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EXHIBIT 10.1
CONFIDENTIAL
January 10, 2001
To The Board of Managers
of International Radiology Group, L.L.C.
40 Skokie Boulevard
Northbrook, IL 60062-1618
Re: LETTER OF UNDERSTANDING
Gentlemen:
This letter of understanding ("LETTER") sets forth the basic terms and
conditions pursuant to which US Diagnostic, Inc., a Delaware corporation ("USD")
proposes a transaction ("TRANSACTION") resulting in the combination of
International Radiology Group, L.L.C., a Delaware limited liability company
("IRG") (including American Imaging Management, Inc. ("AIM") with USD.
1. TERM SHEET. USD intends to proceed with the Transaction in accordance
with the commercial terms set forth in this Letter and the term sheet
attached hereto as ATTACHMENT A (the "TERM SHEET"). To the extent there
is any conflict between the Term Sheet and this Letter, this Letter
shall control.
2. PUBLIC ANNOUNCEMENTS. The parties agree that any public announcement
relating to the Transaction shall be made pursuant to a joint press
release subject to the prior review and consent of each party, except
to the extent a party may deem it necessary to comply with laws,
including securities law.
3. EXPENSES. USD and IRG shall be responsible for their own expenses,
including fees and expenses of counsel, advisors and consultants;
PROVIDED, HOWEVER, the filing fees pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR ACT") shall be split equally
by the parties.
4. EXCLUSIVITY. During the Exclusivity Period (as hereinafter defined),
IRG shall work with USD to negotiate and execute definitive agreements
and to close and complete the Transaction, and IRG will not directly or
indirectly or in any manner whatsoever (including, without limitation,
through an affiliate or subsidiary or through any agency, trust or
nominee arrangement):
(a) enter into or agree to enter into, any agreement with respect
to the sale of IRG or AIM or any of their respective
businesses' assets or properties (hereinafter collectively
referred to as "IRG Group"), participate in any discussions or
otherwise make or solicit any proposal or offer with respect
to the sale of the IRG Group which competes with, or may
compete with or otherwise prevent or delay
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the completion of the Transaction (including, without
limitation, by way of equity, debt, participation, agency,
management or operatorship); or
(b) sell or agree to sell, solicit or make any proposal or
participate in any discussions to or offer to sell any
interest in the IRG Group or otherwise transfer any interest
in the IRG Group; however IRG may enter into an action to
raise additional capital (the "Capital Raise") to meet the
essential operating requirements of IRG's business provided,
(i) IRG will not solicit a transaction, whether by merger or
otherwise, pursuant to which a person or entity not currently
a member of IRG acquires more than 20% of the outstanding
limited liability company interest of IRG; (ii) the merger
consideration as set forth in the Term Sheet shall not change;
and (iii) USD is not otherwise adversely effected by such
Capital Raise.
For breach by IRG of this paragraph 4, in addition to any
other remedies available to USD, USD shall be entitled, without proof
of damage, to any and all equitable and injunctive relief. The
provisions of this paragraph 4 shall be binding until March 31, 2001
(the "EXCLUSIVITY PERIOD").
Except as required by law in the fulfillment of the fiduciary
duties of the USD's Board of Directors, USD agrees that during the
Exclusivity Period it will not solicit a transaction, whether by merger
or otherwise, pursuant to which a person or entity not currently a
stockholder of USD acquires more than 50% of the issued and outstanding
common stock of USD. Notwithstanding the foregoing, IRG acknowledges
and agrees that USD intends to continue to pursue transactions to sell
its imaging centers during this Exclusivity Period.
This Letter shall be deemed terminated automatically upon the
expiration of the Exclusivity Period, unless extended by written
consent of USD and IRG. In such case, neither USD nor IRG shall have
any further obligation or liability (in tort, contract or otherwise) to
the other, except as provided in paragraphs 2 and 3, which obligations
shall survive the termination of this Letter.
5. NEGOTIATION OF DEFINITIVE AGREEMENTS. Subject to the terms and
conditions of this Letter, the parties agree to enter into good faith
negotiations toward the preparation, execution and delivery of
definitive agreements that shall set forth the terms and conditions of
the Transaction as described in this Letter and the Term Sheet (the
"DEFINITIVE AGREEMENTS"). The terms and provisions of the Definitive
Agreements shall be mutually acceptable to the parties. The Definitive
Agreements shall be prepared by USD's counsel and approved by the
parties.
6. CLOSING CONDITIONS. The closing of the Transaction shall be contingent
upon conditions customary to transactions of this nature, including,
but not limited to, the following:
(a) with respect to USD:
(i) there shall not have occurred (i) any damage, loss or
condemnation of any material assets, properties or
contracts of the IRG Group or (ii) a material adverse
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change (A) in the financial condition or results of
operations of the IRG Group, (B) in the business,
assets, operations or prospects of the IRG Group or
(C) in any law or regulation applicable to the IRG
Group;
(ii) receipt of all (A) necessary consents from
non-regulatory third parties (including USD's
lenders) and (B) applicable regulatory approvals
required for the completion of the Transaction and
the expiration of any waiting periods required under
the HSR Act or other applicable law or regulation;
(iii) approval of the Transaction by the Board of Directors
and stockholders of USD;
(iv) the satisfactory completion, in USD's sole
discretion, of USD's due diligence review of the IRG
Group;
(v) the Form S-4 Registration Statement (or other
appropriate form) containing the joint proxy
statement of USD and IRG and the prospectus
("PROXY/PROSPECTUS") for the shares of common stock
("TRANSACTION SHARES") constituting part of the
consideration shall have been declared effective by
the Securities and Exchange Commission ("SEC");
(vi) prior to mailing the Proxy/Prospectus the Board of
Directors shall have received an opinion from its
financial advisor that the Transaction is fair from a
financial point of view to the USD Stockholders;
(vii) the Transaction Shares shall have been listed by
NASDAQ National Market System, upon notice of
issuance;
(viii) CIGNA shall have indicated to USD that consummation
of the Transaction will not result in an adverse
change in CIGNA's current relationship with AIM;
(ix) the Transaction shall not (A) require USD to obtain a
waiver or modification from the holders of its 9%
Subordinated Convertible Debentures due 2003 ("PUBLIC
DEBT"); or (B) constitute a "change in control" under
the Public Debt; and
(x) prior to the execution of the Definitive Agreements
IRG shall have delivered to USD the following audited
financial statements (A) for IRG and AIM for their
respective 1997, 1998 and 1999 fiscal years; (B) for
IRG and AIM for their respective three month periods
ended March 31, 2000; and (C) for IRG and AIM as the
combined IRG Group for the six month period from
April 1, 2000 to September 30, 2000.
(b) with respect to IRG:
(i) receipt of all applicable regulatory approvals
required for the completion of the Transaction and
the expiration of any waiting periods required under
the HSR Act or other applicable law or regulation;
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(ii) the members of IRG shall have approved the
Transaction, including without limitation the
allocation of the Transaction consideration among
each member; and
(iii) the satisfactory completion in IRG's sole discretion,
of IRG's due diligence review of USD.
7. INVESTIGATION. USD, its agents, its representatives and its lenders
shall be permitted to make a full and complete investigation of the
assets, properties, business affairs and financial condition of the IRG
Group, including access to the books, records, financial information,
agreements and all other documents of the IRG Group. IRG, its agents,
its representatives and its lenders shall be permitted to make a full
and complete investigation of the assets, property, business offices
and financial condition of USD, including access to the books, records,
financial information, agreements and all other documents of USD. All
information obtained by either party in the course of its investigation
shall be kept confidential in accordance with the terms of the
Confidentiality Letter (as hereinafter defined).
8. NON-BINDING NATURE. Except as to paragraphs 2, 3, 4, 5, 6 and 7 hereof,
the parties hereto understand and agree that this Letter and Term Sheet
set forth the parties' current understanding of agreements, which may
be set out in a binding fashion in the Definitive Agreements to be
executed at a later date. Except as to paragraphs 2, 3, 4, 5, 6 and 7
hereof, this letter does not create and is not intended to create a
binding and enforceable contract between the parties and may not be
relied upon by either party as the basis for a contract by estoppel or
otherwise, but rather evidences a non-binding expression of good faith
understanding to endeavor, without obligation, to negotiate mutually
agreeable Definitive Agreements.
9. NO OTHER AGREEMENTS. Subject to the foregoing, there are no other
written or oral agreements or understandings between the parties
hereto, other than the confidentiality agreements contained in that
certain letter, dated July 13, 2000, between USD and IRG (the
"CONFIDENTIALITY LETTER"), which agreement and undertaking shall remain
in full force and effect between and among the parties despite the
execution of this Letter.
10. GOVERNING LAW. The rights and obligations set forth in this Letter
shall be governed by the laws of the State of Florida, without regard
to principles of conflicts of laws thereof.
11. SUCCESSOR AND ASSIGNS. This Letter and the rights and obligations of
USD and IRG shall not be assignable.
12. AMENDMENT. This Letter may only be amended or modified by a writing
executed by USD and IRG.
13. IRG BOARD OF MANAGERS APPROVAL. By IRG's execution of this letter, IRG
is representing and warranting to USD that this Letter and the
Transaction contemplated hereby have been approved by the IRG Board of
Managers.
[signature page follows]
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If the terms and conditions of this Letter are in accord with your
understanding, please sign and return a counterpart of this Letter no later than
5:00 p.m. (EST) January 12th, 2001, after which date, if not returned, this
Letter shall be null and void.
Very truly yours,
US DIAGNOSTIC, INC.
By: /s/ David McIntosh
-----------------------------
David McIntosh, Director
Acknowledged and agreed to
this 12 day of January, 2001.
INTERNATIONAL RADIOLOGY GROUP, LLC
By: /s/ J.R. Holland, Jr.
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Name: J.R. Holland, Jr.
----------------------------
Title: Manager
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[Signature Page to Letter of Understanding]
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ATTACHMENT A
TERM SHEET
TRANSACTION STRUCTURE: While we presently intend for the transaction to be
a merger of IRG with and into USD, or a wholly owned
subsidiary of USD, the final structure will depend on
the mutual agreement of USD and IRG after a review of
the tax, accounting and legal issues. For purposes of
this letter the transaction is hereinafter referred
to as the "MERGER." The surviving party in the Merger
is hereinafter referred to as the "ISSUER," and the
common stock of the Issuer is hereinafter referred to
as "MERGER SHARES."
MERGER CONSIDERATION: As of September 30, 2000 USD had 22,710,033 shares of
common stock issued and outstanding and 2,949,946
shares of common stock subject to outstanding options
and warrants. The members of IRG (including, without
limitation the holders of Class A, Class B, Class B-1
(if any) and Class C shares) and holders of options
for IRG shares the ("Members") would be entitled to
aggregate consideration as a result of the Merger
equal to Merger Shares representing 49% of the issued
outstanding Merger Shares on a fully-diluted post
merger basis. In addition, the Members would receive
$10 million in additional consideration consisting of
$5 million in cash and $5 million in a Subordinated
Unsecured Debenture according to the terms below.
Such consideration is subject to change based upon
the completion of due diligence by both parties.
SUBORDINATED UNSECURED
DEBENTURE: Amount $5 million
Term 5 Year
Interest 8% per annum
Amortization Year 1: $0
Year 2: $0
Year 3: $1 million
Year 4: $2 million
Year 5: $2 million
ISSUER BOARD OF DIRECTORS: The composition of the Issuer's initial Board of
Directors shall be agreed upon as part of the
Definitive Agreements, PROVIDED, HOWEVER, the
nominees of IRG shall represent a majority of the
initial Board of Directors.
MANAGEMENT: The officers and management team of the Issuer shall
be agreed upon between USD and IRG as part of the
Definitive Agreements.
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STOCK OPTIONS: Prior to mailing the Proxy/Prospectus USD and IRG
shall agree upon the available post Merger stock
option pool and the guidelines with respect to the
granting of options.
VOTING AGREEMENTS: Prior to mailing the Proxy/Prospectus, IRG shall have
obtained and delivered to USD the agreement of
holders of its Class A voting shares representing at
least 51% of the entire class and all of the holders
of its Class C shares to vote for the Merger.
REPRESENTATIONS,
WARRANTIES,
COVENANTS AND
INDEMNIFICATION
PROVISIONS: The representations, warranties, covenants and
indemnification set forth in the Definitive
Agreements shall be customary to transactions of this
nature and shall be mutually agreed upon by the
parties.
OTHER TERMS AND
CONDITIONS: This Term Sheet does not purport to be all-inclusive.
Definitive Agreements will include other matters that
are not covered by or made clear herein and are
subject to the mutual agreement of the parities.
THIS SUMMARY OF TERMS AND CONDITIONS IS ATTACHMENT A
TO LETTER OF UNDERSTANDING DATED JANUARY 8, 2001 AND
IS NOT TO BE CONSIDERED SEPARATELY FROM THE LETTER OF
UNDERSTANDING. EXCEPT AS SET OUT IN THE LETTER OF
UNDERSTANDING, THE LETTER OF UNDERSTANDING AND THIS
ATTACHMENT A ARE NOT INTENDED TO BE COMPLETE AND
ALL-INCLUSIVE AS TO THE TERMS OF THE PROPOSED
TRANSACTION, NOR DOES THE LETTER OF UNDERSTANDING OR
THIS ATTACHMENT A CREATE A BINDING AND ENFORCEABLE
CONTRACT BETWEEN OR COMMITMENT OR OFFER TO ANY PARTY
OR PARTIES.
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