Affiliated
Practices paid by the Company pursuant to the Service Agreements; and (iv)
certain negotiated performance and other adjustments. The service fees for two
practices are subject to state law requiring flat fees that are subject to
renegotiation on an annual basis. In addition, the Company receives income
from joint ventures in which the Affiliated Practices hold minority interests.
The joint ventures are accounted for under the equity method of accounting.

The expenses incurred by the Company associated with its obligations under
the Service Agreements are generally 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; 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.

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 March 31, 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 March 31, 1997,
these notes had been fully paid.

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.

PRO FORMA

As discussed in the notes to the unaudited pro forma combined statement of
operations, the revenue of the Company will consist primarily of fees under the
Service Agreements. The revenue included in the pro forma financial statements
are those that would have been earned based on the operating results of the
Founding Affiliated Practices in 1996 and for the three months ended March 31,
1997 assuming that the Mergers and Exchanges and the Initial Public Offering
had been completed as of January 1, 1996. The pro forma service fee revenue of
$89.6 million for the year ended December 31, 1996 and $24.8 million for the
three months ended March 31, 1997 is based on the service fees that would have
been payable had the Service Agreements been in effect for such periods.

The total pro forma operating expenses for the year ended December 31,
1996 and for the three months ended March 31, 1997 do not reflect cost
reductions which the Company intends to seek or the addition of corporate costs
associated with the Company's anticipated expanded infrastructure.

Pro forma income taxes assume that the Company had operated as a taxpaying
entity for the year ended December 31, 1996 and for the three months ended
March 31, 1997, subject to an effective combined federal and state income tax
rate of 40%.

LIQUIDITY AND CAPITAL RESOURCES

If the Mergers and Exchanges and the Initial Public Offering had occurred
on March 31, 1997, the Company would have had pro forma working capital of $10.4
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).

100
<PAGE> 137
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 expenditures of approximately $2.4
million during the remainder of 1997 and thereafter. The net cash proceeds of
the Initial Public Offering combined with cash flow from operations, are
expected by the Company to be sufficient to fund anticipated capital
expenditures and ongoing operations of the Company through the end of 1997.
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
obtained a commitment letter for a $100 million credit facility from GE
Capital Corporation, subject to the negotiation of definitive documentation,
due diligence and certain other conditions. The Company anticipates that such
credit facility will be effective concurrently with the closing of the Initial
Public Offering and, when combined with the Company's cash from operations,
will be utilized for capital expenditures and other general corporate purposes,
including future acquisitions.

On or after the Effective Date of the Initial Public Offering, the Company
intends to call the Convertible Notes for redemption. The Company plans to
call the Convertible Notes for redemption at the earliest practicable date.
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.

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 Medical 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
Robert J. Healy . . . . . . . . . . . . . . 41 Chief Development Officer
John W. Colloton (3)(4) . . . . . . . . . . 66 Director
John Pappajohn(2)(4) . . . . . . . . . . . 68 Director
Derace L. Schaffer, M.D.(1)(3) . . . . . . 49 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.

101
<PAGE> 138
Lawrence R. Muroff, M.D. has served as Chairman of the Board of Directors
and Senior Vice President of Medical 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
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.

Robert J. Healy has served as Chief Development Officer of the Company
since October 1996. From June 1995 through September 1996, Mr. Healy was an
independent consultant to physician practice management companies and several
independent diagnostic imaging providers. From 1990 to June 1995, Mr. Healy
was Corporate Vice President of Image America, an independent diagnostic
imaging provider. Mr. Healy received his B.A. from the University of
Rochester.

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.

102
<PAGE> 139
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 Chief Executive Officer and the
four other most highly paid executive officers (the "Named Executive
Officers") of the Company.

<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ --------- -------- --------------- ---------- ---------------
<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 Medical 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.

103
<PAGE> 140
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
"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 Securities Exchange Act of 1934, as amended (the "Exchange Act"),
pursuant to Rule 16b-3 promulgated thereunder ("Rule 16b-3").

The Plan provides for the grant of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code, and non- qualified stock
options (collectively, "Awards"). Following the consummation of the Initial
Public Offering, the Plan will be administered by the Compensation and Stock
Plan Administration Committee, which will be comprised of two or more
non-employee directors who are "disinterested" within the meaning of Rule 16b-3
(the "Committee"). 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 to vest over a term of
36 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
1,735,000 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 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.

104
<PAGE> 141
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) 20.2% $0.125 04/30/06 $19,653 $49,804
Lawrence R. Muroff, M.D. . . . 230,000(5) 18.5 0.125 04/30/06 18,081 45,820
Mark S. Martin . . . . . . . . 180,000(4) 14.5 0.125 06/11/06 14,150 35,859
Sami S. Abbasi . . . . . . . . 180,000(4) 14.5 0.125 07/31/06 14,150 35,859
Paul M. Jolas . . . . . . . . . 140,000(6) 11.3 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 Compensation and Stock Plan
Administration 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 of the option following termination of employment,
nontransferability or vesting over periods.

105
<PAGE> 142
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. . . . . . . . . . . . . . 23,333 176,667 347,078 2,627,922
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
"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 Compensation and Stock Plan Administration
Committee of the Board of Directors.

EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE

In addition, 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.

APPI PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of APPI Common Stock as of May 31, 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

106
<PAGE> 143
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> <C>
Gregory L. Solomon(3)(4) . . . . . . . . . . . . . . . . . . . . . 135,208 6.3%
Lawrence R. Muroff, M.D.(3)(5) . . . . . . . . . . . . . . . . . . 120,834 5.7
Mark S. Martin(3)(6) . . . . . . . . . . . . . . . . . . . . . . . 93,673 4.5
Sami S. Abbasi(3)(7) . . . . . . . . . . . . . . . . . . . . . . . 93,529 4.5
Paul M. Jolas(3)(8) . . . . . . . . . . . . . . . . . . . . . . . . 39,118 1.9
Derace L. Schaffer, M.D.(3)(9) . . . . . . . . . . . . . . . . . . 1,025,105 50.6
John Pappajohn(3)(10) . . . . . . . . . . . . . . . . . . . . . . . 1,042,917 51.1
Michael L. Sherman, M.D. . . . . . . . . . . . . . . . . . . . . . 20,000 1.0
Edgewater Private Equity Fund, II, L.P.(11) . . . . . . . . . . . . 250,000 11.0
All directors and executive officers as a group (11 persons)(12) . 2,579,384 100.0
- --------------------
</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 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 2,000,000 shares of
Common Stock outstanding as of May 31, 1997.

(3) The address of Messrs. Solomon, Martin, Abbasi, Jolas and Pappajohn
and Drs. Muroff and Schaffer 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 130,208 shares of Common Stock issuable upon
exercise of options exercisable within 60 days of May 31, 1997.

(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 105,834 shares of Common Stock issuable upon
exercise of options exercisable within 60 days of May 31, 1997; and
exercisable options to purchase 10,000 shares of Common Stock in
connection with service as a Director of the Company.

(6) Includes 93,673 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of May 31, 1997.

(7) Includes 93,529 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of May 31, 1997.

(8) Includes 39,118 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of May 31, 1997.

(9) Includes 13,438 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 11,667
shares of Common Stock in connection with service as a Director of
the Company.

107
<PAGE> 144
(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 options to purchase
11,667 shares of Common Stock in connection with service as a
Director of the Company. 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 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.

(12) Includes 524,696 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of May 31, 1997 and 54,688 shares
of Common Stock issuable upon conversion of Convertible Notes.

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.

The Company and Lawrence R. Muroff, M.D., Chairman of the Board of
Directors of the Company and Senior Vice President of Medical Affairs, entered
into a consulting agreement in June 1997 pursuant to which Dr. Muroff receives
annual compensation of $100,000 (prorated for actual months worked) in exchange
for rendering consulting services to the Company. The annual compensation
under such agreement will increase to $112,500 following consummation of this
offering. As part of his consulting arrangement, Dr. Muroff received option
grants for 200,000 shares of Common Stock. 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."

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 entered into a consulting agreement
for which Dr. Sherman will receive annual compensation of $100,000 commencing
on the date following the consummation of the Initial Public Offering.

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.

108
<PAGE> 145
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 diagnostic and
interpretive services ("Professional Services") and (2) imaging services
including x-ray, fluoroscopy, computed tomography, magnetic resonance imaging,
mammography and ultrasound ("Imaging Services"), both of which are reimbursed on
a prepaid or fee-for-service basis. Advanced Radiology operates in the Greater
Baltimore Metropolitan Area (the "Advanced Service 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 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 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.

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<PAGE> 146
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 8 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 general and professional liability insurance
policies (the "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.

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<PAGE> 147
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
management information system ("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.

111
<PAGE> 148
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . $ 22,451 $ 38,833 $ 52,882 $ 12,203 $ 16,073
Expenses:
Costs of affiliated physician services . 8,756 812 2,293 149 1,069
Practice salaries, wages and benefits . . 6,325 10,051 12,318 2,512 3,865
Depreciation and amortization . . . . . . 1,879 3,023 3,450 886 971
Other practice expenses . . . . . . . . . 5,757 9,998 12,531 2,617 3,575
---------- ---------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . . . 22,717 23,884 30,592 6,164 9,480
---------- ---------- ---------- ---------- ----------
Equity in earnings of investments . . . . . 762 635 1,207 395 273
Minority interests in income of
consolidated subsidiaries . . . . . . . . -- -- (18) 6 6
---------- ---------- ---------- ---------- ----------
Income before income taxes . . . . . . . . $ 496 $ 15,584 $ 23,479 $ 6,440 $ 6,872
========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,342
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,190
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,110
</TABLE>

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

THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1996

Medical service revenue, net increased by $3.7 million or 31% to $15.7
million for the three month period ended March 31, 1997 from $12.0 million for
the three month period ended March 31, 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 $1.1 million (7% of medical
service revenue, net) and $0.1 million (1% of medical service revenue, net) for
the three months ended March 31, 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 $1.4 million or 54% to
$3.9 million for the three months ended March 31, 1997 from $2.5 million for
the three months ended March 31, 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 21% for the
three months ended March 31, 1997 and 1996, respectively.

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<PAGE> 149
Practice supplies of $0.8 million and $0.6 million for the three months
ended March 31, 1997 and 1996, respectively, remained consistent at 5% of
medical service revenue, net. Practice rent and lease expense of $0.8 million
and $0.6 million for the three months ended March 31, 1997 and 1996,
respectively, remained consistent at 5% of medical service revenue, net.
Depreciation and amortization expense of $1.0 million and $0.9 million for the
three months ended March 31, 1997 and 1996, respectively, reflects no material
changes in the composition of fixed assets or depreciation methods. Other
practice expenses of $1.7 million and $1.3 million for the three months ended
March 31, 1997 and 1996, respectively, remained consistent at 11% of medical
service revenue, net. Interest expense increased by $0.1 million or 152% to
$0.2 million for the three months ended March 31, 1997 from $0.1 million for
the three months ended March 31, 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 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.

113
<PAGE> 150
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
beneficial ownership of Advanced Common Stock as of July 31, 1997 as to (i)
each person who is known to Advanced to beneficially own more than 5% of the
outstanding shares of Advanced Common Stock, (ii) each director of Advanced
LLC, (iii) each 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>
</TABLE>

_________________________

* Less than one percent

(2) Applicable percentage of ownership is based on [ ] shares of
Common Stock outstanding as of July 1, 1997.

114
<PAGE> 151
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 diagnostic and interpretive services
("Professional Services") and (2) imaging services including x-ray, fluoroscopy,
computed tomography, magnetic resonance imaging, mammography and ultrasound
("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 Service Area"). The Ide Group contracts directly with
hospitals, health plans and [others] 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 a combination of acquisitions of medical
practices that complement its services and 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.

The Ide Group's principal strategy for expanding into new markets is
through acquisitions (through purchase, merger, or otherwise) of medical
groups. The Ide Group generally seeks providers that have established
reputations for providing quality medical care.

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.

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.

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<PAGE> 152
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
general and professional liabilities insurance policies (the "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 management
information system ("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.

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.

116
<PAGE> 153
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>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------- ---------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . $ 24,304 $ 25,534 $ 26,020 $ 19,742 $ 19,851
Expenses:
Costs of affiliated physician services . 10,322 10,936 11,483 7,887 9,419
Practice salaries, wages and benefits . . 2,964 3,141 3,081 2,390 2,351
Depreciation and amortization . . . . . . 726 839 835 616 490
Other practice expenses . . . . . . . . . 7,789 8,598 8,716 6,478 6,305
---------- ---------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . . . 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
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,079
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,628
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,798
</TABLE>

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

NINE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO NINE MONTHS ENDED MARCH 31,
1996

Revenues remained consistent at $19.7 million for each of the nine months
ended March 31, 1997 and 1996.

Costs of affiliated physician services of $9.4 million and $7.8 million
for the nine months ended March 31, 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 48% and 40%,
respectively, of medical service revenue, net for the nine months ended March
31, 1997 and 1996.

Practice salaries, wages and benefits of $2.4 million for each of the nine
months ended March 31, 1997 and 1996 remained consistent at 12% of medical
service revenue, net. Depreciation and amortization expense of $0.5 million
and $0.6 million for the nine months ended March 31, 1997 and 1996,
respectively, reflects no material changes in the composition of fixed assets
or depreciation methods. Other practice expenses of $2.5 million and $2.6
million for the nine months ended March 31, 1997 and 1996, respectively,
remained consistent at 13% of medical service revenue, net.

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

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<PAGE> 154
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.

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.

118
<PAGE> 155
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.

119
<PAGE> 156
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 diagnostic and interpretive services ("Professional Services") and
(2) imaging services including x-ray, fluoroscopy, computed tomography, magnetic
resonance imaging, mammography and ultrasound ("M&S 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 (the "Service 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 3 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 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.

120
<PAGE> 157
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 general and professional liabilities insurance
policies (the "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.

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
management information system ("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.

121
<PAGE> 158
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
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 $ 3,783 $ 3,494
Expenses:
Costs of affiliated physician services . 9,240 8,866 8,703 1,605 1,818
Practice salaries, wages and benefits . . 2,001 1,228 1,338 240 522
Depreciation and amortization . . . . . . 883 963 671 192 83
Other practice expenses . . . . . . . . . 2,921 2,777 2,466 1,065 528
---------- ---------- ---------- ---------- ----------
Total expenses . . . . . . . . . . . . . . 15,045 13,834 13,178 3,102 2,951
---------- ---------- ---------- ---------- ----------
Equity in earnings of investments . . . . . 98 213 605 156 178
Minority interests in income of
consolidated subsidiaries . . . . . . . . . (220) (216) (249) (56) (77)
---------- ---------- ---------- ---------- ----------
Income before income taxes . . . . . . . . $ 2,174 $ 1,231 $ 2,376 $ 781 $ 644
========== ========== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,757
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,107
</TABLE>

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

THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1996

Medical service revenue, net decreased by $0.3 million or 7% to $3.4
million for the three months ended March 31, 1997 from $3.7 million for the
three months ended March 31, 1996. The decrease was attributable to a decrease
in the number of procedures performed.

Costs of affiliated physician services of $1.8 million (53% of medical
service revenue, net) and $1.6 million (44% of medical service revenue, net)
for the three months ended March 31, 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. The increase was due to improved
collections in the first quarter of 1997 as compared to the first quarter of
1996.

Practice salaries, wages and benefits increased $0.3 million or 118% to
$0.5 million for the three months ended March 31, 1997 from $0.2 million for the
three months ended March 31, 1996. For the three months ended March 31, 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 three months ended March 31, 1997 and 1996.
Depreciation and amortization expense decreased $0.1 million or 57% to $0.1
million for the three months ended March 31, 1997 from $0.2 million for the
three months ended March 31, 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 $0.5 million or 64% to $0.3 million
for the three months ended March 31,

122
<PAGE> 159
1997 from $0.8 million for the three months ended March 31, 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 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.

123
<PAGE> 160
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.

124
<PAGE> 161
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>
Polly B. Hansen, M.D., Limited Partner . . . . . . . . . . . . 1.4%(3)
Philip S. Klein, M.D., Limited Partner . . . . . . . . . . . . 1.5 (3)
Julio C. Otazo, M.D., Limited Partner . . . . . . . . . . . . . 2.1 (3)
R.K. Daniel Peterson, M.D., Limited Partner . . . . . . . . . . 2.1 (3)
Randall S. Preissig, M.D., Limited Partner . . . . . . . . . . 2.1 (3)
Jose A. Saldana, M.D., Limited Partner . . . . . . . . . . . . 2.1 (3)
Anthony F. Smith, M.D., Limited Partner . . . . . . . . . . . . 0.4 (3)
Robert L. Thompson, M.D., Limited Partner . . . . . . . . . . . 2.1 (3)
Gregory W. Wojcik, M.D., Limited Partner . . . . . . . . . . . 1.3 (3)
Baptist Memorial Hospital System, Limited Partner (1) . . . . . 21.1
San Antonio No. 2, General Partner (2) . . . . . . . . . . . . 60.0
- --------------------
</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
"San Antonio Principal Shareholders.")

125
<PAGE> 162
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.

126
<PAGE> 163
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)
Gregory W. Wojcik, 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
partnerhip, 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 Principal Shareholder").

127
<PAGE> 164
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.

<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)
Gregory W. Wojcik, M.D., limited partner (1) . . . . . . . . . 8.3 (2)
San Antonio, general partner . . . . . . . . . . . . . . . . . 1.0
- --------------------
</TABLE>

(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 "San Antonio Principal Security
Holders").

128
<PAGE> 165
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 Wojcik, 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.

129
<PAGE> 166
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
diagnostic and interpretive services ("Professional Services") and (2) imaging
services including x-ray, fluoroscopy, computed tomography, magnetic resonance
imaging, mammography, nuclear medicine and ultrasound ("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 (the "Pacific Service
Area"). 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.

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.

130
<PAGE> 167
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 general and professional liability insurance policies (the "Liability
Policies") with Medical Insurance Exchange, Employers First Insurance, Unigard,
Safeco, Aetna, Unum and 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 management information system ("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.

131
<PAGE> 168
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.

132
<PAGE> 169
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
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 $ 2,809 $ 3,622
Expenses:
Costs of affiliated physician services . 2,992 5,897 7,215 1,351 2,110
Practice salaries, wages and benefits . . 1,004 1,604 1,840 391 451
Depreciation and amortization . . . . . . 1,082 996 981 244 239
Other practice expenses . . . . . . . . . 4,269 3,055 3,204 660 772
----- ------ ------ ---- ----
Total expenses . . . . . . . . . . . . . . 9,347 11,552 13,240 2,646 3,572
----- ------ ------ ----- -----
Equity in earnings of investments . . . . . -- -- -- -- --
Minority interests in income of
consolidated subsidiaries . . . . . . . . . -- -- -- -- --
---- ---- ---- ---- ----
Income (loss) before income taxes . . . . . $ (541) $ (104) $ 55 $ 163 $ 50
==== ===== === === ==
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,480
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,790
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
</TABLE>

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

THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996

Medical service revenue, net increased $0.8 million or 30% to $3.6 million
for the three months ended March 31, 1997 from $2.8 million for the three
months ended March 31, 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 $2.1 million (59% of medical
service revenue, net) and $1.4 million (49% of medical service revenue, net)
for the three months ended March 31, 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
March 31, 1996.

Practice salaries, wages and benefits of $0.5 million and $0.4 million for
the three months ended March 31, 1997 and 1996, respectively, were 13% and 14%,
respectively, of medical service revenue, net. Practice supplies of
$0.1 million for each of the three months ended March 31, 1997 and 1996 were 3%
and 4%, respectively, of medical service revenue, net. Depreciation and
amortization expense of $0.2 million for each of the three months ended March
31, 1997 and 1996 reflects no material changes in the composition of fixed
assets or depreciation methods. Other practice expenses of $0.5 million and
$0.4 million for the three months ended March 31, 1997 and 1996, respectively,
remained consistent at 13% of medical service revenue, net. Interest expense of
$0.1 million for each of the three months ended March 31, 1997 and 1996, was 2%
and 4%, respectively, of medical service revenue, net.

133
<PAGE> 170
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 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.

134
<PAGE> 171
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 PERCENT
BENEFICIALLY BENEFICIALLY
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.

135
<PAGE> 172
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 PERCENT
BENEFICIALLY BENEFICIALLY
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.

136
<PAGE> 173
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 diagnostic and
interpretive services and radiation oncology services ("Professional Services")
and (2) imaging services including x-ray, fluoroscopy, computed tomography,
magnetic resonance imaging, mammography and ultrasound ("Imaging Services"),
both of which are reimbursed on a prepaid or fee-for-service basis. RNM
operates in the greater Topeka, Kansas area (the "RNM Service 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 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.

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<PAGE> 174
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 in 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 general and professional liability insurance policies
with Kansas Medical Mutual and Cincinnati Insurance. Each professional of RNM
at each location is covered under these general and professional liability
insurance 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.

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 management information system ("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.

138
<PAGE> 175
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue . . . . . . . . . . . . . . . $ 13,379 $ 13,849 $ 13,572 $ 3,101 $ 3,644
Expenses:
Costs of affiliated physician services . 9,662 10,700 10,265 2,034 2,105
Practice salaries, wages and benefits . . 1,718 1,807 1,744 352 367
Depreciation and amortization . . . . . . 133 188 202 52 50
Other practice expenses . . . . . . . . . 1,921 1,530 1,459 346 383
----- ------ ------ ---- ----
Total expenses . . . . . . . . . . . . . . 13,434 14,225 13,670 2,784 2,905
------ ------ ------ ----- -----
Equity in earnings of investments . . . . . 273 311 292 96 96
Minority interests in income of
consolidated subsidiaries . . . . . . . . . -- -- -- -- --
---- ---- ---- ---- ----
Income (loss) before income taxes . . . . . $ 218 $ (65) $ 194 $ 413 $ 835
=== ==== ==== === ===
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,029
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,008
</TABLE>

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.

THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1996

Medical service revenue, net increased $0.5 million or 17% to $3.6 million
for the three months ended March 31, 1997 from $3.1 million for the three
months ended March 31, 1996. This increase was attributable to the addition,
in July 1996, of a new hospital at which the company provided services.

Costs of affiliated physician services of $2.1 million (58% of medical
service revenue, net) and $2.0 million (66% of medical service revenue, net)
for the three months ended March 31, 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 remained consistent at $0.4 million
for each of the three months ended March 31, 1997 and 1996. Such amounts were
10% and 11%, respectively, of medical service revenue, net. Other practice
expenses of $0.2 million for each of the three months ended March 31, 1997 and
1996 remained consistent at 5% 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 the company had a slight increase in volume of
services rendered, reimbursement rates from certain payor groups declined.

139
<PAGE> 176
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.

140
<PAGE> 177
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 . . . . . 167 5.4%
Russell Clay Harvey, M.D., Director . . . . . . . . . . . . . . . . 167 5.4
Richard Meidinger, M.D., Director . . . . . . . . . . . . . . . . . 167 5.4
Dennis C. Petterson, M.D., Director and Secretary-Treasurer . . . . 167 5.4
Peter E. Schloesser, M.D., Director(3) . . . . . . . . . . . . . . 167 5.4
William J. Walls, M.D., President . . . . . . . . . . . . . . . . . 167 5.4
All directors and executive officers as a group
(6 persons) . . . . . . . . . . . . . . . . . . . . . . . . . 1,002 32.4%
- --------------------
</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.

141
<PAGE> 178
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 diagnostic and interpretive services ("Professional Services") and
(2) imaging services including x-ray, fluoroscopy, computed tomography, magnetic
resonance imaging, mammography and ultrasound ("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 (the "Rockland Service Area"). 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.

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.

142
<PAGE> 179
Rockland Radiological Group provides approximately 11% of its Professional
Service and Imaging Service 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 Radiology 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 Radiology 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 Radiology Group. The Rockland
Radiology 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 1 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 Radiological Group maintains
general and professional liability insurance policies (the "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 management information system ("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,

143
<PAGE> 180
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.

144
<PAGE> 181
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>
THREE 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 $ 7,801 $ 8,897
Expenses:
Costs of affiliated physician services . 3,674 7,074 6,051 2,397 2,728
Practice salaries, wages and benefits . . 3,917 4,118 4,252 1,935 2,180
Depreciation and amortization . . . . . . 1,605 1,628 1,350 704 614
Other practice expenses . . . . . . . . . 5,439 6,050 5,417 2,291 2,519
----- ------ ------ ------ ------
Total expenses . . . . . . . . . . . . . . 14,635 18,870 17,070 7,327 8,041
------ ------ ------ ----- -----
Equity in earnings of investments . . . . . -- -- -- -- --
Minority interests in income of
consolidated -- -- -- -- --
---- ---- ---- ---- ----
subsidiaries . . . . . . . . . . . . . .

Income (loss) before income taxes . . . . . $ 445 $ (1,046) $ 263 $ 474 $ 856
=== ======= ==== === ===
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,811
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,378
Stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (892)
</TABLE>

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

SIX MONTHS ENDED MARCH 31, 1997 AS COMPARED TO SIX MONTHS ENDED MARCH 31, 1996

Medical service revenue, net increased by $1.1 million or 15% to $8.9
million for the six months ended March 31, 1997 from $7.8 million for the six
months ended March 31, 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 $2.7 million (31% of medical
service revenue, net) and $2.4 million (31% of medical service revenue, net)
for the six months ended March 31, 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 of $2.2 million and $1.9 million for
the six months ended March 31, 1997 and 1996, respectively, remained consistent
at 25% of medical service revenue, net. Practice supplies of $0.6 million and
$0.5 million for the six months ended March 31, 1997 and 1996, respectively,
remained consistent at 7% of medical service revenue, net. Depreciation and
amortization expense of $0.6 million and $0.7 million for the six months ended
March 31, 1997 and 1996, respectively, reflects no material changes in the
composition of fixed assets or depreciation methods. Other practice expenses
of $1.5 million and $1.3 million for the six months ended March 31, 1997 and
1996, respectively, were 17% and 18%, respectively, of medical service revenue,
net.

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<PAGE> 182
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 $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.

146
<PAGE> 183
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
OWNED(2) OWNED(3)NAME(1)
-------
<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.

147
<PAGE> 184
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 diagnostic and interpretive services
("Professional Services") and (2) imaging services including x-ray, fluoroscopy,
computed tomography, magnetic resonance imaging, mammography and ultrasound
("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 (the "Valley Service 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 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

148
<PAGE> 185
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 4 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 a general and professional liability
insurance policies (the "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.

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.

149
<PAGE> 186
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------
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 $ 2,633 $ 2,891
Expenses:
Costs of affiliated physician services . 6,012 5,511 5,384 1,270 1,396
Practice salaries, wages and benefits . . 3,172 2,269 2,593 525 550
Depreciation and amortization . . . . . . 220 169 223 37 72
Other practice expenses . . . . . . . . . 3,765 2,100 2,149 549 567
----- ------ ------ ---- ----
Total expenses . . . . . . . . . . . . . . 13,169 10,049 10,349 2,381 2,585
------ ------ ------ ----- -----
Equity (loss) in earnings of investments . 84 14 (19) -- --
Minority interests in income of
consolidated -- -- -- -- --
---- ---- ---- ---- ----
subsidiaries . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . $ 472 $ 472 $ 806 $ 252 $ 306
=== ==== ==== === ===
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,184
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,464
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,039
</TABLE>

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

THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1996

Medical service revenue, net increased $0.3 million or 12% to $2.8 million
for the three months ended March 31, 1997 from $2.5 million for the three
months ended March 31, 1996 due primarily to the opening of an imaging center
subsequent to March 31, 1996.

Costs of affiliated physician services of $1.4 million (49% of medical
service revenue, net) and $1.3 million (50% of medical service revenue, net)
for the three months ended March 31, 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 subsequent to March 31, 1996. The physician owners
determined such payments based on earnings available for distribution.

Practice salaries, wages and benefits of $0.6 million and $0.5 million for
the three months ended March 31, 1997 and 1996, respectively, were 19% and 21%,
respectively, of medical service revenue, net. Practice rent and lease expense
of $0.1 million for each of the three months ended March 31, 1997 and 1996,
respectively, remained consistent at 4% of medical service revenue, net. Other
practice expenses of $0.3 million for each of the three months ended March 31,
1997 and 1996, were 12% and 13%, respectively, of medical service revenue, net.

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<PAGE> 187
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.

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 5.3%
Robert Filpi, M.D., Director . . . . . . . . . . . . . . . . . . . 1000 5.3
Keith Fraker, M.D., Director . . . . . . . . . . . . . . . . . . . 1000 5.3
Franklin Gee, M.D., Director . . . . . . . . . . . . . . . . . . . 1000 5.3
Bruce Hyman, M.D., Director . . . . . . . . . . . . . . . . . . . . 1000 5.3
Young Kang, M.D., Vice President and Director . . . . . . . . . . . 1000 5.3
Andrew Koo, M.D., Director . . . . . . . . . . . . . . . . . . . . 1000 5.3
Edward Lebowitz, M.D., Director . . . . . . . . . . . . . . . . . . 1000 5.3
Peter Long, M.D., Director . . . . . . . . . . . . . . . . . . . . 1000 5.3
Cyril McDonald, M.D., Director . . . . . . . . . . . . . . . . . . 1000 5.3
Michael Myers, M.D., Secretary and Director . . . . . . . . . . . . 1000 5.3
John Noonan, M.D., Director . . . . . . . . . . . . . . . . . . . . 1000 5.3

Harjit Sekhon, M.D., Director . . . . . . . . . . . . . . . . . . . 1000 5.3
Richard Silberstein, M.D., President and Director . . . . . . . . . 1000 5.3
Drew Sullivan, M.D., Treasurer and Director . . . . . . . . . . . . 1000 5.3
Stephen Teng, M.D., Director . . . . . . . . . . . . . . . . . . . 1000 5.3
Eric Trefelner, M.D., Director . . . . . . . . . . . . . . . . . . 1000 5.3
James Vaudagna, M.D., Director . . . . . . . . . . . . . . . . . . 1000 5.3
William T. McLaughlin, M.D., Director . . . . . . . . . . . . . . . 937.5 5.0
All directors and executive officers as a group (19 persons) . . . 18,937.5 100.0
- --------------------
</TABLE>

(1) The address of each beneficial owner is Valley Radiologists Medical Group,
Inc., 1101 South Winchester Boulevard, Suite J220, San Jose, California
95128.

151
<PAGE> 188
(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 18,937.5 shares of Valley
Common Stock outstanding as of July 1, 1997.

152
<PAGE> 189
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, par value $.0001
per share (the "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.

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

153
<PAGE> 190
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 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.

154
<PAGE> 191
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.

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

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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, 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 M&S, San Antonio
and South Texas. There is no cumulative voting with respect to the election of
directors of M&S, South Texas and San Antonio. Accordingly, in any election of
the respective directors of M&S, San Antonio and South Texas, holders of more
than 50% of the shares of M&S Common Stock, South Texas Common Stock and San
Antonio Common Stock, respectively, can elect all of the directors of M&S,
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
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,

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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 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. 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

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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 articles and
bylaws of each such Merger Entity (the "Corporate Governance Documents") and
the partnership agreement and other governance documents of each such Exchange
Entity (the "Partnership Governance Documents," and together with the Corporate
Governance Documents, the "Governance Documents"). 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 Texas Revised Partnership Act ("TRPA") and the Texas
Revised Limited Partnership Act ("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, 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.

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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.

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

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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 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 ten percent 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

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of calling a meeting for the partners of such partnership and any notice
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 35 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 35 nor more than 60 days
before the date of the meeting, (viii) any special meetings of RNM security
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

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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.

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 only 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 only 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

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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 only 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; (viii) the number of directors on the AIOC Board may be increased
or decreased only by an amendment of the AIOC Bylaws adopted by a majority of
the outstanding shares entitled to vote thereon, or by the AIOC Board; (ix) the
number of directors on the CIA Board may be increased or decreased only by an
amendment of the CIA Bylaws adopted by a majority of the outstanding shares
entitled to vote thereon, or by the CIA Board; (x) the number of directors on
the MRIA Board may be increased or decreased only by an amendment of the MRIA
Bylaws adopted by a majority of the outstanding shares entitled to vote thereon,
or by the MRIA Board; (xi) the number of directors on the Nyack Board may be
increased or decreased only by an amendment of the Nyack Bylaws adopted by a
majority of the outstanding shares entitled to vote thereon, or by the Nyack
Board; (xii) the number of directors on the Pelham Board may be increased or
decreased only by an amendment of the Pelham Bylaws adopted by a majority of the
outstanding shares entitled to vote thereon, or by the Pelham Board; (xiii) the
number of directors on the RRG Board may be increased or decreased only by an
amendment of the RRG Bylaws adopted by a majority of the outstanding shares
entitled to vote thereon, or by the RRG Board; (xiv) the number of directors on
the WIC Board may be increased or decreased only 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 (xv) the number of directors on the Valley Board may be
increased or decreased only 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

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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
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 entire
Ide Board; (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 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.

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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 entire board of
directors, (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, (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 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.

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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
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.

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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, Drs.
Thomas, Wallop, Kim, and Lewis, P.A., Diagnostic Imaging Associates, P.A., 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.

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. has also issued 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.

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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INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
AMERICAN PHYSICIAN PARTNERS, INC.

Report of Independent Public Accountants.................. F-3
Balance Sheets as of December 31, 1996, and March 31, 1997
(unaudited)............................................ F-4
Statements of Income for the period from inception (April
30, 1996) to December 31, 1996, and the three months
ended March 31, 1997 (unaudited)....................... F-5
Statements of Stockholders' Deficit for the period from
inception (April 30, 1996) to December 31, 1996, and
the three months ended March 31, 1997 (unaudited)...... F-6
Statements of Cash Flows for the period from inception
(April 30, 1996) to December 31, 1996, and the three
months ended March 31, 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 March 31, 1997 (unaudited)................... F-13
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996, and the three months
ended March 31, 1996 and 1997 (unaudited).............. F-14
Consolidated Statements of Owners' Equity for the years
ended December 31, 1994, 1995 and 1996, and the three
months ended March 31, 1997 (unaudited)................ F-15
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the three months
ended March 31, 1996 and 1997 (unaudited).............. F-16
Notes to Consolidated Financial Statements................ F-17
DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
Report of Independent Public Accountants.................. F-25
Balance Sheet as of December 31, 1994..................... F-26
Statement of Income for the year ended December 31,
1994................................................... F-27
Statement of Owners' Equity for the year ended December
31, 1994............................................... F-28
Statement of Cash Flows for the year ended December 31,
1994................................................... F-29
Notes to Financial Statements............................. F-30
DIAGNOSTIC IMAGING ASSOCIATES, P.A.
Report of Independent Public Accountants.................. F-33
Balance Sheet as of September 30, 1994.................... F-34
Statement of Income for the year ended September 30,
1994................................................... F-35
Statement of Owners' Equity for the year ended September
30, 1994............................................... F-36
Statement of Cash Flows for the year ended September 30,
1994................................................... F-37
Notes to Financial Statements............................. F-38
THE IDE GROUP, P.C.
Independent Auditors' Report.............................. F-42
Combined Balance Sheets as of June 30, 1994, 1995, and
1996 and March 31, 1997 (unaudited).................... F-43
Combined Statements of Income for the years ended June 30,
1994, 1995, and 1996 and the nine months ended March
31, 1996 and 1997 (unaudited).......................... F-44
Combined Statements of Changes in Stockholders' Equity and
Partners' Capital for the years ended June 30, 1994,
1995, and 1996, and the nine months ended March 31,
1997 (unaudited)....................................... F-45
Combined Statements of Cash Flows for the years ended June
30, 1994, 1995, and 1996, and the nine months ended
March 31, 1996 and 1997 (unaudited).................... F-46
Notes to Combined Financial Statements.................... F-47
M & S X-RAY PRACTICES
Report of Independent Public Accountants.................. F-52

</TABLE>
F-1
<PAGE> 205
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Combined Balance Sheets as of December 31, 1995 and 1996,
and March 31, 1997 (unaudited)......................... F-53
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-54
Combined Statements of Owners' Equity for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1997 (unaudited)............................. F-55
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-56
Notes to Combined Financial Statements.................... F-57
PACIFIC IMAGING CONSULTANTS
Report of Independent Public Accountants.................. F-63
Combined Balance Sheets as of December 31, 1995 and 1996,
and March 31, 1997 (unaudited)......................... F-64
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-65
Combined Statements of Owners' Equity (Deficit) for the
years ended December 31, 1995 and 1996, and the three
months ended March 31, 1997 (unaudited)................ F-66
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-67
Notes to Combined Financial Statements.................... F-68
RADIOLOGY AND NUCLEAR MEDICINE, P.A.
Report of Independent Public Accountants.................. F-74
Balance Sheets as of December 31, 1995 and 1996, and March
31, 1997 (unaudited)................................... F-75
Statements of Income for the years ended December 31, 1995
and 1996, and the three months ended March 31, 1996 and
1997 (unaudited)....................................... F-76
Statements of Owners' Equity for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1997 (unaudited)....................................... F-77
Statements of Cash Flows for the years ended December 31,
1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-78
Notes to Financial Statements............................. F-79
ROCKLAND RADIOLOGICAL GROUP
Report of Independent Public Accountants.................. F-84
Combined Balance Sheets as of September 30, 1995 and 1996,
and March 31, 1997 (unaudited)......................... F-85
Combined Statements of Income for the years ended
September 30, 1994, 1995 and 1996, and the six months
ended March 31, 1996 and 1997 (unaudited).............. F-86
Combined Statements of Owners' Equity (Deficit) for the
years ended December 31, 1994, 1995 and 1996, and the
three months ended March 31, 1997 (unaudited).......... F-87
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the six months
ended March 31, 1996 and 1997 (unaudited).............. F-88
Notes to Combined Financial Statements.................... F-89
VALLEY RADIOLOGY GROUP
Report of Independent Public Accountants.................. F-94
Combined Balance Sheets as of December 31, 1995 and 1996,
and March 31, 1997
(unaudited)............................................ F-95
Combined Statements of Income for the years ended December
31, 1995 and 1996, and the three months ended March 31,
1996 and 1997 (unaudited).............................. F-96
Combined Statements of Owners' Equity for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1997 (unaudited)............................. F-97
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996, and the three months ended
March 31, 1996 and 1997 (unaudited).................... F-98
Notes to Combined Financial Statements.................... F-99
</TABLE>

F-2
<PAGE> 206

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.

Dallas, Texas,
April 10, 1997

F-3
<PAGE> 207

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $2,490,679 $1,657,129
Prepaid expenses.......................................... 15,002 599,105
---------- ----------
Total current assets.............................. 2,505,681 2,256,234
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $2,612................................................. 57,405 143,852
OTHER ASSETS................................................ 14,480 17,254
---------- ----------
Total assets...................................... $2,577,566 $2,417,340
========== ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accrued expenses.......................................... $ 477,109 $1,196,765
CONVERTIBLE NOTES PAYABLE................................... 3,500,000 3,500,000
---------- ----------
Total liabilities................................. 3,977,109 4,696,765

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
Preferred stock, $.0001 par value; 10,000,000 shares
authorized; no shares outstanding...................... -- --
Common stock, $.0001 par value; 20,000,000 shares
authorized; 2,000,000 shares issued and outstanding.... 200 200
Additional paid-in capital................................ 249,800 249,800
Accumulated deficit....................................... (1,649,543) (2,529,425)
---------- ----------
Total stockholders' deficit....................... (1,399,543) (2,279,425)
---------- ----------
Total liabilities and stockholders' deficit....... $2,577,566 $2,417,340
========== ==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-4
<PAGE> 208

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, MARCH 31,
1996 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
REVENUES.................................................... $ -- $ --
COSTS AND EXPENSES:
Salaries and benefits..................................... 545,949 410,003
Rent and lease expense.................................... 57,015 53,710
General and administrative................................ 299,585 188,739
Depreciation.............................................. 2,612 4,663
Interest expense.......................................... 36,031 52,500
Professional services..................................... 607,482 191,965
Marketing expense......................................... 114,067 --
----------- -----------
Total costs and expenses.......................... 1,662,741 901,580
----------- -----------
INTEREST INCOME............................................. 13,198 21,698
----------- -----------
NET LOSS.................................................... $(1,649,543) $ (879,882)
=========== ===========
NET LOSS PER COMMON SHARE................................... $ (0.45) $ (0.24)
=========== ===========
NUMBER OF SHARES............................................ 3,694,688 3,694,688
=========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE> 209

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).................. -- -- -- (879,882) (879,882)
--------- ---- -------- ----------- -----------
BALANCE, March 31, 1997 (unaudited)..... 2,000,000 $200 $249,800 $(2,529,425) $(2,279,425)
========= ==== ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-6
<PAGE> 210

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(APRIL 30, THREE MONTHS
1996) TO ENDED
DECEMBER 31, MARCH 31,
1996 1997
--------------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,649,543) $ (879,882)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation........................................... 2,612 4,663
Changes in assets and liabilities --
Prepaid expenses..................................... (15,002) (584,103)
Other assets......................................... (14,480) (2,774)
Accrued expenses..................................... 477,109 719,656
----------- ----------
Net cash used in operating activities............. (1,199,304) (742,440)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (60,017) (91,110)
----------- ----------
Net cash used in investing activities............. (60,017) (91,110)
----------- ----------
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 (833,550)
CASH AND CASH EQUIVALENTS, at inception..................... -- 2,490,679
----------- ----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 2,490,679 $1,657,129
=========== ==========
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> 211

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).

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.

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 March 31,

F-8
<PAGE> 212

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 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 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.

F-9
<PAGE> 213

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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)
<C> <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.

5. NET LOSS PER SHARE:

Net loss per share is computed by dividing net loss by the number of common
stock and common stock equivalent shares outstanding during the periods in
accordance with the applicable rules of the Securities and Exchange Commission
("SEC"). All common stock and common stock options issued in the year prior to
the offering have been considered as outstanding common stock equivalents under
the treasury stock method, based on an estimate of the offering price. Shares of
common stock issuable upon conversion of the Notes are assumed to be common
stock equivalent shares for all periods presented.

In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings per Share," which specifies the computations,
presentation, and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. The following pro
forma amounts indicate earnings per share as if computed in accordance with this
new statement.

<TABLE>
<S> <C>
Basic earnings per share.................................... $(0.82)
Diluted earnings per share.................................. $(0.43)
</TABLE>

6. 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.

7. 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> 214

AMERICAN PHYSICIAN PARTNERS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. 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:

9. SUBSEQUENT EVENTS:

The Company plans to reorganize and complete an initial public offering. As
part of this transaction, certain assets and liabilities of seven radiology
practices (the "Founding Affiliated Practices") will be exchanged for the
Company's common stock and cash. 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. This pro forma information assumes the exchanges
occurred on March 31, 1997, for balance sheet purposes and on January 1, 1996,
for income statement purposes (in thousands):

<TABLE>
<S> <C>
Balance sheet --
Working capital........................................... $10,438
Total assets.............................................. 75,763
Long-term debt and capital leases, net of current
maturities............................................. 21,424
Stockholders' equity...................................... 20,183
Income statement --
Year ended December 31, 1996
Management service fee revenue......................... 89,576
Pro forma net income................................... 13,244
Three months ended March 31, 1997
Management service fee income.......................... 24,808
Pro forma net income................................... 3,719
</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> 215

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.

Dallas, Texas,
February 21, 1997

F-12
<PAGE> 216

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,822,724 $ 3,048,169 $ 133,869
Accounts receivable, net of allowances of
$11,656,529, $13,591,727, and $14,287,248 at
December 31, 1995 and 1996 and March 31, 1997 ,
respectively................................... 9,957,828 12,041,297 14,077,813
Other receivables................................. -- 229,162 1,160,203
Other current assets.............................. 406,753 1,509,912 1,089,681
----------- ----------- -----------
Total current assets...................... 12,187,305 16,828,540 16,461,566
PROPERTY AND EQUIPMENT, net......................... 12,871,519 13,950,022 14,040,736
INVESTMENTS IN AFFILIATED ENTITIES.................. 497,345 743,586 898,928
OTHER ASSETS, net................................... 226,060 2,229,957 1,941,248
----------- ----------- -----------
Total assets.............................. $25,782,229 $33,752,105 $33,342,478
=========== =========== ===========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Revolving credit facilities....................... $ 1,700,000 $ 4,000,000 $ 2,400,000
Accounts payable and accrued expenses............. 2,591,707 625,224 2,406,713
Accrued salaries and benefits..................... 2,073,807 1,328,370 1,046,237
Due to joint ventures............................. 1,162,296 1,430,415 686,062
Current portion of long-term debt................. 2,357,143 3,999,473 4,159,877
Other current liabilities......................... -- 248,450 183,177
----------- ----------- -----------
Total current liabilities................. 9,884,953 11,631,932 10,882,066
----------- ----------- -----------
LONG-TERM DEBT, net of current portion.............. 5,142,857 6,708,214 5,630,492
OTHER LIABILITIES................................... -- 359,012 359,012
----------- ----------- -----------
Total liabilities......................... 15,027,810 18,699,158 16,871,570
MINORITY INTEREST................................... -- 381,698 360,754
OWNERS' EQUITY...................................... 10,754,419 14,671,249 16,110,154
----------- ----------- -----------
Total liabilities and owners' equity...... $25,782,229 $33,752,105 $33,342,478
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-13
<PAGE> 217

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
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 $12,006,327 $15,749,973
Other revenue................. 3,173,533 1,476,239 1,189,986 196,808 323,203
----------- ----------- ----------- ----------- -----------
Total revenue......... 22,451,489 38,833,312 52,881,990 12,203,135 16,073,176
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of affiliated physician
services................... 8,755,971 811,926 2,293,233 148,950 1,068,787
Practice salaries, wages and
benefits................... 6,325,282 10,051,129 12,317,949 2,512,440 3,864,784
Practice supplies............. 1,145,397 2,626,338 3,206,294 649,655 830,979
Practice rent and lease
expense.................... 862,257 2,184,472 2,301,575 600,735 810,692
Depreciation and
amortization............... 1,879,420 3,022,977 3,449,649 885,992 970,618
Other practice expenses....... 3,338,356 4,184,188 6,272,470 1,288,029 1,736,925
Interest expense.............. 410,752 1,003,042 751,086 78,323 197,651
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 22,717,435 23,884,072 30,592,256 6,164,124 9,480,436
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND EQUITY IN
EARNINGS OF INVESTMENTS....... (265,946) 14,949,240 22,289,734 6,039,011 6,592,740
EQUITY IN EARNINGS OF
INVESTMENTS................... 761,999 634,659 1,207,670 395,000 272,904
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES..... -- -- (18,055) 5,825 6,444
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 496,053 $15,583,899 $23,479,349 $ 6,439,836 $ 6,872,088
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-14
<PAGE> 218

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
Distribution to Copeland shareholders, net of practice net
assets contributed..................................... (5,910,218)
Capital contributions..................................... 2,300,000
Distributions to owners................................... (12,355,000)
Net income................................................ 15,583,899
------------
BALANCE, December 31, 1995.................................. 10,754,419
Contribution of practice net assets....................... 1,001,280
Distributions to owners................................... (20,563,799)
Net income................................................ 23,479,349
------------
BALANCE, December 31, 1996.................................. 14,671,249
Capital Contributions (unaudited)......................... 1,066,805
Distributions to owners (unaudited)....................... (6,499,988)
Net income (unaudited).................................... 6,872,088
------------
BALANCE, March 31, 1997 (unaudited)......................... $ 16,110,154
============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-15
<PAGE> 219

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ---------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 496,053 $ 15,583,899 $ 23,479,349 $ 6,439,836 $ 6,872,088
Adjustments to reconcile net income to net
cash provided by operating activities --
Minority interest in income of consolidated
subsidiaries.............................. -- -- 18,055 (5,825) (6,444)
Depreciation and amortization............... 1,879,420 3,022,977 3,449,649 885,992 970,618
Investment (income) loss from affiliated
entities.................................. (761,999) (634,659) (1,207,670) -- (272,904)
(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) (673,333) (2,036,516)
Other receivables and other current
assets................................. 96,924 (724,734) (261,143) (1,519,272) (510,810)
Other noncurrent assets................... (112,541) (242,636) (2,023,516) (1,296,046) 278,125
Increase (decrease) in --
Accounts payable and accrued expenses..... 265,456 2,307,168 (1,966,483) (1,197,217) 1,781,489
Accrued salaries and benefits............. 138,042 2,073,806 (745,436) (752,774) (282,133)
Due to joint ventures..................... 216,766 1,608,528 268,119 (6,131) (744,353)
Other liabilities......................... (91) -- 248,450 -- (65,273)
----------- ------------ ------------ ------------ ------------
Net cash provided by operating
activities........................... 1,989,914 13,048,823 19,176,284 1,875,230 5,983,887
----------- ------------ ------------ ------------ ------------
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) -- (1,065,248)
Contributions to partnerships................. -- (61,198) (265,426) -- --
Distributions received from affiliated
entities.................................... 818,482 59,407 1,246,214 -- 117,562
----------- ------------ ------------ ------------ ------------
Net cash used in investing
activities........................... (1,284,844) (1,823,454) (2,314,908) -- (947,686)
----------- ------------ ------------ ------------ ------------
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) (642,857) (917,318)
Net increase in line of credit................ -- 1,700,000 2,300,000 1,000,000 (1,600,000)
Contributions from members.................... -- 2,300,000 -- -- 1,066,805
Stockholder distributions..................... -- (12,355,000) (20,563,799) (4,000,000) (6,499,988)
Distribution to Copeland shareholders......... -- (5,466) -- -- --
Proceeds from the sale of stock............... 1,200 -- -- -- --
Minority interest contribution to joint
venture..................................... -- -- 363,643 363,643 --
----------- ------------ ------------ ------------ ------------
Net cash used in financing
activities........................... (814,413) (9,408,111) (15,635,931) (3,279,214) (7,950,501)
----------- ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (109,343) 1,817,258 1,225,445 (1,403,984) (2,914,300)
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 $ 418,740 $ 133,869
=========== ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE:
Cash interest paid............................ $ 410,752 $ 1,003,000 $ 751,086 $ 78,323 $ 197,651
=========== ============ ============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-16
<PAGE> 220

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 merger 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 initial formation of the Company has been accounted for using purchase
accounting under the provisions of APB No. 16. Based on the asset sizes of the
individual contributed radiology practices, Copeland was identified as the
acquirer, and accordingly, all balances prior to January 1, 1995, represent the
activities of Copeland on a stand alone basis. The assets contributed by
Arundel, DIAPA, DeCarlo, and Carroll were recorded at the estimated fair value
of the assets contributed and liabilities assumed. 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
----------- --------- --------- --------- -----------
Estimated fair market values........ $ 397,042 $ 241,816 $ 241,440 $(318,916) $ 561,382
=========== ========= ========= ========= ===========
</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 $561,382 described above, has been reflected as a distribution
in the accompanying consolidated statements of owners' equity.

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.

F-17
<PAGE> 221

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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.

Medical Service Revenues

F-18
<PAGE> 222

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 and owner physicians. All owner physicians are employed by the
Practices, thus distributions of equity are made by the Company to the
Practices, who then pay all owner physician salaries.

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 and 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

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.

F-19
<PAGE> 223

ADVANCED RADIOLOGY, LLC AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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> 224

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> 225

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> 226

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> 227

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> 228

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Drs. Thomas, Wallop, Kim and Lewis, P.A.
(d/b/a Arundel Radiology):

We have audited the accompanying balance sheet of Drs. Thomas, Wallop, Kim
and Lewis, P.A. as of December 31, 1994, and the related statements of income,
owners' equity, and cash flows for the year 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Drs. Thomas, Wallop, Kim and
Lewis, P.A. as of December 31, 1994, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

Dallas, Texas,
February 21, 1997

F-25
<PAGE> 229

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 55,536
Accounts receivable, net of contractual allowances and
allowances for bad debts of $5,601,217................. 1,610,959
Prepaid expenses and other current assets................. 31,776
----------
Total current assets.............................. 1,698,271
PROPERTY AND EQUIPMENT, net................................. 2,082,667
OTHER ASSETS, net........................................... 59,152
----------
Total assets...................................... $3,840,090
==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 66,599
Accrued salaries and benefits............................. 193,604
Current portion of long-term debt......................... 583,166
----------
Total current liabilities......................... 843,369
LONG-TERM DEBT, net of current portion...................... 1,103,334
----------
Total liabilities................................. 1,946,703
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY.............................................. 1,893,387
----------
Total liabilities and owners' equity.............. $3,840,090
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-26
<PAGE> 230

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

STATEMENT OF INCOME

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1994
------------------
<S> <C>
REVENUES:
Medical service revenue, net.............................. $6,610,667
Other revenue............................................. 1,623
----------
Total revenue..................................... 6,612,290
----------
COSTS AND EXPENSES:
Costs of affiliated physician services.................... 3,115,789
Practice salaries, wages, and benefits.................... 1,393,081
Practice supplies......................................... 343,111
Practice rent and lease expense........................... 273,325
Depreciation and amortization............................. 503,325
Other practice expenses................................... 1,056,496
Interest expense.......................................... 149,012
----------
Total costs and expenses.......................... 6,834,139
----------
NET LOSS.................................................... $ (221,849)
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-27
<PAGE> 231

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

STATEMENT OF OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
BALANCE, December 31, 1993.................................. $2,115,236
Net loss.................................................. (221,849)
----------
BALANCE, December 31, 1994.................................. $1,893,387
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-28
<PAGE> 232

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(221,849)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Depreciation and amortization.......................... 503,325
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.......................... 266,981
Prepaid expenses and other current assets......... (31,776)
Other assets...................................... (54,042)
Increase (decrease) in --
Accounts payable and accrued expenses............. (53,808)
Accrued salaries and benefits..................... 170,461
---------
Net cash provided by operating activities....... 579,292
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (51,236)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt............................... (583,166)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (55,110)
CASH AND CASH EQUIVALENTS, beginning of period.............. 110,646
---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 55,536
=========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest.................................... $ 149,012
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-29
<PAGE> 233

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Drs. Thomas, Wallop, Kim and Lewis, P.A. (d/b/a Arundel Radiology, or
"Arundel") is a professional services corporation that is engaged in the
practice of medicine, specializing in radiology in Baltimore, Maryland. The
accompanying financial statements have been prepared on the accrual basis of
accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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. Contractual adjustments result from
the differences between the rates charged by the physicians for services
performed and the amounts allowed by the Medicare and Medicaid programs and
other public and private insurers.

Property and Equipment

Property and equipment are recorded at cost. Depreciation on furniture,
fixtures, and equipment is calculated using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized using
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.

Income Taxes

Arundel is a taxable corporation and historically has not incurred
significant tax liabilities for federal or state income taxes. Compensation to
physician owners has traditionally reduced taxable income to nominal levels.
This relationship would be expected to continue in the future. Because of this
practice, provisions for income taxes and deferred tax assets and liabilities
are not material and have not been reflected in the financial statements.

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
Arundel'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, Arundel participates in agreements with managed care organizations
to provide services at negotiated rates.

Concentration of Credit Risk

Arundel extends credit to patients covered by programs such as Medicare and
Medicaid and private insurers. Arundel 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.

F-30
<PAGE> 234

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS)
----------------
<S> <C> <C>
Equipment................................................ 5-7 $4,245,053
Leasehold improvements................................... 9-11 806,717
Furniture and fixtures................................... 5-10 549,052
----------
5,600,822
Less -- Accumulated depreciation and amortization........ (3,518,155)
----------
Property and equipment, net.................... $2,082,667
==========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<S> <C>
Note payable to bank, bearing interest at the prime rate,
due in 1997. Monthly payments of $17,688 plus interest,
collateralized by certain furniture and equipment......... $ 635,591
Note payable to bank, bearing interest at the prime rate
plus 1/4%, due in 1997. Monthly payments of $30,909 plus
interest, collateralized by furniture and equipment....... 1,050,909
----------
Long-term debt.................................... 1,686,500
Less -- Current maturities........................ (583,166)
----------
Long-term debt, net of current portion............ $1,103,334
==========
</TABLE>

As of December 31, 1994, the aggregate amounts of annual principal
maturities of long-term debt are as follows:

<TABLE>
<S> <C>
1995..................................................... $ 583,166
1996..................................................... 583,166
1997..................................................... 520,168
----------
Total.................................................... $1,686,500
==========
</TABLE>

5. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:

F-31
<PAGE> 235

DRS. THOMAS, WALLOP, KIM AND LEWIS, P.A.
(D/B/A ARUNDEL RADIOLOGY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

accounts payable and accrued expenses approximate fair value due to the short
maturity of these instruments. The carrying amount of the Arundel's long-term
debt approximates fair value.

6. COMMITMENTS AND CONTINGENCIES:

Leases

Lease expense of approximately $414,000 for the year ended December 31,
1994, consists of building rent.

The following is a schedule of future minimum lease payments under
noncancelable operating leases as of December 31, 1994:

Litigation

Arundel is subject to various claims and legal actions which arise in the
ordinary course of business. Arundel has insurance to protect against such
claims or legal actions. In the opinion of management, the ultimate resolution
of such matters will be adequately covered by the insurance and will not have a
material adverse effect on Arundel's financial position or results of
operations.

7. EMPLOYEE BENEFIT PLAN:

Arundel has a profit sharing plan which provides for Arundel to make
discretionary contributions. There were no contributions made to the plan by
Arundel in 1994.

Arundel does not provide postretirement or postemployment benefits to
employees.

8. SUBSEQUENT EVENT:

Arundel joined Drs. Copeland, Hyman and Shackman, P.A.; Drs. DeCarlo, Lyon,
Hearn and Pazourek, P.A.; Diagnostic Imaging Associates, P.A.; and Carroll
Imaging Associates, P.A. to form Advanced Radiology, LLC ("Advanced") on January
1, 1995. Each P.A. became a Class B Member and each individual doctor became a
Class A Member.

Arundel physicians agreed to provide services to the Advanced in exchange
for a percentage interest. In addition, Arundel agreed to contribute its
existing business, including partnership and joint venture interests, income or
participation rights, and equipment. Arundel's long-term debt relating to all
operational assets, as well as all leases, was also contributed to the Advanced.
Arundel shareholders will have a 15.7% interest in the Company.

F-32
<PAGE> 236

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Diagnostic Imaging Associates, P.A.:

We have audited the accompanying balance sheet of Diagnostic Imaging
Associates, P.A. as of September 30, 1994, and the related statements of income,
owners' equity and cash flows for the year 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diagnostic Imaging
Associates, P.A. as of September 30, 1994, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

Dallas, Texas,
February 21, 1997

F-33
<PAGE> 237

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 383,848
Accounts receivable, net of allowance for bad debts and
contractuals of $1,142,352............................. 1,403,089
Prepaid expenses and other current assets................. 83,012
----------
Total current assets.............................. 1,869,949
PROPERTY AND EQUIPMENT, net................................. 988,010
INVESTMENT IN JOINT VENTURE................................. 167,705
OTHER NONCURRENT ASSETS, net................................ 61,994
----------
Total assets...................................... $3,087,658
==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 108,300
Accrued salaries and benefits............................. 516,097
Short-term notes.......................................... 200,000
Current maturities of long-term debt...................... 169,918
Capitalized lease payable................................. 17,547
----------
Total current liabilities......................... 1,011,862
LONG-TERM DEBT, net of current portion...................... 501,723
----------
Total liabilities................................. 1,513,585
COMMITMENTS AND CONTINGENCIES
OWNERS' EQUITY.............................................. 1,574,073
----------
Total liabilities and owners' equity.............. $3,087,658
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-34
<PAGE> 238

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1994
-------------
<S> <C>
REVENUES:
Medical service revenue, net.............................. $7,273,697
Other revenue............................................. 13,446
----------
Total revenue..................................... 7,287,143
----------
COSTS AND EXPENSES:
Costs of affiliated physician services.................... 3,949,182
Practice salaries, wages, and benefits.................... 1,883,155
Practice supplies......................................... 72,604
Practice rent and lease expense........................... 179,112
Depreciation and amortization............................. 227,066
Other practice expenses................................... 902,947
Interest expense.......................................... 64,192
----------
Total costs and expenses.......................... 7,278,258
----------
NET INCOME.................................................. $ 8,885
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-35
<PAGE> 239

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

STATEMENT OF OWNERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1994

<TABLE>
<S> <C>
BALANCE, September 30, 1993................................. $1,558,092
Issuance of capital stock................................. 7,096
Net income................................................ 8,885
----------
BALANCE, September 30, 1994................................. $1,574,073
==========
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-36
<PAGE> 240

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1994
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,885
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 225,069
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.......................... (45,483)
Prepaid expenses and other current assets......... 132,788
Other noncurrent assets........................... (33,002)
Increase (decrease) in --
Accounts payable and accrued expenses............. 22,785
Accrued salaries and benefits..................... (72,441)
Short-term notes.................................. 200,000
----------
Net cash provided by operating activities....... 438,601
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.................. (25,068)
Investment in joint venture............................... (167,705)
----------
Net cash used in investing activities........... (192,773)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock................................. 7,096
Repayment of long-term debt............................... (196,824)
----------
Net cash used in financing activities........... (189,728)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 56,100
CASH AND CASH EQUIVALENTS, beginning of period.............. 327,748
----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 383,848
==========
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest.................................... $ 64,192
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-37
<PAGE> 241

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994

1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:

Diagnostic Imaging Associates, P.A. (DIAPA) is a professional services
corporation that is engaged in the practice of medicine, specializing in
radiology in Baltimore, Maryland. The accompanying financial statements have
been prepared on the accrual basis of accounting.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable

Property and Equipment

Income Taxes

DIAPA is a taxable corporation and historically has not incurred
significant tax liabilities for federal or state income taxes. Compensation to
physician owners has traditionally reduced taxable income to nominal levels.
This relationship would be expected to continue in the future. Because of this
practice, provisions for income taxes and deferred tax assets and liabilities
are not material and have not been reflected in the financial statements.

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
DIAPA'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, DIAPA participates in agreements with managed care organizations
to provide services at negotiated rates.

Concentration of Credit Risk

DIAPA extends credit to patients covered by programs such as Medicare and
Medicaid and private insurers. DIAPA 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.

F-38
<PAGE> 242

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

3. PROPERTY AND EQUIPMENT:

Property and equipment consists of the following:

<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES (YEARS)
----------------
<S> <C> <C>
Equipment.................................................. 5-10 $ 851,177
Leasehold improvements..................................... 7 550,709
Furniture and fixtures..................................... 5-10 417,879
----------
$1,819,765
Less -- Accumulated depreciation and amortization.......... (831,755)
----------
Property and equipment, net...................... $ 988,010
==========
</TABLE>

4. SHORT-TERM NOTES PAYABLE:

Short-term notes payable as of September 30, 1994, consist of a revolving
line of credit with the bank, bearing interest at prime plus 1/2%, with
principal payable on demand. Total amounts available under this line of credit
are $200,000, all of which was outstanding as of September 30, 1994.

5. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<S> <C>
Note payable to bank, bearing interest at the prime rate
plus 3/4%, due in 1998. Monthly payments of $10,000 plus
interest, collateralized by certain equipment, accounts
receivable and personal guarantees of the physicians...... $ 409,708
Note payable to bank, bearing interest at the prime rate
plus 1%, due in 1999. Monthly payments of $4,167 plus
interest, collateralized by equipment, accounts receivable
and personal guarantees of the physicians................. 261,933
---------
Long-term debt.................................... 671,641
Less -- Current maturities........................ (169,918)
---------
Long-term debt, net of current portion............ $ 501,723
=========
</TABLE>

The aggregate amounts of annual principal maturities of long-term debt in
each of the next five years from September 30, 1994, are as follows:

<TABLE>
<S> <C>
1995...................................................... $169,918
1996...................................................... 169,918
1997...................................................... 169,918
1998...................................................... 99,712
1999...................................................... 62,175
--------
Total........................................... $671,641
========
</TABLE>

F-39
<PAGE> 243

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES:

Capitalized Lease

DIAPA leases equipment from Mercedes-Benz Credit Corporation under a
purchase option lease agreement which expires in June 1995. At September 30,
1994, minimum annual rental commitments under the purchase option lease are
$17,547. Upon payment of all obligations of the lease, the equipment can be
purchased for the sum of one dollar ($1.00). The lease has been accounted for as
a capital lease.

Operating Lease

Lease expense of approximately $178,000 for the year ended September 30,
1994, consists of building space leased from an affiliate, Loch Raven Radiology
Building Limited Partnership. This lease provides for minimum annual rentals of
$178,000 through September 30, 1998, plus annual increases based on the greater
of the Consumer Price Index or 4%.

Litigation

DIAPA is subject to various claims and legal actions which arise in the
ordinary course of business. DIAPA has insurance to protect against such claims
or legal actions. In the opinion of management, the ultimate resolution of such
matters will be adequately covered by the insurance and will not have a material
adverse effect on DIAPA's financial position or results of operations.

7. EMPLOYEE BENEFIT PLAN:

DIAPA has a 401(k) profit-sharing plan which provides for DIAPA to make
matching contributions. Total contributions made to the plan by DIAPA in 1994
were $353,873.

DIAPA does not provide post-retirement or post-employment benefits to
employees.

8. DISCLOSURES ABOUT THE 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,
accrued expenses, short-term notes, and capitalized lease approximate fair value
due to the short maturity of these instruments. The carrying amount of DIAPA's
long-term debt also approximates fair value.

9. INVESTMENT IN JOINT VENTURE:

Effective July 1, 1994, DIAPA acquired a fifty percent interest in Greater
Baltimore Diagnostic Imaging Partnership (GBDIP), a general partnership, from
LaSalle Pavilion, Inc. ("LaSalle"), in settlement of amounts owed to DIAPA by
LaSalle. The investment in GBDIP is accounted for under the equity method.

Summary information from the unaudited financial statements of GBDIP as of
and for the year ended June 30, 1994, is as follows:

<TABLE>
<S> <C>
Current assets........................................... $ 499,890
Total assets............................................. 594,876
Current liabilities...................................... 58,631
Partners' equity......................................... 536,245
Revenue.................................................. 1,413,865
Net income............................................... $ 158,018
</TABLE>

F-40
<PAGE> 244

DIAGNOSTIC IMAGING ASSOCIATES, P.A.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

DIAPA provides management and billing services to GBDIP. GBDIP reimburses
DIAPA on a monthly basis. At September 30, 1994, DIAPA had incurred expenses
totaling $45,272 which were subsequently reimbursed by GBDIP.

10. SUBSEQUENT EVENT:

DIAPA joined Drs. Copeland, Hyman and Shackman, P.A.; Drs. DeCarlo, Lyon,
Hearn and Pazourek, P.A.; Drs. Thomas, Wallop, Kim and Lewis, P.A.; and Carroll
Imaging Associates, P.A. to form Advanced Radiology, LLC ("Advanced") on January
1, 1995. Each P.A. became a Class B Member and each individual doctor became a
Class A Member.

DIAPA physicians agreed to provide services to Advanced in exchange for a
percentage interest. In addition, DIAPA agreed to contribute its existing
business, including partnership and joint venture interests, income or
participation rights, and equipment. DIAPA's debt relating to all operational
assets, as well as all leases, was also contributed to Advanced. DIAPA
shareholders will hold a 21.0% interest in Advanced.

F-41
<PAGE> 245

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, 1996, 1995 and 1994, 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, 1996, 1995, and 1994, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

January 3, 1997.

F-42
<PAGE> 246

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, ---------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash.................................. $2,050,973 $ 199,048 $ 268,854 $ 1,125,970
Accounts receivable, net of allowance
for doubtful accounts and
contractual adjustments of
$1,711,461, $1,857,000, $2,425,000
and $1,659,000 at March 31, 1997,
June 30, 1996, 1995 and 1994,
respectively........................ 4,566,994 4,770,648 4,235,067 4,612,137
Supplies on hand...................... 98,789 116,938 99,177 115,410
Prepaids and deposits................. 133,750 23,085 65,247 237,511
----------- ----------- ----------- -----------
Total current assets............ 6,850,506 5,109,719 4,668,345 6,091,028
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Radiology equipment................... 5,139,809 5,147,974 5,000,123 4,548,498
Furniture and fixtures................ 1,458,211 1,560,388 1,534,760 1,080,761
Leasehold improvements................ 409,119 409,862 555,785 548,022
----------- ----------- ----------- -----------
7,007,139 7,118,224 7,090,668 6,177,281
Less -- Accumulated depreciation...... (6,145,831) (5,787,413) (5,104,880) (4,633,849)
----------- ----------- ----------- -----------
861,308 1,330,811 1,985,788 1,543,432
----------- ----------- ----------- -----------
OTHER ASSETS:
Purchase deposits..................... -- -- -- 459,168
Cash surrender value of life insurance
policies............................ 337,326 337,326 314,591 301,899
Refundable bonds...................... -- 43,950 50,950 53,050
Other assets.......................... 30,304 38,541 10,274 14,788
----------- ----------- ----------- -----------
367,630 419,817 375,815 828,905
----------- ----------- ----------- -----------
TOTAL ASSETS............................ $8,079,444 $ 6,860,347 $ 7,029,948 $ 8,463,365
=========== =========== =========== ===========

LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
Line of credit........................ $ -- -- $ 200,000 $ 600,000
Accounts payable...................... 848,513 755,391 759,743 684,870
Current portion of long-term debt..... 380,000 380,000 841,463 918,432
Accrued liabilities................... 751,141 355,346 77,628 65,200
Accrued profit sharing................ -- -- 240,678 --
Accrued vacation...................... 342,579 342,579 320,027 320,027
----------- ----------- ----------- -----------
Total current liabilities....... 2,322,233 1,833,316 2,439,539 2,588,529
----------- ----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt........................ 1,248,046 1,361,667 1,145,650 1,524,448
Life insurance loans payable.......... -- 171,379 167,613 167,613
Deferred income taxes................. 1,710,702 1,185,742 811,965 1,003,292
----------- ----------- ----------- -----------
2,958,748 2,718,788 2,125,228 2,695,353
----------- ----------- ----------- -----------
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 2,000
Additional paid-in capital............ 3,268 3,268 3,268 3,268
Retained earnings..................... 2,793,045 2,034,754 1,594,827 1,665,141
Partners' capital..................... -- 268,071 865,036 1,509,174
Less -- Treasury stock................ (250) (250) (250) (100)
----------- ----------- ----------- -----------
Total stockholders' equity and
partners' capital............. 2,798,463 2,308,243 2,465,181 3,179,483
----------- ----------- ----------- -----------
TOTAL LIABILITIES, STOCKHOLDERS'
EQUITY AND PARTNERS'
CAPITAL....................... $8,079,444 $ 6,860,347 $ 7,029,948 $ 8,463,365
=========== =========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these balance sheets.

F-43
<PAGE> 247

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
MARCH 31, JUNE 30,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Medical service revenue,
net..................... $19,850,814 $19,742,455 $25,996,948 $25,521,062 $24,291,013
Other revenue.............. -- -- 22,736 12,692 12,541
----------- ----------- ----------- ----------- -----------
19,850,814 19,742,455 26,019,684 25,533,754 24,303,554
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Costs of affiliated
physician services...... 9,419,119 7,886,826 11,483,239 10,935,981 10,322,239
Practice salaries wages and
benefits................ 2,350,715 2,390,001 3,080,586 3,141,263 2,964,349
Practice supplies.......... 972,452 1,162,179 1,558,493 1,597,236 1,549,840
Practice rent and lease
expense................. 2,874,450 2,724,467 3,598,904 3,532,920 3,201,278
Depreciation and
amortization............ 489,549 616,228 835,326 838,919 726,335
Other practice expenses.... 2,361,366 2,440,607 3,356,050 3,241,889 2,818,445
Interest expense........... 97,753 150,394 202,195 225,447 218,059
----------- ----------- ----------- ----------- -----------
Total costs and
expenses......... 18,565,404 17,370,702 24,114,793 23,513,655 21,800,545
----------- ----------- ----------- ----------- -----------
INCOME BEFORE (PROVISION FOR)
BENEFIT FROM DEFERRED
INCOME TAXES............... 1,285,410 2,371,753 1,904,891 2,020,099 2,503,009
(PROVISION FOR) BENEFIT FROM
DEFERRED INCOME TAXES...... (527,119) (374,977) (374,977) 182,454 (292,582)
----------- ----------- ----------- ----------- -----------
NET INCOME................... $ 758,291 $ 1,996,776 $ 1,529,914 $ 2,202,553 $ 2,210,427
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these statements.

F-44
<PAGE> 248

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, 1993..... 2,000 $2,000 $3,268 $1,268,733 $1,155,168 $(100) $2,429,069
Net income................. -- -- -- 396,408 1,814,019 -- 2,210,427
Capital contributions...... -- -- -- -- 46,237 -- 46,237
Capital distributions...... -- -- -- -- (1,506,250) -- (1,506,250)
----- ------ ------ ---------- ---------- ----- ----------
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 income (unaudited)..... -- -- -- 758,291 -- -- 758,291
Capital distributions
(unaudited).............. -- -- -- -- (268,071) -- (268,071)
----- ------ ------ ---------- ---------- ----- ----------
BALANCE, March 31, 1997
(unaudited).............. 2,400 $2,400 $3,268 $2,793,045 $ -- $(250) $2,798,463
===== ====== ====== ========== ========== ===== ==========
</TABLE>

The accompanying notes to combined financial statements are an integral part of
these statements.

F-45
<PAGE> 249

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, YEARS ENDED JUNE 30,
---------------------------- ---------------------------------------
1997 1996 1996 1995 1994
------------ ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 758,291 $ 1,996,776 $ 1,529,914 $ 2,202,553 $ 2,210,427
---------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization.......... 489,549 616,228 835,326 838,919 726,336
Deferred taxes......................... 524,960 374,177 373,777 (191,327) 290,426
(Increase) decrease in accounts
receivable........................... 203,654 (158,026) (535,581) 377,070 (341,712)
Decrease (increase) in prepaids and
deposits............................. (110,665) 26,553 42,162 172,264 81,533
(Increase) decrease in supplies on
hand................................. 18,149 10,511 (17,761) 16,233 (873)
(Increase) decrease in other assets.... 8,237 12,274 (28,267) 4,514 2,868
Increase (decrease) in accounts
payable.............................. 93,122 258,780 (4,352) 74,873 (111,494)
Increase (decrease) in accrued profit
sharing.............................. -- (240,678) (240,678) 240,678 --
Increase (decrease) in accrued
liabilities.......................... 395,795 99,566 300,270 12,428 (76,052)
---------- ----------- ----------- ----------- -----------
Total adjustments................. 1,622,801 999,385 724,896 1,545,652 571,032
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities...................... 2,381,092 2,996,161 2,254,810 3,748,205 2,781,459
---------- ----------- ----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (20,046) (178,900) (180,349) (1,281,275) (475,110)
(Increase) decrease in purchase
deposits............................... -- -- -- 459,168 (364,578)
Decrease in refundable bonds.............. 43,950 -- 7,000 2,100 --
Capital contributions and net stock
purchases.............................. -- -- 68,761 150 46,237
Capital distributions..................... (268,071) (1,517,736) (1,755,613) (2,917,005) (1,506,250)
Increase in cash surrender value of life
insurance policies..................... -- -- (22,735) (12,692) (12,541)
---------- ----------- ----------- ----------- -----------
Net cash used by investing
activities...................... (244,167) (1,696,636) (1,882,936) (3,749,554) (2,312,242)
---------- ----------- ----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit.......... -- (200,000) (200,000) (400,000) (208,920)
Principal payments on long-term debt...... (285,000) (150,447) (633,585) (910,767) (819,667)
Net proceeds from issuance of long-term
debt................................... -- -- 391,905 455,000 1,044,000
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by financing
activities........................... (285,000) (350,447) (441,680) (855,767) 15,413
---------- ----------- ----------- ----------- -----------

NET INCREASE (DECREASE) IN CASH............. 1,851,925 949,078 (69,806) (857,116) 484,630

CASH, beginning of year..................... 199,048 268,854 268,854 1,125,970 641,340
---------- ----------- ----------- ----------- -----------
CASH, end of year........................... $2,050,973 $ 1,217,932 $ 199,048 $ 268,854 $ 1,125,970
========== =========== =========== =========== ===========
</TABLE>

The accompanying notes to combined financial statements are an integral
part of these statements.

F-46
<PAGE> 250

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994

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.

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>

Basis of Presentation -- Interim Financial Statements

F-47
<PAGE> 251

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 1996 1995 1994
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
M&T Bank-
Term loan agreement....................... (a) $1,741,667 $ -- $ --
Chase Manhattan Bank-
Term loan agreements...................... (b) -- 1,987,113
(c) -- -- 2,442,880
---------- ---------- ----------
1,741,667 1,987,113 2,442,880
Less- Current portion..................... (380,000) (841,463) (918,432)
---------- ---------- ----------
Long-term portion......................... $1,361,667 $1,145,650 $1,524,448
========== ========== ==========
</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 December 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) Ide refinanced this term loan agreement in fiscal 1996.

(c) Ide had a term loan agreement allowing borrowings up to a maximum of
$4,000,000 at prime plus 1/4% or 1/2% or at a fixed rate equal to the
Treasury rate plus 2.25% computed as of the date of the loan, at Ide's
option.

The aggregate annual maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1997..................................................... $ 380,000
1998..................................................... 380,000
1999..................................................... 380,000
2000..................................................... 380,000
2001..................................................... 221,667
----------
$1,741,667
==========
</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 (8.25% at June 30, 1996). There were no
borrowings outstanding under this line at June 30, 1996. The line of credit
agreement requires that there be no outstanding borrowings under the line for at
lease thirty consecutive days each year.

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 and $600,000 at June 30, 1995 and 1994. The
note was repaid in full and terminated in February 1996.

F-48
<PAGE> 252

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Partnership had available a $200,000 line of credit. Amounts borrowed
bear interest at the prime plus 1/2%. There were no outstanding balances under
this line of credit at June 30, 1994, respectively. Amounts borrowed are
collateralized by accounts receivable.

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 $422,474 of net
operating loss carryforwards as of June 30, 1996, which begin to expire in the
year 2006 through 2007.

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
six percent.

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 employees 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 $539,737, $518,107 and $588,227 for the years ended June
30, 1996, 1995 and 1994, respectively.

F-49
<PAGE> 253

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, 1996, 1995 and 1994 the vested amount of deferred compensation balances
total approximately $9,016,000, $7,329,000, and $6,970,000, 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, 1996 is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- ----------
<S> <C> <C>
1997............................................................... $ 493,557
1998............................................................... 466,529
1999............................................................... 283,685
2000............................................................... 155,514
2001............................................................... 64,797
----------
$1,464,082
==========
</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 PARTY:

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 $1,547,143, $1,324,882 and $1,161,287 in fiscal 1996, 1995 and
1994, 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, 1996, 1995 and 1994. 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, 1996, Ide has approximately $1,270,568 of accounts receivable
due from Health Maintenance Organizations ("HMO") 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 are derived from services
performed in the greater Rochester, New York metropolitan area.

F-50
<PAGE> 254

THE IDE GROUP, P.C.

IDE DIAGNOSTIC IMAGING ASSOCIATES

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Substantially all of the Companies' revenue are 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 Individual Practice Associations 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. While the impact and
timing of the adoption of RBRVS methodologies are not yet known with certainty,
it is expected that this change may have a material detrimental effect on Ide's
future operations.

11. SUPPLEMENTARY CASH FLOW DISCLOSURES:

Cash payments for income taxes and interest are as follows for the years
ended June 30:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes....................................... $ 1,200 $ 8,873 $ 2,156
-------- -------- --------
Interest........................................... $202,798 $224,452 $236,723
======== ======== ========
</TABLE>

12. EXCLUSIVE SUPPLY AGREEMENT:

In August 1990, IDIA entered into a thirty-year agreement with 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 partners of IDIA for the duration of their participation as
a partner and for two years thereafter.

Under the agreement, MICA granted IDIA the right of first refusal for the
thirty-year term of the agreement to provide professional radiology services at
facilities located in specific states in the Northeast except under certain
circumstances as outlined in the agreement.

IDIA also grants to MICA, for the thirty-year term of the agreement, the
right of first refusal to provide MRI equipment, cryogens and/or maintenance at
any location in specific states in the Northeast where IDIA obtains the right to
provide MRI equipment, cryogens and/or maintenance or owns, leases or subleases
office space for the purposes of providing MRI services.

IDIA and MICA also entered into an equipment lease covering MRI 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 IDIA using all leased MRI equipment.

If certain events occur under this agreement, IDIA may be required to
purchase all fixed and mobile MRI equipment owned by MICA and leased to IDIA as
well as to assume leases for fixed MRI equipment leased by MICA and subleased to
IDIA by MICA.

IDIA also may be required to pay MICA a pro-rated portion of the amount for
the exclusive supply contract.

During fiscal 1996, the exclusive supply agreement was assigned by IDIA to
Ide with the consent of MICA.

F-51
<PAGE> 255

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.

Dallas, Texas,
March 5, 1997

F-52
<PAGE> 256

M&S X-RAY PRACTICES

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 435,968 $ 425,619 $ 361,424
Accounts receivable, net of allowances of $5,650,732,
$4,887,279 and $6,379,293 at December 31, 1995 and
1996 and March 31, 1997, respectively............. 3,138,151 3,182,876 3,376,929
Other receivables.................................... 44,472 33,859 25,316
Prepaid expenses and other current assets............ 99,141 73,896 73,896
---------- ---------- ----------
Total current assets......................... 3,717,732 3,716,250 3,837,565
PROPERTY AND EQUIPMENT, net............................ 1,252,330 746,268 698,995
INVESTMENT IN JOINT VENTURES........................... 1,023,079 1,170,953 1,607,193
OTHER ASSETS, net...................................... 733,529 698,269 613,620
---------- ---------- ----------
Total assets................................. $6,726,670 $6,331,740 $6,757,373
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable..................................... $ 422,362 $ 190,036 197,158
Accrued expenses..................................... 382,943 24,669 24,669
Accrued salaries and benefits........................ 112,440 144,961 144,961
Current portion of deferred compensation............. 160,718 83,000 83,000
Current portion of long-term debt.................... 908,626 351,645 224,250
Current portion of capital lease obligations......... 11,773 12,783 12,783
---------- ---------- ----------
Total current liabilities.................... 1,998,862 807,094 686,821
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................. 541,842 212,408 157,636
---------- ---------- ----------
Total liabilities............................ 3,876,180 2,402,554 2,227,509
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES........ 314,858 346,033 422,936
OWNERS' EQUITY......................................... 2,535,632 3,583,153 4,106,928
---------- ---------- ----------
Total liabilities and owners' equity......... $6,726,670 $6,331,740 $6,757,373
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-53
<PAGE> 257

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $14,720,403 $14,776,742 $3,665,143 $3,405,029
Other revenue......................... 347,765 421,603 117,951 88,735
----------- ----------- ---------- ----------
Total revenue................. 15,068,168 15,198,345 3,783,094 3,493,764
COSTS AND EXPENSES:
Cost of affiliated physician
services........................... 8,866,396 8,703,013 1,604,573 1,818,110
Practice salaries, wages and
benefits........................... 1,227,517 1,337,633 239,850 521,780
Practice supplies..................... 495,959 583,610 145,400 141,789
Practice rent and lease expense....... 249,568 271,677 54,981 74,010
Depreciation and amortization......... 963,148 670,617 191,539 83,177
Other practice expense................ 1,907,070 1,541,530 842,663 303,262
Interest expense...................... 123,958 69,694 22,548 8,518
----------- ----------- ---------- ----------
Total costs and expenses...... 13,833,616 13,177,774 3,101,554 2,950,646
----------- ----------- ---------- ----------
INCOME BEFORE MINORITY INTERESTS AND
EQUITY IN EARNINGS OF INVESTMENTS..... 1,234,552 2,020,571 681,540 543,118
EQUITY IN EARNINGS OF INVESTMENTS....... 212,751 604,625 155,526 177,560
MINORITY INTERESTS IN INCOME OF
CONSOLIDATED SUBSIDIARIES............. (216,452) (249,365) (55,525) (76,903)
----------- ----------- ---------- ----------
NET INCOME.............................. $ 1,230,851 $ 2,375,831 $ 781,541 $ 643,775
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-54
<PAGE> 258

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
Distributions to shareholders (unaudited)................. (120,000)
Net income (unaudited).................................... 643,775
-----------
BALANCE, March 31, 1997 (unaudited)......................... $ 4,106,928
===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-55
<PAGE> 259

M&S X-RAY PRACTICES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------------
1995 1996 1996 1997
----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 1,230,851 $ 2,375,831 $ 781,541 $ 643,775
Adjustments to reconcile net income to net cash
provided by operating activities --
Minority interest in income of consolidated
subsidiaries.............................. 216,452 249,365 55,525 76,903
Depreciation and amortization............... 963,148 670,617 191,539 83,177
Investment income from joint ventures....... (212,751) (604,625) (155,526) (177,560)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.................. (417,068) (44,725) (509,842) (185,510)
Prepaid expenses and other current
assets................................. (33,748) 35,858 (79,547) 69,488
Increase (decrease) in --
Accounts payable and accrued expenses..... 383,567 (590,600) 101,491 7,122
Accrued salaries and benefits............. (58,284) 15,162 51,195 --
----------- ----------- --------- ---------
Net cash provided by operating
activities........................... 2,072,167 2,106,883 436,376 517,395
----------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (60,437) (99,295) (1,356) (20,743)
Contributions to joint venture................. -- (258,680)
Distributions received from joint ventures..... 188,790 426,751 62,114 --
----------- ----------- --------- ---------
Net cash provided by investing
activities........................... 128,353 327,456 60,758 (279,423)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................... 30,000 96,000 -- --
Repayment of long-term debt.................... (974,392) (982,415) (265,280) (182,167)
Principal payments on capital lease
obligation.................................. (5,534) (11,773)-- --
Proceeds from sale of stock.................... 100,000 100,000 74,049 --
Purchases of stock............................. (56,418) -- -- --
Distributions to stockholders and minority
interest holders............................ (1,633,511) (1,646,500) (100,662) (120,000)
----------- ----------- --------- ---------
Net cash used in financing
activities........................... (2,539,855) (2,444,688) (291,893) (302,167)
----------- ----------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS........ (339,335) (10,349) 205,241 (64,195)
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 $ 641,209 $ 361,424
=========== =========== ========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................. $ 122,937 $ 68,294 $ 22,548 $ 8,518
</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-56
<PAGE> 260

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-57
<PAGE> 261

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

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.

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-58
<PAGE> 262

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 March 31, 1996, and from January 1, 1997, to March 31,
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 (loss).................................. $ 143,974 $266,003 $ 826,283
Distributions to shareholders...................... $ -- $400,000 $ 515,000
</TABLE>

F-59
<PAGE> 263

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-60
<PAGE> 264

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-61
<PAGE> 265

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-62
<PAGE> 266

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.

Dallas, Texas,
March 19, 1997

F-63
<PAGE> 267

PACIFIC IMAGING CONSULTANTS

COMBINED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ -----------
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 $1,872,320 at December 31, 1995 and
1996 and March 31, 1997, respectively.............. 1,310,879 1,878,911 1,865,403
Prepaid pension expense............................... 197,049 2,100,113 2,100,113
Prepaid expenses and other............................ 62,072 197,251 122,041
---------- ---------- ----------
Total current assets.......................... 1,570,000 4,176,275 4,087,557
PROPERTY AND EQUIPMENT, net............................. 2,851,444 2,260,861 2,067,667
INTANGIBLE ASSETS, net.................................. 145,601 133,251 133,251
OTHER ASSETS, net....................................... 121,641 190,502 192,019
---------- ---------- ----------
Total assets.................................. $4,688,686 $6,760,889 $6,480,494
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable...................................... $ 412,823 $ 898,582 $ 799,238
Accrued salaries and benefits......................... 240,402 287,512 287,512
Accrued liabilities................................... 444,034 490,882 447,522
Deferred income tax liability......................... 165,440 868,958 886,575
Current portion of long-term debt..................... 1,522,779 844,241 844,241
---------- ---------- ----------
Total current liabilities..................... 2,785,478 3,390,175 3,265,088
DEFERRED INCOME TAX LIABILITY........................... 10,871 11,268 11,268
LONG-TERM DEBT, net of current portion.................. 2,742,162 3,133,004 2,945,537
OWNERS' EQUITY (DEFICIT)................................ (849,825) 226,442 258,601
---------- ---------- ----------
Total liabilities and owners' equity
(deficit)................................... $4,688,686 $6,760,889 $6,480,494
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-64
<PAGE> 268

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- ------------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenue, net.......... $11,245,044 $13,119,112 $2,765,584 $3,583,255
Other revenue......................... 203,296 175,408 43,055 38,912
----------- ----------- ---------- ----------
Total revenue................. 11,448,340 13,294,520 2,808,639 3,622,167
COSTS AND EXPENSES:
Costs to affiliated physician
services........................... 5,896,675 7,214,725 1,350,665 2,109,719
Practice salaries, wages and
benefits........................... 1,604,303 1,839,889 390,716 451,202
Practice supplies..................... 485,942 568,235 112,279 104,082
Practice rent and lease expense....... 355,073 384,615 91,231 110,022
Depreciation and amortization......... 996,058 981,289 244,252 239,228
Other practice expenses............... 1,739,436 1,939,384 355,011 480,335
Interest expense...................... 475,007 311,377 101,588 77,332
----------- ----------- ---------- ----------
Total costs and expenses...... 11,552,494 13,239,514 2,645,742 3,571,920
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE TAXES, UNUSUAL ITEM
AND EXTRAORDINARY ITEM................ (104,154) 55,006 162,897 50,247
UNUSUAL ITEM -- gain on curtailment of
defined benefit pension plan.......... -- 1,903,064 -- --
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES....... (104,154) 1,958,070 162,897 50,247
INCOME TAX EXPENSE...................... 104,194 715,493 58,642 18,088
----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM.................................. (208,348) 1,242,577 104,255 32,159
EXTRAORDINARY ITEM -- gain on
refinancing of debt................... -- 134,084 -- --
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (208,348) $ 1,376,661 $ 104,255 $ 32,159
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-65
<PAGE> 269

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)
Sale of stock............................................. (22,394)
Net income................................................ 1,376,661
Distributions............................................. (278,000)
----------
BALANCE, December 31, 1996.................................. 226,442
Net income (unaudited).................................... 32,159
----------
BALANCE, March 31, 1997 (unaudited)......................... $ 258,601
==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-66
<PAGE> 270

PACIFIC IMAGING CONSULTANTS

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------------
1995 1996 1996 1997
---------- ----------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ (208,348) $ 1,376,661 $ 104,255 $ 32,159
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities --
Depreciation and amortization............ 996,058 981,289 244,252 239,228
Deferred income taxes.................... 104,194 703,915 58,642 18,088
Gain on refinancing of debt.............. -- 134,084 -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net............ (114,465) (568,032) (44,766) 13,508
Prepaid pension expense............. 4,666 (1,903,064) -- --
Prepaid expenses and other.......... 33,991 (135,179) (151,594) 75,210
Other assets, net................... (72,334) (68,861) (98,420) (1,517)
Increase (decrease) in --
Accounts payable.................... 40,282 485,759 56,529 (99,344)
Accrued salaries and benefits....... (4,595) 47,110 (80,002) --
Accrued liabilities................. 360,805 46,848 185,239 (43,360)
---------- ----------- --------- --------
Net cash provided by operating
activities........................ 1,140,254 1,100,530 274,135 233,972
---------- ----------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (388,595) (378,356) (23,365) (46,505)
---------- ----------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................ 198,992 585,868 -- --
Repayment of long-term debt................. (921,727) (1,007,648) (250,770) (187,467)
Distributions to owners..................... (65,000) (278,000) -- --
Sale (purchases) of stock................... 36,076 (22,394) -- --
---------- ----------- --------- --------
Net cash used in financing
activities........................ (751,659) (722,174) (250,770) (187,467)
---------- ----------- --------- --------
NET CHANGE IN CASH............................ -- -- -- --
CASH, beginning of year....................... -- -- -- --
---------- ----------- --------- --------
CASH, end of year............................. $ -- $ -- $ -- $ --
========== =========== ========= ========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid.......................... $ 477,736 $ 283,081 $ 101,588 $ 77,332
Cash paid for income taxes.................. $ -- $ 11,578 $ -- $ --
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-67
<PAGE> 271

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-68
<PAGE> 272

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

F-69
<PAGE> 273

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-70
<PAGE> 274

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-71
<PAGE> 275

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-72
<PAGE> 276

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-73
<PAGE> 277

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.

Dallas, Texas,
February 21, 1997

F-74
<PAGE> 278

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 223,067 $ 173,258 $ 583,486
Accounts receivable, net of allowances of $1,664,580,
$1,922,264 and $2,163,784 at December 31, 1995, 1996
and March 31, 1997, respectively...................... 1,596,469 1,756,271 2,203,607
Prepaid expenses and other current assets............. 230,531 220,937 217,695
---------- ---------- ----------
Total current assets............................. 2,050,067 2,150,466 3,004,788

PROPERTY AND EQUIPMENT, net................................ 626,684 572,172 570,167

INVESTMENTS IN JOINT VENTURES.............................. 1,251,110 1,269,545 1,365,654

OTHER ASSETS, net.......................................... 85,361 88,368 88,452
---------- ---------- ----------
Total assets..................................... $4,013,222 $4,080,551 $5,029,061
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable......................................... $ 65,064 $ 64,561 $ 64,561
Accrued expenses......................................... 35,943 48,322 125,493
Accrued salaries and benefits............................ 399,750 361,571 455,686
Deferred income taxes.................................... 489,332 536,241 798,643
Short-term borrowings.................................... 1,400,000 1,400,000 1,400,000
Current portion of long-term debt........................ 174,371 186,611 176,414
---------- ---------- ----------
Total current liabilities........................ 2,564,460 2,597,306 3,020,797
LONG-TERM DEBT, net of current portion..................... 234,528 45,784 --
---------- ---------- ----------
Total liabilities................................ 2,798,988 2,643,090 3,020,797
COMMITMENTS AND CONTINGENCIES

OWNERS' EQUITY............................................. 1,214,234 1,437,461 2,008,264
---------- ---------- ----------
Total liabilities and owners' equity............. $4,013,222 $4,080,551 $5,029,061
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-75
<PAGE> 279

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF INCOME

COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 10,700,150 10,265,121 2,034,069 2,104,639
Practice salaries, wages and
benefits........................... 1,807,179 1,743,761 352,085 366,522
Practice supplies..................... 385,666 293,545 87,627 66,780
Practice rent and lease expense....... 260,347 272,617 65,087 65,087
Depreciation and amortization......... 187,612 202,058 51,592 49,657
Other practice expenses............... 816,860 822,598 154,599 218,388
Interest expense...................... 67,542 70,530 38,776 33,958
----------- ----------- ---------- ----------
Total costs and expenses...... 14,225,356 13,670,230 2,783,835 2,905,031
----------- ----------- ---------- ----------

INCOME (LOSS) BEFORE INCOME TAXES AND
EQUITY IN EARNINGS OF INVESTMENTS..... (376,726) (98,050) 317,335 739,358

EQUITY IN EARNINGS OF INVESTMENTS....... 311,311 292,442 96,187 96,110

INCOME TAX EXPENSE (BENEFIT)............ (33,212) 57,305 119,921 264,665
----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ (32,203) $ 137,087 $ 293,601 $ 570,803
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-76
<PAGE> 280

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).................................... 570,803
----------
BALANCE, March 31, 1997 (unaudited)......................... $2,008,264
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-77
<PAGE> 281

RADIOLOGY AND NUCLEAR MEDICINE, P.A.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------------
1995 1996 1996 1997
---------- ---------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (32,203) $ 137,087 $ 293,601 $570,803
Adjustments to reconcile net income (loss) to
net cash used in operating activities --
Depreciation and amortization.............. 187,612 202,058 51,592 49,657
Deferred income taxes...................... (63,815) 46,909 119,924 262,402
Equity in earnings of investments.......... (311,311) (292,440) (96,187) (96,110)
Gain on sale of assets..................... (2,410) (6,519) -- --
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net.............. 196,804 (159,802) (2,256) (447,336)
Prepaid expenses and other current
assets.............................. (14,393) 9,594 -- --
Other assets.......................... (6,231) (3,007) 3,107 3,158
Increase (decrease) in --
Accounts payable and accrued
expenses............................ (19,073) 11,876 -- 77,171
Accrued salaries and benefits......... 52,323 (38,178) -- 94,115
--------- --------- --------- --------
Net cash used in operating
activities....................... (12,697) (92,422) 369,781 513,860
--------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment, net..... (296,206) (147,547) (841) (47,651)
Proceeds from sale of fixed assets............ 2,410 7,020 -- --
Distributions from investments................ 515,447 273,502 -- --
--------- --------- --------- --------
Net cash provided by investing
activities....................... 221,651 132,975 (841) (47,651)
--------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt................... (185,023) (176,502) (453,346) (55,981)
Sale of treasury stock........................ -- 104,716 -- --
Dividends paid................................ (23,736) (18,576) -- --
--------- --------- --------- --------
Net cash used in financing
activities....................... (208,759) (90,362) (453,346) (55,981)
--------- --------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 195 (49,809) (84,406) 410,228
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 $ 138,661 $583,486
========= ========= ========= ========
SUPPLEMENTAL DISCLOSURE:
Cash interest paid............................ $ 67,542 $ 70,530 $ 38,776 $ 5,083
Cash income taxes paid........................ $ 30,603 $ 17,616 $ -- $ 2,263
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-78
<PAGE> 282

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-79
<PAGE> 283

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

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-80
<PAGE> 284

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-81
<PAGE> 285

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-82
<PAGE> 286

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-83
<PAGE> 287

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.

Dallas, Texas,
March 19, 1997

F-84
<PAGE> 288

ROCKLAND RADIOLOGICAL GROUP

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 198,387 $ 226,579 $ 321,438
Accounts receivable, net of allowances of $2,457,694,
$2,614,800 and $3,019,452 at September 30, 1995 and
1996 and March 31, 1997, respectively.............. 2,686,087 2,995,190 3,241,135
Prepaid expenses and other current assets............. 194,872 212,011 530,117
----------- ----------- -----------
Total current assets.......................... 3,079,346 3,433,780 4,092,690
PROPERTY AND EQUIPMENT, net............................. 3,811,459 4,152,971 5,624,622
DEFERRED INCOME TAX ASSET............................... 854,993 1,029,209 1,029,209
OTHER ASSETS, net....................................... 30,626 2,000 2,064,422
----------- ----------- -----------
Total assets.................................. $ 7,776,424 $ 8,617,960 $12,810,943
=========== =========== ===========

LIABILITIES AND OWNERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable...................................... $ 202,486 $ 196,728 $ 186,987
Accrued salaries and benefits......................... 604,948 541,492 541,492
Deferred income tax liability......................... 533,921 639,961 428,009
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 3,377,191
DEFERRED COMPENSATION................................... 2,592,054 3,167,979 3,167,979
CAPITAL LEASE OBLIGATIONS, net of current portion....... 2,557,615 1,364,515 537,669
LONG-TERM DEBT, net of current portion.................. 1,832,526 2,548,330 6,619,787
----------- ----------- -----------
Total liabilities............................. 10,120,476 10,596,304 13,702,626
OWNERS' EQUITY (DEFICIT)................................ (2,344,052) (1,978,344) (891,683)
----------- ----------- -----------
Total liabilities and owners' equity
(deficit)................................... $ 7,776,424 $ 8,617,960 $12,810,943
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-85
<PAGE> 289

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
--------------------------------------- ---------------------------
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 $7,651,963 $8,794,764
Other revenues........................ 2,023 1,110 30,759 149,062 101,843
----------- ----------- ----------- ---------- ----------
Total revenues................ 15,080,303 17,824,133 17,332,808 7,801,025 8,896,607
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 3,674,505 7,074,008 6,051,448 2,397,268 2,727,909
Practice salaries, wages and
benefits........................... 3,916,578 4,118,141 4,251,812 1,934,802 2,179,844
Practice supplies..................... 603,087 1,181,653 1,146,608 538,531 634,311
Practice rent and lease expense....... 188,399 163,878 110,413 54,615 48,951
Depreciation and amortization......... 1,605,316 1,628,181 1,350,324 704,191 614,286
Other practice expenses............... 3,565,411 4,001,394 3,577,232 1,340,720 1,472,188
Interest expense...................... 1,082,044 702,967 581,786 357,281 363,479
----------- ----------- ----------- ---------- ----------
Total costs and expenses...... 14,635,340 18,870,222 17,069,623 7,327,408 8,040,968
NET INCOME (LOSS) BEFORE INCOME TAXES... 444,963 (1,046,089) 263,185 473,617 855,639
INCOME TAX EXPENSE (BENEFIT)............ 57,662 (335,568) (71,023) (127,876) (231,022)
----------- ----------- ----------- ---------- ----------
NET INCOME (LOSS)....................... $ 387,301 $ (710,521) $ 334,208 $ 601,493 $1,086,661
=========== =========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-86
<PAGE> 290

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).................................... 1,086,661
-----------
BALANCE, March 31, 1997 (unaudited)......................... $ (891,683)
===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-87
<PAGE> 291

ROCKLAND RADIOLOGICAL GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------------ -----------------------
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 $ 601,493 $ 1,086,661
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities --
Depreciation and amortization............. 1,605,316 1,628,181 1,350,324 704,191 614,286
Deferred income taxes..................... 57,662 (335,568) (71,023) (127,876) (211,952)
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net............. (602,918) (163,544) (309,103) (199,850) (245,945)
Prepaid expenses and other current
assets............................. (175,810) 234,131 (17,139) 50,168 (318,106)
Other assets......................... 27,569 39,814 28,626 (64,338) (2,072,422)
Increase (decrease) in --
Accounts payable..................... 277,466 (296,427) (5,758) (15,320) (9,741)
Accrued salaries and benefits........ 10,656 280,840 (63,456) (41,000) --
Deferred compensation................ 46,693 753,358 575,925 -- --
---------- ---------- ---------- --------- -----------
Net cash provided by operating
activities...................... 1,633,935 1,430,264 1,822,604 907,468 (1,157,219)
---------- ---------- ---------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment......... (683,491) (275,043) (1,688,989) (757,297) (2,075,937)
---------- ---------- ---------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................. 2,877,000 132,750 1,710,030 441,977 3,986,322
Repayment of long-term debt.................. (3,018,703) (235,524) (769,105) (234,840) (256,139)
Principal payments on capital lease
obligations............................... (657,836) (1,231,754) (1,077,848) (474,047) (402,168)
Proceeds from sale of stock.................. 11,000 27,500 31,500 -- --
---------- ---------- ---------- --------- -----------
Net cash used in financing
activities...................... (788,539) (1,307,028) (105,423) (266,910) 3,328,015
---------- ---------- ---------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 161,905 (151,807) 28,192 (116,739) 94,859
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 $ 81,648 $ 321,438
========== ========== ========== ========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid........................... $ 602,225 $ 700,180 $ 607,321 $ 357,281 $ 363,479
Cash income taxes paid....................... $ -- $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-88
<PAGE> 292

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-89
<PAGE> 293

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

F-90
<PAGE> 294

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-91
<PAGE> 295

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-92
<PAGE> 296

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-93
<PAGE> 297

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.

Dallas, Texas,
March 19, 1997

F-94
<PAGE> 298

VALLEY RADIOLOGY GROUP

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS

DECEMBER 31,
------------------------ MARCH 31,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............. $1,212,535 $1,014,649 485,588
Accounts receivable, net of allowances
of $1,624,631, $2,021,861 and
$2,254,900 at December 31, 1995 and
1996 and March 31, 1997,
respectively....................... 1,632,342 1,616,645 1,841,229
Prepaid expenses and other............ 9,228 28,414 24,838
---------- ---------- ----------
Total current assets.......... 2,854,105 2,659,708 2,351,655
PROPERTY AND EQUIPMENT, net............. 198,263 1,253,425 1,288,443
INVESTMENTS IN AFFILIATED ENTITIES...... 369,172 104,031 102,039
NOTES RECEIVABLE........................ 428,448 405,500 404,500
OTHER ASSETS, net....................... 163,353 61,440 37,328
---------- ---------- ----------
Total assets.................. $4,013,341 $4,484,104 $4,183,965
========== ========== ==========

LIABILITIES AND OWNERS' EQUITY

CURRENT LIABILITIES:
Accounts payable...................... $ 229,216 $ 94,550 $ 91,999
Accrued salaries and benefits......... 944,296 757,428 239,712
Deferred income tax liability......... 156,004 259,988 311,923
Line of credit payable................ 57,000 825,100 --
Current portion of long-term debt..... 298,298 329,028 611,522
---------- ---------- ----------
Total current liabilities..... 1,684,814 2,266,094 1,255,156
DEFERRED INCOME TAX LIABILITY........... 8,344 37,261 37,261
LONG-TERM DEBT, net of current
portion............................... 675,142 395,065 852,294
---------- ---------- ----------
Total liabilities............. 2,368,300 2,698,420 2,144,711
OWNERS' EQUITY.......................... 1,645,041 1,785,684 2,039,254
---------- ---------- ----------
Total liabilities and owners'
equity...................... $4,013,341 $4,484,104 $4,183,965
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-95
<PAGE> 299

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical service revenues, net......... $10,156,958 $10,974,993 $2,543,800 $2,857,425
Other revenues........................ 350,331 198,605 89,273 33,063
----------- ----------- ---------- ----------
Total revenues................ 10,507,289 11,173,598 2,633,073 2,890,488
COSTS AND EXPENSES:
Costs of affiliated physician
services........................... 5,510,802 5,383,728 1,270,270 1,395,953
Practice salaries, wages and
benefits........................... 2,268,596 2,592,672 525,269 550,478
Practice supplies..................... 176,051 355,777 102,874 74,673
Practice rent and lease expense....... 466,155 420,260 111,016 115,653
Depreciation and amortization......... 168,900 223,248 37,395 72,361
Other practice expenses............... 1,385,743 1,337,118 323,689 348,163
Interest expense...................... 53,387 73,475 15,065 28,012
(Gain) loss on sale of equipment...... 20,099 (37,386) (4,465) (310)
----------- ----------- ---------- ----------
Total costs and expenses...... 10,049,733 10,348,892 2,381,113 2,584,983
INCOME BEFORE TAXES AND EQUITY IN
EARNINGS OF INVESTMENTS............... 457,556 824,706 251,960 305,505
EQUITY IN EARNINGS (LOSS) OF
INVESTMENTS........................... 13,698 (18,997) -- --
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAXES.............. 471,254 805,709 251,960 305,505
INCOME TAX EXPENSE (BENEFIT)............ (110,919) 132,901 42,833 51,935
----------- ----------- ---------- ----------
NET INCOME.............................. $ 582,173 $ 672,808 $ 209,127 $ 253,570
=========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-96
<PAGE> 300

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).................................... 253,570
----------
BALANCE, March 31, 1997 (unaudited)......................... $2,039,254
==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-97
<PAGE> 301

VALLEY RADIOLOGY GROUP

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31,
----------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 582,173 $ 672,808 $ 209,127 $ 253,570
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 168,900 223,248 37,395 72,361
Deferred income taxes............................ (110,919) 132,901 42,833 51,935
Investment income from affiliated entities....... (13,698) 18,997 1,910 1,992
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net....................... 242,584 15,697 (168,744) (224,584)
Prepaid expenses and other..................... (8,284) (19,186) (16,812) 3,576
Other assets................................... 10,508 28,242 (23,223) 24,112
Increase (decrease) in --
Accounts payable............................... (9,662) (134,666) 20,941 (2,551)
Accrued liabilities............................ (609,468) -- -- --
Accrued salaries and benefits.................. 703,728 (186,868) (754,595) (517,716)
---------- ---------- ---------- ----------
Net cash provided by operating activities... 955,862 751,173 (651,168) (337,305)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (14,671) (1,204,739) (105,328) (107,379)
Proceeds from notes receivable...................... 26,826 22,948 -- 1,000
Distributions from affiliated entities.............. 297,000 246,144 -- --
---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities................................ 309,155 (935,647) (105,328) (106,379)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................ 745,000 300,000 18,448 74,040
Repayment of long-term debt......................... (731,144) (549,347) (55,041) --
Net change in line of credit payable................ (143,000) 768,100 136,300 (159,417)
Distributions to owners............................. (208,449) (532,000) (292,500) --
Sales (purchases) of stock.......................... 1,304 (165) (32) --
---------- ---------- ---------- ----------
Net cash used in financing activities....... (336,289) (13,412) (192,825) (85,377)
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH....................... 928,728 (197,886) (949,321) (529,061)
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 $ 263,214 $ 485,588
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash interest paid.................................. $ 80,134 $ 73,475 $ 15,065 $ 28,012
Cash income taxes paid.............................. $ -- $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-98
<PAGE> 302

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-99
<PAGE> 303

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

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-100
<PAGE> 304

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-101
<PAGE> 305

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-102
<PAGE> 306

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-103
<PAGE> 307

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-104
<PAGE> 308
APPENDIX A

================================================================================

AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

dated as of

June __, 1997

by and among

AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation),

[AMERICAN PHYSICIAN PARTNERS SUBSIDIARY, INC.]
(a [ ] corporation),

and

TARGET ENTITY
( )

================================================================================

<PAGE> 309
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

RECITALS

A. The Company owns and operates a professional medical practice
specializing in radiology. All of the shares of the common stock of the 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 the Company intend that
APP Sub be merged with and into the Company, and that the 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 the Company have each determined to engage in the
transactions contemplated hereby, pursuant to which (i) APP Sub will merge with
and into the Company upon the terms and conditions set forth herein and in
accordance with the laws of the State of [ ], (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) the Company shall become a wholly-owned subsidiary of
APP.

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").

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 the 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.

1
<PAGE> 310
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 in 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.

2
<PAGE> 311
"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.

"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.

"Environmental Laws" shall have the meaning set forth in Section
3.21(e).

"ERISA" shall have the meaning set forth in Section 3.18.

3
<PAGE> 312
"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.

"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Section 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 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 the Company's assets or operations and purport to
regulate Medical Waste or impose requirements related to Medical Waste.

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"Merger" shall have the meaning set forth in Section 2.1.

"Merger Consideration" shall have the meaning set forth in Section
2.8(a).

"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 6992, et seq.

"NewCo" shall have the meaning set forth in the recitals to this
Agreement.

"NewCo Common Stock" shall mean the common stock, 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 the 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 the 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.

"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.

"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.

"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.

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"Stockholders" shall mean the stockholders of the 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 the
Company in accordance with this Agreement and the separate corporate existence
of the Disappearing Corporation shall thereupon cease (the "Merger"). The
Company shall be the Surviving Corporation in the Merger and shall continue to
be governed by the laws of the State of [ ], and the separate corporate
existence of the 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 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 [ ]
of the [ ] 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 [ ], 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").

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Section 2.4 Articles of Incorporation of Surviving Corporation.
Effective at the Effective Time, the Articles of Incorporation of the Company in
effect immediately prior to the Effective Time shall be amended and restated in
a manner satisfactory to APP. The Articles of Incorporation, as so amended and
restated, shall be the Articles 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 the 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 the 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.

Section 2.9 Exchange of Certificates Representing Shares of the Company
Common Stock.

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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, the Company
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 accurate records of the stock
ownership of record of the Company and the transfer record of the shares of its
capital stock.

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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 of the Company
consists of [ ] shares of the Company Common Stock, of which [ ] shares are
issued and outstanding. 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.

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").

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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;

(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

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(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.

Section 3.14 Lease Agreements. The Disclosure Schedules contain a true,
accurate and complete list of all the lease agreements and license agreements to
which the Company or any Company Subsidiary is a party and pursuant to which the
Company or any Company Subsidiary leases (whether as lessor or lessee) or
licenses (whether as licensor or licensee) any real or personal property related
to the 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.

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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.

(a) The Disclosure Schedules contain a true, accurate and
complete list, and the Company has delivered to APP true and complete copies, of
each contract, agreement and other instrument requiring the Company to make
future payments of $10,000 in any fiscal year or $25,000 in the aggregate (other
than insurance contracts identified in Section 3.23 or Lease Agreements
identified in Section 3.14) to which the Company is a party or by which it or
any of its properties or assets are bound including, without limitation, (i)
prior to the Spin-Off Transaction, all agreements between the Company, on the
one hand, and any Payor, government entity, provider, hospital, health
maintenance organization, other managed care organization or other third-party
provider, on the other hand, then in effect relating to the provision of
medical, diagnostic imaging or consulting services, treatments, patient
referrals or other similar activities, (ii) all indentures, mortgages, notes,
loan or credit agreements and other agreements and obligations relating to the
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring the Company to make, or setting forth
conditions under which the 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

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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 a
collective total of [ ] part-time and [ ] full-time employees and [ ] per diem
employees. 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.

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;

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(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.

(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.

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(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.

(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.

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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
discloses 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.

"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.

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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.

(a) The Disclosure Schedules set forth a list and aging of all
accounts receivable of the Company as of March 31, 1997, which list is complete,
true and accurate in all material respects. All such accounts receivable arose
in the ordinary course of business and have not been previously written off 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 owned 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.

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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.

(a) The Company, and each Physician Employee and other licensed
employee or independent contractor of the Company (i) is the holder of all valid
licenses, approvals, orders, consents, permits, registrations, qualifications
and other rights and authorizations required by law, ordinance, regulation or
ruling of any governmental regulatory authority necessary to operate its
business or his or her specialty and (ii) is eligible to participate in and to
receive reimbursement under Titles XVIII and XIX of the Social Security Act (the
"Medicare and Medicaid Programs") and any other programs funded in whole or in
part by federal, state or local entities for which the Company is eligible
("Governmental Programs"). The Company, the Stockholders, and each Physician
Employee has a current provider number for such Governmental Programs and with
such private non-governmental programs (including without limitation any private
insurance program) under which the Company is presently receiving payments
directly or indirectly from any Payor for patient care provided by such
Physician Employee, licensed employee or independent contractor (such
non-governmental programs herein referred to as "Private Programs"). A true,
correct and complete list of such licenses, permits and other authorizations
(including, but not limited to verification of Medicare and Medicaid 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.

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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").

(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 the Disclosure

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Schedules, (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.

(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]/[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.

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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.
Sections 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. Sections 24, 287, 371, 664, 669, 1001,
1027, 1035, 1341, 1343, 1347, 1518, 1954, 1956(c)(7)(F) and 3486.

Section 3.34 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon the Company, any
Company Subsidiary or officer, director or key employee of the Company or
Company Subsidiary, which has or reasonably could be expected to have the effect
of prohibiting or materially impairing the current medical practice of the
Company or any 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.

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ARTICLE IV

Representations and Warranties of APP

As inducement to the 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 the 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 the 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.

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 the 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.

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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").

Section 4.6 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance of this Agreement by APP and any other
documents contemplated hereby (with or without the giving of notice, the lapse
of time, or both): (i) does 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
APP; (ii) will not conflict with any provision of APP's certificate of
incorporation or bylaws; (iii) will not conflict with, result in a violation of,
or constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which APP is
a party or by which APP 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 permit
the acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which APP is a
party or by which APP or any of its properties are bound except for such
conflict, termination, 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

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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.

(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.

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(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. Schedule 4.13 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 the 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 Schedules. All 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.

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 the Company

The 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.

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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.

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:

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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.

ARTICLE VII

Covenants of the Company

The 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);

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(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;

(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.

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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.

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;

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(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.

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; 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.

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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.

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 the Company and its
authorized representatives of the 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 the 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 the Company and their representatives may reasonably request, all for
the sole purpose of permitting the Company to become familiar with the business
and assets and liabilities of APP and APP Sub. No investigation by the 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 the 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

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New 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 the Company

APP, APP Sub and the Company agree as follows:

Section 9.1 Filings; Other Action.

(a) The 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. The Company shall cooperate with APP in the
preparation of the Registration Statements and shall furnish all information
concerning the Company and NewCo as may be reasonably requested in connection
with any such action in a timely manner.

(b) The Company, APP and APP Sub and each separately represent and
warrant that (i) in the case of the 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. The 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. The Company shall have no responsibility for
information contained in the Registration Statements except for information
provided by the Company specifically for inclusion therein. The 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) The 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 Disclosure 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 Schedule that constitutes or reflects a
Material Adverse Effect on the 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
the 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 9.2. In the event that the
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

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or supplement a Disclosure Schedule pursuant to this Section 9.2, and the
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 the Company and NewCo in connection with the Merger
shall be paid by the 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 the 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 the 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. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company prior to the Effective Date.

Section 10.3 Legal Opinion. Counsel to the 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.

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.

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Section 10.5 No Material Adverse Effect. No Material Adverse Effect on
the 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. The 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. The Company shall have satisfied each
of its obligations to its Stockholders regarding dissenters or related rights
under [ ] Corporate 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 shall have executed and delivered to APP the
Stockholder Representation Letter in substantially the form of Exhibit C. Each
Principal 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
the 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 Schedule 10.14 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").

ARTICLE XI

Conditions Precedent of the Company

Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Effective
Date of each of the following conditions:

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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. The 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 March 31, 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. The 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.

Section 11.11 Tax Opinion. The Company shall have received from Haynes
and Boone, L.L.P. counsel to APP, 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, the 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

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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 [ ] 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 [ ];

(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 [ ] to address regulatory and compliance issues (the
"Service Agreement");

(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

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(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 the Company the following, all of which shall be in a form
reasonably satisfactory to the 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
states of Delaware and [ ];

(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;

(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.

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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 the 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 the 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 the 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 the 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 the Company to meet the requirements of Rule
145(d) under the Securities Act.

ARTICLE XIV

Remedies

Section 14.1 Indemnification by the Company. Subject to the terms and
conditions of this Article XIV, the 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;

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(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, 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 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 any 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:

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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 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.

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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.

(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 $100,000.

41
<PAGE> 350
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 or 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;

(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

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<PAGE> 351
and other advisers to APP, APP Sub, Surviving Corporation, NewCo and the 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 (ii) the 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 the 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 the 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
the 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 the
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 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 the Company under this
Agreement will be directly available to the Stockholders as third party
beneficiaries of the rights and remedies of the 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

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<PAGE> 352
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 the 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 ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF [ ].

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

44
<PAGE> 353
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, [ ] 92660
Fax No.: (714) 752-7522
Attn: Richard A. Fink, Esq.

If to the Company
or any Stockholder: ------------------------------
------------------------------
------------------------------
------------------------------

with a copy to: ------------------------------
------------------------------
------------------------------
------------------------------

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

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<PAGE> 354
capitalized and not otherwise defined therein shall have the meanings as
assigned to such terms in this Agreement.

[SIGNATURES CONTAINED ON NEXT PAGE]

46
<PAGE> 355
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:_____________________________________

THE COMPANY:

TARGET ENTITY

By:______________________________________
Its:_____________________________________

47
<PAGE> 356
EXHIBIT A
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

TARGET COMPANIES

A-1
<PAGE> 357
EXHIBIT B
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

MERGER CONSIDERATION

B-1
<PAGE> 358
EXHIBIT C
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

SHAREHOLDER REPRESENTATION LETTER

C-1
<PAGE> 359
EXHIBIT D
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

INDEMNIFICATION AGREEMENT

D-1
<PAGE> 360
EXHIBIT E
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

PHYSICIAN EMPLOYMENT AGREEMENT

E-1
<PAGE> 361
EXHIBIT F
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

SERVICE AGREEMENT

F-1

<PAGE> 362
EXHIBIT G
to
Agreement and Plan of Reorganization and Merger
dated ________, 1997

STOCKHOLDER RELEASE

G-1

<PAGE> 363
APPENDIX B

================================================================================

AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

dated as of

June __, 1997

by and between

AMERICAN PHYSICIAN PARTNERS, INC.
(a Delaware corporation)

and

TARGET ENTITY
( )

================================================================================

<PAGE> 364
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

RECITALS

A. The Company owns and operates (i) a professional medical practice(s)
specializing in radiology and (ii) diagnostic imaging centers. All of the shares
of the common stock 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 [ ] 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").

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 Sections 351 and 368 of the Internal
Revenue Code of 1986, as amended (the "Code") and the regulations promulgated
thereunder, as applicable.

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<PAGE> 365
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.

"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 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.

2
<PAGE> 366
"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 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).

"ERISA" shall have the meaning set forth in Section 3.18.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

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<PAGE> 367
"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.

"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.

"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.

"Medical Waste Laws" shall mean the following, including regulations
promulgated and orders issued thereunder, as in effect on the date hereof and
the Closing Date: (i) the MWTA, (ii) the U.S. Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 USCA Sections 2501 et seq., (iii) the Marine
Protection, Research, and Sanctuaries Act of 1972, 33 USCA Sections 1401 et
seq., (iv) The Occupational Safety and Health Act, 29 USCA Sections 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 the 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.

4
<PAGE> 368
"Merger Consideration" shall have the meaning set forth in Section
2.8(a).

"MWTA" shall mean the Medical Waste Tracking Act of 1988, 42 U.S.C.
Sections 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.