<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
RADIOLOGIX, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8099 75-2648089
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
3600 CHASE TOWER, 2200 ROSS AVENUE, DALLAS, TEXAS 75201, (214) 303-2776
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive officers)
Paul M. Jolas, Esq.
General Counsel, Senior Vice President and Secretary
Radiologix, Inc.
3600 Chase Tower
2200 Ross Avenue
Dallas, Texas 75201
(214) 303-2776
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
------------------------------
COPY TO:
William R. Hays, III
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202-3789
(214) 651-5000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS TO THE MERGER OF SKM-RD ACQUISITION CORP., A DELAWARE CORPORATION,
WITH AND INTO THE REGISTRANT PURSUANT TO AN AMENDED AND RESTATED AGREEMENT AND
PLAN OF MERGER, DATED AS OF SEPTEMBER 12, 2000, DESCRIBED IN THE ENCLOSED PROXY
STATEMENT/PROSPECTUS, HAVE BEEN SATISFIED OR WAIVED.
------------------------
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. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value per share 2,970,190 shares $7.25 $21,533,878 $5,685
</TABLE>
(1) This Registration Statement relates to the maximum number shares of common
stock of the Registrant to be retained by holders of the Registrant's common
stock in the proposed merger of SKM-RD Acquisition Corp. with and into the
Registrant with the Registrant continuing as the surviving corporation in
the merger.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act, based on the proposed
cash consideration of $7.25 per share offered to existing security holders
in the merger.
------------------------
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE>
[LOGO OF RADIOLOGIX]
[ ], 2000
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Radiologix, Inc. to be held on [ ], at 10:00 a.m., local time, at
2200 Ross Avenue, 39th floor, Dallas, Texas.
At this important meeting, you will be asked to consider and vote upon the
merger of Radiologix with an affiliate of Saunders Karp & Megrue, L.P., a
private investment firm. Pursuant to the merger, you may elect to receive $7.25
per share for some or all of your Radiologix common stock, or you may elect to
retain 1.1224 shares of Radiologix common stock for each share you own. The
stock and the total cash payment you receive will be subject to the election and
proration procedures described in the enclosed proxy statement/prospectus. To
elect to retain any shares in the merger, you must (1) own, or have the right to
purchase upon exercise of stock options, more than 3,000 shares immediately
before the merger, and (2) make a stock election with respect to at least 3,000
of those shares. If you own or have the right to purchase upon exercise of stock
options 3,000 or fewer shares, then you will not be able to make a stock
election but will receive $7.25 per share in cash, and your merger consideration
will not be subject to proration. You should complete a form of election or
instruct your broker to complete the form of election on your behalf, even if
you do not vote in favor of the merger or return your proxy.
Your board of directors has approved the merger agreement and has determined
that its terms are fair to, and in the best interests of, Radiologix and its
stockholders. Accordingly, your board recommends that you vote "FOR" adoption of
the merger agreement.
We cannot complete the merger unless the holders of a majority of the
outstanding Radiologix shares vote to adopt the merger agreement. Whether or not
you plan to attend the special meeting, please sign and return your proxy as
soon as possible in the enclosed self-addressed envelope so that your vote will
be recorded, or you may take advantage of our phone voting procedures. Even if
you return your proxy card or vote by phone, you may still attend the special
meeting and vote your Radiologix shares in person. Your vote is very important.
If you fail to return the proxy card, vote by phone or vote in person at the
special meeting, it will have the same effect as a vote against the merger
agreement.
The accompanying notice of meeting and proxy statement/prospectus explain
the proposed merger and provide specific information concerning the special
meeting. Please read these materials carefully, particularly the section
describing various risk factors relating to the merger that begins on page 14.
Sincerely,
[SIGNATURE]
Paul M. Jolas
General Counsel, Senior Vice-President
and Secretary
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the merger or the Radiologix shares to
be retained by stockholders in the merger, or passed upon the accuracy or
adequacy of the information contained in this document. Any representation to
the contrary is a criminal offense.
This proxy statement/prospectus is dated [ ], 2000 and is first
being mailed to stockholders on or about [ ], 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information that we file at the SEC's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549, or one of its public reference rooms in
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our public filings are
also available to the public from commercial document retrieval services and at
the Internet World Wide Web site maintained by the SEC at http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this document,
which means that we can disclose important information to you by referring you
to another document filed separately with the SEC. The information incorporated
by reference is deemed to be a part of this document, except for any information
superseded by information contained directly in this document. This document
incorporates by reference certain documents that we have previously filed with
the SEC. These documents contain important business information about Radiologix
and its financial condition.
We may have sent to you some of the documents incorporated by reference, but
you can obtain any of them through Radiologix or the SEC or the SEC's Internet
World Wide Web site described above. Documents incorporated by reference are
available from us without charge, excluding all exhibits unless specifically
incorporated by reference as an exhibit to this document. You may obtain
documents incorporated by reference in this document upon written or oral
request to the following address or telephone number:
RADIOLOGIX, INC.
3600 Chase Tower
2200 Ross Avenue
Dallas, Texas 75201
(214) 303-2776
Attention: Corporate Secretary
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM RADIOLOGIX, PLEASE DO SO BY NO
LATER THAN [ ], 2000 IN ORDER TO RECEIVE TIMELY DELIVERY OF THESE DOCUMENTS
PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your Radiologix shares at the special
meeting. We have not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated and
accurate as of [ ], 2000. You should not assume that the information
contained in this document is accurate as of any date other than that date, and
the mailing of this document to stockholders does not create any implication to
the contrary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We hereby incorporate the following documents previously filed by us with
the SEC (SEC File No. 0-23311) into this proxy statement/prospectus:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 1999;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
3. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
4. Our Proxy Statement dated April 28, 2000, for our annual meeting of
stockholders held on June 7, 2000; and
5. Our Form 8-A dated May 9, 2000.
We also incorporate by reference in this proxy statement/prospectus all
additional documents that we may file with the SEC between the date of this
proxy statement/prospectus and the date of the special meeting. These documents
include periodic reports, such as Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K. Any statements contained in a document incorporated by
reference in this proxy statement/prospectus will be deemed to be modified or
superseded by these reports to the extent that a subsequent statement contained
in these reports modifies or supersedes a statement contained in this proxy
statement/prospectus.
<PAGE>
[LOGO OF RADIOLOGIX]
RADIOLOGIX, INC.
3600 CHASE TOWER
2200 ROSS AVENUE
DALLAS, TEXAS 75201
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ], 2000
------------------------
Notice is hereby given that a special meeting of stockholders of
Radiologix, Inc., a Delaware corporation, will be held on [ ], 2000
at 10:00 a.m., local time, at 2200 Ross Avenue, 39th Floor, Dallas, Texas, for
the following purposes:
- To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of September 12, 2000, between
SKM-RD Acquisition Corp., SKM-RD LLC and Radiologix, pursuant to which
SKM-RD Acquisition Corp. will be merged with and into Radiologix. You may
elect to receive $7.25 per share in cash or retain 1.1224 shares of
Radiologix common stock for each share you own at the time of the merger
subject to certain conditions.
- To vote to adjourn the special meeting, if necessary.
A list of stockholders will be available for inspection by stockholders of
record during business hours at Radiologix, Inc., 3600 Chase Tower, 2200 Ross
Avenue, Dallas, Texas 75201, and will also be available at the special meeting.
Only those persons who were holders of record of Radiologix common stock at
the close of business on [ ], 2000, are entitled to notice of, and to
vote at, the special meeting.
Adoption of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Radiologix common stock
entitled to vote at the special meeting. The board of directors of Radiologix
has approved the merger and recommends that you vote "FOR" adoption of the
merger agreement.
Under Delaware law, you are entitled to appraisal rights in the merger. A
copy of the relevant sections of the Delaware statutes relating to dissenting
stockholders' appraisal rights is attached as Appendix C to the accompanying
proxy statement/prospectus.
The merger agreement and the merger are explained in the accompanying proxy
statement/ prospectus, which you are urged to read carefully. A copy of the
merger agreement is attached as Appendix A to the proxy statement/prospectus.
By order of the Board of Directors,
[SIGNATURE]
Paul M. Jolas
General Counsel, Senior Vice-President
and Secretary
Dallas, Texas
[ ], 2000
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement/prospectus includes and incorporates by reference
statements that are not historical facts. These forward-looking statements are
based on our current estimates and assumptions and, as such, involve uncertainty
and risk. Forward-looking statements include the information concerning our
possible or assumed future results of operations and also include those preceded
or followed by the words "anticipates," "believes," "estimates," "expects,"
"hopes," "targets," "intends" or similar expressions. For each of these
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The forward-looking statements are not guarantees of future performance, and
actual results may differ materially from those contemplated by these
forward-looking statements. Each of the factors discussed below under the
caption "Risk Factors" along with those discussed elsewhere in this proxy
statement/prospectus and in the documents which we incorporate by reference and
other factors, could affect our future results and could cause those results to
differ materially from those expressed in the forward-looking statements.
Except to the extent required under the federal securities laws, Radiologix
does not intend to update or revise the forward-looking statements to reflect
circumstances arising after the date of the preparation of the forward-looking
statements.
As used in this proxy statement/prospectus, the terms "Radiologix," "we,"
"us" and "our" refer to Radiologix, Inc., except where the context otherwise
requires or as otherwise indicated.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 5
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED FINANCIAL DATA
OF RADIOLOGIX, INC........................................ 11
HISTORICAL MARKET PRICE OF RADIOLOGIX COMMON STOCK.......... 14
RISK FACTORS................................................ 15
Risks Related to the Merger............................... 15
We will have a controlling stockholder after the merger
with the power to take unilateral action............... 15
Delisting our common stock will limit its liquidity and
may reduce its market value............................ 15
Your access to information about us may be reduced...... 15
If you receive a portion of the merger consideration in
cash, that cash may be taxed at a higher tax rate...... 16
Option grants to our management team after the merger
will dilute the holdings of stockholders who retain
their shares........................................... 16
Your right to receive cash or to retain shares may be
subject to proration, and not all Radiologix
stockholders will be eligible to retain shares......... 16
Our level of debt will reduce our net income and may
restrict our operations................................ 16
We do not anticipate paying any dividends on our common
stock following the merger............................. 17
The merger may be challenged as a fraudulent conveyance
by our creditors, which may permit our creditors to
recover any cash payment to you........................ 17
Risk Factors Relating to Radiologix....................... 18
Our income is dependent on referrals.................... 18
We may need additional capital.......................... 18
We could be harmed if the contracted radiology practices
terminate our service agreements or lose many
radiologists........................................... 19
Our success depends on our key personnel and we may not
be able to retain sufficient qualified personnel....... 19
Our inability to enforce non-competition agreements with
radiologists may increase competition.................. 19
We may not be able to contract successfully with new
radiology groups or to integrate successfully the
operations of acquisitions............................. 19
We and our contracted radiology practices may become
subject to burdensome lawsuits......................... 20
We may not be able to compete effectively with entities
with more established operating histories and greater
financial resources within a market area............... 21
Risk Factors Relating to Radiologix's Industry............ 21
State and federal fraud and abuse, anti-kickback and
anti-referral laws may adversely affect our income..... 21
Federal False Claims Act violations could affect our
participation in government programs................... 22
Our service agreements must be structured to avoid the
practice of medicine and fee splitting................. 22
Licensing and certification laws may limit our ability
to expand.............................................. 22
Compliance with the regulatory framework is uncertain
and evolving........................................... 23
Reimbursement changes and cost containment could result
in pressures on comparable per patient revenue......... 23
Managed care contracts and capitated fee arrangements
could reduce operating margins......................... 24
THE SPECIAL MEETING......................................... 25
General................................................... 25
Matters to be Considered.................................. 25
</TABLE>
<PAGE>
<TABLE>
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PAGE
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<S> <C>
Record Date and Quorum Requirement........................ 25
Vote Required............................................. 25
Proxies; Revocation....................................... 26
Adjournments.............................................. 27
BACKGROUND OF THE MERGER.................................... 27
Background of the Merger.................................. 27
Recommendations of the Radiologix Board of Directors;
Reasons for the Merger.................................. 32
Opinion of UBS Warburg LLC................................ 33
Certain Projected Financial Information................... 39
Projected Financial Information (unaudited)............... 40
THE MERGER.................................................. 41
The Participants.......................................... 41
Merger Consideration...................................... 42
Merger Financing.......................................... 45
Sources and Uses of Funds................................. 45
Directors and Officers of Radiologix After the Merger..... 47
Accounting Treatment...................................... 49
Governmental Approvals.................................... 49
United States Federal Income Tax Considerations........... 49
Interests of Certain Persons in the Merger................ 53
THE MERGER AGREEMENT........................................ 56
The Merger................................................ 56
Closing of the Merger..................................... 56
Effective Time............................................ 56
Surviving Corporation..................................... 56
Representations and Warranties............................ 57
Conduct of Business of Radiologix Prior to the Merger..... 58
Limitations on Solicitation of Competing Transactions..... 59
Reasonable Efforts........................................ 60
Access and Information.................................... 60
Accounting Treatment...................................... 60
Conditions to the Consummation of the Merger.............. 61
Termination............................................... 61
Termination Fees and Expenses............................. 62
Amendment and Waiver...................................... 63
THE VOTING AND EXCHANGE AGREEMENT........................... 64
STOCKHOLDERS AGREEMENT...................................... 64
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED FINANCIAL DATA
OF RADIOLOGIX, INC........................................ 65
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA..... 66
APPRAISAL RIGHTS............................................ 72
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND
OTHERS.................................................... 75
DESCRIPTION OF RADIOLOGIX CAPITAL STOCK..................... 76
Radiologix Existing Capital Stock......................... 76
Radiologix Capital Stock Following the Merger............. 76
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 77
LEGAL MATTERS............................................... 77
</TABLE>
<PAGE>
<TABLE>
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PAGE
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<S> <C>
STOCKHOLDER PROPOSALS....................................... 77
APPENDIX A--AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER.................................................... A-1
APPENDIX B--OPINION OF UBS WARBURG LLC...................... B-1
APPENDIX C--SECTION 262 OF THE DELAWARE GENERAL CORPORATION
LAW....................................................... C-1
APPENDIX D--FORM OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF RADIOLOGIX, INC.......................... D-1
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS RADIOLOGIX PROPOSING THE MERGER?
A: Your board of directors determined to approve the merger agreement and to
recommend your adoption of the merger agreement for the following reasons,
among others:
- an assessment by our board of directors relating to our financial
performance and future opportunities and prospects, including the risks
involved in achieving these prospects and current industry, economic and
market conditions. We have historically pursued a growth strategy based on
same-store and same-market growth in our existing businesses and growth in
acquisitions. Our ability to raise additional capital to pursue our growth
strategy has been hindered by the low trading price of our common stock
and the increased cost to us of debt financing;
- the risk that it might take a considerable period of time before the
trading price of our shares would equal the $7.25 per share cash
consideration;
- the premium offered in the merger over the historical market price and
recent trading activity of our common stock;
- the reputation and proven experience of Saunders Karp & Megrue in
completing similar transactions;
- the ability of a stockholder who owns more than 3,000 shares to retain
shares in Radiologix following the merger;
- the fact that Radiologix has held discussions from time to time in the
past with third parties regarding a possible business combination or
similar transaction involving Radiologix, and that, to date, no third
party has come forward with a proposal to acquire us;
- the terms and conditions of the merger agreement, including our ability to
enter into an agreement with another party providing for more favorable
terms to our stockholders following our payment of a $7.0 million
termination fee and SKM-RD LLC's reasonable out-of-pocket expenses;
- the fact that the merger will be accounted for as a recapitalization
which, among other things, will not require the recognition or
amortization of goodwill and intangible assets or any adjustments to the
book value of our net assets; and
- the opinion of UBS Warburg LLC to the Radiologix board as to the fairness,
from a financial point of view and as of the date of the opinion, of the
merger consideration to the holders of Radiologix common stock, other than
the Management Continuing Stockholders and their affiliates.
Q: WHAT WILL HAPPEN IN THE MERGER?
A: If the merger becomes effective, SKM-RD Acquisition Corp., an affiliate of
Saunders Karp & Megrue, will be merged into Radiologix with Radiologix
surviving the merger. Affiliates of Saunders Karp & Megrue will own between
80% and 90% of the outstanding shares of Radiologix common stock after
giving effect to the merger, with our existing stockholders and
optionholders owning the remaining 10% to 20%.
Q: WHY IS IT NECESSARY FOR CERTAIN PERCENTAGES OF RADIOLOGIX COMMON STOCK TO BE
RETAINED BY EXISTING STOCKHOLDERS?
A: This allows the transaction to be treated as a "recapitalization" for
accounting purposes. In a recapitalization, the historical cost basis of
Radiologix's assets and liabilities will not be adjusted by
1
<PAGE>
the merger. It was a requirement of SKM-RD Acquisition Corp. and SKM-RD LLC
that the transaction be treated as a recapitalization.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You may elect to receive $7.25 in cash or to retain 1.1224 shares of
Radiologix common stock for each share that you own at the time of the
merger. To retain shares you must (1) own, or have the right to purchase
upon exercise of stock options, more than 3,000 shares immediately before
the merger, and (2) make a stock election with respect to at least 3,000 of
those shares. If you own or have the right to purchase upon exercise of
stock options 3,000 or fewer shares, then you will not be able to make a
stock election but will receive $7.25 per share in cash, and your merger
consideration will not be subject to proration.
You may also elect no preference as to whether you receive cash or shares.
If you choose no preference or do not return a form of election, the type of
consideration you will receive in the merger will depend on the application
of the proration procedures described on pages 42 to 43 of this document.
Q: WILL I RECEIVE THE TYPE OF CONSIDERATION THAT I ELECT TO RECEIVE?
A: You might not receive the type of consideration that you elect to receive
with respect to all of your shares. This is because the merger agreement
requires that our existing stockholders and optionholders retain between 10%
and 20% of our outstanding shares of Radiologix common stock after the
merger. An additional requirement is that at least 6.9% of our outstanding
shares, after giving effect to the merger, must be retained by our existing
stockholders, excluding shares purchased upon exercise of options
immediately before the merger. If not enough stockholders and optionholders
elect to retain their shares or too many stockholders and optionholders
elect to retain their shares, the type of consideration you elect could be
adjusted. For example, if you elected to receive cash for all your
Radiologix common stock, you might receive cash for some of your shares and
retain the balance of your shares in Radiologix common stock instead.
Similarly, if you elected to retain shares for all your Radiologix common
stock, you might retain a lesser amount of Radiologix common stock and
receive cash for some of your shares. The proration procedures will not
apply to you if you own or have the right to purchase upon exercise of stock
options 3,000 or fewer shares immediately before the merger. For more
information on these procedures see pages 42 to 43.
Certain stockholders have already agreed to retain shares of Radiologix
common stock, which after the merger will represent not less than 3.2% of
the outstanding shares of Radiologix common stock. These stockholders will
be subject to the same rules and procedures as you.
Q: WILL THERE BE ANY CHANGES AS A RESULT OF THE MERGER?
A: Yes. Upon completion of the merger, at least 80% of the outstanding shares of
common stock will be held by affiliates of Saunders Karp & Megrue, and at
least 10% of the outstanding shares will be held by management and existing
stockholders. Accordingly, affiliates of Saunders Karp & Megrue will have
the power to elect our directors, to appoint our management and to approve
all other actions requiring the approval of our stockholders and designees
of Saunders Karp & Megrue will control our board. However, immediately after
the merger, three of our current directors will remain directors after the
merger, our management team will remain in place, and our contractual
relationships, including service agreements with radiology groups, will
remain in effect.
Upon the merger, our certificate of incorporation will be amended and
restated to grant us a right of first refusal with respect to any shares of
Radiologix common stock you retain in the merger. This means that if you
want to sell your shares to anyone, you must first offer us the right to buy
2
<PAGE>
the shares at the same price and terms. This right will be effective during
such time as our stock is no longer listed on a securities exchange or on
the Nasdaq National Market. It is expected that after the merger our common
stock will no longer be listed for trading on the AMEX or any other stock
exchange. For a discussion of the risks associated with owning a minority
position in a private company and the anticipated lack of liquidity of your
stock following the merger, see the discussion on page 15 of this document.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: If you convert all or a portion of your shares for cash, you will have a
taxable transaction to the extent of the cash you receive. If you retain all
of your shares and receive no cash, the merger will not be a taxable
transaction to you. Your tax consequences will depend on your personal
situation. We urge you to consult your tax advisor for a full understanding
of the tax consequences of the merger. A summary of the federal income tax
consequences of the merger can be found on pages 49 to 53 of this document.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to adopt the merger agreement, which is the legal
document governing the merger described in the proxy statement/prospectus.
The merger agreement must be adopted by the holders of a majority of our
shares issued and outstanding as of the record date for the special meeting.
Certain stockholders holding 8.7% of the shares of Radiologix common stock
entitled to vote in the merger have agreed to vote in favor of the merger.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger in the fourth quarter of 2000.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, please complete, date and sign your proxy card. Then mail your
completed, dated and signed proxy card in the enclosed prepaid return
envelope as soon as possible so that your shares can be voted at the special
meeting. You may also vote by phone.
If, immediately before the merger, you own or have the right to purchase
upon exercise of stock options 3,000 or fewer shares, you must complete a
form of election and letter of transmittal and send your stock certificates
to the exchange agent by 5:00 p.m., New York City time, on [ ],
2000. If the merger is approved, each share you own at the time of the
merger will automatically be converted into $7.25 per share. If you own more
than 3,000 shares, you must deliver a form of election and letter of
transmittal, along with your stock certificates, to the exchange agent, by
the same deadline instructing us as to the form of merger consideration you
would like to receive or retain. If your shares are held in "street name" by
your broker or other nominee, that person must complete and deliver a form
of election to our exchange agent. Your broker or other nominee will provide
you instructions on how to authorize them to complete the form of election
on your behalf. If certificates for your shares are registered in your name,
you must complete, date, sign and return the enclosed form of election prior
to the election deadline together with your stock certificates. You should
complete a form of election or instruct your broker to complete the form of
election on your behalf, even if you do not vote in favor of the merger or
return your proxy.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY OR A FORM OF ELECTION?
A: The failure to return a proxy card will have the same effect as voting
against the merger. If you or your broker, as applicable, do not timely
return a properly completed form of election and letter of transmittal
together with any stock certificates you hold, the type of consideration you
will
3
<PAGE>
receive in the merger will depend on the application of the proration
procedures described on pages 42 to 43 of this document.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting and vote your shares in person.
Q: MAY I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
A: Yes. You may change your vote by sending a written notice stating that you
would like to revoke your proxy or by submitting prior to the special
meeting a later dated proxy by mail or telephone. You also can attend the
special meeting and vote in person, but you must revoke your proxy before
you can vote. If your shares are held in "street name," you must follow the
directions provided by your broker to change your vote.
Q: MAY I CHANGE MY ELECTION AFTER I HAVE MAILED MY FORM OF ELECTION?
A: Yes. You may revoke or change your election by sending a written notice
stating that you would like to revoke your election or by completing and
submitting a new, later dated form of election to the exchange agent.
However, your final form of election is due by 5:00 p.m., New York City
time, on [ ], 2000. If your shares are held in "street name," you
must follow the directions provided by your broker to change your election.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES OR COMPLETE THE FORM OF ELECTION FOR ME?
A: No. Your broker will not be able to vote your shares or complete the form of
election without instructions from you. You should follow the directions
provided by your broker to vote your shares and to complete the form of
election. If you do not provide instructions to your broker, your shares
will not be voted, and no election will be made on your behalf.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: Yes. If you wish to make an election regarding some or all of your shares of
Radiologix common stock, and the shares are not held in "street name," you
must send in either your Radiologix stock certificates for these shares or a
completed form of guaranteed delivery with your form of election.
Q: MAY I EXERCISE DISSENTERS' APPRAISAL RIGHTS IN THE MERGER?
A: Yes. If you do not vote in favor of the merger and you comply with the other
requirements and procedures of Delaware law, you will not receive the $7.25
per share cash price or retain shares in the merger. Instead, you will be
entitled to receive payment in cash of the appraised "fair value" of your
shares of Radiologix common stock. A description of these rights, as well as
the requirements and procedures for dissenting under Delaware law, can be
found on pages 72 to 74 of this document. In addition, the full text of the
relevant sections of the Delaware statute is reprinted in Appendix C.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or the forms of election or would
like additional copies of the proxy statement/prospectus or forms of
election, you should contact our information agent:
[ ]
[( ) - ]
4
<PAGE>
SUMMARY
This summary highlights material information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the merger and the related transactions, and for a more
complete description of the legal terms of the merger, you should carefully read
this proxy statement/prospectus in its entirety, as well as the appendices to
this proxy statement/ prospectus (including the merger agreement) and the
additional documents referred to or incorporated by reference in this proxy
statement/prospectus. For a guide as to where you can obtain more information on
Radiologix, see "WHERE YOU CAN FIND MORE INFORMATION" on the inside front cover
of this proxy statement/prospectus.
THE PARTICIPANTS (SEE PAGE 41)
RADIOLOGIX, INC.
Radiologix is a leading provider of radiology services in the United States
through its ownership and operation of technologically advanced, multi-modality
diagnostic imaging centers.
Radiologix's principal executive offices are located at 3600 Chase Tower,
2200 Ross Avenue, Dallas, Texas 75201, and our main telephone number is
(214) 303-2776.
SKM-RD ACQUISITION CORP.
SKM-RD Acquisition Corp. is a newly-formed Delaware corporation organized
for the purpose of completing the merger. It has engaged in no business
activities and it has no assets or liabilities of any kind, other than those
incident to its formation and those incurred in connection with the merger.
Immediately prior to the merger, SKM-RD LLC, an affiliate of Saunders Karp &
Megrue, will be the sole owner of SKM-RD Acquisition Corp.
SKM-RD LLC
SKM-RD LLC is a newly-formed Delaware limited liability company sponsored by
Saunders Karp & Megrue for the purpose of investing in Radiologix. It has no
business activities and it has no assets or liabilities of any kind, other than
those incident to its formation and those incurred in connection with the
investment in SKM-RD Acquisition Corp. and Radiologix. Immediately prior to the
merger, SKM-RD LLC will receive between $87.7 and $98.6 million in equity
contributions from affiliates of Saunders Karp & Megrue and co-investors, if
any. The aggregate amount of equity contributions will depend on the aggregate
number of shares retained by existing stockholders of Radiologix in the merger.
SAUNDERS KARP & MEGRUE, L.P.
Founded in 1990, Saunders Karp & Megrue is a private equity investment firm
currently managing over $1.7 billion in three private equity funds. Since its
inception, Saunders Karp & Megrue has focused on investing in recapitalizations
and buyouts of high-growth, middle market companies in the U.S. and on executing
consolidation strategies of fragmented U.S. industry segments. Saunders Karp &
Megrue, through its private equity funds, has invested over $685.0 million
through the completion of 29 platform acquisitions and over 30 add-on
acquisitions in companies engaged in basic manufacturing, consumer products,
restaurant, retail, financial services and distribution industries.
The principal executive offices of Saunders Karp & Megrue, SKM-RD
Acquisition Corp. and SKM-RD LLC are located at 262 Harbor Drive, Stamford,
Connecticut 06902, and their main telephone number is (203) 708-6600.
5
<PAGE>
STRUCTURE OF THE MERGER (SEE APPENDIX A)
The transaction has been structured as a merger of SKM-RD Acquisition Corp.
with and into Radiologix. Radiologix will continue as the surviving corporation
of the merger. In the merger:
- The outstanding common stock of SKM-RD Acquisition Corp. will be converted
into that number of shares of Radiologix common stock equal to the
aggregate equity capital contributed to Radiologix divided by $7.35.
- Each share of our common stock outstanding at the time of the merger will,
at your election, be converted into either the right to receive $7.25 per
share in cash or to retain 1.1224 shares of Radiologix common stock.
- Each Radiologix stock option outstanding immediately prior to the merger
will immediately vest and become exercisable, and will be canceled and
converted into the right to receive either cash in an amount equal to the
positive difference, if any, between $7.25 and the exercise price of the
option, or upon payment of the exercise price for the option, 1.1224
shares of Radiologix common stock.
- In order to retain any shares, you must (1) own, or have the right to
purchase upon exercise of stock options, more than 3,000 shares
immediately before the merger, and (2) make a stock election with respect
to at least 3,000 of those shares. If you own or have the right to
purchase upon exercise of stock options 3,000 or fewer shares, then you
will not be able to make a stock election but will receive $7.25 per share
in cash, and your merger consideration will not be subject to proration.
- The type of consideration elected by the stockholders and optionholders
may be prorated so that the existing stockholders and optionholders own
between 10% and 20% of Radiologix after the merger. In addition, not less
than 6.9% of the outstanding shares of Radiologix common stock after
giving effect to the merger must be retained by existing stockholders only
with respect to their existing shares. These percentages are designed to
ensure recapitalization accounting treatment.
- After the merger, the stockholders and optionholders of Radiologix
immediately prior to the merger will together own between 10% and 20% and
SKM-RD LLC will own between 80% and 90% of the outstanding shares of
Radiologix common stock, depending on the election decisions of the
stockholders and optionholders and any necessary adjustments.
FINANCING (SEE PAGES 45 TO 47)
Simultaneously with the merger, we will refinance our existing indebtedness
with approximately $250.0 million of new indebtedness, which will include a
combination of senior, senior subordinated or subordinated debt securities to be
issued by Radiologix or one of its subsidiaries and term loans to be made under
a senior secured term loan facility. In addition, we will enter into a new
$60.0 million, three-year revolving credit facility that will be used for
working capital, future acquisitions and other general corporate purposes.
SKM-RD LLC has already received written commitments from reputable institutional
investors and lenders to provide all of the funds required to complete the
merger and refinance Radiologix's outstanding debt. These commitments are
subject to customary closing and/or borrowing conditions, including the absence
of material adverse changes, agreement as to final documentation and the
satisfactory completion of due diligence by the lenders. The merger is
conditioned on the closing of the financing on the terms set forth in the
financing commitment letters or on other terms satisfactory to SKM-RD LLC.
6
<PAGE>
THE SPECIAL MEETING (SEE PAGES 25 TO 27)
The special meeting of Radiologix stockholders to vote on the merger will be
held on [ ], 2000, at 10:00 a.m., local time, at 2200 Ross Avenue,
39th floor, Dallas, Texas.
You will be asked to adopt the merger agreement, which is the legal document
governing the merger. You are entitled to cast one vote for each share of
Radiologix common stock you owned as of the record date, [ ], 2000.
Delaware law requires the affirmative vote of a majority of the outstanding
shares of common stock entitled to vote on the adoption of the merger agreement
to adopt the merger agreement. Your failure to vote or your abstention will be
treated as a vote against adoption of the merger agreement.
All shares of common stock represented at the special meeting by properly
executed and timely submitted proxies that have not been revoked will be voted
in accordance with their instructions. If you sign, date and return a proxy but
do not give any instructions, your proxy will be voted FOR adoption of the
merger agreement. If you give a proxy, you may revoke it at any time before it
is voted at the special meeting.
As of the record date, there were [ ] shares of our common stock
outstanding, of which approximately 8.7% were held by our directors, executive
officers and their affiliates, and approximately 91.3% were held by other
stockholders. Stockholders owning approximately 8.7% of our outstanding common
stock have agreed to vote in favor of the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS (SEE PAGES 32 TO 33)
Your board of directors believes that the merger is advisable and in your
best interests and recommends that you vote "FOR" the adoption of the merger
agreement.
OPINION OF UBS WARBURG LLC (SEE PAGES 33 TO 39)
In connection with the merger, your board of directors received a written
opinion from UBS Warburg LLC as to the fairness, from a financial point of view,
of the merger consideration to the holders of Radiologix common stock, other
than the Management Continuing Stockholders and their affiliates. The full text
of UBS Warburg's written opinion dated August 22, 2000 is attached to this proxy
statement/prospectus as Appendix B. We encourage you to read this opinion
carefully in its entirety for a description of the assumptions made, procedures
followed, matters considered and limitations on the review undertaken. UBS
WARBURG'S OPINION IS ADDRESSED TO THE RADIOLOGIX BOARD AND DOES NOT CONSTITUTE A
RECOMMENDATION BY UBS WARBURG TO YOU WITH RESPECT TO THE FORM OF MERGER
CONSIDERATION TO BE ELECTED OR ANY OTHER MATTER RELATING TO THE PROPOSED MERGER.
THE VOTING AND EXCHANGE AGREEMENT (SEE PAGE 64)
Under the voting and exchange agreement, eight members of Radiologix senior
management and a founding stockholder have agreed to vote in favor of the merger
and retain some of their equity interest in Radiologix after the merger. These
individuals are referred to throughout this proxy statement/prospectus as the
"Management Continuing Stockholders."
The total number of shares to be retained by the Management Continuing
Stockholders will represent not less than 3.2% of the shares of Radiologix
common stock to be outstanding immediately following the merger.
7
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGES 53 TO 55)
Your officers and directors may have interests in the merger that are
different from, or in addition to, your interests as a Radiologix stockholder.
These interests include:
- the continuance of certain of our directors and officers as directors and
officers after the merger;
- our agreement to continue to indemnify directors and officers for six
years, and to maintain directors' and officers' liability insurance;
- the making of a $200,000 loan to Mr. Mark Wagar, our chairman and chief
executive officer, to permit him to reinvest in Radiologix the taxes
payable upon exercise of his stock options in the merger
- the accelerated vesting of all Radiologix stock options as a result of the
merger; and
- the adoption of a new option plan immediately following the merger that
would provide for the issuance of stock options exercisable for
approximately 10% of the surviving corporation's shares to executive
officers and certain key employees.
When making the determination to approve and recommend adoption of the
merger to Radiologix's stockholders, our board was aware of the interests of the
officers and directors and considered these interests in voting to approve the
merger.
THE MERGER AGREEMENT (SEE PAGES 56 TO 63)
The merger agreement is the legal document that governs the merger. We have
attached the merger agreement as Appendix A to this proxy statement/prospectus,
and we encourage you to read it carefully.
CONDITIONS TO THE MERGER
The completion of the merger depends on a number of conditions being met. In
addition to customary conditions relating to our compliance with the merger
agreement, these conditions include the following:
- approval of the merger agreement by the holders of a majority of the
outstanding Radiologix shares;
- absence of legal prohibitions to the merger;
- absence of a material adverse change in Radiologix's business since
August 22, 2000;
- absence of any continuing objection of the SEC to treating the merger as a
recapitalization for accounting purposes; and
- financing for the merger having been obtained on the terms set forth in
the financing commitment letters or on other terms satisfactory to SKM-RD
LLC.
TERMINATION OF THE MERGER AGREEMENT
Radiologix and SKM-RD LLC can agree at any time to terminate the merger
agreement without completing the merger, even if Radiologix stockholders have
already voted to approve it. Also, either Radiologix or SKM-RD LLC can terminate
the merger agreement, without the consent of the other, in various
circumstances, including the following:
- there is a legal prohibition to the merger
8
<PAGE>
- if the Radiologix stockholders have not approved the merger;
- if the merger has not been completed by December 31, 2000, other than due
to the fault of the party seeking to terminate; or
- if there has been a material breach by the other party, which has not been
cured within 20 days from the time the breaching party receives notice of
the breach or which cannot be cured prior to December 31, 2000.
SKM-RD LLC may, without the consent of Radiologix, terminate the merger
agreement in various circumstances, including the following:
- the Radiologix board withdraws or modifies its recommendation that
Radiologix stockholders vote to approve the merger agreement in a manner
adverse to SKM-RD LLC;
- the Radiologix board recommends any competing acquisition proposal;
- Radiologix enters into an agreement with respect to a competing
acquisition proposal; or
- Radiologix has breached its obligations not to solicit acquisition
proposals.
We may, without the consent of SKM-RD LLC, terminate the merger agreement to
enter into a superior transaction but only if we pay SKM-RD LLC a termination
fee of $7.0 million, plus all reasonable out-of-pocket expenses.
RIGHT OF FIRST REFUSAL (SEE PAGES 76 TO 77)
Upon the merger, our certificate of incorporation will be amended and
restated to grant us the right of first refusal with respect to the transfer of
Radiologix common stock, except for transfers to family members, trusts, and
among employees, partners or other owners of radiology practices or radiology
practices with which Radiologix has a contractual relationship. This means that
before any stockholder can transfer any shares of our common stock, that
stockholder must first give notice to us identifying the proposed transferee,
number of shares and terms for that proposed transfer, including purchase price.
We will have 20 business days after receipt of notice from the stockholder to
purchase the shares proposed to be transferred by the stockholder on the same
terms as proposed by the proposed transferee. If we have not purchased any or
all of those shares within that time period, the stockholder will have
30 calendar days in which to transfer the shares to the proposed transferee on
the terms contained in the notice. If the stockholder has not closed that sale
within the 30-day period, any future sale of the shares of Radiologix common
stock will again be subject to the right of first refusal. This right will be
effective at any time that Radiologix common stock is not traded on a national
securities exchange or on the Nasdaq National Market.
DELISTING OF RADIOLOGIX COMMON STOCK (SEE PAGE 15)
As a result of the merger, it is likely that Radiologix common stock will no
longer meet the listing requirements of the AMEX. The delisting of the
Radiologix common stock is likely to adversely affect the trading market for,
and may affect the market value of, our common stock. We cannot assure you that
any trading market will exist for the Radiologix common stock after the merger.
Additionally, if after the merger, shares of Radiologix common stock are
held by fewer than 300 stockholders, we will deregister our common stock under
the Securities Exchange Act of 1934. If the Radiologix common stock is
deregistered, we will not be required to comply with the proxy or periodic
reporting requirements of the Exchange Act. As a result, the information
available to stockholders on our business and financial condition will be
reduced, which could adversely affect the market value of the stock you elect to
retain.
9
<PAGE>
GOVERNMENTAL APPROVALS (SEE PAGE 49)
The consummation of the merger is subject to the expiration of the 30-day
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
unless that period is earlier terminated or extended. Radiologix, SKM-RD LLC and
SKM-RD Acquisition Corp. each filed an HSR notification report, together with a
request for early termination of this 30-day waiting period, on [ ],
2000.
ACCOUNTING TREATMENT
The merger will be accounted for as a recapitalization for accounting and
financial reporting purposes. Accordingly, the historical cost basis of our
assets and liabilities will not be adjusted by the merger.
10
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED
FINANCIAL DATA OF RADIOLOGIX, INC.
The summary consolidated historical financial data shown below and for the
three years ended December 31, 1997, 1998 and 1999, other than the earnings
before interest, taxes, depreciation and amortization (EBITDA); margin on
earnings before interest, taxes, depreciation and amortization; earnings before
interest, taxes, depreciation, amortization and rent (EBITDAR); and margin on
earnings before interest, taxes, depreciation, amortization and rent, have been
derived from, and should be read in conjunction with, our audited consolidated
financial statements and the notes thereto incorporated herein by reference to
our Annual Report on Form 10-K for the years ended December 31, 1998 and 1999,
filed with the SEC. The summary consolidated historical financial data as of
June 30, 2000 and for the six month periods ended June 30, 1999 and 2000, other
than the earnings before interest, taxes, depreciation and amortization; margin
on earnings before interest, taxes, depreciation and amortization; earnings
before interest, taxes, depreciation, amortization and rent, and margin on
earnings before interest, taxes, depreciation, amortization and rent, have been
derived from, and should be read in conjunction with, our unaudited consolidated
financial statements and the notes thereto incorporated herein by reference to
our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, filed
with the SEC. EBITDA and EBITDAR are unaudited and not defined under generally
accepted accounting principles.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------ JUNE 30, JUNE 30,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
SERVICE FEE REVENUE......................................... $ 9,545 $149,327 $199,700 $90,420 $121,030
COSTS AND EXPENSES:
Salaries and benefits..................................... 2,922 42,227 52,826 24,623 31,429
Field supplies............................................ 1,036 8,865 11,630 5,319 6,578
Field rent and lease expense.............................. 852 11,532 18,444 7,561 14,667
Other field expenses...................................... 1,557 25,311 32,278 14,318 20,158
Bad debt expense.......................................... 862 13,723 18,838 8,474 10,637
Corporate general and administrative...................... 4,910 9,597 11,192 5,293 5,550
Depreciation and amortization............................. 888 12,178 18,403 7,856 10,908
Interest expense, net..................................... 617 7,541 12,357 4,913 8,518
------- -------- -------- ------- --------
Total costs and expenses................................ 13,644 130,974 175,968 78,357 108,445
------- -------- -------- ------- --------
INCOME (LOSS) BEFORE TAXES, MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES AND EQUITY IN EARNINGS OF
INVESTMENTS............................................... (4,099) 18,353 23,732 12,063 12,585
EQUITY IN EARNINGS OF INVESTMENTS........................... 220 4,339 3,581 1,556 2,018
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES............. (49) (710) (910) (435) (510)
------- -------- -------- ------- --------
INCOME (LOSS) BEFORE TAXES.................................. (3,928) 21,982 26,403 13,184 14,093
INCOME TAX EXPENSE.......................................... -- 8,451 10,346 5,012 5,637
------- -------- -------- ------- --------
NET INCOME (LOSS)........................................... $(3,928) $ 13,531 $ 16,057 $ 8,172 $ 8,456
======= ======== ======== ======= ========
NET INCOME (LOSS) PER COMMON SHARE:
Basic................................................... $ (1.13) $ 0.72 $ 0.83 $ 0.42 $ 0.43
Diluted................................................. $ (1.13) $ 0.70 $ 0.80 $ 0.41 $ 0.41
Weighted average shares outstanding -- basic............ 3,451 18,739 19,305 19,296 19,483
Weighted average shares outstanding -- diluted.......... 3,451 19,335 20,692 19,734 22,076
Common shares outstanding at period end................. 17,235 19,244 19,424 19,297 19,506
OTHER FINANCIAL DATA:
EBITDA.................................................. $(2,423) $ 41,701 $ 57,163 $25,953 $ 33,519
EBITDA margin........................................... -- 27.9% 28.6% 28.7% 27.7%
EBITDAR................................................. $(2,316) $ 46,191 $ 65,934 $29,124 $ 42,474
EBITDAR margin.......................................... -- 30.9% 33.0% 32.2% 35.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 31,972 $ 47,521 $ 85,547 $ 57,487 $ 96,586
Working capital........................................... 3,376 19,378 25,181 31,526 7,835
Property and equipment, net............................... 22,837 37,002 60,405 51,359 61,547
Total assets.............................................. 62,766 156,639 244,840 184,547 268,359
Debt and capital lease obligations........................ 55,865 120,211 164,840 141,848 174,352
Convertible notes......................................... -- -- 20,000 -- 20,000
Stockholders' equity...................................... (24,035) 7,046 23,423 15,523 31,889
</TABLE>
11
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated financial data set forth below, as
adjusted to give effect to the merger, the merger financing and acquisitions,
have been derived from, and should be read in conjunction with, the unaudited
pro forma consolidated financial statements and the notes thereto appearing
elsewhere in this proxy statement/prospectus. The unaudited pro forma
consolidated balance sheet information gives effect to the merger, the merger
financing and acquisitions as if each had occurred on June 30, 2000. The
unaudited pro forma consolidated statement of operations information gives
effect to the merger, the merger financing and acquisitions, as if each had
occurred on January 1, 1999 and excludes nonrecurring items directly
attributable to the merger. The pro forma adjustments were applied to the
historical consolidated financial statements to reflect and account for the
merger as a recapitalization. Accordingly, the historical cost basis of our
assets and liabilities has not been adjusted by the merger. The pro forma
adjustments assume that the maximum number of post-merger shares (20%) are
retained by our stockholders and optionholders in the merger. The summary
unaudited pro forma consolidated financial data are not necessarily indicative
of the consolidated operating results or financial position that would have
occurred if the merger had been consummated on the dates indicated, nor are they
necessarily indicative of future operating results or financial position.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
------------------------ -----------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
SERVICE FEE REVENUE......................................... $199,700 $218,957 $121,030 $121,494
COSTS AND EXPENSES:
Salaries and benefits..................................... 52,826 57,993 31,429 31,515
Field supplies............................................ 11,630 12,875 6,578 6,608
Field rent and lease expense.............................. 18,444 17,790 14,667 12,279
Other field expenses...................................... 32,278 36,069 20,158 20,587
Bad debt expense.......................................... 18,838 20,281 10,637 10,682
Corporate general and administrative...................... 11,192 11,192 5,550 5,550
Depreciation and amortization............................. 18,403 22,786 10,908 11,786
Interest expense, net..................................... 12,357 32,934 8,518 16,560
-------- -------- -------- --------
Total costs and expenses................................ 175,968 211,920 108,445 115,567
-------- -------- -------- --------
INCOME BEFORE TAXES, MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES AND EQUITY IN EARNINGS OF INVESTMENTS........ 23,732 7,037 12,585 5,927
EQUITY IN EARNINGS OF INVESTMENTS........................... 3,581 3,581 2,018 2,018
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES............. (910) (1,019) (510) (510)
-------- -------- -------- --------
INCOME BEFORE TAXES......................................... 26,403 9,599 14,093 7,435
INCOME TAX EXPENSE.......................................... 10,346 3,625 5,637 2,974
-------- -------- -------- --------
NET INCOME.................................................. $ 16,057 $ 5,974 $ 8,456 $ 4,461
======== ======== ======== ========
NET INCOME PER COMMON SHARE:
Basic................................................... $ 0.83 $ 0.40 $ 0.43 $ 0.30
Diluted................................................. $ 0.80 $ 0.40 $ 0.41 $ 0.30
Weighted average shares outstanding -- basic............ 19,305 14,912 19,483 14,912
Weighted average shares outstanding -- diluted.......... 20,692 14,912 22,076 14,912
Common shares outstanding at period end................. 19,424 14,912 19,506 14,912
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-----------------------
HISTORICAL PRO FORMA
---------- ----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 96,586 $ 93,646
Working capital........................................... 7,835 50,289
Property and equipment, net............................... 61,547 66,547
Total assets.............................................. 268,359 292,687
Debt and capital lease obligations........................ 174,352 269,931
Convertible notes......................................... 20,000 --
Stockholders' equity (deficit)............................ 31,889 (15,505)
</TABLE>
13
<PAGE>
HISTORICAL MARKET PRICE OF RADIOLOGIX COMMON STOCK
Radiologix common stock is listed and principally traded on the American
Stock Exchange under the symbol "RGX." The following table sets forth the high
and low closing sale prices for Radiologix shares, as reported by the Nasdaq
National Market prior to May 10, 2000 and by the AMEX thereafter, for the
periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------------------------------ -----------------------------
<S> <C> <C>
1998 (year ended December 31, 1998)
First Quarter............................................ 11 7/8 9 1/2
Second Quarter........................................... 11 1/2 7
Third Quarter............................................ 9 1/8 6
Fourth Quarter........................................... 7 1/8 4 1/2
1999 (year ended December 31, 1999)
First Quarter............................................ 7 7/8 5 3/8
Second Quarter........................................... 9 5
Third Quarter............................................ 8 1/8 5 3/4
Fourth Quarter........................................... 7 15/16 3 7/16
2000 (year ended December 31, 2000)
First Quarter............................................ 6 5/8 3 1/8
Second Quarter........................................... 5 3 1/4
Third Quarter (through [ ].......................... [ ] [ ]
</TABLE>
As of [ ], 2000, there were [ ] holders of record of
Radiologix common stock. As of that date, Radiologix had [ ] shares
of common stock outstanding which were held by approximately
[ ]beneficial holders.
On August 22, 2000, the last full trading day prior to the announcement of
the execution of the merger agreement, the last reported sales price of
Radiologix shares on the AMEX was $4.00 per share. On [ ], 2000, the
last full trading day prior to the printing of this proxy statement/ prospectus,
the last reported sales price of Radiologix shares on the AMEX was
[$ ] per share. Stockholders are urged to obtain a current market
quotation for the shares.
We have not paid cash dividends on our common stock since we were formed,
and we do not anticipate paying dividends in the foreseeable future. We
currently intend to retain earnings for future growth and expansion
opportunities. The agreements governing our indebtedness after the merger will
restrict our ability to pay dividends.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/ PROSPECTUS, YOU SHOULD CONSIDER THE FOLLOWING MATTERS
IN DECIDING WHETHER TO VOTE IN FAVOR OF THE MERGER.
RISKS RELATED TO THE MERGER
The merger agreement permits you to elect to receive cash or, subject to
satisfaction of the 3,000 minimum share election condition, to retain shares of
common stock of Radiologix after the merger. In addition, the proration
procedures may result in the issuance of stock to you, even if you elected to
receive only cash. A continued investment in Radiologix following the merger
involves a high degree of risk. Accordingly, you should consider the following
risks before deciding to vote in favor of the merger or electing to retain
shares in the merger.
WE WILL HAVE A CONTROLLING STOCKHOLDER AFTER THE MERGER WITH THE POWER TO TAKE
UNILATERAL ACTION
Upon completion of the merger, 80% to 90% of the outstanding shares of our
voting common stock will be held by SKM-RD LLC. Accordingly, SKM-RD LLC will
have the power to control the direction and policies of Radiologix, including
the power to elect our directors, appoint new management and approve many
actions requiring the approval of our stockholders, such as adopting most
amendments to our certificate of incorporation and approving mergers or sales of
substantially all of our assets. The directors so elected will have the
authority to issue additional stock and stock options, implement stock
repurchase programs, declare dividends and make other such decisions about our
capital stock. These actions may dilute, reduce or eliminate the ownership of
minority stockholders in Radiologix.
In addition, the existence of a controlling stockholder may have the effect
of discouraging or making it more difficult for a third party to acquire a
majority of our outstanding equity securities. A third party would be required
to negotiate any proposed transaction with the controlling stockholder, who may
have differing interests from those of our other stockholders.
DELISTING OUR COMMON STOCK WILL LIMIT ITS LIQUIDITY AND MAY REDUCE ITS MARKET
VALUE
Because the number of stockholders and the number of shares of Radiologix
common stock held by unaffiliated stockholders after the merger will be small,
it is likely that our common stock will no longer meet the listing requirements
of the AMEX. If that occurs, SKM-RD LLC intends to delist our common stock from
trading on the AMEX immediately after the merger. The delisting of our common
stock is likely to adversely effect the trading market for, and may adversely
effect the market value of, our common stock. Because there will be no public
trading market for our common stock after the merger, it will be difficult or
impossible for stockholders to resell their shares of common stock after the
merger.
In addition, we will have a right of first refusal with respect to the
transfer of any common stock you retain in the merger, except for transfers to
family members, trusts, and among employees, partners or other owners of
radiology practices with which we have a contractual relationship. This means
that we will have the right to purchase any shares offered to a transferee on
the same terms offered to the transferee. This right of first refusal may make
it more difficult for you to find buyers for any shares of Radiologix common
stock you retain in the merger.
YOUR ACCESS TO INFORMATION ABOUT US MAY BE REDUCED
As a result of the merger, the shares of our common stock may be held by
fewer than 300 stockholders. In such case, we will deregister our common stock
under the Securities Exchange Act of 1934. If our common stock is deregistered,
we will not be required to comply with the proxy or periodic
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reporting requirements of the Exchange Act. Therefore, we will not be required
to provide any reports or information to you other than in accordance with your
right to inspect our books and records under Delaware law or as required by any
public offering of debt securities. As a result, the information available to
stockholders on our business and financial condition will be reduced, which
could adversely effect the market value of our common stock.
IF YOU RECEIVE A PORTION OF THE MERGER CONSIDERATION IN CASH, THAT CASH MAY BE
TAXED AT A HIGHER RATE
If you receive cash for only a portion of your shares you may, depending on
your particular circumstances, be required to treat the cash received by you as
ordinary dividend income. This may result in the cash being taxed to you at a
higher rate than if you received cash in the merger in exchange for all of your
shares and you owned your shares for at least one year. Because dividend
treatment depends on the particular facts and circumstances of the stockholder,
it is uncertain whether or to what extent such dividend treatment will be
required with respect to any particular stockholder who receives cash and
retains shares in the merger. If certain requirements are met, dividend
treatment should not be applicable to stockholders who receive cash in the
merger in exchange for all of their shares.
OPTION GRANTS TO OUR MANAGEMENT TEAM AFTER THE MERGER WILL DILUTE THE HOLDINGS
OF STOCKHOLDERS WHO RETAIN THEIR SHARES
Following the merger, we intend to grant members of our management team and
certain key employees options to purchase shares of our capital stock
representing approximately 10% of the outstanding shares following the merger on
a fully diluted basis. The exercise of any stock option or any other issuance of
capital stock will dilute the holdings of our then-existing stockholders,
including persons who retain shares of our common stock in the merger.
YOUR RIGHT TO RECEIVE CASH OR TO RETAIN SHARES MAY BE SUBJECT TO PRORATION, AND
NOT ALL RADIOLOGIX STOCKHOLDERS WILL BE ELIGIBLE TO RETAIN SHARES
Your right to receive cash or retain shares is subject to the proration
procedures described on pages 42 to 43 of this proxy statement/prospectus and
other limitations, including the 3,000 minimum share election requirement. The
proration procedures are designed to ensure that our stockholders and
optionholders retain between 10% and 20% of the outstanding shares of Radiologix
common stock after the merger and to ensure that our stockholders, not including
the optionholders, retain at least 6.9% of the outstanding shares of Radiologix
common stock after the merger. Accordingly, you will not necessarily receive the
type of consideration that you elect for all your shares. In addition, if you do
not own or have the right to purchase upon exercise of stock options immediately
before the merger more than 3,000 shares of Radiologix common stock, you will
not be entitled to retain shares in the merger. There are different tax
consequences to you if you receive cash or stock and depending upon the amount
of cash received by you.
OUR LEVEL OF DEBT WILL REDUCE OUR NET INCOME AND MAY RESTRICT OUR OPERATIONS
As a result of the merger, we will have a higher amount of debt. For
example, assuming that the merger occurred on January 1, 1999, we would have had
total debt of $269.9 million as of June 30, 2000, as compared to
$194.4 million, and we would have had net income for the six months ended
June 30, 2000 of $4.5 million as compared to $8.5 million. In addition to the
negative effect on net income, our high level of debt could have the following
consequences:
- we may have difficulty borrowing money in the future for working capital,
capital expenditures, acquisitions or other purposes;
- we may have difficulty satisfying our debt obligations;
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- certain of our indebtedness will be at variable interest rates, which will
make us vulnerable to increases in interest rates;
- we may be less flexible in reacting to changes in our business and the
industry in which we operate;
- a significant portion of our cash flow available from operations could be
required to pay principal and interest on our debt, which will reduce the
amount of funds that would otherwise be available to fund capital
expenditures, invest in new technology and pursue other business
opportunities;
- we will be subject to numerous restrictions in the manner in which we
conduct our business in the definitive financing documents, including
restrictions on our ability to pay dividends, make investments, incur
additional debt, sell assets and enter into transactions with affiliates;
and
- we may be placed at a competitive disadvantage compared to our competitors
who have less debt.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS ON OUR COMMON STOCK FOLLOWING THE
MERGER
We do not anticipate paying any dividends on shares of our common stock
following the merger. We anticipate that the terms of the agreements and
instruments related to the financing of the merger will prohibit or otherwise
restrict any future payment of dividends on shares of our common stock.
THE MERGER MAY BE CHALLENGED AS A FRAUDULENT CONVEYANCE BY OUR CREDITORS, WHICH
MAY PERMIT OUR CREDITORS TO RECOVER ANY CASH PAYMENT TO YOU
The incurrence of indebtedness as part of the merger financing, and the
payment to our stockholders of $7.25 per share in cash, may be reviewed by a
court under federal bankruptcy law or relevant state fraudulent conveyance laws
if challenged by or on behalf of our unpaid creditors. Under these laws, if a
court were to find that, at the time of the merger and the related financing:
- we incurred indebtedness and the $7.25 per share was paid to our
stockholders with the intent of hindering, delaying or defrauding current
or future creditors; or
- we received less than reasonably equivalent value or fair consideration in
connection with the merger and the related financing and
- we were insolvent or were rendered insolvent by reason of the merger or
the related financings,
- we were engaged, or were about to engage, in a business or transactions
for which our assets constituted unreasonably small capital, or
- we intended to incur, or believed that we would incur, debts beyond our
ability to pay as these debts matured,
then such court could determine that the cash payment of $7.25 per share to our
stockholders violated applicable provisions of the United States Bankruptcy Code
and/or applicable state fraudulent conveyance laws. Such a determination would
permit the bankruptcy trustee or debtor in possession or unpaid creditors to
rescind the $7.25 per share cash payment and recover such $7.25 per share cash
payment from you.
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The measure of insolvency for the purposes listed above will vary depending
upon the law of the jurisdiction that is being applied in any such proceeding.
Generally, however, we would be considered insolvent if, at the time we incur
the indebtedness, either:
- the sum of our liabilities, including contingent liabilities, is greater
than our assets, at a fair valuation; or
- the present fair saleable value of our assets is less than the amount
required to pay our debts, as they become due.
We cannot assure you what standards a court would use to determine whether
we were solvent at the relevant time. We will not obtain legal opinions as to
the applicability of federal or state fraudulent transfer and conveyance laws in
connection with our debt financing incurred in connection with the merger.
RISK FACTORS RELATING TO RADIOLOGIX
OUR INCOME IS DEPENDENT ON REFERRALS
We depend on referrals from third parties. Many of these referrals are made
by physicians who have no contractual obligation to refer patients to us. We
generate revenue from fees charged for technical services provided at our owned
imaging centers and from service fees that we receive from the contracted
radiology practices. Neither we nor any of the contracted radiology practices
are dependent on any single referral source for a material portion of revenue.
However, if a sufficiently large number of physicians elected at any time to
discontinue referring patients to us, our operating revenues could be adversely
affected.
Further, non-governmental health care payors have implemented programs to
control costs that could limit the ability of physicians to refer patients to
us. For example, prepaid health care plans, such as health maintenance
organizations, often provide diagnostic imaging, interventional radiology or
radiation oncology services directly or contract with providers and require
their enrollees to obtain these services only from these providers. Some
insurance companies and self-insured employers also limit these services to
contracted providers. These "closed panel" systems are now common in the managed
care environment. Other systems create an economic disincentive for referrals to
providers outside of the systems' designated panel of providers. Although we are
seeking managed care contracts for our radiology services networks, we may not
be able to compete successfully for managed care contracts against entities with
greater resources within a market area.
WE MAY NEED ADDITIONAL CAPITAL
We use capital to purchase new imaging equipment, to upgrade and replace
existing equipment, to expand within our existing markets and to enter new
markets. During 1998 and 1999, we expended an average of $22.1 million per year
to purchase, upgrade and replace imaging equipment and related information
systems and an average of $39.2 million per year to make acquisitions and to
enter into outsourcing relationships. Our capital sources have consisted
primarily of income from operations, borrowings under our existing credit
facility and the $20.0 million convertible junior subordinated promissory note
issued to BT Capital Partners SBIC, L.P.
At the closing of the merger, we will repay the $20.0 million note and the
borrowings under our existing credit facility with the proceeds of a private
placement or public offering of notes and an equity investment. We expect to
finance future working capital needs from a new $60.0 million senior secured
credit facility.
Our ability to accomplish our goals and to execute our business strategy
depends on our continued ability to access capital on appropriate terms. Our
growth could be limited and our existing operations
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impaired unless we are able to obtain additional capital through subsequent debt
or equity financings. We cannot be assured that borrowing capacity under the
senior secured credit facility will be available to us when needed, that the
senior secured credit facility will be renewed or that we will be able to obtain
additional financing or that, if available, such financing will be on terms
acceptable to us. As a result, we cannot assure you that we will be able to
implement our business strategy successfully.
WE COULD BE HARMED IF THE CONTRACTED RADIOLOGY PRACTICES TERMINATE OUR SERVICE
AGREEMENTS OR LOSE RADIOLOGISTS
Our radiology services include a professional component that must be
provided by radiologists who are not directly employed or engaged by us. We do
not control the radiologists who perform professional services for us. These
radiologists, instead, are employed by the contracted radiology practices that
maintain service agreements with us. The service agreements have terms of
40 years, but may be terminated by either party under certain limited
conditions. We cannot assure you that the service agreements will not be
terminated. The termination of any of those service agreements would reduce our
service fee revenue.
Each radiology practice has entered into employment agreements with its key
radiologists. The employment agreements generally are for a term of five years.
If a significant number of radiologists terminate their relationships with us,
our ability to provide medical services to consumers could be curtailed. Neither
we nor the contracted radiology practices maintain insurance on the lives of any
affiliated physicians.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL AND WE MAY NOT BE ABLE TO RETAIN
SUFFICIENT QUALIFIED PERSONNEL
Our success depends on members of our senior executive management, some of
whom have extensive experience in managing health care services companies or in
developing our current financial and operational strategies. Because of the
difficulty in finding adequate replacements for key personnel, the loss of their
services or our inability in the future to attract and retain senior management
and other key personnel could hinder the implementation of our business
strategy. We do not maintain key man insurance for any of our executive
officers.
OUR INABILITY TO ENFORCE NON-COMPETITION AGREEMENTS WITH RADIOLOGISTS MAY
INCREASE COMPETITION
Each of the contracted radiology practices entered into agreements with its
owners and full-time radiologists that generally prohibit them from competing
with us for a period of two years after termination of employment or ownership,
as applicable. 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. Enforceability of
a noncompete covenant is determined by a court 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 whether a court will enforce our
affiliated radiology practices' covenants. The inability of the contracted
radiology practices or us to enforce radiologists' non-competition covenants
could result in increased competition from individuals who are knowledgeable
about our business strategies and operations.
WE MAY NOT BE ABLE TO CONTRACT SUCCESSFULLY WITH NEW RADIOLOGY GROUPS OR TO
INTEGRATE SUCCESSFULLY THE OPERATIONS OF ACQUISITIONS
We intend to expand within existing and new geographic markets through
acquisitions, joint venture and outsourcing relationships and selective
contractual relationships with high-quality, profitable radiology practices. We
cannot assure you that we will be able to expand either within our
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existing markets or in new markets. In addition, we cannot assure you that any
expansion will be beneficial to our overall strategy or that expansion will
ultimately produce returns that justify our investment.
Our ability to expand is dependent upon factors such as our ability to:
- identify attractive and willing candidates for acquisition,
- adapt our structure to comply with present and future federal and state
legal requirements affecting our arrangements with physician practice
groups, including state prohibitions on fee-splitting, corporate practice
of medicine and referrals to facilities in which physicians have a
financial interest,
- obtain regulatory approvals and certificates of need, where necessary, and
comply with licensing and certification requirements applicable to us, the
radiology practices and the physicians associated with the radiology
practices, including their respective facilities, and
- expand our infrastructure and management.
Our ability to expand is also dependant on our ability to compete for
opportunities. We may not be able to compete effectively for the acquisition of
radiology assets. Our competitors may have better established operating
histories and greater resources than us. Additionally, some hospitals, clinics,
health care companies, HMOs and insurance companies engage in activities similar
to those of ours. Additional competitors may make it more difficult or expensive
to acquire the assets of, and provide management and administrative services to,
radiology providers on terms beneficial to us.
Acquisitions involve a number of special risks, including possible adverse
effects on our operating results, diversion of management's attention and
resources, failure to retain key acquired personnel, amortization or write-off
of acquired intangible assets and risks associated with unanticipated events or
liabilities.
Additionally, although we will continue to structure our operations in an
effort to comply with applicable antitrust laws, federal or state governmental
authorities may view us as being dominant in a particular market and, therefore,
cause us to divest ourselves of relationships or related assets.
WE AND OUR CONTRACTED RADIOLOGY PRACTICES MAY BECOME SUBJECT TO BURDENSOME
LAWSUITS
Providing medical services entails the risk of professional malpractice and
other similar claims. The physicians employed by the contracted radiology
practices are from time to time subject to malpractice claims. We intend to
structure our relationships with the contracted radiology practices in a manner
that will not constitute the practice of medicine or subject us to malpractice
claims. Nevertheless, claims, suits or complaints relating to services and
products provided by the contracted radiology practices may be asserted against
us in the future. Additionally, we own, operate and manage radiology facilities,
which expose us to malpractice liability claims.
We maintain insurance policies with coverages that we believe are
appropriate in light of the risks attendant to our business and consistent with
industry practice. We also require the contracted radiology practices to
maintain sufficient professional liability insurance. We cannot assure you that
adequate liability insurance will be available to us and the contracted
radiology practices in the future at acceptable costs. In addition, there is a
risk that successful malpractice or other claims could be asserted against our
contracted radiology practices or us that would exceed the scope of coverage or
applicable policy limits. Those claims might adversely affect our business and
reputation.
We have assumed and succeeded to substantially all of the obligations of
some acquired radiology entities and may succeed to some or all of the
liabilities of entities acquired in the future. Therefore, claims may be
asserted against us for events that occurred prior to our acquisition of the
radiology
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practices. In connection with our acquisitions, the stockholders of each entity
have agreed to indemnify us for certain claims. We may not be able to receive
payment under any indemnity agreement and the failure to fully recover these
amounts could increase our liabilities.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH ENTITIES WITH MORE ESTABLISHED
OPERATING HISTORIES AND GREATER FINANCIAL RESOURCES WITHIN A MARKET AREA
The contracted radiology practices and our owned imaging centers compete
with numerous local radiology and imaging service providers. We believe 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. We cannot assure you that the contracted
radiology practices and our owned imaging centers will be able to compete
effectively in the markets they serve.
Further, the contracted radiology practices will compete with other
providers for managed care contracts. We believe that trends toward managed care
have resulted, and will continue to result, in increased competition for these
contracts. Other radiology practices and management service organizations may
have more experience in obtaining such contracts. We cannot assure you that the
contracted radiology practices will be able to obtain future business from
managed care entities which will allow us to compete effectively in the markets
they serve.
RISK FACTORS RELATING TO RADIOLOGIX'S INDUSTRY
STATE AND FEDERAL FRAUD AND ABUSE, ANTI-KICKBACK AND ANTI-REFERRAL LAWS MAY
ADVERSELY AFFECT OUR INCOME
Various federal and state laws regulate the relationships between providers
of health care services, physicians and other clinicians. These laws include the
fraud and abuse provisions of the Social Security Act, which include the federal
anti-kickback and Stark or anti-referral laws. The anti-kickback laws prohibit
the offering, payment, solicitation or receipt of any direct or indirect
remuneration for the referral of Medicare, Medicaid or other governmental
program patients or for the recommendation, leasing, arranging, purchasing,
ordering or provision of Medicare or Medicaid covered services, items or
equipment. Violations of the anti-kickback laws may result in substantial civil
or criminal penalties for individuals or entities, including large civil
monetary penalties and exclusion from participation in Medicare, Medicaid and
other governmental programs. The Balanced Budget Act of 1997 contains certain
reform provisions relating to Medicare, Medicaid and other governmental
programs, that are intended to assist the government in its efforts to enforce
the fraud and abuse anti-kickback laws, including additional resources for
enforcement, adding a civil money penalty and broadening the scope of
circumstances under which mandatory or permissive exclusion from the programs
may apply. These exclusions and penalties, if applied to the owned imaging
centers, the contracted radiology practices or physicians affiliated with the
contracted radiology practices, could result in significant loss of
reimbursement to the affected individuals and entities.
Certain provisions contained in the Omnibus Budget Reconciliation Act of
1989 and the Omnibus Budget Reconciliation Act of 1993, and subsequent
amendments, prohibit physician referrals for certain "designated health
services," including radiology services to entities with which a physician or an
immediate family member has a financial relationship, known as the "Stark Laws."
These laws also prohibit entities from presenting or causing to be presented a
claim or bill to any individual, third-party payor, or other entity for
designated health services furnished under a prohibited referral. A violation of
these laws by us, a contracted radiology practice or physicians affiliated with
the radiology practices, may result in significant civil penalties, which may
include exclusion or suspension of the physician or entity from future
participation in the Medicare and Medicaid programs and substantial fines.
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Several states have adopted laws similar to the federal anti-kickback and
Stark Laws that cover patients in private programs as well as government
programs. All of the states in which the radiology practices are located have
adopted a form of anti-kickback law and almost all of those states have also
adopted a form of anti-referral law. The scope of these laws and the
interpretations thereof vary from state to state and are enforced by state
courts and regulatory authorities, each with broad discretion. A determination
of liability under the laws described in this section could result in fines and
penalties and restrictions on our ability to operate in these jurisdictions.
FEDERAL FALSE CLAIMS ACT VIOLATIONS COULD AFFECT OUR PARTICIPATION IN GOVERNMENT
PROGRAMS
The Federal False Claims Act provides in part that the federal government
may bring a lawsuit against any person whom it believes has knowingly presented,
or caused to be presented, a false or fraudulent request for payment from the
federal government, or who has made a false statement or has used a false record
to get a claim approved. Claims presented in violation of the anti-kickback or
Stark law may be considered a violation of the Federal False Claims Act.
Penalties include civil penalties of not less than $5,000 and not more than
$10,000, plus three times the amount of damages which the federal government
sustains because of the act of that person and the costs of a civil action
brought to recover any penalty or damages. We believe that we are in compliance
with the rules and regulations to which the Federal False Claims Act apply.
However, we cannot assure you that we will not be found to have violated certain
rules and regulations resulting in sanctions under the Federal False Claims Act,
and if so, whether any sanctions imposed could result in fines and penalties and
restrictions on our participation in Medicare, Medicaid and other governmental
programs that are integral to our business.
OUR SERVICE AGREEMENTS MUST BE STRUCTURED TO AVOID THE PRACTICE OF MEDICINE AND
FEE SPLITTING
The laws of many states, including each of the states in which the radiology
practices are located, prohibit us 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 state courts and
regulatory authorities, each with broad discretion. A component of our strategy
is to acquire certain assets and assume certain liabilities of, and to enter
into service agreements with, radiology practices. Under the service agreements,
we provide management, administrative, technical and other non-medical services
to the radiology practices in exchange for a service fee. We structure our
relationships with the radiology practices, including the purchase of assets and
the provision of services under the service agreements, to keep us from engaging
in the practice of medicine or exercising control over the medical judgments or
decisions of the radiology practices or their physicians. Regulatory authorities
or other parties may assert that we are engaged in the corporate practice of
medicine in these states or that the payment of service fees to us by the
radiology practices under the service agreements constitutes fee-splitting or
the corporate practice of medicine. If such a claim were successfully asserted,
we could be subject to civil and criminal penalties and could be required to
restructure or terminate our contractual arrangements. This result or our
inability to successfully restructure our relationships to comply with these
statutes could jeopardize our business strategy.
LICENSING AND CERTIFICATION LAWS MAY LIMIT OUR ABILITY TO EXPAND
The ownership, construction, operation, expansion and acquisition of imaging
centers are subject to various federal and state laws, regulations and
approvals. The laws of some states in which we operate limit to some extent our
ability to acquire new imaging equipment or expand or replace our equipment at
imaging centers in those states. We may not be able to receive the required
regulatory approvals for any future acquisitions, expansions or replacements,
and the failure to obtain these approvals could limit the market for our
services.
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COMPLIANCE WITH THE REGULATORY FRAMEWORK IS UNCERTAIN AND EVOLVING
Although we intend to conduct our operations to comply with applicable
federal and state laws, neither our current or anticipated business operations
nor the operations of the contracted radiology practices have been the subject
of judicial or regulatory interpretation. We cannot assure you that a review of
our business by courts or regulatory authorities will not result in
determinations that could adversely affect our operations or that the health
care regulatory environment will not change so as to restrict our operations. In
addition, the regulatory framework of certain jurisdictions may limit our
expansion into or ability to continue operations within these jurisdictions,
unless we are able to modify our operational structure to conform with the
regulatory framework.
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. These laws and regulations may
require providing for minimum capital requirements and other safety and
soundness requirements. The implementation of additional regulations or
compliance requirements could result in substantial costs to us and the
radiology practices and limit our ability to enter into capitated or other
risk-sharing arrangements.
REIMBURSEMENT CHANGES AND COST CONTAINMENT COULD RESULT IN PRESSURES ON
COMPARABLE PER PATIENT REVENUE
Our revenue is derived through our ownership, operation and management of
imaging centers and from service fees paid to us by the contracted radiology
practices under the service agreements. Substantially all of the revenue of the
contracted radiology practices and our owned imaging centers is currently
derived from government sponsored health care programs (principally, Medicare
and Medicaid) and private third-party payors. In 1999, approximately 22% of the
service fee revenue was derived from government approved health care programs
and approximately 78% was derived from private third-party payors. 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 decrease
our revenues.
The federal government has implemented, through the Medicare program, a
resource-based relative value scale, also called 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. The Balanced Budget Act of
1997 provides for reductions in the rate of growth of payments for physician
services, including services historically provided by the radiology practices,
in the amount of $5.3 billion over a five-year period ending in 2002. In
addition, the Balanced Budget Act of 1997 provides for the implementation of a
resource-based methodology for payment of physician practice expenses under the
physician fee schedule over a four-year period, which began in fiscal year 1999.
RBRVS-type payment systems also have been adopted by certain private
third-party payors and we believe that it is likely that other private
third-party payors will adopt this payment methodology in the future.
Wider-spread implementation of these programs could reduce payments by private
third-party payors and could indirectly reduce our operating margins to the
extent that the costs of providing management, administrative, technical and
non-medical services related to these procedures could not be proportionately
reduced.
Private third-party payors and Medicare and Medicaid have increased their
use of managed care as a means of cost containment. Increasingly, private
third-party payors negotiate discounts from established physician and hospital
charges or require capitation or other risk sharing arrangements as a condition
of patient referral to physician groups such as the radiology practices. The
Balanced Budget
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Act of 1997 also includes provisions designed to increase the enrollment of
Medicare and Medicaid participants in managed care programs. These factors could
negatively impact our ability to negotiate satisfactory arrangements with
managed care companies.
MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS COULD REDUCE OPERATING
MARGINS
During fiscal year 1999, approximately 92% of our service fee revenue was
derived from payments made on a fee-for-service basis by patients and
third-party payors (including government programs) and approximately 8% 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. These contracts pass
much of the financial risk of providing outpatient radiology care, including the
risk of over-utilization, from the payor to the provider. We believe that our
success will, in part, depend on our ability to effectively negotiate, on behalf
of the contracted radiology practices and our owned imaging centers, contracts
with HMOs, employer groups and other third-party payors under which services
will be provided on a risk-sharing or capitated basis by some or all of these
radiology practices or imaging centers. Risk-sharing arrangements result in
greater predictability of revenue but greater unpredictability of expenses and,
consequently, profitability. We cannot assure you that we will be able to
negotiate, on behalf of the contracted radiology practices or our owned,
operated or managed imaging centers, satisfactory arrangements on a capitated or
other risk-sharing basis. In addition, to the extent that patients or enrollees
covered by these contracts require more frequent or extensive care than is
anticipated, we 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.
Furthermore, various quality assurance programs and organizations have been
created to scrutinize managed care organizations and their providers. In
response to these programs, managed care organizations and providers have
developed their own quality assurance programs to address a variety of areas,
including patient access to services, patient satisfaction, outcomes and
performance measures and utilization of services. These quality assurance
measures involve various costs associated with their implementation and
operation and depend, in part, upon the sophistication and compatibility of
existing systems and operations of the radiology practices or our owned imaging
centers, as well as our ability to integrate those systems and operations. Our
inability to develop strong quality assurance measures in conjunction with the
contracted radiology practices could place us and the contracted radiology
practices at a competitive disadvantage and adversely affect our business.
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THE SPECIAL MEETING
GENERAL
This proxy statement/prospectus is being sent to you in connection with the
solicitation of proxies by and on behalf of our board of directors for use at
the special meeting to be held on [ ], 2000, at 10:00 a.m., local time,
at 2200 Ross Avenue, 39th floor, Dallas, Texas.
MATTERS TO BE CONSIDERED
At the special meeting, you will be asked to:
- To consider and vote upon a proposal to adopt the Amended and Restated
Agreement and Plan of Merger, dated as of September 12, 2000, between
SKM-RD Acquisition Corp., SKM-RD LLC and Radiologix, pursuant to which
SKM-RD Acquisition Corp. will be merged with and into Radiologix. You may
elect to receive $7.25 per share in cash or retain 1.1224 new shares of
Radiologix common stock for each share you own at the time of the merger,
subject to the minimum share election and proration procedures described
in this proxy statement/prospectus.
- To vote to adjourn the special meeting, if necessary.
Questions or requests for assistance in completing and submitting proxy
cards or forms of election and letters of transmittal should be directed to:
[ ]
[( ) - ]
RECORD DATE AND QUORUM REQUIREMENT
The holders of record of our common stock as of the close of business on
[ ], 2000, are entitled to receive notice of, and to vote at, the
special meeting. On that date, there were [ ] shares of our common
stock outstanding held by approximately [ ] record owners. The
presence of holders of a majority of the outstanding shares of our common stock
on the record date, represented in person or by proxy, will constitute a quorum
for purposes of the special meeting. A quorum is necessary to hold the special
meeting. If a stockholder is present at the special meeting but abstains from
voting on the merger agreement, then the shares held by that stockholder will be
deemed present at the meeting for purposes of determining a quorum. If a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on the
merger, then the shares covered by that non-vote will be deemed present at the
special meeting for purposes of determining a quorum.
VOTE REQUIRED
You are entitled to cast one vote at the special meeting for each share of
our common stock you held on [ ], 2000. Completion of the merger
requires the approval of the merger agreement by the affirmative vote of the
holders of a majority of the outstanding shares of our common stock. You must
vote your shares (1) by returning your completed proxy, (2) by phone or (3) by
appearing at the special meeting and voting in person. If you abstain, do not
vote or fail to instruct your broker on how to vote, it will have the same
effect as a vote against the adoption of the merger agreement. Under a voting
and exchange agreement, certain stockholders holding 8.7% of the outstanding
shares of Radiologix common stock have agreed to vote in favor of the merger.
PROXIES; REVOCATION
You may vote by proxy if you are unable to attend the special meeting in
person or want to have your shares voted by proxy even if you do attend the
special meeting. The vote regarding the adoption
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of the merger agreement is separate from the decision to elect to receive cash
or retain our common stock after the merger. You should not send your stock
certificates with your proxy card. You should only send your stock certificates
with the form of election to make an election and to receive the merger
consideration in connection with the merger.
You may vote your proxy either by telephone or by marking, signing and
returning the enclosed proxy card by mail.
- Vote by phone--toll free--1-800-[ ]
[Use any touch-tone telephone to vote your proxy 24-hours a day, 7-days a
week. You will be prompted to enter your 3-digit company number and your
7-digit control number, both of which appear on the enclosed proxy card.
Follow the instructions the voice provides you.]
- Vote by mail
Mark, sign and date your proxy card and return it in the postage-paid
envelope provided.
If you vote by phone, please do not mail your proxy card.
If you sign and return a proxy card, your shares will be voted at the
special meeting as you indicate on the card. If no instructions are indicated on
your signed proxy card, your shares of Radiologix common stock will be voted
"FOR" the adoption of the merger agreement.
If your shares are held in "street name" by your broker, do not follow the
above voting instructions. Rather, your broker will provide you with separate
written instructions on voting your shares, and you should follow those
instructions. Your broker cannot vote your shares unless instructed by you.
Accordingly, if you fail to instruct your broker on how to vote, it will have
the same effect as a vote against the merger agreement.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. You may revoke a proxy by:
- filing with our corporate secretary a written revocation bearing a later
date than the proxy being revoked;
- submitting a validly executed proxy by mail or telephone bearing a later
date than the proxy being revoked; or
- attending the special meeting and voting in person. However, your
attendance at the special meeting will not in and of itself revoke a
proxy.
In all cases, the latest-dated proxy revokes an earlier-dated proxy,
regardless of which method is used to give or revoke a proxy, or if different
methods are used to give and revoke a proxy. For a notice of revocation or later
proxy to be valid, however, it must actually be received by us before the vote
is taken at the special meeting.
The accompanying proxy is solicited on behalf of our board of directors. The
cost of soliciting proxies will be borne by Radiologix. In addition to
solicitation by mail, our directors, officers and employees, none of whom will
receive additional compensation for solicitations, may solicit proxies in
person, or by telephone, telegram, personal interview, e-mail or facsimile. In
addition, we will request banks, brokerage houses and other custodians, nominees
and fiduciaries to forward their solicitation materials to the beneficial owners
of Radiologix common stock for whom the stock is held of record and obtain
authorization for the execution of proxy cards. Radiologix will reimburse these
record holders for customary mailing expenses incurred by them in forwarding
these materials.
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ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for the
purpose of soliciting additional proxies. Any adjournment of the special meeting
may be made by approval of the holders of a majority of our common stock present
in person or represented by proxy at the special meeting, whether or not a
quorum exists. Any proxies received by us will be voted in favor of an
adjournment of the special meeting if its purpose is to provide additional time
to solicit votes to adopt the merger agreement, unless the stockholder directs
otherwise by voting against or abstaining from voting on the adjournment
proposal included on the enclosed proxy card or the stockholder has voted
against the merger agreement. Thus, proxies voting against the merger will not
be used to vote for adjournment of the special meeting for the purpose of
providing additional time to solicit votes to adopt the merger agreement. Any
adjournment or postponement of the special meeting for the purpose of soliciting
additional proxies will allow our stockholders who have already sent in their
proxies to revoke them at any time prior to their use.
BACKGROUND OF THE MERGER
BACKGROUND OF THE MERGER
Since our initial public offering in November 1997, we have pursued a growth
strategy based on same-market and same-store growth of our existing businesses
and growth through acquisitions. Despite strong growth in revenues and EBITDA
(earnings before interest, taxes, depreciation and amortization) since our
initial public offering, trading volume in our common stock has been light and
our common stock has traded as low as $3.125 per share. Since our initial public
offering, small capitalization companies in general, and companies in our
industry in particular, have been valued less highly by investors than other
investment opportunities, including investments in internet companies, high
technology producers, telecommunications companies and companies with large
market capitalizations.
We must raise additional capital to continue to pursue our growth strategy.
However, the low trading price of our common stock has increased the cost to us
of raising capital in the equity and convertible debt markets. Rising interest
rates and tight credit markets also have increased the cost to us, and decreased
the availability to us, of debt financing.
Our board of directors has considered numerous potential sources of capital,
including a new credit facility with increased borrowing capacity. However,
given the tight-credit, high-interest-rate environment for companies in our
industry, a larger credit facility was not practicable. The board also
considered the issuance of private or public debt, including convertible debt.
After reviewing this alternative, the board concluded that the higher interest
expense, increased leverage and substantial dilution of such an offering would
negatively impact our earnings per share. We also contemplated slowing our
growth to a rate that could be internally-financed through our operations;
however, the timing of principal payments under our existing credit facility,
and the negative perception of slower growth to our employees, investors and
affiliated physicians, made a slowdown impractical. The board also considered
the sale of additional equity, but did not pursue it given the low trading price
of our common stock and the substantial dilution that would have resulted to our
earnings per share.
Radiologix has held discussions from time to time in the past with third
parties regarding a possible business combination or similar transaction
involving Radiologix, but Radiologix decided not to pursue any of these
discussions. The board of directors also considered soliciting third party
indications of interest in the possible acquisition of Radiologix, both from
strategic and financial buyers, by means of a public auction process. However,
the board believed that the process involved in identifying potential buyers and
conducting due diligence and negotiations could disrupt our operations,
negatively impacting our financial results and increasing the volatility of the
trading price of our common stock, without assurance that we would complete a
sale transaction.
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In pursuing the merger proposed by Saunders Karp & Megrue, our board of
directors focused on maximizing the price to be paid to our stockholders, while
ensuring that the merger agreement would not preclude a third party from making
an offer to buy Radiologix at a higher price after the proposed merger was
publicly announced. Following is a discussion of the sequence of events that
lead to our board's approval and recommendation of the merger agreement and the
transactions contemplated thereby.
During the first week of May 2000, the manager of one of our largest
institutional stockholders introduced Saunders Karp & Megrue to Radiologix. On
May 17, 2000, representatives of Saunders Karp & Megrue and Mark L. Wagar, our
chairman of the board and chief executive officer, held an informal meeting in
New York City, at which Mr. Wagar described to Saunders Karp & Megrue our
overall business, and Saunders Karp & Megrue indicated that based on its review
of publicly-available information, Saunders Karp & Megrue had an interest in
pursuing a transaction with us.
On May 24, 2000, Saunders Karp & Megrue and Radiologix entered into a
confidentiality agreement, under which we provided Saunders Karp & Megrue with
confidential financial and operating information.
At a regularly scheduled meeting of the board of directors held on June 7,
2000, Mr. Wagar told the board that Saunders Karp & Megrue had expressed an
interest in conducting discussions with us about a possible transaction. The
board determined that it was in the best interests of Radiologix and its
stockholders to pursue discussions with Saunders Karp & Megrue. Later that day,
representatives of Saunders Karp & Megrue met with Mr. Wagar, Paul M. Jolas, our
general counsel, senior vice president and secretary, and Patrick Hudson, our
former manager of mergers and acquisitions, at our corporate offices in Dallas,
Texas. At this meeting, Radiologix's representatives explained additional
aspects of our business and business plan to Saunders Karp & Megrue and answered
questions from Saunders Karp & Megrue. During the meeting, Saunders Karp &
Megrue indicated that based on their review of publicly-available information
and additional information provided by us pursuant to the confidentiality
agreement, Saunders Karp & Megrue was interested in Radiologix and its industry.
We discussed the possibility of an acquisition, recapitalization or other form
of transaction. At this meeting, Saunders Karp & Megrue indicated that it might
be willing to pay up to $8.00 per share for our outstanding common stock. We
also discussed a timetable for a proposed transaction, subject to our board
authorizing management to move forward with further discussions.
On June 23, 2000, our board of directors held a telephonic meeting at which
Mr. Wagar reported on the status of our discussions with Saunders Karp & Megrue.
The board considered the merits of pursuing a transaction with Saunders Karp &
Megrue. The board also discussed alternatives that might enhance stockholder
value while providing for additional capital to fund our growth strategy. These
alternatives included a new credit facility with greater borrowing capacity, a
private offering of high-yield notes, and other possible public and private
debt, convertible debt and equity financings. The board concluded that none of
these alternatives were as attractive as the proposed transaction with Saunders
Karp & Megrue. The board authorized management to pursue the possibility of a
transaction with Saunders Karp & Megrue. The board also asked Paul D. Farrell,
one of our independent directors and a partner in a private equity firm, to lead
the negotiation of the principal financial terms and to participate with
management in negotiations with Saunders Karp & Megrue.
On June 29, 2000, Radiologix's representatives and Saunders Karp & Megrue
held two meetings in New York City. The first meeting involved Mr. Farrell, Mr.
Wagar and representatives from Saunders Karp & Megrue. The participants
discussed Saunders Karp & Megrue's proposed structure for the transaction and
the price range at which Saunders Karp & Megrue might make an offer. Mr. Farrell
indicated that our directors likely would consider seriously an offer priced at
not less than $9.00 per share. The second meeting involved representatives of
Saunders Karp & Megrue, Mr. Wagar and members of our management who had not had
an opportunity to meet with Saunders Karp & Megrue,
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including Mark S. Martin, our president and chief operating officer, and David
W. Young, our vice president of finance and treasurer. At this second meeting,
the participants discussed Saunders Karp & Megrue's approach to managing
portfolio companies.
On July 2, 2000, we received the first draft of a confidentiality and
exclusivity agreement. Attached to the agreement was a non-binding term sheet
setting forth the basic terms on which Saunders Karp & Megrue agreed to consider
the proposed merger. Under the proposal, our stockholders could elect to receive
either $9.00 in cash, or $7.00 in cash plus stock in the surviving corporation
valued at approximately $2.00, for each share of our common stock. The proposal
was subject to Saunders Karp & Megrue obtaining financing on terms that would
support the proposed merger consideration and satisfactory completion of
Saunders Karp & Megrue's legal and financial due diligence. The term sheet
proposed a break-up fee of $16.0 million plus expenses and an option to purchase
common stock from Radiologix equal to 19.9% of the total outstanding common
stock at $9.00 per share. Mr. Farrell and representatives of Saunders Karp &
Megrue discussed the terms of Saunders Karp & Megrue's proposal over the next
three days.
On July 5, 2000, our board of directors held a telephonic board meeting and
authorized Radiologix to enter into the revised confidentiality and exclusivity
agreement with a revised term sheet. Under the revised term sheet, the parties
agreed to consider a merger subject to financing and further due diligence in
which our stockholders could elect to receive either an amount in cash equal to
approximately $8.75 to $9.00, or $7.00 in cash plus stock in the surviving
corporation valued at $2.00 to $2.50 per share. The parties determined to
provide a range of values as there had yet been no firm agreement as to price or
the amount of merger consideration that would be payable in cash or cash and
stock. The term sheet also provided for a break-up fee of $14.0 million plus
expenses, but did not include an option pursuant to which Saunders Karp & Megrue
could purchase common stock from Radiologix. In addition, Radiologix and
Saunders Karp & Megrue agreed to a timeframe for conducting due diligence,
completing documentation, arranging financing and consummating the transaction.
Saunders Karp & Megrue was given an exclusive one-month period to conduct due
diligence and negotiate definitive agreements, followed by a three-month period
to complete the merger.
On July 10th and 11th, Saunders Karp & Megrue and its financial and legal
advisors met with us in Dallas to conduct legal, operational and financial due
diligence.
During the period from July 13 to July 16, 2000, representatives of Saunders
Karp & Megrue, Radiologix and some of Saunders Karp & Megrue's potential
financing sources met in New York City, at our offices in Dallas and at Saunders
Karp & Megrue's offices in Stamford, Connecticut, to discuss financing for the
transaction.
On July 14, 2000, we contacted UBS Warburg about the possibility of
rendering to our board of directors an opinion regarding the fairness, from a
financial point of view, of the consideration to be received in the proposed
transaction.
On July 17, 2000, our board of directors held a telephonic meeting at which
Mr. Farrell updated the board on the status of the discussions with Saunders
Karp & Megrue regarding the terms of the transaction, and the discussions with
UBS Warburg regarding its engagement. Also on July 17, 2000, Saunders Karp &
Megrue's attorneys distributed to us the first draft of the merger agreement.
The terms of the merger agreement were substantially similar to those set forth
in the revised term sheet attached to the confidentiality and exclusivity
agreement that we had signed. The agreement contained a "no solicitation"
covenant designed to prohibit us from, among other things, soliciting any
competing transaction. The merger agreement, however, expressly permitted us to
respond to an unsolicited proposal if our board determined in good faith that
the proposal would be reasonably likely to result in our stockholders receiving
greater consideration than under the proposed Saunders Karp & Megrue merger. The
terms of the proposed merger agreement further provided that the agreement could
be
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terminated by us to accept a superior proposal. Upon such termination, however,
we would be required to pay to Saunders Karp & Megrue a termination fee of
$14.0 million plus Saunders Karp & Megrue's expenses.
On July 19, 2000, the Company executed an engagement letter with UBS
Warburg.
On July 26, 2000, we had a telephonic meeting with representatives of
Saunders Karp & Megrue to discuss the status of Saunders Karp & Megrue's
proposal. At that time, Saunders Karp & Megrue informed us that, primarily based
on their evaluation of financing terms and Saunders Karp & Megrue's more
conservative assumptions regarding the company's prospects, it was not prepared
to proceed with a transaction at a weighted average price greater than $8.25 per
share. Saunders Karp & Megrue indicated, however, that it would need further
time to finalize the financing arrangements for the merger and its financial due
diligence before it could make a more definitive proposal. That same day, our
board of directors held a regularly-scheduled meeting in Dallas to discuss,
among other things, the proposed transaction, possible financing sources for the
transaction and UBS Warburg's evaluation process. During the board meeting,
representatives of Haynes and Boone, LLP, our outside counsel, discussed with
the board the status of the merger transaction documents and other legal matters
associated with the proposed transaction. UBS Warburg participated in a portion
of the meeting and reviewed with the board its due diligence process. The board
of directors reviewed the merger agreement with representatives of Haynes and
Boone and suggested changes to the document, including the break-up fee, the
non-solicitation provisions and the provisions that permit us to consider
subsequent higher offers.
On August 3, 2000, Mr. Farrell, Mr. Wagar, Mr. Martin and the
representatives of Saunders Karp & Megrue met in New York City to discuss the
financing arrangements proposed for the merger, the assumptions Saunders Karp &
Megrue had utilized in determining the initial merger consideration and the
likelihood that the original price proposal would be lowered.
On August 5, 2000, our board of directors met telephonically. Mr. Wagar
detailed for the board the status of Saunders Karp & Megrue's due diligence
investigation and Saunders Karp & Megrue's investigation of possible financing
sources. Mr. Farrell outlined for the board the status of price negotiations in
which Saunders Karp & Megrue had indicated that it would likely propose a
weighted average price of less than $8.25. The board discussed the possibility
of obtaining an extension of Radiologix's existing credit facility in lieu of,
or in addition to, seeking a financing alternative other than the proposed
Saunders Karp & Megrue merger. The board determined to extend for one week the
period during which Saunders Karp & Megrue could conduct its due diligence
investigation in order that Saunders Karp & Megrue would be able to complete the
work necessary to finalize its offer price.
After the August 5th telephonic board meeting and prior to August 11, 2000,
Mr. Farrell, Mr. Wagar, Mr. Martin and others participated in numerous
discussions with Saunders Karp & Megrue representatives regarding the price at
which Radiologix and Saunders Karp & Megrue would be willing to proceed with the
proposed merger. In particular, Mr. Farrell and the Saunders Karp & Megrue
representatives discussed the cost and the availability to Saunders Karp &
Megrue of financing for the merger. The parties also discussed Saunders Karp &
Megrue's evaluation of the complexity of our business and the level of portfolio
company management attention that Saunders Karp & Megrue would be required to
devote to Radiologix. Mr. Farrell, Mr. Wagar and Mr. Martin each participated in
discussions with Saunders Karp & Megrue to further explain to Saunders Karp &
Megrue our financial projections and business plan. Saunders Karp & Megrue
disclosed that it anticipated offering a cash price of approximately $7.00 per
share in the merger, based primarily on the financing terms that Saunders
Karp & Megrue had determined would be available to fund the merger and Saunders
Karp & Megrue's financial forecasts. Mr. Farrell indicated that such pricing was
not satisfactory and likely would not be accepted by our board of directors.
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On August 11, 2000, our board of directors met telephonically to discuss the
status of the proposed Saunders Karp & Megrue merger and the extension of the
existing credit facility. Mr. Farrell detailed for the board the status of price
negotiations with Saunders Karp & Megrue. The board again discussed the merits
of the proposed Saunders Karp & Megrue merger as compared to a public or private
debt offering or a sale to a strategic or financial buyer other than Saunders
Karp & Megrue. For the reasons described above, it was the consensus of the
board that alternatives to the Saunders Karp & Megrue proposal would not be in
the best interest of our stockholders, and that Mr. Farrell and senior
management should attempt to negotiate a higher offer price from Saunders
Karp & Megrue.
On August 14, 2000, we received necessary lender consents for the extension
of our existing credit facility. Pursuant to the extension, we agreed to be
bound by additional restrictive covenants and our lenders agreed to delay for
six months the requirement that we begin to amortize the principal of our
indebtedness under the facility. The extension did not increase the amount of
borrowings available to us or extend the final maturity date of the facility.
Additional price discussions continued after our August 11th board of
directors meeting, culminating in a meeting in New York on August 15, 2000,
among Mr. Farrell, Mr. Wagar, Mr. Martin and Saunders Karp & Megrue
representatives. In discussions after this meeting, Saunders Karp & Megrue
proposed merger consideration having a weighted average value of approximately
$7.20 per share, including the value of the cash and the surviving corporation
common stock components.
On August 16, 2000, our board of directors met telephonically to discuss
again the status of price negotiations with Saunders Karp & Megrue and the
merits of other financing alternatives.
Between August 16th and August 22nd, 2000, Mr. Farrell and Saunders Karp &
Megrue's representatives continued to discuss price proposals and our officers
and legal counsel, and Saunders Karp & Megrue's representatives and advisors,
negotiated the terms of the proposed merger agreement and related documents.
These negotiations focused principally on the size of the break-up fee, the
circumstances in which our board could communicate with our stockholders in
respect of a competing proposal, the mechanics of the exchange ratio, the
treatment of Radiologix stock options in the merger, and the nature of the
financing conditions of the merger. These negotiations resulted in a reduction
in the break-up fee from $14.0 million to $7.0 million.
On August 22, 2000, our board of directors met telephonically to discuss and
consider approving the proposed Saunders Karp & Megrue merger. Mr. Farrell
presented to the board Saunders Karp & Megrue's final proposed weighted average
value of $7.35 per share, consisting of $7.25 in cash per share or 1.1224 shares
of common stock in the surviving corporation. The board reviewed the commitment
letters received by Saunders Karp & Megrue for its proposed financing.
Mr. Jolas and representatives of Haynes and Boone described to the board the
terms of the merger agreement and related documents, including the proposed
lower merger agreement break-up fee of $7.0 million, plus expenses. In addition,
our senior management reviewed with the board the matters related to the
transaction in which members of our board or senior management had an interest
which could be different from or in addition to the interest of our stockholders
in general. UBS Warburg reviewed with the board its financial analysis of the
merger consideration and then rendered to the board its oral opinion, which
opinion was confirmed by delivery of a written opinion dated August 22, 2000, to
the effect that, as of the date of the opinion and based on and subject to
matters described in the opinion, the merger consideration was fair, from a
financial point of view, to the holders of Radiologix common stock, other than
the Management Continuing Stockholders and their affiliates. The directors then
discussed the proposed merger and asked questions of Mr. Farrell and our
management about the proposed terms. The board approved and deemed advisable the
merger agreement and the transactions contemplated thereby. The board authorized
and directed our officers to finalize and sign the merger agreement. The board
also determined to recommend to our stockholders the adoption of the merger
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agreement and the transactions contemplated thereby. Mr. Wagar abstained from
voting on these matters because of a possible conflict of interest he might have
arising from the fact that he would be signing an employment agreement with, and
receiving stock options from, the surviving corporation. All of the remaining
directors voted in favor of the merger.
Following our board approval, the merger agreement was executed by the
parties, and the merger was publicly announced prior to the opening of business
on August 23, 2000.
On September 12, 2000, our board held a telephonic meeting to approve an
amended and restated merger agreement. The merger agreement was amended to
clarify the mechanics of the proration procedures and the minimum share election
requirement, the composition of the surviving corporation's board and the manner
in which the right of first refusal restrictions applicable to shares retained
in the merger would be implemented.
RECOMMENDATIONS OF THE RADIOLOGIX BOARD OF DIRECTORS; REASONS FOR THE MERGER
The board of directors has determined that the merger is fair and in the
best interest of our stockholders. The board recommends that you adopt the
merger agreement. In the course of reaching its decision to approve the merger
agreement and the transactions contemplated thereby, the board considered a
number of factors, including, among others, the following:
- an assessment by our board of directors relating to our financial
performance and future opportunities and prospects, including the risks
involved in achieving these prospects and current industry, economic and
market conditions. We have historically pursued a growth strategy based on
same-store and same-market growth in our existing businesses and growth in
acquisitions. Our ability to raise additional capital to pursue our growth
strategy has been hindered by the low trading price of our common stock
and the increased cost to us of debt financing;
- the historical results of operations, financial condition, assets,
liabilities, business strategy and prospects of Radiologix and the nature
of the industry in which Radiologix competes. Based upon its consideration
of the operations and prospects of Radiologix and the nature of the
industry, the board concluded that it might take a considerable period of
time, if ever, before the trading price of Radiologix shares would equal
the $7.25 per share cash purchase price;
- the reputation and proven experience of Saunders Karp & Megrue in
completing similar transactions;
- the relationship of the $7.32 minimum blended rate for the cash and stock
consideration, assuming that 10% of Radiologix common stock after the
merger was held by current stockholders of Radiologix, to the current
market price and the market prices for Radiologix common stock during the
previous year. The board considered the fact that the common stock had
traded at prices as high as $8.125 per share and as low as $3.125 per
share during the year prior to the public announcement of the merger
agreement. The board also considered the fact that the $7.32 minimum
blended rate per share consideration represents a premium of approximately
83% over the per share closing price of Radiologix shares on August 22,
2000, the last trading day prior to the public announcement of the merger
agreement. The board believed that the significant premium which the $7.32
minimum blended rate per share consideration offered to recent trading
prices of the shares, coupled with the board's conclusion as discussed
above that it might take a considerable period of time before the trading
price of Radiologix shares would equal the $7.32 minimum blended rate per
share offered, if ever, supported the board's fairness determination;
- the ability of stockholders who own more than 3,000 shares to retain their
shares in Radiologix following the merger;
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<PAGE>
- the fact that Radiologix has held discussions from time to time in the
past with third parties regarding a possible business combination or
similar transaction involving Radiologix and that, to date, no third party
has come forward with a proposal to acquire Radiologix;
- the opinion of UBS Warburg to the Radiologix board as to the fairness,
from a financial point of view and as of the date of its opinion, of the
merger consideration to the holders of Radiologix common stock, other than
the Management Continuing Stockholders and their affiliates, as more fully
described below under "--Opinion of UBS Warburg LLC;"
- the board's belief that the risk and disruption to Radiologix and its
operations due to the process involved with an auction of Radiologix was
greater than the potential benefit, if any, to its stockholders. In its
consideration of this factor, the board considered that the disruption
caused by any effort could have had a negative effect on the value of
Radiologix;
- the fact that the merger is expected to be accounted for as a
recapitalization that, among other things, will not require the
recognition or amortization of goodwill or any adjustments to the book
value of Radiologix's assets;
- the fact that approval of the merger agreement requires the affirmative
vote of a majority of the outstanding Radiologix shares entitled to vote
thereon and that, under Delaware law, Radiologix stockholders have the
right to exercise their dissenters' rights to receive the "fair value" of
their shares if they dissent from the merger;
- the likelihood of the completion of the merger in light of the fact that
commitments have been received by SKM-RD LLC from nationally recognized
financial institutions for the funds necessary to complete the merger
transactions, although such commitments are subject to the conditions set
forth in the related commitment letters; and
- the arms'-length negotiations between the board and SKM-RD LLC and their
respective representatives, including that the negotiations resulted in:
- Radiologix having the right to engage in negotiations with, and supply
information to, a person who makes an unsolicited proposal for a
competing acquisition transaction that the board believes is reasonably
likely to result in a superior proposal. For a further description of
Radiologix's ability to consider competing transactions, see "THE
MERGER AGREEMENT--Limitations on Solicitation of Competing
Transactions" on pages 59 to 60;
- Radiologix having the right to terminate the merger agreement to accept
a superior proposal; and
- a reduction in the termination fee sought by SKM-RD LLC in the event
the merger agreement is terminated as a result of a competing
transaction.
In reaching its decision to approve the merger agreement, our board did not
view any single factor as determinative, and did not find it necessary or
practicable to assign any relative or specific weights to the various factors
considered. Furthermore, individual directors may have given differing weights
to different factors.
OPINION OF UBS WARBURG LLC
On August 22, 2000, at a meeting of the Radiologix board held to evaluate
the terms of the proposed merger, UBS Warburg delivered to the Radiologix board
an oral opinion, which opinion was confirmed by delivery of a written opinion
dated the same date, to the effect that, as of that date and based on and
subject to various assumptions, matters considered and limitations described in
the opinion, the merger consideration was fair, from a financial point of view,
to the holders of Radiologix common stock, other than the Management Continuing
Stockholders and their affiliates.
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<PAGE>
The full text of UBS Warburg's opinion describes the assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by UBS Warburg. This opinion is attached as Appendix B and is incorporated into
this document by reference. UBS WARBURG'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE MERGER CONSIDERATION AND DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION. THE
OPINION DOES NOT ADDRESS RADIOLOGIX'S UNDERLYING BUSINESS DECISION TO EFFECT THE
MERGER OR CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF RADIOLOGIX COMMON STOCK
AS TO THE FORM OF THE MERGER CONSIDERATION TO ELECT OR HOW TO VOTE WITH RESPECT
TO ANY MATTER RELATING TO THE PROPOSED MERGER. HOLDERS OF RADIOLOGIX COMMON
STOCK ARE ENCOURAGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. The summary
of UBS Warburg's opinion described below is qualified in its entirety by
reference to the full text of its opinion.
In arriving at its opinion, UBS Warburg:
- reviewed current and historical market prices and trading volumes of
Radiologix common stock;
- reviewed publicly available business and historical financial information
relating to Radiologix;
- reviewed internal financial information and other data relating to
Radiologix's business and financial prospects, including estimates and
financial forecasts prepared by Radiologix's management, that were
provided to or discussed with UBS Warburg by Radiologix and were not
publicly available;
- considered the financing needs of, and capital resources available to,
Radiologix;
- conducted discussions with members of Radiologix's senior management;
- reviewed publicly available financial and stock market data with respect
to other companies in lines of business that UBS Warburg believed to be
generally comparable to those of Radiologix;
- compared the financial terms of the merger with the publicly available
financial terms of other transactions which UBS Warburg believed to be
generally relevant;
- reviewed the merger agreement; and
- conducted other financial studies, analyses and investigations, and
considered other information, as UBS Warburg deemed necessary or
appropriate.
In connection with its review, at Radiologix's direction, UBS Warburg did
not assume any responsibility for independent verification of any of the
information that UBS Warburg was provided or reviewed for the purpose of its
opinion and, with Radiologix's consent, UBS Warburg relied on that information
being complete and accurate in all material respects. In addition, at
Radiologix's direction, UBS Warburg did not make any independent evaluation or
appraisal of any of the assets or liabilities, contingent or otherwise, of
Radiologix, and was not furnished with any evaluation or appraisal. With respect
to the financial forecasts and estimates that it reviewed, UBS Warburg assumed,
at Radiologix's direction, that they were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of Radiologix's
management as to the future financial performance of Radiologix.
In connection with its engagement, UBS Warburg was not requested to, and it
did not, solicit third party indications of interest in the acquisition of all
or a part of Radiologix. Representatives of Radiologix, however, advised UBS
Warburg, and UBS Warburg took into account for purposes of its opinion, that
Radiologix had held discussions from time to time in the past with third parties
regarding a possible business combination or similar transaction involving
Radiologix.
At Radiologix's direction, UBS Warburg was not requested to, and did not,
participate in the negotiation or structuring of the merger. In addition, at
Radiologix's direction, UBS Warburg was not asked to, and did not, offer any
opinion as to the material terms or obligations of the merger agreement or any
related documents, or the form of the merger. UBS Warburg expressed no opinion
as
34
<PAGE>
to the value of Radiologix common stock when issued in the merger or the prices
at which Radiologix common stock will trade or otherwise be transferable after
the announcement or consummation of the merger. In rendering its opinion, UBS
Warburg assumed, at Radiologix's direction, that each of Radiologix, SKM-RD LLC
and SKM-RD Acquisition Corp. would comply with all material covenants and
agreements set forth in, and other material terms of, the merger agreement and
that the merger would be validly consummated in accordance with its terms. UBS
Warburg's opinion is necessarily based on economic, monetary, market and other
conditions existing, and information available to UBS Warburg, on the date of
its opinion.
Except as described above, Radiologix imposed no other instructions or
limitations on UBS Warburg with respect to the investigations made or the
procedures followed by UBS Warburg in rendering its opinion.
In connection with rendering its opinion to Radiologix's board of directors,
UBS Warburg performed a variety of financial analyses which are summarized
below. The following summary is not a complete description of all of the
analyses performed and factors considered by UBS Warburg in connection with its
opinion. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. With respect to the analysis of selected publicly traded
companies and the analysis of selected transactions summarized below, no company
or transaction used as a comparison is either identical or directly comparable
to Radiologix or the merger. These analyses necessarily involve complex
considerations and judgments concerning financial and operating characteristics
and other factors that could affect the public trading or acquisition values of
the companies concerned.
UBS Warburg believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its analyses and factors or
focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying UBS Warburg's
analyses and opinion. None of the analyses performed by UBS Warburg was assigned
greater significance by UBS Warburg than any other. UBS Warburg arrived at its
ultimate opinion based on the results of all analyses undertaken by it and
assessed as a whole. UBS Warburg did not draw, in isolation, conclusions from or
with regard to any one factor or method of analysis.
The estimates of Radiologix's future performance provided by Radiologix's
management in or underlying UBS Warburg's analyses are not necessarily
indicative of future results of values, which may be significantly more or less
favorable than those estimates. In performing its analyses, UBS Warburg
considered industry performance, general business and economic conditions and
other matters, many of which are beyond Radiologix's control. Estimates of the
financial value of companies do not necessarily purport to be appraisals or
reflect the prices at which companies actually may be sold.
The merger consideration was determined through negotiation between
Radiologix and Saunders Karp & Megrue and the decision to enter into the merger
was solely that of Radiologix's board of directors. UBS Warburg's opinion and
financial analyses were only one of many factors considered by Radiologix's
board of directors in its evaluation of the merger and should not be viewed as
determinative of the views of Radiologix's board of directors or management with
respect to the merger or the merger consideration.
The following is a brief summary of the material financial analyses
performed by UBS Warburg and reviewed with Radiologix's board of directors in
connection with its opinion dated August 22, 2000. THE FINANCIAL ANALYSES
SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO
FULLY UNDERSTAND UBS WARBURG'S FINANCIAL ANALYSES, THE TABLES MUST BE READ
TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A
COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. CONSIDERING THE DATA IN THE
TABLES BELOW WITHOUT CONSIDERING THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL
ANALYSES, INCLUDING THE METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES,
COULD CREATE
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<PAGE>
A MISLEADING OR INCOMPLETE VIEW OF UBS WARBURG'S FINANCIAL ANALYSES. For
purposes of the summary of UBS Warburg's analyses, the term "blended per share
value of the merger consideration" refers to the weighted average of the cash
consideration and the stock consideration issuable in the merger of
approximately $7.32 per share assuming that the minimum number of shares
required to be retained in the merger are retained by Radiologix's stockholders
and optionholders.
ANALYSIS OF SELECTED PUBLIC COMPANIES
UBS Warburg compared selected financial information and operating statistics
for Radiologix with corresponding financial information and operating statistics
of the following four selected publicly held companies in the imaging industry:
- PhyCor, Inc.
- Pediatrix Medical Group, Inc.
- US Oncology, Inc.
- InSight Health Services Corp.
UBS Warburg reviewed enterprise values, calculated as equity value, plus
debt, including capital leases, less cash, as multiples of latest 12 months
sales, earnings before interest, taxes, depreciation and amortization, commonly
known as EBITDA, and earnings before interest and taxes, commonly known as EBIT.
UBS Warburg also reviewed equity values as a multiple of latest 12 months net
income. UBS Warburg then compared the multiples derived from the selected
companies with corresponding multiples for Radiologix based on the closing price
of Radiologix's common stock on August 22, 2000, as well as the multiples
implied for Radiologix based on the blended per share value of the merger
consideration. Multiples for the selected companies also were based on closing
stock prices on August 22, 2000. Financial data for the selected companies were
based on publicly-available research analysts' estimates and financial data for
Radiologix were based on internal estimates of Radiologix's management. This
analysis indicated the following implied low, mean, median and high enterprise
and equity value multiples for the selected companies, as compared to the
multiples implied for Radiologix:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF IMPLIED MULTIPLES IMPLIED MULTIPLES OF
SELECTED IMAGING COMPANIES OF RADIOLOGIX BASED RADIOLOGIX BASED ON
----------------------------------------- ON CLOSING BLENDED PER SHARE VALUE
ENTERPRISE VALUES AS MULTIPLES OF: LOW MEAN MEDIAN HIGH PRICE ON 8/22/00 OF MERGER CONSIDERATION
---------------------------------- -------- -------- -------- -------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Latest 12 months sales.............. 0.27x 0.88x 0.87x 1.52x 1.17 x 1.48x
Latest 12 months EBITDA............. 2.3 4.3 4.8 5.4 4.1 5.2
Latest 12 months EBIT............... 5.0 7.9 7.7 11.1 6.1 7.7
<CAPTION>
EQUITY VALUES AS A MULTIPLE OF: LOW MEAN MEDIAN HIGH
------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Latest 12 months net income......... 7.2x 9.5x 9.4x 11.9x 4.8x 9.0x
</TABLE>
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<PAGE>
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
UBS Warburg reviewed the implied enterprise and equity values in the
following 10 selected transactions in the imaging industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
----------------------------------------------- -------------------------------------------
<S> <C>
- Goldman, Sachs & Co. ProMedCo Management Company
- Kohlberg Kravis Roberts & Co. LLC Alliance Imaging, Inc.
- Radiologix Questar Imaging, Inc.
- Vestar Capital Partners III Sheridan Healthcare, Inc.
- American Oncology Resources, Inc. Physician Reliance Network, Inc.
- Newport Investment LLC, Apollo
Management L.P. Alliance Imaging, Inc.
- Three Rivers Acquisition Corp., Apollo
Management L.P. SMT Health Services Inc.
- HEALTHSOUTH Corporation Health Images, Inc.
- US Diagnostic Inc. Medical Imaging Centers of America, Inc.
- Health Images, Inc. Medalliance, Inc.
</TABLE>
UBS Warburg reviewed enterprise values as multiples of latest 12 months sales,
EBITDA and EBIT, and equity values as multiples of latest 12 months net income
and latest book value. UBS Warburg then compared the implied multiples derived
from the selected transactions with corresponding multiples for Radiologix based
on the blended per share value of the merger consideration. All multiples were
based on publicly-available information at the time of announcement of the
relevant transaction. This analysis indicated the following implied low, mean,
median and high enterprise and equity value multiples for the selected
transactions, as compared to the multiples implied for Radiologix:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF
IMPLIED MULTIPLES OF RADIOLOGIX BASED ON BLENDED
SELECTED TRANSACTIONS IN PER SHARE VALUE OF
IMAGING INDUSTRY MERGER CONSIDERATION
----------------------------------------- ---------------------------
ENTERPRISE VALUES AS MULTIPLES OF: LOW MEAN MEDIAN HIGH
---------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Latest 12 months sales 0.8x 2.2x 1.9x 4.6x 1.5x
Latest 12 months EBITDA 2.5 6.3 6.9 9.5 5.2
Latest 12 months EBIT 5.6 11.3 13.7 14.7 7.7
</TABLE>
<TABLE>
<CAPTION>
EQUITY VALUES AS MULTIPLES OF: LOW MEAN MEDIAN HIGH
------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Latest 12 months net income 6.8x 19.0x 22.4x 34.8x 9.0x
Latest book value 0.5 2.7 2.1 8.5 4.6
</TABLE>
PREMIUMS ANALYSIS
UBS Warburg analyzed the premiums paid in seven selected transactions
effected in the imaging industry from 1996 to 1999. UBS Warburg reviewed the
purchase prices paid in the selected transactions relative to the target
company's stock prices one day, one week, one month and three months prior to
public announcement of the transaction as well as the target company's average
stock trading prices during the one week, one month and three month periods
prior to public announcement of the transaction. UBS Warburg then compared the
premiums implied in the selected transactions over these specified periods with
the premium implied in the merger based on the blended per share value of the
merger consideration relative to the closing prices of Radiologix common stock
for each of
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<PAGE>
the specified periods. This analysis indicated the following premiums in the
selected transactions, as compared to the premium implied in the merger:
<TABLE>
<CAPTION>
PERCENTAGE PREMIUM PAID PREMIUM IMPLIED IN MERGER
-------------------------------------------------- -------------------------
SPECIFIED PERIOD: LOW MEAN MEDIAN HIGH
----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
One day prior 4.4% 10.3% 7.3% 28.8% 83.3%
One week prior 2.2 32.0 17.8 142.4 98.8
One month prior 8.0 36.5 17.5 140.4 77.7
Three months prior 22.1 50.9 38.2 129.2 89.2
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE PREMIUM PAID BASED ON AVERAGE
TRADING PRICE PREMIUM IMPLIED IN MERGER
-------------------------------------------------- -------------------------
SPECIFIED PERIOD: LOW MEAN MEDIAN HIGH
----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
One week prior 3.6% 23.4% 11.8% 92.5% 96.1%
One month prior 3.7 30.9 16.4 130.5 81.9
Three months prior 14.4 35.7 19.4 129.8 87.7
</TABLE>
DISCOUNTED CASH FLOW ANALYSIS
UBS Warburg performed an analysis of the present value of the stand-alone
unlevered, after-tax free cash flows that Radiologix could generate over
estimated calendar years 2001 through 2005 based on internal estimates of
Radiologix's management. UBS Warburg applied multiples of 4.0x to 5.0x to
Radiologix's estimated calendar year 2005 EBITDA using discount rates ranging
from 16% to 22%. This analysis indicated an implied per share equity reference
range for Radiologix of approximately $3.04 to $8.72, as compared to the implied
blended per share value of the merger consideration of approximately $7.32.
OTHER FACTORS
In rendering its opinion, UBS Warburg also reviewed and considered other
factors, including:
- the historical price performance for Radiologix common stock and the
relationship between movements in Radiologix common stock, movements in
the common stock of selected companies in the imaging industry and
movements in the S&P 500 index; and
- a valuation of the stock component of the merger consideration which,
based on a multiple of 5.0x, Radiologix's estimated calendar year 2001
EBITDA and a discount rate of approximately 20%, yielded an implied per
share value of approximately $8.27 assuming that the minimum number of
shares required to be retained in the merger are retained by Radiologix's
stockholders and optionholders.
MISCELLANEOUS
Radiologix has agreed to pay UBS Warburg for its services upon delivery of
its opinion an aggregate fee of $1.0 million. In addition, Radiologix has agreed
to reimburse UBS Warburg for its reasonable expenses, including reasonable fees
and disbursements of its counsel, and to indemnify UBS Warburg and related
parties against liabilities, including liabilities under federal securities
laws, relating to, or arising out of, its engagement.
Radiologix selected UBS Warburg to render an opinion in connection with the
merger because UBS Warburg is an internationally recognized investment banking
firm with substantial experience in similar transactions. UBS Warburg is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities and private placements.
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<PAGE>
UBS Warburg currently is participating in the financing of the merger and
will receive customary compensation for its services. A significant portion of
the fees payable to UBS Warburg in connection with the financing of the merger
are contingent on the completion of the merger. In the ordinary course of
business, UBS Warburg, its successors and affiliates may actively trade the
securities of Radiologix and affiliates of Saunders Karp & Megrue for their own
accounts and the accounts of their customers and, accordingly, may at any time
hold a long or short position in these securities.
CERTAIN PROJECTED FINANCIAL INFORMATION
Prior to entering into the merger agreement, we provided to Saunders Karp &
Megrue, its co-investors and UBS Warburg certain information that was not
publicly-available, including the projections provided in the chart below. The
projections were not prepared with a view to public disclosure or compliance
with published guidelines of the SEC, the guidelines established by the American
Institute of Certified Public Accountants for Prospective Financial Information
or generally accepted accounting principles. Our certified public accountants
have not examined or compiled any of the projections or expressed any conclusion
or provided any form of assurance with respect to the projections and,
accordingly, assume no responsibility for them. They are included below to give
our stockholders access to information that was not publicly available and that
we provided to Saunders Karp & Megrue and its co-investors.
The projections are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those statements and should be read with caution. They are subjective in
many respects and thus susceptible to interpretations and periodic revisions
based on actual experience and recent developments. While presented with
numerical specificity, the projections were not prepared by us in the ordinary
course and are based upon a variety of estimates and hypothetical assumptions
made by our management with respect to, among other things, industry
performance, general economic, market, interest rate and financial conditions,
operating and other revenues and expenses, capital expenditures and working
capital of Radiologix, and other matters. The key assumptions management made
were that our revenues would increase 5% a year and that we would make no
acquisitions during the period covered by the projections. None of the
assumptions may be realized, and they are inherently subject to significant
business, economic and competitive uncertainties and contingencies, all of which
are difficult to predict and many of which are beyond our control. Accordingly,
there can be no assurance that the assumptions made in preparing the projections
will prove accurate, and actual results may materially differ. In addition, the
projections do not take into account any of the transactions contemplated by the
merger agreement, including the merger and related financing, which may also
cause actual results to materially differ.
For these reasons, as well as the bases and assumptions on which the
projections were compiled, the inclusion of the projections should not be
regarded as an indication that we, Saunders Karp & Megrue and its co-investors,
SKM-RD LLC, SKM-RD Acquisition Corp. or any other person consider the
projections to be an accurate prediction of future events, and they should not
be relied on as such. We do not assume any responsibility to any stockholder for
the reasonableness, completeness, accuracy or reliability of the projections. No
one has made, or makes, any representation to any person regarding the
information contained in the projections and we do not intend to update or
otherwise revise the projections to reflect circumstances existing after the
date when made or to reflect the occurrences of future events even in the event
that any or all of the assumptions are shown to be in error.
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<PAGE>
PROJECTED FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES.................................... $252.9 $274.7 $288.7 $303.4 $318.8 $335.1
% GROWTH........................................ 26.6 8.6 5.1 5.1 5.1 5.1
EBITDA(1)....................................... $ 72.7 $ 82.3 $ 87.7 $ 93.3 $ 99.3 $105.5
% MARGIN........................................ 28.8 30.0 30.4 30.8 31.1 31.5
EPS(2).......................................... $ 0.87 $ 1.12 $ 1.31 $ 1.54 $ 1.86 $ 2.20
% GROWTH........................................ 8.7 28.7 17.0 17.6 20.8 18.3
</TABLE>
------------------------
(1) Earnings before interest, taxes, depreciation and amortization (EBITDA),
inclusive of joint venture income. EBITDA is a financial measure that is
not recognized by generally accepted accounting principles.
(2) Earnings per share is calculated on a fully diluted basis
40
<PAGE>
THE MERGER
THE PARTICIPANTS
RADIOLOGIX, INC.
Radiologix is a leading provider of radiology services in the United States
through its ownership and operation of technologically advanced, multi-modality
diagnostic imaging centers. We perform diagnostic imaging procedures at our
imaging centers using technologies such as magnetic resonance imaging, computed
tomography, mammography, ultrasound, nuclear medicine and positron emission
tomography, as well as general radiography and fluoroscopy. We currently operate
123 imaging centers located in 18 states and the District of Columbia, with
concentrated geographic coverage in markets located in California, Florida,
Illinois, Kansas, Maryland, New York, Pennsylvania, Texas, Virginia and
Washington D.C.
We also provide administrative, management and information services to our
business partners, including physician practices that provide radiology services
at our imaging centers and hospitals with which we operate joint ventures.
Radiologix's principal executive offices are located at 3600 Chase Tower,
2200 Ross Avenue, Dallas, Texas 75201, and our main telephone number is
(214) 303-2776.
SKM-RD ACQUISITION CORP.
SKM-RD Acquisition Corp. is a newly-formed Delaware corporation organized
for the purpose of completing the merger. It has engaged in no business
activities and it has no assets or liabilities of any kind, other than those
incident to its formation and those incurred in connection with the merger.
Immediately prior to the merger, SKM-RD LLC, an affiliate of Saunders Karp &
Megrue, will be the sole owner of SKM-RD Acquisition Corp.
SKM-RD LLC
SKM-RD LLC is a newly-formed Delaware limited liability company sponsored by
Saunders Karp & Megrue for the purpose of investing in Radiologix. It has no
business activities and it has no assets or liabilities of any kind, other than
those incident to its formation and those incurred in connection with the
investment in SKM-RD Acquisition Corp. and Radiologix. Immediately prior to the
merger, SKM-RD LLC will receive between $87.7 and $98.6 million in equity
contributions from affiliates of Saunders Karp & Megrue and its co-investors, if
any. The aggregate amount of equity contributions will depend on the aggregate
number of shares retained by existing stockholders of Radiologix in the merger.
SAUNDERS KARP & MEGRUE, L.P.
Founded in 1990, Saunders Karp & Megrue is a private equity investment firm
currently managing over $1.7 billion in three private equity funds. Since its
inception, Saunders Karp & Megrue has focused on investing in recapitalizations
and buyouts of high-growth, middle market companies in the U.S. and on executing
consolidation strategies of fragmented U.S. industry segments. Saunders Karp &
Megrue, through its private equity funds, has invested over $685.0 million
through the completion of 29 platform acquisitions and over 30 add-on
acquisitions in companies engaged in basic manufacturing, consumer products,
restaurant, retail, financial services and distribution industries.
The principal executive offices of Saunders Karp & Megrue, SKM-RD
Acquisition Corp. and SKM-RD LLC are located at 262 Harbor Drive, Stamford,
Connecticut 06902, and their main telephone number is (203) 708-6600.
41
<PAGE>
MERGER CONSIDERATION
ELECTION
Under the merger agreement, you will have the right to receive $7.25 per
share in cash, without interest, or to retain 1.1224 shares of Radiologix common
stock for each share you own at the time of the merger, subject to the proration
procedures described below. A similar right of election is granted to our option
holders as further described below on page 45. In order to retain any shares,
you must (1) own, or have the right to purchase upon exercise of stock options,
more than 3,000 shares immediately before the merger, and (2) make a stock
election with respect to at least 3,000 of those shares. If you own or have the
right to purchase upon exercise of stock options 3,000 or fewer shares, then you
will not be able to make a stock election but will receive $7.25 per share in
cash, and your merger consideration will not be subject to proration.
Stockholders who choose no preference as to the cash election or stock election
or who do not return a properly completed form of election will be deemed to
have made a non-election. Stockholders who have made a non-election will receive
cash or shares based on the proration procedures described below.
Certain of our executive officers and a significant stockholder have entered
into a voting and exchange agreement pursuant to which they have agreed to make
stock elections with respect to retaining an aggregate of 3.2% of the common
stock after the merger, subject to proration.
PRORATION
You might not receive the type of consideration that you elect to receive
with respect to all of your shares. This is because the merger agreement
requires that our existing stockholders and optionholders retain between 10% and
20% of our outstanding shares of Radiologix common stock after the merger. An
additional requirement is that at least 6.9% of our outstanding shares, after
giving effect to the merger, must be retained by our existing stockholders,
excluding shares purchased upon exercise of options immediately before the
merger. If not enough stockholders and optionholders elect to retain their
shares or too many stockholders and optionholders elect to retain their shares,
the type of consideration you elect could be adjusted. For example, if you
elected to receive cash for all your Radiologix common stock, you might receive
cash for some of your shares and retain the balance of your shares in Radiologix
common stock instead. Similarly, if you elected to retain shares for all your
Radiologix common stock, you might retain a lesser amount of Radiologix common
stock and receive cash for some of your shares.
If our existing Radiologix stockholders and optionholders elect to retain an
aggregate number of shares of Radiologix common stock that exceeds the maximum
20% of the total outstanding shares of Radiologix common stock immediately after
the merger, then the number of shares to be received by our stockholders and
optionholders who made the stock election will be reduced. This reduction will
be made pro rata based on the number of shares subject to the stock election so
that the number of shares issued in the merger in respect of all stock elections
does not exceed the 20% limitation. All the remaining shares held by the
stockholders and all options with an exercise price less than $7.25 will be
converted into cash.
If our existing stockholders and optionholders elect to retain less than the
minimum 10% of the total outstanding shares of Radiologix common stock
immediately after the merger or our stockholders elect to retain less than the
minimum 6.9% of the total outstanding shares of Radiologix common stock
immediately after the merger in consideration for their shares (and not
options), then we will issue shares to each stockholder and optionholder in
respect of their stock elections. Our stockholders who made non-elections will
retain shares of Radiologix common stock, and then, if necessary, our
stockholders who made a cash election will retain shares of Radiologix common
stock, in each case pro rata based on the number of shares subject to such an
election to the maximum extent necessary to satisfy the 10% and 6.9% minimum
share conditions. All the remaining shares held by the stockholders
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<PAGE>
covered by non-elections or cash elections and all options with an exercise
price less than $7.25 will be converted into cash.
If you own or have the right to purchase upon exercise of stock options
3,000 or fewer shares, then your shares will not be subject to proration, and
you will receive $7.25 per share in cash.
ELECTION PROCEDURE
Enclosed with this proxy statement/prospectus is a form of election and
letter of transmittal with instructions. If your stock is registered in your
name and is not held through a broker or other nominee, you must make your
elections on a form of election. If your stock is held through a broker or other
nominee, your broker or other nominee must make the election on your behalf. You
will receive separate instructions from your broker or other nominee instructing
you on how to instruct your broker or other nominee to fill out the form of
election. Holders of record of shares of Radiologix common stock who hold shares
as nominees, trustees or in other representative capacities may submit multiple
forms of election if the representative certifies that each form of election
covers all the shares of common stock held by the representative for a
particular beneficial owner.
If your stock is registered in your name and is not held through a broker or
other nominee, you can make your election by mailing to the exchange agent
completed and signed forms of election and letters of transmittal, accompanied
by the stock certificates representing the Radiologix common stock for which the
election is being made. If you do not have the stock certificates available at
the time the form of election is sent to the exchange agent, you may instead
provide a guarantee of delivery from a qualified financial institution (which in
effect guarantees to us that the stock certificates will be delivered to the
exchange agent). You must, within three trading days on the AMEX thereafter,
deliver to the exchange agent the stock certificates representing the shares for
which an election is being made.
Any guarantee of delivery of stock certificates must be from a firm which is
a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States, and the certificates
covered by any guarantee of delivery must in fact be delivered to the exchange
agent within three trading days on the AMEX after the date of execution of the
guarantee of delivery. Your failure to deliver these stock certificates within
the three-day period will be deemed to invalidate your cash election or stock
election and you will be deemed to have made a non-election.
In order to be effective, you must deliver a form of election and letter of
transmittal and other necessary documents so that the exchange agent receives
them no later than the election deadline at 5:00 p.m., New York City time on
[ ], 2000, the last business day prior to the special meeting of the
stockholders. If you fail to make an election or fail to timely submit to the
exchange agent a properly completed and signed form of election together with
your stock certificates, you will be deemed to have made a non-election. The
exchange agent will have the discretion to determine whether forms of election
and letters of transmittal have been properly completed and signed and properly
and timely submitted or revoked and to disregard immaterial defects in forms of
election. Any good faith decision of the exchange agent regarding elections will
be binding and conclusive. None of Radiologix, SKM-RD Acquisition Corp., SKM-RD
LLC or the exchange agent will be under any obligation to notify you of any
defect in a form of election.
Once submitted, you may revoke a form of election by submitting a written
notice of revocation to the exchange agent but only so long as the notice of
revocation is received by the exchange agent prior to the deadline for making an
election. If your shares are held through a broker, only the broker can revoke
or change an election on your behalf. You may change your election by completing
a later-dated form of election, indicating that the later-dated form supercedes
all earlier election forms, and submitting the later-dated form to the exchange
agent prior to the deadline for submitting an election. If a form of election is
revoked prior to the election deadline, the exchange agent will promptly return
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to you the stock certificates covered by the form of election without charge at
your written request. All elections will be automatically revoked if the merger
agreement is terminated.
You may obtain additional copies of the form of election from the exchange
agent by calling [ ].
EXCHANGE OF STOCK CERTIFICATES
Until surrendered, each stock certificate will be deemed at any time after
the merger to represent only the right to receive the merger consideration,
dividends and other distributions to which the holder is entitled. No interest
will be paid or will accrue on any cash payable to the stockholders.
One year after the merger, the exchange agent will deliver to us any portion
of the merger consideration payable under the merger agreement that remains
unclaimed by our stockholders. Any stockholders who have not complied with the
exchange procedures in the merger agreement by that time will have to look to
Radiologix for payment of their claim for merger consideration and any dividends
or distributions with respect to their Radiologix common stock. We will not,
however, be liable to any holder of Radiologix common stock for any of those
amounts that are delivered to a public official under any applicable abandoned
property, escheat or similar law.
DIVIDENDS
No merger consideration, dividends or other distributions that are declared
on or after the merger on our common stock will be paid to any stockholder who
has elected to retain shares until the surrender of the stock certificates.
After the surrender of the stock certificates, we will pay to each record holder
of a new certificate representing Radiologix common stock any dividends or
distributions to which the stockholder is entitled. No interest will be paid or
will accrue on any dividends or distributions payable to the stockholders.
TRANSFER TAXES; WITHHOLDING
If you are the registered holder of a stock certificate and you want cash or
certificates representing Radiologix common stock to be paid or issued to
someone other than you, before we will make a payment or issuance, we will
require that the stock certificate so surrendered be properly endorsed and
otherwise be in proper form for transfer. We will also require that the person
requesting the exchange pay to the exchange agent any transfer or other taxes
required by reason of the issuance of certificates for shares of Radiologix
common stock in a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the exchange agent
that the tax has been paid or is not applicable. The exchange agent will be
entitled to deduct and withhold from the consideration otherwise payable to you
under the merger agreement any required withholding tax. These withheld amounts,
if any, will be treated for all purposes of the merger agreement as having been
paid to the holder of the shares of Radiologix common stock.
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Radiologix common
stock will be issued upon the retention of shares by our stockholders, and no
dividend or other distribution or stock split will relate to any fractional
share. No fractional share will entitle the owner to vote or to any other rights
of a security holder of Radiologix relating to the fractional interest. In lieu
of any fractional share, you will be paid upon surrender of your stock
certificates an amount in cash, without interest, equal to the fractional share
interest multiplied by $7.25.
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LOST CERTIFICATES
If your stock certificate has been lost, stolen or destroyed, you must sign
an affidavit of that fact and, if required by us, post a bond as indemnity
against any claim that may be made against us with respect to the lost stock
certificate. The exchange agent will then issue to you any merger consideration,
dividends or other distributions to which you are entitled.
TREATMENT OF STOCK OPTIONS
Under the merger agreement, each stock option outstanding immediately prior
to the effective time of the merger will immediately vest and will be canceled
and converted into the right to receive either cash in an amount equal to the
positive difference, if any, between $7.25 and the exercise price of the option,
or upon payment of the exercise price for the option, 1.1224 shares of
Radiologix common stock. Optionholders may retain stock in the merger only if
they (1) own, or have the right to purchase upon exercise of stock options, more
than 3,000 shares immediately before the merger, and (2) make a stock election
with respect to at least 3,000 of those shares. If you own or have the right to
purchase upon exercise of stock options 3,000 or fewer shares, then you will not
be able to make a stock election but will receive $7.25 per share in cash, and
your shares will not be subject to proration. We will deliver to each holder of
options forms of election for optionholders to make an election prior to the
election deadline.
MERGER FINANCING
GENERAL
We expect that $362.6 million will be needed to finance the proposed merger,
to repay outstanding indebtedness, including any prepayment premiums, to finance
the buy-out of an operating lease and to pay fees, commissions and expenses
related to the transactions.
SOURCES AND USES OF FUNDS
The following table depicts our estimated sources and uses of funds relating
to the transaction assuming the maximum number of post-merger shares are
retained by our existing stockholders and optionholders in the merger:
SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
AMOUNT
SOURCES OF FUNDS(1) (IN THOUSANDS)
<S> <C>
Debt securities offered..................................... $250,000
Proceeds from sale of common stock in the merger............ 87,680
Exercise of stock options................................... 37
Retained common equity (non-cash)........................... 21,920
--------
Total sources of funds.................................... $359,637
--------
<CAPTION>
AMOUNT
USES OF FUNDS --------------
(IN THOUSANDS)
<S> <C>
Redemption of common equity................................. $123,209
Cash payment to optionholders............................... 3,628
Repayment of existing indebtedness(2)....................... 175,941
Prepayment penalty on existing debt......................... 3,979
Retained common equity (non-cash)........................... 21,920
Lease buyout................................................ 17,900
Estimated transaction fees and expenses..................... 16,000
--------
Total uses of funds....................................... $362,577
--------
Net use of funds.......................................... $ 2,940
========
</TABLE>
------------------------
(1) Does not include a new $60.0 million revolving credit facility. We do not
expect to have any borrowings under the revolving credit facility at the
closing of the merger.
(2) Repayment of indebtedness includes: repayment of a $20.0 million convertible
junior subordinated note due July 31, 2009, which currently bears interest,
payable quarterly in cash or payment in-kind securities, at 8.0% and the
outstanding balance under our existing $160.0 million credit facility that
terminates on November 26, 2003. At our option, the interest rate under this
credit facility is an adjusted LIBOR rate, plus an applicable margin that
can vary from 2.25% to 3.25%, or the prime rate, plus an applicable margin
that can vary from 1.25% to 2.25%.
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SENIOR, SENIOR SUBORDINATED OR SUBORDINATED DEBT SECURITIES
We expect that we or one of our subsidiaries will issue up to
$250.0 million of senior, senior subordinated or subordinated debt securities
through a public offering or private placement to be closed prior to or
concurrently with the merger. The terms of the debt securities have not been
established, but will depend on market conditions at the time of issuance.
SENIOR SECURED CREDIT FACILITIES
If less than $250.0 million of senior, senior subordinated or subordinated
debt securities are issued, the balance of the required financing will be
borrowed under a senior secured term loan facility to be provided by UBS AG,
Stamford Branch, and other lenders pursuant to a commitment letter dated
August 22, 2000, issued by UBS AG, Stamford Branch and UBS Warburg LLC to SKM-RD
LLC. UBS AG, Stamford Branch, has committed to provide the following senior
secured credit facilities: a $50.0 million five-year term loan facility (A
Tranche), a $128.4 million six-year term loan facility (B Tranche), a
$65.0 million seven-year term loan facility (C Tranche) and a $60.0 million
three-year revolving credit facility. The revolving credit facility will be
available after the merger for general corporate purposes (including
acquisitions), whether or not we utilize the term loan facilities.
The commitment letter provides that the credit facilities will contain
typical provisions, including those relating to mandatory prepayment, voluntary
prepayment, guarantees, security, conditions to borrowing, representations and
warranties, covenants, increased costs, assignments and participations, and
events of default. The actual financing arrangements as well as the expected
level of equity contributions and issuance of debt securities and outstanding
borrowings under the facilities may not be determined until shortly before the
effective time of the merger and may be different from those outlined above
based on market conditions. The amount of the lenders' commitments under the
facilities will be reduced dollar-for-dollar by the amount of proceeds from our
issuance and sale of any senior, senior subordinated or subordinated debt
securities.
REPLACEMENT OF TRANCHE C
Additionally, if we determine to borrow under the term loan, we expect to
replace the C Tranche with a private or public offering of senior, senior
subordinated or subordinated debt securities.
CONDITIONS TO THE FINANCING
All of the contemplated financing commitments are subject to customary
closing and borrowing conditions, including, but not limited to:
- agreement on final documentation;
- the absence of materially inaccurate information;
- the lenders' satisfaction with their due diligence;
- the compliance with applicable securities and banking laws;
- the absence of materially adverse litigation or changes in the condition,
financial or otherwise, business, operations, assets, liabilities or
prospects of Radiologix or any of its subsidiaries;
- the absence of a material adverse change or material disruption in the
financial, banking or capital markets generally (including, without
limitation, the markets for loans to companies similar to Radiologix or
the borrower or for debt securities of companies similar to Radiologix or
the borrower), which has had or could reasonably be expected to have a
material adverse effect on the syndication of the senior secured credit
facilities or the marketing of the debt securities;
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- receipt by Radiologix of the equity contributions described above; and
- receipt of satisfactory solvency and legal opinions.
The closing of the contemplated financing arrangements on certain terms
specified in the UBS Warburg commitment letter or on other terms acceptable to
SKM-RD LLC are conditions to the consummation of the merger.
DIRECTORS AND OFFICERS OF RADIOLOGIX AFTER THE MERGER
DIRECTORS
As described in the merger agreement, at the time of the merger a new board
of directors will be elected to replace the current board. Three of the current
directors will continue to serve on the new board. The new board will consist of
six directors. Additionally, at the time of the merger our bylaws will be
amended and restated such that two designees of SKM-RD LLC will have three votes
each for matters to be considered by the board and all other directors will have
one vote each.
The names of the directors after the merger and certain information about
them, are set forth below:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION DIRECTOR SINCE
---- -------- ------------------------------------ --------------
<S> <C> <C> <C>
Mark L. Wagar....................... 49 Chairman of the Board and Chief 1998
Executive Officer
Mark S. Martin...................... 40 Director, President and Chief 2000
Operating Officer
William J. Gumina................... 30 Director 2000
John F. Megrue, Jr.................. 41 Director 2000
Derace L. Schaffer, M.D............. 53 Director 1996
Michael L. Sherman, M.D............. 58 Director 1997
</TABLE>
Mark L. Wagar is Chairman and Chief Executive Officer of Radiologix.
Mr. Wagar was appointed President and Chief Executive Officer of Radiologix in
May 1998 and served as President until February 2000 when Mr. Martin was
appointed President. He was appointed a director and Chairman of Radiologix in
June 1998. Previously, he served as President and Chief Operating Officer of
MedPartners, Inc. (now known as Caremark, Inc.), a publicly-traded health care
services company providing pharmacy, disease management services and practice
management services. Mr. Wagar joined MedPartners through its acquisition of
Mullikin Medical Enterprises in 1995 where he was Chief Operating Officer. Prior
to his position at Mullikin, he was President of CIGNA HealthCare of California.
With over 25 years of healthcare executive experience, Mr. Wagar has served in a
variety of public and private for-profit companies as well as in several
not-for-profit hospitals. He received his B.A. from The Ohio State University in
1973 and a Masters of Science in healthcare administration in 1976 from The Ohio
State University.
Mark S. Martin will become a director upon the closing of merger. He was
promoted to President from Senior Vice President in February 2000 and has served
as Chief Operating Officer of Radiologix 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
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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.
William J. Gumina will be a director of Radiologix upon the completion of
the merger. Mr. Gumina has been a Principal of Saunders Karp & Megrue since
January 2000, was a Vice President with Saunders Karp & Megrue from January 1999
until January 2000, and was an associate with Saunders Karp & Megrue from March
1998 until he became a Vice President. Prior to his association with Saunders
Karp & Megrue, Mr. Gumina was an associate with Donaldson, Lufkin & Jenrette
Merchant Banking Partners. Mr. Gumina also serves as a director of Precision
Partners, Inc.
John F. Megrue, Jr. will be a director of Radiologix upon completion of the
merger. Since 1992, Mr. Megrue has been a Partner of Saunders Karp & Megrue.
Mr. Megrue also serves as Vice Chairman and director of Dollar Tree
Stores, Inc., director of The Children's Place Retail Stores, Inc., Chairman and
director of Hibbett Sporting Goods, Inc. and director of Precision
Partners, Inc.
Derace L. Schaffer, M.D. has been a director of Radiologix since its
inception. Dr. Schaffer is President of Ide Imaging Group, P.C., one of the
radiology practices with which Radiologix has an affiliation, as well as the Lan
Group, a venture capital firm. He also serves as a director of the following
public companies: MOMSPharmacy.com and Patient InfoSystems, Inc. He is also a
director of several private companies, including Logisticare, Inc.;
Analytika, Inc.; Card Systems, Inc.; and MedEView, 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 Clinical Professor of Radiology at the University
of Rochester School of Medicine.
Michael L. Sherman, M.D. has been a director of Radiologix since 1997. Since
1995 Dr. Sherman has been President of Advanced Radiology, PA, one of the
radiology practices with which Radiologix has a contractual relationship. He is
also a director of Medstar Health, a multi-health care system in the
Baltimore/Washington, D.C. market. Dr. Sherman was educated at Duke University
and received his medical training and radiology training at University of
Maryland School of Medicine.
OFFICERS
The officers of Radiologix will remain the same after the merger. Set forth
below is information with respect to each executive officer and their respective
positions.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- -------- ------------------------------------------
<S> <C> <C>
Mark L. Wagar............................. 49 Chairman of the Board and Chief Executive
Officer
Mark S. Martin............................ 40 President and Chief Operating Officer
Paul M. Jolas............................. 36 Senior Vice President, General Counsel and
Secretary
David W. Young............................ 36 Vice President--Finance and Treasurer
</TABLE>
Messrs. Wagar, Martin and Jolas serve pursuant to employment agreements,
which will be amended in connection with the merger. Set forth below is
biographical information regarding each executive officer who will not also be a
director.
Paul M. Jolas has served as General Counsel and Senior Vice President of
Radiologix since August 1996 and as Secretary since October 1996. From
September 1989 through July 1996, Mr. Jolas was an attorney with the law firm of
Haynes and Boone, LLP 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,
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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.
David W. Young has served as Vice President of Finance since December 8,
1999. He has served as Treasurer since March 1998. Mr. Young served as
Controller of the Company from March 1998 through July 2000. Mr. Young served as
Director of Mergers and Acquisitions of Radiologix from April 1997 through
February 1998. From May 1994 through March 1997, Mr. Young served as Corporate
Controller of OccuSystems, Inc., a health care company focused on occupational
medicine. His responsibilities included integration of acquisition targets,
financial reporting and investor relations. Mr. Young was licensed as a
Certified Public Accountant in 1990. He received B.A. degrees in both accounting
and finance from Texas A&M University.
ACCOUNTING TREATMENT
We expect that the merger will be accounted for as a recapitalization, as
opposed to a purchase. Accordingly, the historical cost basis of our assets and
liabilities will not be adjusted by the merger, and the aggregate amount of cash
paid to Radiologix stockholders in the merger will be accounted for as a
reduction of stockholders' equity.
GOVERNMENTAL APPROVALS
The merger is subject to review by the Department of Justice and the Federal
Trade Commission to determine whether it complies with applicable antitrust
laws. Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, the merger may not be consummated until a 30-day waiting period has
been satisfied. This period may be extended if the Department of Justice or the
Federal Trade Commission formally requests additional information or shortened
with the consent of the Department of Justice or the Federal Trade Commission.
Radiologix and SKM-RD LLC filed notification reports, together with a request
for early termination of the waiting period, with the Department of Justice and
the Federal Trade Commission under the Hart-Scott-Rodino Act on [ ],
2000. At any time before, or, in limited circumstances, after completion of the
merger, the Department of Justice Antitrust Division, the Federal Trade
Commission or state attorneys' general could take such action under the
antitrust laws as they consider to be necessary or desirable in the public
interest, including seeking to enjoin the completion of the merger. Private
parties may also seek to take legal action under the antitrust laws in limited
circumstances.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following are, under current applicable law, the material federal income
tax consequences of the merger to stockholders of Radiologix who receive cash,
retain shares of Radiologix common stock or a combination of both in connection
with the merger. The following discussion deals only with stockholders that hold
shares of Radiologix's common stock as capital assets (generally, property held
for investment). The discussion does not address all aspects of United States
federal income taxation that may be relevant to particular stockholders in light
of their personal circumstances or to certain types of stockholders subject to
special treatment under the federal income tax laws (including certain financial
institutions, broker dealers, insurance companies, tax-exempt organizations,
foreign persons and persons acquiring shares of Radiologix's common stock upon
the exercise of employee stock options or otherwise as compensation). In
addition, the discussion does not address any state, local or foreign tax
consequences of any aspect of the merger. The discussion is based upon the
Internal Revenue Code of 1986, applicable Treasury regulations promulgated
thereunder, judicial decisions and current administrative pronouncements, all as
in effect as of the date hereof and which are subject to change at any time,
potentially with retroactive effect. No ruling from the Internal Revenue Service
will be applied for with respect to the federal income tax consequences
discussed in this section and, accordingly, there can be no assurance that the
Internal Revenue Service will agree with these
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conclusions. All stockholders are urged to consult their tax advisors as to the
particular tax consequences to them of the merger, including the applicability
and effect of any foreign, state, local or other tax laws.
CHARACTERIZATION OF THE MERGER
For federal income tax purposes, both SKM-RD Acquisition Corp. and the
merger will be disregarded as transitory, with the result that stockholders will
be deemed to have sold a portion of their Radiologix common stock to affiliates
of SKM-RD LLC (i.e., a sale transaction) and to have had redeemed a portion of
their Radiologix common stock by Radiologix (i.e., a redemption transaction).
Radiologix intends to take the position that, for each stockholder electing to
receive cash, the portion of the Radiologix common stock converted into cash in
the merger that is allocable to the sale to affiliates of SKM-RD LLC is the
percentage equivalent of a fraction the numerator of which is the amount of
equity contributed to SKM-RD Acquisition Corp. by affiliates of SKM-RD LLC in
exchange for capital stock of SKM-RD Acquisition Corp., and the denominator of
which is the aggregate amount of cash paid to stockholders pursuant to the
merger. The remainder of the stockholder's Radiologix common stock converted
into cash in the merger will be treated as having been redeemed by Radiologix as
discussed below in the section entitled "--Stockholders Receiving Cash."
TAX CONSEQUENCES TO STOCKHOLDERS ON RECEIPT OF CONSIDERATION
The following discussion assumes that Radiologix common stock is held as a
capital asset. A holding period of more than one year is required for long-term
capital gain or loss treatment. As described more fully below, the federal
income tax consequences of the merger with respect to a particular stockholder
will depend upon, among other things, (a) whether the stockholder received any
cash proceeds pursuant to the merger, (b) the extent to which a stockholder will
be treated as transferring Radiologix common stock to affiliates of SKM-RD LLC
(in a sale transaction) and to Radiologix (in a redemption transaction), and
(c) whether the redemption of a stockholder's Radiologix common stock by
Radiologix will qualify as a sale or exchange under Section 302 of the Code.
STOCKHOLDERS RECEIVING CASH
To the extent that a stockholder is considered to have sold Radiologix
common stock to affiliates of SKM-RD LLC, the stockholder will recognize capital
gain or loss equal to the difference between the amount realized on the deemed
sale (i.e., the cash proceeds properly allocated thereto) and the stockholder's
adjusted tax basis in Radiologix common stock. To the extent that a stockholder
is considered to have transferred Radiologix common stock to Radiologix in a
redemption transaction, the stockholder also will recognize capital gain or loss
equal to the difference between the cash proceeds allocable to the deemed
redemption and the stockholder's adjusted tax basis in Radiologix common stock,
provided that the redemption is treated as a sale or exchange under Section 302
of the Code with respect to the stockholder.
Under Section 302 of the Code, a redemption of Radiologix common stock under
the merger will generally be treated as a sale or exchange if the redemption
(a) is "substantially disproportionate" with respect to the stockholder,
(b) results in a "complete redemption" of the stockholder's interest in
Radiologix, or (c) is "not essentially equivalent to a dividend" with respect to
the stockholder. In determining whether any of these Section 302 tests is
satisfied, stockholders must take into account both Radiologix common stock that
they actually own and Radiologix common stock that they are deemed to own under
the constructive ownership rules set forth in Section 318 of the Code. Under
those rules, a stockholder is treated as owning Radiologix common stock that is
owned by certain related individuals or entities and Radiologix common stock
that the stockholder has the right to acquire by exercise of an option or by
conversion or exchange of a security.
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The deemed redemption of a stockholder's Radiologix common stock in the
merger will be "substantially disproportionate" with respect to the stockholder
if, among other things, the percentage of Radiologix common stock actually and
constructively owned by the stockholder immediately following the merger is less
than 80% of the percentage of Radiologix common stock actually and
constructively owned by the stockholder immediately prior to the merger.
Stockholders are urged to consult their own tax advisors with respect to the
application of the "substantially disproportionate" test to their particular
facts and circumstances.
The redemption of a stockholder's Radiologix common stock will result in a
"complete redemption" of a stockholder's interest in Radiologix if either
(a) all the Radiologix common stock actually and constructively owned by the
stockholder is redeemed (or deemed sold) pursuant to the merger or (b) all
Radiologix common stock actually owned by the stockholder is redeemed (or deemed
sold) pursuant to the merger and the stockholder is eligible to waive, and does
effectively waive in accordance with Section 302(c) of the Code, attribution of
all Radiologix common stock which otherwise would be considered to be
constructively owned by the stockholder.
Even if the redemption of a stockholder's Radiologix common stock fails to
satisfy the "substantially disproportionate" test and the "complete redemption"
test described above, the redemption of a stockholder's Radiologix common stock
may nevertheless satisfy the "not essentially equivalent to a dividend" test if
the merger results in a "meaningful reduction" in the stockholder's
proportionate equity interest in Radiologix. Whether the receipt of cash by a
stockholder will be considered "not essentially equivalent to a dividend" will
depend upon the stockholder's facts and circumstances. In certain circumstances,
even a small reduction in a stockholder's proportionate equity interest may
satisfy this test. For example, the Internal Revenue Service has indicated in a
published ruling that a 3.3% reduction in the proportionate equity interest of a
small (substantially less than 1%) stockholder in a publicly-held corporation
who exercises no control over corporate affairs constitutes such a "meaningful
reduction." Stockholders are urged to consult with their own tax advisors as to
the application of this test.
A tendering stockholder may not be able to satisfy one of the above tests
because of the retention (by election or proration) or the contemporaneous
acquisition of Radiologix common stock by the stockholder or a related party
whose Radiologix common stock would be attributed to the stockholder under
Section 318 of the Code. Stockholders are urged to consult their own tax
advisors regarding the tax consequences of retention or acquisitions in their
particular circumstances.
If a stockholder cannot satisfy any of the three tests described above, then
to the extent Radiologix has sufficient current and/or accumulated earnings and
profits, the stockholder will be treated as having received a dividend which
will be includable in gross income (and treated as ordinary income) in an amount
equal to the cash received (without regard to gain or loss, if any). In that
case, in general, the basis of the Radiologix common stock converted into cash
by the stockholder will be allocated to the adjusted basis of the Radiologix
common stock retained by the stockholder. In the case of a corporate
stockholder, if the cash paid is treated as a dividend, the dividend income may
be eligible for the 70% dividends-received deduction. The dividends-received
deduction is subject to certain limitations, and may not be available if the
corporate stockholder does not satisfy certain holding period requirements with
respect to the Radiologix common stock or if the Radiologix common stock is
treated as "debt financed portfolio stock" within the meaning of
Section 246A(c) of the Code. Additionally, if a dividends-received deduction is
available, the dividend may be treated as an "extraordinary dividend" under
Section 1059(a) of the Code, in which case a corporate stockholder's adjusted
tax basis in Radiologix common stock retained by the stockholder would be
reduced, but not below zero, by the amount of the non-taxed portion of the
dividend. If the non-taxed portion of the dividend exceeds the basis, the excess
will be treated as gain from the sale or exchange of the Radiologix common stock
for the taxable year in which the extraordinary dividend is received. Corporate
stockholders are urged to
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consult their own tax advisors as to the effect of Section 1059 of the Code on
the adjusted tax basis of their Radiologix common stock.
STOCKHOLDERS RETAINING RADIOLOGIX COMMON STOCK AND RECEIVING NO CASH
The merger will have no federal income tax consequences for stockholders who
retain their Radiologix common stock and receive no cash. Accordingly, a
stockholder will not recognize any gain or loss on Radiologix common stock
retained by the stockholder, and the stockholder's holding period for and basis
in the Radiologix common stock will not change.
STOCKHOLDERS RETAINING A PORTION OF THEIR RADIOLOGIX COMMON STOCK AND RECEIVING
CASH
To the extent that a stockholder chooses to convert a portion of its
Radiologix common stock for cash, or to the extent a stockholder is prorated
into receiving cash and retaining a portion of its Radiologix common stock, the
tax treatment of the stockholder's receipt of cash will be the same as set forth
above under "--Stockholders Receiving Cash." As described above under
"--Stockholders Retaining Radiologix Common Stock and Receiving No Cash," the
merger will have no tax consequences to a stockholder (and, thus, a stockholder
will not recognize any gain or loss as a result of the merger), to the extent
the stockholder elects to retain, or is prorated into retaining, Radiologix
common stock. However, as described more fully above under "--Stockholders
Receiving Cash," a stockholder's retention of Radiologix common stock may, under
certain circumstances, cause the redemption portion of the cash received by the
stockholder to be treated as a dividend for federal income tax purposes.
FOREIGN RADIOLOGIX COMMON STOCKHOLDERS--WITHHOLDING
A foreign stockholder is any stockholder who is, for federal income tax
purposes, a foreign corporation, a non-resident alien individual, a foreign
partnership, a foreign estate or a foreign trust, as those terms are defined in
the Code. In the case of any foreign stockholder, the exchange agent will
withhold 30% of the amount paid to the stockholder upon the conversion of
Radiologix common stock into cash in order to satisfy certain withholding
requirements, unless the foreign stockholder proves in a manner satisfactory to
Radiologix and the exchange agent that either (a) the redemption of its
Radiologix common stock pursuant to the merger will qualify as a sale or
exchange under Section 302 of the Code, rather than as a dividend for federal
income tax purposes, in which case no withholding will be required, (b) the
foreign stockholder is eligible for a reduced tax treaty rate with respect to
dividend income, in which case the exchange agent will withhold at the reduced
treaty rate, or (c) no withholding is otherwise required. Foreign stockholders
are urged to consult their own tax advisers regarding the application to them of
these withholding rules and other tax consequences of the merger to them.
BACKUP WITHHOLDING
Payments in connection with the merger may be subject to "backup
withholding" at a rate of 31%, unless a holder of shares (a) is a corporation or
falls within certain exempt categories and, when required, demonstrates this
fact or (b) provides a correct tax identification number to the payor, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A stockholder who does
not provide a correct tax identification number may be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
does not constitute an additional tax and will be creditable against the
stockholder's federal income tax liability. Each stockholder is urged to consult
with his or her own tax advisor as to his or her qualification for exemption
from backup withholding and the procedure for obtaining an exemption.
Stockholders may prevent backup withholding by completing a Substitute
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Form W-9 or, in the case of foreign stockholders, a Form W-8, and submitting it
to the exchange agent along with the form of election.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of your board of directors, you should be
aware that some of our officers and directors have interests in the merger as
employees or directors of Radiologix, or as stockholders with a continuing
equity interest in Radiologix, that are different from, or in addition to, your
interests as a Radiologix stockholder. When making the determination to approve
and recommend approval of the merger, your board was aware of and took into
consideration the interests described below.
RETENTION OF SHARES BY DIRECTORS AND OFFICERS
Pursuant to the merger and voting agreement, our directors and officers will
own shares of our common stock after the merger as follows:
<TABLE>
<CAPTION>
SHARES/OPTIONS FOR
WHICH STOCK CASH TOTAL SHARES NEW OPTIONS
SHARES OPTIONS VALUE OF ELECTION WILL BE RECEIVED RETAINED GRANTED
NAME OWNED HELD(1) OPTIONS(1) MADE IN THE MERGER(3) IN THE MERGER(3) IN THE MERGER
---- -------- -------- ---------- ------------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less T. Chafen,
M.D................ 37,326 20,000 $ 70,000 6,000 $ 297,114 6,734
John W. Colloton..... -- 20,000 70,000 -- 70,000 --
Paul D. Farrell...... 75,000 30,000 99,375 50,000 280,625 56,120
Paul M. Jolas........ 6,000 175,000 919,125 24,244 789,887 27,211
Mark S. Martin....... 10,000 255,000 1,278,125 60,609 918,786 68,028
John Pappajohn(2).... 566,458 30,000 77,500 100,000 3,459,321 112,240
Derace L. Schaffer,
M.D................ 655,642 40,000 110,625 100,000 4,139,030 112,240
Michael L. Sherman,
M.D................ 87,068 20,000 70,000 25,000 519,993 28,060
Mark L. Wagar........ 5,000 220,000 545,000 60,609 369,119 68,028
David W. Young....... -- 65,000 178,750 -- 178,750 --
</TABLE>
--------------------------
(1) Includes only in-the-money options
(2) Mr. Pappajohn is a former director and one of the founders of Radiologix
(3) Not giving effect to application of proration procedures, if applicable
These shares represent approximately 8.7% of our currently outstanding
shares and will represent not less than 3.2% of the outstanding Radiologix
common stock immediately following completion of the merger.
ACCELERATED VESTING OF STOCK OPTIONS
Some of our directors, officers and employees hold options to acquire shares
of our common stock under our stock option plan. Pursuant to the terms of the
stock option plan, all stock options will immediately vest and be exerciseable
at the time of the merger. The following table sets forth the
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number and value of options subject to accelerated vesting that directors and
executive officers of Radiologix will receive in connection with the merger:
<TABLE>
<CAPTION>
VALUE OF OPTIONS
FOR WHICH
EXERCISABILITY
NUMBER OF SHARES WILL BE
NAME SUBJECT TO ACCELERATED OPTIONS ACCELERATED(1)
---- ------------------------------ ----------------
<S> <C> <C>
Less T. Chafen, M.D............... 17,334 $ 60,669
John W. Colloton.................. 17,334 60,669
Paul D. Farrell................... 30,000 99,375
Paul M. Jolas..................... 76,533 278,868
Mark S. Martin.................... 123,866 442,059
John Pappajohn.................... 17,334 60,669
Derace L. Schaffer, M.D........... 24,834 85,513
Michael L. Sherman, M.D........... 17,334 60,669
Mark L. Wagar..................... 175,667 453,584
David W. Young.................... 55,084 154,607
</TABLE>
------------------------
(1) Includes only in-the-money options
NEW STOCK OPTION PLAN
Following the merger, we intend to adopt a new stock option plan. The number
of shares that will be available to be awarded under the stock option plan will
be approximately 10% of the fully diluted shares of our capital stock
outstanding immediately after the merger. We expect to grant options to purchase
approximately [ %] of such shares to the Management Continuing Stockholders
upon completion of the merger. We will reserve the remaining approximately [ %]
of such shares for the grant of options under the plan to our key employees.
The stock option plan will be administered by the compensation committee of
the board of directors. After the merger, the compensation committee will
designate which of our officers and key employees will be eligible to receive
awards under the stock option plan, and the amount, vesting and other terms and
conditions applicable to such awards. Options will expire on the tenth
anniversary of the grant date.
Half of the stock options granted to the Management Continuing Stockholders
will be time-based and vest to the extent of 20% on the first anniversary of
employment and the remainder in equal monthly installments over a four year
period thereafter. Half of the stock options granted to the Management
Continuing Stockholders will vest upon the earlier to occur of the eighth
anniversary of the optionholder's employment with us or to the extent of the
achievement of certain performance and other goals at the time of a change in
control in Radiologix. 25% of these performance-based options will immediately
vest upon a public offering of equity securities by us and 25% upon the
achievement of certain performance goals two years after that public offering.
CONTINUATION OF INDEMNIFICATION AND INSURANCE ARRANGEMENTS
Pursuant to the merger agreement, for six years after the closing date of
the merger, we will indemnify and hold harmless our present and former officers
and directors for acts or omissions occurring before the completion of the
merger to the extent provided under our certificate of incorporation and bylaws
in effect on the date of the merger agreement. In addition, all indemnification
agreements with any current or former directors, officers and employees of
Radiologix or any subsidiary will survive the merger and terminate as provided
in such agreements. For six years after the completion of the merger, we will
provide officers' and directors' liability insurance for acts or omissions
occurring before the completion of the merger covering each person currently
covered by our
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officers' and directors' liability insurance policy. This coverage will be on
terms and amounts that are no less favorable than those in effect on the date of
the merger agreement, provided, that the cost of such insurance does not exceed
200% of the most recent annual premium paid by us.
WAGAR LOAN
In consideration for the agreement of Mr. Mark Wagar, our chairman and chief
executive officer, to enter into the voting and exchange agreement and to
reinvest the proceeds he receives from the conversion of his stock options into
cash, we have agreed to loan Mr. Wagar $200,000. The loan will be used by Mr.
Wagar to purchase our shares, will accrue interest at an annual rate of 6%, will
mature in ten years and will be secured by a pledge of the securities purchased
with the proceeds of such loan. The purpose of the loan is to permit Mr. Wagar
to reinvest in Radiologix the taxes payable upon exercise of his stock options.
DIRECTORS AND EXECUTIVE OFFICERS OF RADIOLOGIX AFTER THE MERGER
Three of our directors, Messrs. Schaffer, Sherman and Wagar, and one of our
executive officers, Mr. Martin, will be directors of the surviving corporation
following the merger. All of our executive officers, Messrs. Martin, Jolas,
Wagar and Young, will continue as executive officers of Radiologix after the
merger in their present capacities.
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THE MERGER AGREEMENT
This section describes material provisions of the merger agreement. Because
the description of the merger agreement in this document is a summary, it does
not contain all the information that may be important to you. You should read
carefully the entire copy of the merger agreement attached as Appendix A to this
document before you decide how to vote.
THE MERGER
Our stockholders must approve the merger and the transactions contemplated
in the merger agreement by the vote of a majority of the outstanding shares of
Radiologix common stock entitled to vote on the merger. After receipt of this
approval and the satisfaction or waiver of other conditions to the merger, we
will consummate the merger. In the merger, SKM-RD Acquisition Corp., a wholly-
owned subsidiary of SKM-RD LLC, will merge with and into Radiologix, with
Radiologix surviving the merger.
You may find more information regarding the merger consideration under "THE
MERGER--Merger Consideration" on pages 42 to 45. You may find information
regarding the treatment in the merger of outstanding Radiologix stock options
under "THE MERGER--Merger Consideration--Accelerated Vesting of Stock Options"
on page 45 and "THE MERGER--Interests of Certain Persons in the
Merger--Treatment of Options" on page 53. You may find information regarding the
indemnification of Radiologix's directors and officers and the maintenance of
directors' and officers' liability insurance under "THE MERGER--Interests of
Certain Persons in the Merger--Continuation of Indemnification and Insurance
Arrangements" on page 54. You may find information regarding appraisal rights in
the merger and the requirements you must follow in order to exercise your
appraisal rights under "Appraisal Rights" and Appendix C.
CLOSING OF THE MERGER
The closing of the merger will take place on the second business day after
all of the closing conditions have been satisfied or waived, unless the parties
to the merger agreement agree on another date for the closing. We anticipate
that the closing will occur as soon as practicable after the approval of the
merger by our stockholders at the special meeting, which is scheduled to be held
on [ ], 2000.
EFFECTIVE TIME
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware, unless a later date is
agreed on by the parties to the merger agreement and specified in the
certificate of merger. We anticipate that the certificate of merger will be
filed as soon as practicable after the approval of the merger by our
stockholders at the special meeting, which is scheduled to be held on
[ ], 2000.
SURVIVING CORPORATION
Radiologix will be the surviving corporation of the merger and will continue
to be governed by the laws of the State of Delaware.
The bylaws of Radiologix following the merger will be identical to its
current bylaws except that they will include a provision granting two designees
of SKM-RD LLC three votes each for each matter to be considered by the board and
granting all other directors one vote each. As a result SKM-RD LLC will have the
power to control our board after the merger.
The certificate of incorporation of Radiologix following the merger will be
identical to its current certificate of incorporation, except that it will
include a provision requiring any stockholder who
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proposes to transfer any shares of Radiologix's capital stock to first offer to
transfer those shares to Radiologix. That requirement will not apply to
transfers to family members and trusts and among employees, partners and other
owners of radiology practices, and to radiology practices that have contracts
with with Radiologix. This requirement will become effective for so long as
Radiologix no longer has any capital stock traded on a national securities
exchange or on the Nasdaq National Market and will cease upon a primary or
secondary public offering of Radiologix common stock.
The initial directors and senior executive officers of Radiologix following
the merger will be as described in "THE MERGER--Directors and Officers of
Radiologix After the Merger" on pages 47 to 49.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Radiologix with respect to Radiologix and its subsidiaries relating to, among
other things:
- organization, standing and similar corporate matters;
- authorization, execution, delivery and enforceability of the merger
agreement;
- capital structure;
- subsidiaries;
- interests in other entities;
- non-contravention of agreements and governing documents;
- consents and approvals;
- compliance with laws;
- proper filing of required SEC reports by Radiologix and the accuracy of
information contained in those reports;
- accuracy of the Radiologix financial statements filed in our SEC reports;
- absence of undisclosed material liabilities;
- pending or threatened litigation;
- absence of certain changes or events since January 1, 2000, including
those that would have a material adverse effect on Radiologix;
- filing of tax returns and payment of taxes;
- material contracts;
- environmental liabilities and compliance with environmental laws;
- benefit plans and other matters relating to the Employee Retirement Income
Securities Act of 1974, as amended, and employment matters;
- non-applicability of state takeover laws;
- the vote required to approve the merger;
- absence of certain transactions with affiliates;
- regulatory matters applicable to Radiologix as a recipient of payments
from federal and state programs and other health care-related regulations;
- intellectual property matters;
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- brokers' fees and expenses;
- receipt of an opinion of UBS Warburg; and
- the accuracy of information supplied by Radiologix in connection with this
proxy statement/ prospectus.
The merger agreement also contains customary representations and warranties
of SKM-RD LLC and SKM-RD Acquisition Corp. relating to, among other things:
- organization, standing and similar limited liability company and corporate
matters;
- authorization, execution, delivery and enforceability of the merger
agreement;
- non-contravention of its governing documents and agreements;
- brokers' fees and expenses;
- accuracy of information supplied by SKM-RD LLC and SKM-RD Acquisition
Corp. in connection with this proxy statement/prospectus;
- financing commitment being obtained by SKM-RD LLC from third parties in
connection with the merger; and
- absence of present intention by SKM-RD LLC to change Radiologix's employee
benefit arrangements or to terminate any employee of Radiologix or our
subsidiaries.
The representations and warranties are subject to qualifications and
limitations, including qualifications as to materiality. The representations and
warranties in the merger agreement terminate at the effective time of the
merger.
CONDUCT OF BUSINESS OF RADIOLOGIX PRIOR TO THE MERGER
We have agreed that, prior to the merger, we will conduct our business only
in the ordinary course, and will use reasonable efforts to keep available the
services of our present officers and employees and to preserve our relationships
with key customers, suppliers and others having business dealings with
Radiologix and its subsidiaries.
Accordingly, subject to limited exceptions and except where we obtain the
prior written consent of SKM-RD LLC, we will not, and will cause our
subsidiaries not to, take any of the following actions:
- declare or pay dividends;
- split, combine or reclassify any Radiologix capital stock;
- purchase, redeem or otherwise acquire shares of Radiologix capital stock;
- issue, sell, pledge or otherwise encumber any shares of Radiologix capital
stock, other than pursuant to stock options outstanding on August 21,
2000;
- amend its certificate of incorporation, bylaws or other similar
constituent documents;
- acquire another business or organization in a transaction involving a
total purchase price in excess of $10.0 million;
- sell, lease, license, mortgage or otherwise encumber its assets or
properties in excess of $1.0 million, other than in connection with
sale/leaseback transactions;
- incur or guarantee indebtedness for borrowed money;
- make loans, advances or capital contributions to any other person or
entity that is not a wholly-owned subsidiary of Radiologix;
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- make capital expenditures that would cause Radiologix's capital
expenditures for year 2000 to exceed Radiologix's aggregate capital
expenditure budget by more than $3.0 million;
- make changes in its accounting methods other than as required by generally
accepted accounting principles, or make any material tax election or tax
settlement or compromise;
- enter into, adopt or amend any employee benefit plan, policy or similar
agreement;
- hire, terminate or increase the compensation of any executive officer;
- hire, terminate or increase the compensation of any key employee, other
than in the ordinary course of business;
- increase the compensation of any employee other than in the ordinary
course of business;
- pay, discharge or settle material claims;
- adopt a plan of complete or partial liquidation;
- amend or relinquish any right under any material contract;
- enter into material agreements;
- alter the corporate structure or ownership of any subsidiary; or
- do or agree to do any of the foregoing or take any other action that would
make Radiologix's representations or warranties untrue or incorrect in any
material respect.
LIMITATIONS ON SOLICITATION OF COMPETING TRANSACTIONS
The merger agreement restricts our ability to take actions with respect to
acquisition proposals other than the merger. We use the term acquisition
proposal to mean any of the following:
- any proposal or offer to acquire in any manner 10% or more of the assets,
net income or net revenues of Radiologix and its subsidiaries or 10% or
more of any class of equity securities of Radiologix or any of our
subsidiaries;
- any tender offer or exchange offer involving Radiologix or our
subsidiaries;
- any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Radiologix or
any of our subsidiaries; or
- any transaction that is intended to or could frustrate the completion of
the transactions described in the merger agreement.
We have agreed that we will:
- cease discussions or negotiations, if any, with any parties that could
lead to an acquisition proposal;
- not solicit, initiate or take any other actions specifically directed at a
person or entity that could reasonably be expected to facilitate or
encourage the making of a proposal that constitutes an acquisition
proposal;
- not participate in discussions or negotiations regarding an acquisition
proposal; or
- not grant any waiver or release under any standstill or similar agreement
with respect to any class of equity securities of Radiologix or any of our
subsidiaries.
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However, the merger agreement does not prevent us from:
- taking and disclosing to our stockholders a position contemplated by
Rule 14e-2(a) under the Exchange Act; or
- making any disclosure to our stockholders if, in the good faith judgment
of our board of directors, after receiving written advice of its counsel,
failure to disclose such information would constitute a breach of the
board of directors' fiduciary duties to our stockholders.
The merger agreement also allows us to take certain actions after we receive
an acquisition proposal that is a superior proposal. We use the term superior
proposal to mean an acquisition proposal that involves the acquisition of all or
substantially all of our assets or 80% or more of our stock that our board of
directors determines in good faith, after consulting with a financial advisor of
nationally recognized reputation, to be more favorable, from a financial point
of view, to our stockholders than the merger proposed in the merger agreement,
taking into account all relevant factors. With respect to any superior proposal,
we may:
- furnish information, pursuant to a customary confidentiality agreement, to
the person or entity that made the superior proposal;
- participate in discussions and negotiations regarding the superior
proposal so long as we keep SKM-RD LLC informed of the status and terms of
such proposal;
- withdraw or modify the board of directors' approval or recommendation of
the merger or the merger agreement, enter into an agreement with respect
to such superior proposal and/or terminate the merger agreement so long as
we notify SKM-RD LLC of our intention to take such action, provide SKM-RD
LLC with a reasonable opportunity to respond to the acquisition proposal,
and negotiate in good faith with SKM-RD LLC with respect to modifications
to the terms of the merger agreement. If we take certain actions with
respect to an acquisition proposal or superior proposal, SKM-RD LLC will
have the right to terminate the merger agreement and to receive payment of
a termination fee (see pages 62 to 63 for a summary of the termination fee
provisions).
REASONABLE EFFORTS
Radiologix, SKM-RD LLC and SKM-RD Acquisition Corp. have agreed to use their
respective reasonable efforts to take all actions necessary, proper or advisable
so that the transactions contemplated by the merger agreement may be completed,
including filing with the United States Federal Trade Commission and United
States Department of Justice the notification and report form required for the
transactions described in the merger agreement.
ACCESS AND INFORMATION
Radiologix has agreed to allow, and to cause our subsidiaries to allow,
SKM-RD LLC, SKM-RD Acquisition Corp. and SKM-RD LLC's financing sources
reasonable access at reasonable times to the officers, key employees,
accountants and other representatives of Radiologix and our subsidiaries and to
the books and records of Radiologix and our subsidiaries. Radiologix also has
agreed to furnish to SKM-RD LLC and its financing sources financial and
operating data and other information that SKM-RD LLC and its financing sources
reasonably request.
ACCOUNTING TREATMENT
Radiologix and SKM-RD Acquisition Corp. have agreed to use commercially
reasonable efforts to cause the merger to be accounted for as a recapitalization
for financial reporting purposes and to cooperate in discussions or
correspondence with the SEC regarding such accounting treatment.
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CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of Radiologix, SKM-RD LLC and SKM-RD Acquisition
Corp. to complete the merger are subject to the fulfillment of the following
conditions at or prior to the effective time of the merger:
- approval of the merger by our stockholders;
- the expiration or termination of any required federal antitrust waiting
periods;
- the effectiveness of the registration statement of which this proxy
statement/prospectus is a part under the Securities Act and the absence of
any stop order or proceeding by the SEC seeking a stop order; and
- the absence of any injunction or other order issued by any court or other
legal restraint or prohibition preventing the consummation of the merger.
In addition, the obligations of SKM-RD LLC and SKM-RD Acquisition Corp. to
complete the merger are subject to the following conditions in addition to
customary closing conditions:
- since August 22, 2000, there shall have been no change, development,
condition or effect that has had or could reasonably be expected to have a
materially adverse effect on Radiologix and our subsidiaries;
- financing shall have been obtained on the terms set forth in the financing
commitment letter or on other terms satisfactory to SKM-RD LLC;
- the SEC shall not object to treating the merger as a recapitalization for
accounting purposes; and
- the Management Continuing Stockholders shall have performed in all
material respects their obligations under the voting and exchange
agreement.
Radiologix's obligations to complete the merger also are subject to
customary closing conditions.
TERMINATION
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time of the merger, whether before or after
approval by our stockholders:
- by mutual consent of SKM-RD LLC and Radiologix;
- by either SKM-RD LLC or Radiologix if:
- the effective time of the merger has not occurred on or before
December 31, 2000, if the terminating party is not then in breach of
the merger agreement;
- any governmental entity has issued a restraint or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
consummation of the merger; or
- the Radiologix stockholders have not approved the merger at the special
meeting, including any postponement or adjournment of the special
meeting;
- by Radiologix if:
- SKM-RD LLC or SKM-RD Acquisition Corp. materially breaches its
representations or warranties or fails to perform in any material
respect its covenants under the merger agreement, but only to the
extent that such breach or failure to perform would cause a failure of
a condition to closing that cannot be cured prior to December 31, 2000
or is not cured within 20 days after notice of such breach;
61
<PAGE>
- the Radiologix board of directors has authorized Radiologix to enter
into an agreement regarding an acquisition proposal in accordance with
the terms of the merger agreement; or
- SKM-RD LLC is not capable of obtaining its necessary financing on or
before December 31, 2000;
- by SKM-RD LLC if:
- Radiologix materially breaches its representations or warranties or
fails to perform in any material respect its covenants under the merger
agreement, but only to the extent that such breach or failure to
perform would cause a failure of a condition to closing that cannot be
cured prior to December 31, 2000 or is not cured within 20 days after
notice of such breach;
- the Radiologix board of directors approves or recommends, or proposes
publicly to approve or recommend, an acquisition proposal or resolves
to approve, recommend or propose an acquisition proposal;
- Radiologix has entered into an agreement regarding an acquisition
proposal or the Radiologix board of directors has authorized the
company to enter into such an agreement;
- the Radiologix board of directors has withdrawn, modified or qualified
its recommendation or approval of the merger in a manner adverse to
SKM-RD LLC or SKM-RD Acquisition Corp.;
- Radiologix has breached our obligations not to solicit acquisition
proposals; or
- SKM-RD LLC determines in good faith that it cannot obtain the necessary
financing prior to December 31, 2000.
Except as described under "--Termination Fees and Expenses" below, if the
merger agreement is terminated, the obligations of the parties will terminate,
other than specified provisions in the merger agreement relating to the law that
governs the merger agreement, jurisdiction for disputes arising out of the
merger agreement and similar matters. Even if the merger agreement is
terminated, however, a party to the merger agreement may be liable to another
party thereto for any prior deliberate or willful breach of the merger
agreement.
TERMINATION FEES AND EXPENSES
The merger agreement provides that we will pay SKM-RD LLC a termination fee
of $7.0 million plus an amount equal to the documented, reasonable,
out-of-pocket due diligence and other expenses incurred by SKM-RD LLC and its
affiliates in connection with the merger agreement and the transactions
described therein if:
- We terminate the merger agreement to enter into an agreement regarding an
acquisition proposal;
- SKM-RD LLC terminates the merger agreement because:
- the Radiologix board of directors has approved or recommended, or has
proposed publicly to approve or recommend, an acquisition proposal, or
Radiologix has entered into an agreement regarding an acquisition
proposal;
- the Radiologix board of directors has authorized Radiologix to enter
into an agreement regarding an acquisition proposal;
62
<PAGE>
- the Radiologix board of directors has withdrawn, modified or qualified
its recommendation or approval of the merger in a manner adverse to
SKM-RD LLC or SKM-RD Acquisition Corp.;
- Radiologix has breached our obligation to not solicit acquisition
proposals;
- Radiologix has materially breached our representations or warranties or
failed to perform in a material respect its covenants or agreements and
Radiologix consummates, or enters into a definitive agreement with
respect to, an acquisition proposal prior to the sixth month
anniversary of the termination of the merger agreement, but only to the
extent that Radiologix does not also have the right to terminate the
merger agreement due to a breach by SKM-RD LLC or SKM-RD Acquisition
Corp.; or
- the Radiologix stockholders do not approve the merger at the special
meeting, including any postponement or adjournment thereof, and prior
to the special meeting a person made a public announcement or otherwise
communicated to Radiologix and our stockholders with respect to an
acquisition proposal and Radiologix consummates, or enters into a
definitive agreement with respect to, an acquisition proposal prior to
the sixth month anniversary of the termination of the merger agreement.
Radiologix also will pay SKM-RD LLC an amount equal to the documented,
reasonable, out-of-pocket due diligence and other expenses incurred by SKM-RD
LLC and its affiliates in connection with the merger agreement and the
transactions described therein if SKM-RD LLC terminates the merger agreement
because Radiologix materially breaches our representations or warranties or
fails to perform in a material respect our covenants under the merger agreement,
and such breach or failure to perform constitutes a deliberate or willful breach
of the merger agreement by Radiologix, but only to the extent that Radiologix
then does not also have the right to terminate the merger agreement due to a
breach by SKM-RD LLC.
In addition, if the merger agreement is terminated generally under
circumstances not involving a breach by SKM-RD LLC, Radiologix will pay to
SKM-RD LLC an amount equal to all fees and expenses payable by SKM-RD LLC
pursuant to the financing commitment letter described in the merger agreement,
but only if Radiologix then does not also have the right to terminate the merger
agreement due to a breach by SKM-RD LLC or SKM-RD Acquisition Corp. of the
merger agreement.
AMENDMENT AND WAIVER
The merger agreement may be amended by the parties thereto at any time
before or after approval of the merger by our stockholders. However, after
approval by the stockholders, the parties may not amend the merger agreement in
any way that, under law, would require additional approval of our stockholders,
without first obtaining such further approval. At any time prior to the
effective time of the merger, a party to the merger agreement may waive
compliance by any other party thereto with any of the obligations of such other
party contained in the merger agreement, waive any inaccuracies in the
representations and warranties set forth in the merger agreement or waive
compliance with any of the agreements or conditions set forth in the merger
agreement. Any extension or waiver must be in writing signed by the party
granting the extension or waiver.
63
<PAGE>
THE VOTING AND EXCHANGE AGREEMENT
In connection with the merger agreement, SKM-RD LLC, SKM-RD Acquisition
Corp., Radiologix and the Management Continuing Stockholders entered into the
voting and exchange agreement. Under the voting and exchange agreement, each
Management Continuing Stockholder agreed, among other things, to vote in favor
of the merger and against any acquisition proposal with respect to all shares
owned now or in the future by such stockholder. Each Management Continuing
Stockholder also agreed to retain or exchange for cash all of the shares of
Radiologix common stock and each option to purchase shares of Radiologix common
stock held by such Management Continuing Stockholder as set forth on page 53
under the heading "THE MERGER--Retention of Shares by Directors and Officers."
The voting and exchange agreement also obligates each Management Continuing
Stockholder to enter into a stockholders agreement with the surviving
corporation on or prior to the effective time of the merger.
STOCKHOLDERS AGREEMENT
At the effective time, we anticipate that SKM-RD LLC, the Management
Continuing Stockholders and the surviving corporation will enter into a
stockholders agreement. The stockholders agreement will restrict the ability of
the Management Continuing Stockholders to transfer shares of Radiologix common
stock after the merger and will give us the right to repurchase shares held by a
Management Continuing Stockholder under certain circumstances, including upon
the termination of the individual's employment with us. The stockholders
agreement also will permit SKM-RD LLC to require Management Continuing
Stockholders to sell shares held by them in connection with a sale of shares by
SKM-RD LLC on the same terms as SKM-RD LLC is selling its shares. Management
Continuing Stockholders also will have the right under the stockholders
agreement to require SKM-RD LLC to sell shares owned by the Management
Continuing Stockholders in connection with a sale of shares by SKM-RD LLC on the
same terms as SKM-RD LLC is selling its shares.
64
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED
FINANCIAL DATA OF RADIOLOGIX, INC.
The summary consolidated historical financial data shown below and for the
three years ended December 31, 1997, 1998 and 1999, other than the earnings
before interest, taxes, depreciation and amortization (EBITDA); margin on
earnings before interest, taxes, depreciation and amortization; earnings before
interest, taxes, depreciation, amortization and rent (EBITDAR); and margin on
earnings before interest, taxes, depreciation, amortization and rent, have been
derived from, and should be read in conjunction with, our audited consolidated
financial statements and the notes thereto incorporated herein by reference to
our Annual Report on Form 10-K for the year ended December 31, 1998 and 1999,
filed with the SEC. The summary consolidated historical financial data as of
June 30, 2000 and for the six month periods ended June 30, 1999 and 2000, other
than the earnings before interest, taxes, depreciation and amortization; margin
on earnings before interest, taxes, depreciation and amortization; earnings
before interest, taxes, depreciation, amortization and rent, and margin on
earnings before interest, taxes, depreciation, amortization and rent, and have
been derived from, and should be read in conjunction with, our unaudited
consolidated financial statements and the notes thereto incorporated herein by
reference to our Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, filed with the SEC. EBITDA and EBITDAR are unaudited and not defined under
generally accepted accounting principles.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------
------------------------------ JUNE 30, JUNE 30,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
SERVICE FEE REVENUE......................................... $ 9,545 $149,327 $199,700 $ 90,420 $121,030
COSTS AND EXPENSES:
Salaries and benefits..................................... 2,922 42,227 52,826 24,623 31,429
Field supplies............................................ 1,036 8,865 11,630 5,319 6,578
Field rent and lease expense.............................. 852 11,532 18,444 7,561 14,667
Other field expenses...................................... 1,557 25,311 32,278 14,318 20,158
Bad debt expense.......................................... 862 13,723 18,838 8,474 10,637
Corporate general and administrative...................... 4,910 9,597 11,192 5,293 5,550
Depreciation and amortization............................. 888 12,178 18,403 7,856 10,908
Interest expense, net..................................... 617 7,541 12,357 4,913 8,518
-------- -------- -------- -------- --------
Total costs and expenses................................ 13,644 130,974 175,968 78,357 108,445
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES, MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES AND EQUITY IN EARNINGS OF
INVESTMENTS............................................... (4,099) 18,353 23,732 12,063 12,585
EQUITY IN EARNINGS OF INVESTMENTS........................... 220 4,339 3,581 1,556 2,018
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES............. (49) (710) (910) (435) (510)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES.................................. (3,928) 21,982 26,403 13,184 14,093
INCOME TAX EXPENSE.......................................... -- 8,451 10,346 5,012 5,637
-------- -------- -------- -------- --------
NET INCOME (LOSS)........................................... $ (3,928) $ 13,531 $ 16,057 $ 8,172 $ 8,456
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Basic................................................... $ (1.13) $ 0.72 $ 0.83 $ 0.42 $ 0.43
Diluted................................................. $ (1.13) $ 0.70 $ 0.80 $ 0.41 $ 0.41
Weighted average shares outstanding -- basic............ 3,451 18,739 19,305 19,296 19,483
Weighted average shares outstanding -- diluted.......... 3,451 19,335 20,692 19,734 22,076
Common shares outstanding at period end................. 17,235 19,244 19,424 19,297 19,506
OTHER FINANCIAL DATA:
EBITDA.................................................. $ (2,423) $ 41,701 $ 57,163 $ 25,953 $ 33,519
EBITDA margin........................................... -- 27.9% 28.6% 28.7% 27.7%
EBITDAR................................................. $ (2,316) $ 46,191 $ 65,934 $ 29,124 $ 42,474
EBITDAR margin.......................................... -- 30.9% 33.0% 32.2% 35.1%
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 31,972 $ 47,521 $ 85,547 $ 57,487 $ 96,586
Working capital........................................... 3,376 19,378 25,181 31,526 7,835
Property and equipment, net............................... 22,837 37,002 60,405 51,359 61,547
Total assets.............................................. 62,766 156,639 244,840 184,547 268,359
Debt and capital lease obligations........................ 55,865 120,211 164,840 141,848 174,352
Convertible notes......................................... -- -- 20,000 -- 20,000
Stockholders' equity...................................... (24,035) 7,046 23,423 15,523 31,889
</TABLE>
65
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated balance sheet information gives effect
to the merger, the merger financing and acquisitions as if each had occurred on
June 30, 2000. The unaudited pro forma consolidated statement of operations
information gives effect to a) the merger and the merger financing, b) the
acquisition of San Jose Radiological and Osceloa Imaging Center during the six
months ended June 30, 2000, c) the acquisition of Braff Associates, P.C., Open
MRI of Columbia, Dimensions Imaging Services and Questar Imaging, Inc. during
fiscal year ended December 31, 1999 and d) the lease buyout of an operating
lease for five imagnets, whereby the company will acquire the assets and
associated expenses related thereto, as if each had occurred on January 1, 1999.
The unaudited proforma consolidated statement of operations excludes the
following nonrecurring items, net of tax, directly attributable to the merger:
transaction fees and expenses of $5.1 million and cash payment to optionholders
of $2.2 million. The unaudited pro forma consolidated statement of operations
also excludes the following extraordinary items, net of tax, directly
attributable to the merger: prepayment penalty on existing debt of $2.4 million
and the write-off of existing deferred financing costs of $2.2 million. The pro
forma adjustments were applied to the historical consolidated financial
statements to reflect and account for the merger as a recapitalization. The pro
forma adjustments assume that the maximum number of post-merger shares (20%) are
retained by our stockholders and optionholders in the merger. Accordingly, the
historical cost basis of our assets and liabilities has not been adjusted by the
merger. The summary unaudited pro forma consolidated financial data are not
necessarily indicative of the consolidated operating results or financial
position that would have occurred if the merger had been consummated on the
dates indicated, nor are they necessarily indicative of future operating results
or financial position.
66
<PAGE>
RADIOLOGIX, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,333 $ (2,940)(a) $ 2,393
Accounts receivable, net of allowances.................... 73,231 -- 73,231
Due from affiliates....................................... 7,936 -- 7,936
Other current assets...................................... 10,086 -- 10,086
-------- -------- --------
Total current assets.................................... 96,586 (2,940) 93,646
PROPERTY AND EQUIPMENT...................................... 61,547 5,000 (b) 66,547
INVESTMENTS IN JOINT VENTURES............................... 6,873 -- 6,873
INTANGIBLE ASSETS, net...................................... 93,165 12,900 (b) 106,065
DEFERRED FINANCING COSTS, net............................... 3,732 3,768 (c) 7,500
OTHER ASSETS................................................ 6,456 5,600 (d) 12,056
-------- -------- --------
Total assets............................................ $268,359 $ 24,328 $292,687
======== ======== ========
LIABILITES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 21,689 $ (1,521)(e) $ 20,168
Accrued physician retention............................... 9,955 -- 9,955
Accrued salaries and benefits............................. 5,361 -- 5,361
Current portion of long-term debt......................... 43,873 (43,873)(f) --
Current portion of capital lease obligations.............. 6,091 -- 6,091
Deferred income taxes..................................... 1,651 -- 1,651
Other current liabilities................................. 131 -- 131
-------- -------- --------
Total current liabilities............................... 88,751 (45,394) 43,357
DEFERRED INCOME TAXES....................................... 2,336 (2,336)(d) --
LONG-TERM DEBT, net of current portion...................... 130,548 119,452 (f) 250,000
CAPITAL LEASE OBLIGATIONS, net of current portion........... 13,840 -- 13,840
OTHER LIABILITIES........................................... 117 -- 117
-------- -------- --------
Total liabilities....................................... 235,592 71,722 307,314
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES............. 878 -- 878
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock.............................................. 2 (1)(g) 1
Additional paid-in capital................................ (579) (35,290)(g) (35,869)
Notes receivable from shareholder......................... -- (200)(h) (200)
Retained earnings......................................... 32,466 (11,903)(i) 20,563
-------- -------- --------
Total stockholders' equity (deficit).................... 31,889 (47,394) (15,505)
-------- -------- --------
Total liabilities and stockholders' equity (deficit).... $268,359 $ 24,328 $292,687
======== ======== ========
</TABLE>
67
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(a) Reflects the following:
<TABLE>
<S> <C>
Sources:
Debt securities offered................................... $250,000
Proceeds from sale of common stock in the merger.......... 87,680
Exercise of stock options................................. 37
Retained common equity (non-cash)......................... 21,920
--------
Total sources of funds.................................. $359,637
Uses:
Redemption of common equity............................... $123,209
Retained common equity (non-cash)......................... 21,920
Cash payment to optionholders............................. 3,628
Repayment of existing debt................................ 175,941
Prepayment penalty on existing debt....................... 3,979
Lease buyout.............................................. 17,900
Estimated transaction fees and expenses................... 16,000
--------
Total Uses of funds..................................... $362,577
--------
Net use of funds........................................ $ 2,940
========
</TABLE>
(b) Reflects the estimated fair market value of the assets and intangible assets
created through the lease buyout.
(c) Reflects the net of the write-off of the existing deferred financing fees
associated with the company's current credit facility and $20.0 million
convertible notes ($3,732) and the additional financing fees associated with
placing the $250.0 million of debt securities contemplated herein ($7,500).
(d) Reflects the tax effect of the following pro forma adjustments:
a) transaction fees and expenses ($3,400), b) prepayment penalty on existing
debt ($1,592), c) write-off of existing deferred financing costs ($1,493),
and d) cash payment to optionholders ($1,451). As a result of these tax
adjustments, the deferred tax liability ($2,336) offsets with the resulting
tax asset.
(e) Reflects the payment of accrued interest on the $20.0 million dollar
convertible notes.
(f) Reflects the following:
<TABLE>
<S> <C>
Debt securities offered................................... $ 250,000
Retirement of existing credit facility, current portion... (43,750)
Retirement of existing credit facility, long-term......... (110,250)
Retirement of bank notes, current portion................. (123)
Retirement of bank notes, long-term....................... (298)
Retirement of convertible notes........................... (20,000)
---------
$ 75,579
=========
</TABLE>
68
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(g) Reflects the following:
<TABLE>
<S> <C>
Redemption of common equity............................... $(123,207)
Proceeds from sale of common stock in the merger.......... 87,679
Proceeds from the exercise of options..................... 238
---------
$ (35,290)
=========
</TABLE>
(h) Reflects the balance of a loan made to a management team member for the
exercise of stock options immediately prior to the merger.
(i) Reflects the following:
<TABLE>
<S> <C>
Transaction costs, net of tax............................. $ (5,100)
Prepayment penalty on existing debt, net of tax........... (2,387)
Write-off of existing deferred financing costs, net of
tax..................................................... (2,239)
Cash payment to optionholders, net of tax................. (2,177)
---------
$ (11,903)
=========
</TABLE>
69
<PAGE>
RADIOLOGIX, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------------------
HISTORICAL ACQUISITIONS MERGER PRO FORMA
---------- ------------ -------- ---------
<S> <C> <C> <C> <C>
SERVICE FEE REVENUE............................... $121,030 $ 464 (a) $ -- $121,494
COSTS AND EXPENSES:
Salaries and benefits........................... 31,429 86 (b) -- 31,515
Field supplies.................................. 6,578 30 (c) -- 6,608
Field rent and lease expense.................... 14,667 (2,388)(d) -- 12,279
Other field expenses............................ 20,158 429 (e) -- 20,587
Bad debt expense................................ 10,637 45 (f) -- 10,682
Corporate general and administrative............ 5,550 -- -- 5,550
Depreciation and amortization................... 10,908 503 (g) 375 (i) 11,786
Interest expense, net........................... 8,518 1,119 (h) 6,923 (j) 16,560
-------- ------- ------- --------
Total costs and expenses...................... 108,445 (176) 7,298 115,567
-------- ------- ------- --------
INCOME BEFORE TAXES, MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES AND EQUITY IN EARNINGS
OF INVESTMENTS.................................. 12,585 640 (7,298) 5,927
EQUITY IN EARNINGS OF INVESTMENTS................. 2,018 -- -- 2,018
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES... (510) -- -- (510)
-------- ------- ------- --------
INCOME BEFORE TAXES............................... 14,093 640 (7,298) 7,435
INCOME TAX EXPENSE................................ 5,637 256 (k) (2,919)(k) 2,974
-------- ------- ------- --------
NET INCOME........................................ $ 8,456 $ 384 $(4,379) $ 4,461
======== ======= ======= ========
NET INCOME PER COMMON SHARE:
Basic........................................... $ .043 $ 0.30
Diluted......................................... .041 0.30
Weighted average shares outstanding--basic...... 19,483 14,912
Weighted average shares outstanding--diluted.... 22,076 14,912
Common shares outstanding at period end......... 19,506 14,912
</TABLE>
------------------------
(a) Reflects revenue associated with the acquisitions.
(b) Reflects adjustment associated with the acquisitions ($63) and the lease
buyout ($23).
(c) Reflects costs associated with the acquisitions ($24) and lease buyout ($6).
(d) Reflects rental savings associated with the lease buyout ($2,444) and the
additional rental expense associated with the acquisitions ($56).
(e) Reflects costs associated with the acquisitions ($117) and lease buyout
($312).
(f) Reflects bad debt expense associated with the acquisitions.
(g) Reflects additional depreciation of equipment and goodwill amortization
associated with the acquisitions ($24) and lease buyout ($479).
(h) Reflects the increase in incremental interest costs associated with the
acquisitions.
(i) Reflects amortization of deferred financing costs associated with the
merger.
(j) Reflects the increase in incremental interest costs ($6,773) associated with
the $250.0 million of debt securities at an assumed rate of 12.5% and a
commitment fee ($150) of .50% basis points on the unused $60.0 million
revolving credit facility. An incremental increase in the interest rate by
.25% basis points on the $250.0 million of debt securities will increase
interest expense by $625 for a twelve month period.
(k) Reflects the income tax effect of the pro forma adjustments at the rate of
40%.
70
<PAGE>
RADIOLOGIX, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------------------
HISTORICAL ACQUISITIONS MERGER PRO FORMA
---------- ------------ -------- ---------
<S> <C> <C> <C> <C>
SERVICE FEE REVENUE.............................. $199,700 $19,257 (a) $ -- $218,957
COSTS AND EXPENSES:
Salaries and benefits.......................... 52,826 5,167 (b) -- 57,993
Field supplies................................. 11,630 1,245 (c) -- 12,875
Field rent and lease expense................... 18,444 (654)(d) -- 17,790
Other field expenses........................... 32,278 3,791 (e) -- 36,069
Bad debt expense............................... 18,838 1,443 (f) -- 20,281
Corporate general and administrative........... 11,192 -- -- 11,192
Depreciation and amortization.................. 18,403 3,633 (g) 750 (j) 22,786
Interest expense, net.......................... 12,357 2,238 (h) 18,339 (k) 32,934
-------- ------- -------- --------
Total costs and expenses..................... 175,968 16,863 19,089 211,920
-------- ------- -------- --------
INCOME BEFORE TAXES, MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES AND EQUITY IN
EARNINGS OF INVESTMENTS........................ 23,732 2,394 (19,089) 7,037
EQUITY IN EARNINGS OF INVESTMENTS................ 3,581 -- -- 3,581
MINORITY INTERESTS IN CONSOLIDATED
SUBSIDIARIES................................... (910) (109)(i) -- (1,019)
-------- ------- -------- --------
INCOME BEFORE TAXES.............................. 26,403 2,285 (19,089) 9,599
INCOME TAX EXPENSE............................... 10,346 914 (l) (7,635)(l) 3,625
-------- ------- -------- --------
NET INCOME....................................... $ 16,057 $ 1,371 $(11,454) $ 5,974
======== ======= ======== ========
NET INCOME PER COMMON SHARE:
Basic.......................................... $ 0.83 $ 0.40
Diluted........................................ 0.80 0.40
Weighted average shares outstanding--basic..... 19,305 14,912
Weighted average shares outstanding--diluted... 20,692 14,912
Common shares outstanding at period end........ 19,424 14,912
</TABLE>
------------------------
(a) Reflects revenue associated with acquisitions.
(b) Reflects the employment costs of the acquisitions ($5,119) and the lease
buyout ($48).
(c) Reflects costs associated with the acquisitions ($1,234) and lease buyout
($11).
(d) Reflects the rental savings associated with the lease buyout ($4,888) and
the additional rental expense associated with the acquisitions ($4,234).
(e) Reflects costs associated with the acquisitions ($3,168) and lease buyout
($623).
(f) Reflects bad debt expense associated with the acquisitions.
(g) Reflects additional depreciation of equipment and goodwill amortization
associated with the acquisitions ($2,674) and lease buyout ($959).
(h) Reflects the increase in incremental interest costs associated with the
acquisitions.
(i) Reflects the increase in minority interest associated with the acquisitions.
(j) Reflects the amortization of deferred financing costs associated with the
merger.
(k) Reflects the increase in incremental interest costs ($18,039) associated
with the $250.0 million of debt securities at an assumed rate of 12.5% and a
commitment fee ($300) of .50% basis points on the unused $60.0 million
revolving credit facility. An incremental increase in the interest rate by
.25% basis points on the $250.0 million of debt securities will increase
interest expense by $625 for a twelve month period.
(l) Reflects the income tax effect of the pro forma adjustments at the rate of
40%.
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APPRAISAL RIGHTS
Holders of shares of Radiologix common stock who do not vote in favor of the
adoption of the merger agreement and who properly demand appraisal of their
shares will be entitled to have their shares of Radiologix common stock
appraised by the Delaware Court of Chancery and to receive payment of the "fair
value" of the shares. These rights are governed by Section 262 of the General
Corporation Law of the State of Delaware. Any holder of Radiologix common stock
who wishes to exercise appraisal rights or who wishes to preserve their right to
do so, should review the following discussion and Appendix C carefully because
failure to timely and properly comply with the procedures specified will result
in the loss of appraisal rights.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under Delaware law and is qualified in its entirety by the
full text of Section 262 which is attached to this proxy statement/prospectus as
Appendix C. All references in Section 262 and in this summary to a "stockholder"
are to the record holder of the shares of Radiologix common stock as to which
appraisal rights are asserted. A person having a beneficial interest in shares
of Radiologix common stock held of record in the name of another person, such as
a broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect appraisal
rights.
A stockholder wishing to exercise appraisal rights must deliver to
Radiologix, before the vote on the adoption of the merger agreement at the
special meeting, a written demand for the appraisal of its shares and must vote
against the adoption of the merger agreement. A stockholder wishing to exercise
appraisal rights must hold of record the shares on the date the written demand
for appraisal is made and must continue to hold the shares of record through the
effective time of the merger. A vote against the adoption of the merger
agreement will not in and of itself constitute a written demand for appraisal
satisfying the requirements of Section 262.
A stockholder is entitled to assert appraisal rights only for the shares of
Radiologix common stock registered in that holder's name. A demand for appraisal
in respect of shares of Radiologix common stock should be executed by or on
behalf of the holder of record, fully and correctly, as the holder's name
appears on the holder's stock certificates, and must state that such person
intends thereby to demand appraisal of the holder's shares of Radiologix common
stock in connection with the merger. If the shares of Radiologix common stock
are owned of record in a fiduciary capacity, such as a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and if the
shares of Radiologix common stock are owned of record by more than one person,
as in a joint tenancy and tenancy in common, the demand should be executed by or
on behalf of all joint owners. An authorized agent, including two or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for the
owner or owners. A record holder such as a broker who holds shares of Radiologix
common stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the shares of Radiologix common stock held for one or
more beneficial owners while not exercising such rights with respect to the
shares of Radiologix common stock held for other beneficial owners. In that
case, however, the written demand should set forth the number of shares of
Radiologix common stock as to which appraisal is sought and where no number of
shares of Radiologix common stock is expressly mentioned the demand will be
presumed to cover all shares of Radiologix common stock held in the name of the
record owner. Stockholders who hold their shares of Radiologix common stock in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by the nominee.
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All written demands for appraisal pursuant to Section 262 should be send or
delivered to Radiologix at 3600 Chase Tower, 2200 Ross Avenue, Dallas, Texas
75201, Attention: Paul M. Jolas, General Counsel, Senior Vice President and
Secretary.
Within 10 days after the effective time of the merger, we must notify each
stockholder who has complied with Section 262 and who has not voted in favor of
the adoption of the merger agreement that the merger has become effective.
Within 120 days after the effective time of the merger, we or any stockholder
who has so complied with Section 262 and is entitled to appraisal rights under
Delaware law may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the holder's shares of Radiologix common
stock. We are under no obligation to and have no present intention to file a
petition. Accordingly, it is the obligation of the stockholders to initiate all
necessary action to perfect their appraisal rights in respect of their shares of
Radiologix common stock within the time prescribed in Section 262.
Within 120 days after the effective time of the merger, any stockholder who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the us a statement setting forth
the aggregate number of shares not voted in favor of the adoption of the merger
agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of these shares. The statement must be mailed
within ten days after a written request therefor has been received by us or
within ten days after the expiration of the period for delivery of demands for
appraisal, whichever is later.
If a petition for an appraisal is timely filed by a stockholder and a copy
thereof is served upon us, we will then be obligated within 20 days to file with
the Delaware Register in Chancery a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of their shares and
with whom agreements as to the value of their shares have not been reached.
After notice to those stockholders, the Delaware Court of Chancery is empowered
to conduct a hearing on the petition to determine those stockholders who have
complied with Section 262 and who have become entitled to appraisal rights
thereunder. The Delaware Court of Chancery may require stockholders who demanded
payment for their shares to submit their stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceeding; and
if any stockholder fails to comply with that direction, the Court of Chancery
may dismiss the proceedings as to that stockholder.
After determining the stockholders entitled to appraisal, the Delaware Court
of Chancery will appraise the "fair value" of their shares of Radiologix common
stock, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Stockholders considering
seeking appraisal should be aware that the fair value of their shares of
Radiologix common stock as so determined could be more than, the same as or less
than the consideration they would receive pursuant to the merger if they did not
seek appraisal of their shares of Radiologix common stock and that investment
banking fairness opinions are not necessarily opinions as to fair value under
Section 262. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Radiologix common stock have been appraised. The costs of the action
may be determined by the Court and taxed upon the parties as the Court deems
equitable. The Court may also order that all or a portion of the expenses
incurred by any stockholder in connection with an appraisal, including, without
limitation, reasonable attorney's fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value of
all the shares entitled to be appraised.
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Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares of Radiologix common stock subject to the demand for any purpose
or be entitled to the payment of dividends or other distributions on those
shares of Radiologix common stock (except dividends or other distributions
payable to stockholders as of a record date prior to the effective time of the
merger).
If any stockholder who demands appraisal under Section 262 fails to perfect,
or effectively withdraws or loses the holder's right to appraisal, the shares of
Radiologix common stock of that stockholder will be converted into the right to
receive $7.25 per share in cash, without interest. A stockholder will fail to
perfect, or effectively lose or withdraw the holder's right to appraisal, if no
petition for appraisal is filed within 120 days after the effective time of the
merger, or if the stockholder delivers to us a written withdrawal of the
holder's demand for appraisal and an acceptance of the merger, except that any
such attempt to withdraw made more than 60 days after the effective time of the
merger will require the written approval of us and, once a petition for
appraisal is filed, the appraisal proceeding may not be dismissed as to any
holder absent court approval.
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PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP
OF MANAGEMENT AND OTHERS
The following table sets forth, as of September 11, 2000, certain
information with regard to the beneficial ownership of the common stock by
(i) all persons known by us to be the beneficial owner of more than 5% of the
outstanding Radiologix common stock, (ii) each of our directors, (iii) each of
our executive officers, and (iv) all of our directors and executive officers as
a group. Unless otherwise indicated, all shares shown in the table below are
held with sole voting and investment power by the person or entity indicated.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
COMMON STOCK OUTSTANDING OF
BENEFICIALLY COMMON STOCK
OWNED(1) BENEFICIALLY OWNED(1)
------------ ---------------------
<S> <C> <C>
Mark L. Wagar(2)(3).......................... 298,332 1.5
Mark S. Martin(2)(4)......................... 255,270 1.3
Paul M. Jolas(2)(5).......................... 190,004 1.0
David W. Young(2)(6)......................... 47,083 *
Derace L. Schaffer, M.D.(2)(7)............... 673,141 3.5
Paul D. Farrell(2)(8)........................ 75,000 *
Less T. Chafen, M.D.(2)(9)................... 69,825 *
John W. Colloton(2)(10)...................... 33,333 *
Michael L. Sherman, M.D.(2)(11).............. 129,567
All directors and executive officers as a
group (nine persons)(12)................... 1,771,555 8.7
</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, 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) The address of Messrs. Wagar, Martin, Jolas, Young, Colloton and Farrell
and Drs. Schaffer, Chafen and Sherman is c/o Radiologix, Inc., 3600 Chase
Tower, 2200 Ross Avenue, Dallas, Texas 75201.
(3) Includes 293,332 shares of common stock issuable upon exercise of options
exercisable within 60 days.
(4) Includes 245,270 shares of common stock issuable upon exercise of options
exercisable within 60 days.
(5) Includes 184,004 shares of common stock issuable upon exercise of options
exercisable within 60 days.
(6) Includes 47,083 shares of common stock issuable upon exercise of options
exercisable within 60 days.
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(7) Includes 17,499 shares of common stock issuable upon exercise of options
granted in connection with service as a director of Radiologix exercisable
within 60 days.
(8) Includes 4,000 shares owned directly by Mr. Farrell's parents, Richard P.
and Helen L. Farrell with which Mr. Farrell has shared investment control.
Mr. Farrell disclaims beneficial ownership of the shares owned by Richard
P. and Helen L. Farrell.
(9) Includes 32,499 shares of common stock issuable upon exercise of options
granted in connection with service as a director of Radiologix exercisable
within 60 days.
(10) Includes 33,333 shares of common stock issuable upon exercise of options
granted in connection with service as a director of Radiologix exercisable
within 60 days.
(11) Includes 42,499 shares of common stock issuable upon exercise of options
granted in connection with service as a consultant to and a director of
Radiologix exercisable within 60 days.
(12) Includes 895,519 shares of common stock issuable upon exercise of options
exercisable within 60 days.
DESCRIPTION OF RADIOLOGIX CAPITAL STOCK
RADIOLOGIX EXISTING CAPITAL STOCK
We are authorized to issue up to 50 million shares of common stock. The
holders of 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 our 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 common stock are entitled to share ratably in the net
assets of Radiologix upon any liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any preferred stock then
outstanding. The holders of our common stock have no preemptive rights to
purchase shares of stock of Radiologix. Shares of our common stock are not
subject to any redemption provisions and are not convertible into any other
securities of Radiologix. All outstanding shares of our common stock are fully
paid and nonassessable.
Our board of directors is authorized to issue up to ten million shares of
preferred stock. Our board may, without the approval of the holders of common
stock, establish the right, powers and preferences of the preferred stock, which
could adversely affect the rights of the holders of common stock. There are no
shares of preferred stock issued or outstanding.
RADIOLOGIX CAPITAL STOCK FOLLOWING THE MERGER
The precise numbers of shares of the Radiologix common stock to be
outstanding immediately after the merger will not be known until shortly before
the merger, and will depend on the election decisions of our stockholders and
optionholders and the proration provisions described in this document. However,
affiliates of Saunders Karp & Megrue will own between 80% and 90% of the
outstanding shares of our common stock after giving effect to the merger, and
our existing stockholders and optionholders will own the remaining 10% to 20%.
Your rights as a stockholder will not change as a result of the merger,
except that our bylaws in connection with the merger will be amended and
restated such that two designees of SKM-RD LLC will have three votes each for
each matter considered by the board and all other directors will have one vote
each. In addition, our certificate of incorporation will be amended and restated
in connection with the merger to grant us the right of first refusal with
respect to transfers of Radiologix common stock except for transfers to family
members and trusts and among employees, partners or other owners of radiology
practices and to radiology practices that have contracts with Radiologix. This
means that before any stockholder can transfer any shares of our common stock,
that stockholder must first give notice to us identifying the transferee, number
of shares and terms for that proposed transfer, including
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purchase price. We will have 20 business days after receipt of notice from the
stockholder to purchase the shares proposed to be transferred by the stockholder
on the same terms as proposed to the transferee. If we have not purchased any or
all of those shares within that time period, the stockholder will have 30 days
in which to transfer the shares to the proposed transferee on the terms
contained in the notice. If the stockholder has not closed that sale within the
30-day period, any future sale of the shares of Radiologix common stock will
again be subject to the right of first refusal. This right will be effective at
any time that Radiologix common stock is not traded on a national securities
exchange or on the Nasdaq National Market, and until any registered public
offering of shares of our common stock.
INDEPENDENT PUBLIC ACCOUNTANTS
Our consolidated financial statements and schedules appearing in our Annual
Report on Form 10-K for the year ended December 31, 1999, and incorporated by
reference in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated herein by
reference in reliance upon the authority of said firm as experts in accounting
and auditing in giving said reports.
LEGAL MATTERS
The legality of the shares of Radiologix common stock to be issued or
retained in connection with the merger will be passed upon by Haynes and Boone,
LLP, counsel to Radiologix.
STOCKHOLDER PROPOSALS
If the merger is completed, we do not expect to hold an annual meeting of
stockholders. If the merger is not completed for any reason, we request that any
proposals of Radiologix stockholders intended to be presented at Radiologix's
next annual meeting of Radiologix stockholders be addressed to Radiologix's
corporate secretary, 3600 Chase Tower, 2200 Ross Avenue, Dallas, Texas 75201.
Such proposals must be received no later than ten days after the first public
announcement of the date of such meeting for consideration for inclusion in our
proxy materials for such meeting. Holders of proxies in respect of the 2001
annual meeting of Radiologix stockholders will have discretionary voting
authority with respect to any matter raised at that meeting about which
Radiologix does not receive proper notice prior to ten days after the first
public announcement of the date of such meeting.
By order of the Board of Directors,
Sincerely,
[SIGNATURE]
Paul M. Jolas
GENERAL COUNSEL, SENIOR VICE PRESIDENT
AND SECRETARY
Dallas, Texas
Dated: [ ], 2000
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APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated
as of September 12, 2000, by and among Radiologix, Inc., a Delaware corporation
(the "COMPANY"), SKM-RD LLC, a Delaware limited liability company ("PARENT"),
and SKM-RD Acquisition Corp., a Delaware corporation and a direct, wholly owned
subsidiary of Parent ("PURCHASER").
RECITALS
A. The Company, Parent and Purchaser entered into an agreement and plan of
merger dated August 22, 2000 (the "PRIOR AGREEMENT"). This Agreement amends and
restates the Prior Agreement in its entirety and supersedes the Prior Agreement
in all respects.
B. Parent and the Boards of Directors of each of Purchaser and the Company
have determined that it is advisable and in the best interests of their
respective companies and members and stockholders for Purchaser to enter into a
business combination with the Company on the terms and subject to the conditions
set forth herein.
C. In furtherance thereof, Parent and the Boards of Directors of each of
the Company and Purchaser have approved and adopted this Agreement and have
approved the merger of Purchaser with and into the Company, with the Company
being the surviving corporation (the "MERGER").
D. It is contemplated that certain stockholders of the Company (the "COMPANY
PRINCIPAL STOCKHOLDERS") will enter into a voting agreement (the "VOTING
AGREEMENT") whereby such stockholders will agree to vote their Shares in favor
of the Merger and to make the Stock Election with respect to all or a portion of
their Shares and Company Options.
E. The parties intend that the Merger be accounted for as a
"recapitalization" for financial reporting purposes.
F. The parties desire to make certain representations, warranties and
covenants in connection with the Merger and also to prescribe various conditions
to the Merger.
NOW THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties agree as follows:
I. THE MERGER
1.1. THE MERGER. (a) On the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Delaware General Corporation Law
("DGCL"), at the Effective Time, Purchaser will be merged with and into the
Company and the separate corporate existence of Purchaser will thereupon cease.
The Company will be the surviving corporation in the Merger (as such, the
"SURVIVING CORPORATION").
(b) At and after the Effective Time, the Merger will have the effects
specified in the DGCL, including Section 259 thereof, and this Agreement.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the properties, rights, privileges, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation and all debts,
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
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1.2. CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place at the offices of Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, New York, at 10:00 a.m., local
time, on the second Business Day after the date on which the last of the
conditions (excluding conditions that by their terms cannot be satisfied until
the Closing Date) set forth in Article V is satisfied or waived in accordance
herewith, or at such other place, time or date as the parties may agree. The
date on which the Closing occurs is hereinafter referred to as the "CLOSING
DATE."
1.3. EFFECTIVE TIME. On the Closing Date or as soon as practicable
following the date on which the last of the conditions set forth in Article V is
satisfied or waived in accordance herewith, the parties will execute and file a
certificate of merger (the "CERTIFICATE OF MERGER") in such form as is required
by and executed in accordance with the relevant provisions of the DGCL, and will
make all other filings and recordings required under the DGCL. The Merger will
become effective at such time (the "EFFECTIVE TIME") as the Certificate of
Merger is duly filed with the Delaware Secretary of State or at such other date
or time as Parent and the Company agree and specify in the Certificate of
Merger. Unless otherwise agreed, the parties will use their commercially
reasonable efforts to cause the Effective Time to occur on the Closing Date.
1.4. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. (a) The certificate of incorporation in the form of EXHIBIT A
hereto will be the certificate of incorporation of the Surviving Corporation
from and after the Effective Time, until thereafter amended in accordance with
its terms and those of the DGCL.
(b) The bylaws in the form of EXHIBIT B hereto will be the bylaws of the
Surviving Corporation from and after the Effective Time, until thereafter
amended in accordance with their terms, the certificate of incorporation of the
Surviving Corporation and the DGCL.
1.5. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. (a) The persons
identified on Schedule 1.5 hereto will be the directors of the Surviving
Corporation at the Effective Time. All of the members of the Board of Directors
of the Surviving Corporation will serve until their successors are duly elected
or appointed and qualified or until their earlier removal in accordance with the
certificate of incorporation and the bylaws of the Surviving Corporation, death
or resignation.
(b) The officers of the Surviving Corporation will consist of the officers
of the Company at the Effective Time. Such Persons will continue as officers of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier removal in accordance with the
certificate of incorporation and the bylaws of the Surviving Corporation, death
or resignation.
1.6. CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Purchaser, the Company or
the holder of any of the following securities:
(a) CANCELLATION OF TREASURY SHARES AND PARENT-OWNED SHARES. Each share of
the Company's common stock, par value $0.0001 per share (each share of such
class a "SHARE" and, collectively, the "SHARES"), held in the treasury of the
Company and each Share owned by Parent, Purchaser or any other direct or
indirect, wholly owned subsidiary of Parent immediately before the Effective
Time (other than shares in trust accounts, managed accounts, custodial accounts
and the like that are beneficially owned by third parties) will be automatically
canceled and retired and will cease to exist and no payment or other
consideration will be made with respect thereto.
(b) COMMON STOCK OF PURCHASER. All of the common stock, par value $0.0001
per share, of Purchaser issued and outstanding immediately before the Effective
Time (the "PURCHASER SHARES") will be converted into and become the number of
validly issued, fully paid and nonassessable shares of common stock, par value
$0.0001 per share, of the Surviving Corporation to be newly issued by the
Surviving Corporation and identical in every respect to the existing Shares
(each such share being a
A-2
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share of the "SURVIVING CORPORATION COMMON STOCK") equal to the sum of the
quotient of the aggregate cash contributed at the direction of Parent to the
Surviving Corporation that will be exchanged by the Surviving Corporation for
Shares (including any Dissenting Shares of any stockholder who fails to perfect,
withdraws or otherwise loses its right to appraisal under the DGCL) in the
Merger divided by $7.35, which, together with the shares of Surviving
Corporation Common Stock to be issued as part of the Stock Consideration in
accordance with this Agreement, will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation immediately
after the Effective Time.
(c) SHARES. Except as otherwise provided in Section 1.6(a) or Section 1.9
and subject to Sections 1.6(d) and 1.6(e), each Share outstanding immediately
prior to the Effective Time, shall be converted into the right either (i) to
receive from the Surviving Corporation $7.25 in cash, without interest (the "PER
SHARE CASH CONSIDERATION"), or (ii) to retain all of the holder's interest in
each such Share, in the form of 1.1224 validly issued, fully paid and
non-assessable shares of Surviving Corporation Common Stock (the "EXCHANGE
RATIO", and such stock consideration the "STOCK CONSIDERATION"), in each case in
exchange for the holder's full and complete interest in each such Share. The
consideration provided for in this Section 1.6(c) is referred to herein as the
"MERGER CONSIDERATION."
(d) ELECTION. (i) Subject to Section 1.6(e), each holder of Shares (other
than holders of such shares that are to be canceled pursuant to Section
1.6(a) and holders who have agreed to make the Stock Election pursuant to the
Voting Agreement) shall be entitled to elect to specify (i) the number of Shares
which such holder desires to have converted into the right to receive the Per
Share Cash Consideration in the Merger (such election with respect to Shares, a
"CASH ELECTION") and (ii) the number of Shares which such holder desires to have
converted into the right to receive the Stock Consideration in the Merger (such
election with respect to Shares, a "STOCK ELECTION"). A holder may also indicate
that such record holder has no preference as to the receipt of Per Share Cash
Consideration or Stock Consideration with respect to such holder's Shares (a
"NON-ELECTION"). Any Cash Election, Stock Election or Non-Election shall be
referred to herein as an "ELECTION." All such Elections shall be made on a form
furnished by the Company for that purpose (a "FORM OF ELECTION"). The Company
will obtain Parent's consent (which shall not be unreasonably withheld or
delayed) prior to delivering the Form of Election (or any material amendment
thereto) to the holders of Shares. Holders of record of Shares who hold such
Shares as nominees, trustees or in other representative capacities may submit
multiple Forms of Election, PROVIDED that such nominee, trustee or
representative certifies that each such Form of Election covers all Shares held
for a particular beneficial owner.
(ii) Elections shall be made by holders of Shares by delivering the Form of
Election to the Exchange Agent. To be effective, a Form of Election must be
properly completed, signed and submitted to the Exchange Agent by no later than
5:00 p.m. (New York City time) on the Business Day preceding the date of the
Stockholders Meeting (such preceding Business Day being the "ELECTION DATE"),
and accompanied by (A)(x) the Certificates representing the Shares as to which
the Election is being made or (y) an appropriate guarantee of delivery of such
Certificates as set forth in such Form of Election from a firm which is a member
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States, PROVIDED such Certificates are in fact
delivered to the Exchange Agent within three American Stock Exchange ("AMEX")
trading days after the date of execution of such guarantee of delivery (a
"GUARANTEE OF DELIVERY"), and (B) a properly completed and signed letter of
transmittal. Failure to deliver Certificates covered by any Guarantee of
Delivery within three AMEX trading days after the date of execution of such
Guarantee of Delivery shall be deemed to invalidate any otherwise properly made
Cash Election or Stock Election.
(iii) The Exchange Agent will have the discretion to determine whether
Forms of Election have been properly completed, signed and submitted or revoked
and to disregard immaterial defects in Forms of Election. The good faith
decision of the Exchange Agent in such matters shall be conclusive and binding;
PROVIDED that the Exchange Agent may, in its discretion, seek guidance from both
Parent
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and the Company in connection therewith. Neither Parent nor the Company nor the
Exchange Agent will be under any obligation to notify any person of any defect
in a Form of Election submitted to the Exchange Agent. The Exchange Agent shall
also make all computations contemplated by Section 1.6(e) and all such
computations shall be conclusive and binding on the holders of Shares in the
absence of manifest error. Any Form of Election may be changed or revoked prior
to the Election Date. In the event a Form of Election is revoked prior to the
Election Date, the Company shall, or shall cause the Exchange Agent to, cause
the Certificates representing the Shares covered by such Form of Election to be
promptly returned without charge to the Person submitting the Form of Election
upon written request to that effect from such Person.
(iv) For the purpose hereof, unless waived by the Company in its sole
discretion, a holder of Shares who does not submit a Form of Election which is
received by the Exchange Agent prior to the Election Date (including a holder
who submits and then revokes his or her Form of Election and does not resubmit a
Form of Election which is timely received by the Exchange Agent), or who submits
a Form of Election without the corresponding Certificates or a Guarantee of
Delivery, shall be deemed to have made a Non-Election. The rights of holders of
Dissenting Shares shall be determined in accordance with Section 262 of Delaware
Law and as provided in Section 1.9 hereof. If any Form of Election is defective
in any manner such that the Exchange Agent cannot reasonably determine the
election preference of the stockholder submitting such Form of Election, unless
waived by the Company in its sole discretion, the purported Cash Election or
Stock Election set forth therein shall be deemed to be of no force and effect
and the stockholder making such purported Cash Election or Stock Election shall,
for purposes hereof, be deemed to have made a Non-Election.
(v) A Form of Election and a letter of transmittal shall be included with
or mailed contemporaneously with each copy of the S-4/Proxy Statement mailed to
the Company's stockholders in connection with the Stockholders Meeting. The
Company shall use commercially reasonable efforts to mail or otherwise make
available the Form of Election and a letter of transmittal to all persons who
become record holders of Shares during the period between the record date for
the Stockholders Meeting and the Election Date.
(e) PRORATION. Except as set forth in Section 1.6(f), the determination of
whether Shares (other than Shares that are to be canceled pursuant to Section
1.6(a)) shall be converted in the Merger into the Per Share Cash Consideration
or the Stock Consideration shall be made as set forth in this Section 1.6(e).
(i) As is more fully set forth below, the aggregate number of Shares and
Company Options to be converted in the Merger into the right to receive the
Stock Consideration shall in no event result in the retention by holders of
Shares and Company Options of shares of Surviving Corporation Common Stock in
excess of the Maximum Surviving Corporation Share Amount. The "MAXIMUM SURVIVING
CORPORATION SHARE AMOUNT" means that number of shares of Surviving Corporation
Common Stock equal to 20.0% of the issued and outstanding Surviving Corporation
Common Stock, determined on a pro forma basis on the Closing Date after giving
effect to the Merger and the Elections received in respect of Shares and Company
Options on or before the Closing Date. The "MINIMUM SURVIVING CORPORATION SHARE
AMOUNT" means that number of shares of Surviving Corporation Common Stock equal
to 10.0% of the issued and outstanding Surviving Corporation Common Stock,
determined on a pro forma basis on the Closing Date after giving effect to the
Merger and the Elections received on or before the Closing Date in respect of
Shares and Company Options. The "MINIMUM SURVIVING CORPORATION SHARE ELECTION
AMOUNT" means that number of shares of Surviving Corporation Common Stock equal
to 6.9% of the issued and outstanding Surviving Corporation Common Stock,
determined on a pro forma basis on the Closing Date after giving effect to the
Merger and the Elections received on or before the Closing Date in respect of
Shares and Company Options.
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(ii) If Stock Elections are received for a number of Shares and Company
Options which, after giving effect to the Merger, would result in the issuance
of more than the Maximum Surviving Corporation Share Amount, each Share subject
to a Non-Election (a "NON-ELECTION SHARE"), and each Share and Company Option
for which a Cash Election has been received shall be converted in the Merger
into the Per Share Cash Consideration, and the Shares and Company Options for
which Stock Elections have been received shall be converted in the Merger into
the Per Share Cash Consideration and the Stock Consideration in the following
manner: for each Stock Election, the number of Shares and Company Options
covered by such Stock Elections that shall receive the Stock Consideration shall
be the total number of Shares and Company Options covered by such Stock
Elections multiplied by the Stock Election Proration Factor. The "STOCK ELECTION
PRORATION FACTOR" means a fraction the numerator of which shall be a number
equal to the Maximum Surviving Corporation Share Amount and the denominator of
which shall be the aggregate number of shares of Surviving Corporation Common
Stock that would be issued pursuant to all Stock Elections made by all holders
of Shares and Company Options. All Shares and Company Options covered by the
Stock Elections, other than that number converted into the right to receive the
Stock Consideration in accordance with this Section 1.6(e)(ii), shall be
converted into the right to receive the Per Share Cash Consideration.
(iii) If Stock Elections are received either (I) for a number of Shares and
Company Options which, after giving effect to the Merger, would result in the
issuance of less than the Minimum Surviving Corporation Share Amount or (II) for
a number of Shares (and not Company Options) which after giving effect to the
Merger and the application of Section 1.6(e)(ii) would result in the issuance of
less than the Minimum Surviving Corporation Share Election Amount:
(A) each Share and Company Option for which a Stock Election has been
received shall be converted in the Merger into the Stock Consideration;
(B) each Share for which a Non-Election has been received shall be
converted in the Merger into the Stock Consideration and the Per Share Cash
Consideration in the following manner: for each Non-Election, the number of
Shares (and not Company Options) covered by such Non-Election that shall
receive the Stock Consideration shall be the total number of Shares (and not
Company Options) covered by such Non-Election multiplied by the Non-Election
Proration Factor. The "NON-ELECTION PRORATION FACTOR" means a fraction (x)
the numerator of which shall be a number equal to the quotient of (i) the
greater of (AA) the difference between the Minimum Surviving Corporation
Share Amount and the number of shares of Surviving Corporation Common Stock
that would be issued in the Merger pursuant to clause (A) above and (BB) the
difference between the Minimum Surviving Corporation Share Election Amount
and the number of shares of Surviving Corporation Common Stock that would be
issued in the Merger pursuant to clause (A) above in respect of Shares only
(and not Company Options), divided by (ii) the Exchange Ratio and (y) the
denominator of which shall be the aggregate number of Shares (and not
Company Options) covered by all Non-Elections; provided that in no event
shall the Non-Election Proration Factor exceed 1.00. All Shares (and not
Company Options) covered by a Non-Election, other than that number converted
into the right to receive the Stock Consideration pursuant to this Section
1.6(e)(iii), shall be converted into the right to receive the Per Share Cash
Consideration; and
(C) if the Stock Elections and Non-Elections converted into the Stock
Consideration pursuant to Section 1.6(e)(iii)(A) and (B) would result in the
issuance of less than the Minimum Surviving Corporation Share Amount or the
Minimum Surviving Corporation Share Election Amount, then the Shares (and
not Company Options) for which Cash Elections have been received shall be
converted in the Merger into the Stock Consideration and the Cash
Consideration in the following manner: for each Cash Election, the number of
Shares (and not Company Options) covered by such Cash Election that shall
receive the Stock Consideration shall be the total number of Shares (and not
Company Options) covered by such Cash Election multiplied by the Cash
Election
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Proration Factor. The "CASH ELECTION PRORATION FACTOR" means a fraction (x)
the numerator of which shall be a number equal to the quotient of (i) the
greater of (AA) the difference between the Minimum Surviving Corporation
Share Amount and the number of shares of Surviving Corporation Common Stock
that would be issued in the Merger pursuant to clause (A) and (B) above and
(BB) the difference between the Minimum Surviving Corporation Share Election
Amount and the number of shares of Surviving Corporation Common Stock that
would be issued in the Merger pursuant to clause (A) and (B) above in
respect of Shares only (and not Company Options), divided by (ii) the
Exchange Ratio and (y) the denominator of which shall be the aggregate
number of Shares (and not Company Options) covered by all Cash Elections
made by all holders of Shares. All Shares (and not Company Options) covered
by a Cash Election, other than that number converted into the right to
receive the Stock Consideration pursuant to this Section 1.6(e)(iii), shall
be converted into the right to receive the Per Share Cash Consideration.
(iv) If Stock Elections are received (x) in respect of Shares and Company
Options that would result in the issuance, on a pro forma basis after giving
effect to the Merger and based on the Elections received on or before the
Closing Date, of a number of shares of Surviving Corporation Common Stock which
is between the Minimum Surviving Corporation Share Amount and the Maximum
Surviving Corporation Share Amount AND (y) in respect of Shares (and not Company
Options) that would result in the issuance, on a pro forma basis after giving
effect to the Merger and based on the Elections received on or before the
Closing Date, of a number of shares of Surviving Corporation Common Stock which
is not less than the Minimum Surviving Corporation Share Election Amount, then
each Share and Company Option covered by a Cash Election or a Non-Election shall
be converted in the Merger into the Per Share Cash Consideration and each Share
and Company Option covered by a Stock Election shall be converted in the Merger
into the Stock Consideration.
(v) For the avoidance of doubt, this Agreement may require successive
application of the provisions of Section 1.6(e)(ii) and Section 1.6(e)(iii).
(f) MINIMUM STOCK ELECTION AMOUNTS. Notwithstanding anything in this
Agreement to the contrary, (i) no holder of Shares or Company Options shall be
entitled to make a Stock Election with respect to fewer than 3,000 Shares or
Company Options, in the aggregate, (ii) no holder of 3,000 or fewer Shares
immediately prior to the Merger but after giving effect to the exercise of all
Company Options pursuant to Section 1.8 shall be entitled to make a Stock
Election with respect to such holder's Shares or Company Options, and (iii) the
proration provisions of Section 1.6(c) shall not result in the issuance of
Surviving Corporation Common Stock to any Person who beneficially owns 3,000 or
fewer Shares immediately prior to the Merger and after giving effect to the
exercise of all Company Options pursuant to Section 1.8.
1.7. SURRENDER OF SHARES; STOCK TRANSFER BOOKS. (a) Prior to the record
date for the Stockholders Meeting, the Company shall appoint an agent (the
"EXCHANGE AGENT") reasonably acceptable to Parent for the purpose of exchanging
certificates representing Shares (the "CERTIFICATES") for the Merger
Consideration and for purposes of receiving Election Forms and determining, in
accordance with Section 1.6, the form of the Merger Consideration to be received
by each holder of Shares. Prior to or simultaneously with the Effective Time,
Parent shall cause the Company to deposit with the Exchange Agent cash in an
amount sufficient to pay in a timely manner the aggregate Per Share Cash
Consideration, the aggregate cash required to be paid pursuant to Sections
1.6(f) and 1.8, and the aggregate amount of cash in lieu of fractional shares of
Surviving Corporation Common Stock pursuant to Section 1.10, to be paid in
respect of the Shares and from time to time will deposit additional amounts
sufficient to pay the aggregate Per Share Cash Consideration, the aggregate cash
required to be paid pursuant to Sections 1.6(f) and 1.8, the aggregate amount of
cash in lieu of fractional shares of Surviving Corporation Common Stock pursuant
to Section 1.10, and the aggregate amount of cash to be paid in respect of
Dissenting Shares.
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(b) Each holder of Shares that have been converted into the right to
receive only the Per Share Cash Consideration will be entitled to receive, upon
surrender to the Exchange Agent of a Certificate, together with a properly
completed letter of transmittal, the Per Share Cash Consideration payable for
each Share represented by such Certificate. Until so surrendered, each such
Certificate shall represent after the Effective Time for all purposes only the
right to receive such Per Share Cash Consideration, and shall have no other
rights with respect thereto.
(c) At the Effective Time by virtue of the Merger and without any action on
the part of the holder thereof, each Share which shall be converted into Stock
Consideration pursuant to Section 1.6 shall thereafter represent for all
purposes only the right to receive that number of shares of Surviving
Corporation Common Stock equal to the Exchange Ratio.
(d) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the surrendered Certificate is registered,
it shall be a condition to such payment that the Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
Taxes or other Taxes required as a result of such payment to a Person other than
the registered holder of such Certificate or establish to the reasonable
satisfaction of the Exchange Agent that such Tax has been paid or is not
payable.
(e) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration provided for, and in accordance with the procedures set forth, in
this Article.
(f) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.7(a) (and any interest or other income earned
thereon) that remains unclaimed by the holders of Shares twelve months after the
Effective Time shall be returned to the Surviving Corporation, upon demand, and
any such holder who has not exchanged Shares for the Merger Consideration in
accordance with this Section 1.7 prior to that time shall thereafter look only
to the Surviving Corporation for payment of the Merger Consideration in respect
of such Shares without any interest thereon. Notwithstanding the foregoing, the
Surviving Corporation shall not be liable to any holder of Shares for any amount
paid to a public official pursuant to applicable abandoned property, escheat or
similar laws. Subject to applicable escheat laws, any amounts remaining
unclaimed by holders of Shares three years after the Effective Time shall become
the property of the Surviving Corporation free and clear of any claims or
interest of any Person previously entitled thereto.
(g) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.7(a) to pay for Shares for which appraisal rights
have been perfected shall be returned to the Surviving Corporation, upon demand.
(h) In the event any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the Person claiming such Certificate
to be lost, stolen or destroyed, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration deliverable
in respect thereof as determined in accordance with Section 1.6; PROVIDED, that
the Person to whom such Merger Consideration is paid shall, as a condition
precedent to the payment thereof, post a bond in such reasonable amount as the
Surviving Corporation may direct or otherwise indemnify the Surviving
Corporation in a manner reasonably satisfactory to it against any claim that may
be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
1.8. STOCK OPTIONS. Subject to Section 1.6(e), each outstanding option
(the "COMPANY OPTIONS") to purchase Shares under any of the Company's stock
option plans (including, without limitation, the stock option plans listed in
Section 2.3 to the Company Disclosure Letter) (the "STOCK OPTION PLANS")
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that is outstanding as of the Effective Time, whether or not then exercisable,
will at the Effective Time be canceled and converted into the right to receive
at the election of the holder thereof either (i) cash in an amount equal to the
positive difference, if any, between the Per Share Cash Consideration and the
exercise price of such option (such election with respect to Company Options, a
"CASH ELECTION") or (ii) upon payment of the exercise price with respect to such
option, the Stock Consideration (such election with respect to Company Options,
a "STOCK ELECTION"). The Company will deliver to each holder of options Forms of
Election with respect to the consideration to be received by holders of options
in accordance with this Section 1.8.
1.9. DISSENTING SHARES. Shares outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such Shares in
accordance with the DGCL ("DISSENTING SHARES") shall not be converted into a
right to receive the Merger Consideration, unless such holder fails to perfect,
withdraws or otherwise loses its right to appraisal under the DGCL. If, after
the Effective Time, such holder fails to perfect, withdraws or loses its right
to appraisal, such Shares shall be treated as if they had been converted as of
the Effective Time into a right to receive the Per Share Cash Consideration and
shall be deemed to have been subject to a Cash Election. The Company shall give
Parent prompt notice of any demands received by the Company for appraisal of
Shares. The Company shall not make any payment with respect to, or settle or
offer to settle, any such demands without the prior written consent of Parent.
1.10. FRACTIONAL SHARES. No fractional shares of Surviving Corporation
Common Stock shall be issued in the Merger, but in lieu thereof each holder of
Shares otherwise entitled to a fractional share of Surviving Corporation Common
Stock will be entitled to receive, from the Exchange Agent in accordance with
the provisions of this Section 1.10, a cash payment in lieu of such fractional
shares of Surviving Corporation Common Stock equal to the product of such
fractional share interest to which such holder of Shares would otherwise be
entitled multiplied by the Per Share Cash Consideration.
1.11. CERTAIN ADJUSTMENTS. If, between the date of this Agreement and the
Effective Time, the outstanding Shares shall have been changed into a different
number of shares or different class of stock by reason of any reclassification,
recapitalization, stock split, split-up, combination or exchange of shares, or a
stock dividend or dividend payable in any other securities shall be declared
with a record date within such period, or any similar event shall have occurred,
the Exchange Ratio, the Per Share Cash Consideration and the Stock Consideration
shall be appropriately adjusted to provide to the holders of Shares the same
economic effect as contemplated by this Agreement prior to such event.
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Purchaser,
as of the date hereof and as of the Closing Date (except to the extent the
representation or warranty is expressly limited by its terms to another date),
except as set forth in the letter, dated the date hereof, from the Company to
Parent and Purchaser (the "COMPANY DISCLOSURE LETTER"), as follows:
2.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly licensed or qualified to do
business as a foreign corporation and is in good standing under the laws of each
state in which the character of the properties owned or leased by it or in which
the transaction of its business makes such qualification necessary, except where
the failure to be so qualified or to be in good standing could not reasonably be
expected to have a Company Material Adverse Effect. The Company has all
requisite corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted. The copies of the Company's
certificate of incorporation and bylaws previously made available to Parent are
true, correct and complete. As used in this Agreement, (a) the term "COMPANY
MATERIAL ADVERSE EFFECT" means any change, effect,
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event or condition (excluding in each case any change, effect, event or
condition that occurs or exists due to general economic or stock market
conditions (collectively, "MARKET CONDITIONS") but including any other change,
effect, event or condition (including credit conditions) that affects the
industry in which the Company operates) that, individually or in the aggregate
with all other changes, effects, events or conditions, has had or could
reasonably be expected to (i) have a material adverse effect on the business,
assets, results of operations or condition (financial or otherwise) or prospects
of the Company and its Subsidiaries, taken as a whole, or (ii) prevent the
Company from consummating the transactions described herein, and (b) the term
"SUBSIDIARY" when used with respect to any party, means any corporation,
partnership, limited liability company or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly
either (i) owns or controls more than 50% of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions or (ii) is the sole general
partner or managing member.
2.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents described herein to be executed and delivered
by it. Subject only to the approval of this Agreement and the Merger by the
holders of a majority of the outstanding Shares, this Agreement, the Merger and
the consummation by the Company of the transactions described herein and thereby
have been duly authorized by all requisite corporate action. This Agreement has
been duly and validly executed and delivered by the Company and constitutes, and
all agreements and documents described herein to be executed and delivered by
the Company (when executed and delivered pursuant hereto) will constitute, the
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except that (i) such enforceability may
be subject to applicable bankruptcy, insolvency or other similar laws now or
hereinafter in effect affecting creditors' rights generally and (ii) the
availability of the remedy of specific performance or injunctive or other forms
of equitable relief may be subject to equitable defenses and would be subject to
the discretion of the court before which any proceeding therefor may be brought.
2.3. CAPITALIZATION. The authorized capital stock of the Company consists
of 50,000,000 Shares and 10,000,000 shares of preferred stock, par value $0.0001
per share (the "PREFERRED STOCK"). As of the close of business on the last
Business Day immediately preceding the date hereof (the "MEASUREMENT DATE"),
(i) 19,505,978 Shares were issued and outstanding (not treating any treasury
shares as outstanding), each of which was duly authorized, validly issued, fully
paid and nonassessable and issued free of any preemptive rights, (ii) no shares
of Preferred Stock were issued and outstanding, (iii) 3,542,442 Shares were
reserved for issuance under the Stock Option Plan, (iv) 2,631,380 Shares in the
aggregate are issuable as of the Measurement Date pursuant to options that have
been granted under the Stock Option Plan that have not been exercised and that
remain in effect, as more particularly described in Section 2.3 of the Company
Disclosure Letter (such disclosure to include the holders thereof, the
expiration date, the exercise prices thereof and the dates of grant), and
(v) 2,318,841 Shares were reserved for issuance, and would be issuable as of the
Measurement Date, upon conversion of the Company's Convertible Junior
Subordinated Promissory Note due July 31, 2009 (the "COMPANY CONVERTIBLE NOTE").
Since the Measurement Date, no additional shares of capital stock of the Company
have been issued, other than upon the exercise of options described in the
immediately preceding sentence. Except as set forth in this Section 2.3 or
Section 2.3 of the Company Disclosure Letter, the Company has no outstanding
bonds, debentures, notes or other securities or obligations, the holders of
which have the right to vote. Except as set forth in this Section 2.3 or Section
2.3 of the Company Disclosure Letter, there are not at the date of this
Agreement any existing options, warrants, calls, subscriptions, convertible
securities or other rights (i) to acquire shares of capital stock or other
equity ownership interests in the Company or any of its Subsidiaries, or
(ii) which obligate the Company or any of its Subsidiaries to issue, exchange,
transfer or sell any shares of capital stock or other equity ownership interests
of the Company or any of its Subsidiaries, or (iii) to receive
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any payment from the Company that is based on the value of any equity securities
of the Company, such as stock appreciation rights, phantom stock, or other
equity participation rights. Except as set forth in Section 2.3 of the Company
Disclosure Letter, there are no outstanding contractual obligations of the
Company or any of its Subsidiaries (x) to repurchase, redeem or otherwise
acquire any shares of capital stock or other equity ownership interests of the
Company or any of its Subsidiaries, or (y) to vote or to dispose of any shares
of the capital stock or other equity ownership interests of any of its
Subsidiaries. No agreement or other document grants or imposes on any Shares any
right, preference, privilege or restriction with respect to the transactions
described herein (including, without limitation, any rights of first refusal).
2.4. SUBSIDIARIES. Section 2.4 of the Company Disclosure Letter sets forth
the following information for each Subsidiary of the Company: (i) its
jurisdiction of incorporation or organization, (ii) its authorized capital stock
or share capital, and (iii) the number and holder of record of all issued and
outstanding shares of capital stock, share capital or other equity interests.
Each of the Company's Subsidiaries is a corporation, partnership or limited
liability company duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization, and has the
corporate, partnership or similar power and authority to own its properties and
to carry on its business as it is now being conducted. Each of the Company's
Subsidiaries is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing could not reasonably be
expected to have a Company Material Adverse Effect. Except as set forth in
Section 2.4 of the Company Disclosure Letter, the Company owns, directly or
indirectly, all of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect a majority of
directors or others performing similar functions with respect to such
Subsidiary) of each of the Company's Subsidiaries, free and clear of all liens,
pledges, security interests, claims or other encumbrances (collectively,
"LIENS"). Each of the outstanding shares of capital stock (or such other
ownership interests) of each of the Company's Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable.
2.5. OTHER INTERESTS. Except for interests in the Company's Subsidiaries
or as set forth in Section 2.5 of the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries owns, directly or indirectly, any interest
or investment (whether equity or debt) in any domestic or foreign corporation,
company, partnership, joint venture, business, trust or entity.
2.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Except as set forth
in Section 2.6 of the Company Disclosure Letter, the execution, delivery and
performance of this Agreement by the Company do not, and the consummation by the
Company of the transactions described herein will not, (i) conflict with or
violate the certificate of incorporation or bylaws or equivalent organizational
documents of the Company or any of its Subsidiaries, (ii) subject to the Company
making any filings, notifications or registrations and obtaining any approvals,
consents or authorizations identified in Section 2.6(b), conflict with or
violate any domestic or foreign statute, rule, regulation or other legal
requirement ("LAW") or order, judgment, injunction or decree ("ORDER")
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, or
(iii) result in any breach of or constitute a default (or an event which with or
without notice or lapse of time or both would become a default) under, result in
the loss of a material benefit under, or give to others any right of purchase or
sale, or any right of termination, amendment, acceleration, increased payments
or cancellation of, or result in the creation of a Lien on any property or asset
of the Company or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any property or
asset of the Company or any of its Subsidiaries is bound or affected, except, in
the case of clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults, events, losses, rights,
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payments, cancellations, encumbrances or other occurrences that could not
reasonably be expected to have a Company Material Adverse Effect.
(b) The execution, delivery and performance by the Company of this
Agreement do not, and the consummation by the Company of the transactions
described herein will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, including without limitation any
quasi-governmental entity and any stock exchange, court or arbitral body (each a
"GOVERNMENTAL ENTITY"), except (i) for (A) applicable requirements, if any, of
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), (B) the applicable pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR ACT"), (C) the filing of a
certificate of merger pursuant to the DGCL and related county filing(s) in
Delaware, and (D) the consents, approvals and authorizations set forth in
Section 2.6 of the Company Disclosure Letter, or (ii) where the failure to
obtain any such consent, approval, authorization or permit, or to make any such
filing or notification, could not reasonably be expected to have a Company
Material Adverse Effect.
2.7. COMPLIANCE WITH LAWS. Except as set forth in Section 2.7 of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, (a) any Law or Order applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound (PROVIDED that no representation or
warranty is made in this Section 2.7 with respect to Environmental Laws) or
(b) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any property or asset of the Company or any of its Subsidiaries
is bound, except in either case for such conflicts, defaults or violations that
could not reasonably be expected to have a Company Material Adverse Effect.
Except as set forth in Section 2.7 of the Company Disclosure Letter, to the
Knowledge of the Company, neither the Company nor any of its Subsidiaries is
under review or investigation by any Governmental Entity with respect to or has
been threatened to be charged by any Governmental Entity with or given notice of
any violation of any Law or Order. The Company and its Subsidiaries hold all
licenses, permits, registrations and other authorizations ("PERMITS") and have
taken all actions required by applicable Law or regulations of any Governmental
Entity in connection with their business as now conducted, except where the
failure to obtain any such Permit or to take any such action could not
reasonably be expected to have a Company Material Adverse Effect. No default
under any Permit has occurred, except for defaults that could not reasonably be
expected to have a Company Material Adverse Effect.
2.8. SEC DOCUMENTS. (a) The Company has timely filed all forms, reports
and documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") between January 1, 1998 and the date of this Agreement
(collectively (and, if applicable, as finally amended), the "COMPANY FILED SEC
REPORTS"). As of their respective dates and until superceded by a subsequent
Company Filed SEC Report filed prior to the date of this Agreement, the Company
Filed SEC Reports (i) complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Exchange Act and the rules and regulations thereunder and (ii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading. No
Subsidiary of the Company is required to file any report, form or other document
with the SEC. The Company is eligible to file a registration statement on Form
S-4 pursuant to the applicable requirements of the Securities Act.
(b) Except as set forth in Section 2.8 of the Company Disclosure Letter,
each of the financial statements included in or incorporated by reference into
the Company Filed SEC Reports (including the related notes and schedules) (the
"COMPANY FINANCIAL STATEMENTS") complied, as of its filing date
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(or, if applicable, its final amendment date), as to form in all material
respects with the applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, and presents fairly, in
all material respects, the consolidated financial position of the Company and
its then-existing Subsidiaries as of its date and, to the extent applicable, the
results of operations, retained earnings or cash flows, as the case may be, of
the Company and its then-existing Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal recurring year-end
audit adjustments, none of which are material in kind or amount), in each case
in accordance with United States generally accepted accounting principles
consistently applied ("GAAP") during the periods involved, except as may be
noted therein.
2.9. NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities or
obligations of the Company or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, known or unknown, absolute, determined or
determinable, other than liabilities or obligations (a) disclosed in the Company
Financial Statements or in the Company's financial statements for the period
ended June 30, 2000, copies of which have been delivered to Parent and
Purchaser, (b) disclosed in Section 2.9 of the Company Disclosure Letter, or
(c) incurred in the ordinary course of business consistent with past practices
since June 30, 2000, and none of such liabilities or obligations described in
item (c) would, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.
2.10. LITIGATION. Except as disclosed in Section 2.10 of the Company
Disclosure Letter, and other than personal injury and other routine litigation
arising from the ordinary course of operations of the Company and its
Subsidiaries which are reasonably expected by the Company to be covered by
adequate insurance, there are no actions, suits or proceedings pending, publicly
announced or, to the Knowledge of the Company, threatened, against or affecting
the Company or any of its Subsidiaries that (i) seek damages from the Company or
any of its Subsidiaries in excess of $1 million or injunctive relief or
(ii) could reasonably be expected to have a Company Material Adverse Effect.
Except as set forth in Section 2.10 of the Company Disclosure Letter, all
proceedings disclosed therein have been timely reported to all applicable
insurance carriers and no reservation of rights or denial of coverage has been
issued by any such carrier. Neither the Company, any of its Subsidiaries nor any
officer, director or employee of the Company or any of its Subsidiaries has been
permanently or temporarily enjoined by any Order from engaging in or continuing
any conduct or practice in connection with the business or assets of the Company
or any of its Subsidiaries nor, to the Company's Knowledge, is the Company, any
of its Subsidiaries or any officer, director or employee of the Company or any
of its Subsidiaries under investigation by any Governmental Entity related to
the conduct of the Company's or any of its Subsidiaries' businesses. There is
not in existence any Order that is specifically applicable to the Company or any
of its Subsidiaries enjoining or requiring the Company or any of its
Subsidiaries to take any action of any kind with respect to its business or
assets.
2.11. ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 2.11 of
the Company Disclosure Letter, since January 1, 2000, the Company and its
Subsidiaries have conducted their respective businesses in the ordinary course
consistent with past practice and there has not been (a) any change,
development, condition or effect that could reasonably be expected to have a
Company Material Adverse Effect or (b) any action that if taken after the date
hereof would be a violation of Section 4.1(a), (c), (d), (e), (f), (i), (j),
(l), (m), (n) or (o).
2.12. TAXES. (a) Except as set forth in Section 2.12 of the Company
Disclosure Letter or as could not reasonably be expected to have a Company
Material Adverse Effect, (i) each of the Company and its Subsidiaries has timely
filed with the appropriate Tax Authority all Tax Returns required to be filed by
or with respect to the Company and its Subsidiaries in a manner that is correct
and complete in all material respects, (ii) each of the Company and its
Subsidiaries has timely paid and withheld all Taxes required to be paid or
withheld to the appropriate Tax Authority in the manner provided by Law with
respect to the Company and its Subsidiaries and in connection with amounts paid
or owing to any employee, independent contractor, creditor, stockholder, or
other third party, and
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(iii) no federal, state, local or foreign audits, administrative proceedings,
court proceedings, outstanding deficiencies, disputes or assessments are pending
or, to the Knowledge of the Company, threatened by any Tax Authority, with
regard to any Taxes or Tax Returns of the Company or any of its Subsidiaries.
There are no outstanding agreements, consents or waivers extending the statutory
period of limitations applicable to the assessment of any Taxes or deficiencies
against the Company or any of its Subsidiaries. Neither the Company nor any of
its Subsidiaries is a party to or otherwise bound by any agreement or
arrangement providing for the indemnity allocation or sharing of Taxes.
(b) None of the Company and its Subsidiaries has filed a consent under Code
Section 341(f) concerning collapsible corporations.
(c) None of the Company and its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 162(m) or Code Section 280G.
(d) None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii).
(e) Each of the Company and its Subsidiaries has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662.
(f) None of the Company and its Subsidiaries (A) has been a member of an
Affiliated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which is the Company) or (B) has any liability for
the Taxes of any Person (other than any of the Company and its Subsidiaries)
under Treasury Regulations Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
Neither the Company nor any of its Subsidiaries have deferred gain or loss
arising out of any deferred intercompany transaction.
(g) For purposes of this Agreement, (i) "TAX" or "TAXES" means all taxes,
charges, fees, levies or other assessments imposed by any United States Federal,
state, or local taxing authority or by any non-U.S. taxing authority, including,
but not limited to, income, gross receipts, excise, property, sales, use,
transfer, payroll, license, ad valorem, value added, withholding, social
security, national insurance (or other similar contributions or payments),
franchise, estimated, severance, stamp, and other taxes (including any interest,
fines, penalties or additions attributable to or imposed on or with respect to
any such taxes, charges, fees, levies or other assessments) whether disputed or
not, (ii) "TAX RETURN" means any return, declaration, claim for refund, report,
information return or other document (including any schedule or attachment
thereto, amendment thereof, or related or supporting information and, where
applicable, profit and loss accounts and balance sheets) with respect to Taxes,
(iii) "TAX AUTHORITY" shall mean the Internal Revenue Service (the "IRS") and
any other domestic or foreign bureau, department, entity, agency or other
Governmental Entity responsible for the administration of any Tax,
(iv) "CODE"shall mean the Internal Revenue Code of 1986, as amended, and
(v) "AFFILIATED GROUP" shall mean any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local and foreign law.
2.13. MATERIAL CONTRACTS. (a) There have been made available to Parent
true, correct and complete copies or originals of all of the following executory
contracts to which Company or any of its Subsidiaries is a party or by which any
of them is bound (collectively, the "MATERIAL CONTRACTS"): (i) the agreements
pursuant to which the Company or its Subsidiaries holds a leasehold interest in
or otherwise has an economic interest in any real property; (ii) contracts with
any current or former officer or director of the Company or any of its
Subsidiaries; (iii) contracts for the sale of any material assets of the Company
or any of its Subsidiaries or the acquisition of any material assets by the
Company or any of its Subsidiaries; (iv) contracts granting any Person any
preferential right to
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purchase any material assets of the Company or any of its Subsidiaries;
(v) contracts which restrict the Company or any of its Subsidiaries from
competing in any line of business or with any Person in any geographical area in
any material manner; (vi) loan commitments, indentures, credit agreements,
security agreements, mortgages, guarantees, promissory notes, letters of credit,
hedging obligations, capitalized lease obligations, take or pay contracts and
other contracts relating to Indebtedness (whether by or from the Company or any
Subsidiary) in an amount in excess of $100,000; (vii) all joint venture
agreements; (viii) all service agreements with individual or group medical
practices; (ix) all payor agreements, including but not limited to agreements
with or relating to health maintenance organizations and other third party
payors; (x) contracts requiring annual expenditures by or liabilities of the
Company and its Subsidiaries in excess of $1,000,000; (xi) contracts involving
an annual payment to the Company or any Subsidiary of more than $1,000,000;
(xii) contracts granting or obtaining any right to use or practice any rights
under any Intellectual Property, (xiii) contracts restricting the Company's
rights to use any Intellectual Property, and (xiv) any material contract not
made in the ordinary course of business. For purposes of this Section 2.13,
"INDEBTEDNESS" shall mean (A) indebtedness for borrowed money, whether secured
or unsecured, (B) obligations under conditional sale or other title retention
agreements relating to property purchased by such Person, (C) capitalized lease
obligations, (D) obligations under interest rate cap, swap, collar or similar
transaction or currency hedging transactions (valued at the termination value
thereof), and (E) guarantees of any such indebtedness of any other Person
(including any Subsidiary).
(b) All of the Material Contracts are in full force and effect in
accordance with their respective terms and are the legal, valid and binding
obligations of the Company and/or its Subsidiaries, enforceable against them in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar Laws affecting creditors'
rights and remedies generally and to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity), except where
such unenforceability could not reasonably be expected to have a Company
Material Adverse Effect. Except as set forth in Section 2.13(b) of the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries is in breach
or default in any material respect under any Material Contract nor, to the
Knowledge of the Company, is any other party to any Material Contract in breach
or default thereunder in any material respect, except in either such case for
such breaches or defaults that could not reasonably be expected to have a
Company Material Adverse Effect.
2.14. ENVIRONMENTAL MATTERS. (a) Except as set forth in Section 2.14 of
the Company Disclosure Letter or for such exceptions that could not reasonably
be expected to have a Company Material Adverse Effect, (i) no spills, releases,
discharges or disposals of Hazardous Substances have occurred on or from the
Company Properties; (ii) the Company and its Subsidiaries have complied with all
applicable Environmental Laws; and (iii) the Company and its Subsidiaries have
obtained, currently maintain and, as currently operating, are in compliance with
all Permits necessary under any Environmental Law ("ENVIRONMENTAL PERMITS"). The
Company and its Subsidiaries have not received any written notice of potential
responsibility, letter of inquiry or written notice of alleged liability from
any Person regarding any Company Property or the business conducted thereon. No
investigation, action or review is pending or, to the Knowledge of the Company,
threatened by any Governmental Entity or other Person under any Environmental
Law. For the purposes of this Section 2.14 only, "COMPANY PROPERTY" shall
include (i) all property currently owned, operated or leased by the Company or
any of its Subsidiaries and (ii) all property formerly owned, operated or leased
by the Company or its current or former Subsidiaries, solely, however, as to the
period of time when such property was so owned, operated or leased by the
Company or its current or former Subsidiaries. The Company has previously made
available to Parent complete copies of all environmental investigations and
testing or analysis that are in the possession, custody or control of any of the
Company or any of its Subsidiaries with respect to the environmental condition
of any of the Company Properties.
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(b) For purposes of this Agreement, the term (i) "ENVIRONMENTAL LAWS" means
any federal, state or local Law or any agreement with any Governmental Entity or
other third party (whether domestic or foreign) relating to: (A) releases or
threatened releases of Hazardous Substances; (B) the manufacture, generation,
processing, recycling, distribution, handling, transport, use, treatment,
storage or disposal of Hazardous Substances or materials containing Hazardous
Substances; or (C) protection of environmentally sensitive areas, and
(ii) "HAZARDOUS SUBSTANCES" means: (A) those materials, pollutants and/or
substances defined in or regulated under the following federal statutes and
their state counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act of 1980, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Toxic Substances Control Act and the Clean Air Act;
(B) petroleum and petroleum products including crude oil and any fractions
thereof; (C) natural gas, synthetic gas and any mixtures thereof; (D) radon; and
(E) any materials, pollutants and/or substance with respect to which any
Governmental Entity requires environmental investigation, monitoring, reporting
or remediation.
2.15. COMPANY BENEFIT PLANS; ERISA COMPLIANCE. (a) Except as disclosed in
Section 2.15(a) of the Company Disclosure Letter, there are no compensation,
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock or other stock
related rights, fringe benefit, retirement, vacation, disability, death benefit,
supplemental unemployment benefits, hospitalization, medical, dental, life,
severance, post-employment benefits or other plan, agreement, arrangement,
policies or understanding, or employment severance, retention, consulting,
change of control or similar agreement whether formal or informal, oral or
written, legally binding or not providing benefits to any current or former
employee, officer, director or shareholder of the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries contributes or
is or was obligated to contribute since any such plan was acquired by the
Company or any of its Subsidiaries (collectively, the "COMPANY BENEFIT PLANS",
which will include each "employee benefit plan" (within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), whether or not subject to ERISA).
(b) Except for such exceptions that could not reasonably be expected to
have a Company Material Adverse Effect, (i) each Company Benefit Plan has been
administered in accordance with its terms, and is in compliance with, all
applicable Laws, including ERISA and the Code; (ii) each Company Benefit Plan
that is intended to be qualified under Section 401(a) or 401(k) of the Code is
so qualified and each trust established in connection with any Company Benefit
Plan that is intended to be exempt from federal income taxation under Section
501(a) of the Code is so exempt; and (iii) no fact or event has occurred which
is reasonably likely to affect adversely the qualified status of any such
Company Benefit Plan or the exempt status of any such trust. All material
contributions to, and payments from, each Company Benefit Plan that are required
to be made in accordance with such Plans and applicable Laws (including ERISA
and the Code) have been timely made.
(c) The IRS has issued favorable determination letters with respect to the
qualification of each qualified Company Benefit Plan and related trust, and, to
the Knowledge of the Company, the IRS has not taken any action to revoke any
such letter and nothing has occurred, whether by action or failure to act, that
could reasonably be expected to cause the loss of such qualification.
(d) Except as set forth in Section 2.15 of the Company Disclosure Letter,
no Company Benefit Plan is or at any time was (i) subject to Title IV of ERISA
or (ii) subject to the minimum funding standards of Section 302 of ERISA or
Section 412 of the Code. Neither the Company nor any of its Subsidiaries
contributes to any "multiemployer plan" within the meaning of Section 3(37) of
ERISA or a "multiple employer plan" within the meaning of Section 3(40) of ERISA
(each a "MULTIEMPLOYER PLAN").
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(e) No Company Benefit Plan provides medical benefits (whether or not
insured) with respect to current or former employees, officers or directors
after retirement or other termination of service, except as required by
applicable Law.
(f) Except as set forth on Section 2.15(f) of the Company Disclosure
Letter, the consummation of the transactions contemplated by this Agreement will
not, either alone or in combination with another event, (i) entitle any current
or former employee, officer or director of the Company to severance pay,
unemployment compensation or any other payment or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation, of any equity rights
or benefits due any such employee, officer or director.
(g) With respect to each Company Benefit Plan, the Company has delivered or
made available to Parent a true and complete copy of: (A) each writing
constituting a part of such Company Benefit Plan, including without limitation
all Company Benefit Plan documents and trust agreements; (B) the most recent
Annual Report (Form 5500 Series) and accompanying schedule, if any; (C) the most
recent annual financial report, if any; (D) the most recent actuarial report, if
any; and (E) the most recent determination letter from the IRS, if any.
(h) With respect to each Company Benefit Plan, there have been no
prohibited transactions or breaches of any of the duties imposed on
"fiduciaries" (within the meaning of Section 3(21) of ERISA) by ERISA with
respect to the Company Benefit Plans that would reasonably be expected to result
in any material liability or excise tax under ERISA or the Code.
(i) There has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any of its Subsidiaries
relating to, or change in employee participation or coverage under, any Company
Benefit Plan which would increase materially the expense of maintaining such
Company Benefit Plan above the level of the expense incurred in respect thereof
for the 12 months ended on the date of the most recent balance sheet for the
Company and its Subsidiaries.
(j) All material contributions and payments due under each Company Benefit
Plan have either been discharged and paid or are adequately reflected as a
liability on the most recent balance sheet for the Company and its Subsidiaries
in accordance with GAAP.
(k) Except as set forth on Section 2.15(k) of the Company Disclosure
Letter, (i) neither the Company nor any of its Subsidiaries is a party to or
subject to any union contract or collective bargaining agreement, (ii) the
Company and its Subsidiaries are in compliance with all currently applicable
Laws respecting employment and employment practices, terms and conditions of
employment and wages and hours and are not engaged in any unfair labor practice,
except for any exceptions that could not reasonably be expected to have a
Company Material Adverse Effect, and (iii) there is no unfair labor practice
complaint pending or, to the Knowledge of the Company, threatened against the
Company or any of its Subsidiaries before the National Labor Relations Board
that would affect the Company in any material respect.
2.16. STATE TAKEOVER STATUTES. The board of directors of the Company (the
"COMPANY BOARD") has approved the Merger and this Agreement and the transactions
described herein and such approval is sufficient to render inapplicable to the
Merger, this Agreement and the transactions described herein, the restrictions
of Section 203 of the DGCL, and, accordingly such Section 203 does not apply to
any such transactions. To the Company's Knowledge, no other "control share
acquisition," "fair price," "moratorium" or other antitakeover or similar
statute or regulations cited under the U.S. state or federal laws applies to
this Agreement or any of the transactions described herein.
2.17. VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the issued and outstanding Shares, voting as a single class, at the
Stockholders Meeting to approve this Agreement and the Merger ("COMPANY
STOCKHOLDER APPROVAL") is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve this Agreement and the Merger.
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2.18. RELATED PARTY TRANSACTIONS. Except as set forth in the Company Filed
SEC Reports, neither the Company nor any of its Subsidiaries has entered into
any arrangement or agreement with any Person who is an officer, director or
Affiliate of the Company, or any entity of which any of the foregoing is an
Affiliate that would be required to be disclosed pursuant to Item 404 of
Regulation S-K under the Securities Act.
2.19. CERTAIN ADDITIONAL REGULATORY MATTERS. Except for any of the
foregoing that could not reasonably be expected to have a Company Material
Adverse Effect, none of (x) the Company, any Subsidiary of the Company, or the
officers, directors, employees or agents of the Company or any Subsidiary or
(y) to the Company's Knowledge, any Affiliate of the Company or any of its
Subsidiaries having a direct or indirect ownership interest in the Company or
any of its Subsidiaries within the meaning of Section 1320a-7(b)(8) of Title 42
of the United States Code have engaged in any activities which constitute
violations of, or are cause for imposition of civil penalties upon the Company
or any of its Subsidiaries or mandatory or permissive exclusion of the Company
or any of its Subsidiaries from Medicare or Medicaid, under Sections 1320a-7,
1320a-7a, 132a-7b, or 1395nn of Title 42 of the United States Code, the federal
Civilian Health and Medical Plan of the Uniformed Services statute ("CHAMPUS"),
or the regulations promulgated pursuant to such statutes or regulations or
related state or local statutes, including the following activities:
(a) knowingly and willfully making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(b) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (c) presenting or causing to be presented a claim for reimbursement
under CHAMPUS, Medicare, Medicaid or any other State Health Care Program (as
defined below) or Federal Health Care Program (as defined below) that is
(i) for an item or service that the Person presenting or causing to be presented
knows or should know was not provided as claimed or (ii) for an item or service
and the Person presenting knows or should know that the claim is false or
fraudulent; (d) knowingly and willfully offering, paying, soliciting or
receiving any remuneration (including any kickback, bribe or rebate), directly
or indirectly, overtly or covertly, in cash or in kind (i) in return for
referring, or to induce the referral of, an individual to a Person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by CHAMPUS, Medicare or Medicaid, or any
other State Health Care Program or any Federal Health Care Program, or (ii) in
return for, or to induce, the purchase, lease or order, or the arranging for or
recommending of the purchase, lease or order, or the arranging for or
recommending of the purchase, lease or order, of any good, facility, service or
item for which payment may be made in whole or in part by CHAMPUS, Medicare or
Medicaid or any other State Health Care Program or any Federal Health Care
Program; or (e) knowingly and willfully making or causing to be made or inducing
or seeking to induce the making of any false statement or representation (or
omitting to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading) of a material fact with
respect to (i) the conditions or operations of a facility in order that the
facility may qualify for CHAMPUS, Medicare, Medicaid or any other State Health
Care Program certification or any Federal Health Care Program certification, or
(ii) information required to be provided under Section 1124(A) of the Social
Security Act ("SSA") (Section 1320a-3 of Title 42 of the United States Code).
2.20. MEDICARE/MEDICAID PARTICIPATION ACCREDITATION. None of the Company,
its Subsidiaries or any existing or former officers or directors of the Company
or any of its Subsidiaries (1) has had a civil monetary penalty assessed against
it under Section 1128A of the SSA or any regulations promulgated thereunder;
(2) has been excluded from participation under the Medicare program or a state
health care program as defined in SSA Section 1128(h) or any regulations
promulgated thereunder ("STATE HEALTH CARE PROGRAM") or a federal health care
program as defined in SSA Section 1128B(f) ("FEDERAL HEALTH CARE PROGRAM"); or
(3) has been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of
any of the following categories of offenses as described in SSA
Section 1128(a) and (b)(1), (2), (3) or any regulations promulgated thereunder:
(i) criminal offenses relating to the delivery of an item
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or service under Medicare or any State Health Care Program or any Federal Health
Care Program; (ii) criminal offenses under Law relating to patient neglect or
abuse in connection with the delivery of a health care item or service; criminal
offenses under any Law relating to fraud, theft, embezzlement, breach of
fiduciary responsibility, or other financial misconduct in connection with the
delivery of a health care item or service or with respect to any act or omission
in a program operated by or financed in whole or in part by any Governmental
Entity; (iii) Laws relating to the interference with or obstruction of any
investigation into any criminal offense described above in this Section 2.20; or
(iv) criminal offenses under Law relating to the unlawful manufacture,
distribution, prescription or dispensing of a controlled substance.
2.21. INTELLECTUAL PROPERTY. (a) Section 2.21 of the Company Disclosure
Letter sets forth, for the Intellectual Property owned by the Company, a
complete and accurate list of all U.S. and foreign (i) patents and patent
applications; (ii) trademark registrations (including Internet domain
registrations), trademark applications, and material unregistered trademarks;
and (iii) copyright registrations, and material unregistered copyrights.
(b) The Company owns, or has a valid right to use all of the Intellectual
Property. There is no pending or, to the Knowledge of the Company, threatened
claim, suit, arbitration or other adversarial proceeding before any Governmental
Entity (i) involving the Intellectual Property owned by the Company or
(ii) alleging that the activities or the conduct of the Company infringes upon,
violates or constitutes the unauthorized use of the intellectual property rights
of any third party or challenging the Company's ownership, use, validity,
enforceability or registrability of any Intellectual Property.
2.22. NO BROKERS. The Company has not entered into any contract,
arrangement or understanding with any Person or firm which may result in the
obligation of the Company, Parent or Purchaser to pay any investment banker's or
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions described herein, except with UBS Warburg LLC, the
arrangements with which have been disclosed to Parent prior to the date hereof.
2.23. OPINION OF UBS WARBURG LLC. The Company has received the opinion of
UBS Warburg LLC to the effect that, as of the date of this Agreement, the Merger
Consideration is fair, from a financial point of view, to the holders of Shares
(other than the Company Principal Stockholders and their respective affiliates).
2.24. S-4/PROXY STATEMENT AND OTHER DISCLOSURE DOCUMENTS. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion in (i) the offering documents (the "OFFERING DOCUMENTS") in connection
with the Financing, (ii) the Schedule 13E-3, or (iii) the S-4/Proxy Statement to
be mailed to the Company's stockholders in connection with the Merger will,
(x) in the case of the Offering Documents, as of the date thereof or as of the
Closing Date, (y) in the case of the Schedule 13E-3, as of the date thereof, and
(z) in the case of the S-4/Proxy Statement, when first mailed to the Company's
stockholders and at the time of the Stockholders Meeting, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
III. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser represents and warrants to the Company, as of
the date hereof and as of the Closing Date, as follows:
3.1. EXISTENCE; GOOD STANDING; AUTHORITY. Parent is a limited liability
company duly formed, validly existing and in good standing under the laws of the
State of Delaware. Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent and Purchaser is duly licensed or qualified to do business as a foreign
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corporation and is in good standing in each jurisdiction in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified or to be in good standing could not reasonably be expected to have a
Parent Material Adverse Effect. A "PARENT MATERIAL ADVERSE EFFECT" means any
change, effect, event or condition (excluding in each case any Market
Conditions) that, individually or in the aggregate with all other changes,
effects, events or conditions, has had or could reasonably be expected to
(i) have a material adverse effect on the business, assets, results of
operations or condition (financial or otherwise) of Parent and Purchaser, taken
as a whole, or (ii) prevent Parent or Purchaser from consummating the
transactions described herein. Parent has all requisite limited liability
company power and authority and Purchaser has all requisite corporate power and
authority to own, operate and lease its properties and carry on its business as
now conducted. Purchaser is a newly-formed subsidiary of Parent and has engaged
in no business activities other than to facilitate the Merger and has no
material liabilities other than pursuant to this Agreement.
3.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. Parent has all
requisite limited liability company power and authority and Purchaser has all
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents described herein to be executed respectively by
it. This Agreement, the Merger and the consummation by Parent and Purchaser of
the transactions described herein have been duly and validly authorized by the
members of Parent and the Board of Directors of Purchaser and by Parent as the
sole stockholder of Purchaser, and no other action on the part of Parent or
Purchaser is necessary to authorize the execution, delivery or performance of
this Agreement, the Merger or to consummate the transactions described herein.
This Agreement has been duly and validly executed and delivered by each of
Parent and Purchaser and constitutes, and all agreements and documents described
herein to be executed and delivered by Parent or Purchaser (when executed and
delivered pursuant hereto) will constitute, the valid and binding obligations of
Parent or Purchaser, as the case may be, enforceable respectively against them
in accordance with their respective terms, except that (i) the enforceability
hereof and thereof may be subject to applicable bankruptcy, insolvency or other
similar laws now or hereinafter in effect affecting creditors' rights generally
and (ii) the availability of the remedy of specific performance or injunctive or
other forms of equitable relief may be subject to equitable defenses and would
be subject to the discretion of the court before which any proceeding therefor
may be brought.
3.3. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution,
delivery and performance of this Agreement by Parent and Purchaser do not, and
the consummation by Parent and Purchaser of the transactions described herein
will not, (i) conflict with or violate the certificate of incorporation or
formation, limited liability company agreement, bylaws or other similar
constituent documents of Parent or Purchaser, (ii) subject to Parent and
Purchaser making any filings, notifications or registrations and obtaining any
approvals, consents or authorizations identified in Section 3.3(b), conflict
with or violate any Law or Order applicable to Parent or Purchaser or by which
any property or asset of Parent or Purchaser is bound or affected, or
(iii) result in any breach of or constitute a default (or an event which with or
without notice or lapse of time or both would become a default) under, result in
the loss of a material benefit under, or give to others any right of purchase or
sale or any right of termination, amendment, acceleration, increased payments or
cancellation of, or result in the creation of a Lien on any property or asset of
Parent or Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Purchaser is a party or by which Parent or Purchaser or any
property or asset of Parent or Purchaser is bound or affected, except in the
case of clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults, events, losses, rights, payments, cancellations, encumbrances or other
occurrences that could not reasonably be expected to have a Parent Material
Adverse Effect.
(b) The execution, delivery and performance by Parent and Purchaser of this
Agreement and the consummation by Parent and Purchaser of the transactions
described herein by either of them will not
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require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity, except (i) for (A) applicable
requirements, if any, of the Securities Act and the Exchange Act, (B) the
applicable pre-merger notification requirements of the HSR Act, and (C) the
filing of a certificate of merger pursuant to the DGCL, or (ii) where failure to
obtain any such consent, approval, authorization or permit, or to make any such
filing or notification, could not reasonably be expected to have a Parent
Material Adverse Effect.
3.4. NO BROKERS. Except as set forth in the Commitment Letter, neither
Parent nor Purchaser has entered into any contract, arrangement or understanding
with any Person or firm which may result in the obligation of the Company to pay
any investment banker's or finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions described herein.
3.5. S-4/PROXY STATEMENT AND OTHER DISCLOSURE DOCUMENTS. None of the
information supplied or to be supplied by or on behalf of Parent or Purchaser
for inclusion in (i) the Offering Documents, (ii) the Schedule 13E-3, or
(iii) the S-4/Proxy Statement to be mailed to the Company's stockholders in
connection with the Merger will, (x) in the case of the Offering Documents, as
of the date thereof or as of the Closing Date, (y) in the case of the
Schedule 13E-3, as of the date thereof, and (z) in the case of the S-4/Proxy
Statement, when first mailed to the stockholders of the Company or at the time
of the Stockholders Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.6. FINANCING. Parent has delivered to the Company on or prior to the
date hereof the executed commitment letter (including Annex I thereto, the
"COMMITMENT LETTER") with respect to the financing arrangements for the
transactions described herein (the financing arrangements so described in the
Commitment Letter being referred to herein as the "FINANCING") from UBS AG,
Stamford Branch (the "LENDER"). As of the date of this Agreement, the Commitment
Letter is in full force and effect and has not been amended or rescinded. Parent
and Purchaser believe that the aggregate proceeds of the Financing will be
sufficient to pay the Merger Consideration, the outstanding indebtedness of the
Company referred to in the second paragraph of the Commitment Letter, all of the
obligations of the Surviving Corporation pursuant to Article I and all of the
expenses of Parent and Purchaser.
3.7. EMPLOYEE BENEFIT ARRANGEMENTS. Parent has no present intention to
provide employees of the Company with benefits substantially different from
those in effect on the date hereof, except for equity incentive programs. Parent
has no present intention to terminate the employment of any employee of the
Company or any of its Subsidiaries.
IV. COVENANTS
4.1. CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date
of this Agreement to the Effective Time, the Company will, and will cause its
Subsidiaries to, carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as currently conducted and, to
the extent consistent therewith, use all reasonable efforts to keep available
the services of their current officers and other key employees and preserve
their relationships with all key customers, suppliers and other Persons having
business dealings with them. The Company will confer on a regular basis with one
or more representatives of Parent to report material operational matters and any
proposals to engage in material transactions. Except as described in
Section 4.1 of the Company Disclosure Letter or as expressly permitted pursuant
to this Agreement, without limiting the generality or effect of the foregoing
sentences of this paragraph, during the period from the date of
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this Agreement to the Effective Time, the Company will not, and will not permit
any of its Subsidiaries to, without the prior written consent of Parent:
(a)(i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
payable by a Subsidiary to the Company, any other Subsidiary of the Company or
any other Person pro rata in accordance with such Person's ownership interest,
(ii) split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (iii) purchase, redeem or
otherwise acquire any shares of capital stock or other equity interests of the
Company or any of its Subsidiaries or any rights, warrants or options to acquire
any such shares or other securities;
(b) except for the issuance of Shares pursuant to the exercise of options
that are outstanding on the Measurement Date or pursuant to the Company
Convertible Note, issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities;
(c) amend its certificate of incorporation, bylaws or other similar
constituent documents;
(d) acquire by merging or consolidating with, or by purchasing the assets or
stock of, or in any other manner, any business or any corporation, limited
liability company, partnership, joint venture, association or other business
organization or division thereof in a transaction or series of related
transactions involving a total purchase price (determined in accordance with
GAAP) in excess of $10,000,000 in the aggregate;
(e) sell, lease, license, mortgage or otherwise encumber or subject to any
Lien or otherwise dispose of any of its properties or assets, other than sales
of assets which do not individually or in the aggregate exceed $1,000,000 and
other than sales in connection with sale/leaseback transactions;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of another Person, enter into any
"keep well" or other agreement to maintain any financial condition of another
Person or enter into any arrangement having the economic effect of any of the
foregoing, other than in any such case pursuant to any agreement set forth in
Section 2.13 of the Company Disclosure Letter;
(g) make any loans, advances or capital contributions to, or investments in,
any other Person, other than (i) to any wholly owned Subsidiary of the Company,
(ii) pursuant to any agreement set forth in Section 2.13 of the Company
Disclosure Letter, or (iii) to officers and employees of the Company or any of
its Subsidiaries for travel, business or relocation expenses in the ordinary
course of business;
(h) make any capital expenditures, other than capital expenditures that
would not, together with all capital expenditures previously incurred by the
Company since January 1, 2000, exceed the amount set forth in the Company's
capital expenditure budget for year 2000 previously provided to Purchaser by
more than $3,000,000 in the aggregate;
(i) make any change to its accounting methods, principles or practices,
except as may be required by GAAP, or make or change any Tax election or settle
or compromise any material Tax liability or refund;
(j) except as required by Law or described herein, enter into, adopt or
amend in any material respect or terminate any Company Benefit Plan or any other
agreement, plan or policy involving the Company or any of its Subsidiaries and
one or more of their directors, officers or employees;
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(k) (i) hire or terminate the employment of or increase the compensation of
any executive officer, (ii) hire or terminate the employment of or increase the
compensation of any key employee, other than in the ordinary course of business,
or (iii) pay any benefit or amount not required by a plan or arrangement as in
effect on the date of this Agreement to any such Person;
(l) increase the compensation of any employee other than in the ordinary
course of business;
(m) pay, discharge or settle any material claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) other than
in the ordinary course of business and not in an amount in excess of the amount
reserved for in the Company Financial Statements;
(n) authorize, recommend, propose or announce an intention to adopt a plan
of complete or partial liquidation or dissolution of the Company or any of its
Subsidiaries;
(o) amend the terms of, relinquish any material right under or terminate any
Material Contract, other than in the ordinary course of business;
(p) enter into any agreement that would have been a material agreement if
entered into prior to the date hereof, other than in the ordinary course of
business;
(q) alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure or ownership of any Subsidiary; or
(r) authorize, or commit or agree to take, any of the foregoing actions or
deliberately or willfully take any action which would make any of the
representations or warranties of the Company contained in this Agreement untrue
or incorrect in any material respect as of the date when made or as of the
Closing Date.
4.2. NO SOLICITATION. (a) Prior to the earlier of (i) the Closing and
(ii) the termination of this Agreement in accordance with its terms, the Company
will, and will cause its Affiliates who are controlled by the Company and its
and their respective officers, directors, employees, investment bankers,
financial advisors, attorneys, accountants and other representatives and agents
to, immediately cease any existing discussions or negotiations, if any, with any
parties with respect to any Alternative Proposal, take reasonable steps to
inform such parties of the obligations undertaken in this Section 4.2, and
request that such parties promptly return all documents (and all copies thereof)
furnished to them by the Company or its representatives in connection with such
discussions and negotiations. The Company will not, nor will it permit any of
its Affiliates who are controlled by the Company and its and their respective
officers, directors, employees, investment bankers, financial advisors,
attorneys, accountants or other representatives or agents, directly or
indirectly, to (i) solicit, initiate or take any other action specifically
directed at a person or entity that could reasonably be expected to facilitate
or encourage (including without limitation by way of furnishing information or
providing access to the books, records, properties or assets of the Company or
any of its Subsidiaries) the making of any proposal which constitutes an
Alternative Proposal, (ii) participate in any discussions or negotiations
regarding any Alternative Proposal, or (iii) grant any waiver or release under
any standstill or similar agreement with respect to any class of equity
securities of the Company or any of its Subsidiaries; PROVIDED, HOWEVER, that
if, at any time prior to the earlier of the Closing and the termination of this
Agreement, the Company Board determines in good faith that it has received an
Alternative Proposal that is reasonably likely to result in a Superior Proposal,
the Company may, (A) furnish information with respect to the Company and any of
its Subsidiaries to such Person following compliance with its obligations under
this Section 4.2 pursuant to a customary confidentiality agreement and
(B) participate in discussions and negotiations with such Person regarding such
Alternative Proposal. For purposes of this Agreement, "ALTERNATIVE PROPOSAL"
means any written proposal or offer from any Person relating to any direct or
indirect acquisition or purchase of 10% or more of the assets, net income or net
revenues of the Company and its Subsidiaries or 10% or more of any class of
equity securities of the Company or any of its Subsidiaries, any tender offer or
exchange offer for Shares or for any class of equity
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securities of the Company or any of its Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any of its Subsidiaries (other
than the transactions or financing contemplated by this Agreement or the Company
Disclosure Letter) or any other transaction that is intended to or could
frustrate the completion of the transactions described herein. "SUPERIOR
PROPOSAL" means any bona fide, unsolicited written Alternative Proposal that (y)
involves the direct or indirect acquisition or purchase of all or substantially
all of the assets of the Company and its Subsidiaries or 80% or more of the
Shares of the Company and (z) involves payment of consideration to the Company
or the Company's stockholders and other terms and conditions that, taken as a
whole, the Company Board determines in good faith, after consulting with a
financial advisor of nationally recognized reputation, and taking into account
all the terms and conditions of the Alternative Proposal, including the nature
and amount of any consideration, break-up fees, expense reimbursement
provisions, the conditions to consummation and the likelihood of completion, are
more favorable, from a financial point of view, to the Company's stockholders
than as provided hereunder and for which financing, to the extent required, is
substantially committed. The Company shall notify Parent promptly (but in no
event later than 24 hours) after receipt by the Company (or any of its advisors)
of any Alternative Proposal or any request for information relating to the
Company or any of its Subsidiaries or for access to the business, properties,
assets, books or records of the Company or any of its Subsidiaries by any Person
who proposes therein to make, or has made, an Alternative Proposal. The Company
shall provide such notice orally and in writing and shall identify in reasonable
detail the Person making, and the terms and conditions of, any such Alternative
Proposal, indication or request. The Company shall keep Parent informed, on a
current basis, of the status and material details of any such Alternative
Proposal, indication or request. Prior to furnishing confidential information
to, or entering into discussions or negotiations with, any other Persons with
respect to a Superior Proposal, the Company must obtain from such other Persons
an executed confidentiality agreement with terms no more favorable to such
Person than those contained in the confidentiality agreement between the Company
and Affiliates of Parent, but which confidentiality agreement may not include
any provision calling for an exclusive right to negotiate with such Persons, and
the Company must advise Parent of the nature of such confidential information
delivered to such other Person reasonably promptly following its delivery to the
requesting party.
(b) Except as expressly permitted by this Section 4.2(b) or Section 4.2(c),
neither the Company Board nor any committee thereof may (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by the Company Board or such committee
of the Merger or this Agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any Alternative Proposal, (iii) cause the Company to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Alternative Proposal (each, a "COMPANY
ACQUISITION AGREEMENT"), or (iv) cause the Company to terminate this Agreement
as a result of the receipt of an Alternative Proposal. Notwithstanding the
foregoing, in the event that prior to the Closing Date, the Company has received
a Superior Proposal, the Company Board may, subject to satisfaction of its
obligations under Section 6.5(b), withdraw or modify its approval or
recommendation of the Merger or this Agreement or the transactions described
herein, approve or recommend a Superior Proposal or terminate this Agreement
pursuant to Section 6.3(b), PROVIDED, HOWEVER, that not fewer than five Business
Days prior to such termination, the Company will (i) notify Parent of its
intention to take such action, (ii) provide Parent with a reasonable opportunity
to respond to any such Alternative Proposal, and (iii) negotiate in good faith
with Parent with respect to any modification to the terms of this Agreement. The
Company shall not be entitled to enter into a Company Acquisition Agreement
unless and until this Agreement is terminated by its terms pursuant to Section
6.3(b). The Company agrees to notify Parent promptly if its intention to enter
into a Company Acquisition Agreement shall change at any time or the Company
Board shall have authorized the Company to do so.
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(c) Nothing contained in this Section 4.2 will prohibit the Company from
(i) taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or (ii) making any disclosure
to its stockholders if, in the good faith judgment of the Company Board, after
having received the written advice of its counsel, Morris, Nichols, Arsht &
Tunnell of Wilmington, Delaware, failure to disclose would constitute a breach
of its fiduciary duties to the Company's stockholders under applicable law
(including its duty of candor).
4.3. FILINGS, REASONABLE EFFORTS. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties will use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things, reasonably necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger, the Financing
and the other transactions described in this Agreement, including without
limitation (i) obtaining all necessary waivers, consents and approvals from
Governmental Entities and making all necessary registrations and filings
(including filings with Governmental Entities) and taking all reasonable steps
as may be necessary to obtain an approval or waiver from, or to avoid an action
or proceeding by, any Governmental Entity, (ii) obtaining, in writing, all
necessary consents, approvals or waivers from third parties in form reasonably
satisfactory to Parent and Purchaser, and (iii) executing and delivering any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement.
(b) Each of the Company and Parent shall, as promptly as practicable, but in
no event later than ten Business Days following the execution and delivery of
this Agreement, file with the United States Federal Trade Commission (the "FTC")
and the United States Department of Justice (the "DOJ") the notification and
report form, if any, required for the transactions described herein and any
supplemental information requested in connection therewith pursuant to the HSR
Act. Any such notification and report form and supplemental information shall be
in substantial compliance with the requirements of the HSR Act. Each of Parent
and the Company shall furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission that is necessary under the HSR Act. The
Company and Parent shall keep each other apprised of the status of any
communications with, and any inquiries or requests for additional information
from, the FTC and the DOJ and shall comply promptly with any such inquiry or
request. Each of the Company and Parent shall use commercially reasonable
efforts to obtain any clearance required under the HSR Act for the consummation
of the transactions contemplated by this Agreement.
4.4. INSPECTION OF RECORDS. From the date hereof to the Effective Time,
the Company will (i) allow all designated officers, employees, attorneys,
accountants and other representatives of Parent and Parent's financing sources
reasonable access at all reasonable times to the officers, key employees,
accountants and other representatives of the Company and its Subsidiaries and
the books and records of the Company and its Subsidiaries and (ii) furnish to
Parent and Parent's financing services and their respective counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request.
4.5. PUBLICITY. The initial press release relating to this Agreement will
be in the form of a joint press release in form and substance mutually
satisfactory to Parent and the Company and thereafter the Company and Parent
will, subject to their respective legal obligations (including requirements of
stock exchanges and other similar regulatory bodies), consult with each other,
and use commercially reasonable efforts to agree upon the text of any press
release, before issuing any such press release or otherwise making public
statements with respect to the transactions described herein and in making any
filings with any Governmental Entity or with any national securities exchange
with respect thereto.
4.6. S-4/PROXY STATEMENT; SEC FILINGS. (a) As soon as practicable
following the date of this Agreement, the Company will prepare and file with the
SEC a registration statement on Form S-4
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under the Securities Act for the purpose of registering the Surviving
Corporation Common Stock to be retained by holders of Shares in the Merger, a
portion of which will also serve as the proxy statement with respect to the
Stockholders Meeting to adopt this Agreement (together with any amendments
thereto, the "S-4/PROXY STATEMENT"), and a Rule 13e-3 Transaction Statement on
Schedule 13E-3 (the "SCHEDULE 13E-3"). Each of the Company and Parent (as
applicable) will use commercially reasonable efforts to (A) prepare and provide
the other party as promptly as practicable the information required to be
disclosed in the S-4/Proxy Statement and the Schedule 13E-3, (B) respond to any
comments of the SEC, (C) have the S-4 registration statement declared effective
under the Securities Act and the rules and regulations promulgated thereunder as
promptly as practicable after such filing, (D) keep the S-4 registration
statement effective as long as is necessary to consummate the Merger, (E) cause
the S-4/Proxy Statement and the Schedule 13E-3 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder, and (F) cause the
prospectus forming part of the S-4 registration statement to be mailed to the
Company's stockholders as promptly as practicable after it is declared effective
under the Securities Act. No filing of, or amendment or supplement to, the
S-4/Proxy Statement or the Schedule 13E-3 will be made by the Company without
providing Parent a reasonable opportunity to review and comment thereon, which
review and comment (if any) shall be conducted and furnished promptly. The
Company agrees not to mail the S-4/Proxy Statement or the Schedule 13E-3 until
Parent confirms that the information provided by Parent and Purchaser continues
to be accurate. Each party will notify the other promptly of the receipt of any
comments from the SEC and of any request by the SEC for amendments or
supplements to the S-4/Proxy Statement or the Schedule 13E-3 or for additional
information, and will supply the other with copies of all correspondence between
such party or any of its representatives and the SEC with respect to the
S-4/Proxy Statement or the Schedule 13E-3. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the S-4/Proxy
Statement or the Schedule 13E-3, the Company, Parent and Purchaser, as the case
may be, will promptly inform the other of such occurrences and will reasonably
cooperate in filing with the SEC and/or mailing to the Company's stockholders
such amendment or supplement to the S-4/Proxy Statement or the Schedule 13E-3.
(b) Any other Company Filed SEC Reports filed by the Company with the SEC
after the date hereof will (i) comply in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the
rules and regulations thereunder and (ii) will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements under therein, in light of the
circumstances under which they were made, not misleading.
4.7. INSURANCE AND INDEMNITY. (a) At the Effective Time, the certificate
of incorporation and bylaws of the Surviving Corporation will include
indemnification provisions substantially equivalent to those contained in the
certificate of incorporation and bylaws of the Company as of the date of this
Agreement. The indemnification provisions in the certificate of incorporation
and bylaws of the Surviving Corporation shall not be amended, repealed or
otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who as
of the date hereof were directors, officers, employees, fiduciaries or agents of
the Company or its Subsidiaries or who otherwise would be entitled to
indemnification under the certificate of incorporation, bylaws and other
constituent documents or indemnification agreements of the Company or its
Subsidiaries (the "INDEMNIFIED PARTIES"). Notwithstanding any other provision
hereof, the provisions of this Section 4.7 are intended to be for the benefit
of, and will be enforceable by, each Indemnified Party, his or her heirs and his
or her representatives.
(b) The Surviving Corporation will maintain in effect for not less than six
years after the Closing Date policies of directors' and officers' liability
insurance equivalent in all material respects to those maintained by or on
behalf of the Company and its Subsidiaries on the date hereof (and having at
least
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the same coverage and containing terms and conditions which are no less
advantageous in the aggregate to the Persons currently covered by such policies
as insured) with respect to matters existing or occurring at or prior to the
Closing Date; PROVIDED that in satisfying its obligations under this Section
4.7(b), the Surviving Corporation will not be obligated to pay annual premiums
in excess of 200% of the amount per annum the Company paid for the fiscal year
ending December 31, 1999, and PROVIDED FURTHER, that if the premium for such
coverage exceeds such amount, the Surviving Corporation will purchase a policy
with the greatest coverage available for such 200% of the amount spent per annum
by the Company for its fiscal year ending December 31, 1999.
4.8. STOCKHOLDERS MEETING. The Company will take all action necessary in
accordance with applicable Law and its certificate of incorporation and bylaws
to convene a meeting of the Stockholders as promptly as practicable after the
date of this Agreement to consider and vote upon the approval and adoption of
this Agreement and the approval of the Merger (the "STOCKHOLDERS MEETING"). The
Company Board will recommend such approval and adoption and the Company will
take all lawful action to solicit such approval, including without limitation
timely mailing the S-4/Proxy Statement; PROVIDED, HOWEVER, that such obligation
is subject to any action taken by the Company Board expressly permitted by
Section 4.2(b) or Section 4.2(c). Without limiting the generality or effect of
the foregoing, the Company's obligations pursuant to the first sentence of this
Section 4.8 will not be affected by the commencement, public proposal, public
disclosure or communication to the Company of any Alternative Proposal.
4.9. INDEMNITY. After the Effective Time, the Surviving Corporation (the
"MERGER PARTY INDEMNITOR") shall indemnify Parent, Purchaser, their respective
Affiliates and each Person who is now, or has been at any time prior to the date
hereof, an employee, agent, director or officer of Parent or Purchaser, or of
any of Parent's or Purchaser's Affiliates (individually, an "INDEMNIFIED MERGER
PARTY") and collectively, the "INDEMNIFIED MERGER PARTIES"), to the fullest
extent permitted by applicable law, with respect to any claim, liability, loss,
damage, cost or expense (whether arising before or after the Effective Time),
asserted against, or incurred by, an Indemnified Merger Party which is primarily
based on an allegation that an Indemnified Merger Party has induced or acted in
concert with the Company or any of its directors to act contrary to or in
violation of any contract, duty or applicable law, to which the Company and the
directors are subject, to the extent such allegation relates to the negotiation,
execution or delivery of this Agreement by the parties hereto and thereto or the
performance of the obligations of the parties hereunder or thereunder (an
"INDEMNIFIED LITIGATION MATTER"). Promptly after receipt by an Indemnified
Merger Party of notice of the assertion of any claim or the commencement of any
action against such Indemnified Merger Party in respect of which indemnity or
reimbursement may be sought against under this Section 4.9 (an "ASSERTION
AGAINST PARENT"), such Indemnified Merger Party shall notify the Merger Party
Indemnitor in writing of the Assertion Against Parent, but the failure to so
notify shall not relieve it of any liability it may have to such Indemnified
Merger Party hereunder, except to the extent that such failure shall have
actually prejudiced the Merger Party Indemnitor in defending against such
Assertion Against Parent. In the event that following receipt of notice from the
Indemnified Merger Party, a Merger Party Indemnitor notifies the Indemnified
Merger Party that it desires to defend the Indemnified Merger Party against such
Assertion Against Parent, such Merger Party Indemnitor shall have the right to
defend the Indemnified Merger Party by appropriate proceedings and shall have
the sole power to direct and control such defense. If any Indemnified Merger
Party desires to participate in the defense by any Merger Party Indemnitor, it
may do so at its sole cost and expense, PROVIDED, HOWEVER, that if the
Indemnified Merger Party shall have received the advice of counsel that there
exist defenses to such Indemnified Merger Party that are different from or
additional to those available to the Company and/or its officers or directors or
the Merger Party Indemnitor elects not to defend the Indemnified Merger Party
against such Assertion Against Parent, the Indemnified Merger Parties shall have
the right to select one separate counsel (and one local counsel in such
jurisdictions as are necessary) reasonably acceptable to the Company to
participate in the defense of such action on its behalf, at the expense of the
Merger Party Indemnitor.
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If the Indemnified Merger Parties retain such counsel, then to the extent
permitted by Law, the Merger Party Indemnitor shall periodically advance to such
Indemnified Merger Parties their reasonable legal and other out-of-pocket
expenses relating to the Indemnified Litigation Matter (including the reasonable
cost of any investigation and preparation incurred in connection therewith). No
Indemnified Merger Party shall settle any Assertion Against Parent without the
prior written consent of the Merger Party Indemnitor nor shall the Merger Party
Indemnitor settle any Assertion Against Parent without either (i) the written
consent of all Indemnified Merger Parties against whom such Assertion Against
Parent was made or (ii) obtaining an unconditional general release from the
party making the Assertion Against Parent for all Indemnified Merger Parties as
a condition of such settlement. The provisions of this 4.9 are intended for the
benefit of, and shall be enforceable by, the respective Indemnified Merger
Parties.
4.10. RECAPITALIZATION ACCOUNTING. Each of the Company and Purchaser shall
use commercially reasonable efforts to cause the Merger to be accounted for as a
recapitalization for financial reporting purposes and such accounting treatment
to be accepted by their respective accountants and by the SEC. Neither the
Company nor any of its officers, directors, employees, advisors, counsel,
accountants or affiliates may hold discussions or correspond with the SEC
regarding the S-4/Registration Statement, the Merger, the method of recording
the Merger for financial reporting purposes or the other transactions described
herein without giving Parent and its advisors, counsel and/or accountants the
opportunity to attend any meeting with, participate in any telephone conference
with, and review, comment on and approve any materials to be submitted to (which
review, comment and approval shall not be unreasonably withheld or delayed), the
SEC in connection with the foregoing. Each of the Company and Purchaser agrees
that it will take no action that would reasonably be likely to cause
recapitalization accounting treatment not to be obtained.
4.11. FINANCING. Parent shall use commercially reasonable efforts to
obtain the Financing on the terms set forth in EXHIBIT C hereto. The Company
agrees to provide, and will use commercially reasonable efforts to cause its
Subsidiaries, its officers, employees, representatives and advisors, including
legal and accounting, to provide, all necessary cooperation reasonably requested
by Parent in connection with the Financing, including, without limitation,
participation in due diligence sessions, "ROAD SHOW" appearances and the
preparation of disclosure documents in connection therewith, execution and
delivery of underwriting, purchase or placement agreements, loan agreements,
pledge and security documents or other financing documents and certificates, the
consummation of which shall be subject in each case to the occurrence of the
Effective Time. In addition, the Company agrees, at the request of Parent, to
give notice of prepayment or redemption and to prepay, redeem or renegotiate, as
the case may be, any existing indebtedness of the Company or any of its
subsidiaries not later than at the Effective Time, the consummation of which
shall be subject in each case to the occurrence of the Effective Time.
V. CONDITIONS PRECEDENT
5.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger will be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) STOCKHOLDER APPROVAL. The Company Stockholder Approval shall have been
obtained.
(b) HSR ACT. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(c) REGISTRATION STATEMENT. The S-4 registration statement shall have
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings by the SEC seeking a stop order.
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(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
5.2. CONDITIONS TO OBLIGATIONS OF PARENT AND PURCHASER TO EFFECT THE
MERGER. The obligation of Parent and Purchaser to effect the Merger is further
subject to the following conditions, any one or more of which may be waived by
Parent and Purchaser:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the date of this Agreement (as qualified by the Company Disclosure Letter)
and as of the Closing Date, as though made on and as of the Closing Date, except
to the extent the representation or warranty is expressly limited by its terms
to another date, and Parent and Purchaser shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer and the President
of the Company, in such capacity, certifying to such effect. For the purposes of
this Section 5.2(a), the representations and warranties of the Company will be
deemed true and correct unless the breach of such representations and
warranties, in the aggregate, could reasonably be expected to have a Company
Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent and
Purchaser shall have received a certificate signed on behalf of the Company by
the Chief Executive Officer and the President of the Company, in such capacity,
certifying to such effect.
(c) INTENTIONALLY OMITTED.
(d) NO COMPANY MATERIAL ADVERSE CHANGE. At any time on or after the date
of this Agreement there shall have been no change, development, condition or
effect that has had or could reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect, and Parent and Purchaser shall
have received a certificate of the Chief Executive Officer and the President of
Company, in such capacity, certifying to such effect.
(e) FINANCING. The Financing shall have been consummated and the Lender
shall have notified Parent in writing that such Financing has been fully
syndicated or placed either (i) on the terms and conditions set forth in EXHIBIT
C hereto or (ii) on such other terms satisfactory to Parent in its sole
discretion.
(f) NO CHANGE IN ACCOUNTING POLICIES. No change in accounting practices or
policies after the date hereof shall cause Parent (after consultation with its
accountants) to reasonably conclude that the Merger will not be recorded as a
recapitalization for financial reporting purposes.
(g) NO SEC OBJECTIONS. The SEC shall not object (or, if the SEC so
objects, shall not have withdrawn such objection) to the treatment of the
transactions described herein as a recapitalization for accounting purposes.
(h) DIRECTOR RESIGNATIONS. Prior to the Effective Time, each member of the
Company Board shall have executed letters of resignation which shall become
effective as of the Effective Time.
(i) LITIGATION. No action, suit or proceeding by any party other than a
signatory to this Agreement or an Affiliate of a signatory hereto shall have
been commenced or threatened in writing by or before any court or other
Governmental Entity against Parent, Purchaser, the Company or any of their
respective Affiliates, seeking to restrain or materially and adversely alter the
transactions described herein or by the other documents described herein, which
(i) is reasonably likely to render it impossible or unlawful to consummate the
transactions described herein or (ii) in the good faith judgment of Parent could
reasonably be expected to have a Company Material Adverse Effect or materially
limit or restrict the rights of the Purchaser under this Agreement.
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(j) COMPANY VOTING AGREEMENT. The Company Principal Stockholders shall
have performed in all material respects all obligations required to be performed
by them under the Voting Agreement prior to the Closing Date.
5.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to effect the Merger is further subject to the following conditions, any
one or more of which may be waived by the Company:
(a) REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER. The
representations and warranties of Parent and Purchaser set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and the Company shall have received a certificate signed on behalf
of by an authorized officer of Parent, in such capacity, certifying to such
effect. For the purposes of this Section 5.3(a), the representations and
warranties of Parent and Purchaser will be deemed true and correct unless the
breach of such representations and warranties, in the aggregate, could
reasonably be expected to have a Parent Material Adverse Effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND PURCHASER. Parent and
Purchaser shall have performed in all material respects all obligations required
to be performed by them under this Agreement at or prior to the Closing Date,
and the Company shall have received a certificate signed on behalf of Parent by
an authorized officer of Parent, in such capacity, certifying to such effect.
5.4. FRUSTRATION OF CLOSING CONDITIONS. None of the Company, Parent or
Purchaser may rely on the failure of any condition set forth in Section 5.1, 5.2
or 5.3, as the case may be, to be satisfied if such failure was caused by such
party's failure to use commercially reasonable efforts to consummate the Merger
and the other transactions contemplated by this Agreement, as required by and
subject to Section 4.2.
VI. TERMINATION
6.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Effective Time, whether or not the Company Stockholder
Approval has been obtained, by the mutual consent of Parent and the Company.
6.2. TERMINATION BY EITHER PARENT OR COMPANY. This Agreement may be
terminated by action of the Board of Directors of the Company or the managing
member of Parent, whether or not the Company Stockholder Approval has been
obtained, if:
(a) the Merger shall not have occurred on or before December 31, 2000 (the
"OUTSIDE DATE"); PROVIDED, HOWEVER, that no party may terminate this Agreement
pursuant to this Section 6.2(a) if such party's breach of any of its obligations
under this Agreement shall have been the reason that the Merger shall not have
occurred on or before said date; or
(b) any Governmental Entity shall have issued a Restraint or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
consummation of the Merger or any of the other transactions contemplated by this
Agreement; or
(c) the Company Stockholder Approval shall not have occurred at the
Stockholders Meeting (including any postponement or adjournment thereof).
6.3. TERMINATION BY COMPANY. This Agreement may be terminated at any time
prior to the Closing Date by action of the Company Board, if:
(a) or Purchaser is in material breach of its representations or warranties
or fails to perform in any material respect its covenants or other agreements
hereunder to the extent required to have been
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performed at such time, which breach or failure to perform (i) would give rise
to the failure of a condition set forth in Section 5.3 and (ii) is incapable of
being cured by Parent or Purchaser prior to the Outside Date or, if capable of
being cured, is not cured within 20 calendar days after the Company gives
written notice of such breach to Parent or Purchaser; or
(b)(i)the Company Board shall have authorized the Company, subject to
complying with the terms of this Agreement, to enter into a Company Acquisition
Agreement with respect to a Superior Proposal and the Company shall have
complied with its obligations under Section 4.2(b) and (ii) the Company prior to
such termination pursuant to this clause (b) shall have paid to Parent in
immediately available funds the fees required to be paid pursuant to Section
6.5; or
(c) shall not be capable of satisfying the condition set forth in Section
5.2(e) on or before the Outside Date.
6.4. TERMINATION BY PARENT. This Agreement may be terminated at any time
prior to the Closing Date by action of the managing member of Parent, if:
(a) Company is in material breach of its representations or warranties or
fails to perform in any material respect its covenants or other agreements
hereunder to the extent required to have been performed at such time, which
breach or failure to perform (i) would give rise to the failure of a condition
set forth in Section 5.2 and (ii) is incapable of being cured by the Company
prior to the Outside Date or, if capable of being cured, is not cured within 20
calendar days after Parent or Purchaser gives written notice of such breach to
the Company; or
(b)(i)the Company Board or any committee thereof shall have approved or
recommended, or proposed publicly to approve or recommend, any Alternative
Proposal or shall have resolved to do any of the foregoing, (ii) the Company
shall have entered into a Company Acquisition Agreement or the Company Board
shall have authorized the Company to do so, (iii) the Company Board or any
committee thereof shall have withdrawn, modified or qualified its recommendation
or approval of the Merger in a manner adverse to Parent or Purchaser, or
(iv) the Company shall have breached any of its obligations under Section 4.2;
or
(c) shall determine in good faith that it is not capable of satisfying the
condition set forth in Section 5.2(e) prior to the Outside Date.
6.5. EFFECT OF TERMINATION AND ABANDONMENT; TERMINATION FEE. (a) In the
event of termination of this Agreement pursuant to this Article VI, all
obligations of the parties hereto will terminate, except the obligations of the
parties pursuant to this Section 6.5 and Sections 7.1 through 7.15, inclusive.
Notwithstanding the foregoing or any other provision of this Agreement, in the
event of termination of this Agreement, nothing herein will prejudice the
ability of the non-breaching party to seek damages from any other party for any
prior deliberate or willful breach of this Agreement, including without
limitation reasonable attorneys' fees and the right to pursue any remedy at law
or in equity with respect thereto.
(b) Company will pay to Parent an amount equal to $7.0 million (the "COMPANY
TERMINATION FEE") plus the Break-Up Expenses in any of the following
circumstances:
(A) Agreement is terminated pursuant to Section 6.3(b) or 6.4(b); or
(B) Agreement is terminated by Parent pursuant to Section
6.4(a) (provided that the Company then does not also have the right to
terminate this Agreement pursuant to Section 6.3(a) or 6.3(c)) and prior to
the six month anniversary of the termination of this Agreement the Company
enters into a definitive agreement with respect to, or consummates, an
Alternative Proposal; or
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(C) Agreement is terminated pursuant to Section 6.2(c) and (i) prior to
the Stockholders Meeting any Person shall have made a public announcement or
otherwise communicated to the Company and its stockholders with respect to
an Alternative Proposal and (ii) prior to the six month anniversary of the
termination of this Agreement the Company enters into a definitive agreement
with respect to, or consummates, an Alternative Proposal.
(c) Company will pay to Parent an amount equal to all fees and expenses
payable by Parent pursuant to the Commitment Letter if this Agreement is
terminated pursuant to Sections 6.1, 6.2(a), 6.2(b), 6.2(c), 6.3(b), 6.3(c),
6.4(a), 6.4(b) or 6.4(c) (provided that the Company then does not also have the
right to terminate this Agreement pursuant to Section 6.3(a)).
(d) Company will pay to Parent an amount equal to Break-Up Expenses if this
Agreement is terminated by Parent pursuant to Section 6.4(a) due to the
Company's deliberate or willful breach of this Agreement (provided that the
Company then does not also have the right to terminate this Agreement pursuant
to Section 6.3(a)).
(e) Any payment required to be made pursuant to Section 6.5(b) shall be
made to Parent by the Company not later than two Business Days after delivery to
the Company by Parent of notice of demand for payment and shall be made by wire
transfer of immediately available funds to an account designated by Parent. The
Company acknowledges that the agreements contained in this Section 6.5 are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent and Purchaser would not enter into this
Agreement; accordingly, if the Company fails promptly to pay any amount due
pursuant to this Section 6.5, and, in order to obtain such payment, Parent
commences a suit which results in a judgment against the Company for any amounts
set forth in this Section 6.5, the Company will pay to Parent their reasonable
costs and expenses (including reasonable attorneys' fees and expenses) in
connection with such suit, together with interest on such amount at the prime
rate of Citibank, N.A. in effect on the date such payment was required to be
made plus two percent. This Section 6.5 will survive any termination of this
Agreement.
(f) As used in this Agreement, the "BREAK-UP EXPENSES" payable to Parent
shall be an amount equal to the documented, reasonable, out-of-pocket, due
diligence and other expenses of Parent and Parent's Affiliates incurred in
connection with this Agreement and the transactions described herein and any
litigation associated therewith (including, without limitation, all fees and
expenses payable to financing sources in connection with the Financing or
otherwise, accountants, counsel, consultants and investment bankers, HSR Act and
other filing fees).
VII. GENERAL PROVISIONS
7.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
to any party pursuant to this Agreement will survive beyond the Effective Time.
From and after the Effective Time, no party shall have any claim or cause of
action arising out of or relating to this Agreement, including any claim or
cause of action in respect of any breach of any representation or warranty or
covenant applicable to periods prior to the Closing contained in this Agreement,
other than any claim in respect of any covenant to be performed after the
Closing Date.
7.2. NOTICES. Any notice or other communication required to be given
hereunder shall be in writing, and sent by reputable courier service (with proof
of service), by hand delivery or by facsimile
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(followed on the same day by delivery by courier service (with proof of
delivery) or by hand delivery), addressed as follows:
IF TO PARENT OR PURCHASER:
SKM-RD Acquisition Corp.
c/o Saunders Karp & Megrue Partners, L.L.C.
262 Harbor Drive
Stamford, CT 06902
Attn: John F. Megrue
Fax No.: (203) 708-6677
WITH COPIES TO:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attn: Jere R. Thomson, Esq.
Fax No.: (212) 755-7306
IF TO THE COMPANY:
Radiologix, Inc.
3600 Chase Tower
2200 Ross Avenue
Dallas, TX 75201
Attn: Mark L. Wagar
Paul M. Jolas
Fax No.: (214) 303-2777
WITH COPIES TO:
Haynes and Boone, LLP
901 Main, Suite 3100
Dallas, Texas 75202
Attn: William R. Hays, III
Fax No.: (214) 651-5940
or to such other address as any party will specify by written notice so given,
and such notice will be deemed to have been delivered as of the date so
telecommunicated or personally delivered.
7.3. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned by any of the
parties hereto (whether by operation of Law or otherwise) without the prior
written consent of the other parties, except that Parent will have the right to
assign to any direct or indirect wholly owned subsidiary of Parent or Purchaser
or to the members of Parent any and all rights and obligations of Parent under
this Agreement and Parent or Purchaser may assign to a newly-formed, direct or
indirect wholly owned subsidiary of Parent or Purchaser the rights and
obligations of Purchaser hereunder, but only if such assignee does not have
material liabilities unrelated to the transactions described herein and only if
such assignment is made prior to the mailing of the S-4/Proxy Statement to the
Company's stockholders, provided, that any such assignment will not relieve
either Parent or Purchaser from any of its obligations hereunder. Any assignment
not granted in accordance with the foregoing shall be null and void. Subject to
the first sentence of this Section 7.3, this Agreement will be binding upon and
will inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, except for the provisions of Section 4.7 and 4.9, nothing in this
Agreement, expressed or
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implied, is intended to confer on any Person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
7.4. ENTIRE AGREEMENT. This Agreement, the Company Disclosure Letter and
any documents delivered by the parties in connection herewith or therewith,
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto.
7.5. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors or other equivalent
governing bodies, at any time before or after Company Stockholder Approval, but
after any such Company Stockholder Approval, no amendment will be made which by
Law requires the further approval of the Company's stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.6. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to its
conflict of laws principles.
7.7. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered will be an
original, but all such counterparts will together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto. A
facsimile copy of a signature page[nb]shall be deemed to be an original
signature page.
7.8. HEADINGS. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and will be given no substantive or
interpretive effect whatsoever.
7.9. CERTAIN DEFINITIONS/INTERPRETATIONS. (a) For purposes of this
Agreement:
(i) An "AFFILIATE" of any Person means another Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first Person;
(ii) "BUSINESS DAY" means any day other than a Saturday, Sunday or day
on which banks in New York, New York are authorized or required by Law to
close;
(iii) "INTELLECTUAL PROPERTY" shall mean all trademarks, service marks,
trade names, Internet domain names, designs, logos, slogans, and general
intangibles of like nature, whether registered or unregistered, together
with all goodwill, registrations and applications related to the foregoing;
patents and industrial designs (including any continuations, divisionals,
continuations-in-part, renewals, reissues and applications for any of the
foregoing); copyrights (including any registrations and applications for any
of the foregoing); and technology, trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models
and methodologies, in each case used in or necessary for the conduct of the
Company's business as currently conducted or contemplated to be conducted.
(iv) "KEY EMPLOYEE" means any employee whose current base salary exceeds
$100,000 per annum;
(v) "KNOWLEDGE" of any Person which is not an individual means the
actual knowledge of any of such Person's officers (PROVIDED, that in the
case of the Company, such officers shall consist solely of the Chief
Executive Officer, President, Senior Vice President, Vice President of
Finance and General Counsel) after reasonable, but not unlimited, inquiry
(PROVIDED that the reasonableness of the inquiry shall be determined based
on the facts and circumstances known at the time the inquiry is conducted);
and
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(vi) "PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(b) When a reference is made in this Agreement to an Article, Schedule,
Section or Annex, such reference will be to an Article, Schedule or Section of,
or an Annex to, this Agreement unless otherwise indicated. Whenever the words
"include," "includes" or "including" are used in this Agreement, they will be
deemed to be followed by the words "without limitation." The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
will refer to this Agreement as a whole and not to any particular provision of
this Agreement. All terms used herein with initial capital letters have the
meanings ascribed to them herein and all terms defined in this Agreement will
have such defined meanings when used in any certificate or other document made
or delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a Person are also to its permitted successors and
assigns.
7.10. WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including without limitation any investigation by or
on behalf of any party, will be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder will not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
At any time prior to the Effective Time, any party hereto may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
7.11. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision will be interpreted
to be only so broad as is enforceable.
7.12. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
7.13. EXPENSES. Except as set forth in Section 6.5, all fees and expenses
incurred in connection with the Merger, this Agreement and the transactions
described herein will be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
7.14. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each party hereby
irrevocably and unconditionally submits, for itself and its property, to the
exclusive jurisdiction of the Chancery Court of the State of Delaware (a
"DELAWARE COURT"), and any appellate court from any such court, in any suit,
action or proceeding arising out of or relating to this Agreement, or for
recognition or
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enforcement of any judgment resulting from any such suit, action or proceeding,
and each party hereby irrevocably and unconditionally agrees that all claims in
respect of any such suit, action or proceeding may be heard and determined in a
Delaware Court.
(b) It will be a condition precedent to each party's right to bring any
such suit, action or proceeding that such suit, action or proceeding, in the
first instance, be brought in a Delaware Court (unless such suit, action or
proceeding is brought solely to obtain discovery or to enforce a judgment), and
if each such court refuses to accept jurisdiction with respect thereto, such
suit, action or proceeding may be brought in any other court with jurisdiction;
PROVIDED that the foregoing will not apply to any suit, action or proceeding by
a party seeking indemnification or contribution pursuant to this Agreement or
otherwise in respect of a suit, action or proceeding against such party by a
third party if such suit, action or proceeding by such party seeking
indemnification or contribution is brought in the same court as the suit, action
or proceeding against such party.
(c) No party may move to (i) transfer any such suit, action or proceeding
from a Delaware Court to another jurisdiction, (ii) consolidate any such suit,
action or proceeding brought in a Delaware Court with a suit, action or
proceeding in another jurisdiction, or (iii) dismiss any such suit, action or
proceeding brought in a Delaware Court for the purpose of bringing the same in
another jurisdiction.
(d) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, (i) any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in a Delaware Court,
(ii) the defense of an inconvenient forum to the maintenance of such suit,
action or proceeding in any such court, and (iii) the right to object, with
respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party. Each party irrevocably consents to service of
process in any manner permitted by law.
7.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS DESCRIBED HEREIN.
7.16. PRIOR AGREEMENT. The Prior Agreement is superceded in all respects.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
<TABLE>
<S> <C> <C>
RADIOLOGIX, INC.
By: /s/ MARK L. WAGAR
------------------------------------
Mark L. Wagar
CHIEF EXECUTIVE OFFICER
SKM-RD LLC
By: The SKM Equity Fund III, L.P.,
its Managing Member
By:
SKM Partners, L.L.C.,
its General Partner
By: /s/ JOHN F. MEGRUE, JR.
------------------------------------
John F. Megrue, Jr.
AUTHORIZED SIGNATORY
SKM-RD ACQUISITION CORP.
By: /s/ WILLIAM J. GUMINA
------------------------------------
William J. Gumina
VICE PRESIDENT
</TABLE>
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APPENDIX B
OPINION OF UBS WARBURG LLC
[LETTERHEAD OF UBS WARBURG LLC]
August 22, 2000
The Board of Directors
Radiologix, Inc.
3600 Chase Tower
2200 Ross Avenue
Dallas, Texas 75201
Dear Members of the Board:
We understand that Radiologix, Inc. ("Radiologix") proposes to enter into an
Agreement and Plan of Merger, dated as of August 22, 2000 (the "Agreement"), by
and among SKM-RD LLC ("Parent"), SKM-RD Acquisition Corp. ("Purchaser"), each an
affiliate of Saunders Karp & Megrue Partners, L.L.C. ("SKM"), and Radiologix
pursuant to which (i) Purchaser will merge with and into Radiologix (the
"Merger") as a result of which Radiologix will be the surviving entity (the
"Surviving Corporation") and (ii) each outstanding share of the common stock,
par value $0.0001 per share, of Radiologix ("Radiologix Common Stock") will be
converted into the right to receive, at the election of the holder thereof and
subject to certain proration procedures (as to which we express no opinion)
specified in the Agreement, either (A) $7.25 in cash, without interest (the
"Cash Consideration") or (B) 1.1224 shares (the "Stock Consideration" and,
together with the Cash Consideration, the "Merger Consideration") of the common
stock, par value $0.0001 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock"). The Agreement further provides that the minimum
Stock Consideration issuable in the Merger will be equal to 10%, and the maximum
Stock Consideration issuable in the Merger will be equal to 20%, of the
outstanding Surviving Corporation Common Stock on the closing date of the
Merger. The terms and conditions of the Merger are more fully set forth in the
Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration to the holders of Radiologix Common Stock
(other than those stockholders who have entered into a voting agreement in
connection with the Merger (the "Principal Stockholders") and their respective
affiliates).
UBS Warburg LLC ("UBSW") has been retained by Radiologix solely for purposes
of rendering this opinion and will receive a fee for its services upon delivery
of this opinion. As you are aware, UBSW will be participating in the financing
of the Merger, and will receive customary compensation for such services. In the
ordinary course of business, UBSW, its successors and affiliates may trade
securities of Radiologix and affiliates of SKM for their own accounts and
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion does not address Radiologix's underlying business decision to
effect the Merger or constitute a recommendation to any stockholder of
Radiologix as to the form of Merger Consideration to be elected by such
stockholder or how such stockholder should vote with respect to any matter
relating to the Merger. At your direction, we were not requested to, and we did
not, participate in the negotiation or structuring of the Merger. In addition,
at your direction, we have not been asked to, nor do we, offer any opinion as to
the material terms of the Agreement and the obligations thereunder, or the form
of the Merger. We express no opinion as to what the value of Surviving
Corporation Common
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The Board of Directors
Radiologix, Inc.
August 22, 2000
Page 2
Stock will be when issued pursuant to the Merger or the prices at which
Surviving Corporation Common Stock will trade or otherwise be transferable
subsequent to the announcement or consummation of the Merger. In rendering this
opinion, we have assumed, at your direction, that each of Radiologix, Parent and
Purchaser will comply with all material covenants and agreements set forth in,
and other material terms of, the Agreement and that the Merger will be validly
consummated in accordance with its terms.
In arriving at our opinion, we have, among other things: (i) reviewed
current and historical market prices and trading volumes of Radiologix Common
Stock; (ii) reviewed certain publicly available business and historical
financial information relating to Radiologix; (iii) reviewed certain internal
financial information and other data relating to the business and financial
prospects of Radiologix, including estimates and financial forecasts prepared by
the management of Radiologix, that were provided to or discussed with us by
Radiologix and are not publicly available; (iv) considered the financing needs
of, and capital resources available to, Radiologix; (v) conducted discussions
with members of the senior management of Radiologix; (vi) reviewed publicly
available financial and stock market data with respect to certain companies in
lines of business we believe to be generally comparable to those of Radiologix;
(vii) compared the financial terms of the Merger with the publicly available
financial terms of certain other transactions which we believe to be generally
relevant; (viii) reviewed the Agreement; and (ix) conducted such other financial
studies, analyses, and investigations, and considered such other information as
we deemed necessary or appropriate.
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification of any of the information provided
to or reviewed by us for the purpose of this opinion and have, with your
consent, relied on such information being complete and accurate in all material
respects. In addition, at your direction, we have not made any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Radiologix, nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts and estimates referred to
above, we have assumed, at your direction, that they have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of Radiologix as to the future performance of
Radiologix. In connection with our engagement, we were not requested to, and we
did not, solicit third party indications of interest in the acquisition of all
or a part of Radiologix. Representatives of Radiologix, however, have advised
us, and we have taken into account for purposes of our opinion, that Radiologix
has held discussions from time to time in the past with third parties regarding
a possible business combination or similar transaction involving Radiologix. Our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us as of, the date of
this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair, from a financial point of view,
to the holders of Radiologix Common Stock (other than the Principal Stockholders
and their respective affiliates).
Very truly yours,
/s/ UBS WARBURG LLC
UBS WARBURG LLC
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APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(G) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Section
Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent
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corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
(8 Del. C. 1953, Section 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, Section
24; 57 Del. Laws, c. 148, Section Section 27-29; 59 Del. Laws, c. 106, Section
12; 60 Del. Laws, c. 371, Section Section 3-12; 63 Del. Laws, c. 25, Section 14;
63 Del. Laws, c. 152, Section Section 1, 2; 64 Del. Laws, c. 112, Section
Section 46-54; 66 Del. Laws, c. 136, Section Section 30-32; 66 Del. Laws, c.
352, Section 9; 67 Del. Laws, c. 376, Section Section 19, 20; 68 Del. Laws, c.
337, Section Section 3, 4; 69 Del. Laws, c. 61, Section 10; 69 Del. Laws, c.
262, Section Section 1-9; 70 Del. Laws, c. 79, Section 16; 70 Del. Laws, c. 186,
Section 1; 70 Del. Laws, c. 299, Section Section 2, 3; 70 Del. Laws, c. 349,
Section 22; 71 Del. Laws, c. 120, Section 15; 71 Del. Laws, c. 339, Section
Section 49-52.)
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APPENDIX D
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
RADIOLOGIX, INC.
Radiologix, Inc. (the "Corporation") was incorporated under and by virtue of
the General Corporation Law of the State of Delaware on April 30, 1996.
The Corporation DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Radiologix, Inc. This Amended and
Restated Certificate of Incorporation (this "Certificate") integrates and amends
the Certificate of Incorporation filed on April 30, 1996, as restated on
October 28, 1997, and was duly adopted by written consent of the stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
Delaware General Corporation Law.
SECOND: The Certificate of Incorporation of the Corporation shall be
amended and restated to read in full as follows:
ARTICLE I.
The name of the Corporation shall be Radiologix, Inc.
ARTICLE II.
The address of the registered office of the Corporation in the State of
Delaware is 9 East Loockerman Street, in the City of Dover, County of Kent and
the name of the registered agent at that address is National Registered Agents,
Inc.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV.
A. The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Sixty Million
(60,000,000) shares. Fifty Million (50,000,000) shares shall be Common Stock,
par value $.0001 per share and Ten Million (10,000,000) shares shall be
Preferred Stock, par value $.0001 per share.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate, to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the designation thereof,
or any of them, and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
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C. (i) For so long as the Corporation does not have any capital stock
traded on a national securities exchange or on the Nasdaq National Market and
prior to a Public Offering after the date of the filing of this Certificate, if
any stockholder (an "Offeror") proposes to Transfer any shares of capital stock
of the Corporation other than to a Permitted Transferee of such stockholder, the
Offeror shall, before such Transfer, deliver to the Corporation an offer (the
"First Offer") to Transfer such shares to the Corporation or its assignees upon
the terms set forth in this subsection. The First Offer shall state that the
Offeror proposes to Transfer shares, identify the proposed transferee, provide a
copy of a legally binding commitment of the proposed transferee to purchase the
shares and specify the number of shares (the "Offered Shares") and the terms
(including purchase price) of the proposed Transfer. The First Offer shall
remain open and irrevocable for a period of 20 business days (the "Acceptance
Period") from the date of its receipt by the Corporation. The Corporation may
accept the First Offer and purchase all or any portion of the Offered Shares by
delivering to the Offeror a notice (the "Acceptance Notice") in writing within
the Acceptance Period.
(ii) If the Corporation has not exercised its rights to purchase the
Offered Shares and if no Acceptance Notice is received by the Offeror within the
Acceptance Period, the Offeror may Transfer the Offered Shares on the terms and
conditions of the First Offer to the proposed transferee identified in the First
Offer within 30 calendar days after the expiration of the Acceptance Period. If
such Transfer is not made within such 30 calendar day period, the restrictions
provided for in this Article IV(C) shall again become effective.
(iii) As used herein:
(a) "Permitted Transferee" of any stockholder shall mean (i) such
stockholder's spouse, such stockholder's parents, members of such
stockholder's immediate family or such stockholder's lineal descendants,
(ii) all trusts, partnerships or similar entities principally owned by
and/or for the benefit of any of the foregoing, or (iii) any employee of,
partner in or other owner of (an "Employee") a professional association,
corporation, partnership or limited liability company providing radiology
services to the Corporation pursuant to a service agreement (a "Radiology
Practice"), or to any Radiology Practice if such Transfer is made in
accordance with the terms of a plan submitted by such Radiology Practice and
approved by the Board of Directors in respect of such types of Transfer.
(b) "Public Offering" means any primary or secondary public offering of
equity securities of the Corporation pursuant to an effective registration
statement under the Securities Act of 1933, as amended, other than pursuant
to a registration statement on Form S-4 or Form S-8 or any successor form.
(c) "Transfer" shall mean to, directly or indirectly, offer, sell,
assign, grant a participation in, pledge or otherwise dispose of, either
voluntarily or involuntarily and with or without consideration.
ARTICLE V.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize the Corporation action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
broadest and maximum extent permitted by the Delaware General Corporation Law as
so amended.
D-2
<PAGE>
ARTICLE VI.
A. The Corporation shall, to the broadest and maximum extent permitted by
Delaware law, as the same exists from time to time indemnify each person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he or she is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding.
B. In addition, the Corporation shall, to the broadest and maximum extent
permitted by Delaware law, as the same may exist from time to time pay to such
person any and all expenses (including attorneys' fees) incurred in defending or
settling any such action, suit or proceeding in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer, to repay such amount if it shall ultimately
be determined by a final judgment or other final adjudication that he or she is
not entitled to be indemnified by the Corporation as authorized in this Article
VI.
C. Subsections (A) and (B) of this Article VI to the contrary
notwithstanding, the Corporation shall not indemnify any such person with
respect to any of the following matters: (i) remuneration paid to such person if
it shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law; or (ii) any accounting of profits made
from the purchase or sale by such person of the Corporation's securities within
the meaning of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or (iii) actions brought about or contributed to by the
dishonesty of such person, if a final judgment or other final adjudication
adverse to such person establishes that acts of active and deliberate dishonesty
were committed or attempted by such person with actual dishonest purpose and
intent and were material to the adjudication; or (iv) actions based on or
attributable to such person having gained any personal profit or advantage to
which he or she was not entitled, in the event that a final judgment or other
final adjudication adverse to such person establishes that such person in fact
gained such personal profit or other advantage to which he or she was not
entitled; or (v) any matter in respect of which a final decision by a court with
competent jurisdiction shall determine that indemnification is unlawful.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article VI shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, this Certificate, the
Bylaws of the Corporation, by agreement, vote of stockholders, or disinterested
directors or otherwise.
ARTICLE VII.
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws of the Corporation.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the Delaware
General Corporation law) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the corporation.
D-3
<PAGE>
ARTICLE IX.
Election of directors at an annual or special meeting of stockholders need
not be by written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE X.
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by the Board of Directors or by a committee
of the Board of Directors which has been duly designated by the Board of
Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the Bylaws of the Corporation, include the power to
call such meetings, but such special meetings may not be called by any other
person or persons; provided, however, that if and to the extent that any special
meeting of stockholders may be called by any other person or persons specified
in any provisions of this Certificate or any amendment thereto or any
certificate filed under Section 151(g) of the General Corporation Law of
Delaware (or its successor statute as in effect from time to time hereunder),
then such special meeting may also be called by the person or persons in the
manner, at the times and for the purposes so specified.
ARTICLE XI.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred on stockholders herein are
granted subject to this reservation.
THE UNDERSIGNED, being duly elected secretary of Radiologix, Inc., a
Delaware corporation, hereto sets his hand on this Amended and Restated
Certificate of Incorporation on this [ ] day of [ ], 2000.
<TABLE>
<S> <C>
---------------------------------------------
Paul M. Jolas
Secretary
</TABLE>
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Radiologix's bylaws, as amended, provide that Radiologix shall, to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law,
as amended from time to time, indemnify all persons whom it may indemnify
pursuant thereto.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article VI of Radiologix's amended and restated certificate of incorporation
provides that Radiologix's directors will not be personally liable to Radiologix
or its stockholders for monetary damages resulting from breaches of their
fiduciary duty as directors except for liability (a) for any breach of the duty
of loyalty to Radiologix or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware General Corporation Law or (d) for
any transaction from which the director derived an improper personal benefit.
Reference is made to Article VIII of Radiologix's amended and restated
bylaws, as filed with the SEC, which provides for indemnification of directors
and officers.
Radiologix entered into an indemnification agreement with certain of its
directors and director nominees, pursuant to which Radiologix agreed to
indemnify such persons for losses arising out of any untrue statement or alleged
untrue statement of a material fact contained in this registration statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. See Exhibit Index for the list of exhibits at page II-5 of this
Form S-4, which is incorporated herein by reference.
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes:
a. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent
no more than 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
c. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed
to be the initial bona fide offering thereof.
3. a. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
b. The registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph (a) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the
Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such
II-2
<PAGE>
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
5. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4.10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
6. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on this 14th day of September, 2000.
<TABLE>
<S> <C> <C>
RADIOLOGIX, INC.
By: /s/ MARK L. WAGAR
-----------------------------------------
Mark L. Wagar
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARK L. WAGAR Chairman of the Board of Directors
------------------------------------ and Chief Executive Officer September 14, 2000
Mark L. Wagar (Principal Executive Officer)
/s/ DAVID W. YOUNG Vice President of Finance and
------------------------------------ Treasurer (Principal Accounting September 14, 2000
David W. Young Officer)
/s/ DERACE L. SCHAFFER
------------------------------------ Director September 14, 2000
Derace L. Schaffer, M.D.
/s/ MICHAEL L. SHERMAN
------------------------------------ Director September 14, 2000
Michael L. Sherman, M.D.
/s/ JOHN W. COLLOTON
------------------------------------ Director September 14, 2000
John W. Colloton
/s/ LESS T. CHAFEN
------------------------------------ Director September 14, 2000
Less T. Chafen, M.D
/s/ PAUL D. FARRELL
------------------------------------ Director September 14, 2000
Paul D. Farrell
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
The following exhibits are filed with this registration statement or are
incorporated by reference to previously filed material.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2 Amended and Restated Agreement and Plan of Merger, dated as
of September 12, 2000, by and among Radiologix, Inc., SKM-RD
LLC and SKM-RD Acquisition Corp. (included as Appendix A)
3.1 Form of Amended and Restated Certificate of Incorporation of
Radiologix, Inc. (included as Appendix D)
3.2 Form of Amended and Restated Bylaws of Radiologix, Inc.+
3.3 Form of Stockholders Agreement between Radiologix, Inc. and
certain stockholders+
3.4 Voting and Exchange Agreement dated as of September 13,
2000, by and among SKM-RD LLC, SKM-RD Acquisition Corp. and
certain stockholders+
4.1 Form of certificate evidencing ownership of Common Stock of
American Physician Partners, Inc.(3)
4.2 Form of Convertible Promissory Note of American Physician
Partners, Inc.(2)
4.3 Securities Purchase Agreement dated as of August 3, 1999 by
and between American Physician Partners, Inc. and
BT Capital Partners SBIC, L.P.(8)
4.4 Convertible Junior Subordinated Promissory Note dated
August 1, 1999 issued to BT Capital Partners SBIC, L.P.(8)
4.5 Certificate of Ownership and Merger of Radiologix, Inc. with
and into American Physician Partners, Inc.(10)
5 Opinion of Haynes and Boone, LLP+
10.1 American Physician Partners, Inc. 1996 Stock Option Plan.(2)
10.2 Employment Agreement between American Physician
Partners, Inc. and Gregory L. Solomon.(2)
10.3 Employment Agreement between American Physician
Partners, Inc. and Mark S. Martin.(2)
10.4 Employment Agreement between American Physician
Partners, Inc. and Sami S. Abbasi.(2)
10.5 Employment Agreement between American Physician
Partners, Inc. and Paul M. Jolas.(2)
10.6 Form of Indemnification Agreement for certain Directors and
Officers.(3)
10.7 Form of Registration Rights Agreement.(2)
10.8 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., APPI-Advanced
Radiology, Inc. and Carroll Imaging Associates, P.A.,
Diagnostic Imaging Associates, P.A., Drs. Thomas, Wallop,
Kim & Lewis, P.A., Drs. Copeland, Hyman and
Shackman, P.A., Drs. Decarlo, Lyon, Hearn & Pazourek, P.A.,
Harbor Radiologists, P.A., Perilla, Sindler &
Associates, P.A.(2)
10.9 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Ide Admin Corp. and Ide
Imaging Group, P.C.(2)
10.10 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., M & S X-Ray
Associates, P.A. and M&S Imaging Associates, P.A.(2)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.11 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Rockland Radiological
Group, P.C. and The Greater Rockland Radiological
Group, P.C.(2)
10.12 Service Agreement dated November, by and among American
Physician Partners, Inc., Advanced Imaging of Orange
County, P.C. and The Greater Rockland Radiological
Group, P.C.(2)
10.13 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Central Imaging
Associates, P.C. and The Greater Rockland Radiological
Group, P.C.(2)
10.14 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Nyack Magnetic Resonance
Imaging, P.C. and The Greater Rockland Radiological
Group, P.C.(2)
10.15 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Pelham Imaging
Associates, P.C. and The Greater Rockland Radiological
Group, P.C.(2)
10.16 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Women's Imaging
Consultants, P.C. and The Greater Rockland Radiological
Group, P.C.(2)
10.17 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., APPI-Pacific
Imaging Inc. and PIC Medical Group, Inc.(2)
10.18 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., Radiology and Nuclear
Medicine, a Professional Association and RNM L.L.C.(2)
10.19 Service Agreement dated November 26, 1997, by and among
American Physician Partners, Inc., APPI-Valley
Radiology, Inc. and Valley Radiology Medical
Associates, Inc.(2)
10.20 Consulting Agreement between American Physician
Partners, Inc. and Michael L. Sherman, M.D.(3)
10.21 Office Building Lease Agreement between Dallas Main Center
Limited Partnership and American Physician
Partners, Inc.(3)
10.22 First Amendment to Office Building Lease Agreement between
Dallas Main Center Limited Partnership and American
Physician Partners, Inc.(3)
10.24 Consulting Agreement between American Physician
Partners, Inc. and Lawrence R. Muroff, M.D.(3)
10.25 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Lawrence Muroff, M.D.(3)
10.26 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Mark Martin.(3)
10.27 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Sami Abbasi.(3)
10.28 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Gregory L. Solomon.(3)
10.29 First Amendment to Consulting Agreement between American
Physician Partners, Inc. and Lawrence R. Muroff, M.D.(3)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.30 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Michael Sherman, M.D.(3)
10.31 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Paul M. Jolas.(3)
10.32 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Derace Schaffer, M.D.(3)
10.33 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and John Pappajohn.(3)
10.34 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Mary Pappajohn.(3)
10.35 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Thebes Ltd.(3)
10.36 Side Letter dated November 12, 1997 by and between American
Physician Partners, Inc. and Halkis Ltd.(3)
10.37 Service Agreement dated January 1, 1998, by and among
American Physician Partners, Inc., Community Imaging
Partners, Inc., Community Radiology Associates, Inc. and
Drs. Korsower and Pion Radiology, P.A.(3)
10.38 Service Agreement dated April 1, 1998, by and among American
Physician Partners, Inc., Treasure Coast Imaging
Partners, Inc. and Radiology Imaging Associates--Basilico,
Gallagher & Raffa, M.D., P.A.(5)
10.39 First Amendment to Credit Agreement and Consent dated
May 19, 1998, by and among American Physician
Partners, Inc., General Electric Capital Corporation and the
other credit parties signatory thereto(5)
10.40 Employment Agreement between American Physician
Partners, Inc. and Mark L. Wagar(5)
10.41 Service Agreement dated September 1, 1998, by and among
American Physician Partners, Inc., WB&A Imaging
Partners, Inc. and WB&A Imaging, P.C.(6)
10.42 Office Building Lease Agreement between The Equitable-Nissei
Dallas Company and Fibreboard Corporation(6)
10.43 Office Building Sublease Agreement by and between Fibreboard
Corporation and American Physician Partners, Inc.(6)
10.44 First Amendment to Employment Agreement between American
Physician Partners, Inc. and Mark L. Wagar(7)
10.45 First Amendment to Employment Agreement between American
Physician Partners, Inc. and Mark S. Martin(7)
10.46 First Amendment to Employment Agreement between American
Physician Partners, Inc. and Sami S. Abbasi(7)
10.47 First Amendment to Employment Agreement between American
Physician Partners, Inc. and Paul M. Jolas(7)
10.48 Amendment No. 1 to American Physician Partners, Inc. 1996
Stock Option Plan(8)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.49 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and among American Physician
Partners, Inc., Carroll Imaging Associates, P.A., Diagnostic
Imaging Associates, P.A., Drs. Copeland, Hyman and
Shackman, P.A., Drs. Decarlo, Lyon, Hearn &
Pazourek, P.A., Drs. Thomas, Wallop, Kim & Lewis, P.A.,
Harbor Radiologists, P.A., and Perilla, Syndler &
Associates, P.A.(2)
10.50 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., Radiology and Nuclear Medicine, A
Professional Association.(2)
10.51 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Mid Rockland Imaging
Associates, P.C.(2)
10.52 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Rockland Radiological Group, P.C.(2)
10.53 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Advanced Imaging of Orange
County, P.C.(2)
10.54 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Central Imaging Associates, P.C.(2)
10.55 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Nyack Magnetic Resonance
Imaging, P.C.(2)
10.56 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Pelham Imaging Associates, P.C.(2)
10.57 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Women's Imaging Consultants, P.C.(2)
10.58 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Pacific Imaging Consultants, A Medical
Group, Inc.(2)
10.59 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Total Medical Imaging, Inc.(2)
10.60 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and Valley Radiologists Medical
Group, Inc.(2)
10.61 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and The Ide Group, P.C.(2)
10.62 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and M&S X-Ray Associates, P.A.(2)
10.63 Agreement and Plan of Reorganization and Merger, dated
June 27, 1997 by and between American Physician
Partners, Inc., and South Texas MR, Inc.(2)
10.64 Agreement and Plan of Exchange, dated June 27, 1997 by and
between American Physician Partners, Inc., and San Antonio
MR, Inc.(2)
10.65 Agreement and Plan of Exchange, dated June 27, 1997 by and
among American Physician Partners, Inc., Lexington MR, Ltd.
and the Sellers.(2)
10.66 Agreement and Plan of Exchange, dated June 27, 1997 by and
among American Physician Partners, Inc., Madison Square
Joint Venture and the Sellers.(2)
10.67 Agreement and Plan of Exchange, dated June 27, 1997 by and
among American Physician Partners, Inc., South Texas No. 1
MRI Limited Partnership, a Texas limited partnership, and
the Sellers.(2)
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.68 Agreement and Plan of Exchange, dated June 27, 1997 by and
among American Physician Partners, Inc., San Antonio MRI
Partnership No. 2 Ltd., a Texas limited partnership, and the
Sellers(2)
10.69 Agreement and Plan of Exchange, dated June 27, 1997 by and
between American Physician Partners, Inc., and the
Sellers(2)
10.70 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and among
American Physician Partners, Inc., Carroll Imaging
Associates, P.A., Diagnostic Imaging Associates, P.A.,
Drs. Thomas, Wallop, Kim & Lewis, P.A., Drs. Copeland,
Hyman & Shackman, P.A., Drs. DeCarlo, Lyon, Hearn &
Pazourek, P.A., Harbor Radiologists, P.A., and Perilla,
Sindler & Associates, P.A.(2)
10.71 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Radiology and Nuclear
Medicine, A Professional Association.(2)
10.72 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Mid Rockland Imaging
Associates, P.C.(2)
10.73 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Rockland Radiological
Group, P.C.(2)
10.74 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Advanced Imaging of
Orange County, P.C.(2)
10.75 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Central Imaging
Associates, P.C.(2)
10.76 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Nyack Magnetic
Resonance Imaging, P.C.(2)
10.77 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Pelham Imaging
Associates, P.C.(2)
10.78 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Women's Imaging
Consultants, P.C.(2)
10.79 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Pacific Imaging
Consultants, A Medical Group, Inc.(2)
10.80 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Total Medical
Imaging, Inc.(2)
10.81 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and Valley Radiologists
Medical Group, Inc.(2)
</TABLE>
II-9
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EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.82 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and The Ide
Group, P.C.(2)
10.83 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and M & S X-Ray
Associates, P.A.(2)
10.84 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and South Texas
MR, Inc.(2)
10.85 Amendment No. 1 to the Agreement and Plan of Reorganization
and Merger, dated as of September 30, 1997, by and between
American Physician Partners, Inc., and San Antonio
MR, Inc.(2)
10.86 Amendment No. 1 to the Agreement and Plan of Exchange, dated
September 30, 1997, by and between American Physician
Partners, Inc., and Lexington MR, Ltd.(2)
10.87 Amendment No. 1 to the Agreement and Plan of Exchange, dated
September 30, 1997, by and between American Physician
Partners, Inc., and Madison Square Joint Venture.(2)
10.88 Amendment No. 1 to the Agreement and Plan of Exchange, dated
September 30, 1997, by and between American Physician
Partners, Inc., and South Texas No. 1 MRI Limited
Partnership.(2)
10.89 Amendment No. 1 to the Agreement and Plan of Exchange, dated
September 30, 1997, by and between American Physician
Partners, Inc., and San Antonio MRI Partnership
No. 2, Ltd.(2)
10.90 Asset Purchase Agreement, dated as of January 1, 1998, by
and among American Physician Partners, Inc., Community
Radiology Associates, Inc., Drs. Korsower and Pion
Radiology, P.A., and the Principal Stockholders(4)
10.91 Asset Purchase Agreement, dated as of January 12, 1998, by
and among American Physician Partners, Inc., Valley Imaging
Partners, Inc., Questar Imaging, Inc. and Questar Imaging
VR, Inc.(4)
10.92 Asset Purchase Agreement, dated as of January 23, 1998, by
and among American Physician Partners, Inc., Valley Imaging
Partners, Inc., PAL Imaging Corp. and the Principal
Stockholders(4)
10.93 Asset Purchase Agreement, dated as of April 1, 1998, by and
among American Physician Partners, Inc., Treasure Coast
Imaging Partners, Inc. and Radiology Imaging Associates,
Basilico, Gallagher and Raffa, M.D., P.A. and Robert F.
Basilico, M.D., Edward Gallagher, M.D., R.J. Raffa, M.D.,
Joseph T. Charles, M.D., Alex N. Vennos, M.D., and Robin J.
Connolly, M.D.(5)
10.94 Asset Purchase Agreement, dated as of April 1, 1998, by and
among American Physician Partners, Inc., Treasure Coast
Imaging Partners, Inc. and St. Lucie Imaging and Breast
Center, Inc. and Robert F. Basilico, M.D., Edward
Gallagher, M.D., R.J. Raffa, M.D., Joseph T.
Charles, M.D., Alex N. Vennos, M.D., and Robin J.
Connolly, M.D.(5)
10.95 Asset Purchase Agreement, dated as of April 28, 1998, by and
among American Physician Partners, Inc., Valley Imaging
Partners, Inc., LXL, Ltd. and the Partners of LXL, Ltd.(5)
</TABLE>
II-10
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EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
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10.96 Asset Purchase Agreement, dated as of June 1, 1998, by and
among American Physician Partners, Inc., Mid Rockland
Imaging Partners, Inc., Empire State Imaging
Partners, Inc., RF Management Corp. and Modern Medical
Modalities Corporation(5)
10.97 Asset Purchase Agreement, dated as of June 23, 1998, by and
among American Physician Partners, Inc., Valley Imaging
Partners, Inc., Brewster Imaging Center, Inc. and Each
Principal Stockholder(5)
10.98 Asset Purchase Agreement, dated as of June 29, 1998, by and
among American Physician Partners, Inc., Valley Imaging
Partners, Inc. and Bryan M. Shieman, M.D., a sole
proprietorship d/b/a El Camino Center for Osteoporosis
and/or ECOO II(5)
10.99 Stock Purchase Agreement, dated September 1, 1998, by and
among American Physician Partners, Inc., WB&A Imaging
Partners, Inc. and Vimla Bhooshan, M.D., John B.
DeGrazia, M.D., Edwin Goldstein, M.D., Paul T. Lubar, M.D.,
Calvin D. Neithamer, M.D., William P. O'Grady, M.D.,
Robert A. Olshaker, M.D., Stanley M. Perl, M.D., Michael S.
Usher, M.D., Alan B. Kronthal, M.D., Steven A.
Meyers, M.D., Victor A. Bracey, M.D. and Larry W.
Busching(6)
10.100 Asset Purchase Agreement, dated September 1, 1998, by and
among American Physician Partners, Inc., Ormond Imaging
Partners, Inc., Magnetic Resonance Imaging Associates
Limited Partnership and Paul T. Lubar, Stanley M. Perl,
Michael S. Usher, John B. DeGrazia, Larry W. Busching, Vimla
Bhooshan, William P. O'Grady, Robert A. Olshaker, and
Calvin D. Neithamer(6)
10.101 Asset Purchase Agreement, dated September 1, 1998, by and
among American Physician Partners, Inc., Ormond Imaging
Partners, Inc., Duke Associates Limited Partnership and
Paul T. Lubar, Stanley M. Perl, Michael S. Usher, John B.
DeGrazia, Larry W. Busching, Vimla Bhooshan, William P.
O'Grady, Edwin Goldstein, Robert A. Olshaker, Calvin D.
Neithamer and Alan J. Kronthal(6)
10.102 Stock Purchase Agreement effective as of August 1, 1999 by
and among American Physician Partners, Inc., Questar
Imaging, Inc. and the stockholders of Questar
Imaging, Inc.(8)
10.103 Form of Employment Agreement between Radiologix, Inc. and
Mark L. Wagar.+
10.104 Form of Employment Agreement between Radiologix, Inc. and
Mark S. Martin.+
10.105 Form of Employment Agreement between Radiologix, Inc. and
Paul M. Jolas.+
10.106 Form of Radiologix 2000 Stock Option Plan+
21.1 Subsidiaries+
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of Haynes and Boone LLP (included in Exhibit 5)
99.1 Form of Proxy*
99.2 Form of Election and Letter of Transmittal*
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
99.4 Letter to Stockholders*
99.5 Letter of Instruction*
99.6 Guidelines for Certification of Taxpayer Identification on
Substitute Form W-9*
</TABLE>
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NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
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99.7 Consent of UBS Warburg LLC*
</TABLE>
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<TABLE>
<S> <C>
* Filed herewith.
+ To be filed by amendment.
(1) Incorporated by reference to the corresponding Exhibit
number to the registrant's Form 10-K filed on March 29,
2000.
(2) Incorporated by reference to the corresponding Exhibit
number to the registrant's Registration Statement
No. 333-31611 on Form S-4.
(3) Incorporated by reference to the corresponding Exhibit
number to the registrant's Registration Statement
No. 333-30205 on Form S-1.
(4) Incorporated by reference to the corresponding Exhibit
number to the registrant's Form 10-Q filed on May 15, 1998.
(5) Incorporated by reference to the corresponding Exhibit
number to the registrant's Form 10-Q filed on August 14,
1998.
(6) Incorporated by reference to the corresponding Exhibit
number to the registrant's Form 10-Q filed on November 13,
1998.
(7) Incorporated by reference to the corresponding Exhibit
number to the registrant's Form 10-Q filed on May 17, 1999.
(8) Incorporated by reference to the corresponding Exhibit
number to the Registrant's Form 8-K filed on August 3, 1999.
(9) Incorporated by reference to the corresponding Exhibit
number to the Registrant's Form 10-Q filed on August 16,
1999.
(10) Incorporated by reference to the corresponding Exhibit
number to the Registrant's Form 8-K filed on September 24,
1999.
</TABLE>
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