<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
MEDICAL IMAGING CENTERS OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Name of Each Registrant as Specified In Its Charter)
MEDICAL IMAGING CENTERS OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies:
MICA Common Stock
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,175,144(1)
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$11.75(2)
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$37,307,942
---------------------------------------------------------------------
(5) Total fee paid:
$7,461.59
---------------------------------------------------------------------
(1) This represents the number of shares of Common Stock of MEDICAL IMAGING
CENTERS OF AMERICA, INC. ("MICA"), no par value (the "MICA Common Stock"),
options and warrants to purchase such shares, outstanding as of August 15,
1996.
(2) Pursuant to Rule 0-11, the filing fee was computed on the basis of the
Merger Consideration of $11.75 in cash per share of MICA Common Stock.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$7,461.59
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
Medical Imaging Centers of America, Inc.
---------------------------------------------------------------------
(4) Date Filed:
August 27, 1996
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<PAGE> 2
MEDICAL IMAGING CENTERS OF AMERICA, INC.
9444 FARNHAM STREET, SUITE 100
SAN DIEGO, CALIFORNIA 92123
September 24, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Medical Imaging Centers of America, Inc., a California corporation ("MICA"), to
be held on November 6, 1996 at the La Jolla Marriott, 4240 La Jolla Village
Drive, La Jolla, California 92037, commencing at 10 a.m. Pacific Time (the
"Special Meeting").
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve the merger (the "Merger") of MICA with a newly formed wholly
owned subsidiary of U.S. Diagnostic Labs Inc., a Delaware corporation ("USDL"),
pursuant to which MICA will become a wholly owned subsidiary of USDL and
shareholders of MICA will receive $11.75 per share in cash in exchange for their
MICA common stock (other than shares as to which dissenters' rights are
perfected).
The Board of Directors of MICA, with the advice of its own legal and
financial advisors, has unanimously adopted and approved the Merger and
unanimously recommends that you vote in favor of the Merger at the Special
Meeting. The MICA Board of Directors has received a written opinion from its
financial advisor to the effect that the merger consideration of $11.75 per
share to be paid to the MICA shareholders is fair from a financial point of
view.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, WE URGE YOU TO COMPLETE,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR SHARES OF MICA COMMON STOCK WILL BE
VOTED IN ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY. IF YOU
DO NOT RETURN THE ACCOMPANYING FORM OF PROXY, YOUR SHARES WILL NOT BE VOTED IN
FAVOR OF APPROVAL OF THE MERGER AND WILL HAVE THE SAME EFFECT AS A NO VOTE. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. YOUR PROMPT COOPERATION WILL BE
GREATLY APPRECIATED.
Very truly yours,
LOGO
Robert S. Muehlberg
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
MEDICAL IMAGING CENTERS OF AMERICA, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 24, 1996
To the Shareholders of Medical Imaging Centers of America, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of MEDICAL
IMAGING CENTERS OF AMERICA, INC. ("MICA") will be held at the La Jolla Marriott,
4240 La Jolla Village Drive, La Jolla, California 92037 at 10 a.m., Pacific Time
on November 6, 1996 for the following purposes:
(1) to consider and vote upon a proposal to approve an Agreement and
Plan of Merger, pursuant to which (a) MICA Acquiring Corporation ("Merger
Sub"), a California corporation and a wholly owned subsidiary of U.S.
Diagnostic Labs Inc., a Delaware corporation ("USDL"), will be merged with
and into MICA (the "Merger") and (b) each outstanding share of MICA's
common stock ("MICA Common Stock") (other than shares as to which
dissenters' rights are perfected) will be converted into the right to
receive $11.75 per share in cash;
(2) to transact such other business as may properly come before the
meeting and any adjournments or postponements thereof.
A copy of the Proxy Statement relating to the Special Meeting (which
includes, as Appendix A thereto, a copy of the Agreement and Plan of Merger) is
attached to this Notice and incorporated herein by reference.
Only holders of record of MICA Common Stock at the close of business on
September 20, 1996 will be entitled to notice of and to vote at the meeting and
any adjournments or postponements thereof. The meeting is subject to adjournment
from time to time as the shareholders present in person or by proxy determine.
The affirmative vote of the holders of a majority of the outstanding shares of
MICA Common Stock is necessary to approve the Merger.
The Merger is the result of an auction process initiated by MICA to sell or
merge MICA with the goal of obtaining maximum value for the MICA shareholders.
The auction process to sell or merge MICA was initiated pursuant to the terms of
an Agreement of Compromise and Settlement between MICA and its affiliates, on
the one hand, and Steel Partners, II, L.P., a Delaware limited partnership,
Steel Partners Services, Ltd., a New York corporation (collectively, "Steel")
and Steel Partners, L.L.C., a Delaware limited liability company (collectively,
the "Steel Parties"), on the other hand. Steel currently owns 19.6% of the MICA
Common Stock. The Steel Parties have agreed to vote in favor of the Merger and
the Merger Agreement.
THE BOARD OF DIRECTORS OF MICA RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING
SHARES OF MICA COMMON STOCK IS NECESSARY TO APPROVE THE MERGER. IF THE MERGER IS
NOT (I) APPROVED BY A MAJORITY OF THE OUTSTANDING SHARES OF MICA COMMON STOCK
AND (II) CONSUMMATED BY NOVEMBER 19, 1996, THE CURRENT MEMBERS OF MICA'S BOARD
OF DIRECTORS MUST RESIGN FROM THEIR POSITIONS AND BE REPLACED BY DESIGNEES OF
THE STEEL PARTIES. SEE "THE MERGER -- BACKGROUND OF THE MERGER" AND "CONDUCT OF
BUSINESS IF THE MERGER IS NOT CONSUMMATED."
Holders of MICA Common Stock who comply with the requirements of Sections
1300 through 1312 of the California Corporations Code (the "CCC") are entitled
to assert dissenters' rights with respect to the proposed Merger and to obtain
payment of the fair value of their shares if the proposed Merger is consummated.
A copy of Sections 1300 through 1312 of the CCC is attached as Appendix B to the
Proxy Statement that accompanies this Notice. See "The Merger -- Rights of
Dissenting Shareholders" in the Proxy Statement.
All shareholders are cordially invited to attend the meeting in person.
<PAGE> 4
Whether or not you plan to attend, please complete, sign, date and return
the accompanying form of proxy in the enclosed postage-prepaid envelope. If no
instructions are given on the accompanying form of proxy, the shares represented
by the proxy will be voted at the Special Meeting FOR approval of the Merger and
in accordance with the Proxy Statement on any other business that may properly
come before the Special Meeting and any postponements or adjournments thereof.
IF YOU DO NOT RETURN THE ACCOMPANYING FORM OF PROXY, YOUR SHARES WILL NOT BE
VOTED IN FAVOR OF APPROVAL OF THE MERGER AND WILL HAVE THE SAME EFFECT AS A NO
VOTE. If you are present at the Special Meeting, you may withdraw your proxy and
vote in person. We appreciate your giving this matter your prompt attention.
If you have any questions about giving your proxy or require assistance,
please call:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
(212) 269-5550 (COLLECT)
OR
CALL TOLL FREE (800) 326-3066
By Order of the Board of Directors
LOGO
Denise L. Sunseri
Vice President, Chief Financial
Officer and Secretary
San Diego, California
September 24, 1996
<PAGE> 5
MEDICAL IMAGING CENTERS OF AMERICA, INC.
9444 FARNHAM STREET, SUITE 100
SAN DIEGO, CALIFORNIA 92123
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 6, 1996
This proxy statement (the "Proxy Statement") is being furnished to the
shareholders of Medical Imaging Centers of America, Inc., a California
corporation ("MICA"), in connection with a special meeting of shareholders of
MICA (the "Special Meeting") to be held on November 6, 1996 at 10 a.m., Pacific
Time, at the La Jolla Marriott, 4240 La Jolla Village Drive, La Jolla,
California 92037. The accompanying proxy is being solicited by MICA's Board of
Directors and is to be voted at the Special Meeting and at any adjournments or
postponements thereof.
At the Special Meeting, holders of shares of common stock of MICA ("MICA
Common Stock") will consider and vote upon a proposal to approve an Agreement
and Plan of Merger, dated as of August 1, 1996 (together with the exhibits and
schedules thereto, the "Merger Agreement"), by and among MICA, U.S. Diagnostic
Labs Inc., a Delaware corporation ("USDL"), and MICA Acquiring Corporation, a
California corporation and a wholly owned subsidiary of USDL ("Merger Sub"). A
copy of the Merger Agreement is attached to this Proxy Statement as Appendix A.
HOLDERS OF MICA COMMON STOCK WHO COMPLY WITH THE REQUIREMENTS OF SECTIONS
1300 THROUGH 1312 OF THE CALIFORNIA CORPORATIONS CODE (THE "CCC") ARE ENTITLED
TO ASSERT DISSENTERS' RIGHTS WITH RESPECT TO THE PROPOSED MERGER AND TO OBTAIN
PAYMENT OF THE FAIR VALUE OF THEIR SHARES IF THE PROPOSED MERGER IS CONSUMMATED.
A COPY OF SECTIONS 1300 THROUGH 1312 OF THE CCC IS ATTACHED TO THE PROXY
STATEMENT AS APPENDIX B. SEE "THE MERGER -- RIGHTS OF DISSENTING SHAREHOLDERS."
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS
OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Merger Agreement provides that Merger Sub will be merged with and into
MICA (the "Merger"), with MICA being the surviving corporation after the Merger.
In the Merger, each outstanding share of MICA Common Stock (other than shares as
to which dissenters' rights are perfected) will be converted into the right to
receive a cash payment of $11.75 (the "Merger Consideration"), and each
outstanding share of Merger Sub common stock ("Merger Sub Stock") will be
converted into one share of MICA Common Stock. Thus, as a result of the Merger,
MICA will become a wholly owned subsidiary of USDL and the MICA shareholders
will receive the Merger Consideration, without interest, in exchange for their
shares.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT IN CONNECTION WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY MICA. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF
A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY
STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF MICA SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. MICA UNDERTAKES NO OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN
SUBSEQUENT TO THE DATE HEREOF.
On September 20, 1996, the high and low sales prices for MICA Common Stock
as reported on the OTC Bulletin Board were $11.12 and $11.12, respectively, and
the last reported sale price was per $11.12 share.
The approximate date on which this Proxy Statement and the accompanying
proxy are first being mailed to shareholders is September 24, 1996.
THE DATE OF THIS PROXY STATEMENT IS SEPTEMBER 20, 1996.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ---------------------------------------------------
<S> <C>
SUMMARY..................................... 1
Medical Imaging Centers of America,
Inc..................................... 1
U.S. Diagnostic Labs Inc.................. 1
The Special Meeting; Record Date;
Quorum.................................. 1
Matters To Be Considered at the Meeting;
Voting Information; Vote Required....... 2
Structure of the Merger................... 2
Recommendations of the Board of Directors
of MICA................................. 2
Opinion of Financial Advisor.............. 2
Reasons of USDL and Merger Sub
for the Merger.......................... 3
Certain Effects of the Merger............. 3
Conduct of Business After the Merger...... 3
Conduct of Business if the Merger Is Not
Consummated............................. 3
Interests of Certain Persons in the
Merger.................................. 4
Dissenters' Rights........................ 4
Certain Federal Income Tax Consequences of
the Merger.............................. 4
Effective Time of the Merger.............. 4
Payment Agent; Surrender of Stock
Certificates............................ 4
Conditions to Consummation of the
Merger.................................. 5
Waiver, Amendment and Termination of the
Merger Agreement........................ 5
Summary Financial Data.................... 5
Market Price and Dividend Information for
MICA Common Stock....................... 6
MEETING INFORMATION......................... 7
Introduction.............................. 7
Matters To Be Considered at the Meeting... 7
Voting Information........................ 7
Solicitation, Revocation and Use of
Proxies................................. 7
THE MERGER.................................. 8
In General................................ 8
Background of the Merger.................. 8
MICA's Reasons for the Merger;
Recommendation of the MICA Board........ 13
Opinion of Financial Advisor.............. 15
Reasons of USDL and Merger Sub for the
Merger.................................. 19
Certain Effects of the Merger............. 19
Conduct of Business After the Merger...... 19
Conduct of Business if the Merger Is Not
Consummated............................. 19
Regulatory Approvals...................... 20
Interests of Certain Persons in the
Merger; Conflicts of Interest........... 20
Rights of Dissenting Shareholders......... 21
Certain Federal Income Tax Consequences of
the Merger.............................. 23
Financing the Merger...................... 24
Expenses of the Transaction............... 25
SELECTED FINANCIAL DATA..................... 26
THE MERGER AGREEMENT........................ 27
General................................... 27
Effective Time............................ 27
Conversion of Shares; Surrender of Stock
Certificates; Payment for Shares........ 27
<CAPTION>
SECTION PAGE
- ---------------------------------------------------
<S> <C>
Representations and Warranties............ 28
Covenants; Confidentiality................ 28
No Solicitation........................... 28
Interim Operations........................ 29
Employee Benefits and Employee Matters.... 30
Treatment of Stock Options and Warrants... 31
Employment and Severance Arrangements..... 31
Indemnification of Officers and
Directors............................... 32
Conditions to the Merger.................. 32
Waiver, Amendment and Termination......... 33
Fees and Expenses......................... 34
MARKET PRICE AND DIVIDEND INFORMATION FOR
MICA
COMMON STOCK.............................. 34
BUSINESS OF USDL AND MERGER SUB............. 35
BUSINESS OF MICA............................ 36
Medical Diagnostic Imaging Industry....... 36
Range of Services......................... 36
Medical Services Revenue Mix.............. 38
Technology Sources........................ 38
Risk Factors and Certain Cautionary
Statements.............................. 38
Employees................................. 41
Properties................................ 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................ 41
Business.................................. 41
Operating Trends.......................... 41
Results of Operations..................... 42
Liquidity and Capital Resources........... 43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................... 44
Security Ownership of Certain Beneficial
Owners.................................. 44
Security Ownership of Management.......... 45
Change in Control......................... 45
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.............................. 46
CERTAIN LITIGATION.......................... 46
INDEPENDENT AUDITORS........................ 46
OTHER MATTERS............................... 47
SHAREHOLDER PROPOSALS....................... 47
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES AND EXCHANGE ACT OF 1934....... 47
MEDICAL IMAGING CENTERS OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS................................ F-1
APPENDICES
Appendix A Agreement and Plan of Merger
Appendix B Sections 1300-1312 of the
California Corporations Code
Appendix C Opinion, dated August 1, 1996,
of Batchelder & Partners, Inc.
</TABLE>
<PAGE> 7
SUMMARY
The following is a summary of certain information contained or incorporated
by reference in this Proxy Statement. The following summary is not intended to
be complete and is qualified in its entirety by reference to the more detailed
information contained in this Proxy Statement and the exhibits hereto or
incorporated herein by reference. Shareholders are urged to review the entire
Proxy Statement carefully.
MEDICAL IMAGING CENTERS OF AMERICA, INC.
Medical Imaging Centers of America, Inc. ("MICA" or the "Company") provides
outpatient services and medical equipment rentals to physicians, managed care
providers and hospitals. These services include magnetic resonance imaging
("MRI"), computed tomography ("CT"), nuclear medicine and ultrasound. The
Company's operations include diagnostic medical centers, diagnostic equipment
rentals, fee-for-service agreements (fixed and mobile), and management,
marketing and related support services. See "Business of MICA."
MICA was incorporated in 1981 as a California corporation. Its principal
executive offices are located at 9444 Farnham Street, Suite 100, San Diego,
California 92123, and its telephone number is (619) 560-0110.
U.S. DIAGNOSTIC LABS INC.
U.S. Diagnostic Labs Inc. ("USDL") is a physician practice management
("PPM") provider specializing in the acquisition, operation and management of
multi-modality diagnostic imaging centers ("Imaging Centers") and related
medical facilities. USDL currently owns 63 Imaging Centers and manages 17 other
facilities and is actively seeking additional Imaging Centers.
USDL's objective is to become the leading network provider of outpatient
imaging services in the United States. USDL believes that the highly fragmented
nature of the diagnostic imaging industry provides a significant opportunity to
build rapidly through acquisitions a multi-regional PPM company focused
primarily on this industry. USDL believes that managed care and other
third-party payors will increasingly prefer to contract for service on a
national or regional basis, and that USDL's development of a multi-regional
network of centers will permit it to obtain such contracts on favorable terms.
Industry sources estimate that there are over 2,200 Imaging Centers currently
operating in the U.S., the substantial majority of which are owned and operated
on an independent basis. USDL believes that there are and will continue to be
many attractive acquisition opportunities because Imaging Center operators are
finding it more difficult to compete independently as managed care becomes more
prevalent.
MICA Acquiring Corporation ("Merger Sub") is a wholly owned subsidiary of
USDL and has not conducted any business other than in connection with entering
into the Merger Agreement.
USDL was incorporated in 1993 as a Delaware corporation. Merger Sub was
incorporated in 1996 as a California corporation. Both USDL and Merger Sub's
principal executive offices are located at 777 South Flagler Drive, Suite 1006,
West Tower, West Palm Beach, Florida 33401, and their telephone number at that
location is (561) 832-0006.
THE SPECIAL MEETING; RECORD DATE; QUORUM
The Special Meeting of Shareholders of MICA will be held on November 6,
1996, 10 a.m., Pacific Time, at the LaJolla Marriott 4240 La Jolla Village
Drive, La Jolla, California 92037. Only holders of record of MICA Common Stock
at the close of business on September 20, 1996, are entitled to notice of and to
vote at the Special Meeting. On that date, there were 2,695,251 shares of MICA
Common Stock outstanding, with each share entitled to cast one vote. The
presence (in person or by proxy) of the holders of a majority of the outstanding
shares of MICA Common Stock is necessary to constitute a quorum at the Special
Meeting. Abstentions and broker nonvotes are counted for purposes of determining
whether a quorum exists at the Special Meeting. However, abstentions, broker
nonvotes and proxies that are not returned will have the same effect as a no
vote with respect to the Merger because approval by the holders of a majority of
the outstanding
1
<PAGE> 8
shares is required to approve the Merger Agreement. See "Meeting
Information -- Introduction" and "-- Voting Information."
MATTERS TO BE CONSIDERED AT THE MEETING; VOTING INFORMATION; VOTE REQUIRED
At the Special Meeting, shareholders will consider and vote upon a proposal
to approve the Merger Agreement, a copy of which is attached as Appendix A to
this Proxy Statement and is incorporated by reference herein. Approval of the
Merger Agreement requires the affirmative vote of the holders of a majority of
the outstanding shares of MICA Common Stock. The Steel Parties have agreed to
vote in favor of the Merger and the Merger Agreement. See "Meeting
Information -- Matters To Be Considered At The Meeting" and "-- Voting
Information."
STRUCTURE OF THE MERGER
Pursuant to the Merger Agreement, Merger Sub will merge with and into MICA,
with MICA being the surviving corporation after the Merger. Each outstanding
share of MICA Common Stock (other than shares as to which dissenters' rights are
perfected) will be converted into the right to receive the Merger Consideration,
without interest. Each outstanding share of common stock of Merger Sub Stock
will be exchanged for one share of MICA Common Stock. See "The Merger
Agreement -- General" and "-- Conversion of Shares; Surrender of Stock
Certificates; Payment for Shares."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF MICA
The Board of Directors of MICA has unanimously determined, based upon the
opinion of its financial advisor, Batchelder & Partners, Inc. ("Batchelder") and
other factors, that the terms of the Merger Agreement are fair to, and in the
best interests of, MICA and its shareholders, has unanimously approved and
adopted the Merger Agreement and recommends that the MICA shareholders vote FOR
the proposal to approve the Merger Agreement. See "The Merger -- Background of
the Merger" and "-- MICA's Reasons For the Merger; Recommendation of the MICA
Board."
The Merger is the result of an auction process initiated by MICA to sell or
merge MICA with the goal of obtaining maximum value for the MICA shareholders.
The auction process to sell or merge MICA was initiated pursuant to the terms of
an Agreement of Compromise and Settlement (the "Settlement Agreement") between
MICA and its affiliates, on the one hand, and Steel Partners, II, L.P., a
Delaware limited partnership ("Steel Partners"), Steel Partners Services, Ltd.,
a New York corporation ("Steel Services;" Steel Partners and Steel Services,
collectively, "Steel") and Steel Partners, L.L.C., a Delaware limited liability
company (collectively, the "Steel Parties"), on the other hand. Steel currently
owns 19.6% of the MICA Common Stock. The Company will reimburse Steel for its
legal fees and other expenses in the approximate amount of $50,000 upon
consummation of the Merger. See "The Merger -- Background of the Merger."
The Board of Directors of MICA unanimously recommends that the shareholders
vote FOR approval of the Merger. The affirmative vote of a majority of the
outstanding shares of MICA Common Stock is necessary to approve the Merger. If
the Merger is not (i) approved by a majority of the outstanding shares of MICA
Common Stock and (ii) consummated by November 19, 1996, the Settlement Agreement
requires that the current members of MICA's Board of Directors resign from their
positions and be replaced by designees of the Steel Parties. See "The
Merger -- Background of the Merger" and "-- Conduct of Business if the Merger is
Not Consummated." See "Meeting Information -- Voting Information."
OPINION OF FINANCIAL ADVISOR
Batchelder, an investment banking firm, has rendered a written opinion to
the MICA Board of Directors to the effect that, subject to the assumptions set
forth therein, the Merger Consideration is fair to the MICA shareholders from a
financial point of view. The full text of the written opinion of Batchelder,
which sets forth the assumptions made, procedures followed, matters considered
and limits of review, is attached hereto as
2
<PAGE> 9
Appendix C. SHAREHOLDERS ARE URGED TO AND SHOULD READ SUCH OPINION CAREFULLY AND
IN ITS ENTIRETY. See "The Merger -- Opinion of Financial Advisor."
REASONS OF USDL AND MERGER SUB FOR THE MERGER
USDL has determined that the Merger is in its best interests because MICA
will add several centers in California and Florida, where USDL has significant
operations, and USDL will be able to consolidate overhead. In addition, USDL
believes that it has the expertise to restructure and increase the profitability
of certain of MICA's fixed site operations. See "The Merger -- Reasons of USDL
and Merger Sub for the Merger."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, MICA will become a wholly owned subsidiary of
USDL. Upon the effectiveness of the Merger, shareholders of MICA will no longer
have any continuing interest in MICA. MICA Common Stock will no longer be traded
on the OTC Bulletin Board, and the registration of MICA Common Stock under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") will be
terminated.
After the Merger, MICA's Board of Directors will be filled with individuals
designated by USDL. The Merger Agreement provides that the officers of MICA at
the effective time of the Merger (the "Effective Time") shall be the initial
officers of MICA after the Merger until their respective successors are duly
appointed or elected and qualified.
Under the terms of MICA's Convertible Subordinated Debentures (in an
approximate amount outstanding as of June 30, 1996 of $5,400,000) (the
"Debentures"), MICA is obligated to offer to prepay the Debentures in the event
of a "change in control" of MICA. "Change in control" is defined to include the
consummation of the transaction contemplated by the Merger Agreement. See "The
Merger -- Certain Effects of the Merger."
CONDUCT OF BUSINESS AFTER THE MERGER
Following consummation of the Merger, it is expected that the business and
operations of MICA will be continued by MICA substantially as they are currently
being conducted. Except for the Merger, USDL has no current intention to sell or
dispose of all or any material portion of the MICA Common Stock or the business
or assets of MICA, and USDL has no present plans or proposals that would result
in any other extraordinary corporate transaction such as a merger,
reorganization, liquidation, relocation of operations, sale or transfer of
assets involving MICA or any material change in MICA's corporate structure,
business or composition of its management. USDL will continue to evaluate MICA's
business and operations and will make such changes as are deemed appropriate.
See "The Merger -- Conduct of Business After the Merger."
CONDUCT OF BUSINESS IF THE MERGER IS NOT CONSUMMATED
Under the terms of MICA's Debentures, MICA is obligated to offer to prepay
the Debentures in the event of a "change in control" of MICA. "Change in
control" is defined to include the acquisition by any person or group of persons
of the power to elect, appoint or cause the election of at least a majority of
the members of the Board of Directors. Under the Settlement Agreement, if the
Merger is not consummated by November 19, 1996, the current members of MICA's
Board of Directors must resign from their positions and be replaced by designees
of the Steel Parties. In the opinion of MICA's legal advisors, if the designees
of the Steel Parties constitute the entire Board, it would trigger such a
"change in control," which, in turn, would give rise to the prepayment
obligation. Steel has advised MICA that it and its legal advisors disagree with
this conclusion and have concluded that no "change in control" would occur for
purposes of the Debentures if Steel assumes control of the Board and hence that
no prepayment obligation would be triggered. See "The Merger -- Conduct of
Business if the Merger is Not Consummated."
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<PAGE> 10
If the Merger is not consummated, USDL may purchase MICA Common Stock from
time to time, subject to availability at prices deemed acceptable to USDL,
pursuant to a merger transaction, tender offer, open market or privately
negotiated transactions or otherwise on terms more or less favorable to the MICA
shareholders than the terms of the Merger. However, USDL has made no
determination as to any future transactions if the Merger is not consummated.
See "The Merger -- Conduct of Business if the Merger is Not Consummated."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
USDL has agreed to cause MICA to maintain for the benefit of current
directors and officers of MICA, for six years after the Merger, the
indemnification rights currently provided for in MICA's articles of
incorporation and bylaws. USDL has also agreed to cause MICA to maintain for the
benefit of current directors and officers of MICA, for three years after the
Merger, director and officer liability insurance. USDL has also agreed to
indemnify current directors and officers of MICA with respect to certain
matters. In addition, certain executive officers of MICA are participants in a
severance plan providing for the payment of severance benefits if their
employment is involuntarily terminated, which includes a termination due to a
change of control. See "The Merger -- Interests of Certain Persons in the
Merger; Conflicts of Interest," "The Merger Agreement -- Indemnification of
Officers and Directors" and "-- Employment and Severance Arrangements."
Certain directors and officers of MICA own stock options or warrants to
purchase MICA Common Stock which will be converted into the right to receive a
portion of the Merger Consideration on the same terms as all other MICA stock
options and warrants. See "The Merger Agreement -- Treatment of Stock Options
and Warrants."
DISSENTERS' RIGHTS
Holders of MICA Common Stock who comply with the requirements of Sections
1300 through 1312 of the CCC are entitled to assert dissenters' rights with
respect to the proposed Merger and to obtain payment of the fair value of their
shares if the proposed Merger is consummated. A copy of Sections 1300 through
1312 of the CCC is attached to the Proxy Statement as Appendix B. See "The
Merger -- Rights of Dissenting Shareholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for MICA Common Stock pursuant to the Merger will be a
taxable transaction for federal income tax purposes under the Internal Revenue
Code of 1986, as amended, and also may be a taxable transaction under applicable
state, local, foreign and other tax laws. See "The Merger -- Certain Federal
Income Tax Consequences of the Merger."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of California. The filing will occur
promptly after all conditions to the Merger contained in the Merger Agreement
have been satisfied or waived. MICA and USDL anticipate that the Merger will be
consummated immediately following the Special Meeting. See "The Merger
Agreement -- General" and "-- Effective Time."
PAYMENT AGENT; SURRENDER OF STOCK CERTIFICATES
USDL has designated Harris Trust Company of New York, 77 Water Street, 4th
Floor, New York, New York, 10005 (telephone (212) 701-7624) as the payment agent
(the "Payment Agent") for the Merger. Promptly after the Effective Time, the
Payment Agent will send to each MICA shareholder (other than those shareholders
holding shares as to which dissenters' rights are perfected) a letter of
transmittal advising as to the procedures for surrendering certificates
representing shares of MICA Common Stock in exchange for the
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<PAGE> 11
Merger Consideration. Certificates should not be surrendered until the letter of
transmittal is received. See "The Merger Agreement -- Conversion of Shares;
Surrender of Stock Certificates; Payment for Shares."
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of MICA, on one hand, and USDL and Merger Sub,
on the other hand, to consummate the Merger are subject to the satisfaction or
waiver at or prior to the Effective Time of numerous conditions set forth in the
Merger Agreement, such as: (i) approval of the Merger Agreement by the holders
of a majority of the outstanding shares of MICA Common Stock; (ii) the absence
of any statute, rule, injunction or order making illegal the consummation of the
Merger; (iii) the receipt of all required authorizations, consents and
approvals, subject to certain exceptions; (iv) the performance of and compliance
with, in all material respects, all agreements and obligations contained in the
Merger Agreement required to be performed or complied with at or prior to the
Effective Time; (v) the absence of any governmental action or proceeding seeking
to prohibit consummation of the Merger; (vi) the expiration of the applicable
waiting period under federal antitrust laws; and (vii) the correctness in all
material respects of all representations and warranties of the parties to the
Merger Agreement. The obligations of USDL and Merger Sub to consummate the
Merger are subject to the satisfaction or waiver of certain additional
conditions, including the absence of any material adverse change with respect to
MICA. See "The Merger Agreement--Conditions to the Merger" and "The
Merger -- Regulatory Approvals."
WAIVER, AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT
Any provision of the Merger Agreement may be waived at any time by the
party entitled to the benefits of that provision. The Merger Agreement may be
amended at any time except that, after approval of the Merger Agreement by the
shareholders of MICA, no amendment may be made that decreases the amount or
changes the type of the consideration to be received in the Merger. See "The
Merger Agreement -- Waiver, Amendment and Termination."
The Merger Agreement may be terminated by MICA, USDL or Merger Sub upon the
occurrence of certain specified events set forth in the Merger Agreement. In
addition, MICA is obligated to pay Merger Sub a break-up fee equal to 3% of the
total Merger Consideration (which, based on the total shares of MICA Common
Stock outstanding as of August 15, 1996 of 2,695,251 shares, would be
approximately $960,000) if the Merger Agreement is terminated for certain
reasons set forth in the Merger Agreement, such as: (i) certain material
breaches of the Merger Agreement by MICA, (ii) MICA's Board's withdrawal of its
approval of the Merger or approval of a business combination other than the
Merger as provided in the Merger Agreement, or (iii) the existence of a tender
offer or exchange offer for at least a majority of the MICA Common Stock, or a
proposed business combination with a third party, in either case at a price per
share of MICA Common Stock higher than the Merger Consideration. The Merger
Agreement also provides that MICA will reimburse Merger Sub for up to $200,000
of out-of-pocket expenses and fees incurred by Merger Sub if USDL terminates the
Merger Agreement because of certain specified breaches by MICA. See "The Merger
Agreement -- Waiver, Amendment and Termination."
In addition, if the Merger Agreement is terminated, the Settlement
Agreement requires that the current members of MICA's Board of Directors resign
from their positions and be replaced by designees of the Steel Parties. See "The
Merger -- Background of the Merger" and "-- Conduct of Business if the Merger is
Not Consummated."
SUMMARY FINANCIAL DATA
The following table sets forth summary selected historical consolidated
financial information for MICA and its subsidiaries for the six-month periods
ended June 30, 1996 and 1995, and each of the five years in the period ended
December 31, 1995. The consolidated financial data for the six months ended June
30, 1996 and 1995 are derived from the unaudited consolidated financial
information of MICA. In management's opinion, this unaudited information has
been prepared on a basis consistent with the audited consolidated financial
statements of MICA. The results of operations for the six months ended June 30,
1996 are not necessarily
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<PAGE> 12
indicative of results which may be expected for the entire year. The
consolidated financial data of MICA for each of the five years in the period
ended December 31, 1995 are derived from the audited consolidated financial
statements of MICA.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total revenues................... $18,449 $26,045 $46,537 $57,306 $ 68,797 $ 84,558 $ 88,079
Medical services revenues........ $18,066 $23,773 $43,192 $55,440 $ 65,786 $ 74,258 $ 73,926
Income (loss) before
extraordinary gain............. $ 1,217 $ 1,475 $ 5,656 $(1,810) $(29,613) $(20,342) $(10,449)
Extraordinary gain, net of tax... $ 382 $ -- $ -- $ 1,316 $ -- $ -- $ --
Net income (loss)................ $ 1,599 $ 1,475 $ 5,656 $ (494) $(29,613) $(20,342) $(10,449)
DATA PER COMMON SHARE:
Net income (loss) per share(1)
Primary
Income (loss) before
extraordinary gain......... $ 0.43 $ 0.58 $ 2.19 $ (0.75) $ (12.54) $ (8.62) $ (4.51)
Extraordinary gain........... $ 0.14 $ 0.00 $ 0.00 $ 0.55 $ 0.00 $ 0.00 $ 0.00
Net income (loss)............ $ 0.57 $ 0.58 $ 2.19 $ (0.20) $ (12.54) $ (8.62) $ (4.51)
Fully diluted earnings per
share........................ $ 0.56 $ 0.55 $ 1.96 $ (0.20) $ (12.54) $ (8.62) $ (4.51)
Weighted average primary shares
outstanding.................... 2,818 2,545 2,585 2,426 2,361 2,360 2,316
Weighted average fully diluted
shares outstanding............. 3,312 3,337 3,219 2,426 2,361 2,360 2,316
SELECTED BALANCE SHEET DATA:
Cash............................. $ 4,696 $ 6,573 $10,732 $ 8,524 $ 8,182 $ 4,862 $ 7,328
Working capital (deficit)........ $ 1,164 $(1,826) $ 337 $(1,728) $ 3,421 $ (673) $ 9,046
Total assets..................... $30,097 $42,173 $39,648 $53,469 $ 65,697 $108,928 $125,567
Convertible debentures (including
current portion)............... $ 5,400 $ 8,200 $ 8,200 $11,000 $ 11,000 $ 11,000 $ 11,000
Long-term debt and capital lease
obligations.................... $ 8,361 $18,469 $11,182 $25,206 $ 35,509 $ 45,120 $ 43,706
Shareholders' equity (net capital
deficiency).................... $ 5,783 $(1,323) $ 3,013 $(2,861) $ (2,370) $ 27,243 $ 46,715
</TABLE>
- ---------------
(1) The company effected a one-for-five reverse stock split for shareholders of
record on October 16, 1995. All per share data has been restated for all
periods presented to give effect to the reverse stock split.
MARKET PRICE AND DIVIDEND INFORMATION FOR MICA COMMON STOCK
On July 17, 1996, the last full trading day prior to the public
announcement of USDL's initial offer to purchase MICA Common Stock at $11.75 per
share, the high and low sales prices reported for shares of MICA Common Stock on
the OTC Bulletin Board were $11.25 and $9.12, respectively, and the closing
price was $10.50. On July 31, 1996, the last full trading day prior to the
public announcement of the Merger Agreement, the high and low sale prices
reported for shares of MICA Common Stock on the OTC Bulletin Board were $10.69
and $10.69, respectively, and the closing price was $10.69. On September 20,
1996, the high and low sales prices for MICA Common Stock as reported on the OTC
Bulletin Board were $11.12 and $11.12, respectively, and the closing price was
$11.12. See "Market Price and Dividend Information for MICA Common Stock."
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES.
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<PAGE> 13
MEETING INFORMATION
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of MICA in
connection with the solicitation of proxies by the Board of Directors of MICA
from the holders of outstanding shares of MICA Common Stock for use at the
Special Meeting to be held on November 6, 1996, at 10 a.m. Pacific Time, at the
La Jolla Marriott, 4240 La Jolla Village Drive, La Jolla, California 92037, and
at any adjournments or postponements thereof.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Special Meeting, the shareholders will be asked to consider and vote
upon a proposal to approve the Merger Agreement, as well as any other matters
which may properly come before the Special Meeting and any postponements or
adjournments thereof.
VOTING INFORMATION
Holders of record of MICA Common Stock at the close of business on
September 20, 1996, are entitled to vote at the Special Meeting. On that date,
2,695,251 shares of MICA Common Stock were outstanding and held by approximately
3,000 shareholders. Each outstanding share of MICA Common Stock is entitled to
one vote. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of MICA Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum for the transaction of business at
such meeting. Abstentions and broker nonvotes are counted for purposes of
determining whether a quorum exists at the Special Meeting. However, proxies
that reflect abstentions, broker nonvotes and proxies that are not returned will
have the same effect as a no vote with respect to the Merger because approval by
the holders of a majority of the outstanding shares of MICA Common Stock is
required to approve the Merger Agreement.
The Merger cannot be effected unless, among other conditions, the Merger
Agreement is approved by the holders of a majority of the outstanding shares of
MICA Common Stock. As of September 20, 1996, 2,695,251 shares of MICA Common
Stock were outstanding. Accordingly, the affirmative vote of 1,347,627 shares of
MICA Common Stock is a condition to the obligation of MICA to consummate the
Merger. The Steel Parties have agreed to vote in favor of the Merger and the
Merger Agreement. If the Merger is not (i) approved by a majority of the
outstanding shares of MICA Common Stock and (ii) consummated by November 19,
1996, the Settlement Agreement requires that the current members of MICA's Board
of Directors resign from their positions and be replaced by designees of the
Steel Parties. See "The Merger -- Background of the Merger" and "-- Conduct of
Business if the Merger is Not Consummated."
SOLICITATION, REVOCATION AND USE OF PROXIES
MICA will pay the costs of soliciting proxies from its shareholders and the
costs of preparing and mailing this Proxy Statement, proxy and any other
material furnished to the shareholders by MICA in connection with the Special
Meeting. In addition to the solicitation of proxies by mail, certain of MICA's
directors, officers and employees may solicit proxies by telephone, telecopy and
personal contact, without separate compensation for such activities. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of MICA Common Stock, and
such persons will be reimbursed for their reasonable expenses incurred in
connection therewith. In addition, D.F. King & Co., Inc., 77 Water Street, New
York, New York 10005 (telephone (800) 326-3066), has been engaged to solicit
proxies on behalf of MICA for a fee of $10,000 plus expenses.
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before it is exercised. The proxy may be
revoked by filing with the Secretary of MICA an instrument of revocation or a
duly executed proxy bearing a later date. Such filing shall be made to the
attention of the Secretary of MICA by mailing or delivering such filing to
MICA's principal executive offices located at 9444 Farnham Street, Suite 100,
San Diego, California 92123. The proxy may also be revoked by affirmatively
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<PAGE> 14
electing to vote in person while attending the meeting. However, a shareholder
who attends the meeting need not revoke his or her proxy and vote in person
unless he or she wishes to do so. All valid proxies will be voted at the meeting
in accordance with the instructions given. If no instructions are given, the
shares represented by the proxy will be voted at the Special Meeting FOR
approval of the Merger Agreement and in accordance with this Proxy Statement on
any other business that may properly come before the Special Meeting and any
postponements or adjournments thereof.
THE MERGER
The description of the Merger contained in this Proxy Statement does not
purport to be complete and is qualified in its entirety by, and made subject to,
the more complete information set forth in the Merger Agreement, a copy of which
is attached hereto as Appendix A and incorporated herein by reference.
IN GENERAL
At a special meeting held on July 26, 1996, MICA's Board of Directors
unanimously determined that the Merger is fair to, and in the best interests of,
the shareholders of MICA, approved the Merger Agreement and the transactions
contemplated thereby, and determined to recommend to the MICA shareholders that
they vote for approval and adoption of the Merger Agreement. At a special
meeting held on July 19, 1996, USDL's Board of Directors unanimously determined
that the Merger is fair to, and in the best interests of, the shareholders of
USDL. Accordingly, effective August 1, 1996, MICA, USDL and Merger Sub entered
into the Merger Agreement. The following discussion sets forth certain
information relating to the background of the discussions and meetings leading
up to the Merger.
Pursuant to the Merger Agreement, Merger Sub will merge with and into MICA
with MICA being the surviving corporation after the Merger. At the Effective
Time, each share of MICA Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares as to which dissenters' rights are
perfected) will be converted into the right to receive $11.75 in cash. Each
outstanding share of Merger Sub Stock will be converted into the right to
receive one share of MICA Common Stock.
BACKGROUND OF THE MERGER
On January 25, 1995, Steel Partners began accumulating MICA Common Stock,
and by the time they filed their first Schedule 13D with the Securities and
Exchange Commission (the "SEC") in March 1995, Steel Partners had acquired 5.6%
of MICA's outstanding Common Stock. Such Schedule 13D disclosed, among other
things, that Steel intended to ask for representation on the MICA board. It also
disclosed that Steel might acquire additional MICA shares, seek to influence the
future policies of the Company, seek control of MICA, and/or solicit proxies to
elect Board nominees or take other corporate actions.
On May 3, 1995, Mr. Muehlberg, MICA's President and Chief Executive
Officer, met with Mr. Lichtenstein, Chairman and President of Steel Partners, to
discuss both MICA and its industry. Mr. Muehlberg told Mr. Lichtenstein that
MICA currently had one vacant seat on its Board and that another current
director of MICA did not intend to stand for re-election at MICA's annual
meeting of shareholders in August 1995. Mr. Muehlberg offered Mr. Lichtenstein
and Steel Partners representation on MICA's Board. Mr. Lichtenstein told Mr.
Muehlberg that: (1) Steel Partners supported MICA's current management; and (2)
Steel Partners had purchased MICA Common Stock to hold as an investment. Mr.
Lichtenstein stated that Steel Partners' investment in MICA was passive and that
Steel Partners had no present intent to take an active role on MICA's Board.
Steel Partners subsequently filed an amendment to its Schedule 13D, deleting the
prior reference to an intention to seek Board representation. The Schedule 13D
continued to reflect, however, the possibility that Steel might purchase
additional stock or propose a slate of nominees for election to the MICA Board,
at either a regular or specially called shareholder meeting. The same amendment
reflected that Steel's beneficial ownership of MICA shares had grown to 14.4%.
On August 23, 1995, following MICA's annual meeting, Mr. Warren
Lichtenstein and Mr. Jack Howard of Steel Partners, which then owned 19.8% of
the Company's outstanding stock, made a presentation to
8
<PAGE> 15
MICA's newly elected Board. After voting in favor of all of MICA's nominees for
directors and confirming "support" for MICA's management, Mr. Lichtenstein
informed the Board that Steel Partners wanted to own more than 20% of MICA's
Common Stock and urged the Board to remove the Shareholder Rights Plan (the
"Rights Plan") adopted by the Board on October 2, 1991 so that Steel or any
other interested party could purchase as many MICA shares as such party wished.
The Rights Plan was adopted by the Board to deter coercive or unfair takeover
tactics and to protect MICA's shareholders against unsolicited attempts to
acquire control of MICA that do not offer shareholders the full value of their
investment (i.e., attempts which fail to pay any "control premium" to MICA's
shareholders). The Board took Steel's request under advisement.
In September of 1995, Robert S. Muehlberg, Chairman of the Board and Chief
Executive Officer of MICA and Denise L. Sunseri, Vice President, Chief Financial
Officer and Secretary of MICA, met with MICA's Board to discuss potential
business combinations and update the Board on recent mergers, acquisitions and
strategic alliances in the diagnostic imaging services industry. Following these
discussions, the Company entered into a confidentiality agreement with a
Florida-based imaging company to explore potential business combinations. These
discussions did not give rise to a transaction; however, the Board informally
discussed the retention of a financial advisor to assist the Company in
identifying potential merger candidates.
In the weeks following his presentation, Mr. Lichtenstein repeatedly
contacted Mr. Muehlberg regarding the removal of the Rights Plan and stated that
he would take action if the Rights Plan was not removed or substantially
altered.
On November 8, 1995, in a meeting with Mr. Muehlberg and the other
directors of MICA, Mr. Lichtenstein demanded that: (1) MICA immediately remove
the Rights Plan; and (2) MICA provide Steel Partners with two seats on MICA's
Board. The MICA Board continued to take Steel's position under advisement, but
did not take any action to alter or rescind the Company's Rights Plan.
In December, 1995, there were further contacts between Messrs. Muehlberg
and Lichtenstein. However, these contacts failed to produce any agreements
between the parties.
On December 29, 1995, Steel Partners, through its agent, made a demand upon
MICA that a special meeting of shareholders be called on February 26, 1996 to
remove MICA's current Board and to elect Steel Partners' nominees in their
place. Also, on January 2, 1996, Steel Partners, who at the time had acquired
19.9% of MICA's outstanding Common Stock, commenced a proxy solicitation against
MICA by filing preliminary proxy materials with the SEC.
On January 3, 1996, the Board approved the retention of a financial advisor
to assist the Company in identifying merger candidates as well as to respond to
Steel Partners' filing of proxy materials with the SEC.
On January 10, 1996, MICA commenced litigation in the United States
District Court for the Southern District of California against Steel and certain
of its affiliates (the "Steel Defendants") alleging that the Steel Defendants
violated certain federal securities laws and state tort laws in connection with
their acquisition of MICA Common Stock and their proxy solicitation. MICA's
complaint alleged, among other matters, that the Steel Defendants violated
Section 13(d) of the Exchange Act by, among other things, filing false and
misleading Schedules 13D that failed to disclose the full extent of the Steel
Defendants' ownership of MICA Common Stock and their actual intentions with
respect to MICA. The complaint also alleged that the Steel Defendants tortiously
interfered with MICA's economic relations with a lender of MICA by, among other
things, claiming to have enough control of MICA to have instructed MICA to stop
making payments to its lenders.
The complaint sought, among other things, to have the Court preliminarily
and permanently enjoin the Steel Defendants' proxy solicitation and their
acquisition and voting of shares of MICA Common Stock, and damages for the Steel
Defendants' tortious interference with MICA's economic relations. The complaint
further sought to have the Court require the Steel Defendants to publicly
disclose their beneficial ownership of 20% or more of the MICA Common Stock and
declare that the Steel Defendants have thereby become an "Acquiring Person" for
purposes of the Rights Plan, enabling all of MICA's shareholders other than the
Steel Defendants to purchase shares of MICA Common Stock at bargain prices,
under certain circumstances.
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<PAGE> 16
On January 19, 1996, a federal magistrate denied MICA's application for
expedited discovery and granted the Steel Defendants' application for a stay of
discovery. On February 7, 1996, the Court upheld the federal magistrate's
ruling, scheduled a hearing on the Steel Defendants' motion to dismiss MICA's
complaint, which was filed on January 17, 1996, for February 14, 1996 and
scheduled a hearing on MICA's motion for a preliminary injunction for February
23, 1996. On February 14, 1996, the Court denied the Steel Defendants' motion to
dismiss, thereby lifting the stay on discovery. Also on February 14, 1996, the
parties agreed to MICA's application for expedited discovery.
On February 15, 1996, Steel Partners commenced litigation in the Court
against MICA alleging that the Rights Plan violated California law because,
among other things, it discriminated among MICA's shareholders under certain
circumstances. Steel Partners' complaint sought, among other things, to have the
Court enjoin MICA from permitting the separation or distribution of any rights
pursuant to the Rights Plan and declare the Rights Plan invalid.
On February 23, 1996, Judge Rudi Brewster of the Court issued a preliminary
injunction based on his finding that MICA had demonstrated that there was
sufficient evidence to show probable success on the merits of MICA's claim that
Steel Partners had violated the requirements of Section 13(d) of the Exchange
Act. In determining a remedy, the Court adopted the Company's position that the
Special Meeting of Shareholders be held as noticed, and that the shares at issue
in the Court's decision be voted at the meeting in proportion to the vote of the
unaffected shares.
On February 26, 1996, MICA held a Special Meeting of Shareholders as
scheduled. The meeting was adjourned for two weeks to allow the Inspector of
Elections to prepare a final tabulation of the voting. The meeting was further
adjourned several times as the parties were engaged in settlement discussions.
The Settlement Agreement. On March 19, 1996, MICA and certain of its
affiliates, on the one hand, and the Steel Parties on the other hand, entered
into the Settlement Agreement. The Settlement Agreement called for the dismissal
of all pending litigation between Steel Partners and MICA and provided for
mutual releases between MICA and its affiliates and Steel Partners and its
affiliates. The Settlement Agreement also provided that the February 26, 1996
Special Meeting of Shareholders would be adjourned without any final report from
the Inspector of Elections, leaving the current Board of Directors in place. In
accordance with the terms of the Settlement Agreement, on March 19, 1996, all
litigation with the Steel Defendants was dismissed.
Pursuant to the Settlement Agreement, MICA was required to initiate an
auction process to sell or merge MICA (an "Auction Transaction") with the goal
of obtaining maximum value for the MICA shareholders, as determined in good
faith by the MICA Board after receiving a fairness opinion from Batchelder. As
required by the Settlement Agreement, Batchelder has advised MICA in connection
with the auction process (see "-- Opinion of Financial Advisor"). The Settlement
Agreement provides that if the process does not result in either (i) a public
announcement stating that an agreement has been reached with respect to an
Auction Transaction prior to June 19, 1996, (ii) a definitive agreement relating
to an Auction Transaction prior to July 19, 1996, or (iii) the consummation of a
sale or merger transaction by November 19, 1996, the current members of MICA's
Board of Directors will resign from their positions and be replaced by designees
of Steel Partners. As discussed below, on July 19, 1996, the Steel Parties
extended the July 19, 1996 deadline set forth in the Settlement Agreement to
August 2, 1996.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF THE MICA
COMMON STOCK IS NECESSARY TO APPROVE THE MERGER. IF THE MERGER IS NOT (I)
APPROVED BY A MAJORITY OF THE OUTSTANDING SHARES OF MICA COMMON STOCK AND (II)
CONSUMMATED BY NOVEMBER 19, 1996, THE SETTLEMENT AGREEMENT REQUIRES THAT THE
CURRENT MEMBERS OF MICA'S BOARD OF DIRECTORS RESIGN FROM THEIR POSITIONS AND BE
REPLACED BY DESIGNEES OF THE STEEL PARTIES. UNDER THE TERMS OF MICA'S
CONVERTIBLE SUBORDINATED DEBENTURES (IN AN APPROXIMATE AMOUNT OUTSTANDING AS OF
JUNE 30, 1996 OF $5,400,000) (THE "DEBENTURES"), MICA IS OBLIGATED TO OFFER TO
PREPAY THE DEBENTURES IN THE EVENT OF A "CHANGE IN CONTROL" OF MICA. "CHANGE IN
CONTROL" IS DEFINED TO INCLUDE THE ACQUISITION BY ANY PERSON OR GROUP OF PERSONS
OF THE POWER TO ELECT, APPOINT OR CAUSE THE ELECTION OF AT LEAST A MAJORITY OF
THE MEMBERS OF THE BOARD OF DIRECTORS. IN THE OPINION OF THE COMPANY'S LEGAL
ADVISORS, IF THE DESIGNEES OF THE STEEL PARTIES CONSTITUTE THE ENTIRE BOARD, IT
WOULD TRIGGER SUCH A "CHANGE IN
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<PAGE> 17
CONTROL," WHICH, IN TURN, WOULD GIVE RISE TO THE PREPAYMENT OBLIGATION. STEEL
HAS ADVISED THE COMPANY THAT IT AND ITS LEGAL ADVISORS DISAGREE WITH THIS
CONCLUSION, AND HAVE CONCLUDED THAT NO "CHANGE IN CONTROL" WOULD OCCUR FOR
PURPOSES OF THE DEBENTURES IF STEEL ASSUMES CONTROL OF THE BOARD AND HENCE THAT
NO PREPAYMENT OBLIGATION WOULD BE TRIGGERED. SEE "-- CONDUCT OF BUSINESS IF THE
MERGER IS NOT CONSUMMATED."
"CHANGE IN CONTROL" WITH RESPECT TO THE DEBENTURES IS ALSO DEFINED TO
INCLUDE THE CONSUMMATION OF THE TRANSACTION CONTEMPLATED BY THE MERGER
AGREEMENT. SEE "THE MERGER -- CERTAIN EFFECTS OF THE MERGER."
The terms of the Settlement Agreement did not require the Steel Parties to
vote in favor of the Merger and permitted Steel Partners to include in this
Proxy Statement a statement specifying its opinion on the merits of the Merger
and the Merger Agreement. Steel Partners waived its right to include such a
statement in this Proxy Statement. In the Settlement Agreement, the Steel
Parties acknowledged their respective intent to vote in favor of any Auction
Transaction recommended by MICA's Board if such Auction Transaction, in the sole
judgment of the Steel Parties, maximizes shareholder value.
The Steel Parties have agreed to vote in favor of the Merger and the Merger
Agreement. In addition, the Company will reimburse Steel for certain of its
legal fees and other expenses in the approximate amount of $50,000 upon
consummation of the Merger.
The Settlement Agreement called for MICA to amend the severance agreements
of MICA's chief executive officer and chief financial officer to provide that
MICA's failure to meet the specified deadline shall constitute an "involuntary
termination" for purposes of their respective severance packages. The severance
agreements have been so amended. In the meantime, the Steel Parties have agreed
that they will not, and will cause their respective affiliates not to, acquire
or offer to acquire, directly or indirectly, by purchase or otherwise,
beneficial ownership of any of MICA's securities during the sale or merger
process.
The Settlement Agreement also required MICA to redeem all outstanding
rights issued pursuant to MICA's Rights Plan and prohibited MICA from enacting a
new shareholder rights plan without the prior written consent of Steel Partners.
On April 8, 1996, MICA redeemed all outstanding rights under the Rights Plan for
$0.05 per share of MICA Common Stock.
Simultaneous with its entering into the Settlement Agreement, MICA entered
into a Standstill Agreement with Arrowhead Holdings Corporation, a Delaware
corporation ("Arrowhead"), containing substantially the same terms as the
Settlement Agreement (the "Arrowhead Agreement"). The Arrowhead Agreement, like
the Settlement Agreement, provided that MICA shall initiate a process to sell or
merge MICA and shall redeem all outstanding rights granted pursuant to the
Rights Plan. The Arrowhead Agreement also contained mutual release provisions
and prohibited Arrowhead from acquiring beneficial ownership of MICA's
securities. Arrowhead currently owns approximately 5% of the outstanding shares
of MICA Common Stock. See "Security Ownership of Certain Beneficial Owners and
Management."
Pursuant to the Settlement Agreement, MICA agreed to reimburse Steel
Partners for expenses up to $425,000 incurred by Steel Partners in connection
with its solicitation of proxies for the February 26, 1996 Special Meeting of
Shareholders. Total expenditures related to the Settlement Agreement and related
proxy solicitation, including the fees and expenses of MICA's attorneys,
financial advisors, public relations firm and proxy solicitors, excluding
salaries and wages of its officers and employees and including the $425,000
reimbursed to Steel Partners, approximated $1,325,000 and were recorded as a
special charge to operations in the first quarter of 1996.
The Auction Process. On March 24, 1996, as required by the Settlement
Agreement, MICA engaged Batchelder to assist MICA in conducting the auction
process and to assist in the consideration and evaluation of possible
transactions.
In connection with the auction process, Batchelder contacted a total of 79
potentially interested parties representing both strategic and financial buyers
for purposes of soliciting proposals for potential acquisitions, mergers, or
other business combinations. In response to such solicitation, Batchelder
received 41 requests for additional information. In connection with the request
for additional information, MICA prepared a confidential information memorandum
and distributed the memorandum to each of the 42 interested parties.
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MICA established a data room at its corporate offices (i) to provide potential
bidders access to certain financial and operating information of MICA and (ii)
to allow the potential bidders to meet with, and ask questions of, MICA's
management. Twelve of the 42 parties requesting additional information visited
the data room and met with MICA's management. As a result of the auction
process, MICA received a total of 6 proposals for the acquisition of MICA and 1
proposal for the acquisition of MICA's fee-for-service business. See "Business
of MICA" for a description of MICA's fee-for-service business.
From April 1996 to July 1996, MICA's Board, with the assistance of
Batchelder, carefully considered each of the seven proposals. In July 1996,
MICA's Board selected USDL's proposal as the proposal most favorable to MICA's
shareholders and authorized Batchelder and MICA's officers to commence
negotiations with respect to the USDL proposal. It was not until later, however,
at a special meeting of MICA's Board held on July 26, 1996, that the USDL
proposal was determined to be fair to, and in the best interests of, the
shareholders of MICA.
The material terms of the six proposals which the MICA Board considered and
rejected, as well as the USDL proposal (Proposal #7), are set out below. All of
the proposals were from public companies.
Proposal #1: On April 22, 1996, MICA received a proposal from a public
company indicating it was prepared to offer $10.00 for each share of MICA stock
payable in shares of its outstanding common stock. This proposal was subject to
due diligence and stated that the number of shares issued would be governed by
an adjustment to accommodate an increase in the price of the Company's stock
prior to the closing of the acquisition. The MICA Board rejected this proposal
because it was determined that the proposal did not provide the greatest value
to the MICA shareholders. See "-- Proposal #2"; "-- Proposal #7 (USDL's
proposal)."
Proposal #2: On May 23, 1996, MICA received a proposal from a public
company indicating it was prepared to offer $12.00 for each share of outstanding
MICA stock consisting of $6.00 per share in cash and $6.00 per share in its
stock. A revised proposal was received on June 11, 1996, which consisted of two
alternatives, $10.50 for each share of outstanding MICA stock in cash or $11.50
for each share of outstanding MICA stock, consisting of $8.00 cash and $3.50 in
its common stock. After discussions with the company, MICA received a further
proposal indicating a cash price of $11.50 for each share of outstanding MICA
stock, and MICA entered into a non-binding letter of intent with this company on
June 18, 1996, incorporating this offer. Such revised proposal was subject to
financing contingencies and the agreement of MICA debentureholders not to
convert or otherwise call the Debentures. This offer was withdrawn on July 18,
1996, when the offeror advised MICA that it could not obtain necessary financing
on a timely basis.
Proposal #3: On May 28, 1996, MICA received a proposal from a public
company indicating a total purchase price of $30 million for all of the
outstanding MICA stock, consisting of $10 million cash and $20 million of its
common stock. This proposal was conditioned upon satisfactory completion of due
diligence, the approval of both companies' Boards of Directors and negotiation
and execution of a definitive agreement. The proposal was withdrawn by the
public company on June 10, 1996, after it entered into an agreement to be
acquired by another company in the diagnostic imaging services industry.
Proposal #4: On June 5, 1996, MICA received a proposal from a public
company indicating its desire to acquire certain of MICA's fee-for-service
assets for $1.5 million in cash plus the assumption of certain obligations
related to these assets. The MICA Board rejected this offer on the basis that
the offer was inadequate.
Proposal #5: On June 12, 1996, MICA received a proposal from a public
company indicating it was prepared to offer up to 8.5644 shares of its common
stock (closing price on June 12, 1996 of $1.12 per share) for each share of
outstanding MICA stock. The proposal was conditioned upon satisfactory
completion of due diligence, financing contingencies, the approval of both
Boards of Directors and negotiation and execution of a definitive agreement. The
MICA Board rejected this proposal when it entered into the non-binding letter of
intent (described in Proposal #2) which provided greater value to the MICA
shareholders.
Proposal #6: On June 13, 1996, MICA received an indication of interest from
a public company indicating it was prepared to offer $40 million in cash for all
of the outstanding MICA stock. The proposal was
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conditioned upon satisfactory completion of due diligence, financing
contingencies, the approval of both Boards of Directors and negotiation and
execution of a definitive agreement. On June 15, 1996, the public company
withdrew its indication of interest and advised MICA that it did not intend to
make a formal proposal.
Proposal #7 (USDL's proposal): On July 16, 1996, MICA received an
unsolicited offer from USDL indicating its desire to offer $11.75 for each share
of outstanding MICA stock in cash and/or its stock. The proposal was conditioned
upon the execution of a definitive agreement.
The Board of Directors of MICA met on July 17, 1996, to review and discuss
the principal terms of USDL's proposal. At this meeting, the MICA Board of
Directors reviewed and approved an Agreement in Principle which set forth the
principal terms of USDL's proposal. In reaching its decision, the Board
considered the fact that the offer was not contingent on financing and that the
offer provided the best value to the MICA shareholders.
On July 18, 1996, MICA and USDL entered into the Agreement in Principle.
The Settlement Agreement provides that if the auction process does not
result in a definitive agreement relating to the sale or merger transaction
prior to July 19, 1996, the current members of MICA's Board of Directors will
resign from their positions and be replaced by designees of Steel Partners. The
Company requested an extension of the July 19, 1996 deadline set forth in the
Settlement Agreement. On July 19, 1996, the Steel Parties extended the deadline
to August 2, 1996.
On July 23, 1996, Mr. Muehlberg, Ms. Sunseri, and a representative of
Batchelder met with representatives of USDL at their corporate offices in
Florida. USDL revised its proposal to provide for $11.75 in cash for each share
of outstanding MICA stock. An Agreement and Plan of Merger was drafted
reflecting these terms.
MICA's Board of Directors met on July 26, 1996 to consider the terms of the
final draft Agreement and Plan of Merger. That meeting also included a
presentation from Batchelder and MICA's legal counsel. MICA's legal counsel
reviewed the process of the negotiations that had led to the draft agreement,
reviewed the terms and provisions of the draft agreement and answered questions
of the Board. A representative of Batchelder made a presentation as to its
evaluation of USDL's $11.75 per share cash offer. See "-- Opinion of Financial
Advisor." Following the presentation, the Board received the oral opinion
(subsequently confirmed in writing) of Batchelder to the effect that the Merger
Consideration was fair, from a financial point of view, to the MICA
shareholders.
After further discussion, the Board concluded, based on the opinion of
Batchelder and on other factors described below under "-- MICA's Reasons for the
Merger; Recommendation of the MICA Board," that the terms of the Merger were
fair to, and in the best interests of, the MICA shareholders and unanimously
approved and adopted the Merger Agreement and the transactions contemplated
thereby, authorized the execution thereof and recommended that the MICA
shareholders approve the Merger Agreement and the Merger.
The Merger Agreement was delivered by the respective parties on August 1,
1996, in the form attached hereto as Appendix "A."
MICA'S REASONS FOR THE MERGER; RECOMMENDATION OF THE MICA BOARD
At a meeting of the Board of Directors, the Board of Directors unanimously
(i) determined that the Merger was fair to, and in the best interests of, the
shareholders of MICA; (ii) approved and adopted the Merger Agreement and the
transactions contemplated thereby and authorized the execution, delivery and
performance thereof by MICA; and (iii) resolved to recommend that the
shareholders of MICA approve the Merger Agreement and the transactions
contemplated thereby. ACCORDINGLY, THE BOARD OF DIRECTORS OF MICA RECOMMENDS
THAT THE SHAREHOLDERS OF MICA APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
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In reaching its determination that the Merger is fair to and in the best
interests of MICA's shareholders, the Board of Directors of MICA consulted with
MICA's management, financial advisors and legal counsel. Set forth below are the
material factors that the Board considered in reaching this determination:
(i) the Board's knowledge of the consolidation efforts currently
taking place in the industry which could affect the Company's ability to
effectively compete on a stand-alone basis with other companies with
significantly greater resources and market share.
(ii) the Board's publicly announced auction process which allowed for
the broadest possible exposure of the Company to potential buyers.
(iii) that MICA had contact with a large number of potential bidders
over an extended period of time in a lengthy "auction" process which
yielded the best indication of the Company's value. The Board believed that
the most accurate indication of the Company's value was its value as a
going concern and that a full and fair auction process yielded the best
indication of the Company's value as a going concern.
(iv) the Board's determination that the consideration to be received
by MICA's shareholders reflected an appropriate valuation of MICA taking
into consideration the Board's understanding of the Company's operations,
financial condition and future prospects.
(v) that the Merger Consideration represents a 168.6% premium to the
share price of MICA Common Stock from the market price one day prior to the
13-D filing of Steel on March 18, 1995, a 56.7% premium to the market price
one day prior to the Settlement Agreement date with the Steel Parties on
March 19, 1996, and a 28.8% premium to the market price one day prior to
the announcement of the Merger on July 17, 1996.
(vi) the financial presentation of Batchelder, the conclusion of
Batchelder that the "auction" process conducted by the Company was full and
fair, and the opinion of Batchelder as of August 1, 1996 that the terms of
the Merger are fair to the shareholders of MICA from a financial point of
view (see "-- Opinion of Financial Advisor"). THE OPINION OF BATCHELDER IS
ATTACHED HERETO AS APPENDIX C. THE SHAREHOLDERS OF MICA ARE URGED TO READ
SUCH OPINION CAREFULLY IN ITS ENTIRETY.
(vii) that Batchelder is not required to reaffirm its fairness opinion
at any time after August 1, 1996.
(viii) certain terms of the Merger Agreement, including the
restrictions on the conduct of MICA's business pending closing, conditions
to closing and the significant fees and expenses that would become payable
in the event of a termination of the Merger Agreement under certain
circumstances (see "The Merger Agreement -- Interim Operations" and
"-- Waiver, Amendment and Termination"). In addition, the Merger Agreement
restricts MICA from soliciting, encouraging or initiating any additional
proposals from third parties. Such restrictions placed limits on MICA's
management's ability to continue to seek out bidders that would make
proposals to acquire or merge with MICA that were more favorable than the
proposal made by USDL (see "The Merger Agreement -- No Solicitation").
(ix) that the Merger Agreement permits MICA to consider unsolicited
third party offers to acquire MICA and permits MICA to provide information
to and negotiate with such parties and to terminate the Merger Agreement,
subject to the payment of significant fees and expenses to USDL, if prior
to the Effective Time the MICA Board withdraws or modifies its
recommendation in order to permit MICA to execute a definitive agreement
relating to a proposal for MICA that the MICA Board determines is more
favorable to shareholders than the transactions contemplated by the Merger
Agreement (see "The Merger Agreement -- No Solicitation" and "-- Waiver,
Amendment and Termination"). Despite the substantial break-up fee MICA
would have to pay to USDL if it terminated the Merger Agreement after
receiving a proposal more favorable than the terms of the Merger, the MICA
Board determined that the terms of the Merger Agreement relating to
consideration of unsolicited third party proposals were favorable to MICA's
shareholders. If MICA were to receive a proposal more favorable than
USDL's, the MICA Board could terminate the Merger Agreement and recommend
the new proposal to MICA's shareholders without the prospect of boundless
breach of contract liability to USDL.
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(x) the availability of dissenters' rights to the MICA shareholders
who vote against approval of the Merger Agreement and perfection of such
rights under the applicable provisions of the CCC. (See "-- Rights of
Dissenting Shareholders").
(xi) that the MICA Board did not create a special committee to
evaluate the Merger.
(xii) the likelihood that the Merger would be consummated, including
the likelihood of satisfying the conditions to the consummation of the
Merger contained in the Merger Agreement and the financial condition of
USDL.
THE BOARD UNANIMOUSLY HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF MICA'S SHAREHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT MICA'S SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. SEE "-- CONDUCT OF BUSINESS IF MERGER IS NOT CONSUMMATED" FOR A
DISCUSSION OF CERTAIN EFFECTS ON THE COMPANY IF THE MERGER IS NOT APPROVED BY A
MAJORITY OF THE OUTSTANDING SHARES OF MICA COMMON STOCK.
In view of the variety of factors considered by the MICA Board in
connection with its evaluation of the proposed Merger, the MICA Board did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the foregoing factors. Rather, the Board viewed its position
and recommendation as being based on the totality of the information presented
to and considered by it. On balance, however, the Board viewed the factors set
forth in items (i), (ii), (iii), (iv), (v), (vi), (ix), (x) and (xii) as
favorable to its decision, the matters set forth in items (vii) and (viii) as
unfavorable to its decision, and the matter set forth in item (xi) as neutral to
its decision.
OPINION OF FINANCIAL ADVISOR
In General. On January 5, 1996, MICA retained Batchelder to advise MICA
with regard to certain shareholder matters, and on March 24, 1996 MICA engaged
Batchelder to assist MICA in its consideration and evaluation of possible
transactions. Batchelder assisted MICA's Board in its review of, and
participated in the negotiation of, the Merger. In July 1996, MICA's Board asked
Batchelder to render an opinion as to the fairness of the Merger to the holders
of MICA Common Stock from a financial point of view. MICA's Board did not place
limitations on the investigations to be made or the procedures to be followed by
Batchelder in preparing and rendering its opinion. Batchelder did not recommend
the form or amount of consideration to be paid in the Merger, which was
determined through arm's length negotiations between MICA and USDL.
On August 1, 1996 Batchelder delivered its written opinion to the Board of
Directors of the Company that, as of the date of the opinion, the $11.75 per
share of MICA Common Stock in cash to be received by the holders of shares of
MICA Common Stock pursuant to the Merger Agreement is fair to such holders.
The full text of the written opinion of Batchelder, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix C hereto and is
incorporated herein by reference. Shareholders are urged to, and should, read
such opinion in its entirety and consider it carefully. The Batchelder opinion
is directed to MICA's Board and does not constitute a recommendation to any
individual shareholder as to how such shareholder should vote at the Special
Meeting. The summary of Batchelder's opinion set forth in this Proxy Statement
is qualified in its entirety by reference to the full text of such opinion.
Batchelder relied upon and assumed without independent verification the
accuracy and completeness of all publicly available financial information and
all financial information furnished or otherwise communicated to it by MICA.
Batchelder did not make any appraisal of the assets of MICA. Batchelder's
opinion does not address the underlying business decision to enter into the
Merger.
In connection with its opinion, Batchelder reviewed, among other things,
(i) the Merger Agreement; (ii) the most recently available Annual Reports to
Shareholders and Annual Reports on Forms 10-K of MICA; (iii) certain interim
reports to shareholders and Quarterly Reports on Forms 10-Q of MICA; (iv)
certain other communications from MICA to its shareholders; and (v) certain
internal financial analyses and forecasts of MICA prepared by management.
Batchelder also met with the management team of MICA
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to discuss its businesses and business prospects. Batchelder assumed that all
financial projections provided by MICA were based upon assumptions reflecting
the best, currently available estimates and good faith judgments of management
as to the future performance of MICA and that the management of MICA did not
have any information or beliefs that would make the projections materially
misleading.
The following is a summary of certain of the financial analyses used by
Batchelder in connection with providing its written opinion to the Board of
Directors of the Company on August 1, 1996.
Common Stock Performance. Batchelder's analysis of MICA's common stock
performance included a historical analysis of closing prices and trading volumes
for the period beginning March 15, 1995, and ending July 24, 1996, which
indicated a high of $11.75, a low of $4.06, and an average of $7.94 for the
period, and the period beginning July 26, 1991 and ending July 19, 1996, which
indicated a high of $68.75, a low of $2.19, and an average of $10.91 for the
period. Batchelder's analysis of MICA's common stock performance also included a
historical analysis of MICA's indexed performance relative to the S&P 500 and an
index of the Selected Companies (hereinafter defined) (i) for the period
beginning March 18, 1996 and ending July 24, 1996, (ii) for the period beginning
January 25, 1996 and ending July 24, 1996, (iii) for the period beginning July
24, 1995 and ending July 24, 1996, and (iv) for the period beginning July 29,
1994 and ending July 19, 1996. In all periods (i) though (iv), MICA and the
Selected Companies index outperformed the S&P 500, and MICA outperformed the
Selected Companies index in every period analyzed except period (ii) above.
Analysis of Purchase Price. Batchelder prepared a financial analysis of
the Merger and calculated the aggregate consideration and various financial
multiples based upon the cash consideration of $11.75 per share of MICA Common
Stock. For purposes of the analysis, multiples of enterprise value to revenue,
EBITDA and EBIT (with and without minority interest and equity in net income of
unconsolidated entities), and aggregate value to pre-tax and net income were
calculated for the fiscal year ended December 31, 1995, the latest twelve months
ending March 31, 1996 ("LTM"), and the estimates of management of the Company's
fiscal year ending December 31, 1996 ("Estimated 1996"). These multiples were
calculated for the above periods using the consolidated financial statements of
the Company and certain Company prepared consolidating statements which
separated the Company's diagnostic medical centers and fee-for-service ("FFS")
business segments. Batchelder analyzed MICA with and without FFS due to the
substantial decline in the FFS business segment in the last three years,
expiration of certain FFS contracts, financial capital required to renew such
contracts, and the uncertainty associated with MICA's ability to maintain a
historical level of cash flow associated with such FFS business. The multiples
were as follows: (i) enterprise value as a multiple of consolidated revenue -
1.1x, 1.2x, 1.5x, for 1995, LTM and Estimated 1996, respectively, and enterprise
value as a multiple of the Company's revenue excluding FFS - 1.6x, 1.6x, 1.6x,
for 1995, LTM and Estimated 1996, respectively; (ii) enterprise value as a
multiple of consolidated EBITDA - 3.6x, 3.8x, 4.4x, for 1995, LTM, and Estimated
1996, respectively, and enterprise value as a multiple of the Company's EBITDA
excluding FFS - 7.0x, 6.8x, 6.1x, for 1995, LTM, and Estimated 1996,
respectively; (iii) enterprise value as a multiple of consolidated EBIT
excluding minority interest and equity in net income of unconsolidated entities
- -11.5x, 11.0x, 8.6x, for 1995, LTM, and Estimated 1996, respectively; (iv)
enterprise value as a multiple of the Company's EBIT excluding FFS and without
minority interest and equity in net income of unconsolidated entities - 30.1x,
25.5x, 14.7x, for 1996, LTM and Estimated 1996, respectively; (v) enterprise
value to consolidated EBIT with minority interest and equity in net income of
unconsolidated entities - 9.6x, 9.6x, 7.6x, for 1995, LTM and Estimated 1996
respectively; (vi) enterprise value as a multiple of the Company's EBIT
excluding FFS with minority interest and equity in net income of unconsolidated
entities - 18.5x, 18.1x, 11.6x, for 1995, LTM, and Estimated 1996, respectively;
(vii) aggregate value as a multiple of consolidated adjusted pre-tax income -
15.8x, 20.9x, 7.6x, for 1995, LTM, and Estimated 1996, respectively; (viii)
aggregate value as a multiple of the Company's adjusted pre-tax income excluding
FFS - 170.1x, 101.7x, 15.2x, for 1995, LTM, and Estimated 1996, respectively;
(ix) aggregate value as a multiple of consolidated pre-tax income - 6.4x, 7.1x,
7.6x, for 1995, LTM, and Estimated 1996, respectively; (x) aggregate value as a
multiple of the Company's pre-tax income excluding FFS - 170.1x, 101.7x, 15.2x,
for 1995, LTM and Estimated 1996, respectively; and (xi) the $11.75 price per
share as a multiple of earnings per share - 6.4x, 7.5x, for LTM, and Estimated
1996, respectively.
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Selected Companies Analysis. Batchelder reviewed and compared certain
financial information relating to the Company to corresponding financial
information, ratios and public market multiples of seven publicly traded
corporations: Alliance Imaging, Health Images, Medical Resources, NMR of
America, USDL, American Health Services and Advanced NMR (the "Selected
Companies"). The selected companies were chosen because they are publicly traded
companies (with the exception of American Health Services which was merged with
Maxum on July 17, 1996 to form Insight) with operations that for purposes of
analysis may be considered similar to the Company. Batchelder calculated and
compared various financial multiples and ratios. The multiples for each of the
Selected Companies were based on the most recent fiscal year and the most recent
publicly available information. With respect to the Selected Companies,
Batchelder considered enterprise value (i.e., market value of common equity plus
preferred stock, plus debt, less cash) as a multiple of latest fiscal year and
LTM revenues, as a multiple of latest fiscal year and LTM EBITDA, as a multiple
of latest fiscal year and LTM EBIT without minority interest and equity in net
income of unconsolidated entities, and latest fiscal year and LTM EBIT with
minority interest and equity in net income of unconsolidated entities.
Batchelder's analysis of the Selected Companies indicated enterprise value
multiples of latest fiscal year revenues, which ranged from a low of 1.25x to a
high of 2.35x, with a median of 1.49x; LTM revenues, which ranged from a low of
1.27x, to a high of 2.35x, with a median of 1.38x; latest fiscal year EBITDA,
which ranged from a low of 4.84x, to a high of 6.48x, with a median of 5.62x;
LTM EBITDA, which ranged from a low of 4.74x to a high of 6.99x, with a median
of 5.76x; latest fiscal year EBIT without minority interest and equity in net
income of unconsolidated entities, which ranged from a low of 6.78x, to a high
of 20.86x, with a median of 10.58x; LTM EBIT without minority interest and
equity in net income of unconsolidated entities, which ranged from a low of
6.78x, to a high of 15.44x, with a median of 11.70x; latest fiscal year EBIT
with minority interest and equity in net income of unconsolidated entities,
which ranged from a low of 7.32x, to a high of 20.86x with a median of 10.74x;
and LTM EBIT with minority interest and equity in net income of unconsolidated
entities, which ranged from a low of 7.32x, to a high of 16.41x, with a median
of 11.91x. Batchelder considered market capitalization as a multiple of adjusted
pre-tax, and pre-tax income for the latest fiscal year and LTM. Batchelder's
analysis of the Selected Companies indicated market capitalization multiples of
latest fiscal year adjusted pre-tax income, which ranged from a low of 8.54x, to
a high of 10.68x, with a median of 9.76x; LTM adjusted pre-tax income, which
ranged from a low of 8.53x, to a high of 18.78x, with a median of 9.54x; latest
fiscal year pre-tax income, which ranged from a low of 8.24x to a high of
16.21x, with a median of 10.68x; and LTM pre-tax income, which ranged from a low
of 8.24x, to a high of 18.78x, with a median of 9.91x. Batchelder also
considered for the Selected Companies LTM price/earnings ratios, which ranged
from a low of 13.41x to a high of 237.5x, with a median of 14.22x; estimated
fiscal year 1996 price/earnings ratios (based on 1995 IBES median estimates),
which ranged from a low of 9.82x, to a high of 22.5x, with a median of 12.84x.
Selected Transactions Analysis. Batchelder analyzed certain information
relating to four selected transactions in the imaging center industry for which
financial data was available (the "Selected Transactions"). Such analysis
indicated that for the Selected Transactions (i) enterprise value as a multiple
of revenue ranged from a low of 1.4x, to a high of 2.2x with a mean of 1.7x and
a median of 1.7x, compared to enterprise value to be received in the Merger as a
multiple of 1995 revenue of 1.1x, Estimated 1996 revenues of 1.5x, 1995 revenues
without FFS of 1.6x, and Estimated 1996 revenues without FFS of 1.6x; (ii)
enterprise value as a multiple of EBITDA ranged from a low of 4.3x, to a high of
7.6x, with a mean of 6.3x, and a median of 6.6x, compared to enterprise value to
be received in the Merger as a multiple of 1995 EBITDA of 3.6x, Estimated 1996
EBITDA of 4.4x, 1995 EBITDA without FFS of 7.0x, and Estimated 1996 EBITDA
without FFS of 6.1x; (iii) enterprise value as a multiple of EBIT ranged from a
low of 9.4x, to a high of 16.9x, with a mean of 12.8x, and a median of 12.5x,
compared to enterprise value to be received in the Merger as a multiple of 1995
EBIT of 11.4x, Estimated 1996 EBIT of 8.6x, 1995 EBIT without FFS of 30.1x, and
Estimated 1996 EBIT without FFS of 14.7x; (iv) equity value as a multiple of
pre-tax income ranged from a low of 8.4x, to a high of 20.4x, with a mean of
13.6x, and a median of 12.8x, compared to equity value to be received in the
Merger as a multiple of 1995 pre-tax income of 5.8x, Estimated 1996 pre-tax
income of 7.0x, 1995 pre-tax income without FFS of 156.7x, and Estimated 1996
pre-tax income without FFS of 14.0x; (v) equity value as a multiple of net
income ranged from a low of 9.4x to a high of 24.1x, with a mean of 17.5x, and a
median of 18.2x, compared to equity value to be received in the Merger as a
multiple of net income for 1995 of 6.0x,
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<PAGE> 24
Estimated 1996 of 7.0x, with 1995 and Estimated 1996 without FFS net income
multiples indicating not meaningful results; and (vi) equity value as a multiple
of book value ranging from a low of 0.9x, to a high of 3.8x, compared to equity
value to be received in the Merger as a multiple of 1995 book value of 11.3x.
Premiums Analysis. Batchelder compared certain premiums represented by the
Merger price to premiums offered in 38 completed acquisitions of $30 million to
$80 million in size (the "Comparable Acquisitions") which were announced from
the beginning of 1995 to date ended July 19, 1996. Such analysis indicated that
for the Comparable Acquisitions, (i) premiums to market price one day prior to
announcement ranged from a low of (29.0%), to a high of 127.2%, with a mean of
35.0% and a median of 33.2%, compared to the Merger price premium of 168.6% to
market price one day prior to the 13-D filing of Steel of March 18, 1995 (the
"13-D Date"), 56.7% to market price one day prior to the settlement agreement
date with the Steel Parties of March 19, 1996, (the "Settlement Date"), and
28.8% to market price one day prior to the announcement of the Merger price of
July 17, 1996 (the "Announcement Date"); (ii) premiums to market price one week
prior to announcement ranged from a low of (24.9%), to a high of 147.1%, with a
mean of 39.6% and a median of 33.9%, compared to the Merger price premium of
168.6% to market price one week prior to the 13-D Date, 67.9% one week prior to
the Settlement Date, and 17.5% one week prior to the Announcement Date; (iii)
premiums to market price one month prior to announcement ranged from a low of
(14.4%), to a high of 189.5%, with a mean of 50.1%, and a median of 44.9%,
compared to the Merger price premium of 189.2% one month prior the 13-D Date,
37.0% one month prior to the Settlement Date, and 16.0% one month prior to the
Announcement Date.
The summary of Batchelder's analysis set forth above does not purport to be
a complete description of the analysis performed by Batchelder. The preparation
of a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of these methods to the particular circumstances,
and therefore, such analyses are not readily susceptible to summary description.
Batchelder notes its belief that its analyses must be considered as a whole and
that selecting portions of its analyses and of the other factors considered by
it, without considering all factors and analyses, could create a misleading view
of the process underlying its opinion. In its analyses, Batchelder made certain
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of MICA.
Batchelder's opinion and its financial analyses were among several factors
considered by the Board of Directors of MICA in its evaluation of Merger.
Batchelder is an investment banking firm engaged in, among other things,
the valuation of businesses in connection with mergers and acquisitions. MICA's
Board selected Batchelder as its financial advisor based on the recommendation
of MICA's outside legal counsel and because the principals of Batchelder have
substantial experience in transactions similar to the Merger and are familiar
with MICA and its business. Batchelder had not previously rendered services or
engaged in any transaction with MICA or its affiliates prior to January 5, 1996.
Pursuant to the terms of an engagement letter dated January 5, 1996, MICA
agreed to pay Batchelder $200,000 for advising MICA with regard to certain
shareholder matters, and also agreed to reimburse Batchelder for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of
counsel up to $10,000, and to indemnify Batchelder and certain related persons
against certain liabilities relating to or arising out of its engagement,
including certain liabilities under federal securities law. In addition,
pursuant to the terms of a subsequent engagement letter dated March 24, 1996,
MICA also agreed to pay Batchelder an additional fee upon consummation of a Sale
Transaction, which includes the transaction contemplated by the Merger
Agreement, in the approximate amount of $620,000. No additional fees will be
paid to Batchelder in connection with the Merger. Because the engagement letter
dated March 24, 1996 between MICA and Batchelder provides for separate
consideration (which is creditable against the Sale Transaction fee) to
Batchelder for rendering its fairness opinion, and given the fact that a portion
of Batchelder's fee is contingent upon completion of the Merger, Batchelder
arguably has a conflict of interest in rendering a fairness opinion on the terms
of the Merger.
18
<PAGE> 25
REASONS OF USDL AND MERGER SUB FOR THE MERGER
USDL has been actively seeking to acquire additional Imaging Centers. USDL
has determined that the Merger is in its best interests because MICA will add
several centers in California and Florida, where USDL has significant operations
and desires to increase its network in order to negotiate statewide agreements
with managed care providers. After the acquisition, USDL intends to consolidate
operations to reduce overhead and increase MICA's cash flow, which is currently
in excess of its net income. In addition, USDL believes that it has the
expertise to restructure and increase the profitability of certain of MICA's
fixed site operations that are currently operating on a breakeven or marginally
profitable basis.
CERTAIN EFFECTS OF THE MERGER
In General. If the Merger is approved by the MICA shareholders, at the
Effective Time, the MICA shareholders will cease to be shareholders of MICA and
will not share in the future earnings or growth of MICA. Instead, each
shareholder (other than those shareholders holding shares as to which
dissenters' rights are perfected) will be entitled to receive the Merger
Consideration in exchange for his or her shares of MICA Common Stock upon
surrender of his or her stock certificates.
After the Merger, MICA's Board of Directors will be filled by individuals
designated by USDL. The Merger Agreement provides that the officers of MICA at
the Effective Time will remain the officers of the surviving corporation after
the Merger, in each case until their respective successors are duly appointed or
elected and qualified.
As a result of the Merger, MICA will become a wholly owned subsidiary of
USDL, the registration of MICA's Common Stock under the Exchange Act will be
terminated and MICA Common Stock will cease to be reported on the OTC Bulletin
Board.
Acceleration of Due Date for Certain Debentures. As of August 1, 1996,
MICA has approximately $5,400,000 in debentures outstanding (the "Debentures").
The Debentures were issued pursuant to (i) that certain Convertible Subordinated
Debentures Purchase Agreement dated May 10, 1989 between MICA and various
debenture holders, and (ii) that certain Indenture Agreement dated May 10, 1989
between MICA and American National Bank and Trust Company of Chicago
(collectively, the "Debenture Agreements"). The Debenture Agreements require
MICA to offer to prepay the Debentures in the event of a "change in control" of
MICA, which is defined to include the consummation of the transaction
contemplated by the Merger Agreement. USDL understands the prepayment obligation
under the Debenture Agreements.
CONDUCT OF BUSINESS AFTER THE MERGER
USDL has no specific plans or proposals for MICA following the Merger. It
is currently expected that, following the Merger, the business and operations of
MICA will be continued by MICA substantially as they are currently being
conducted. USDL will continue to evaluate MICA's business and operations
following the Merger and will make such changes as are deemed appropriate.
After the Merger, USDL intends to consolidate MICA's Long Beach and Orlando
Imaging Centers with USDL's Imaging Centers located nearby. In addition, USDL
intends to restructure certain provider agreements to modify the economic terms
and extend their duration, with the intent of increasing profitability and
sharing economic risk.
CONDUCT OF BUSINESS IF THE MERGER IS NOT CONSUMMATED
Pursuant to the Settlement Agreement, if the Merger is not consummated by
November 19, 1996, the current members of MICA's Board of Directors must resign
from their positions and be replaced by designees of the Steel Parties. See "The
Merger -- Background of the Merger." Under the terms of MICA's Debentures, MICA
is obligated to offer to prepay the Debentures in the event of a "change in
control" of MICA. "Change in control" is defined to include the acquisition by
any person or group of persons of the power to elect, appoint or cause the
election of at least a majority of the members of the Board of Directors. In the
opinion of MICA's legal advisors, if the designees of the Steel Parties
constitute the entire Board, it would
19
<PAGE> 26
trigger such a "change in control," which, in turn, would give rise to the
prepayment obligation. Steel has advised MICA that it and its legal advisors
disagree with this conclusion and have concluded that no "change in control"
would occur for purposes of the Debentures if Steel assumes control of the Board
and hence that no prepayment obligation would be triggered.
In light of the favorable interest rate MICA is currently paying on the
Debentures and the fact that the conversion price is significantly above the
current market price of the MICA Common Stock, if a "change in control" under
the Debentures is triggered, the Board believes that most, if not all, of the
holders of the Debentures would elect prepayment of their Debentures. If MICA
were required to prepay all of the Debentures, MICA would be forced to use
substantially all of its current cash balances, and its ability to effect
certain business combinations and to pursue attractive transactions would be
limited. Any failure to meet the prepayment obligation in the Debentures would
result in an event of default under the Debentures.
In addition, if the Merger is not consummated, USDL may purchase MICA
Common Stock from time to time, subject to availability at prices deemed
acceptable to USDL, pursuant to a merger transaction, tender offer, open market
or privately negotiated transactions or otherwise on terms more or less
favorable to the MICA shareholders than the terms of the Merger. However, USDL
has made no determination as to any future transactions if the Merger is not
consummated.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Improvements Act of 1976, as amended (the
"Hart-Scott Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division"), and
specified waiting period requirements have been satisfied. USDL and MICA filed
premerger notification and report forms with the FTC and Antitrust Division on
September 13, 1996.
Generally, the waiting period under the Hart-Scott Act would expire on
October 13, 1996 (thirty days after the date of filing), unless the period is
terminated sooner pursuant to USDL's and MICA's request for early termination of
the waiting period. On September 24, 1996, the FTC granted early termination of
the waiting period.
At any time before or after consummation of the Merger, and notwithstanding
the satisfaction of the Hart-Scott Act requirements, the FTC or the Antitrust
Division or any state could take action under the federal or state antitrust
laws to seek to enjoin consummation of the Merger. Private parties may also seek
to take legal action under the antitrust laws.
Based on the information available to them, USDL and MICA believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the Merger on antitrust
grounds will not be made or that, if such a challenge were made, USDL and MICA
would prevail.
MICA and USDL do not believe that any material federal or state regulatory
approvals, filings or notices are required in connection with the Merger other
than the filing of a Certificate of Merger with the Secretary of State of the
State of California. Other than as described above, MICA and USDL are not aware
of any license or regulatory permit which is material to the business of MICA
and which is likely to be adversely affected by consummation of the Merger or of
any approval or other action by any state, federal or foreign government or
governmental agency (other than routine re-licensing procedures) that would be
required prior to the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors of MICA with
respect to approval of the Merger Agreement, the shareholders of MICA should be
aware that certain members of MICA's management and Board of Directors have
interests in the Merger which are different from, or in addition to, the
20
<PAGE> 27
interests of MICA's shareholders generally. The Board of Directors of MICA was
aware of these interests and considered them in approving the Merger, the Merger
Agreement, and the transactions contemplated thereby.
MICA and certain of its current executive officers have entered into
severance agreements pursuant to which those who are involuntarily terminated
other than for cause are eligible to receive a severance payment equal to (i)
the payment of the equivalent of one year's salary, car allowance, and prior
year's bonus and (ii) the provision of employment benefits for the 12-month
period following the last day of employment with MICA. In addition, the Merger
Agreement provides that USDL will continue to recognize certain employment
agreements entered into by MICA or adopted by MICA's Board. See "The Merger
Agreement -- Employment and Severance Arrangements."
The Merger Agreement provides that the officers of MICA at the Effective
Time of the Merger shall be the officers of MICA after the Merger, until their
respective successors are duly elected or appointed and qualified. See
"-- Certain Effects of the Merger."
MICA's existing directors and officers will receive the benefit of
continued indemnification by USDL and the surviving corporation. For a
discussion of the indemnification of, and insurance for, directors and officers
of MICA, see "The Merger Agreement -- Indemnification of Officers and
Directors."
For a discussion of the financial advisory fees payable to Batchelder, and
information regarding its relationship with MICA, see "-- Opinion of Financial
Advisor."
In connection with the Merger, (i) MICA stock options will be converted
into the right to receive a portion of the Merger Consideration in cancellation
and settlement of such MICA stock options, and (ii) USDL has agreed to assume
the duties and obligations of MICA with respect to MICA warrants which remain
outstanding as of the Effective Time, provided that the MICA warrants will only
be exercisable for the Merger Consideration after such date. Certain directors
and officers of MICA own MICA stock options or MICA warrants which will be
converted into the right to receive a portion of the Merger Consideration on the
same terms as all other MICA stock options and MICA warrants. See "The Merger
Agreement -- Treatment of Stock Options and Warrants."
RIGHTS OF DISSENTING SHAREHOLDERS
In General
The rights of shareholders who dissent in connection with the Merger are
governed by specific legal provisions contained in Chapter 13 (Sections
1300-1312) of the CCC, the text of which is attached as Appendix B hereto. The
description of dissenters' rights contained in this Proxy Statement is qualified
in its entirety by reference to those sections of the CCC.
If the Merger is completed, certain of the shareholders who object to the
Merger and who have fully complied with all applicable provisions of Chapter 13
of the CCC may have the right to require MICA to purchase the shares of MICA
Common Stock held by them for cash at the fair market value of those shares on
the day before the terms of the Merger were first announced, excluding any
appreciation or depreciation because of the Merger. Persons who are beneficial
owners of shares of MICA Common Stock but whose shares are held by another
person, such as a broker or nominee, should instruct the record holder to follow
the procedures outlined below if such persons wish to dissent with respect to
any or all of their shares. Under the CCC, no shareholder who is entitled to
exercise dissenters' rights has any right at law or in equity to attack the
validity of the Merger or to have the Merger set aside or rescinded, except in
an action to test whether the number of shares required to authorize or approve
the Merger had been legally voted in favor of the Merger.
Shares of MICA Common Stock must be purchased by MICA upon demand from a
dissenting shareholder if all applicable requirements are complied with, but
only if (a) demands for payment are filed with respect to 5% or more of the
outstanding shares of such MICA Common Stock, or (b) the shares are subject to a
restriction on transfer imposed by MICA or by any law or regulation.
MICA is not aware of any restriction on transfer of any of the shares of
MICA Common Stock except restrictions that may be imposed upon shareholders who
are deemed to be "affiliates" of MICA as that term is
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<PAGE> 28
defined in Rule 144 under the Securities Act. Those shareholders who believe
there is some such restriction affecting their shares should consult with their
own legal counsel as to the nature and extent of any dissenters' rights they may
have.
For a MICA shareholder to exercise the right to have MICA purchase his or
her shares of MICA Common Stock, the procedures to be followed under Chapter 13
of the CCC include the following requirements:
(i) The shareholder of record must have voted the shares against the
Merger. It is not sufficient to abstain from voting. However, the
shareholder may abstain as to part of his or her shares or vote part of
those shares for the Merger without losing the right to have purchased
those shares which were voted against the Merger.
(ii) Any such shareholder who voted against the Merger, and who wishes
to have purchased his or her shares that were voted against the Merger,
must make a written demand to have MICA purchase those shares for cash at
their fair market value. The demand must include the information specified
below and must be received by MICA or its transfer agent not later than the
date of the Special Meeting.
Within ten days after the approval of the Merger by MICA shareholders, the
respective holders of shares of MICA Common Stock who voted against the Merger
and made a timely demand for purchase (and who are entitled to require MICA to
purchase their shares because either (i) holders of 5% or more of the
outstanding shares filed demands by the date of the Special Meeting or (ii) the
shares are restricted as to transfer) must be notified by MICA of the approval
and MICA must offer all of these shareholders a cash price for their shares MICA
considers to be the fair market value of the shares on the day before the terms
of the Merger were first announced, excluding any appreciation or depreciation
because of the proposed Merger. The notice also must contain a brief description
of the procedures to be followed under Chapter 13 of the CCC in order for a
shareholder to exercise the right to have MICA purchase his or her shares and
attach a copy of the relevant provisions of the CCC.
Demand for Purchase
Merely voting or delivering a proxy directing a vote against the approval
of the Merger does not constitute a demand for purchase. A written demand is
essential.
In all cases, the written demand that the dissenting shareholder must
deliver to MICA must:
(i) be made by the person who was the shareholder of record on the
record date set for voting on the Merger (or his or her duly authorized
representative) and not by someone who is merely a beneficial owner of the
shares and not by a shareholder who acquired the shares subsequent to the
record date;
(ii) state the number and class of dissenting shares; and
(iii) include a demand that MICA purchase the shares at what the
shareholder claims to be the fair market value of such shares on the day
before the terms of the Merger were first announced, excluding any
appreciation or depreciation because of the proposed Merger. It is MICA's
position that this day is July 31, 1996. A shareholder may take the
position in the written demand that a different date is applicable. The
shareholder's statement of fair market value constitutes an offer by such
dissenting shareholder to sell the shares to MICA at such price.
In addition, it is recommended that the following conditions be complied
with to ensure that the demand is properly executed and delivered:
(i) The demand should be sent by registered or certified mail, return
receipt requested.
(ii) The demand should be signed by the shareholder of record (or his
or her duly authorized representative) exactly as his or her name appears
on the stock certificates evidencing the shares.
(iii) A demand for the purchase of shares owned jointly by more than
one person should identify and be signed by all such holders.
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<PAGE> 29
(iv) Any person signing a demand for purchase in any representative
capacity (such as attorney-in-fact, executor, administrator, trustee or
guardian) should indicate his or her title and, if MICA so requests,
furnish written proof of his or her capacity and authority to sign the
demand.
A shareholder may not withdraw a demand for payment without the consent of
MICA. Under the terms of the CCC, a demand by a shareholder is not effective for
any purchase unless it is received by MICA (or any transfer agent thereof).
Other Requirements
Within 30 days after the date on which the notice of the approval of the
Merger is mailed by MICA to its shareholders, the shareholder's certificates
representing any shares which the shareholder demands be purchased must be
submitted to MICA at its principal office, or at the office of any transfer
agent thereof, to be stamped with a statement that the shares are dissenting
shares. Upon subsequent transfer of these shares, the new certificates will be
similarly stamped, together with the name of the original dissenting
shareholder.
If MICA and a dissenting shareholder agree that the shares held by such
shareholder are eligible for dissenters' rights and agree upon the price of such
shares, the dissenting shareholder is entitled to receive from MICA the agreed
price with interest thereon at the legal rate on judgments from the date of such
agreement. Note that the Merger Agreement requires MICA to obtain the prior
written consent of USDL before MICA agrees to settle or compromise any claim for
dissenters' rights. See "The Merger Agreement -- Covenants; Confidentiality."
Any agreement fixing the fair market value of dissenting shares as between MICA
and the holders thereof must be filed with the Secretary of MICA at the address
set forth below. Subject to certain provisions of Section 1306 and Chapter 5 of
the CCC, payment of the fair market value of the dissenting shares shall be made
within 30 days after the amount thereof has been agreed upon or within 30 days
after the statutory or contractual conditions to the Merger are satisfied,
whichever is later. Cash dividends declared and paid by MICA upon the dissenting
shares after the date of approval of the Merger by its shareholders and prior to
payment for the shares shall be credited against the total amount to be paid by
MICA.
If MICA and a dissenting shareholder fail to agree on either the fair
market value of the shares or on the eligibility of the shares to be purchased,
then either the shareholder or MICA may file a complaint for judicial resolution
of the dispute in the superior court of the proper county. The complaint must be
filed within six months after the date on which the respective notice of
approval is mailed to the shareholders. If a complaint is not filed within six
months, the shares will lose their status as dissenting shares. Two or more
dissenting shareholders may join as plaintiffs or be joined as defendants in
such an action. If the eligibility of the shares is at issue, the court will
first decide this issue. If the fair market value of the shares is in dispute,
the court will determine, or shall appoint one or more impartial appraisers to
assist in its determination of, the fair market value. The costs of the action
will be assessed or apportioned as the court considers equitable, but if the
fair market value is determined to exceed 125% of the price offered to the
shareholder, MICA will be required to pay such costs.
Any demands, notices, certificates or other documents required to be
delivered to MICA may be sent to the Secretary, Medical Imaging Centers of
America, Inc., 9444 Farnham Street, Suite 100, San Diego, California 92123.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain federal income tax consequences of
the Merger to MICA shareholders. This summary is based on the Internal Revenue
Code of 1986, as amended, Treasury Regulations (including Proposed Regulations
and Temporary Regulations) promulgated thereunder, official pronouncements and
judicial decisions, all as in effect on the date hereof, all of which are
subject to change, possibly with retroactive effect. This summary does not
purport to discuss all tax consequences of the Merger to all MICA shareholders.
In particular, the summary does not discuss the tax consequences of the Merger
to any MICA shareholder that is an insurance company, tax-exempt organization,
financial institution, foreign person or broker dealer or who acquired his or
her shares upon the exercise of options or otherwise as compensation.
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<PAGE> 30
The receipt of cash by a shareholder of MICA in exchange for MICA Common
Stock pursuant to the Merger will be a taxable transaction for federal income
tax purposes and may also be a taxable transaction under applicable state,
local, foreign or other tax laws. In general, a shareholder will recognize a
gain or loss equal to the difference, if any, between the amount of cash
received for his or her stock in the Merger (i.e., $11.75 per share) and the
shareholder's adjusted tax basis in such stock. A shareholder will recognize
such gain or loss as of the Effective Time. In general, such gain or loss will
be a capital gain or loss, provided the stock is a capital asset in the hands of
the holder at the Effective Time, and will be a long-term capital gain or loss
if the stock has been held for more than one year at such time.
USDL or the Payment Agent will be required to withhold 31 percent of the
gross proceeds payable to a shareholder or other payee in the Merger unless the
shareholder or payee provides in a properly completed substitute Form W-9 his or
her taxpayer identification number and certifies under penalties of perjury that
such number is correct and that the shareholder is not subject to backup
withholding, unless an exemption applies under applicable law and regulations.
Therefore, unless such an exemption exists and is demonstrated in a manner
satisfactory to USDL or its Payment Agent in accordance with the instructions
that will accompany the substitute Form W-9, each shareholder should complete
and sign the substitute Form W-9 that will be made available to the shareholder
with the letter of transmittal, so as to provide the information and
certification necessary to avoid backup withholding. See "The Merger
Agreement -- Conversion of Shares; Surrender of Stock Certificates; Payment for
Shares."
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO
THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN HIS OR HER INDIVIDUAL
CIRCUMSTANCES AND WITH RESPECT TO THE STATE, LOCAL OR OTHER INCOME TAX
CONSEQUENCES OF THE MERGER. FURTHER, ANY SHAREHOLDER WHO IS A CITIZEN OF A
COUNTRY OTHER THAN THE UNITED STATES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO THE TAX TREATMENT IN SUCH COUNTRY OF THE MERGER AND WITH RESPECT
TO THE QUESTION OF WHETHER THE TAX CONSEQUENCES DESCRIBED ABOVE MAY BE ALTERED
BY REASON OF THE PROVISIONS OF THE INTERNAL REVENUE CODE APPLICABLE TO FOREIGN
PERSONS OR THE PROVISIONS OF ANY TAX TREATY APPLICABLE TO SUCH SHAREHOLDER.
FINANCING THE MERGER
If the Merger is consummated, the total amount of the Merger Consideration
to be paid to the MICA shareholders and estimated fees and expenses payable by
USDL will be approximately $38 million. Merger Sub will obtain the necessary
funds to consummate the Merger and pay related fees and expenses from the
general corporate funds of USDL. USDL has represented to MICA that it has
sufficient funds to pay the Merger Consideration. USDL will provide such funds
to Merger Sub prior to the Effective Time.
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<PAGE> 31
EXPENSES OF THE TRANSACTION
The following is an estimate of the costs and expenses incurred or expected
to be incurred in connection with the Merger. The costs and expenses set forth
below do not include costs represented by salaries and wages of regular
employees and officers of MICA.
<TABLE>
<S> <C>
Commission Filing Fees................................................... $ 7,462
Legal Fees and Expenses(1)............................................... 150,000
General Investment Banking Fees and Expenses(2).......................... 200,000
Other Investment Banking Fees and Expenses(3)............................ 630,000
Solicitation Fees........................................................ 10,000
Printing and Mailing..................................................... 20,000
Accounting Fees and Expenses............................................. 10,000
Miscellaneous............................................................ 15,000
--------
Total.......................................................... $1,042,462
========
</TABLE>
- ---------------
(1) Includes fees of counsel for MICA and USDL.
(2) Includes fees to be paid to Batchelder for advising MICA with regard to
certain shareholder matters, pursuant to an engagement letter dated January
5, 1995. See "-- Opinion of Financial Advisor."
(3) Includes approximate fees to be paid to Batchelder pursuant to the terms of
a subsequent engagement letter dated March 24, 1995. See "-- Opinion of
Financial Advisor."
Under the Merger Agreement, generally all costs and expenses incurred by
MICA, USDL, and Merger Sub will be paid by the party that has incurred such
costs and expenses. However, if the Merger Agreement is terminated for certain
reasons specified in the Merger Agreement, MICA is required to reimburse Merger
Sub for all out-of-pocket expenses and fees up to $200,000 incurred by Merger
Sub in connection with the Merger. See "The Merger Agreement -- Fees and
Expenses."
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<PAGE> 32
SELECTED FINANCIAL DATA
The following table sets forth summary selected historical consolidated
financial information for MICA and its subsidiaries for the six-month periods
ended June 30, 1996 and 1995, and each of the five years in the period ended
December 31, 1995. The consolidated financial data for the six months ended June
30, 1996 and 1995 are derived from the unaudited consolidated financial
information of MICA. In management's opinion, this unaudited information has
been prepared on a basis consistent with the audited consolidated financial
statements of MICA. The results of operations for the six months ended June 30,
1996 are not necessarily indicative of results which may be expected for the
entire year. The consolidated financial data of MICA for each of the five years
in the period ended December 31, 1995 are derived from the audited consolidated
financial statements of MICA.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total revenues................... $18,449 $26,045 $46,537 $57,306 $ 68,797 $ 84,558 $ 88,079
Medical services revenues........ $18,066 $23,773 $43,192 $55,440 $ 65,786 $ 74,258 $ 73,926
Income (loss) before
extraordinary gain............. $ 1,217 $ 1,475 $ 5,656 $(1,810) $(29,613) $(20,342) $(10,449)
Extraordinary gain, net of tax... $ 382 $ -- $ -- $ 1,316 $ -- $ -- $ --
Net income (loss)................ $ 1,599 $ 1,475 $ 5,656 $ (494) $(29,613) $(20,342) $(10,449)
DATA PER COMMON SHARE:
Net income (loss) per share (1)
Primary
Income (loss) before
extraordinary gain......... $ 0.43 $ 0.58 $ 2.19 $ (0.75) $ (12.54) $ (8.62) $ (4.51)
Extraordinary gain........... $ 0.14 $ 0.00 $ 0.00 $ 0.55 $ 0.00 $ 0.00 $ 0.00
Net income (loss)............ $ 0.57 $ 0.58 $ 2.19 $ (0.20) $ (12.54) $ (8.62) $ (4.51)
Fully diluted earnings per
share........................ $ 0.56 $ 0.55 $ 1.96 $ (0.20) $ (12.54) $ (8.62) $ (4.51)
Weighted average primary shares
outstanding.................... 2,818 2,545 2,585 2,426 2,361 2,360 2,316
Weighted average fully diluted
shares outstanding............. 3,312 3,337 3,219 2,426 2,361 2,360 2,316
SELECTED BALANCE SHEET DATA:
Cash............................. $ 4,696 $ 6,573 $10,732 $ 8,524 $ 8,182 $ 4,862 $ 7,328
Working capital (deficit)........ $ 1,164 $(1,826) $ 337 $(1,728) $ 3,421 $ (673) $ 9,046
Total assets..................... $30,097 $42,173 $39,648 $53,469 $ 65,697 $108,928 $125,567
Convertible debentures (including
current portion)............... $ 5,400 $ 8,200 $ 8,200 $11,000 $ 11,000 $ 11,000 $ 11,000
Long-term debt and capital lease
obligations.................... $ 8,361 $18,469 $11,182 $25,206 $ 35,509 $ 45,120 $ 43,706
Shareholders' equity (net capital
deficiency).................... $ 5,783 $(1,323) $ 3,013 $(2,861) $ (2,370) $ 27,243 $ 46,715
</TABLE>
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(1) The company effected a one-for-five reverse stock split for shareholders of
record on October 16, 1995. All per share data has been restated for all
periods presented to give effect to the reverse stock split.
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<PAGE> 33
THE MERGER AGREEMENT
GENERAL
MICA has entered into the Merger Agreement attached to this Proxy Statement
as Appendix A with USDL and Merger Sub, pursuant to which Merger Sub will be
merged with and into MICA with MICA as the corporation surviving the Merger.
Merger Sub is a California corporation with its principal executive offices
located at 777 South Flagler Drive, Suite 1006, West Tower, West Palm Beach,
Florida 33401. Merger Sub was incorporated by USDL as a wholly owned subsidiary
to effect the Merger; and it is not anticipated that Merger Sub will conduct any
business prior to the Merger. See "Business of USDL and Merger Sub" for
information about USDL and Merger Sub.
THE FOLLOWING DESCRIPTION IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE
MERGER AGREEMENT, DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS
APPENDIX A TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
SHAREHOLDERS ARE URGED TO READ CAREFULLY THE MERGER AGREEMENT.
EFFECTIVE TIME
At the Effective Time, which will occur as soon as practicable following
the satisfaction or waiver of certain conditions, as described below, Merger Sub
will merge with and into MICA with MICA being the surviving corporation after
the Merger, each outstanding share of MICA Common Stock held by USDL will be
cancelled, each outstanding share of MICA Common Stock held by the MICA
shareholders will be converted into the right to receive the Merger
Consideration and each outstanding share of Merger Sub Stock will be converted
into one share of MICA Common Stock. Thus, after the Merger, MICA will be a
wholly owned subsidiary of USDL and the MICA shareholders will have no
continuing interest in MICA.
After the Merger, MICA's Board of Directors will be filled by individuals
designated by USDL. The officers of MICA before the Merger will remain the
officers of the surviving corporation after the Merger, in each case until their
respective successors are duly elected or appointed and qualified.
CONVERSION OF SHARES; SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES
As a result of the Merger, each share of MICA Common Stock held by a MICA
shareholder at the Effective Time (other than shares as to which dissenters'
rights are perfected) will be converted into the right to receive $11.75 in
cash.
Promptly after the Effective Time, there will be sent to each MICA
shareholder of record (other than those shareholders holding shares as to which
dissenters' rights are perfected) a letter of transmittal advising such
shareholder of the procedures for surrendering the certificates representing
shares of MICA Common Stock to the payment agent designated by USDL. USDL has
designated Harris Trust Company of California, 601 S. Figueroa Street, 49th
Floor, Los Angeles, California 90017 (telephone (212) 701-7624) as the payment
agent (the "Payment Agent") for the Merger. At or prior to the Effective Time,
USDL shall cause the Payment Agent to receive the funds necessary to make the
payments of the Merger Consideration to the MICA shareholders, which funds may
not be used for any other purpose.
To receive the Merger Consideration, each MICA shareholder will be required
to surrender to the Payment Agent the shareholder's stock certificate or
certificates, together with a duly executed letter of transmittal and related
documentation. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED.
If payment is to be made to a person other than the one in whose name the
certificate surrendered is registered, it will be a condition of such payment
that the stock certificate surrendered is properly endorsed or otherwise in
proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person other
than the registered holder of the certificate surrendered or establish to the
satisfaction of the Payment Agent that such taxes have been paid or are not
applicable. Other than as described above, no service charges, brokerage
commissions or transfer taxes will be
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<PAGE> 34
payable by the MICA shareholders in connection with the surrender of their
shares of MICA Common Stock. No interest will be paid or accrued on the cash
payable upon surrender of the certificate or certificates, and after the
Effective Time no dividends will be paid to, or accrued for the benefit of,
former holders of MICA Common Stock.
From and after the Effective Time, holders of certificates formerly
representing MICA Common Stock will cease to have any rights with respect to
such shares, except the right to receive the amount of cash into which such
shares were converted in the Merger and any rights provided by law.
Upon the surrender and exchange of a certificate to the Payment Agent, the
holder will be paid the amount of cash to which such holder is entitled under
the Merger Agreement, less any amount required to be withheld under applicable
federal income tax withholding regulations. A shareholder who is a U.S. citizen
and resident (other than a corporation) may be able to avoid such withholding
with respect to payment for his or her shares by providing the Payment Agent
with a correct taxpayer identification number in accordance with the
instructions in the letter of transmittal. See "The Merger -- Certain Federal
Income Tax Consequences of the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
each of MICA, USDL and Merger Sub with respect to, among other things, (i)
corporate organization and good standing, (ii) corporate authority to enter into
the Merger Agreement, (iii) authorized capital stock, (iv) the filing of certain
documents with the SEC and the accuracy of such documents, (v) compliance with
certain necessary permits, licenses and orders, (vi) the accuracy of certain
information, (vii) the absence of certain litigation, (viii) the absence of
certain material changes or events, (ix) the absence of certain material
defaults or violations, (x) the accuracy of certain financial statements, (xi)
the absence of certain material liabilities, (xii) the absence of material labor
disputes, (xiii) compliance with certain applicable environmental laws, (xiv)
the absence of material liabilities related to employee benefit plans, (xv) tax
matters, (xvi) insurance, (xvii) transactions with affiliates, (xviii) tangible
property and (xix) certain material contracts and agreements; provided, however,
that USDL and/or Merger Sub only made such customary representations and
warranties as were noted in (i) through (ix) above. The Merger Agreement also
contains a representation by USDL that it has available to it the funds
necessary to consummate the Merger.
COVENANTS; CONFIDENTIALITY
The Merger Agreement contains mutual covenants pursuant to which USDL, MICA
and Merger Sub have agreed to use their respective best efforts to make all
required regulatory filings and to obtain any necessary consents, permits,
authorizations and approvals to permit consummation of the Merger. USDL and MICA
have also agreed to give prompt notice to the other of (i) the occurrence or
failure to occur of any event that would be likely to cause any representation
or warranty of the notifying party contained in the Merger Agreement to be
inaccurate in any material respect and (ii) any material failure of the
notifying party to comply with or satisfy any covenant or condition under the
Merger Agreement. MICA has also agreed not to settle or compromise any claim for
dissenters' rights without the prior written consent of USDL.
The Merger Agreement further provides that each of MICA and its
subsidiaries (i) will provide reasonable access during normal business hours to
USDL to all of its senior officers, agents, properties, offices and other
facilities and to all books and records, (ii) will furnish USDL with all
information reasonably requested and (iii) will make available its senior
officers to confer on a regular basis with USDL's officers regarding ongoing
operations of MICA and its subsidiaries. The Merger Agreement requires USDL and
Merger Sub (i) to hold any such information which it receives which is nonpublic
confidential and (ii) to not disclose such information to any third party
without the written consent of MICA.
NO SOLICITATION
The Merger Agreement provides that neither MICA nor any affiliate of MICA,
nor any of their respective officers, directors or agents shall, directly or
indirectly, solicit, initiate or encourage the submission
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<PAGE> 35
of any proposal or offer from any person relating to any acquisition or purchase
of all or any material portion of the assets of, or any equity interest in, MICA
(or any subsidiary or division thereof) or any business combination or other
similar transaction with MICA (or any subsidiary or division thereof) (a "Third
Party Transaction"). Pursuant to the Merger Agreement, neither MICA nor any
affiliate of MICA, nor any of their respective officers, directors or agents
shall, directly or indirectly, solicit, participate in or initiate any
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt to effect a Third Party
Transaction unless (i) MICA shall have received after the date of the Merger
Agreement an unsolicited written offer from a third party to effect a Third
Party Transaction, (ii) the Board of Directors is advised by its legal counsel
that in the exercise of the fiduciary obligations of the Board of Directors
under applicable law such information is required to be provided to or such
discussions or negotiations are required to be undertaken with the person
submitting such unsolicited written offer and (iii) prior to furnishing such
information to, or entering into discussions or negotiations with, such person,
MICA gives USDL prompt prior written notice (including a summary of terms and
the identity of parties except to the extent such would cause MICA's Board of
Directors to determine that such disclosure would be a breach of its fiduciary
duties to shareholders imposed by law, as advised by counsel to MICA) of MICA's
intention to furnish such information or begin such discussions.
INTERIM OPERATIONS
The Merger Agreement provides that, prior to the Effective Time, except as
otherwise agreed to in writing by USDL or except as otherwise required by the
Merger Agreement to consummate the Merger, MICA and its respective subsidiaries
(i) shall conduct their respective businesses in the ordinary course and
consistent with past practice, and (ii) shall use all reasonable efforts to
preserve intact their respective business organizations, to keep available the
services of their present officers, employees and consultants and to preserve
their present relationships with customers, suppliers and other persons with
whom they have a significant business relationship.
Additionally, the Merger Agreement provides that neither MICA nor the
subsidiaries of MICA will do or agree to do certain acts, including, but not
limited to, the following:
(i) (a) amend its articles of incorporation or bylaws, (b) declare,
set aside or pay any dividend or other distribution in respect of any of
its capital stock, (c) make any direct or indirect redemption, retirement,
purchase or other acquisition of any of its capital stock or any other
securities convertible into shares of capital stock or any rights, warrants
or options to acquire any such shares or convertible securities, (d) split,
combine or reclassify its outstanding shares of capital stock, (e) issue or
authorize the issuance of any other securities in respect of or in
substitution for shares of its capital stock or (f) alter through merger,
liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of MICA or any of MICA's subsidiaries;
(ii) authorize for issuance, issue, sell or agree or commit to issue
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), pledge or
otherwise encumber any shares of its capital stock or any other securities
or equity equivalents (including without limitation stock appreciation
rights, warrants or options), other than (a) sales of capital stock of any
wholly owned subsidiary of MICA to MICA or another wholly owned subsidiary
of MICA and (b) the issuance of shares of MICA Common Stock upon exercise
of any stock options that were issued and outstanding on the date of the
Merger Agreement;
(iii) except to the extent required under existing plans of MICA or
its subsidiaries as in effect on the date of the Merger Agreement, (a)
increase the compensation or fringe benefits of any of its directors,
officers or employees (except for increases in compensation of employees
and officers of MICA or its subsidiaries in the ordinary course of business
in accordance with past practice), (b) grant any severance or termination
pay not currently required to be paid under existing plans of MICA or its
subsidiaries, except on an individual basis in the ordinary course of
business and consistent with past practice or (c) establish, adopt, amend
or terminate any MICA plan, agreement, policy, fund, trust or
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<PAGE> 36
arrangement for the benefit of any directors, officers or employees except
as required by law or as required in the Merger Agreement; provided,
however, that MICA and its subsidiaries are not prohibited from hiring
personnel from time to time in the ordinary course of their business and
consistent with past practice;
(iv) acquire or agree to acquire (a) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any entity or (b) any assets (other than
those described in subclause (v)(d) below) other than in the ordinary
course of business consistent with past practice and in an aggregate amount
not to exceed $500,000 prior to the Effective Time;
(v) (a) sell, lease, license, mortgage or otherwise encumber or
dispose of any of its properties or assets other than in the ordinary
course of its business consistent with past practice and in amounts that
are not, individually or in the aggregate, material to MICA and its
subsidiaries taken as a whole, (b) borrow funds or guarantee any debt of
another person (other than guaranties by MICA in favor of any of MICA's
wholly owned subsidiaries or by any of MICA's subsidiaries in favor of MICA
or guaranties in the ordinary course of business consistent with past
practice), (c) make any loans, advances or capital contributions to, or
investments in, any other person or entity (other than to any direct or
indirect wholly owned subsidiary of MICA, or loans to employees of MICA and
its subsidiaries not to exceed $100,000 in the aggregate from the date of
the Merger Agreement through November 19, 1996), (d) except as disclosed by
MICA to USDL, expend or commit to expend funds for capital expenditures
other than in accordance with MICA's current capital expenditure plans or
(e) adopt a plan of complete or partial liquidation;
(vi) recognize any labor union (unless legally required to do so) or
enter into any collective bargaining agreement;
(vii) change any of the accounting methods, practices or principles
used by MICA or any of its subsidiaries (except as required as a result of
a change in generally accepted accounting principles or as recommended by
MICA's independent accountants and consented to in writing by USDL prior to
such change);
(viii) enter into any new line of business or open any new imaging
facilities except substantially in accordance with MICA's current business
plan as disclosed to USDL; or
(ix) authorize any of, or commit to agree to take any of, the
foregoing actions or any action which would make any of MICA's
representations or warranties set forth in the Merger Agreement untrue as
of the date when made as if such action had been taken. See
"-- Representations and Warranties."
EMPLOYEE BENEFITS AND EMPLOYEE MATTERS
Pursuant to the Merger Agreement, USDL has agreed that, effective as of the
Effective Time, USDL will provide to employees of MICA and its subsidiaries
certain payments and benefits, as described below.
The Merger Agreement provides that, during the period beginning at the
Effective Time and ending on the second anniversary of the Effective Time,
employees of MICA and its subsidiaries will continue to be provided with
employee benefit plans (other than stock option or other plans involving the
potential issuance of securities of MICA or of USDL and incentive compensation
or similar programs) which in the aggregate are not materially less favorable
than those currently provided by MICA and its subsidiaries to such employees, to
the extent permitted by law; provided, however, that (i) employees covered by
collective bargaining agreements need not be provided such benefits and (ii)
USDL has the right to review all employee benefits after the Effective Time and
to make such changes as it deems appropriate.
The Merger Agreement also provides that, after the Merger, USDL and Merger
Sub will cause MICA to honor (i) all employee benefit obligations to current and
former employees and directors under MICA's employee benefit plans in existence
on the date of the Merger Agreement and (ii) all employment or severance
agreements entered into by MICA or adopted by the Board of Directors of MICA
prior to the date
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<PAGE> 37
of the Merger Agreement; provided, however, that nothing prevents Merger Sub or
MICA (and, after the Merger, the surviving corporation) from taking any action
with respect to such plans, obligations or agreements or refraining from taking
any such action which is permitted or provided for under the terms thereof. For
a discussion of certain employment and severance agreements which will be
honored by USDL after the Effective Time, see "-- Employment and Severance
Arrangements."
The Merger Agreement also provides that, after the Merger, employees of
MICA will be given credit for all actual service with MICA and its subsidiaries
under all employee benefit plans, programs and policies of the surviving
corporation in which they become participants for all purposes thereunder
(except to the extent that such crediting would produce duplication of
benefits).
TREATMENT OF STOCK OPTIONS AND WARRANTS
Under the Merger Agreement, effective at the Effective Time, all
outstanding stock options and stock appreciation rights (the "MICA Stock
Options") granted prior to August 1, 1996 under any stock option or similar plan
of MICA (the "Stock Plans") will be cancelled. Immediately prior to the
Effective Time, each holder of a MICA Stock Option will be entitled to receive a
payment in cash (after any required withholding of taxes) equal to the product
of (i) the total number of shares of MICA Common Stock subject to the MICA Stock
Option (whether or not then vested or exercisable) and (ii) the excess of $11.75
over the exercise price per share of MICA Common Stock subject to such MICA
Stock Option (the "Option Cancellation Consideration").
As of August 15, 1996, MICA had outstanding MICA Stock Options to purchase
an aggregate of 264,393 shares of MICA Common Stock. Based on the MICA Stock
Options outstanding at August 15, 1996 with an exercise price per share below
$11.75, it is anticipated that outstanding MICA Stock Options exercisable for
approximately 243,993 shares of MICA Common Stock will be cancelled in exchange
for aggregate Option Cancellation Consideration consisting of approximately
$1,284,000 in cash. The exact number of outstanding MICA Stock Options which
will be cancelled at the Effective Time will depend on the number of such
options which are exercised prior to the Effective Time. As of August 15, 1996,
Robert S. Muehlberg and Denise L. Sunseri, executive officers and directors of
MICA, held MICA Stock Options exercisable for 92,833 and 76,000 shares of MICA
Common Stock, respectively, at exercise prices ranging from $2.35 to $21.90 per
share.
The Merger Agreement provides that all Stock Plans will terminate as of the
Effective Time, and that MICA will ensure that, following the Effective Time, no
holder of a MICA Stock Option or any participant in any Stock Plans will have
the right to acquire thereunder any capital stock of MICA, USDL or the surviving
corporation.
As of August 15, 1996, MICA had outstanding warrants to purchase an
aggregate of 215,500 shares of MICA Common Stock at exercise prices ranging from
$2.50 per share to $18.75 per share (the "MICA Warrants"). In connection with
the Merger, each of the MICA Warrants that remains outstanding as of the
Effective Time with an exercise price below $11.75 per share (in an aggregate
amount of 201,500 shares of MICA Common Stock) will become exercisable for the
Merger Consideration. In connection with the Merger, USDL has agreed to assume
the duties and obligations of MICA with respect to the MICA Warrants which
remain outstanding as of the Effective Time, provided that such warrants will
only be exercisable for the Merger Consideration after such date. As of August
15, 1996, (i) Dr. Keith R. Burnett, a director of MICA, beneficially owned an
aggregate of 37,000 MICA Warrants at exercise prices ranging from $4.05-$7.81
per share; (ii) Robert Ricci, a director of MICA, beneficially owned an
aggregate of 32,000 MICA Warrants at exercise prices ranging from $7.50-$7.81
per share; and (iii) Mr. E. Keene Wolcott, a former director of MICA,
beneficially owned an aggregate of 37,000 MICA Warrants at exercise prices
ranging from $4.05 to $18.75 per share.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
USDL has agreed to honor, in accordance with their respective terms as in
effect on the date of the Merger Agreement, (i) certain severance agreements
between MICA and certain current employees of
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<PAGE> 38
MICA, and (ii) certain employment agreements between MICA and certain current
employees of MICA. Among the employment agreements which USDL has agreed to
honor are (i) an employment contract with Mr. Muehlberg, currently the Chief
Executive Officer and Chairman of the Board of Directors, and (ii) an employment
contract with Ms. Sunseri, currently Vice President, Chief Financial Officer and
Secretary and a member of the Board of Directors. Each of the employment
contracts of Mr. Muehlberg and Ms. Sunseri provide for (i) the payment of the
equivalent of one year's salary, car allowance, and prior year's bonus and (ii)
the provision of employment benefits for the 12-month period following the last
day of employment with MICA in the event that his or her employment is
involuntarily terminated, which includes a termination due to a change in
control of MICA. Under such employment contracts, if the Merger is approved and
consummated, such approval will trigger the change in control provisions,
thereby allowing Mr. Muehlberg and Ms. Sunseri to receive compensation upon
termination of their employment.
Under the employment contracts, an involuntary termination includes MICA's
termination of the employee's employment for any reason other than for cause, or
the employee's termination of his or her employment due to any of the following
reasons: (i) a reduction in salary or benefits, (ii) a reduction in eligibility
for any MICA bonus, incentive compensation, stock option plans or other benefit
programs, (iii) a substantial change in title, authority or position with MICA,
(iv) a change in principal place of employment from San Diego, California, (v)
MICA's failure to consummate a sale or merger transaction by November 19, 1996
or (vi) a change in control of MICA. A change in control, as defined in such
employment contracts, means (i) the entering into by MICA or its shareholders of
an agreement to dispose of, by sale, exchange, merger, reorganization,
dissolution or liquidation, either 80% or more of the assets of MICA or a
portion of the outstanding MICA Common Stock such that one person or group
beneficially owns 25% or more of the outstanding MICA Common Stock, (ii) the
issuance by MICA to one person or group sufficient shares of MICA Common Stock
to increase such person's or group's ownership to 25% or more of the outstanding
MICA Common Stock or (iii) a change in the composition of the Board of Directors
such that the individuals who constituted the Board as of the date of the
employment contracts (the "Incumbent Board") or individuals who become members
of the Board of Directors subsequent to the date of the employment contracts and
whose nominations to the Board are approved by a vote of at least a majority of
those members of the Board of Directors who were members of the Incumbent Board
(or whose nominations were approved by the Incumbent Board) cease to constitute
at least a majority of the Board.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Merger Agreement provides that MICA will maintain, and that USDL agrees
to cause MICA to maintain (i) for the benefit of current directors and officers
of MICA for three years after the Effective Time, either (a) director and
officer liability insurance providing at least the same amounts and coverage as
the policies currently in effect; provided, however, that if the cost of
maintaining such insurance exceeds the current cost related to providing such
insurance by more than 125% of the current cost of such insurance, MICA will
maintain such insurance with the maximum amount of coverage obtainable at 125%
of such current cost, or (b) coverage for the benefit of MICA's current officers
and directors by causing USDL's directors' and officers' liability insurance
then in effect to cover those persons who are covered on the date of the Merger
Agreement by MICA's directors' and officers' liability insurance policy with
respect to those matters covered by MICA's directors' and officers' liability
policy, and (ii) for the benefit of current directors and officers of MICA, for
six years after the Effective Time, all rights to indemnification as provided in
MICA's articles of incorporation and bylaws in effect on the date of the Merger
Agreement.
Pursuant to the Merger Agreement, USDL and Merger Sub have agreed to
indemnify the current officers and directors of MICA with respect to certain
acts or omissions occurring before the Effective Time to the full extent a
corporation is permitted under applicable law to indemnify its own directors and
officers.
CONDITIONS TO THE MERGER
The respective obligations of USDL and Merger Sub, on the one hand, and
MICA, on the other hand, to consummate the Merger are subject to certain
conditions set forth in the Merger Agreement, including, but not limited to, the
following: (i) approval of the Merger Agreement and the Merger by the
affirmative vote of
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<PAGE> 39
a majority of the outstanding shares of MICA Common Stock, (ii) other than the
filing of a Certificate of Merger with the California Secretary of State, all
material notices, consents, approvals, authorizations and filings with respect
to any governmental authority shall have been filed, occurred or been obtained,
(iii) any waiting period applicable to the Merger under the Hart-Scott Act shall
have expired, (iv) 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, nor shall any proceeding by any governmental entity seeking any of
the foregoing be pending, (v) there shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal and
(vi) there shall not be any pending litigation regarding the Merger which, if
adversely determined, would have a material adverse effect on MICA.
The obligation of MICA to consummate the Merger is subject to the
satisfaction or waiver of certain additional conditions, including, but not
limited to, the following: (i) the representations and warranties of USDL and
Merger Sub set forth in the Merger Agreement shall be correct in all material
respects as of the date of the Merger Agreement and as of the closing date of
the Merger, and MICA shall have received a certificate signed on behalf of USDL
by the Chief Executive Officer of USDL to such effect and (ii) USDL and Merger
Sub have performed in all material respects their respective obligations
required to be performed under the Merger Agreement at or prior to the closing
date of the Merger and MICA shall have received a certificate to that effect
executed on behalf of USDL by the Chief Financial Officer of USDL.
The obligations of USDL and Merger Sub to consummate the Merger are subject
to the satisfaction or waiver of certain additional conditions set forth in the
Merger Agreement, such as: (i) the representations and warranties of MICA shall
be correct in all material respects as of the date of the Merger Agreement and
as of the closing date of the Merger, and USDL shall have received a certificate
signed on behalf of MICA by the Chairman of the Board and the Chief Executive
Officer of MICA and by the Chief Financial Officer of MICA to such effect, (ii)
MICA shall have performed in all material respects its obligations required to
be performed under the Merger Agreement at or prior to the closing date of the
Merger, and USDL shall have received a certificate to that effect executed on
behalf of MICA by the Chairman of the Board and the Chief Executive Officer of
MICA and by the Chief Financial Officer of MICA and (iii) there shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger by any federal or state governmental
entity which, in connection with the grant of any requisite regulatory approval,
would be reasonably likely to result in a material adverse effect with respect
to the surviving corporation.
It will not be known until immediately prior to the Effective Time whether
all of the above conditions, and any other conditions to the Merger set forth in
the Merger Agreement, will have been satisfied. As described below, each of the
parties to the Merger Agreement may, at its option, waive compliance with any
condition to its obligation to consummate the Merger.
WAIVER, AMENDMENT AND TERMINATION
Any provision of the Merger Agreement may be waived at any time prior to
the Effective Time by the party that is, or whose shareholders are, entitled to
the benefits of that provision. The Merger Agreement may be amended at any time
prior to the Effective Time, except that, after approval by the shareholders of
MICA, no amendment may be made which would reduce the amount or change the type
of consideration into which each share of MICA Common Stock shall be converted
upon consummation of the Merger. Any amendment must be in writing and signed by
MICA, USDL and Merger Sub.
The Merger Agreement may be terminated at any time prior to the Effective
Time, before or after approval of the Merger Agreement by the shareholders of
MICA, upon the occurrence of certain events specified in the Merger Agreement,
such as: (i) by mutual consent of MICA and USDL; (ii) by USDL (a) if MICA
materially breaches any of its representations or obligations under the Merger
Agreement and such breach either cannot be cured prior to the closing date of
the Merger or has not been cured within thirty days after USDL's written notice
of such breach or (b) if MICA materially breaches the Merger Agreement and
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<PAGE> 40
does not cure such breach within ten days after USDL's notice of such breach;
(iii) by MICA (a) if any of the representations of USDL or Merger Sub under the
Merger Agreement are untrue in any material respect or (b) if USDL or Merger Sub
breaches its obligations under the Merger Agreement in any material respect,
with such breach not cured within ten days following MICA's notice of such
breach; (iv) by MICA or USDL if consummation of the Merger is prohibited by any
nonappealable order, decree or injunction; (v) by MICA or USDL if the Effective
Time has not occurred on or before November 19, 1996 (provided that the failure
to consummate the Merger by such time is not due to the intentional failure of
the terminating party to perform its obligations under the Merger Agreement);
(vi) by MICA or USDL if the MICA shareholders fail to approve the Merger; (vii)
by USDL (a) if MICA's Board of Directors has withdrawn or modified, in any
manner adverse to USDL or Merger Sub, its recommendation or approval of the
Merger or the Merger Agreement, (b) if MICA's Board of Directors has approved or
recommended to the MICA shareholders a business combination other than the
Merger or (c) if a tender offer or exchange offer for at least 25% of MICA
Common Stock is commenced by a third party and MICA's Board of Directors
recommends that the MICA shareholders tender their shares in such tender or
exchange offer or otherwise fails to recommend that the MICA shareholders reject
such tender offer or exchange offer; or (viii) by MICA prior to the Special
Meeting if MICA's Board of Directors (a) fails to make or withdraws or modifies
its recommendation of the Merger Agreement or the Merger or there exists at such
time a tender offer or exchange offer for at least a majority of MICA Common
Stock or a written offer by a third party to acquire at least a majority of MICA
Common Stock pursuant to a business combination at a price per share (whether
payable in cash or stock) of MICA Common Stock that is higher than the Merger
Consideration or (b) recommends to the MICA shareholders approval of such
transaction (in each case only to the extent that MICA's Board of Directors, as
advised by legal counsel, determines that failure to take such action could be
deemed to constitute a breach of the Board's fiduciary duties).
If the Merger Agreement is terminated for any of the reasons described in
clauses (ii)(b), (vii) or (viii) of the preceding paragraph, the Merger
Agreement requires MICA to pay to Merger Sub a break-up fee equal to 3% of the
total Merger Consideration (which, based on the total shares of MICA Common
Stock outstanding as of August 15, 1996 of 2,695,251 shares, would be
approximately $960,000). Pursuant to the Merger Agreement, if USDL terminates
the Agreement for the reason set forth in clause (ii)(a) of the preceding
paragraph, MICA must reimburse Merger Sub for all out-of-pocket expenses and
fees up to $200,000 incurred by Merger Sub in connection with the Merger.
Additionally, if the Merger Agreement is terminated, the Settlement
Agreement requires that the current members of MICA's Board of Directors resign
from their positions and be replaced by designees of the Steel Parties. See "The
Merger -- Background of the Merger" and "-- Conduct of Business if the Merger is
Not Consummated."
FEES AND EXPENSES
The Merger Agreement generally provides that all costs and expenses
incurred in connection with the transactions contemplated thereby will be paid
by the party incurring such expenses, whether or not the Merger is consummated.
Notwithstanding the preceding sentence, however, the Merger Agreement requires
MICA to pay to Merger Sub certain fees in the event the Merger Agreement is
terminated for certain specified reasons. See "-- Waiver, Amendment and
Termination."
MARKET PRICE AND DIVIDEND INFORMATION
FOR MICA COMMON STOCK
MICA Common Stock is traded on the OTC Bulletin Board under the Symbol
"MIGA." As of August 15, 1996, there were approximately 3,000 shareholders. MICA
has not paid any dividends on the MICA Common Stock.
The following table shows the high and low sale prices for MICA Common
Stock as reported by the OTC Bulletin Board for each period indicated. On July
18, 1996, MICA and USDL announced the Agreement in Principle. The high and low
sale prices on July 17, 1996, were $11.25 and $9.12, respectively,
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<PAGE> 41
and the last reported sale price was $10.50. On August 1, 1996, MICA announced
the signing of the Merger Agreement. On July 31, 1996, the high and low sale
prices were $10.69 and $10.69, respectively, and the last reported sale price
was $10.69. Shareholders are urged to consult publicly available sources for
current market quotations for their shares. On September 20, 1996, the high and
low sales prices for MICA Common Stock as reported on the OTC Bulletin Board
were $11.12 and $11.12, respectively, and the last reported sale price was
$11.12. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR
SHARES.
QUARTERLY HIGH AND LOW SALE PRICES
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1994
First Quarter....................................................... $ 4.38 $2.19
Second Quarter...................................................... 3.75 1.88
Third Quarter....................................................... 5.00 1.85
Fourth Quarter...................................................... 5.00 3.44
1995
First Quarter....................................................... $ 5.00 $3.13
Second Quarter...................................................... 8.13 4.22
Third Quarter....................................................... 9.06 6.25
Fourth Quarter...................................................... 8.25 5.94
1996
First Quarter....................................................... $10.25 $7.00
Second Quarter...................................................... 11.00 8.75
</TABLE>
BUSINESS OF USDL AND MERGER SUB
USDL is a physician practice management ("PPM") provider specializing in
the acquisition, operation and management of multi-modality diagnostic imaging
centers ("Imaging Centers") and related medical facilities. USDL currently owns
63 Imaging Centers and manages 17 other facilities and is actively seeking
additional Imaging Centers.
USDL's objective is to become the leading network provider of outpatient
imaging services in the United States. USDL believes that the highly fragmented
nature of the diagnostic imaging industry provides a significant opportunity to
build rapidly through acquisitions a multi-regional PPM company focused
primarily on this industry. USDL believes that managed care and other
third-party payors will increasingly prefer to contract for service on a
national or regional basis, and that USDL's development of a multi-regional
network of centers will permit it to obtain such contracts on favorable terms.
Industry sources estimate that there are over 2,200 Imaging Centers currently
operating in the U.S., the substantial majority of which are owned and operated
on an independent basis. USDL believes that there are and will continue to be
many attractive acquisition opportunities because Imaging Center operators are
finding it more difficult to compete independently as managed care becomes more
prevalent.
Merger Sub is a wholly owned subsidiary of USDL and has not conducted any
business other than in connection with entering into the Merger Agreement.
USDL was incorporated in 1993 as a Delaware corporation. Merger Sub was
incorporated in 1996 as a California corporation. Both USDL and Merger Sub's
principal executive offices are located at 777 South Flagler Drive, Suite 1006,
West Tower, West Palm Beach, Florida 33401, and their telephone number at that
location is (561) 832-0006.
Merger Sub will obtain the necessary funds to consummate the Merger and pay
related fees and expenses from the general corporate funds of USDL. USDL has
represented to MICA that it has sufficient funds to pay the Merger
Consideration. USDL will provide such funds to Merger Sub prior to the Effective
Time.
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<PAGE> 42
BUSINESS OF MICA
MICA is a California corporation organized in July 1981 which provides
outpatient services and medical equipment rentals to physicians, managed care
providers and hospitals. These services include magnetic resonance imaging
("MRI"), computed tomography ("CT"), nuclear medicine and ultrasound. MICA's
operations include diagnostic medical centers ("DMCs"), diagnostic equipment
rentals, fee-for-service agreements (fixed and mobile), and management,
marketing and related support services.
MICA's strategy is to expand the range and extent of the diagnostic imaging
services provided to its customers.
MEDICAL DIAGNOSTIC IMAGING INDUSTRY
Medical diagnostic imaging systems facilitate the diagnosis of disease and
disorders at an early stage, often minimizing the amount and cost of care needed
to stabilize or cure the patient and frequently obviating the need for invasive
diagnostic procedures, such as exploratory surgery. Diagnostic imaging systems
are based on the ability of energy waves to penetrate human tissue and generate
images of the body which can be displayed either on film or on a video monitor.
Imaging systems have evolved from conventional X-ray to the advanced
technologies of MRI, CT, nuclear medicine and ultrasound. The use of these
technologies has grown significantly in the United States during the last
several years due to increasing acceptance by physicians of the value of
diagnostic imaging technologies in the early diagnosis of disease, the expanding
applications of MRI and ultrasound (partially because they do not involve X-ray
radiation) and the growing patient base attributable to an aging population.
Due to capital restrictions, and to remain viable in a highly competitive
industry, hospitals seek to offer diagnostic imaging equipment and services to
retain and expand their referring physician base.
RANGE OF SERVICES
The needs of a particular hospital or physician group ("Customer")
determine the extent of the following services, which MICA can deliver either
through a full service DMC or on a fee-for-service basis.
Management. Each DMC is staffed by administrative and technical personnel
who provide day-to-day management of operations including staffing, billing and
collection, purchasing of medical supplies and film and supervision of
maintenance and quality control.
Equipment and Related Services. Drawing upon its operating experience and
relationships with leading equipment manufacturers, MICA consults with each
Customer to identify the equipment best suited to meet the Customer's needs on a
cost-effective basis. The appropriate equipment is acquired through purchase or
lease by MICA. In addition, MICA assists the Customer in complying with
licensing and other regulatory requirements related to the siting of the
equipment. In conjunction with the installation of the equipment, MICA typically
enters into maintenance agreements with equipment manufacturers or other third
parties to service the newly installed equipment.
Technical and Support Staffing. MICA provides training and educational
programs for its own technologists as well as the Customer's technologists. At a
DMC, support personnel (receptionist, transcriptionists, couriers and technical
aids) are also provided by MICA.
Marketing. MICA provides its Customers with marketing services, including
the design of a marketing program to educate the referral base as to the
diagnostic imaging services available at the facility. MICA provides expanded
marketing services to patient referral sources, including HMOs and other health
plans.
Diagnostic Medical Centers. DMCs provide diagnostic imaging services in an
outpatient environment. In addition to the equipment, MICA also provides the
management of all technical and support staff; marketing services; patient
scheduling, billing and collection services; and management information systems.
Staffing for a DMC typically requires six to twenty non-physician personnel.
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<PAGE> 43
The typical arrangement for a DMC is a limited partnership (with MICA as
the managing general partner) which provides for a sharing of earnings between
MICA and its partners. In addition, MICA receives management fees of 4-10% of
collected revenues. The Company carefully selects its DMC partners and generally
requires exclusive contracts. MICA funds net operating losses of the DMCs.
Set forth below is a table of MICA's DMCs with a listing of respective
opening dates and services provided at each location. In 1992, the Company also
established a free-standing radiation therapy center as a joint venture with a
Florida Columbia/HCA hospital.
<TABLE>
<CAPTION>
SERVICES BY TECHNOLOGY
----------------------------------------------------
OPENING NUCLEAR
DMC LOCATION DATE MRI CT ULTRASOUND MEDICINE OTHER(1)
------------------------------ ------- --- --- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Long Beach, CA................ 12/84 x x x -- x
Bakersfield, CA............... 5/85 x x x -- x
Kansas City, MO............... 5/85 x -- -- -- --
Portland, OR.................. 12/85 x x x -- x
Huntington Beach, CA.......... 12/85 x x x x x
Orlando, FL................... 6/87 x x x x x
Newport Beach, CA............. 9/87 x x x x x
Gainesville, FL............... 3/90 x x -- -- --
Renton, WA.................... 3/90 x -- -- -- --
Bradenton, FL................. 5/90 x x -- -- --
Phoenix, AZ(2)................ 8/91 x x x -- --
Westlake Village, CA.......... 10/91 x -- -- -- --
Port Charlotte, FL............ 9/96 x -- -- -- --
Laguna Niguel, CA............. 6/92 x -- -- -- --
Chalmette, LA................. 6/92 x -- -- -- --
Santa Maria, CA............... 8/92 x -- -- -- --
Downey, CA.................... 7/94 x -- -- -- --
</TABLE>
- ---------------
(1) Other services consist principally of mammography and X-ray.
(2) MICA provides only management services to this DMC.
Fee-for-Service. Under a typical fee-for-service arrangement, MICA
furnishes the Customer with appropriate equipment and bills the Customer for the
number of patient procedures performed each month. Under certain fee-for-service
arrangements, the Customer agrees to a monthly guaranteed minimum payment. The
Company contracts to provide services for a term ranging from one month to three
years. Based upon the Customer's service requirements, MICA installs or makes
equipment available. A mobile unit is totally self-contained and typically
provides services to a number of Customers. During 1995, the Company provided
diagnostic imaging services to approximately 120 Customers in 20 states under
fee-for-service arrangements. In July 1995, the Company sold its
ultrasound/nuclear medicine business which accounted for 72 Customers in 11
states under fee-for-service arrangements. Of the 120 customers serviced in
1995, 51 Customers received service on site and the remaining Customers received
service by one of the Company's mobile units. During the six months ended June
30, 1996, the Company provided diagnostic imaging services to approximately 24
customers in 12 states under fee-for-service arrangements. Of the 24 Customers
serviced in 1996, 14 Customers received service on site and the remaining
Customers received service by one of the Company's mobile units.
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<PAGE> 44
MEDICAL SERVICES REVENUE MIX
The following table summarizes the Company's medical services revenues on a
percentage basis by type of arrangement for each of the five years in the period
ended December 31, 1995 and the 6 months ended June 30, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
6 MONTHS ----------------------------------------
JUNE 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DMC.................................... 71% 61% 51% 45% 36% 32%
Fee-for-Service
Fixed................................ 22% 27% 34% 31% 42% 42%
Mobile............................... 7% 12% 15% 24% 22% 26%
</TABLE>
TECHNOLOGY SOURCES
MICA obtains its diagnostic imaging equipment from various manufacturers
including The General Electric Company and Hitachi Medical Systems America, Inc.
Costs to acquire various new equipment are as follows:
<TABLE>
<CAPTION>
EQUIPMENT PRICE RANGE
-------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
MRI........................................................... $700,000 to $1,500,000
CT............................................................ $150,000 to $ 650,000
Nuclear Medicine.............................................. $125,000 to $ 350,000
Ultrasound.................................................... $ 80,000 to $ 250,000
</TABLE>
Installation and maintenance costs on the equipment can be substantial,
particularly with respect to MRI units. Installation costs can range from
$75,000 to $200,000 for an MRI unit depending on the particular installation.
Maintenance costs for an MRI unit can be as high as $150,000 per year. MICA
typically enters into agreements with equipment manufacturers or other third
party service organizations for equipment maintenance.
Equipment is financed by MICA (with terms ranging from five to seven years)
with lenders and lessors, with the equipment pledged as security for the debt.
RISK FACTORS AND CERTAIN CAUTIONARY STATEMENTS
The Company's business is subject to a number of risks, some of which are
beyond the Company's control. Such risks in some cases have affected the
Company's results, and in the future could cause the Company's actual results
for the third quarter of 1996, and beyond, to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. The following discussion highlights some of these risks:
Obsolescence. MICA attempts to select equipment that will remain
commercially viable for the duration of its financing term. Technology, however,
as it relates to MRI and CT has advanced rapidly over the past several years and
all of the Company's equipment is subject to the risk of obsolescence and
deterioration of fair market value. The Company routinely reviews its equipment
portfolio to determine that its carrying value is the lower of cost or net
realizable value.
Credit Risk. MICA typically bills the patient for both the charges of the
radiologist and the charges for the technical services of the DMC. By
undertaking the responsibility for patient billing and collection activities,
MICA assumes the credit risk presented by the patient base, as well as the risk
of payment delays attendant to reimbursement through governmental programs or
third party payors. The Company estimates that 63% of the DMCs payors are
insurance companies, HMO/PPOs or self-paying patients.
Equipment Utilization. Under fee-for-service contracts that do not require
minimum payments, MICA assumes the risk that revenues generated through
utilization of its equipment will be sufficient to meet MICA's financial
obligations to lenders and lessors. The Company attempts to finance its
acquisition of equipment and match the amortization period of such financial
obligation to the term of the Customer's
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<PAGE> 45
contract. However, the amortization period for specific equipment may extend
beyond the term of the related contract, requiring MICA to fund any resulting
negative cash flow in the event that it cannot redeploy the equipment.
Government Regulation. The Omnibus Budget Reconciliation Act of 1993
("OBRA '93"), sometimes referred to as "Stark II", includes federal legislation
on physician self-referrals regarding Medicare/Medicaid patients. The new
legislation, which became effective January 1, 1995, prohibits physician
referrals to non-hospital health facilities in which the referring physician has
a "financial interest."
On January 1, 1995, the Physician Ownership and Referral Act of 1993
("PORA") became effective in the state of California. PORA prohibits a physician
from referring patients for covered services including diagnostic imaging if the
physician (or his or her immediate family) has a "financial interest" in an
entity that receives the referral in the state of California. MICA currently is
in the process of acquiring the partnership units owned by a limited number of
physicians who refer patients to MICA's DMCs. It is not anticipated that such
acquisitions will require significant capital. MICA is unable to predict at this
time what impact PORA will have upon the demand for its equipment and services.
Florida's Patient Self-Referral Act of 1992 might also affect MICA's
business. Part of the Act imposes a fee schedule on all providers of diagnostic
imaging services and radiation therapy services which limits fees to no more
than 115% of the Medicare limiting charge for non-participating physicians for
such services (the "Fee Cap"), including technical and professional components.
The statute specifically excludes hospitals and physician group practices from
the Fee Cap. The Company's four imaging centers in Florida, as currently
operated, would be subject to the Fee Cap and would be severely impacted if the
Fee Cap ever became effective. In July 1992, however, the United States District
Court for the Northern District of Florida granted a permanent injunction,
finding the statute violative of the equal protection clause of the United
States Constitution and the Florida Constitution. The state filed a notice of
appeal from this judgment. On February 15, 1994, the United States Court of
Appeals for the Eleventh Circuit reversed the decision of the lower court. The
Company has filed a petition for rehearing with the Eleventh Circuit. In a later
proceeding, the Company joined with other plaintiffs and plaintiff-intervenors
in a separate effort to defeat the Fee Cap provision. In February 1995, a
Florida court issued an order granting final summary judgment that the Fee Caps
were unconstitutional for providers of diagnostic imaging services. The state
court's ruling was upheld on appeal. As a result of the state court's decision,
MICA is not subject to the Fee Caps. Although MICA and two Florida courts have
held that the Fee Caps violate the Florida Constitution, there can be no
assurances that their decisions will not be reversed, that the Fee Caps will
ultimately be found to be unconstitutional or that the Fee Caps will not be
reinstated retroactively to the initial effective date.
MICA's business also is affected by Certificate-of-Need ("CON") programs
implemented in a number of states and by existing governmental regulations
regarding expenditures for medical technology by hospitals. CON programs vary
considerably from state to state. CON agencies primarily control the
distribution and physical allocation of technological equipment among healthcare
institutions, frequently determining which institutions may acquire new
technologies. Such determinations are based on broad concepts of "need," using
various criteria and weighing the relative need demonstrated by competing CON
applicants to ensure the equitable allocation of new technology among hospitals.
To date, the CON laws and regulations and state rate commissions have not had a
material effect on MICA's business, although there is no assurance that the laws
and regulations will not change or that rate commissions will not take actions
that may adversely affect MICA's business.
MICA's operations are subject to a variety of governmental and regulatory
requirements. For example, the storage, use and disposal of radioactive
materials in nuclear medicine is subject to regulation by Federal and State
governmental authorities, including the United States Food and Drug
Administration, the Department of Health and Human Services, the Health Care
Finance Administration ("HCFA"), and the Nuclear Regulatory Commission ("NRC").
Additionally, MICA personnel must be licensed to operate certain equipment, and
the physicians practicing at its DMCs must have a Medicare/Medicaid provider
number to receive government reimbursement. MICA believes it is in compliance
with applicable laws and regulations.
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<PAGE> 46
Medical Reimbursement Program. A substantial portion of the Company's
revenue is attributable to payments made by government-sponsored healthcare
programs and other third party payors. From time to time the Federal government
has proposed limiting reimbursement for imaging services. Any change in
reimbursement regulations, or the enactment of legislation that would have the
effect of placing material limitations on the amount of reimbursement for
imaging services, could adversely affect the operations of MICA.
In November 1991, HCFA issued regulations which implemented a
resource-based relative value scale ("RBRVS") payment system effective for
services furnished by physicians or incident to physician services on or after
January 1, 1992. The RBRVS fee schedule was fully effective in January 1995. For
radiology, the change in fee schedules has resulted in substantially lower
reimbursement for services provided to Medicare-eligible patients. Because
MICA's fees for services to Medicare-eligible patients are subject to the fee
schedule for radiology procedures, this change has resulted in lower
reimbursement for services provided by MICA to Medicare-eligible patients. MICA
is unable to predict at this time what impact these regulations will have upon
demand for its equipment and services.
The Medicare/Medicaid Anti-Fraud and Abuse Statute (the "Anti-Kickback
Statute") prohibits certain actions or practices deemed by Congress to be
fraudulent or abusive in nature. Provisions of the Anti-Kickback Statute, known
generally as the "Safe Harbor Regulations," provide that compliance with an
applicable Safe Harbor would immunize that arrangement from criminal prosecution
or exclusion from the Medicare and Medicaid programs. To the extent that a
particular MICA arrangement complies with an applicable Safe Harbor, MICA is
guaranteed immunity from criminal prosecution or exclusion from the Medicare and
Medicaid programs based upon its participation in the arrangement. Although some
of MICA's arrangements may not comply with all criteria contained in an
applicable Safe Harbor, and therefore such arrangements would not be entitled to
Safe Harbor immunity, MICA believes that its business structure and practices do
not violate the Anti-Kickback Statute.
Healthcare reimbursement programs are not uniformly prompt in making
required payments. Extensive payment delays are not uncommon, and MICA's future
cash flows could be adversely impacted while awaiting payment. MICA has limited
ability to cause more timely reimbursement practices by governmental agencies
and programs. Additionally, there can be no assurance that subsequent laws,
subsequent changes in present laws or interpretations of laws will not adversely
affect the Company's operations.
Healthcare Reform. The public has recently focused significant attention
on reforming the healthcare system in the United States. A broad range of
healthcare reform measures have been introduced in Congress and in certain state
legislatures, including the Healthcare Reform Act signed by President Clinton on
August 21, 1996. Legislative interest recently has also focused on the role of
HMOs in the provision of healthcare and the effect of managed care reimbursement
mechanisms on healthcare service utilization and quality of service. It is not
clear at this time what proposals, if any, will be adopted or, if adopted what
effect, if any, such proposals would have on the Company's business. There can
be no assurance that any proposals adopted would be coordinated at the federal
or state level, and therefore the Company, as a national participant in the
healthcare industry, is subject to varying state regulatory environments.
Certain proposals, such as cutbacks in the Medicare and Medicaid programs,
containment of healthcare costs that could include a freeze on prices charged by
physicians, hospitals or other healthcare providers, and greater state
flexibility in the administration of Medicaid, could adversely affect the
Company. There can be no assurance that currently proposed or future healthcare
programs, laws, regulations or policies will not have a material adverse effect
on the Company's operating results.
Competition. The healthcare industry in general, and the market for
medical diagnostic imaging services in particular, are highly competitive.
MICA's DMCs and its fee-for-service operations compete for patients with
hospitals, managed care groups and other DMCs. The Company also competes with
equipment manufacturers, leasing companies, physician groups and other providers
of medical diagnostic imaging services. Many of these competitors have
substantially greater resources than MICA. MICA competes based on its reputation
for the dependability and quality of its services.
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<PAGE> 47
Insurance. MICA carries workers' compensation insurance, comprehensive and
general liability coverage, fire and allied perils coverage. MICA maintains
professional liability and general liability insurance for all owned facilities
in the single limit amount of $10 million. There can be no assurance that
potential claims will not exceed this amount. MICA also requires that physicians
practicing at the DMCs carry medical malpractice insurance to cover their
individual practices. The physicians are personally responsible for the costs of
the insurance.
EMPLOYEES
At June 30, 1996, MICA had 247 full-time employees including 223 employees
at DMC and fee-for-service locations and 24 employees at the corporate office.
Under Section 401(k) of the Internal Revenue Code the Company instituted a tax
deferred retirement plan, whereby the Company will match 50% of an employee's
deferred salary up to a maximum of 6% of gross pay, for a maximum matching
distribution of 3%. MICA has stock option plans for officers, directors, key
employees and consultants of the Company. Grants of options under such plans are
subject to approval of the Compensation/Stock Option Committee of the Board of
Directors.
PROPERTIES
The Company's executive offices are located at 9444 Farnham Street, Suite
100, San Diego, California 92123. The Company occupies approximately 11,900
square feet of space pursuant to a one-year lease extension which expires May
31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS
The Company is a California corporation organized in July 1981 which
provides outpatient services and medical equipment rentals to physicians,
managed care providers and hospitals. These services include MRI, CT, nuclear
medicine and ultrasound. The Company's operations include DMCs, diagnostic
equipment rentals, fee-for-service agreements (fixed and mobile), and
management, marketing and related support services. See "Business of MICA."
OPERATING TRENDS
Medical services revenues declined during the six months ended June 30,
1996 primarily due to the Company's termination of unprofitable fee-for-service
contracts and sales of assets used in the fee-for-service business. As such, the
Company believes that revenues from its fee-for-service business, which
accounted for 39% of medical services revenues reported in 1995 and 29% of
medical services revenues reported in the six months ended June 30, 1996, will
continue to decline. In view of the historical unprofitability and uncertainty
regarding its fee-for-service business, the Company's strategy is to sell
equipment used in its fee-for-service business as related hospital contracts
expire.
Revenues earned by the Company's DMCs in the six months ended June 30, 1996
were negatively affected by declining reimbursement which is the direct result
of cost containment efforts at the state and federal level as well as efforts by
insurer and payor groups to reduce healthcare costs. MICA expects the decline in
reimbursement trends to continue in the future. The Company's strategy is to
offset the decline in reimbursement by securing managed care contracts and
developing strategic alliances with hospitals and other healthcare providers to
increase the utilization of its diagnostic imaging services. By positioning
itself to take greater advantage of managed care contracts, thereby increasing
the utilization of its services, management believes that it can maintain its
DMC revenues. Although there can be no assurances, the Company believes that
declining reimbursement trends can be offset with increased utilization so that
such trends will not have a significant negative impact on the Company's
operating results or its liquidity in the future. Management believes that its
cash on hand and cashflow from future operations will be sufficient to meet the
Company's obligations as they come due.
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Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its net sales or results of
operations.
RESULTS OF OPERATIONS
Revenues From Medical Services. Revenues from its DMCs for the second
quarter declined $100,000 from $6.5 million in 1995 to $6.4 million in 1996.
Revenues for the six months ended June 30 declined $500,000 from $13.3 million
in 1995 to $12.8 million in 1996. The decline was primarily due to declining
trends in reimbursement. Revenues from its fee-for-service business for the
second quarter declined $2.5 million from $5.1 million in 1995 to $2.6 million
in 1996. Revenues for the six months ended June 30 declined $5.3 million from
$10.5 million in 1995 to $5.2 million in 1996. The decline was primarily due to
the Company's sale of underperforming assets and termination of certain
unprofitable leases and contracts used in its fee-for-service business. The
Company's sale of its Chicago-based Ultrasound and Nuclear Medicine Division
(the "Division") in July of 1995 accounted for $1.3 million of the decline for
the second quarter and $2.7 million for the six months ended June 30. As noted
above, a number of factors exist that could have an impact on the Company's
future revenues, including declining prices, an oversupply in the diagnostic
equipment market, declining trends in reimbursement and competition in the
healthcare industry.
Revenues From Equipment And Medical Suite Sales. Revenues from equipment
and medical suite sales for the second quarter decreased from $236,000 in 1995
to $35,000 in 1996. Revenues from equipment and medical suite sales for the six
months ended June 30 decreased from $2.3 million in 1995 to $383,000 in 1996.
The decrease in sales is due to the quantity and type of equipment and medical
suites sold and will vary accordingly. The Company intends to sell equipment and
its remaining inventory of medical suites in the future, but such sales are
subject to market conditions and there can be no assurances that such sales will
or will not occur.
Costs of Medical Services. Costs of medical services from its DMCs for the
second quarter decreased from $4.3 million (37% of medical services revenues) in
1995 to $4 million (45% of medical services revenues) in 1996. Costs of medical
services for the six months ended June 30 decreased from $8.6 million (36% of
medical services revenues) in 1995 to $7.9 million (44% of medical services
revenues) in 1996. The decrease was primarily due to the renegotiation of
certain DMC lease obligations. Costs of medical services from its
fee-for-service business for the second quarter decreased from $2.8 million (24%
of medical services revenues) in 1995 to $1.3 million (15% of medical services
revenues) in 1996. Costs of medical services for the six months ended June 30
decreased from $5.9 million (25% of medical services revenues) in 1995 to $2.6
million (14% of medical services revenues) in 1996. The decrease was primarily
due to the Company's sale of Division assets in July 1995 which accounted for
$864,000 of the decrease in costs for the second quarter and $1.8 million for
the six months ended June 30, termination of unprofitable leases, sales of
fee-for-service equipment, and various actions taken by the Company to reduce
spending.
Costs of Equipment and Medical Suite Sales. Costs of equipment and medical
suite sales for the second quarter decreased from $231,000 in 1995 to $33,000 in
1996. Costs of equipment and medical suite sales for the six months ended June
30 decreased from $1.8 million in 1995 to $99,000 in 1996. The difference in
costs is directly related to the quantity and type of equipment and medical
suites sold and will vary accordingly.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses for the second quarter increased from $687,000 (6% of
medical services revenues) in 1995 to $776,000 (9% of medical services revenues)
in 1996. The increase primarily relates to fees and expenses of the Company's
attorneys and financial advisors related to the sale or merger transaction.
Provision For Doubtful Accounts. Provision for doubtful accounts for the
second quarter decreased from $220,000 (2% of medical services revenues) in 1995
to $149,000 (2% of medical services revenues) in 1996. Provision for doubtful
accounts for the six months ended June 30 decreased from $488,000 (2% of medical
services revenues) in 1995 to $272,000 (2% of medical services revenues) in
1996. The provision for doubtful accounts is based upon management's evaluation
of the collectability of accounts receivable and varies accordingly.
42
<PAGE> 49
Depreciation and Amortization. Depreciation and amortization of equipment
and leasehold improvements for the second quarter decreased from $2.6 million in
1995 to $1.7 million in 1996. Depreciation and amortization for the six months
ended June 30 decreased from $5.4 million in 1995 to $3.4 million in 1996. This
decrease is primarily due to the sale of underperforming assets and termination
of certain unprofitable leases used in the fee-for-service business and the
Company's sale of Division assets in July 1995 which accounted for $219,000 of
the decline for the second quarter and $455,000 for the six months ended June
30.
Gain On Disposal Of Equipment. During the second quarter of 1996, the
Company assigned its obligation under certain capital equipment lease debt to
its hospital customer. A gain from the disposal of equipment of $382,000 was
recorded during the second quarter related to this transaction.
Interest Expense. Interest expense for the second quarter decreased from
$839,000 in 1995 to $458,000 in 1996. Interest expense for the six months ended
June 30 decreased from $1.8 million in 1995 to $1 million in 1996. This decrease
primarily resulted from the sale of underperforming assets and termination of
certain unprofitable leases used in the fee-for-service business. In addition,
interest expense decreased $84,000 in the six months ended June 30, 1996 as
compared to the same period in 1995 due to the declining balance outstanding of
its convertible subordinated debt.
Special Charge. Total expenditures of $1,325,000 related to the Settlement
Agreement and related proxy solicitation, including the fees and expenses of the
Company's attorneys, financial advisors, public relations firm and proxy
solicitors, excluding salaries and wages of its officers and employees and
including the $425,000 reimbursed to Steel Partners, were recorded as a Special
Charge to operations in the first quarter of 1996.
Minority Interest In Net Income/Loss Of Consolidated Partnerships. The
minority interest in the consolidated partnerships increased from a net loss of
$87,000 in the second quarter of 1995 to a net loss of $45,000 in the second
quarter of 1996. The minority interest in consolidated partnerships for the six
months ended June 30 increased from a net loss of $207,000 in 1995 to net income
of $36,000 in 1996. This increase is due to improved performance of certain of
its DMCs with minority ownership.
Extraordinary Gain. On January 16, 1996 the Company entered into an
agreement with a creditor to pay off a promissory note. The Company paid
$1,425,000 in cash and applied $912,000 in proceeds received from the exercise
of a warrant to purchase 160,000 shares of MICA Common Stock as payment in full
to retire the note. In connection with this transaction the Company issued an
additional warrant to purchase 60,000 shares of MICA Common Stock at an exercise
price of $8.50 per share which expires on December 31, 1998. At the date of
grant, the Company allocated $200,000 to the cost of the warrant which was
determined to be its fair value. The Company recorded an extraordinary gain of
$382,000, net of tax, from the settlement of this obligation in the first
quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's cash and cash equivalents totaled $4.7
million which is a decrease of $6 million since December 31, 1995. This decrease
primarily reflects principal payments of $9.1 million offset by net cash
provided by operations of $3.2 million. Included in the Company's principal
payments for the six months ended June 30, 1996 is a $2.8 million mandatory
redemption payment on its subordinated convertible debentures, $1.4 million paid
to retire a promissory note (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Extraordinary Gain") and $1.1
million in payments towards a negotiated settlement of equipment lease debt. The
Company had working capital of $1.2 million at June 30, 1996.
The Company's ability to meet its current obligations is dependent on its
ability to maintain revenues from existing contracts while reducing related
costs. In addition, a number of factors exist that could have an impact on the
Company's future revenues. Such factors in some cases have affected the
Company's results, and in the future could cause the Company's actual results
for the third quarter of 1996, and beyond, to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. These factors are discussed under the caption "Risk Factors and Certain
Cautionary Statements" in the
43
<PAGE> 50
Company's Annual Report on Form 10-K for the year ended December 31, 1995 and
include, among others, the following: (i) declining prices and an oversupply in
the diagnostic equipment market; (ii) changes in healthcare legislation which
has limited reimbursement and prohibited referrals from physician investors;
(iii) healthcare initiatives which could reduce reimbursement to the Company;
and (iv) competition in the healthcare industry.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of August 15, 1996, the following shareholders are the only shareholders
who are known by the Company to be beneficial owners of more than five percent
(5%) of the Company's voting securities.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME AND ADDRESS BENEFICIAL OF
OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
--------------------------------------------------------- ------------ ------------
<S> <C> <C>
Steel.................................................... 527,682(2) 19.6%(2)
750 Lexington Avenue, 27th Floor
New York, NY 10022
Metropolitan Life Insurance Co........................... 245,455(3) 8.3%(3)
One Madison Avenue
New York, NY 10010
General Electric Company................................. 220,000(4) 8.0%(4)
20825 Swenson, Suite 100
Waukesha, WI 53186
Arrowhead Holdings Corporation........................... 130,680 5.0%
8221 Brecksville Road
Brecksville, OH 44141
</TABLE>
- ---------------
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any security that such person has the right to acquire within
60 days after August 15, 1996.
(2) The information in the table is taken from a joint filing with the SEC on
Schedule 13D (Amendment No. 15) made by Steel Partners, Steel Services,
Warren G. Lichtenstein and Lawrence Butler as of March 19, 1996 reporting
beneficial ownership. The amount includes 422,658 shares of Common Stock
beneficially owned by Steel Partners and 105,024 shares of Common Stock
beneficially owned by Steel Services. Steel Services acquired the 105,024
shares beneficially owned by it for the account of Quota Fund N.V., a
Netherlands Antilles investment corporation ("Quota"). Quota granted
investment discretion to Soros Fund Management ("SFM"), which in turn
granted investment discretion to Steel Services. SFM is a sole
proprietorship of which George Soros is the sole proprietor. In Amendment
No. 15, both Mr. Lichtenstein and Mr. Butler state that they beneficially
own 527,682 shares of the Company's Common Stock, the total number of shares
held by Steel Partners and Steel Services combined. See "The Merger -- Steel
Partners' Position on the Merger."
(3) Metropolitan Life Insurance Company holds $3.7 million in principal amount
of the Company's Convertible Debentures due April 1999. Such Debentures bear
interest at the rate of 6% per annum and are convertible at any time into
one share of Common Stock for each $15.00 of principal amount of Debenture.
The amount and percentage of Common Stock in the table represents beneficial
ownership as if the Debentures had been converted to Common Stock.
(4) On January 16, 1996, General Electric Company exercised previously
outstanding warrants to purchase 160,000 shares of Common Stock at $5.70 per
share in connection with the repayment by the Company of certain outstanding
loans. The amount and percentage in the table includes presently exercisable
warrants to purchase 60,000 shares of Common Stock at $8.50 per share.
44
<PAGE> 51
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of August 15, 1996, by each director and
executive officer of the Company, and all directors and executive officers as a
group. Under the SEC rules, a person is deemed to be a "beneficial owner" of a
security if he has, or shares, the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which that
person has the right to acquire beneficial ownership within 60 days. Unless
otherwise indicated, the address for each of the persons listed below is 9444
Farnham Street, Suite 100, San Diego, CA 92123.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON
NAME OWNERSHIP(1) STOCK
--------------------------------------------------------- ----------------- ----------
<S> <C> <C>
Robert S. Muehlberg...................................... 117,333(2) 4%
Denise L. Sunseri........................................ 101,333(3) 4%
Keith R. Burnett, M.D.................................... 37,654(4) 1%
Robert G. Ricci, D.O..................................... 32,000(5) 1%
All Executive Officers and Directors as a Group
(4 persons)............................................ 288,320(6) 10%
</TABLE>
- ---------------
(1) Unless otherwise specified in the footnotes, the shareholder has sole voting
and dispositive power.
(2) Includes presently exercisable options to purchase 97,833 shares of Common
Stock at $2.35 to $21.90 per share, issued for service as an officer and
employee.
(3) Includes presently exercisable options to purchase 76,000 shares of Common
Stock at $3.44 to $21.90 per share, issued for service as an officer and
employee.
(4) Includes presently exercisable warrants to purchase 37,000 shares of Common
Stock at $4.05 to $7.81 per share, issued for service as a director.
(5) Includes presently exercisable warrants to purchase 32,000 shares of Common
Stock at $7.50 to $7.81 per share, issued for service as a director.
(6) Includes presently exercisable options and warrants to purchase 242,833
shares of Common Stock at various prices, as described in the footnotes
above.
CHANGE IN CONTROL
Under the terms of MICA's Debentures, MICA is obligated to offer to prepay
the Debentures in the event of a "change in control" of MICA. "Change in
control" is defined to include the acquisition by any person or group of persons
of the power to elect, appoint or cause the election of at least a majority of
the members of the Board of Directors. "Change in control" is also defined to
include the type of transaction contemplated by the Merger Agreement. If the
Merger is consummated, a "change in control" would be triggered which would, in
turn, give rise to the prepayment obligation. See "The Merger -- Certain Effects
of the Merger."
If the Merger is not consummated by November 19, 1996, the Settlement
Agreement requires that the current members of MICA's Board of Directors resign
from their positions and be replaced by designees of the Steel Parties. In the
opinion of MICA's legal advisors, if the designees of the Steel Parties
constitute the entire Board, it would trigger a "change in control," which, in
turn, would give rise to the prepayment obligation. Steel has advised MICA that
it and its legal advisors disagree with this conclusion and have concluded that
no "change in control" would occur for purposes of the Debentures if Steel
assumes control of the Board and hence that no prepayment obligation would be
triggered. See "The Merger -- Background of the Merger" and " -- Conduct of
Business if the Merger is Not Consummated."
45
<PAGE> 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dr. Keith R. Burnett, a director of the Company, is a principal and officer
of Magnetic Imaging Medical Group ("MIMG"), which provides radiology and other
medical services for the Company's Diagnostic Medical Centers located in Long
Beach, Huntington Beach, Laguna Niguel and Downey, California. MIMG is a
Co-General Partner of the center in Long Beach. Dr. Burnett serves as the
Medical Director for the facilities in Huntington Beach and Laguna Niguel. The
Management, Licensing and Facilities Agreements between the respective Centers
and MIMG ("Agreements") provide that MICA will receive for services rendered:
80% of the revenues collected at Long Beach Medical Imaging Clinic, Medical
Imaging Center of Huntington Beach and Laguna Niguel MRI Center, and 82% at
Downey MRI Center. Pursuant to the Agreements, the balance of the amounts
collected is retained by MIMG as their fee. For the six months ended June 30,
1996, the Company's share of revenues collected from the four centers was
$668,000, $905,000, $381,000 and $392,000, respectively; MIMG's share of the
revenues collected was $179,000, $210,000, $79,000 and $75,000, respectively.
On March 19, 1996, (i) MICA and certain of its affiliates entered into the
Settlement Agreement with the Steel Parties and (ii) MICA entered into a
Standstill Agreement with Arrowhead. See "The Merger -- Background of the
Merger."
CERTAIN LITIGATION
On September 18, 1996, Raytel Imaging Mid-Atlantic, Inc. ("Raytel")
commenced litigation in the California Superior Court for the County of San
Diego against MICA, MICA FLO I, INC., a wholly owned subsidiary of MICA ("MICA
FLO"), and USDL. Raytel's complaint alleges, among other matters, that MICA and
MICA FLO breached a joint venture agreement dated December 31, 1986 among (i)
Raytel's predecessor, Medical Imaging Partners, L.P., a Delaware limited
partnership ("MIP"), (ii) MICA and (ii) Orlando Diagnostic Center, Inc., a
Florida corporation, an unrelated third party (the "Joint Venture Agreement").
The Joint Venture Agreement was entered into for purposes of owning and
operating a diagnostic medical imaging center in Orlando, Florida. Pursuant to
the Joint Venture Agreement, the parties formed a California limited partnership
called Orlando Diagnostic Center, L.P. ("ODC"). The complaint also asserts
claims against MICA, MICA FLO and USDL for intentional interference with
economic relations and conspiracy to interfere with economic relations.
The complaint alleges, among other things, that (i) if any proposal exists
under which MICA is to be merged or consolidated with any entity unaffiliated
with MICA, the Joint Venture Agreement gives Raytel (as MIP's successor) the
right either to purchase MICA's interest in ODC or to require MICA to purchase
Raytel's interest in ODC (the "Buyout Rights"), and (ii) the Merger triggers the
Buyout Rights. The complaint claims that MICA and MICA FLO have breached the
Joint Venture Agreement by refusing to honor Raytel's claimed Buyout Rights
under the Joint Venture Agreement, and that USDL has caused MICA and MICA FLO to
breach the Joint Venture Agreement by entering into the Merger Agreement. The
complaint seeks unspecified compensatory damages, punitive damages in an amount
of at least $5,000,000, declaratory relief, and injunctive relief enjoining MICA
and USDL from consummating the Merger and requiring MICA either to sell its
interest in ODC to Raytel for its fair market value or to purchase Raytel's
interest in ODC, at Raytel's election. MICA believes it has meritorious defenses
and intends to defend the case vigorously.
MICA is also a party to other litigation arising in the normal course of
its business. Except as otherwise provided, MICA does not believe that the
results of such other litigation, even if determined adversely to MICA, would
have a material effect on its financial position.
INDEPENDENT AUDITORS
Ernst & Young LLP are MICA's independent public accountants.
Representatives of Ernst & Young LLP are expected to be present at the Special
Meeting to respond to appropriate questions of shareholders and make a statement
if they so desire. The consolidated financial statements and schedules of MICA
for the five years ended December 31, 1995, 1994, 1993, 1992 and 1991 have been
audited by Ernst & Young LLP. Such financial statements and schedules have been
incorporated herein by reference in reliance on the reports of Ernst & Young LLP
given on the authority of such firm as experts in auditing and accounting.
46
<PAGE> 53
OTHER MATTERS
The Board of Directors does not presently know of any matters to be
presented for consideration at the Special Meeting other than matters described
in the Notice of Special Meeting mailed together with this Proxy Statement, but
if other matters are presented, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment. The proxy confers discretionary authority to vote only with respect to
matters that the Board of Directors did not know within a reasonable time before
the mailing of these materials were to be presented at the Special Meeting.
SHAREHOLDER PROPOSALS
If the Merger is consummated, no public annual meetings of shareholders of
MICA will be held in the future. If the Merger is not consummated, because the
date of any such annual meeting cannot currently be determined, shareholders
will be informed (by press release or other means determined reasonable by MICA)
of the date of such meeting and the date that shareholder proposals for
inclusion in the proxy material must be received by MICA, which proposals must
comply with the rules and regulations of the Securities and Exchange Commission
(the "Commission") then in effect.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of the
Company's Common Stock to file reports of ownership and changes in ownership
with the SEC. These reporting persons are also required to furnish the Company
with copies of all reports they file. Based solely on its review of the copies
of such forms received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, and subject to the
allegations made by the Company in connection with their January 10, 1996
litigation against the Steel Defendants, the Company believes that during its
1995 fiscal year all filing requirements applicable to its officers, directors
and greater than ten percent shareholders were complied with. See "The Merger --
Background of the Merger."
47
<PAGE> 54
MEDICAL IMAGING CENTERS OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets at December 31, 1995 and
June 30, 1996 (unaudited)........................................................ F-3
Consolidated Statements of Income for the Six Months
Ended June 30, 1995 and 1996 (unaudited)......................................... F-4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1995 and 1996 (unaudited)......................................... F-5
Consolidated Statements of Shareholders' Equity
(Net Capital Deficiency) at December 31, 1995
and June 30, 1996 (unaudited).................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Consolidated Financial Statements (audited):
Consolidated Balance Sheets at December 31, 1994 and 1995........................... F-9
Consolidated Statements of Operations at
December 31, 1993, 1994 and 1995................................................. F-10
Consolidated Statements of Shareholders' Equity
(Net Capital Deficiency) at December 31, 1993, 1994 and 1995..................... F-11
Consolidated Statements of Cash Flows at
December 31, 1993, 1994 and 1995................................................. F-12
Notes to Consolidated Financial Statements.......................................... F-13
</TABLE>
F-1
<PAGE> 55
REPORT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Medical Imaging Centers of America, Inc.
We have audited the accompanying consolidated balance sheets of Medical
Imaging Centers of America, Inc. as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity (net capital
deficiency) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Medical Imaging
Centers of America, Inc. at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
February 2, 1996, except for Note 2
as to which the date is March 19, 1996
F-2
<PAGE> 56
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(IN THOUSANDS EXCEPT SHARE
INFORMATION)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (includes restricted cash of $230
in 1996 and $422 in 1995)............................... $ 4,696 $ 10,732
Trade and notes receivable, net of allowance for doubtful
accounts of $4,334 in 1996 and $4,503 in 1995........... 7,930 7,711
Prepaid expenses and other current assets.................. 638 725
-------- --------
Total current assets............................... 13,264 19,168
Equipment and leasehold improvements, net of accumulated
depreciation and amortization of $17,822 in 1996 and
$25,168 in 1995............................................ 13,439 16,274
Equipment held for sale, net of accumulated depreciation of
$1,474 in 1996 and $4,863 in 1995.......................... 300 800
Investment in and advances to unconsolidated entities, net of
reserves of $1,845 in 1996 and $1,788 in 1995.............. 1,468 1,489
Intangible assets, net of accumulated amortization of $1,725
in 1996 and $1,645 in 1995................................. 830 1,087
Other assets................................................. 796 830
-------- --------
$ 30,097 $ 39,648
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Current portion long-term debt and capital lease
obligations............................................. $ 5,427 $ 11,161
Current portion convertible subordinated debt.............. 2,600 2,800
Accounts payable........................................... 1,268 1,107
Accrued compensation....................................... 686 697
Other accrued liabilities.................................. 2,119 3,066
-------- --------
Total current liabilities.......................... 12,100 18,831
Long-term debt and capital lease obligations................. 8,361 11,182
Minority interest in consolidated partnerships............... 1,053 1,222
Convertible subordinated debt................................ 2,800 5,400
Commitments
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized;
Series B preferred shares, no par value, 300,000 shares
authorized, no shares issued or outstanding............. -- --
Common stock, no par value, 30,000,000 shares authorized;
2,695,226 and 2,479,460 shares issued and outstanding at
June 30, 1996 and December 31, 1995, respectively....... 55,995 54,691
Accumulated deficit.......................................... (50,212) (51,678)
-------- --------
Total shareholders' equity......................... 5,783 3,013
-------- --------
$ 30,097 $ 39,648
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 57
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1996 1995 1996 1995
------ ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE
INFORMATION)
<S> <C> <C> <C> <C>
REVENUES:
Medical services................................... $8,961 $11,634 $18,066 $23,773
Equipment and medical suite sales.................. 35 236 383 2,272
------ ------- ------- -------
Total revenues............................. 8,996 11,870 18,449 26,045
COSTS AND EXPENSES:
Costs of medical services.......................... 5,341 7,086 10,543 14,492
Costs of equipment and medical suite sales......... 33 231 99 1,773
Marketing, general and administrative.............. 776 687 1,473 1,469
Provision for doubtful accounts.................... 149 220 272 488
Depreciation and amortization of equipment and
leasehold improvements.......................... 1,554 2,498 3,230 5,131
Amortization of intangibles........................ 102 123 203 245
Equity in net income of unconsolidated entities.... (240) (172) (420) (355)
Gain on disposal of equipment...................... (382) -- (382) --
Interest expense................................... 458 839 1,018 1,794
Interest income.................................... (82) (106) (210) (260)
Special charge..................................... -- -- 1,325 --
------ ------- ------- -------
Total costs and expenses................... 7,709 11,406 17,151 24,777
------ ------- ------- -------
Income before minority interest and extraordinary
gain............................................... 1,287 464 1,298 1,268
Minority interest in net (income) loss of
consolidated partnerships.......................... 45 87 (36) 207
------ ------- ------- -------
Income before income taxes and extraordinary gain.... 1,332 551 1,262 1,475
Income tax provision................................. 45 -- 45 --
------ ------- ------- -------
Income before extraordinary gain..................... 1,287 551 1,217 1,475
Extraordinary gain, net of tax....................... -- -- 382 --
------ ------- ------- -------
Net income........................................... $1,287 $ 551 $ 1,599 $ 1,475
====== ======= ======= =======
PRIMARY EARNINGS PER SHARE:
Income before extraordinary gain................... $ 0.45 $ 0.22 $ 0.43 $ 0.58
====== ======= ======= =======
Extraordinary gain................................. $ 0.00 $ 0.00 $ 0.14 $ 0.00
====== ======= ======= =======
Net income......................................... $ 0.45 $ 0.22 $ 0.57 $ 0.58
====== ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
Net income......................................... $ 0.43 $ 0.22 $ 0.56 $ 0.55
====== ======= ======= =======
SHARES USED IN PER SHARE AMOUNTS:
Primary............................................ 2,844 2,549 2,818 2,545
====== ======= ======= =======
Fully diluted...................................... 3,276 2,549 3,312 3,337
====== ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
----------------------
1996 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................................... $ 1,599 $ 1,475
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 3,433 5,376
Amortization of deferred financing costs......................... 36 62
Provision for doubtful accounts.................................. 272 488
Equity in net income of unconsolidated partnerships.............. (192) --
Minority interest in net income (loss) of consolidated
partnerships.................................................... 36 (207)
Net value of equipment sold...................................... 150 1,881
Extraordinary gain from debt forgiveness......................... (517) --
Gain on disposal of equipment.................................... (382) --
Change in assets and liabilities:
Increase in trade receivables.................................... (491) (1)
Decrease in prepaid expenses and other current assets............ 87 646
Decrease in accounts payable and other accrued liabilities....... (786) (738)
Decrease in accrued compensation................................. (11) (520)
------- --------
Net cash provided by operating activities................... 3,234 8,462
INVESTING ACTIVITIES:
Capital expenditures................................................ (234) (449)
Decrease in investment in and advances to unconsolidated entities,
net.............................................................. 213 294
Cost of acquisitions................................................ (205) (60)
Other, net.......................................................... 34 (11)
------- --------
Net cash used in investing activities....................... (192) (226)
FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease
obligations...................................................... (9,137) (10,097)
Distribution to minority interests.................................. -- (151)
Redemption of Shareholder Rights.................................... (133) --
Other, net.......................................................... 192 61
------- --------
Net cash used in financing activities....................... (9,078) (10,187)
------- --------
Net decrease in cash and cash equivalents........................... (6,036) (1,951)
Cash and cash equivalents at beginning of period.................... 10,732 8,524
------- --------
Cash and cash equivalents at end of period.......................... $ 4,696 $ 6,573
======= ========
SUPPLEMENTAL CASH FLOW DATA:
Interest paid....................................................... $ 1,010 $ 1,760
======= ========
Income taxes paid................................................... $ 153 $ 98
======= ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease and long-term debt obligations........... $ 131 $ 671
======= ========
Retirement of debt and termination of capital lease obligations..... $ 2,349 $ 639
======= ========
Net value of equipment and intangible assets disposed............... $ 338 $ --
======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 59
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES
ISSUED AND
OUTSTANDING
--------------------- ACCUMULATED
SHARES AMOUNT DEFICIT
--------- ------- -----------
(IN THOUSANDS EXCEPT PER SHARE
INFORMATION)
<S> <C> <C> <C>
Balance at December 31, 1995.............................. 2,479,460 $54,691 $ (51,678)
Proceeds from issuance of common stock purchase
warrants................................................ 160,000 912 --
Fair value assigned to warrants issued in connection with
debt forgiveness........................................ -- 200 --
Stock options exercised................................... 55,766 192 --
Redemption of Shareholder Rights.......................... -- -- (133)
Net income................................................ -- -- 1,599
--------- ------- --------
Balance at June 30, 1996.................................. 2,695,226 $55,995 $ (50,212)
========= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
MEDICAL IMAGING CENTERS OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements included herein have been prepared by Medical
Imaging Centers of America, Inc. ("MICA" or the "Company"), without audit,
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures that are made are
adequate to make the information presented not misleading. Further, in the
opinion of the Company, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position and results of
operations of the Company as of and for the periods indicated, have been
included.
It is suggested that these financial statements be read in conjunction with
the audited financial statements and the notes thereto for the year ended
December 31, 1995, which are included in the Company's Form 10-K. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of results to be expected for the full fiscal year ending December 31, 1996.
2. On January 2, 1996, Steel Partners II, L.P. ("Steel"), which as of March
19, 1996 owned 19.8% of the Company's outstanding common stock, filed proxy
materials with the Securities and Exchange Commission to replace the current
Board of Directors with its own representatives. As requested by Steel, the
Company held a special meeting of shareholders on February 26, 1996. On March
19, 1996, the Company and Steel entered into an Agreement of Compromise and
Settlement (the "Settlement Agreement"). The Settlement Agreement called for the
dismissal of all pending litigation and provided for mutual releases. The
Settlement Agreement also provided that the February 26, 1996 Special Meeting of
Shareholders would be adjourned without any final report from the Inspector of
Elections, leaving the current Board of Directors in place.
Pursuant to the Settlement Agreement, the Company initiated a process to
sell or merge the Company (the "Auction Process"). The current members of the
Company's Board of Directors agreed that if the process did not result in an
announcement of a sale or merger transaction by June 19, 1996, a definitive
agreement for a sale or merger transaction by July 19, 1996, and the
consummation of a sale or merger transaction by November 19, 1996, they would
resign from their positions and be replaced by designees of Steel. In addition,
the Settlement Agreement also required the Company to redeem all outstanding
Rights issued pursuant to the Company's shareholder rights plan and prohibited
the Company from enacting a new shareholder rights plan without the prior
written consent of Steel. During the Auction Process, Steel agreed that it would
not acquire beneficial ownership of any of the Company's securities. Total
expenditures for the proxy solicitation, including the fees and expenses of the
Company's attorneys, financial advisors, public relations firm and proxy
solicitors, excluding salaries and wages of its officers and employees and
including the amounts reimbursed to Steel, totaled $1,325,000, and a charge was
recorded to operations in the first quarter of 1996.
On July 17, 1996, Steel agreed to an amendment of the Settlement Agreement
extending the date a definitive agreement for a sale or merger transaction was
required to be entered into from prior to July 19, 1996 to prior to August 2,
1996.
On August 1, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with U.S. Diagnostic Labs, Inc., a Delaware corporation
("USDL"), and its wholly owned subsidiary MICA Acquiring Corporation, a
California corporation ("Merger Sub"). Pursuant to the Merger Agreement, Merger
Sub will be merged with and into MICA whereupon the separate existence of Merger
Sub will cease and MICA will become a wholly owned subsidiary of USDL (the
"Merger"). Pursuant to the Merger, each outstanding share of MICA's common
stock, no par value ("MICA Common Stock"), would be converted into a right to
receive $11.75 in cash (the "Merger Consideration"). Each option to purchase
MICA Common Stock (each a "MICA Option") would be canceled and each holder of a
MICA Option would be entitled to a cash payment equal to the product of the
total number of shares subject to the MICA Option and the excess of $11.75 over
the exercise price per share of the MICA Common Stock subject to the
F-7
<PAGE> 61
MICA Option. USDL currently does not beneficially own, directly or indirectly,
any of MICA's voting securities apart from any beneficial ownership interest it
may have as a result of entering into the Merger Agreement. Following the
Merger, MICA's Board of Directors will be filled with USDL's designees. The
Board of Directors has received a written opinion dated as of August 1, 1996
from Batchelder & Partners, Inc. ("Batchelder"), its financial advisor, stating
that the Merger Consideration is fair to the MICA shareholders from a financial
point of view. The amount paid to Batchelder for its written opinion was
$200,000 and such a charge will be recorded in the third quarter of 1996.
The Merger is subject to the approval of the shareholders of MICA, certain
regulatory approvals and filings, including expiration of the waiting period
under the Hart-Scott-Rodino Improvements Act of 1976, as amended, and other
customary conditions. If the Merger is not consummated either because (i) USDL
terminates the Merger Agreement by reason of the Company's material breach of
the Merger Agreement and failure to cure such breach within ten (10) days'
notice from USDL, or (ii) the Board of Directors of MICA withdraws, modifies or
changes its approval of the Merger Agreement or the Merger in any manner adverse
to USDL or Merger Sub, or determines in good faith with the advice of outside
legal counsel that, in the exercise of its fiduciary obligations, termination of
the Merger Agreement is required by reason of an agreement with a third party
with respect to a business combination or similar transaction, MICA is obligated
to pay USDL a fee of 3% of the total Merger Consideration. If the Merger is not
consummated because USDL terminates the Merger Agreement because of MICA's
material breach of any representations or warranties in the Merger Agreement
(with such breach not cured either prior to the closing of the Merger or within
thirty (30) days after written notice from USDL), MICA is obligated to pay USDL
reasonable out-of-pocket expenses and fees up to $200,000. The Merger Agreement
can be terminated by either party if the Merger is not consummated by November
19, 1996. A copy of the Merger Agreement has been filed on Form 8-K by the
Company on August 9, 1996.
3. During the second quarter of 1996, the Company assigned its obligation
under certain capital equipment lease debt to its hospital customer. A gain from
the disposal of equipment of $382,000 was recorded during the second quarter
related to this transaction.
4. Primary and fully diluted net income per share is computed on the basis
of weighted average number of common shares outstanding and includes common
stock equivalents when their effect is dilutive. For the quarter ended June 30,
1995, common stock equivalents and additional shares from the conversion of
debentures were excluded from the fully diluted net income computation as their
effect was antidilutive. All per share data has been restated for all periods
presented to give effect to a one-for-five reverse stock split for shareholders
of record on October 16, 1995.
5. An income tax provision of $45,000 was recorded for the three months
ended June 30, 1996, primarily reflecting alternative minimum and state taxes
due. No income tax provision was recorded for the three months ending March 31,
1996 or three and six month periods ending June 30, 1995 due to net operating
loss carryforwards available for income tax purposes.
6. Certain 1995 amounts have been reclassified to conform with the June 30,
1996 presentation.
F-8
<PAGE> 62
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS EXCEPT
SHARE INFORMATION)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents (includes restricted cash of $422 in 1995
and $655 in 1994)................................................. $ 10,732 $ 8,524
Trade and notes receivable, net...................................... 7,711 9,524
Prepaid expenses and other current assets............................ 725 1,550
-------- --------
Total current assets......................................... 19,168 19,598
Equipment and leasehold improvements, net.............................. 16,274 29,216
Equipment held for sale, net........................................... 800 400
Investment in and advances to unconsolidated entities, net............. 1,489 2,069
Intangible assets, net................................................. 1,087 1,269
Other assets........................................................... 830 917
-------- --------
$ 39,648 $ 53,469
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY):
Current liabilities:
Current portion long-term debt and capital lease obligations......... $ 11,161 $ 11,541
Current portion convertible subordinated debt........................ 2,800 2,800
Accounts payable..................................................... 1,107 2,062
Accrued compensation................................................. 697 1,493
Other accrued liabilities............................................ 3,066 3,430
-------- --------
Total current liabilities.................................... 18,831 21,326
-------- --------
Long-term debt and capital lease obligations........................... 11,182 25,206
Minority interest in consolidated partnerships......................... 1,222 1,598
Convertible subordinated debt.......................................... 5,400 8,200
Commitments
Shareholders' equity (net capital deficiency):
Preferred stock, no par value, 5,000,000 shares authorized; Series B
preferred shares, no par value, 300,000 shares authorized, no
shares issued or outstanding...................................... -- --
Common stock, no par value, 30,000,000 shares authorized; 2,479,460
and 2,426,645 shares issued and outstanding at December 31, 1995
and 1994, respectively............................................ 54,691 54,473
Accumulated deficit.................................................... (51,678) (57,334)
-------- --------
Total Shareholders' equity (net capital deficiency).......... 3,013 (2,861)
-------- --------
$ 39,648 $ 53,469
======== ========
</TABLE>
See accompanying notes.
F-9
<PAGE> 63
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------- --------
(IN THOUSANDS EXCEPT PER SHARE
INFORMATION)
<S> <C> <C> <C>
REVENUES:
Medical services........................................... $43,192 $55,440 $ 65,786
Equipment and medical suite sales.......................... 3,345 1,866 3,011
------- ------- --------
Total revenues..................................... 46,537 57,306 68,797
COSTS AND EXPENSES:
Costs of medical services.................................. 25,387 33,693 42,786
Costs of equipment and medical suite sales................. 2,846 1,749 2,664
Marketing, general and administrative...................... 2,773 5,550 7,872
Provision for doubtful accounts............................ 1,059 1,343 2,643
Depreciation and amortization of equipment and leasehold
improvements............................................ 9,471 12,221 12,672
Amortization of intangibles and deferred costs............. 490 366 1,190
Equity in net income of unconsolidated entities............ (674) (708) (531)
Interest expense........................................... 3,557 5,258 6,459
Interest income............................................ (534) (454) (657)
Special charge............................................. -- -- 23,490
Gain on sale of assets..................................... (3,460) -- --
------- ------- --------
Total costs and expenses........................... 40,915 59,018 98,588
------- ------- --------
Income (loss) before minority interest, income taxes and
extraordinary gain......................................... 5,622 (1,712) (29,791)
Minority interest in net (income) loss of consolidated
partnerships............................................... 214 (98) 178
------- ------- --------
Income (loss) before income taxes and extraordinary gain..... 5,836 (1,810) (29,613)
Income tax provision......................................... 180 -- --
------- ------- --------
Income (loss) before extraordinary gain...................... 5,656 (1,810) (29,613)
Extraordinary gain........................................... -- 1,316 --
------- ------- --------
Net income (loss)............................................ $ 5,656 $ (494) $(29,613)
======= ======= ========
PRIMARY EARNINGS PER SHARE:
Income (loss) before extraordinary gain.................... $ 2.19 $ (.75) $ (12.54)
Extraordinary gain......................................... $ -- $ .55 $ --
------- ------- --------
Net income (loss).......................................... $ 2.19 $ (.20) $ (12.54)
======= ======= ========
FULLY DILUTED EARNINGS PER SHARE:
Net income (loss).......................................... $ 1.96 $ (.20) $ (12.54)
======= ======= ========
SHARES USED IN PER SHARE AMOUNTS:
Primary.................................................... 2,585 2,426 2,361
======= ======= ========
Fully Diluted.............................................. 3,219 2,426 2,361
======= ======= ========
</TABLE>
See accompanying notes.
F-10
<PAGE> 64
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
COMMON SHARES
--------------------------------------------
ISSUED AND
OUTSTANDING ISSUABLE
--------------------- ------------------ ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT
--------- ------- ------- ------ -----------
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992.......... 2,361,085 $53,670 64,894 $ 800 $ (27,227)
Net loss.............................. -- -- -- -- (29,613)
--------- ------- ------- ----- --------
Balance at December 31, 1993.......... 2,361,085 53,670 64,894 800 (56,840)
Stock options exercised............... 666 3 -- -- --
Litigation settlement -- common shares
issued.............................. 64,894 800 (64,894) (800 ) --
Net loss.............................. -- -- -- -- (494)
--------- ------- ------- ----- --------
Balance at December 31, 1994.......... 2,426,645 54,473 -- -- $ (57,334)
Stock options exercised............... 53,000 219 -- -- --
Cash paid for fractional shares
resulting from one-for-five reverse
stock split......................... (185) (1) -- -- --
Net income............................ -- -- -- -- 5,656
--------- ------- ------- ----- --------
Balance at December 31, 1995.......... 2,479,460 $54,691 -- $ -- $ (51,678)
========= ======= ======= ===== ========
</TABLE>
See accompanying notes.
F-11
<PAGE> 65
MEDICAL IMAGING CENTERS OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................................. $ 5,656 $ (494) $(29,613)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 9,961 12,587 13,862
Amortization of deferred financing costs......................... 97 135 135
Provision for doubtful accounts.................................. 1,059 1,343 2,643
Equity in net income of unconsolidated entities, net of
distributions.................................................. -- (430) (260)
Minority interest in net income (loss) of consolidated
partnerships................................................... (214) 98 (178)
Net value of equipment sold...................................... 2,826 1,404 4,700
Gain on sale of Division assets.................................. (3,460) -- --
Extraordinary gain............................................... -- (1,316) --
Special charge................................................... -- -- 23,490
Change in assets and liabilities:
Decrease (increase) in trade receivables......................... 1,081 1,937 (1,210)
Decrease in prepaid expenses and other current assets............ 823 346 1,125
Decrease in accounts payable and other accrued liabilities....... (1,623) (634) (2,180)
Decrease in accrued compensation................................. (796) (61) (913)
Decrease in other................................................ -- -- 494
-------- -------- --------
Net cash provided by operating activities................... 15,410 14,915 12,095
INVESTING ACTIVITIES:
Proceeds from sale of Division assets.............................. 3,746 -- --
Capital expenditures............................................... (1,282) (3,065) (3,286)
Decrease in notes receivable....................................... -- 200 114
Decrease in investment in and advances to unconsolidated entities,
net.............................................................. 475 368 197
Acquisitions, net of cash.......................................... (312) (657) --
Proceeds from the sale of long-term investments.................... -- -- 2,750
Other, net......................................................... (1) 80 387
-------- -------- --------
Net cash provided by (used in) investing activities......... 2,626 (3,074) 162
FINANCING ACTIVITIES:
Principal payments on long-term debt and capital lease
obligations...................................................... (15,901) (11,904) (15,510)
Proceeds from the issuance of long-term debt....................... -- 1,123 7,089
Distribution to minority interests................................. (151) (590) (459)
Other, net......................................................... 224 (128) (57)
-------- -------- --------
Net cash used in financing activities....................... (15,828) (11,499) (8,937)
-------- -------- --------
Net increase in cash and cash equivalents............................ 2,208 342 3,320
Cash and cash equivalents at beginning of year....................... 8,524 8,182 4,862
-------- -------- --------
Cash and cash equivalents at end of year............................. $ 10,732 $ 8,524 $ 8,182
======== ======== ========
SUPPLEMENTAL CASH FLOW DATA:
Interest paid...................................................... $ 3,488 $ 5,123 $ 5,918
======== ======== ========
Income taxes paid.................................................. $ 180 $ 67 $ 88
======== ======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations............................. $ 1,274 $ 8,545 $ 7,481
======== ======== ========
Retirement of debt and termination of capital lease obligations in
exchange for equipment........................................... $ 1,570 $ 7,075 $ 7,655
======== ======== ========
Assignment of debt related to sale of Division assets.............. $ 1,047 $ -- $ --
======== ======== ========
Acquisitions:
Fair value of assets acquired, other than cash..................... $ 11 $ 266 $ --
Excess of purchase price over fair value........................... 301 875 --
Notes assumed...................................................... -- (484) --
-------- -------- --------
Acquisitions, net of cash................................... $ 312 $ 657 $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE> 66
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Medical Imaging Centers of America, Inc. ("MICA" or
the "Company") is a California corporation which provides medical diagnostic
imaging services to physicians, managed care providers and hospitals nationwide.
These services are provided to patients under DMC arrangements and to hospitals
primarily under fee-for-service arrangements which account for approximately 61%
and 39%, respectively, of medical services revenues.
Principles of Consolidation -- The accompanying financial statements
consolidate the accounts of the Company, its wholly-owned subsidiaries, and
certain majority controlled Diagnostic Medical Centers ("DMCs"). Investments in
DMCs for which the Company does not have a controlling majority ownership are
accounted for using the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Revenues -- Revenue is recognized when services are provided through DMCs,
fee-for-service arrangements with hospitals and management agreements with
unconsolidated and managed DMCs.
Cash and Cash Equivalents -- The Company considers cash equivalents to be
those instruments with original maturities of three months or less. At December
31, 1995 and 1994, cash restricted for use in DMC operations was $422,000 and
$655,000, respectively.
Net Income (Loss) Per Share -- Net income (loss) per common share is
computed on the basis of the weighted average number of common shares
outstanding and common share equivalents and convertible debentures if dilutive.
The Company effected a one-for-five reverse stock split for shareholders of
record on October 16, 1995. All per share data has been restated for all periods
presented to give effect to the reverse stock split. The Company's Common Stock
trades on the OTC Bulletin Board under the new symbol "MIGA".
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications -- Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform with the 1995 presentation.
Other -- See Notes 6, 7 and 11 for accounting policies related to
depreciation, amortization and income taxes.
2. SETTLEMENT AGREEMENT
On January 2, 1996, Steel Partners II, L.P. ("Steel"), which as of March
19, 1996 owned 19.8% of the Company's outstanding common stock, filed proxy
materials with the Securities and Exchange Commission to replace the current
Board of Directors with its own representatives. The Company held a special
meeting of shareholders on February 26, 1996. On March 19, 1996, the Company and
Steel entered into an Agreement of Compromise and Settlement (the "Settlement
Agreement"). The Settlement Agreement calls for the dismissal of all pending
litigation and provides for mutual releases. The Settlement Agreement also
provides that the February 26, 1996 Special Meeting of Shareholders will be
adjourned without any final report from the Inspector of Elections, leaving the
current Board of Directors in place.
Pursuant to the Settlement Agreement, the Company is required to initiate a
process to sell or merge the Company ("Auction Process"). If the process does
not result in an announcement of a sale or merger transaction by June 19, 1996,
a definitive agreement for a sale or merger transaction by July 19, 1996, or the
consummation of a sale or merger transaction by November 19, 1996, the current
members of the Company's Board of Directors will resign from their positions and
be replaced by designees of Steel.
F-13
<PAGE> 67
The Settlement Agreement calls for the company to amend the severance
agreements of the Company's chief executive officer and chief financial officer
to provide that the Company's failure to meet such deadlines shall constitute an
"involuntary termination" for purposes of their respective severance packages.
Steel has agreed that it will not acquire beneficial ownership of any of
the Company's securities during the Auction Process.
The Settlement Agreement also requires the Company to redeem all
outstanding Rights issued pursuant to the Company's shareholder rights plan and
prohibits the Company from enacting a new shareholder rights plan without the
prior written consent of Steel (see Note 12).
Simultaneous with its entering into the settlement, the Company entered
into a Standstill Agreement with Arrowhead Holdings Corporation, a Delaware
corporation ("Arrowhead"), containing substantially the same terms as the
Settlement Agreement with Steel.
The Company estimates that the total expenditures for such solicitation,
including the fees and expenses of the Company's attorneys, financial advisors,
public relations firm and proxy solicitors, excluding salaries and wages of its
officers and employees and including the amounts reimbursed to Steel, will be
approximately $1,325,000, and will be recorded as a charge to operations in the
first quarter of 1996. No amounts have been reflected in the financial
statements as of December 31, 1995 with regard to the Company's Settlement
Agreement and proxy solicitation.
3. OPERATIONS
The Company had cash and cash equivalents of $10.7 million and working
capital of $337,000 as of December 31, 1995. Although there can be no
assurances, management believes that its cash on hand at year end and cashflow
from future operations will be sufficient to meet its obligations as they come
due.
The successful operation of the Company is dependent on the effects of
certain trends and legislation affecting the healthcare industry. The Omnibus
Budget Reconciliation Act of 1993 ("Stark II") limits referrals by physicians of
Medicare/Medicaid patients to other providers in which the physician has an
ownership interest. The Company has a limited number of limited partnership
units of consolidated partnerships owned by referring physicians. The Company is
in the process of acquiring these units and does not anticipate such
acquisitions will require a material amount of the Company's capital. Certain
states have also enacted legislation which similarly limits patient referrals,
limits the fees which a patient can be charged or requires state approval for
the expansion of healthcare facilities. The Company believes that the effects on
its operations as a result of these legislative actions will not be material. In
addition to state and federal governments, the public has recently focused
significant attention on reforming the healthcare system in the United States.
Within the past two years, a broad range of healthcare reform measures have been
introduced in Congress and in certain state legislatures. Certain proposals,
such as cutbacks in the Medicare and Medicaid programs, containment of
healthcare costs that could include a freeze on prices charged by physicians,
hospitals or other healthcare providers, and greater state flexibility in the
administration of Medicaid, could adversely affect the Company. There can be no
assurance that currently proposed or future healthcare programs, regulations or
policies will not have a material adverse effect on the Company's operating
results.
On January 16, 1996 the Company entered into an agreement with a creditor
to pay off a promissory note. The Company paid $1,425,000 cash and applied
$912,000 in proceeds due from the exercise of a warrant to purchase 160,000
shares of MICA's Common Stock as payment in full to retire the note. In
connection with this transaction the Company issued an additional warrant to
purchase 60,000 shares of the Company's Common Stock at an exercise price of
$8.50 per share which expires on December 31, 1998. At the date of grant, the
Company allocated $200,000 to the cost of the warrant which was determined to be
its fair value. The Company recorded a gain of $517,000 from the settlement of
this obligation in January 1996.
F-14
<PAGE> 68
4. RECEIVABLES
Long-term receivables, which include DMC trade receivables which are not
expected to be collected within one year, are included in Other assets on the
accompanying consolidated balance sheets. The Company's trade receivables are
primarily from hospitals and third party payor groups operating throughout the
United States.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade accounts receivable less allowance of $4,503 in 1995 and
$6,046 in 1994................................................. $ 8,431 $10,284
Less current trade and receivables.......................... (7,711) (9,524)
------- -------
Long-term receivables.................................. $ 720 $ 760
======= =======
</TABLE>
5. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED ENTITIES
The Company has investments in certain DMCs which are accounted for using
the equity method. Unaudited summarized combined financial information for the
unconsolidated DMCs is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------ -------
(IN THOUSANDS)
<S> <C> <C>
Current assets.................................................... $4,387 $ 5,288
Equipment and leasehold improvements, net......................... 3,909 5,432
Other assets...................................................... 118 126
------ -------
$8,414 $10,846
====== =======
Current liabilities............................................... $2,879 $ 2,388
Advances from MICA................................................ 2,008 2,285
Long-term debt and capital lease obligations...................... 2,198 4,020
Partners' equity.................................................. 1,329 2,153
------ -------
$8,414 $10,846
====== =======
</TABLE>
The Company's share of partners equity in unconsolidated DMCs is $903,000
and $1,393,000 at December 31, 1995 and 1994, respectively. The Company has
recorded valuation allowances at December 31, 1995 and 1994 of $1,788,000
against its advances to unconsolidated entities of $2,375,000 and $2,464,000,
respectively.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues.............................................. $10,431 $11,279 $10,986
Costs and expenses.................................... 7,550 8,587 8,657
------- ------- -------
Net income............................................ $ 2,881 $ 2,692 $ 2,329
======= ======= =======
</TABLE>
The Company's revenues include $629,000, $744,000 and $737,000 for the
years ended 1995, 1994 and 1993 respectively from management fees from the
unconsolidated DMCs.
The Company has guaranteed $3,899,000 in capital lease and debt obligations
of its unconsolidated DMCs with terms through 2000.
F-15
<PAGE> 69
6. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at the lower of cost or
net realizable value and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment and furniture, net of valuation reserve of $5,206 in
1995 and $6,684 in 1994...................................... $ 38,865 $ 59,683
Leasehold improvements......................................... 2,577 3,207
-------- --------
$ 41,442 $ 62,890
Accumulated depreciation and amortization...................... (25,168) (33,674)
-------- --------
$ 16,274 $ 29,216
======== ========
</TABLE>
Depreciation and amortization are calculated on a straight-line basis over
the estimated useful life of the asset or over the lease term, if shorter. Lease
terms are generally five to seven years for equipment and furniture and fifteen
years for leasehold improvements. Equipment includes assets financed through
capital leases of $19,040,000 and $27,965,000 with accumulated amortization of
$7,949,000 and $10,825,000 at December 31, 1995 and 1994, respectively. The
Company periodically reviews its equipment portfolio to determine that its
carrying value is the lower of cost or net realizable value.
Management intends to sell certain equipment used during the year in the
Company's on-going business operations. Accordingly, this equipment has been
classified as equipment held for sale at its estimated realizable value at
December 31, 1995 and 1994.
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Excess of purchase price over net assets acquired, less accumulated
amortization of $466 in 1995 and $142 in 1994.................... $ 824 $ 742
Deferred costs, less accumulated amortization of $1,179 in 1995 and
$1,464 in 1994................................................... 263 527
------ ------
$1,087 $1,269
====== ======
</TABLE>
During 1995, the Company acquired certain assets of one imaging center and
additional limited partner units in certain of its DMCs for $312,000 in cash. Of
the total purchase price, $301,000 was allocated to goodwill and is being
amortized using the straight-line method over the estimated useful life of the
assets which is five years. The Company's results of operations were not
materially affected as a result of these acquisitions.
During 1994, the Company acquired certain assets of two imaging centers and
additional limited partner units in certain of its DMCs for $657,000 in cash and
$484,000 in promissory notes. Of the total purchase price, $875,000 was
allocated to goodwill and is being amortized using the straight-line method over
the estimated useful life of the assets which is three years. The Company's
results of operations were not materially affected as a result of these
acquisitions.
The Company periodically reviews goodwill to assess recoverability based
upon projected undiscounted cash flows to be received from operating income. If
such cash flows are less than the carrying value of goodwill the difference is
charged to expense.
F-16
<PAGE> 70
Deferred costs primarily include debt financing costs incurred in
connection with the issuance of debentures which have been deferred and are
being amortized on a weighted average basis over the term of the indebtedness.
8. DEBT
Long-term debt for equipment financing consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations -- weighted average interest rate
of approximately 9%; due at various dates through 2000..... $ 11,937 $ 18,580
Equipment installment loans payable -- weighted average
interest rate of approximately 7%; due at various dates
through 2000............................................... 10,406 17,567
Note payable to a bank -- effective interest rate of 10.5%;
final payment made on October 23, 1995..................... -- 600
-------- --------
22,343 36,747
Less current maturities...................................... (11,161) (11,541)
-------- --------
$ 11,182 $ 25,206
======== ========
</TABLE>
Maturities on notes payable and long-term debt over the next five years are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Years Ending December 31,
1996................................................................. $ 7,210
1997................................................................. 1,774
1998................................................................. 886
1999................................................................. 481
2000................................................................. 55
--------------
$ 10,406
===========
</TABLE>
The Company finances certain equipment under capital leases. These capital
leases generally have terms of five to seven years. Future minimum payments
under capital leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Years Ending December 31,
1996................................................................. $ 4,787
1997................................................................. 3,767
1998................................................................. 3,059
1999................................................................. 1,925
2000................................................................. 78
--------------
Total minimum lease payments......................................... 13,616
Amounts representing interest...................................... (1,679)
--------------
Present value of future minimum lease payments..................... 11,937
Less amounts due in one year.................................... (3,951)
--------------
Long-term capital lease obligations............................. $ 7,986
===========
</TABLE>
9. CONVERTIBLE SUBORDINATED DEBT
Convertible subordinated debentures are due in 1999 with interest payable
semi-annually at 6%. The debentures are convertible into MICA Common Stock at
$15 per share and may be redeemed by the
F-17
<PAGE> 71
Company if the closing bid price of the Company's Common Stock on any 20
consecutive trading days has been at least $22.50 per share. The Company is
required to redeem the debentures on April 30 as follows: 1996 -- $2,800,000;
and 1997 -- $2,600,000. The final payment of $2,800,000 is due April 30, 1999.
The indenture relating to this financing contains restrictions on the payment of
cash dividends based upon an accumulative net income test with certain
adjustments. The indenture also has limitations on the reacquisition of shares
and requires a Minimum Consolidated Shareholders Equity. In addition, the
Company is obligated to offer to prepay the Debentures in the event of a "change
in control" of the Company. "Change in control" is defined to include the
acquisition by any person or group of persons of the power to elect, appoint or
cause the election of at least a majority of the members of the Board of
Directors. In light of the favorable interest rate the Company currently is
paying on the Debentures and the fact that the conversion price is significantly
above the current market price of the Company's Common Stock, management
believes that most, if not all, of the holders of the Debentures would elect
prepayment of their Debentures in the event of a change in control (see Note 2).
At December 31, 1995, the Company is in compliance with all debt covenants. In
February of 1994, the convertible subordinated debenture holders agreed to
exclude the 1993 non-cash charge of approximately $21,500,000 related to
goodwill from the definition of Minimum Shareholders Equity. In return, the
Company agreed to an increase in the Minimum Shareholders Equity covenant from
$5,190,000 to $10,000,000.
10. COMMITMENTS
The Company leases its facilities and certain equipment under operating
lease agreements with terms ranging from three to twenty years. Certain facility
lease agreements provide for rent increases based on the increases in the
Consumer Price Index and operating costs. Also, the Company has the option to
renew certain facility leases for additional terms varying from five to ten
years.
The Company's consolidated DMCs have entered into multi-year equipment
maintenance agreements. Future minimum payments under operating leases and
equipment maintenance agreements are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Years Ending December 31,
1996................................................................... $ 5,031
1997................................................................... 3,750
1998................................................................... 3,166
1999................................................................... 2,392
2000................................................................... 1,340
Later years............................................................ 574
-------
Total minimum payments....................................... $ 16,253
=======
</TABLE>
Rent expense under operating leases totaled $5,362,000, $8,263,000 and
$11,509,000 for the years ended December 31, 1995, 1994 and 1993, respectively,
and is included in Costs of medical services in the Company's consolidated
statements of operations.
11. INCOME TAXES
The Company accounts for income taxes using FAS Statement No. 109,
Accounting for Income Taxes. Statement 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, Statement 109 generally considers all expected future events other
than enactments of changes in the tax law or rates.
At December 31, 1995, the Company had Federal net operating loss
carryforwards of approximately $21,837,000 for income tax purposes that expire
in 2008. The Company has investment tax credit carryforwards of approximately
$418,000 which begin to expire in 1999. In addition, the Company has a Federal
alternative minimum tax credit carryforward of approximately $166,000 which has
no expiration date.
F-18
<PAGE> 72
In accordance with the Internal Revenue Code, the Company s use of its net
operating loss carryforwards could be limited in the event of certain cumulative
changes in the Company's stock ownership. For financial reporting purposes, a
valuation allowance of approximately $11,761,000 has been recognized to offset
the deferred tax assets.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 7,643 $ 10,655
Valuation reserves........................................... 4,386 5,160
Other........................................................ 3,830 4,308
-------- --------
Total deferred tax assets................................. 15,859 20,123
Valuation allowance for deferred tax assets.................... (11,761) (14,156)
-------- --------
Net deferred tax assets...................................... 4,098 5,967
-------- --------
Deferred tax liabilities:
Tax over financial reporting depreciation.................... 4,098 5,967
-------- --------
Total deferred tax liabilities............................ 4,098 5,967
-------- --------
Net deferred tax liabilities......................... $ -- $ --
======== ========
</TABLE>
For the year ended 1995, MICA provided $120,000 in Federal tax related to
alternative minimum tax and $60,000 related to state income tax. No income taxes
were provided in 1994 or 1993.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the income tax provision is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Year Ended December 31,
Federal statutory tax (benefit) rate........................ 34.0% (34.0%) (34.0%)
Limitation of benefit on net operating loss................. -- 32.3 16.6
Benefit of loss carryforwards............................... (32.1) -- --
Non-deductible amortization expense......................... -- -- 17.4
State tax, net of federal income taxes...................... 1.0 -- --
Other....................................................... .2 1.7 --
----- ----- -----
Effective tax rate................................ 3.1% --% --%
===== ===== =====
</TABLE>
12. SHAREHOLDERS EQUITY
Common Stock -- At December 31, 1995, the Company had reserved 1,113,001
shares of Common Stock for issuance in connection with the exercise of
outstanding stock options and warrants and the conversion of debentures.
In March 1993, the United States District Court for the Southern District
of California approved a settlement of a class action lawsuit brought in 1991
against the Company and certain former officers. The settlement provided for the
Company to issue 64,894 shares (after giving effect to the one-for-five reverse
stock split which occurred in 1995) of its Common Stock at an agreed upon value
of $800,000 and for the insurers of the individual defendants to pay $2,650,000.
On January 3, 1994, the Company issued 64,894 shares related to the litigation
settlement.
F-19
<PAGE> 73
Preferred Stock-Series B -- In October 1991, the Company's Board of
Directors authorized 300,000 shares of Series B Preferred Stock without par
value in connection with the Company's entering into a Rights Agreement. Each
share of Series B Preferred Stock entitled the holder thereof to 100 votes on
all matters submitted to a vote of the shareholders. Such shares of Series B
Preferred Stock were to be issued pursuant to the Rights Agreement at a ratio of
one one-hundredths of a share per Right upon the occurrence of certain event and
upon the Right holder's payment of an exercise price.
On March 19, 1996, the Board of Directors ordered the redemption of all
outstanding Rights so that no holder of Rights could exercise such Rights and no
shares of Series B Preferred Stock could be issued in connection with the Rights
Agreement. For a more detailed description of the Rights Agreement and the Board
of Directors' actions in connection therewith, see "Preferred Stock Purchase
Rights."
Warrants -- The Company issues warrants primarily to directors,
underwriters and consultants for various services. Warrants are generally
granted at prices equal to the fair market value of the shares on the date of
grant. At year end 315,500 warrants were exercisable. In August 1995 a third
party forfeited a warrant to purchase 300,000 shares of the Company's Common
Stock pursuant to an agreement by the Company to pay $450,000. Warrant activity
during 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER
OF PRICE
SHARES PER SHARE
-------- ----------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992...................... 78,200 $ 13.75 - $ 68.15
Granted............................................. 487,500 2.50 - 5.70
Forfeited........................................... (16,200) 48.75 - 68.15
-
-------- ------ ------
Outstanding at December 31, 1993...................... 549,500 2.50 - 21.90
Granted............................................. 7,000 2.81
Forfeited........................................... (41,000) 13.75 - 21.90
-
-------- ------ ------
Outstanding at December 31, 1994...................... 515,500 2.50 - 18.75
Granted............................................. 107,000 4.05 - 7.81
Forfeited........................................... (307,000) 5.70 - 18.75
-
-------- ------ ------
Outstanding at December 31, 1995...................... 315,500 $ 2.50 - $ 18.75
======== ====== = ======
</TABLE>
Preferred Stock Purchase Rights
In October 1991, the Company's Board of Directors declared a dividend
distribution of one preferred share purchase right (a "Right") for each share of
Company Common Stock ("Common Share") outstanding at the close of business on
October 18, 1991 (the "Record Date"). Each Right entitled the registered holder
to purchase from the Company one one-hundredth of a share of Series B Preferred
Stock, no par value, at a purchase price of thirty-five dollars ($35.00) per one
one-hundredth of a Preferred Share, subject to adjustment. The Board of
Directors also authorized and directed the issuance of one Right with respect to
each Common Share that should become outstanding between the Record Date and the
earliest of the Distribution Date (as defined below), the date the Rights are
redeemed and the date the Rights expire.
The Rights Agreement pursuant to which Rights were issued provided that
Rights would not be exercisable until such time as the Company issued separate
Right Certificates to the holders of Rights on a "Distribution Date," a date ten
days after a public announcement that the dilutive provisions of the Rights
Agreement had been triggered. The Rights Agreement further provided that the
Board of Directors could redeem the Rights in whole, but not in part, at a price
of $.01 per Right and that the holder of Rights would have no rights as a
shareholder of the Company until he exercised such Rights.
On January 10, 1996, the Company's Board of Directors approved certain
amendments to the Rights Plan to provide greater flexibility for the Company and
to take into consideration a one-for-five reverse stock split effected by the
Company in October 1995. The Rights Agreement, as amended by the First Amendment
to Rights Agreement, made the determination of whether the dilutive provisions
of the Rights Agreement had been triggered dependent on a public announcement by
the Company or by a shareholder that the
F-20
<PAGE> 74
shareholder's beneficial ownership of Common Stock has risen above 20% of the
total issued and outstanding shares of Common Stock. In contrast, the original
Rights Agreement made such determination automatic upon a shareholder reaching
the 20% threshold. By making the triggering of the rights dependent on a public
announcement, the Company eliminated the possibility that it might face a
situation in which the rights would be activated and the Board would not have an
opportunity to redeem the rights. The amendments approved by the Board of
Directors also changed the redemption price from $.01 to $.05 to reflect the
one-for-five reverse stock split in October of 1995.
On March 1, 1996, the Company announced, based on a report from a Special
Committee of the Board of Directors, that a group of shareholders which included
Steel Partners II, L.P. and Steel Partners Associates had acquired in excess of
20% of the outstanding Common Stock of the Company and that the dilutive
provisions of Rights Agreement had been triggered. The Company also announced
that it had approved a Second Amendment to the Rights Agreement which shortened
from ten days to seven days the period during which the Board of Directors could
redeem the Rights following the public announcement that a shareholder or a
group of shareholders had triggered the dilutive provisions of the Rights
Agreement. The Company also reduced from ten days to seven days the period
between the public announcement of the triggering of the dilution provisions and
the Distribution Date.
On March 7, 1996, the Board of Directors approved a Third Amendment to the
Rights Agreement which extended until March 12, 1996 at 11:59 p.m. Pacific
Standard Time the period during which the Company could redeem the Rights and
following which the Company could distribute separate Right Certificates. The
Company extended the Distribution Date and the time for redemption of the Rights
once again to March 19, 1996 at 11:59 p.m. PST by way of a Fourth Amendment to
the Rights Agreement dated as of March 11, 1996.
On March 19, 1996, the Company announced that its Board of Directors had
ordered the redemption of all outstanding Rights as part of the Agreement of
Compromise and Settlement between the Company and certain of its affiliates, on
the one hand, and Steel Partners II, L.P. and certain of its affiliates, on the
other hand (the "Settlement Agreement") (see Note 2 for a description of the
Settlement Agreement). The Company set March 29, 1996 as the record date for
determining the holders of rights entitled to payment of the $.05 per share
Redemption Price and April 8, 1996 as the date for payment of the Redemption
Price. The Company anticipates that it will be required to pay $134,000 in the
aggregate to holders of Rights in order to effect the redemption of all
outstanding Rights.
13. RETIREMENT PLAN AND STOCK OPTIONS
Retirement Plan -- Under Section 401(k) of the Internal Revenue Code the
Company instituted a tax deferred retirement plan (the "TDRP") for the benefit
of all employees meeting certain minimum eligibility requirements. Under the
TDRP, an employee may defer up to 10% of pre-tax earnings, subject to certain
limitations, and contribute it to a trusteed plan. The Company will match 50% of
an employee's deferred salary up to a maximum of 6% of gross pay. The Company's
matching contributions vest over a five-year period. For the years ended
December 31, 1995, 1994 and 1993, the Company contributed $118,000, $101,000 and
$135,000, respectively, to match employee contributions.
Stock Options -- The Company has been authorized to issue 489,000 shares of
Common Stock to certain key employees under its Stock Option Plan adopted in
1985 and 1994. Options are granted at prices equal to the fair market value of
the shares at the date of grant and are usually exercisable in cumulative annual
F-21
<PAGE> 75
APPENDIX "A"
____________________________________
AGREEMENT AND PLAN OF MERGER
AMONG
US DIAGNOSTIC LABS, INC.
MICA ACQUIRING CORPORATION
AND
MEDICAL IMAGING CENTERS OF AMERICA, INC.
DATED AUGUST 1, 1996
____________________________________
<PAGE> 76
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.4 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.5 Articles of Incorporation; By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES . . . . . . . . . . . . . . . 3
SECTION 2.1 Effect on Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Common Stock of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(b) Cancellation of Treasury Stock and Parent-Owned Company Common Stock . . . . . . . . . . . . 3
(c) Conversion of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(d) Shares of Dissenting Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Cancellation and Retirement of Company Common Stock . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(a) Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(c) No Further Ownership Rights in Company Common Stock . . . . . . . . . . . . . . . . . . . . . 5
(d) Termination of Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(e) No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(f) Investment of Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.3 Treatment of Employee Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 7
SECTION 3.1 Representations and Warranties of the Company. . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Articles of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Authority Relative to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(e) No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(g) Company Reports and Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 10
(h) Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-i-
<PAGE> 77
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(j) Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(l) Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(m) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(n) Employee Benefit Company Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(o) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(p) Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(q) Certain Contracts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(r) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(s) Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(t) Rights Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(u) Scope of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.2 Representations and Warranties of Parent and Merger Sub . . . . . . . . . . . . . . . . . . 17
(a) Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Charter and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Authority Relative to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(g) Securities Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Information Supplied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(j) Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(k) Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(l) Scope of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS . . . . . . . . . . . . 20
SECTION 4.1 Conduct of Business of the Company Pending the Merger . . . . . . . . . . . . . . . . . . . 20
SECTION 4.2 Conduct of Business of Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.3 Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.4 Preparation of the Proxy Statement; Preparation of Hart-Scott Act Filing . . . . . . . . . 23
SECTION 4.5 Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.6 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.7 Employee Benefits Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.8 Directors' and Officers' Indemnification and Insurance . . . . . . . . . . . . . . . . . . 25
SECTION 4.9 Further Action; Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.10 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.11 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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ARTICLE V
CONDITIONS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger . . . . . . . . . . . . . . . . . . . 27
(a) Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(b) Other Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) No Injunctions or Restraints; Illegality; Litigation . . . . . . . . . . . . . . . . . . . . . . 28
(d) Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.2 Conditions to Obligations of Parent and Merger Sub . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Performance of Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(c) Burdensome Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.3 Conditions to Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Performance of Obligations of Parent and Merger Sub . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.1 Non-Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . 32
SECTION 7.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.3 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.5 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.6 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.7 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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<PAGE> 79
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated August 1, 1996 (this
"Agreement"), among US DIAGNOSTIC LABS, INC., a Delaware corporation (the
"Parent"), MICA ACQUIRING CORPORATION, a California corporation and a direct
wholly owned subsidiary of Parent ("Merger Sub"), and MEDICAL IMAGING CENTERS
OF AMERICA, INC., a California corporation (the "Company").
WHEREAS, the Boards of Directors of the Company, Parent and
Merger Sub have approved, and deem it advisable and in the best interests of
their respective stockholders to consummate, the business combination
transaction provided for herein in which Merger Sub will merge with and into
the Company (the "Merger") with the Company being the surviving corporation in
the Merger;
WHEREAS, in furtherance of such acquisition, it is proposed
that all the issued and outstanding shares of Common Stock, no par value, of
Company ("Company Common Stock"; shares of Company Common Stock being
hereinafter collectively referred to as the "Common Stock") will be acquired in
connection with the Merger for $11.75 per share in cash upon the terms and
subject to the limitations and conditions of this Agreement;
WHEREAS, the Directors of the Company have unanimously
determined that the Merger is fair to, and in the best interests of, the
holders of Common Stock, approved the Merger and recommended the approval and
adoption of this Agreement by the shareholders of the Company; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of Parent, Merger Sub, and Company have each approved this
Agreement and the Merger in accordance with the California Corporations Code
("California Law") upon the terms and subject to the conditions set forth
herein;
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, mutual covenants and agreements herein
contained and intending to be legally bound hereby, Parent, Merger Sub and the
Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with California Law,
at the Effective Time (as defined in Section 1.3 below), Merger Sub shall be
merged with and into the Company. Upon the Effective Time, the separate
corporate existence of Merger Sub shall cease, and the
<PAGE> 80
2
Company shall continue as the surviving corporation of the Merger under the
laws of the State of California (the "Surviving Corporation") under the name
"MEDICAL IMAGING CENTERS OF AMERICA, INC."
SECTION 1.2 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Merger (the "Closing")
will take place as promptly as practicable (and in any event within five
business days) following satisfaction or waiver of the conditions set forth in
Article V, other than those conditions which by their terms are to be satisfied
at the Closing (the "Closing Date"), at the offices of Latham & Watkins, 701 B
Street, San Diego, California 92116, unless another date, time or place is
agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time of the Merger. As soon as
practicable after the satisfaction or waiver of the conditions set forth in
Article V, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the Secretary
of State of the State of California, in such form as required by, and executed
in accordance with the relevant provisions of, California Law (the date and
time of the filing of the Certificate of Merger with the Secretary of State of
the State of California (or such later time as is specified in the Certificate
of Merger) being the "Effective Time").
SECTION 1.4 Effects of the Merger. From and after the
Effective Time, the Merger shall have the effects set forth in the applicable
provisions of California Law.
SECTION 1.5 Articles of Incorporation; By-Laws. (a) At the
Effective Time, the Articles of Incorporation of the Surviving Corporation
shall be the Articles of Incorporation of Merger Sub, as in effect immediately
prior to the Effective Time.
(b) At the Effective Time, the By-Laws of the Surviving
Corporation shall be the By-Laws of the Merger Sub, as in effect immediately
prior to the Effective Time, until thereafter amended or repealed in accordance
with their terms and the Articles of Incorporation of the Surviving Corporation
and as provided by law.
SECTION 1.6 Directors and Officers. The Directors of Merger
Sub immediately prior to the Effective Time shall be the initial Directors of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and By-Laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed, as the case may be, and qualified.
<PAGE> 81
3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. At the Effective Time,
by virtue of the Merger and without any action on the part of the holders of
any shares of Common Stock, or any shares of capital stock of Merger Sub:
(a) Common Stock of Merger Sub. Each share of Common Stock,
par value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be exchanged for one share of validly issued,
fully paid and nonassessable Common Stock of the Surviving Corporation, which
shall be all of the issued and outstanding capital stock of the Surviving
Corporation as of the Effective Time.
(b) Cancellation of Treasury Stock and Parent-Owned Company
Common Stock. Each share of Company Common Stock that is owned by the Company
or by any subsidiary of the Company, and each share of Company Common Stock
that is owned by Parent, Merger Sub or any other subsidiary of Parent, shall
automatically be cancelled and retired and shall cease to exist, and no other
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise
provided herein and subject to Section 2.1(d), each issued and outstanding
share of Company Common Stock (other than shares to be cancelled in accordance
with Section 2.1(b)) shall be converted into the right to receive cash from
Parent in an amount equal to $11.75, payable to the holder thereof, without
interest thereon (the "Merger Consideration" or the "Cash Price"). As used in
this Agreement, references to "dollars" and "$" are to the lawful currency of
the United States of America, unless otherwise indicated.
(d) Shares of Dissenting Holders. Notwithstanding anything
in this Agreement to the contrary but only to the extent required by California
Law, shares of Company Common Stock that are issued and outstanding immediately
prior to the Effective Time and that are held by holders of Company Common
Stock who comply with all the provisions of law of the State of California
concerning the right of holders of Company Common Stock to dissent from the
Merger and require appraisal of their shares of Company Common Stock
("Dissenting Shareholders", with the shares of Company Common Stock held by such
Dissenting Shareholders to be referred to as the "Dissenting Shares") shall not
be converted into the right to receive the Merger Consideration but shall
become the right to receive such consideration as may be determined to be due
such Dissenting Shareholder pursuant to the law of the State of California;
provided, however, that (i) if any Dissenting Shareholder shall subsequently
deliver a written withdrawal of his or her demand for appraisal (with the
written approval of the Surviving Corporation, if such withdrawal is not
tendered within 60 days after the Effective Time), or (ii) if any Dissenting
Shareholder fails to establish and perfect his or her entitlement to appraisal
rights as provided by applicable law, or (iii) if within 120 days of the
Effective Time neither any Dissenting Shareholder nor the Surviving Corporation
has filed a petition demanding a determination of the value of all shares of
Company Common Stock outstanding
<PAGE> 82
4
at the Effective Time and held by Dissenting Shareholders in accordance with
applicable law, then such Dissenting Shareholder or Shareholders, as the case
may be, shall forfeit the right to appraisal of such shares and each of such
shares shall thereupon be deemed to have been converted into the right to
receive, as of the Effective Time, the Merger Consideration as contemplated by
Section 2.1, without interest. The Company shall give Parent and Merger Sub
(A) prompt notice of any written demands for appraisal, withdrawals of demands
for appraisal and any other related instruments received by the Company, and
(B) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal. The Company will not voluntarily make any payment with
respect to any demands for appraisal and will not, except with the prior
written consent of Parent, settle or offer to settle any demand.
(e) Cancellation and Retirement of Company Common Stock. As
of the Effective Time, all shares of Company Common Stock (in each case, other
than shares referred to in Section 2.1(b) and Dissenting Shares) issued and
outstanding immediately prior to the Effective Time, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Common Stock shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration upon surrender of such certificate in
accordance with Section 2.2.
SECTION 2.2 Exchange of Certificates.
(a) Exchange Agent; Exchange Date. (i) Prior to the mailing
of the Company's Proxy Statement (as defined in Section 3.1(e)(ii)), Parent
shall appoint a bank or trust company located in the United States (which may
not be an affiliate of Parent) to act as exchange agent (the "Exchange Agent")
for the payment of the Merger Consideration. At or prior to the Effective
Time, Parent shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article II, the Merger Consideration. Each person who, on or prior to the
Exchange Date (as defined in this Section 2.2) is a record holder of shares of
Company Common Stock will be entitled to receive the Merger Consideration as
contemplated by Section 2.1 upon surrender of such certificate in accordance
with this Section 2.2.
(ii) The Company shall prepare and mail the Proxy
Statement to the record holders of Company Common Stock as of the record date
for the Shareholders' Meeting (as defined in Section 4.3). The Company will
use its best efforts to make the Proxy Statement available to all persons who
become holders of Company Common Stock during the period between such record
date and the Exchange Date. For purposes of this Agreement, the "Exchange
Date" shall mean 5:00 p.m., New York City time on the business day next
preceding the date of the Shareholders' Meeting.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, each holder of an outstanding certificate or certificates which
prior thereto represented shares of Company Common Stock shall, upon surrender
to the Exchange Agent of such certificate or certificates and acceptance
thereof by the Exchange Agent, be entitled to the amount of cash into which the
aggregate number of shares of Company Common Stock previously represented
<PAGE> 83
5
by such certificate or certificates surrendered shall have been converted
pursuant to this Agreement. The Exchange Agent shall accept such certificates
upon compliance with such reasonable terms and conditions as the Exchange Agent
may impose in order to effect an orderly exchange thereof in accordance with
normal exchange practices. After the Effective Time, there shall be no further
transfer on the records of the Company or its transfer agent of certificates
representing shares of Company Common Stock and if such certificates are
presented to the Company for transfer, they shall be cancelled against delivery
of cash as hereinabove provided. If any cash is to be remitted to a person
other than the registered holder of the certificate for Company Common Stock
surrendered for exchange, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to Parent or the Exchange Agent any transfer
or other taxes required by reason of the payment of cash to a person other than
the registered holder of the certificate surrendered, or establish to the
satisfaction of Parent or the Exchange Agent that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.2(b), each
certificate for shares of Company Common Stock shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration as contemplated by Section 2.1. No interest
will be paid or will accrue on any cash payable as Merger Consideration.
(c) No Further Ownership Rights in Company Common Stock. All
cash paid upon the surrender of certificates representing shares of Company
Common Stock in accordance with the terms of this Article II shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock theretofore represented by such certificates, subject,
however, to the Surviving Corporation's obligation, with respect to shares of
Company Common Stock outstanding immediately prior to the Effective Time, to
pay any dividends or make any other distributions with a record date prior to
the Effective Time which may have been declared or made by the Company on such
shares of Company Common Stock in accordance with the terms of this Agreement
or prior to the date of this Agreement and which remain unpaid at the Effective
Time.
(d) Termination of Exchange Fund. Any portion of the Merger
Consideration deposited with the Exchange Agent pursuant to this Section 2.2
(the "Exchange Fund") which remains undistributed to the holders of the
certificates representing shares of Company Common Stock for six months after
the Effective Time shall be delivered to Parent, upon demand, and any holders
of shares of Company Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Parent and only as general creditors
thereof for payment of their claim for cash.
(e) No Liability. None of Parent, Merger Sub, the Company or
the Exchange Agent shall be liable to any person in respect of any cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of Company Common Stock shall not have been surrendered prior to five
years after the Effective Time (or immediately prior to such earlier date on
which any cash in respect of such certificate would otherwise escheat to or
become the property of any Governmental Entity (as defined in Section
3.1(e)(ii)), any such cash shall, to
<PAGE> 84
6
the extent permitted by applicable law, become the property of Parent, free and
clear of all claims or interest of any person previously entitled thereto.
(f) Investment of Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund, as directed by Parent, on a
daily basis. Any interest and other income resulting from such investments
shall be paid to Parent.
SECTION 2.3 Treatment of Employee Options.
(a) Prior to the Effective Time, the Board of Directors of
the Company (or, if appropriate, any Committee thereof) shall adopt appropriate
resolutions and take all other actions necessary to provide for the
cancellation, effective at the Effective Time, of all the outstanding stock
options, stock appreciation rights, limited stock appreciation rights and
performance units (the "Options") heretofore granted under any stock option,
performance unit or similar plan of the Company (the "Stock Plans").
Immediately prior to the Effective Time, (i) each Option, whether or not then
vested or exercisable, shall no longer be exercisable but shall entitle each
holder thereof, in cancellation and settlement therefor, to payments in cash
(subject to any applicable withholding taxes, the "Cash Payment"), at the
Effective Time, equal to the product of (x) the total number of shares of Common
Stock subject or related to such Option, whether or not then vested or
exercisable, and (y) the excess of the Cash Price over the exercise price per
share of Common Stock subject or related to such Option, each such Cash Payment
to be paid to each holder of an outstanding Option at the Effective Time;
provided, however, that with respect to any person subject to Section 16 of the
Exchange Act (as defined below), any such amount shall be paid as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act (as defined below), and (ii) each
share of Common Stock previously issued in the form of grants of restricted
stock or grants of contingent shares shall fully vest. As provided herein, the
Stock Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any subsidiary (collectively with the Stock Plans, referred to as the
"Stock Incentive Plans") shall terminate as of the Effective Time and the
Company shall ensure that following the Effective Time no holder of an Option or
any participant in any Stock Incentive Plans shall have any right thereunder to
acquire capital stock of the Company, Parent or the Merger Sub, except as
provided in the proviso to clause (i) of this Section 2.3. The Company will
take all reasonable steps to ensure that, as of the Effective Time, none of the
Parent, the Company or any of their respective subsidiaries is or will be bound
by any Options, other options, warrants, rights or agreements which would
entitle any person, other than Parent or its affiliates, to own any capital
stock of the Company, Merger Sub or any of their respective subsidiaries or to
receive any payment in respect thereof. The Company will use its best efforts
to obtain all necessary consents and releases to ensure that after the Effective
Time, the only rights of the holders of Options to purchase shares of Company
Common Stock in respect of such Options will be to receive the Cash Payment in
cancellation and settlement thereof. Notwithstanding any other provision of this
Section 2.3 to the contrary, payment may be withheld with respect to any Option
until necessary consents and releases are obtained.
(b) All Stock Plans shall terminate as of the Effective
Time and the provisions in any other Company Plans (as defined in Section
3.1(n)) providing for the issuance, transfer or grant of any capital stock of
the Company or any interest in respect of any
<PAGE> 85
7
capital stock of the Company shall be amended as of the Effective Time to
provide no continuing rights to acquire, hold, transfer or grant any capital
stock of the Company or any interest in capital stock of the Company (other
than in respect of cash payments through the Merger), and the Company shall
ensure that following the Effective Time no holder of an Option or any
participant in any Stock Plans shall have any right thereunder to acquire any
capital stock of the Company, Parent or the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company.
Except as set forth in the Disclosure Schedules ("Company Disclosure
Schedules"), the Company hereby represents and warrants to Parent and Merger
Sub as follows:
(a) Organization and Qualification; Subsidiaries. Each of
the Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where the failure
to be so organized, existing and in good standing or to have such power,
authority and governmental approvals could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect (as defined
below) on the Company. The Company and each of its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.
When used with respect to the Company or any of its
subsidiaries, the term "Material Adverse Effect" means any material adverse
change in or effect on (i) the business, results of operations or condition
(financial or other) of the Company and its subsidiaries taken as a whole or
(ii) the ability of the Company to consummate any of the transactions
contemplated hereby.
(b) Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation and the By-Laws of the Company and the equivalent organizational
documents of each subsidiary of the Company as currently in effect. Neither
the Company nor any subsidiary thereof is in violation of any of the provisions
of its Articles of Incorporation or By-Laws or equivalent organizational
document.
(c) Capitalization. The authorized capital stock of the
Company consists of 30,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, no par value ("Company Preferred Stock"). As of
July 1, 1996 (A) 2,695,226 shares of Company
<PAGE> 86
8
Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable and not subject to preemptive rights; (B) 445,593
shares of Company Common Stock were issuable pursuant to outstanding Options
and warrants; and (C) no more than 360,000 shares were available for issuance
under the Company's outstanding convertible subordinated debt. The number of
Options and warrants, by exercise price, outstanding on July 1, 1996, are set
forth in Schedule 3.1(c) of the Company Disclosure Schedule. As of the date of
this Agreement, no shares of Company Preferred Stock are issued and
outstanding. The authorized capital stock and issued and outstanding stock of
each subsidiary is set forth in Schedule 3.1(c) of the Company Disclosure
Schedule. Except as set forth in this Section 3.1(c) or Schedule 3.1(c) of the
Company Disclosure Schedule, as of the date of this Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of, or other
equity interests in, the Company or any subsidiary of the Company obligating
the Company or any subsidiary of the Company to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any subsidiary
of the Company. Between July 1, 1996 and the date of this Agreement, no shares
of Company Common Stock have been issued by the Company, except upon the
exercise of stock options described above. Except as set forth in Schedule
3.1(c) of the Company Disclosure Schedule, there are no outstanding contractual
obligations of the Company or any subsidiary to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or any capital stock of, or any
equity interest in, any subsidiary. Except as described in Schedule 3.1(c) of
the Company Disclosure Schedule, each outstanding share of capital stock of, or
other equity interest in, each subsidiary of the Company is duly authorized,
validly issued, fully paid and nonassessable.
(d) Authority Relative to Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than the approval and adoption of the
Merger and this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock). This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms. The only vote of the holders of any class or series of outstanding
securities of the Company required for approval of this Agreement and the
Merger is the affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock.
(e) No Conflict; Required Filings and Consents. Except as
set forth on Schedule 3.1(e), and (i) other than in connection with or in
compliance with the specific provisions of (i) the California Law relating to
the filing of the Certificate of Merger and other appropriate merger documents,
if any, and the approval of the Merger by a majority of the shares of Common
Stock, (ii) the Exchange Act (as defined below), (iii) the "blue sky" laws of
various states, (iv) the Hart-Scott-Rodino Improvements Act of 1976, as amended
(the
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9
"Hart-Scott Act") relating to the filing of appropriate documents regarding the
Merger with the Antitrust Division of the Department of Justice and the Federal
Trade Commission (collectively, the "Antitrust Entities") and the approval of
the Merger by the Antitrust Entities, and (v) applicable local permit laws,
rules and regulations pertaining to the operation of the business of the
Company and its subsidiaries, the execution and delivery of this Agreement by
the Company and the consummation by the Company of the transactions
contemplated hereby will not: (A) violate any provision of the Articles of
Incorporation or By-Laws (or other organizational document) of the Company or
any of its subsidiaries; (B) violate any statute, ordinance, rule, regulation,
order or decree of any court or of any governmental or regulatory body, agency
or authority applicable to the Company or any of its subsidiaries or by which
any of their respective properties or assets may be bound; (C) require any
filing with, or permit, consent or approval of, or the giving of any notice to,
any governmental or regulatory body, agency or authority; or (D) result in a
violation or breach of, conflict with, constitute (with or without due notice
or lapse of time or both) a default under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or any of its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or other instrument or
obligation to which the Company or any of its subsidiaries is a party, or by
which it or any of their respective properties or assets, except in the case of
clauses (A), (B) and (C) above for such filings, permits, consents, approvals
or violations, which would not have a Material Adverse Effect on the condition
of the Company and its subsidiaries, taken as a whole, or could be reasonably
likely to prevent or materially delay consummation of the transactions
contemplated by this Agreement and except as set forth in Schedule 3.1(e) of
the Company Disclosure Schedule.
(ii) The execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions contemplated
hereby by the Company do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
United States federal, state or local court, administrative agency or
commission, or entity created by rule, regulation or order of any United States
federal, state or local commission or other governmental agency, authority or
instrumentality (a "Governmental Entity"), except for: (A) the filing with,
and approval by, the SEC of (1) a proxy statement relating to the Shareholders'
Meeting referred to in Section 4.3 (such proxy statement as amended or
supplemented from time to time, the "Proxy Statement") and (2) such other
filings under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the
transactions contemplated hereby and the obtaining from the SEC of such orders
as may be required in connection therewith; (B) applicable filings under state
anti-takeover laws, if any; (C) the filing and recordation of the Certificate
of Merger as required by California Law; (D) applicable filings under the
Hart-Scott Act; and (E) such other consents, approvals and authorizations of
Governmental Entities as shall have been specified by the Company to Parent in
writing prior to the date of this Agreement.
(f) Compliance with Laws. Except as disclosed Schedule
3.1(f) of the Company Disclosure Schedule, the Company and its subsidiaries are
in compliance with all applicable laws, regulations, orders, judgments and
decrees except where the failure to so comply would
<PAGE> 88
10
not have a Material Adverse Effect on the Company and its subsidiaries taken as
a whole or could be reasonably likely to prevent or materially delay
consummation of the transactions contemplated by this Agreement. There is no
claim, action, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against the Company or any subsidiary of the Company,
by, on behalf of or before any arbitrator or Governmental Entity which (i)
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Company or (ii) seeks to and is reasonably
likely to significantly delay or prevent the consummation of the Merger. As of
the date of this Agreement, no investigation by any Governmental Entity with
respect to the Company or any of its subsidiaries is pending or, to the best
knowledge of the Company, threatened, other than, in each case, those the
outcome of which, individually or in the aggregate, will not have a Material
Adverse Effect on the Company.
(g) Company Reports and Financial Statements. (i) Since
December 31, 1995, the Company has filed all forms, reports and documents with
the Securities and Exchange Commission (the "Commission") required to be filed
by it pursuant to the federal securities laws and the Commission rules and
regulations thereunder (the "Commission Filings"), and all forms, reports and
documents filed with the Commission have complied in all material respects with
all applicable requirements of the federal securities laws and the Commission
rules and regulations promulgated thereunder. As of their respective dates,
the Commission Filings 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 therein, in light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets included in
the Commission Filings were prepared in accordance with United States generally
accepted accounting principles (as in effect from time to time) applied on a
consistent basis (except as may be indicated therein or in the notes or
schedules thereto), and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the results of their operations and
their cash flows for the periods then ended (subject, in the case of any
unaudited financial statements, to normal year-end audit adjustments).
(ii) The Company will deliver to Parent as soon as
they become available true and complete copies of any report or statement
mailed by it to its shareholders generally or filed by it with the Commission
subsequent to the date hereof and prior to the Effective Time. As of their
respective dates, such reports and statements (excluding any information
therein provided by Parent or Merger Sub, as to which the Company makes no
representation) 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 therein, in light of the circumstances under which they are
made, not misleading and will comply in all material respects with all
applicable requirements of the federal securities laws and the Commission rules
and regulations thereunder. The consolidated financial statements of the
Company to be included in such reports and statements (excluding any
information therein provided by Parent or Merger Sub, as to which the Company
makes no representation) will be prepared in accordance with generally accepted
accounting principles (as in effect from time to time) applied on a consistent
basis (except as may be indicated therein or in the notes or schedules
thereto), and will fairly present in all material respects the consolidated
financial position of
<PAGE> 89
11
the Company and its consolidated subsidiaries as of the dates thereof and the
results of their operations and their cash flows for the periods then ended
(subject, in the case of any unaudited financial statements, to normal year-end
audit adjustments).
(h) Information Supplied. None of the information included
in the Proxy Statement (other than information supplied by Parent or Merger Sub
for inclusion in the Proxy Statement) will, at the date it is first mailed to
the Company's shareholders or at the time of the Shareholders' Meeting, contain
any statement which, in the light of the circumstances under which such
statement is made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Shareholders' Meeting or any amendment or supplement thereto. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder,
except that no representation is made by the Company with respect to statements
made based on information supplied by Parent or Merger Sub for inclusion in the
Proxy Statement.
(i) Absence of Certain Changes or Events. Except as
otherwise disclosed in Schedule 3.1(i) of the Company Disclosure Schedule or as
otherwise contemplated by this Agreement, since March 31, 1996 and up to the
date of this Agreement, there has not been (i) any change, event or development
in or affecting the Company that constitutes or would reasonably be expected to
have either individually or in the aggregate a Material Adverse Effect on the
Company, (ii) any change by the Company in its accounting methods, principles
or practices, except as required by changes in generally accepted accounting
principles or as recommended by the Company's independent accountants and
consented to in writing by Parent (which consent shall not be unreasonably
withheld) prior to such change, (iii) any declaration, setting aside or payment
of any dividends or distributions in respect of any series of capital stock of
the Company, (iv) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including without limitation the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan or agreement or arrangement, or any
other increase in the compensation payable or to become payable to any present
or former directors, officers above the rank of Vice President of the Company
or any of its subsidiaries, except for increases in base compensation and
annual cash bonuses, in each case in the ordinary course of business and
consistent with past practice or (v) any other action which, if it had been
taken after the date hereof, would have required the consent of Parent under
Section 4.1 hereof.
(j) Absence of Litigation. Except as disclosed in Schedule
3.1(j) of the Disclosure Schedule, there are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any court, arbitrator
or other Governmental Entity, domestic or foreign, that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
the Company or to delay or prevent the consummation of the transactions
contemplated hereby beyond December 31, 1996. Neither the Company nor any of
its subsidiaries nor any of their
<PAGE> 90
12
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which could reasonably be
expected to have, a Material Adverse Effect on the Company or which could
prevent or delay the consummation of the transactions contemplated hereby
beyond December 31, 1996.
(k) Liabilities. Except as otherwise contemplated by this
Agreement since March 31, 1996 and up to the date of this Agreement, neither
the Company nor any of its subsidiaries has incurred any material outstanding
claims, liabilities or indebtedness, contingent or otherwise, that would be
required to be disclosed in the Company's consolidated financial statements
prepared in accordance with generally accepted accounting principles applied on
a consistent basis, other than liabilities incurred subsequent to March 31,
1996 in the ordinary course of business not involving borrowings by the
Company.
(l) Labor Matters. Neither the Company nor any of its
subsidiaries is a party to any collective bargaining agreement. Neither the
Company nor any of its subsidiaries has (i) had any employees strikes, work
stoppages, slowdowns or lockouts, (ii) received any requests for certifications
of bargaining units or any other requests for collective bargaining, or (iii)
become aware of any efforts to organize employees of the Company or any of its
subsidiaries into a collective bargaining unit.
(m) Environmental Matters. (i) For purposes of this
Agreement, the following terms shall have the following meanings: (A)
"Hazardous Substances" means a) those 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, 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, byproducts and
breakdown products including crude oil and any fractions thereof; c) natural
gas, synthetic gas, and any mixtures thereof; d) polychlorinated biphenyls; e)
any other chemicals, materials or substances defined or regulated as toxic or
hazardous or as a pollutant or contaminant or as a waste under any applicable
Environmental Law; and f) any substance with respect to which a federal, state
or local agency requires environmental investigation, monitoring, reporting or
remediation; and (B) "Environmental Laws" means any federal, state, foreign, or
local law, rule or regulation, now or hereafter in effect and as amended, and
any judicial or administrative interpretation thereof, including any judicial
or administrative order, consent decree or judgment, relating to pollution or
protection of the environment, health, safety or natural resources, including
without limitation, those relating to a) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances or b) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances.
(ii) Except as described in Schedule 3.1(m) of the Company
Disclosure Schedule or as would not individually or in the aggregate result in
or be likely to result in any fine tax, assessment, penalty, loss, cost,
damage, liability, expense or other payment related thereto in excess of
$20,000: (A) the Company and each subsidiary are and have been in
<PAGE> 91
13
compliance with all applicable Environmental Laws; (B) the Company and each
subsidiary have obtained all permits, approvals, identification numbers,
licenses or other authorizations required under any applicable Environmental
Laws ("Environmental Permits") and are and have been in compliance with their
requirements; (C) such Environmental Permits are transferable to the Surviving
Corporation pursuant to the Merger without the consent of any Governmental
Authority; (D) there are no underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Substances are being or have been treated, stored or disposed of on any owned
or leased real property or on any real property formerly owned, leased or
occupied by the Company or any subsidiary; (E) there is, to the best knowledge
of the Company, no asbestos or asbestos-containing material on any owned or
leased real property in violation of applicable Environmental Laws; (F) the
Company and the subsidiaries have not released, discharged or disposed of
Hazardous Substances on any real property owned or leased or on any real
property formerly owned or leased by the Company or any subsidiary and none of
such property is contaminated with any Hazardous Substances; (G) neither the
Company nor any of the subsidiaries is undertaking, and neither the Company nor
any of the subsidiaries has completed, any investigation or assessment or
remedial or response action relating to any such release, discharge or disposal
of or contamination with Hazardous Substances at any site, location or
operation, either voluntarily or pursuant to the order of any Governmental
Authority or the requirements of any Environmental Law; and (H) there are no
pending or, to the knowledge of the Company, past or threatened actions, suits,
demands, demand letters, claims, liens, notices of non-compliance or violation,
notices of liability or potential liability, investigations, proceedings,
consent orders or consent agreements relating in any way to Environmental Laws,
any Environmental Permits or any Hazardous Substances against the Company or
any subsidiary or any of their property, and there are no circumstances that
can reasonably be expected to form the basis of any such Environmental Claim,
including without limitation with respect to any off-site disposal location
presently or formerly used by the Company or any of the subsidiaries or any of
their predecessors.
(iii) The Company and the subsidiaries have made available
to Parent copies of any environmental reports, studies or analyses in its
possession or under its control relating to owned or leased real property or
the operations of the Company or the subsidiaries.
(iv) Schedule 3.1(m) of the Company Disclosure Schedule
sets forth a list of all real property currently owned or owned within the last
three years by the Company or any of the subsidiaries.
(n) Employee Benefit Company Plans. (i) Schedule 3.1(n) of
the Company Disclosure Schedule lists (i) all employee benefit plans, programs
and arrangements maintained for the benefit of any current or former employee,
officer or Director of the Company or any subsidiary (the "Company Plans") and
(ii) all written contracts and agreements relating to employment and all
severance agreements with any of the directors, officers or employees of the
Company or any subsidiaries (other than, in each case, any such contract or
agreement that is terminable by the Company or any subsidiary at will without
penalty or other consequence of Material Adverse Effect). Schedule 3.1(n) of
the Company Disclosure Schedule sets forth the name of each officer or employee
of the Company or any subsidiary with an annual base
<PAGE> 92
14
compensation greater than $75,000 and the annual base compensation applicable
to each such officer or employee. The Company has made available to Parent a
copy of each Company Plan, each material document prepared in connection with
each Company Plan and each Company employment contract. None of the Company
Plans is a multiemployer plan within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Except as set forth in
Schedule 3.1(n) of the Company Disclosure Schedule, none of the Company Plans
promises or provides retiree medical or life insurance benefits to any person.
Each Company Plan intended to be qualified under Section 401(a) of the Internal
Revenue Code, as amended (the "Code") is so qualified. Each Company Plan has
been operated in all material respects in accordance with its terms and the
requirements of applicable law. The Company has not incurred any direct or
indirect material liability under, arising out of or by operation of Title IV
of ERISA in connection with the termination of, or withdrawal from, any Company
Plan or other retirement plan or arrangement and, as of the date hereof, no
fact exists or event has occurred that would reasonably be expected to give
rise to any such liability. Except as set forth in Schedule 3.1(n) of the
Company Disclosure Schedule, no Company Plan is or has been covered by Title IV
of ERISA or Section 412 of the Code. Except as set forth in Schedule 3.1(n) of
the Company Disclosure Schedule, the Company and the subsidiaries have complied
in all respects with all laws, rules and regulations pertaining to employment
practices including, without limitation, the Worker Adjustment Retraining
Notification Act, the wage hour laws, the Americans with Disabilities Act, and
the discrimination laws, and no fact or event exists that could give rise to
liability under such acts, laws, rules or regulations, except for such
occurrences, noncompliances and liabilities as would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
(o) Tax Matters. Except as set forth in Schedule 3.1(o) of
the Company Disclosure Schedule, the Company and each of the subsidiaries have
(i) filed all federal, state, local and foreign tax returns required to be
filed by them prior to the date of this Agreement (taking into account
extensions), (ii) paid or accrued all taxes shown to be due on such returns and
paid all applicable ad valorem and value added taxes as are due and (iii) paid
or accrued all taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clause (i), (ii) or (iii) for any such
filings, payments or accruals which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Except as set forth
in Schedule 3.1(o) of the Company Disclosure Schedule, neither the Internal
Revenue Service nor any other federal, state, local or foreign taxing authority
has asserted any claim for taxes, or to the best knowledge of the Company, is
threatening to assert any claims for taxes, which claims, individually or in
the aggregate, could have a Material Adverse Effect on the Company. The
Company has open years for federal, state and foreign income tax returns only
as set forth in Schedule 3.1(o) of the Company Disclosure Schedule. The
Company and each subsidiary have withheld or collected and paid over to the
appropriate governmental authorities (or are properly holding for such payment)
all taxes required by law to be withheld or collected, except for amounts which
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. There are no liens for taxes upon the assets of the Company or
any subsidiary (other than liens for taxes that are not yet due or that are
being contested in good faith by appropriate proceedings), except for liens
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
<PAGE> 93
15
(p) Tangible Property.
(i) The Company and the subsidiaries have good and
marketable title to all their tangible properties and assets, with only such
exceptions as, individually or in the aggregate, would not have a Material
Adverse Effect on the Company. All of the assets of the Company and the
subsidiaries have been maintained and repaired for their continued operation
and are in good operating condition, reasonable wear and tear excepted, and
usable in the ordinary course of business.
(ii) Except as set forth in Schedule 3.1(p) of the Company
Disclosure Schedule, all of such property is free and clear of all liens,
except (A) such liens as are disclosed in Schedule 3.1(p) of the Company
Disclosure Schedule, (B) liens for taxes not yet due and payable, (C) liens of
landlords, vendors, warehousemen and mechanics, and (D) such imperfections of
title, easements and encumbrances, if any, as are not material in character,
amount or expense, or do not materially detract from the value or interfere
with the present use of the property subject thereto or affected thereby. To
the best knowledge of the Company, all properties utilized in the Company's
business (whether owned or leased) are in material compliance with all
applicable laws, statutes, rules and regulations (including, without
limitation, building, zoning and environmental laws) and all material
covenants, conditions, restrictions or easements affecting the property or its
use or occupancy, the failure to comply with which could reasonably be expected
to have a Material Adverse Effect, and, to the best knowledge of the Company,
no notices of any material violations thereof have been received.
(iii) Each of the leases under which the material
properties of the Company are leased is unmodified and in full force and effect
(in the form made available pursuant to Section 3.1(p) hereof), and, to the
best knowledge of the Company, there are no other agreements, written or oral,
between the Company and any third parties claiming an interest in the Company's
interest in the leased property or otherwise affecting its use and occupancy
thereof. Except as set forth in Schedule 3.1(p) of the Company Disclosure
Schedule, the Company is not in default under the leases and no material
defaults (whether or not subsequently cured) by the Company have been alleged
thereunder which in either case could be reasonably expected to have a Material
Adverse Effect. To the best of the Company's knowledge, each lessor named in
any of the leases is not in default thereunder, and no defaults (whether or not
subsequently cured) by such lessor have been alleged thereunder.
(q) Certain Contracts and Agreements. Schedule 3.1(q) of the
Company Disclosure Schedule lists (i) each contract which is required by its
terms or is currently expected to result in the payment or receipt by the
Company or any subsidiary of more than $100,000 and which is not terminable by
the Company or any subsidiary without the payment of any penalty or fine on not
more than three months' notice (a "Material Contract"), (ii) all material
agreements relating to joint ventures, partnerships and equity or debt
investments, (iii) all noncompete agreements with the Company or the
subsidiaries (whether as beneficiary or obligor), (iv) all agreements, notes,
bonds, indentures or other instruments governing indebtedness for borrowed
money, and any guarantee thereof or the pledge of any assets or other security
therefor, (v) all agreements with any affiliate (other than the Company or a
wholly owned subsidiary) of the Company or the subsidiaries to which the
Company or any
<PAGE> 94
16
subsidiary is a party, (vi) each agreement affording registration rights as to
any securities of the Company under the Securities Act of 1933, as amended
(the "Securities Act"), (vii) each category of personal property owned or
leased by the Company and each asset within any such category which has a book
value or current market value in excess of $100,000 or group of related such
items valued in excess of $500,000 or which is leased under an agreement
providing for annual lease payments in respect thereof in an amount in excess
of $100,000, (viii) each registration, certificate or application with respect
to the intellectual property and all licenses of intellectual property by the
Company from or to any third party and all other agreements to which the
Company is a party regarding intellectual property excluding, however those
relating to commercially available ("canned") software, (ix) each policy of
fire, liability, title, errors and omissions and other forms of insurance held
by the Company and of all claims in excess of $50,000 pending thereunder, (x)
each officer and director of the Company and subsidiaries which is a
corporation, (xi) each general partner or joint venture partner of any entity
in which the Company or any subsidiary is a general partner or joint venture
partner other than the Company, (xii) each agreement to which the Company or a
subsidiary is a party restricting or otherwise affecting voting or other rights
with respect to any securities of the Company or subsidiaries, including voting
trusts, voting agreements, irrevocable proxies, preemptive rights,
shareholders' agreements, redemption agreements and buy-sell agreements, (xiii)
each material agreement between the Company or any subsidiary and any hospital,
hospital management company, health maintenance organization or other managed
care payor, (xiv) each agreement between or among the Company or any
subsidiary, (xv) each management contract and contract with independent
contractors or consultants (or similar arrangements) including exclusive rights
or requiring payments in excess of $100,000 individually or $500,000 in the
aggregate to which the Company or any subsidiary is a party, which are not
cancelable without penalty or further payment upon 30 days' or less notice,
(xvi) each agreement of the Company or any of the subsidiaries not made in the
ordinary course of business that is to be performed on or after the date of
this Agreement; and (xvii) to the extent not listed pursuant to subsections (i)
through (xvi) of this Section 3.1(q), each exhibit the Company would be
required to file with the SEC in response to paragraphs 2, 3, 4, 9, 10, 13, 14,
16, 17, 19, 20, 21, 22, 25 and 28 of Item 601 of Regulation S-K promulgated
under the Securities Act. Each Material Contract is in full force and effect
and is enforceable against the parties thereto (other than the Company) in
accordance with its terms and no condition or state of facts exists that, with
notice or the passage of time, or both, would constitute a material default by
the Company or, to the knowledge of the Company, any third party under such
Material Contracts. The Company has duly complied in all material respects
with the provisions of each Material Contract to which it is a party.
(r) Insurance. The Company and subsidiaries have in full
force and effect the policies of fire, liability, title, errors and omissions
and other forms of insurance listed in Schedule 3.1(r) of the Company
Disclosure Schedule. Furthermore, (i) none of the Company and subsidiaries is
in default under any such policies which default could reasonably be expected
to have a Material Adverse Effect and there is no material inaccuracy in any
application for such policies, (ii) each of the Company and subsidiaries'
activities and operations have been conducted in a manner so as to conform in
all material respects to the applicable provisions of such policies, (iii) none
of the Company and subsidiaries has received
<PAGE> 95
17
a notice of cancellation or non-renewal with respect to any such policy, and
(iv) timely notice has been given of any and all claims under all such
policies.
(s) Transactions with Affiliates. Except as set forth in
Schedule 3.1(s) of the Company Disclosure Schedule, there are no contracts,
agreements, arrangements or understandings of any kind between any affiliate of
the Company, on the one hand, and the Company or any subsidiary of the Company,
on the other hand, other than any such contracts, agreements, arrangements and
understandings that either individually or in the aggregate are de minimis in
nature.
(t) Rights Agreements. The Company has no shareholder rights
plan or similar agreement in effect.
(u) Scope of Representations. Anything to the contrary in
this Section 3.1 notwithstanding, no representation or warranty made by the
Company in this Agreement shall be deemed to be untrue or incorrect at the date
hereof if the failure of such representation or warranty to be true and correct
as of such date (or as of any other specified date) does not have, individually
or in the aggregate, a Material Adverse Effect on the Company at the date
hereof.
SECTION 3.2 Representations and Warranties of Parent and
Merger Sub. Parent and Merger Sub, jointly and severally, hereby represent and
warrant to the Company as follows:
(a) Corporate Organization. Parent is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and each of Parent and
Merger Sub has the requisite corporate power and authority and any necessary
governmental authority to own, operate or lease its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Parent.
When used with respect to Parent or Merger Sub, the term
"Material Adverse Effect" means any material adverse change in or effect on (i)
the business, results of operations or condition (financial or other) of Parent
and its subsidiaries taken as a whole or (ii) the ability of Parent or Merger
Sub to consummate any of the transactions contemplated hereby.
(b) Charter and By-Laws. Parent has heretofore furnished to
the Company a complete and correct copy of the Certificate of Incorporation and
By-Laws of Parent as currently in effect and of the Articles of Incorporation
and By-Laws of Merger Sub as currently in effect. Neither Parent nor Merger
Sub is in violation of any of the provisions of its respective Certificate of
Incorporation or Articles of Incorporation (as the case may be) or By-Laws.
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(c) Capitalization. The authorized capital stock of Parent
consists of 50,000,000 shares of Common Stock, $.01 par value, and 5,000,000
shares of Preferred Stock, $.01 par value. As of the date of this Agreement,
no shares of Parent Preferred Stock are issued and outstanding.
(d) Authority Relative to Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Merger Sub and the consummation by each of
Parent and Merger Sub of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of Parent
or Merger Sub, and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to authorize this Agreement or to consummate such
transactions. This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and, assuming due authorization, execution and delivery
by the Company, constitutes a legal, valid and binding obligation of each of
Parent and Merger Sub enforceable against them in accordance with its terms.
(e) No Conflict; Required Filings and Consents. (i) The
execution, delivery and performance of this Agreement by Parent and Merger Sub
do not and will not: (A) conflict with or violate the Certificate of
Incorporation or By-Laws of Parent or the Articles of Incorporation or By-Laws
of Merger Sub; (B) assuming that all consents, approvals and authorizations
contemplated by subsection (ii) below have been obtained and all filings
described in such subsection have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Merger Sub
or by which either of them or their respective properties are bound or
affected; or (C) result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both could become a default)
or result in the loss of a material benefit under, or give rise to any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the property or assets of Parent or
Merger Sub pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Merger Sub is a party or by which Parent or Merger Sub or
any of their respective properties are bound or affected, except, in the case
of clauses (B) and (C), for any such conflicts, violations, breaches, defaults
or other occurrences which could not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on Parent.
(ii) The execution, delivery and performance of this
Agreement by Parent and Merger Sub and the consummation of the transactions
contemplated hereby by Parent and Merger Sub do not and will not require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any United States federal, state or local Governmental Entity,
except for: (A) the filing and recordation of the Certificate of Merger as
required by California Law; (B) applicable filings under the Hart-Scott Act;
and (C) such other consents, approvals and authorizations of Governmental
Entities as shall have been specified by Parent to the Company in writing prior
to the date of this Agreement.
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19
(f) Compliance. (i) Parent and its subsidiaries hold, and
are in compliance with, all permits, licenses, exemptions, orders and approvals
of all Governmental Entities necessary for the operation of the businesses of
Parent and each subsidiary, except to the extent the failure to so hold or
comply will not, individually or in the aggregate, have a Material Adverse
Effect on Parent, and to the best knowledge of Parent there are no proceedings
pending, threatened or contemplated by any Governmental Entity seeking to
terminate, revoke or materially limit any such permit, license, exemption,
order or approval. Neither Parent nor any of its subsidiaries nor the conduct
of their business is in conflict with, or in default or violation of (i) any
law, rule, regulation, order, judgment or decree applicable to Parent or any of
its subsidiaries or by which its or any of their respective properties are
bound or affected, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or its or any of their respective properties are bound or
affected, except for any such conflicts, defaults or violations which could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent. As of the date of this Agreement, no
investigation by any Governmental Entity with respect to Parent is pending, or
to best knowledge of Parent, threatened, other than, in each case, those the
outcome of which, individually or in the aggregate, will not have a Material
Adverse Effect on Parent.
(g) Securities Documents. Parent has filed all required
documents with the SEC and all other federal and state securities regulatory
authorities (the "Securities Authorities") since October 20, 1994 (the "Parent
Securities Documents"). As of their respective dates, the Parent Securities
Documents complied in all material respects with the requirements of the
Securities Authorities and none of the Parent Securities Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(h) Information Supplied. None of the information supplied
or to be supplied by Parent or Merger Sub in writing or otherwise approved by
Parent for inclusion in the Proxy Statement will, at the date the Proxy
Statement is first mailed to the Company's shareholders or at the time of the
Shareholders' Meeting, contain any statement which, in the light of the
circumstances under which such statement is made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Shareholders' Meeting or any amendment or
supplement thereto.
(i) Absence of Certain Changes or Events. Since March 31,
1996, there has not been any change, event or development in or affecting
Parent that constitutes or would reasonably be expected to have a Material
Adverse Effect on Parent or to delay or prevent the consummation of the
transactions contemplated hereby beyond December 31, 1996.
(j) Absence of Litigation. Since March 31, 1996, there are
no suits, claims, actions, proceedings or investigations pending or, to the
knowledge of Parent, threatened
<PAGE> 98
20
against Parent or any of its subsidiaries, or any properties or rights of
Parent or any of its subsidiaries, before any court, arbitrator or other
Governmental Entity, domestic or foreign, that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
the Parent. Neither Parent nor any of its subsidiaries nor any of their
respective properties is or are subject to any order, writ, judgment,
injunction, decree, determination or award having, or which could reasonably be
expected to have, a Material Adverse Effect on the Parent or to delay or
prevent the consummation of the transactions contemplated hereby beyond
December 31, 1996.
(k) Financing. Parent has and will provide, or cause to
be provided to Merger Sub, the funds necessary to consummate the Merger and the
transactions contemplated thereby in accordance with the terms hereof and
thereof.
(l) Scope of Representations. Anything to the contrary in
this Section 3.2 notwithstanding, no representation or warranty made by Parent
in this Agreement shall be deemed to be untrue or incorrect at the date hereof
if the failure of such representation or warranty to be true and correct as of
such date (or as of any other specified date) does not have, individually or in
the aggregate, a Material Adverse Effect on Parent at the date hereof.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the
Merger. The Company covenants and agrees that, during the period from the date
hereof to the Effective Time, except as otherwise required by the terms of this
Agreement or unless Parent shall otherwise agree in writing, the businesses of
the Company and its subsidiaries shall be conducted only in, and the Company
and its subsidiaries shall not take any action except in, the ordinary course
of business and in a manner consistent with past practice and in compliance
with applicable laws; and the Company and its subsidiaries shall each use its
reasonable best efforts to preserve intact the business organization of the
Company and its subsidiaries, to keep available the services of the present
officers, employees and consultants of the Company and its subsidiaries and to
preserve the present relationships of the Company and its subsidiaries with
their customers, suppliers and other persons with whom the Company or any of
its subsidiaries has significant business relations. By way of amplification
and not limitation of the foregoing, neither the Company nor any of its
subsidiaries shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose or commit to do, any of the following
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, (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 or agree to acquire any shares
of capital stock of the Company or
<PAGE> 99
21
any of its subsidiaries or any other securities convertible into
shares of capital stock or any rights, warrants or options to acquire
any such shares or convertible securities;
(b) authorize for issuance, issue, deliver, sell or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise), pledge or otherwise encumber any shares of its
capital stock or the capital stock of any of its subsidiaries, 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 or any other securities or equity
equivalents (including without limitation stock appreciation rights),
other than (A) sales of capital stock of any wholly owned subsidiary
of the Company to the Company or another wholly owned subsidiary of
the Company, and (B) the issuance of shares of Company Common Stock
upon exercise of Options that were issued and outstanding on the date
of this Agreement;
(c) except to the extent required under existing Company
Plans as in effect on the date of this Agreement, (i) increase the
compensation or fringe benefits of any of its directors, officers or
employees, except for increases in compensation of employees and
officers of the Company or its subsidiaries in the ordinary course of
business in accordance with past practice, or (ii) grant any severance
or termination pay not currently required to be paid under existing
Company Plans, except on an individual basis in the ordinary course of
business and consistent with past practice, or (iii) establish, adopt,
enter into or amend or terminate any Company Plan or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees except as required by law or as
provided in this Agreement; provided that the provisions of this
Section 4.1 shall not prohibit the Company and its subsidiaries from
hiring personnel from time to time in the ordinary course of their
business, consistent with past practice;
(d) amend its Articles of Incorporation, By-Laws or other
comparable charter or organizational documents or alter through
merger, liquidation, reorganization, restructuring or in any other
fashion the corporate structure or ownership of the Company or any
subsidiary of the Company;
(e) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial portion of the
stock or assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof, or (ii) any assets (not otherwise
subject to paragraph (h) below) other than in the ordinary course of
business consistent with past practice and in an aggregate amount not
to exceed $500,000 prior to the Effective Time;
(f) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or
assets other than in the ordinary course of business consistent with
past practice and in amounts that are not, individually or in the
aggregate, material to the Company and its subsidiaries taken as a
whole;
<PAGE> 100
22
(g) (i) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person (other than
guarantees by the Company in favor of any of its wholly owned
subsidiaries or by any of its subsidiaries in favor of the Company or
endorsements of negotiable instruments and similar guarantees in the
ordinary course of business consistent with past practice), or (ii)
make any loans, advances or capital contributions to, or investments
in, any other person, other than (A) to any direct or indirect wholly
owned subsidiary of the Company, or (B) loans to employees of the
Company and its subsidiaries not to exceed $100,000 in total
outstandings from the date hereof through November 19, 1996;
(h) except as set forth in Schedule 4.1(h) of the Company
Disclosure Schedule, expend, or commit to expend, funds for capital
expenditures other than in accordance with the Company's current
capital expenditure plans (which plans shall have been disclosed in
writing to Parent on or prior to the date of this Agreement);
(i) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation;
(j) recognize any labor union (unless legally required to do
so) or enter into any collective bargaining agreement;
(k) except as may be required as a result of a change in
generally accepted accounting principles or as recommended by the
Company's independent accountants and consented to in writing by
Parent (which consent shall not be unreasonably withheld) prior to
such change, change any of the accounting methods, practices or
principles used by the Company or any of its subsidiaries;
(l) enter into any new line of business or open any new
imaging facilities except substantially in accordance with the
Company's current business plan as disclosed to Parent in writing
prior to the date of this Agreement; or
(m) authorize any of, or commit or agree to take any of, the
foregoing actions or any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue and incorrect as of the date when made if such action
had then been taken.
SECTION 4.2 Conduct of Business of Merger Sub. Merger Sub
has not engaged, and during the period from the date of this Agreement to the
Effective Time, Merger Sub shall not engage, in any activities of any nature
except as provided in, or in connection with the transactions contemplated by,
this Agreement.
SECTION 4.3 Shareholders' Meeting. The Company will take all
action necessary in accordance with and subject to applicable law and its
Articles of Incorporation and By-Laws to convene a meeting of its shareholders
(the "Shareholders' Meeting") as soon as practicable after the date of this
Agreement to consider and vote upon the adoption and approval of this
Agreement. Subject to the next succeeding sentence, the Company, through
<PAGE> 101
23
its Board of Directors, shall recommend to its shareholders approval of the
foregoing matters, and such recommendation shall be included in the Proxy
Statement. The Board of Directors of the Company may fail to make such
recommendation, or withdraw, modify or change such recommendation, if and only
if the Board, as advised by counsel, determines that the making of such
recommendation, or the failure to so withdraw, modify or change such
recommendation, could be deemed to constitute a breach of its fiduciary duties
under applicable law.
SECTION 4.4 Preparation of the Proxy Statement; Preparation
of Hart-Scott Act Filing. (i) Promptly following the date of this Agreement,
the Company shall prepare and file with the SEC the Proxy Statement. Parent
shall review and approve the Proxy Statement before such filing. Each of the
Company and Parent shall use its reasonable best efforts to have the Proxy
Statement approved by the SEC as promptly as practicable after such filing.
The Company will use its reasonable best efforts to cause the Proxy Statement
to be mailed to the Company's shareholders as promptly as practicable after the
Proxy Statement is approved by the SEC. The information provided and to be
provided by Parent, Merger Sub and the Company, respectively, for use in the
Proxy Statement shall, at the time the Proxy Statement is approved by the SEC
and on the date of the Shareholders' Meeting referred to above, be true and
correct in all material respects and shall not omit to state any material fact
required to be stated therein or necessary in order to make such information
not misleading, and the Company, Parent and Merger Sub each agree to correct
any information provided by it for use in the Proxy Statement which shall have
become false or misleading.
(ii) Promptly following the date of this Agreement, the
Company and Parent shall prepare and file with the Anti-Trust Entities all
documents and forms required under the Hart-Scott Act. Each of the Company and
Parent shall use its reasonable best efforts to have the Merger reviewed and
approved by the Anti-Trust Entities as promptly as practicable after such
filing.
SECTION 4.5 Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, the Company (i) shall, and shall cause
its subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, auditors and other agents of Parent, reasonable access at
all reasonable times (during normal business hours so as not to unduly or
unreasonably interfere with the business of the Company and its subsidiaries)
to its senior officers, agents, properties, offices and other facilities and to
all books and records, and shall furnish Parent and such other persons with all
financial, operating and other data and information as Parent, through its
officers, may from time to time reasonably request, and (ii) shall make
available its senior officers and the senior officers of its subsidiaries, upon
reasonable prior notice and during normal business hours, to confer on a
regular basis with the appropriate officers of Parent regarding the ongoing
operations of the Company and its subsidiaries, the implementation of the
transactions contemplated hereby and other matters related hereto. No
investigation pursuant to this Section 4.5 shall affect any representations or
warranties of the parties herein or the conditions to the obligations of the
parties hereto.
<PAGE> 102
24
(b) Each of Parent and Merger Sub will hold information it
receives pursuant to Section 4.5(a)(i) which is nonpublic in confidence and
will not disclose such information to any third party without the written
consent of the Company.
SECTION 4.6 No Solicitation. The Company and its affiliates
shall not, directly or indirectly, through any officer, director, agent or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person relating to any acquisition or purchase of all or any
material portion of the assets of, or any equity interest in, the Company (or
any subsidiary or division thereof) or any merger, consolidation, share
exchange, business combination or other similar transaction with the Company
(or any subsidiary or division thereof) or solicit, participate in or initiate
any negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any other person to do or
seek any of the foregoing; provided, however, that nothing contained in this
Section 4.6 shall prohibit the Company from furnishing information to, or
entering into discussions or negotiations with, any person in connection with
an unsolicited written proposal to the Company by such person to acquire the
Company pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire all or substantially all
of the assets of the Company received by the Company after the date of the
Agreement ("Acquisition Proposal"), if, and only to the extent that, (a) the
Company's Board, as advised by counsel of the Company, determines in good faith
that such action is required in order for the Board not to breach its fiduciary
duties to shareholders imposed by law, and (b) prior to furnishing such
information to, or entering into discussions or negotiations with, such person,
the Company gives Parent as promptly as practicable prior written notice (which
shall include a summary of terms and identity of parties except to the extent
such would cause the Board of Directors of the Company to determine that such
disclosure would be a breach of its fiduciary duties to shareholders imposed by
law, as advised by counsel of the Company) of the Company's intention to
furnish such information or begin such discussions. The Company agrees not to
release any third party from or waive any provision of, any confidentiality or
standstill agreement to which the Company is a party.
SECTION 4.7 Employee Benefits Matters. (a) Parent agrees
that, during the period commencing at the Effective Time and ending on the
second anniversary thereof, the employees of the Company and its subsidiaries
will continue to be provided with employee benefit plans (other than stock
option or other plans involving the potential issuance of securities of the
Company or of Parent and incentive compensation or similar programs) which in
the aggregate are not materially less favorable to those currently provided by
the Company and its subsidiaries to such employees, to the extent permitted
under laws and regulations in force from time to time, provided that employees
covered by collective bargaining agreements need not be provided such benefits,
and provided, further, that Parent reserves the right to review all employee
benefits after the Effective Time and to make such changes as it deems
appropriate.
(b) Parent and Merger Sub will cause the Company (and,
after the Merger, the Surviving Corporation) to honor all employee benefit
obligations to current and former employees and directors under the Company's
employee benefit plans in existence on the date
<PAGE> 103
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hereof and disclosed in Schedule 4.7(b) of the Company Disclosure Schedule and
all employment or severance agreements entered into by the Company or adopted
by the Board of Directors of the Company prior to the date hereof and disclosed
in Schedule 4.7(b); provided, however, that nothing shall prevent Merger Sub or
the Company (and, after the Merger, the Surviving Corporation) from taking any
action with respect to such plans, obligations or agreements or refraining from
taking any such action which is permitted or provided for under the terms
thereof.
(c) Employees of the Company (and, after the Merger, the
Surviving Corporation) shall be given credit for all actual service with the
Company and the subsidiaries under all employee benefit plans, programs and
policies of the Surviving Corporation in which they become participants for all
purposes thereunder, except to the extent that such crediting would produce
duplication of benefits.
SECTION 4.8 Directors' and Officers' Indemnification and
Insurance. (a) The Articles of Incorporation and the By-Laws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
exculpation from liability set forth in the Company's Articles of Incorporation
and By-Laws on the date of this agreement, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who on or prior to the Effective Time were directors, officers,
employees or agents of the Company, unless such modification is required by
law.
(b) The Surviving Corporation shall for the three year
period commencing on the Effective Time either (x) maintain in effect the
Company's current directors' and officers' liability insurance covering those
persons who are currently covered on the date of this Agreement by the
Company's directors' and officers' liability insurance policy (a copy of which
has been heretofore delivered to Parent) and/or by Indemnification Agreements
with the Company as set forth on Schedule 4.8(b) (the "Indemnified Parties");
provided, however, that in no event shall Parent be required to expend in any
one year an amount in excess of 125% of the annual premiums currently paid by
the Company for such insurance; and; provided, further, that if the annual
premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount; provided, further, that the
Surviving Corporation may substitute for such Company policies, policies with
at least the same coverage containing terms and conditions which are no less
advantageous and provided that said substitution does not result in any gaps or
lapses in coverage with respect to matters occurring prior to the Effective
Time or (y) cause the Parent's directors' and officers' liability insurance
then in effect to cover those persons who are covered on the date of this
Agreement by the Company's directors' and officers' liability insurance policy
with respect to those matters covered by the Company's directors' and officers'
liability policy.
(c) Parent and Merger Sub agree to indemnify and agree to
cause the Surviving Corporation to indemnify all Indemnified Parties to the
fullest extent permitted by applicable law with respect to all acts and
omissions arising out of such individuals' services as officers, directors,
employees or agents of the Company or any of its subsidiaries or as
<PAGE> 104
26
trustees or fiduciaries of any plan for the benefit of employees of the Company
or any of its subsidiaries, occurring prior to the Effective Time including,
without limitation, the transactions contemplated by this Agreement. Without
limitation of the foregoing, in the event any such Indemnified Party is or
becomes involved in any capacity in any action, proceeding or investigation in
connection with any matter, including without limitation, the transactions
contemplated by this Agreement, occurring prior to, and including, the
Effective Time, Parent, from and after the Effective Time, will pay as incurred
such Indemnified Party's reasonable legal and other expenses (including the
cost of any investigation and preparation) incurred in connection therewith.
Subject to Section 4.8(d) below, Parent and Merger Sub shall pay all reasonable
expenses, including attorneys' fees, that may be incurred by any Indemnified
Party in enforcing this Section 4.8 or any action involving an Indemnified
Party resulting from the transactions contemplated by this Agreement. If the
indemnity provided for in this Section 4.8 is not available with respect to any
Indemnified Party, then the Surviving Corporation and the Indemnified Party
shall contribute to the amount payable in such proportion as is appropriate to
reflect relative faults and benefits.
(d) Any Indemnified Party wishing to claim
indemnification under paragraph (a) or (c) of this Section, upon learning of
any such claim, action, suit, proceeding or investigation, shall promptly
notify Parent thereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) Parent or the Surviving Corporation shall have the right, from and
after the Effective Time, to assume the defense thereof (with counsel engaged
by Parent or the Surviving Corporation to be reasonably acceptable to the
relevant Indemnified Party) and Parent shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the
defense thereof, (ii) the Indemnified Parties will cooperate in the defense of
any such matter and (iii) Parent shall not be liable for any settlement
effected without its prior written consent; and provided further that Parent
shall not have any obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
SECTION 4.9 Further Action; Reasonable Best Efforts. Upon
the terms and subject to the conditions hereof, each of the parties hereto
shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including but not
limited to (i) cooperating in the preparation and filing of the Proxy
Statement, and any amendments to any thereof, and (ii) using its reasonable
best efforts to make all required regulatory filings and applications and to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the transactions contemplated by this Agreement and to fulfill the conditions
to the Merger. To the extent practicable in the circumstances and subject to
applicable laws, each party shall provide the other with the opportunity to
review any information relating to the other party, or any of its subsidiaries,
which appears in any filing made with, or written materials submitted to, any
Governmental
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27
Entity in connection with obtaining the necessary regulatory approvals for the
consummation of the transactions contemplated by this Agreement. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall use their reasonable best efforts to take
all such necessary action.
SECTION 4.10 Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect,
and (ii) any failure of the Company, Parent or Merger Sub, as the case may be,
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.10 shall not limit
or otherwise affect the remedies available hereunder to the party receiving
such notice.
SECTION 4.11 Public Announcements. Each party shall consult
with the other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with its securities exchange or
quotation system.
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon.
(b) Other Approvals. Other than the filing contemplated by
Section 1.3, all consents, approvals, authorizations or permits of, actions by,
or filings with or notifications to, and all expirations of waiting periods
imposed by, any Governmental Entity (all the foregoing, "Consents") which are
necessary for the consummation of the Merger (including, without limitation,
the filings and approvals required under the Hart-Scott Act and the Exchange
Act) other than immaterial Consents the failure to obtain which would have no
Material Adverse Effect on the consummation of the Merger or the business of
the Surviving Corporation, shall have been filed, occurred or been obtained
(all such permits, approvals, filings and consents and the lapse of all such
waiting periods being referred to as the "Requisite Regulatory
<PAGE> 106
28
Approvals"), all conditions, if any, to such Requisite Regulatory Approvals
shall have been satisfied and all such Requisite Regulatory Approvals shall be
in full force and effect.
(c) No Injunctions or Restraints; Illegality; Litigation. 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, nor
shall any proceeding by any Governmental Entity seeking any of the foregoing be
pending. There shall not be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Merger, which
makes the consummation of the Merger illegal. There shall not be any pending
litigation regarding the Merger which, if adversely determined, would have a
Material Adverse Effect on the Company.
(d) Proxy Statement. The Proxy Statement shall have been
filed with, and approved by, the SEC.
SECTION 5.2 Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are subject
to the satisfaction of the following conditions unless waived by Parent and
Merger Sub:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the Chairman of the
Board and Chief Executive Officer of the Company and by the Chief Financial
Officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company
shall have performed all obligations required to be performed by it under this
Agreement at or prior to the Closing Date with such exceptions as, either
individually or in the aggregate, do not have, and would not reasonably be
expected to have, a Material Adverse Effect on the Company, and Parent shall
have received a certificate signed on behalf of the Company by the Chairman of
the Board and Chief Executive Officer of the Company and by the Chief Financial
Officer of the Company to such effect.
(c) Burdensome Condition. There shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, by any federal or state Governmental Entity
which, in connection with the grant of a Requisite Regulatory Approval, would
be reasonably likely to result in a Material Adverse Effect with respect to the
Surviving Corporation.
SECTION 5.3 Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction
of the following unless waived by the Company:
<PAGE> 107
29
(a) Opinion of Financial Advisor. Upon the execution of
this Agreement by all parties hereto, the Company shall have received the
opinion of Batchelder & Partners, Inc., to the effect that, as of the date of
this Agreement, the consideration to be received in the Merger by Company's
shareholders is fair to Company's shareholders from a financial point of view.
(b) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by the Chief Executive Officer of Parent to such effect.
(c) Performance of Obligations of Parent and Merger Sub.
Parent and Merger Sub shall have performed all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, with
such exceptions as, either individually or in the aggregate, do not have, and
would not reasonably be expected to have, a Material Adverse Effect on Parent,
and the Company shall have received a certificate signed on behalf of Parent by
the Chief Financial Officer of Parent to such effect.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated
and the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the shareholders of the
Company:
(a) by mutual written consent of Parent and the Company; or
(b) by Parent, (i) upon any breach of any representation,
warranty, covenant or agreement of the Company set forth in this Agreement
that, either individually or in the aggregate, would constitute grounds for
Parent to elect not to consummate the Merger pursuant to Section 5.2(a), (b) or
(c), if either (A) such breach cannot be cured prior to the Closing Date, or
(B) has not been cured within 30 days after the date on which written notice of
such breach is given by Parent to the Company, specifying in reasonable detail
the nature of such breach, or (ii) the Company has breached or failed to comply
in any material respect with any of its obligations under this Agreement which
breach shall not have been cured within 10 days following notice from Parent to
the Company of notice of such breach and the intent of Parent to terminate
pursuant to this provision.
(c) by the Company, if (i) any of the representations and
warranties of Parent or Merger Sub contained in this Agreement were untrue or
incorrect in any material respect when made or have since become, and at the
time of termination remain, incorrect in any material respect, (ii) the Company
does not timely receive the opinion required under Section 5.3(a), or (iii)
Parent or Merger Sub shall have breached or failed to comply in any material
<PAGE> 108
30
respect with any of their respective obligations under this Agreement which
breach shall not have been cured within ten days following notice from the
Company to Parent of such breach and Company's intent to terminate pursuant to
this provision.
(d) by either Parent or the Company, if any permanent
injunction or action by any Governmental Entity preventing the consummation of
the Merger shall have become final and nonappealable; provided that such right
of termination shall not be available to any party if such party shall have
failed to make reasonable efforts to prevent or contest the imposition of such
injunction or action and such failure materially contributed to such
imposition;
(e) by either Parent or the Company if (other than due to the
willful failure of the party seeking to terminate this Agreement to perform its
obligations hereunder which are required to be performed at or prior to the
Effective Time) the Merger shall not have been consummated on or prior to
November 19, 1996, unless extended in writing by Parent and the Company;
(f) by Parent or the Company, if the approval of the
shareholders of the Company of this Agreement and the Merger required for the
consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of shareholders or
at any adjournment thereof;
(g) by Parent, if (i) the Board of Directors of the Company
shall have withdrawn, modified or changed its approval or recommendation of
this Agreement or the Merger in any manner which is adverse to Parent or Merger
Sub, or shall have adopted a resolution to do the foregoing; or (ii) the Board
of Directors of the Company shall have approved or have recommended to the
shareholders of the Company any Business Combination Transaction (as defined in
Section 6.1(i) below) other than the Merger or shall have resolved to do the
foregoing; or (iii) a tender offer or exchange offer for 25% or more of the
outstanding shares of the Company Common Stock is commenced (other than by
Parent or any of its subsidiaries or affiliates), and the Board of Directors of
the Company recommends that the shareholders of the Company tender their shares
in such tender or exchange offer or otherwise fails to recommend that such
shareholders reject such tender offer or exchange offer within ten business
days of the commencement thereof; or
(h) by the Company prior to the Shareholders' Meeting, if the
Board of Directors of the Company (i) shall fail to make or shall withdraw or
modify its recommendation of this Agreement or the Merger and there shall exist
at such time a tender offer or exchange offer for not less than a majority of
the outstanding voting stock of the Company or a written, bona fide proposal by
a third party to acquire not less than a majority of the outstanding voting
stock of the Company pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or other similar transaction, in
either case at a price per share (whether payable in cash or securities) of
Company Common Stock that is higher than the Merger Consideration, or (ii)
recommends to the Company's shareholders approval or acceptance of any such
transaction, in each case if, and only to the extent that, the Board of
Directors of the Company, as advised by legal counsel, determines
<PAGE> 109
31
that failure to take such action could be deemed to constitute a breach of the
Board's fiduciary duties under applicable law.
(i) Fees and Expenses. The Company shall pay Merger Sub a
fee (an "Alternative Proposal Fee") of 3% of the total Merger Consideration,
which amount is inclusive of all of Merger Sub Expenses (as defined in Section
6.2(k) below) (i) within one business day following the termination of this
Agreement by Parent, if this Agreement is terminated pursuant to 6.1(b)(ii), or
(ii) within one business day following notice of the termination of this
Agreement, if this Agreement is terminated pursuant to Section 6.1(g) or (h).
As used herein, the term "Business Combination Transaction" shall mean any of
the following involving the Company: (1) any merger, consolidation, share
exchange, business combination or other similar transaction (other than the
Merger); (2) any sale, lease, exchange, transfer or other disposition (other
than a pledge or mortgage) of 20% or more of the assets of the Company in a
single transaction or series of related transactions; (3) the acquisition by a
person or entity or any "group" (as such term is defined under Section 13(d) of
the Exchange Act and the rules and regulations thereunder) of beneficial
ownership of 40% or more of the shares of Company Common Stock, whether by
tender offer, exchange offer or otherwise; or (4) the adoption by the Company
of a plan of liquidation or the declaration or payment of an extraordinary
dividend.
(j) Merger Sub shall be entitled to receive the Merger Sub
Expenses (but not the Alternative Proposal Fee) in immediately available funds
(not later than one business day after submission of statements therefor) in
the event that this Agreement is terminated by Parent pursuant to Section
6.1(b)(i).
(k) As used herein, "Merger Sub Expenses" means all
out-of-pocket expenses and fees up to $200,000 actually incurred by Merger Sub
or on their respective behalf in connection with the Merger prior to the
termination of this Agreement (including, without limitation, all fees and
expenses of counsel, financial advisors, accountants, banks or other entities
providing financing to Merger Sub (including financing, commitment and other
fees payable thereto), accountants, environmental and other experts and
consultants to Merger Sub and its affiliates, and all printing and advertising
expenses) and in connection with the negotiation, preparation, execution,
performance and termination of this Agreement, the structuring of the Merger,
any agreements relating thereto and any filings to be made in connection
therewith.
(l) Except as set forth in this Section 6.1, all costs
and expenses incurred in connection with this Agreement and the Merger shall be
paid by the party incurring such expenses, whether or not any Transaction is
consummated.
SECTION 6.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 4.5(b), Section 6.1 and Section 7.1;
provided, however, that nothing herein shall relieve any party from liability
for any willful and material breach hereof; provided further, however that the
recommendation
<PAGE> 110
32
of another transaction by the Company's Board of Directors in accordance with
Section 4.6 shall not constitute a willful and material breach of this
Agreement by the Company.
SECTION 6.3 Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of Parent and the respective
Boards of Directors of Merger Sub and the Company at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
shareholders of the Company, no amendment may be made which would reduce the
amount or change the type of consideration into which each share of Company
Common Stock shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 6.4 Waiver. 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 if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 6.1, except that those set forth in Section 4.5(b), Section
4.7, Section 4.8, Section 6.1 and this Article VII shall survive termination
indefinitely (or to such earlier date as shall be specified by the terms of
such provisions).
SECTION 7.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
<PAGE> 111
33
if to Parent or Merger Sub:
US Diagnostic Labs, Inc.
777 South Flagler Drive
West Palm Beach, FL 33140
Attention: Jeffrey A. Goffman, Chairman
and Michael D. Karsch
Facsimile: (561) 833-8391
if to the Company:
Medical Imaging Centers of America, Inc.
9444 Farnham Street, Suite 100
San Diego, California 92123
Attention: Robert Muehlberg
Facsimile: (619) 560-4575
with a copy to:
Latham & Watkins
701 B Street, Suite 2100
San Diego, California 92101
Attention: Scott N. Wolfe, Esq.
Facsimile: (619) 696-7419
SECTION 7.3 Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned
person;
(b) "beneficial owner" with respect to any shares of Company
Common Stock means a person who shall be deemed to be the beneficial
owner of such shares of Company Common Stock (i) which such person or
any of its affiliates or associates beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act)
has, directly or indirectly, (A) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon
the exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding or (iii) which are
beneficially owned, directly or indirectly, by any other persons with
whom such person or any of its affiliates or person with whom such
person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares;
<PAGE> 112
34
(c) "business day" means any day other than a Saturday,
Sunday or other day on which commercial banks in San Diego, California
are required or permitted to be closed;
(d) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management policies of a person, whether through the ownership
of stock, as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "knowledge" means knowledge after reasonable inquiry of,
in the case of the Company, any Executive Vice President or more
senior officer of the Company, and in the case of Parent, any
Executive Vice President or more senior officer of Parent.
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means any
corporation, partnership, joint venture or other legal entity of which
the Company, the Surviving Corporation, Parent or such other person,
as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holder of which is generally entitled to
vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
SECTION 7.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule
of law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
SECTION 7.5 Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of
law or otherwise, except that Parent and Merger Sub may assign all or any of
their respective rights and obligations hereunder to any other direct
subsidiary or subsidiaries of Parent, provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations.
<PAGE> 113
35
SECTION 7.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 7.7 Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflict of laws rules thereof. ALL ACTIONS AND PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE HEARD AND DETERMINED IN ANY COURT SITTING
IN THE CITY OF SAN DIEGO, CALIFORNIA.
SECTION 7.8 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 7.9 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE> 114
36
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed by their respective officers thereunto
duly authorized, all as of the date written above.
"Parent" US DIAGNOSTIC LABS, INC.
By /s/ Jeffrey Goffman
---------------------------------
Name: Jeffrey Goffman
Title: Chief Executive Officer
"Merger Sub" MICA ACQUIRING CORPORATION
By /s/ Jeffrey Goffman
---------------------------------
Name: Jeffrey Goffman
Title President
"Company" MEDICAL IMAGING CENTERS OF AMERICA, INC.
By /s/ Robert Muehlberg
---------------------------------
Name: Robert Muehlberg
Title: President
<PAGE> 115
APPENDIX "B"
SECTIONS 1300-1312 OF THE
CALIFORNIA CORPORATIONS CODE
SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval (Section 152) of a corporation is required for a
reorganization under or subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or
short-form, merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by
the Board of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not
apply to any class of shares described in subparagraph (A) or (B) if
demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph), were voted against the reorganization, or
which were held of record on the effective date of a short-form merger;
provided, however, that subparagraph (A) rather than subparagraph (B)
of this paragraph applies in any case where approval required by
Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by, its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares its defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
B-1
<PAGE> 116
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgements from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
B-2
<PAGE> 117
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S SIGNS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS' AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
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(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312 does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have am reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholders shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-term
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholders shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short- form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to the shareholders of the controlled party, and (2) a person
who controls two or more parties to a reorganization shall have the burden of
proving the transaction is just and reasonable as to the shareholders of any
party so controlled.
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APPENDIX "C"
OPINION OF BATCHELDER & PARTNERS, INC.
August 1, 1996
Board of Directors
Medical Imaging Centers of America, Inc.
9444 Farnham Street, Suite 100
San Diego, CA 92123
Gentlemen:
You have requested that we render our opinion as to the
fairness, from a financial point of view, to the holders of the outstanding
shares of common stock, no par value per share (the "Shares"), of Medical
Imaging Centers of America, Inc. (the "Company"), of $11.75 per Share in cash to
be received by such holders pursuant to the Agreement and Plan of Merger,
effective as of August 1, 1996 (the "Agreement") among US Diagnostic Labs, Inc.
(the "Parent") and MICA Acquiring Corporation, a direct wholly owned subsidiary
of Parent and the Company.
In connection with our opinion, we have reviewed the Agreement
and all schedules and exhibits thereto. We have also reviewed relevant financial
and other information concerning the Company that was publicly available or
furnished to us by the Company, including information provided during
discussions with management. In addition, we have compared certain financial and
securities data of the Company with that of various other companies whose
securities are publicly traded, reviewed the historical prices and trading
volumes of the common stock of the Company, reviewed the financial terms of
certain recent business combinations in the imaging center industry, and
conducted such other financial analyses as we have determined, based upon our
judgment as investment bankers, to be appropriate for purposes of this opinion.
In rendering this opinion, we have relied on the accuracy and
completeness of all financial and other information that was publicly available,
furnished or otherwise communicated to us by the Company or otherwise reviewed
by us, and we have not assumed any responsibility for an independent
verification of any such information. With respect to financial projections
reviewed by us, we have assumed that the projections were reasonably prepared,
based upon assumptions reflecting the best currently available estimates and
good faith judgments of management as to the future performance of the Company
and that management of the Company does not have any information or beliefs that
would make the projections materially misleading. In addition, we have not
assumed any responsibility for and we have not made or received any independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of the Company.
We have been engaged by the Company to render investment
banking advisory services to the Board of Directors of the Company in connection
with certain shareholder matters and its solicitation and consideration of
proposals for the merger or other sale or disposition of the stock or assets of
the Company for which we have received customary consideration for such
services. The Company will pay us a fee for our services in connection with the
Merger which is contingent upon the consummation of the Merger. We will also
receive a fee in connection with the delivery of this opinion. The Company has
agreed to indemnify us for certain liabilities arising out of our engagement.
Our opinion is based upon an analysis of the factors described
in this letter in light of our assessment of general economic, financial and
market conditions as they exist and as they can be evaluated by us as of the
date hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. Our opinion is directed to the Board of Directors of the Company
and does not constitute a recommendation to any shareholder of the Company as to
how any such shareholder should vote on the Merger. Our opinion does not address
the underlying business decision to sell a controlling interest in the Company
or to enter into the Merger.
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Board of Directors 2 August 1, 1996
Based upon and subject to the foregoing, we are of the opinion
on the date hereof that the $11.75 per Share in cash to be received by the
holders of Shares pursuant to the Agreement is fair to such holders from a
financial point of view.
Respectfully,
/s/ Joel L. Reed
----------------------------------------
BATCHELDER & PARTNERS, INC.
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PROXY PROXY
MEDICAL IMAGING CENTERS OF AMERICA, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 6, 1996
The undersigned shareholder(s) of MEDICAL IMAGING CENTERS OF AMERICA,
INC. (the "Company") hereby constitutes and appoints Robert S. Muehlberg
and Denise L. Sunseri, and each of them, attorneys and proxies of the
undersigned, each with power of substitution, to attend, vote and act for
the undersigned at the Special Meeting of Shareholders of the Company to be
held on November 6, 1996, and at any adjournment or postponement thereof,
according to the number of shares of common stock of the Company which the
undersigned may be entitled to vote, and with all powers which the
undersigned would possess if personally present, as follows:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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MEDICAL IMAGING CENTERS OF AMERICA, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" PROPOSAL 1.
1. Adoption and approval of the Agreement and Plan of Merger dated as of August
1, 1996, between the Company and U.S. Diagnostic Labs Inc., a Delaware
corporation ("USDL"), providing for the merger of MICA Acquiring Corporation,
a California corporation and a wholly owned subsidiary of USDL, with and into
the Company.
For [ ] Against [ ] Abstain [ ]
IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED "FOR" PROPOSAL 1.
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND PROMPTLY RETURN IT IN THE
ENVELOPE PROVIDED.
Shares represented by all properly executed proxies will be voted in accordance
with instructions appearing on this proxy card and in the discretion of the
proxy holders as to any other matters which may properly come before the
meeting. This proxy does not convey discretionary authority to adjourn or
postpone the meeting for the purpose of soliciting additional votes.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting and
the accompanying Proxy Statement.
Dated:_____________________________, 1996
_________________________________________
(Signature)
_________________________________________
(Signature)
Please sign as name(s) appears on this proxy card, and date this proxy card. If
a joint account, each joint owner must sign. If signing for a corporation or
partnership as agent, attorney or fiduciary, indicate the capacity in which you
are signing.
