VRAD Virtual Radiologic (MM)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.      )

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VIRTUAL RADIOLOGIC CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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VIRTUAL RADIOLOGIC CORPORATION
11995 Singletree Lane, Suite 500
Eden Prairie MN 55344
(952) 595-1100

 

June 18, 2010

 

Dear Fellow Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Virtual Radiologic Corporation, which we refer to as Virtual Radiologic, to be held on Monday, July 12, 2010, at 9:30 a.m. (Central Time), at our headquarters, located at 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344.

 

At the special meeting, you will be asked to consider and vote upon the approval and adoption of the Agreement and Plan of Merger, dated May 16, 2010, by and among Viking Holdings LLC, which we refer to as Parent, Viking Acquisition Corporation, which we refer to as Merger Sub, and Virtual Radiologic. Pursuant to the merger agreement, Merger Sub will be merged with and into Virtual Radiologic, with Virtual Radiologic surviving as a wholly owned subsidiary of Parent. Parent and Merger Sub are both controlled by investment funds affiliated with Providence Equity Partners L.L.C., a private equity firm.

 

Assuming the holders of a majority of our issued and outstanding shares of common stock approve and adopt the merger agreement and the merger is completed, upon completion of the merger, you will be entitled to receive $17.25 in cash, without interest, for each share of Virtual Radiologic common stock that you own, unless you have sought and properly perfected your appraisal rights under Delaware law. The $17.25 in cash per share to be paid pursuant to the merger agreement constitutes a premium of approximately 41.7% and 54.9% over the average closing price of our common stock for the 30 and 90 calendar days, respectively, prior to the announcement of the merger. After the merger, you will no longer have an equity interest in Virtual Radiologic and will not participate in any potential future earnings and growth of Virtual Radiologic.

 

Our Board of Directors has adopted a resolution unanimously approving the merger agreement. Our Board of Directors has unanimously determined that the merger agreement and the merger are advisable, fair to and in the best interest of Virtual Radiologic and our stockholders. The Board of Directors unanimously recommends that you vote “FOR” the approval and adoption of the merger agreement. In arriving at its recommendation, the Board of Directors carefully considered a number of factors described in the accompanying proxy statement. The merger agreement and the merger are described in the accompanying proxy statement. A copy of the merger agreement is attached as Appendix A to the accompanying proxy statement. We urge you to read carefully the accompanying proxy statement, including the appendices.

 

Your vote is very important, regardless of the number of shares of our common stock you own.   Under Delaware law, the merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting vote for the approval and adoption of the merger agreement. If you do not vote, it will have the same effect as a vote against the approval and adoption of the merger agreement.

 

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return promptly the enclosed proxy card. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee. Voting in advance will not limit your right to vote in person if you wish to attend the special meeting and vote in person. The proxy statement will be mailed to our stockholders on or about June 18, 2010.

 

Sincerely,

 

 

Robert C. Kill

Chairman of the Board, President and
Chief Executive Officer

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE PROPOSED MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

VIRTUAL RADIOLOGIC CORPORATION
11995 Singletree Lane, Suite 500
Eden Prairie MN 55344

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD JULY 12, 2010

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Virtual Radiologic Corporation, which we refer to as Virtual Radiologic, will be held on Monday, July 12, 2010, at 9:30 a.m. (Central Time), at our headquarters, located at 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344, for the following purposes:

 

1.  Approval and Adoption of the Merger Agreement.   To consider and vote upon the approval and adoption of the Agreement and Plan of Merger, dated as of May 16, 2010, by and among Viking Holdings LLC, Viking Acquisition Corporation and Virtual Radiologic Corporation (the “Proposal”). Pursuant to the merger agreement, Virtual Radiologic will become an indirect subsidiary of investment funds affiliated with Providence Equity Partners L.L.C., and the holders of Virtual Radiologic common stock will be entitled to receive $17.25 in cash, without interest, per share of Virtual Radiologic common stock held by them at the effective time of the merger;

 

2.  Adjournment and Postponement of the Special Meeting.   To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies in support of the Proposal if there are insufficient votes at the time of the meeting to approve and adopt the merger agreement; and

 

3.  Other Matters.   To consider and vote upon any other matter that may properly come before the special meeting or any adjournment thereof.

 

Your vote is very important, regardless of the number of shares of our common stock you own. Under Delaware law, the merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock entitled to vote at the special meeting vote for the approval and adoption of the merger agreement. Even if you plan to attend the meeting in person, we request that you complete, sign, date and return the enclosed proxy card in the envelope provided and thereby ensure that your shares will be represented at the meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the approval and adoption of the merger agreement and “FOR” the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

If you fail to return your proxy or vote in person or abstain from voting, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have the same effect as a vote against the approval and adoption of the merger agreement. If you are a stockholder of record and wish to vote in person at the special meeting, you may withdraw your proxy and vote in person.

 

Stockholders of Virtual Radiologic who do not vote in favor of the approval and adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares if the merger is completed, but only if they exercise their appraisal rights prior to the vote on the merger agreement and comply with all procedural requirements of Delaware law, which are summarized in the accompanying proxy statement under the caption “The Merger — Appraisal Rights” beginning on page 34.

 

The merger agreement and the merger are described in the accompanying proxy statement and a copy of the merger agreement is included as Appendix A to the proxy statement.

 

By order of the Board of Directors,

 

 

Robert C. Kill

Chairman of the Board, President and Chief Executive Officer

 

June 18, 2010

 

TABLE OF CONTENTS

 

 

Appendices

 

 

VIRTUAL RADIOLOGIC CORPORATION
11995 Singletree Lane, Suite 500
Eden Prairie MN 55344

 

PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 12, 2010

 

We are providing these proxy materials to you in connection with the solicitation of proxies by the Board of Directors of Virtual Radiologic Corporation for a special meeting of stockholders to be held on July 12, 2010 and for any adjournment or postponement thereof. This proxy statement provides information that you should read before you vote on the proposals that will be presented to you at the special meeting. The special meeting will be held on Monday, July 12, 2010, at 9:30 a.m. (Central Time), at our headquarters, located at 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344.

 

In this proxy statement, we refer to Virtual Radiologic Corporation as “Virtual Radiologic”, “the Company”, “we” or “us.” We refer to Providence Equity Partners L.L.C. and/or certain of its affiliates, as appropriate, as “Providence”, Viking Holdings LLC as “Parent”, and Viking Acquisition Corporation as “Merger Sub”.

 

This proxy statement and a proxy card are first being mailed on or about June 18, 2010 to people who owned shares of Virtual Radiologic common stock as of the close of business on June 4, 2010.

 

This summary term sheet presents selected information in this proxy statement relating to the merger and may not contain all of the information that is important to you. To understand the merger and the transactions contemplated by the merger agreement fully, you should carefully read this entire document as well as the Agreement and Plan of Merger attached hereto as Appendix A, which we refer to as the merger agreement. For instructions on obtaining more information, see “Where You Can Find More Information” on page 56. We have included page references to direct you to a more complete description of the topics presented in this summary.

 

Date, Time and Place.   The special meeting of Virtual Radiologic stockholders will be held on Monday, July 12, 2010, at 9:30 a.m. (Central Time), at our headquarters, located at 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344.

 

Matters to be Considered.   At the special meeting, you will be asked to approve a proposal to approve and adopt the merger agreement. You may also be asked to vote to adjourn the special meeting, if necessary, to solicit additional proxies in support of the proposal to approve and adopt the merger agreement.

 

Record Date and Quorum.   You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on June 4, 2010, which we have set as the record date for the special meeting. The presence, in person or by proxy, of holders of record of a majority of the issued and outstanding shares of our stock entitled to vote on the matters to be presented at the special meeting will constitute a quorum.

 

Required Votes.   Approval and adoption of the merger agreement requires the affirmative vote of a majority of the outstanding shares entitled to vote on the merger. On May 16, 2010, certain of our stockholders executed voting agreements pursuant to which they have agreed, among other things, to vote their shares of Virtual Radiologic common stock in favor of approval and adoption of the merger agreement. As of the date of the voting agreements, such stockholders collectively held approximately 31.3% of our outstanding common stock.

 

Voting.   Even if you plan to attend the meeting in person, we request that you complete, sign, date and return the enclosed proxy card and thereby ensure that your shares will be represented at the meeting if you are unable to attend. If your shares are held in “street name” by a bank or brokerage firm, your bank or brokerage firm forwarded these proxy materials, as well as a voting instruction card, to you. Please follow the instructions on the voting instruction card to vote your shares.

 

Virtual Radiologic Corporation , or Virtual Radiologic, is a national radiology practice working in partnership with local radiologists and hospitals to optimize radiology’s pivotal role in patient care. Virtual Radiologic’s more than 140 radiologists serve 1,200+ facilities (21% of U.S. hospitals), reading 2.7 million studies annually. Delivering access to extensive subspecialty coverage, Virtual Radiologic contributes to improved quality of patient care. And with its next-generation technology, Virtual Radiologic enhances productivity, helping to lower the overall cost of care while expediting time to diagnosis and treatment.

 

Viking Holdings LLC , or Parent, was formed solely in anticipation of the merger by entities affiliated with Providence Equity Partners L.L.C., or Providence, a leading global private equity firm specializing in investments in media, entertainment, communications and information companies around the world. Upon completion of the merger, Virtual Radiologic will be a direct wholly owned subsidiary of Parent.

 

Viking Acquisition Corporation , or Merger Sub, was formed by Parent solely for the purpose of acquiring Virtual Radiologic. Upon completion of the merger, Merger Sub will cease to exist.

 

If the merger is completed, Merger Sub will be merged with and into Virtual Radiologic, with Virtual Radiologic continuing as the surviving corporation.

 

If the merger is completed, the following will occur:

 

 

Our Board of Directors determined that the merger is substantively and procedurally fair to our stockholders. In reaching this conclusion, our Board of Directors considered, among other factors, the following:

 

 

 

 

 

Our Board of Directors unanimously approved the merger agreement and determined that it is advisable, fair to and in the best interest of Virtual Radiologic and its stockholders. Our Board of Directors unanimously recommends that you vote “FOR” the approval and adoption of the merger agreement.

 

Goldman, Sachs & Co., which we refer to in this proxy statement as Goldman Sachs, delivered its opinion to the Board of Directors of Virtual Radiologic that, as of May 16, 2010 and based upon and subject to the factors and

assumptions set forth therein, the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of the outstanding shares of Virtual Radiologic’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated May 16, 2010, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix B. Goldman Sachs provided its opinion for the information and assistance of the Board of Directors of Virtual Radiologic in connection with its consideration of the merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of Virtual Radiologic’s common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between Virtual Radiologic and Goldman Sachs, Virtual Radiologic has agreed to pay Goldman Sachs a transaction fee, all of which is contingent upon consummation of the merger.

 

Our directors and officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally. These interests include the acceleration and “cash-out” of options, the removal of restrictions on restricted stock, and the right to continued indemnification and insurance coverage by the surviving corporation after the merger. In addition, it is expected that executive officers of Virtual Radiologic immediately prior to the merger will continue to serve as executive officers of the surviving corporation following completion of the merger, and such officers may be entitled to purchase equity in Parent and to participate in equity incentive plans that Parent or the surviving corporation may sponsor. Moreover, certain of our directors and officers may be appointed to serve on the Board of Directors of Parent or the surviving corporation following completion of the merger.

 

Pursuant to Section 262 of the General Corporation Law of the State of Delaware, if you do not vote in favor of the approval and adoption of the merger agreement and you instead follow the appropriate procedures for demanding and perfecting appraisal rights as described on pages 34 through 37 and in Appendix C, you will receive a cash payment for the “fair value” of your shares of Virtual Radiologic common stock, as determined by a Delaware Court of Chancery, instead of the $17.25 per share merger consideration to be received by our stockholders pursuant to the merger agreement. The “fair value” of Virtual Radiologic common stock may be more than, less than or equal to the $17.25 merger consideration you would have received for each of your shares pursuant to the merger agreement if you had not exercised your appraisal rights.

 

Generally, in order to exercise appraisal rights, among other things:

 

 

Abstaining or voting against the approval and adoption of the merger agreement will not preserve your appraisal rights under Delaware law. Appendix C to this proxy statement contains the Delaware statute relating to your appraisal rights. If you want to exercise your appraisal rights, please read and carefully follow the procedures described on pages 34 through 37 and in Appendix C. Failure to take all of the steps required under Delaware law may result in the loss of your appraisal rights.

 

The receipt of $17.25 in cash by our stockholders for each outstanding share of our common stock will generally be a taxable transaction for U.S. federal income tax purposes. Each of our stockholders generally will recognize taxable gain or loss, measured by the difference, if any, between the stockholder’s amount realized in the merger of $17.25 per share, and the tax basis of each share of our common stock owned by such stockholder.

 

Common Stock.   At the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held by Parent or Merger Sub and stockholders who have perfected and not withdrawn a demand for appraisal rights under Delaware law) will be automatically cancelled and converted into the right to receive $17.25 in cash, without interest.

 

Stock Options.   Prior to the effective time of the merger, each outstanding stock option to purchase our common stock will vest in full. Each stock option to purchase our common stock outstanding at the effective time of the merger will be cancelled and converted into the right to receive an amount in cash equal to (i) the number of shares subject to such option multiplied by (ii) the excess (if any) of $17.25 over the exercise price per share of such option. If the exercise price per share of an option to acquire our common stock equals or exceeds the $17.25 per share merger consideration, such option will be cancelled without payment.

 

Restricted Stock.   All restrictions on restricted stock awards will lapse immediately prior to the effective time of the merger. At the effective time, each restricted share of our common stock will be cancelled and converted into the right to receive $17.25 per share in cash, without interest and less any applicable withholding taxes.

 

The merger agreement prohibits us from soliciting, initiating or encouraging other acquisition proposals or providing non-public information to third parties with respect to any acquisition proposal. We have agreed to immediately cease any and all existing activities, discussions or negotiations with third parties conducted prior to the date of the merger agreement with respect to any acquisition proposal. If we receive an unsolicited acquisition proposal, we must promptly notify Parent of the proposal’s material terms.

 

We may, however, provide confidential information to a third party in response to an unsolicited acquisition proposal and engage in discussions and negotiations with such third party if (i) our Board of Directors determines in good faith that such action is necessary to comply with its fiduciary duties, (ii) our Board of Directors determines the acquisition proposal is, or would reasonably be expected to lead to, a superior proposal and (iii) prior to taking such action, we execute a confidentiality agreement with such third party with terms no less favorable than those contained in our confidentiality agreement with Parent.

 

Investment funds affiliated with Providence have agreed to guarantee the following obligations of Parent and Merger Sub pursuant to the terms and conditions, and subject to the limitations, set forth in the guarantee and the merger agreement:

 

 

The guarantee is limited to the aggregate consideration to be paid in connection with the merger.

 

Completion of the merger depends upon the parties meeting or waiving a number of conditions, including the following:

 

 

 

 

Under certain circumstances, the merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger, whether before or after approval and adoption of the merger agreement by our stockholders. If the merger agreement is terminated, there will be no liability, other than for knowing and material breaches of the merger agreement, on the part of Virtual Radiologic, Merger Sub or Parent, except for the payment of the termination fee and expenses as described below and in the section entitled “The Merger Agreement — Termination Fee and Expenses” beginning on page 50.

 

Termination Fee Payable by Virtual Radiologic.   We are obligated to pay Parent a termination fee of $9.0 million if Virtual Radiologic terminates the merger agreement in order to accept a superior acquisition proposal. We also are obligated to pay Parent a termination fee of $9.0 million if any of the following occur and within one year after termination of the merger agreement a third party acquisition proposal is consummated or an agreement is entered into with respect to a proposal with a third party:

 

 

Expense Reimbursement.   We are obligated to reimburse Parent for up to $2.4 million of its documented, out-of-pocket expenses in the event that the merger agreement is terminated because our stockholders fail to approve and adopt the merger agreement or because the merger agreement is terminated by Parent because we have breached any representation or warranty, or any such representation or warranty of shall have become untrue and incapable of being cured prior to the effective time of the merger, or any breach of any covenant or agreement of ours, such that a condition to our obligation to close would not be satisfied, and such breach or condition is not curable or, if curable, shall not have been remedied within 30 days after our receipt of written notice from Parent.

 

Eduard Michel, M.D., Ph.D., a director and the Chief Medical Officer of Virtual Radiologic, and Generation Capital Partners VRC LP, a Delaware limited partnership, Generation Members’ Fund II LP, a Delaware limited partnership, and Generation Capital Partners II LP, a Delaware limited partnership (which we refer to collectively in this proxy statement as the Generation Funds) each entered into a voting and proxy agreement pursuant to which

Dr. Michel and the Generation Funds agreed to vote in favor of or execute a written consent for the approval and adoption of the merger agreement and the other transactions contemplated by the merger agreement, and to vote against, among other things, any other acquisition proposals. Further, Dr. Michel and the Generation Funds irrevocably appointed Parent as their respective agent, attorney and proxy to vote their shares as set forth above. In addition, Dr. Michel and the Generation Funds each agreed not to directly or indirectly transfer their respective shares of our common stock during the term of the voting and proxy agreements, subject to certain exceptions. Dr. Michel and the Generation Funds collectively held approximately 31.3% of our total shares outstanding as of the date of the voting agreements. Further, the voting and proxy agreements contain a “no-shop” restriction on the ability of Dr. Michel and the Generation Funds to solicit alternative acquisition proposals from, provide information to, or engage in discussions with, third parties. In addition, the other directors and executive officers of Virtual Radiologic who collectively hold approximately 1.7% of our outstanding common stock as of the date of this proxy statement have informed us that they intend to vote all of their shares of Virtual Radiologic common stock “FOR” the approval and adoption of the merger agreement and “FOR” any adjournment of the special meeting, if necessary to solicit additional proxies.

 

Generation Capital Partners VRC LP and Generation Capital Partners II LP subsequently transferred all of their shares of our common stock to certain affiliates of the Generation Funds that have entered into an amended and restated voting and proxy agreement pursuant to which they have agreed to be subject to all of the terms of the voting and proxy agreement with the Generation Funds. All references to the Generation Funds in this proxy statement include these parties and all references to the voting and proxy agreement with the Generation Funds are to the agreement as amended and restated.

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting and the merger, and other matters to be considered by Virtual Radiologic’s stockholders at the special meeting. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to in this proxy statement.

 

 

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain not only historical information, but also forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our expectations or beliefs concerning future events, including the timing of the merger and other information relating to the merger. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates” and similar expressions are intended to identify forward-looking statements. You should read statements that contain these words carefully. They discuss our future expectations or state other forward-looking information and may involve known and unknown risks over which we have no control. Those risks include, without limitation:

 

 

We believe that the assumptions on which the forward-looking statements in this proxy statement are based are reasonable. However, we cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. In light of significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on such statements. We undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements in this proxy statement to reflect events or circumstances after the date of this proxy statement or to update reasons why actual results could differ from those anticipated in forward-looking statements in this proxy statement. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this document.

 

This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by our Board of Directors for use at the special meeting of our stockholders to be held on Monday, July 12, 2010, at 9:30 a.m. (Central Time), at our headquarters, located at 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344, or at any postponement or adjournment thereof. The purpose of the special meeting is for our stockholders to consider and vote upon the approval and adoption of the merger agreement, to approve the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies, and to transact such other business that may properly come before the special meeting or any adjournment or postponement thereof. Our stockholders must approve and adopt the merger agreement for the merger to occur. If our stockholders do not approve and adopt the merger agreement, the merger will not occur. A copy of the merger agreement is attached to this proxy statement as Appendix A. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about June 18, 2010.

 

The holders of record of our common stock as of the close of business on June 4, 2010, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were 16,359,359 shares of our common stock outstanding. Each share of our common stock is entitled to one vote on each matter to be voted on at the special meeting.

 

The holders of a majority of the outstanding shares of our common stock at the close of business on the record date represented in person or by proxy will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Once a share is represented at the special meeting, it will be counted for the purpose of determining whether a quorum is present at the special meeting and any postponement or adjournment of the special meeting. However, if a new record date is set for the adjourned or postponed special meeting, then a new quorum must be established.

 

Under Delaware law, the merger cannot be completed unless the holders of a majority of the outstanding shares of our common stock entitled to vote at the close of business on the record date for the special meeting vote for the approval and adoption of the merger agreement. Each outstanding share of our common stock is entitled to one vote.

 

Approval of the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of holders representing a majority of the shares present in person or by proxy at the special meeting.

 

Dr. Eduard Michel, M.D., Ph.D., a director and Chief Medical Officer of Virtual Radiologic, and the Generation Funds each entered into a voting and proxy agreement pursuant to which Dr. Michel and the Generation Funds agreed to vote in favor of or execute a written consent for the approval and adoption of the merger agreement and the other transactions contemplated by the merger agreement, and to vote against, among other things, any other acquisition proposals. Dr. Michel and the Generation Funds collectively held approximately 31.3% of the Company’s total shares outstanding as of the date of the voting agreements. In addition, the other directors and executive officers of Virtual Radiologic who collectively hold approximately 1.7% of our outstanding common stock as of the date of this proxy statement have informed us that they intend to vote all of their shares of Virtual Radiologic common stock “FOR” the approval and adoption of the merger agreement and “FOR” any adjournment of the special meeting, if necessary to solicit additional proxies.

 

If you are a stockholder of record and submit a proxy by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate on your proxy card. If no instructions are indicated on your proxy card, your shares of our common stock will be voted “FOR” the approval and adoption of the merger agreement and

“FOR” any adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies.

 

The persons named as proxies may propose and vote for one or more postponements or adjournments of the special meeting to solicit additional proxies.

 

If your shares are held in “street name” by your broker, you should instruct your broker how to vote your shares using the instructions provided by your broker. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker and they can give you directions on how to vote your shares. Brokers who hold shares in “street name” for customers may not exercise their voting discretion with respect to the approval of non-routine matters such as the approval and adoption of the merger agreement. Therefore, absent specific instructions from the beneficial owner of the shares, brokers are not empowered to vote the shares with respect to the approval and adoption of the merger agreement (i.e., “broker non-votes”). Shares of our common stock held by persons attending the special meeting but not voting, or shares for which we have received proxies with respect to which holders have abstained from voting, will be considered abstentions. Abstentions and properly executed broker non-votes, if any, will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining whether a quorum exists but will have the same effect as a vote “AGAINST” the approval and adoption of the merger agreement. Abstentions also will have the same effect as a vote “AGAINST” any adjournment or postponement of the special meeting, but broker non-votes will have no effect with respect to the adjournment or postponement proposal.

 

You may revoke your proxy before the vote is taken at the special meeting. To revoke your proxy, you must (i) advise our Corporate Secretary of the revocation in writing, which must be received by our Corporate Secretary before the time of the special meeting; (ii) submit by mail a new proxy card dated after the date of the proxy you wish to revoke, which we must receive before the time of the special meeting; or (iii) attend the special meeting and vote your shares in person. Attendance at the special meeting will not by itself constitute revocation of a proxy.

 

Please note that if you hold your shares in “street name” and you have instructed your broker to vote your shares, the options for revoking your proxy described in the paragraph above do not apply and instead you must follow the directions provided by your broker to change your vote.

 

We do not expect that any matter other than the approval and adoption of the merger agreement (and approval of the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies) will be brought before the special meeting. The persons appointed as proxies will have discretionary authority to vote upon other business unknown by us a reasonable time prior to the solicitation of proxies, if any, that properly comes before the special meeting and any adjournments or postponements of the special meeting.

 

Although it is not expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Whether or not a quorum exists, the holders of a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote at the meeting may adjourn the special meeting. If no instructions are indicated on your proxy card, your shares of our common stock will be voted “FOR” any adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow our stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

We will pay the cost of this proxy solicitation. In addition to soliciting proxies by mail, our directors, officers and employees may solicit proxies personally and by telephone, facsimile or other electronic means of communication. These persons will not receive additional or special compensation for such solicitation services. Providence, directly or through one or more affiliates or representatives, may, at its own cost, also make additional solicitations by mail, telephone, facsimile or other contact in connection with the merger.

 

We made arrangements with Georgeson Inc. to assist in our solicitation of proxies for the special meeting and in communicating with stockholders regarding the merger agreement and the merger. We agreed to pay Georgeson Inc. a fee of $7,500 plus reasonable out-of-pocket expenses for proxy solicitation services.

 

We will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

 

Virtual Radiologic Corporation is a Delaware corporation that is a national radiology practice working in partnership with local radiologists and hospitals to optimize radiology’s pivotal role in patient care. Virtual Radiologic’s more than 140 radiologists serve 1,200+ facilities (21% of U.S. hospitals), reading 2.7 million studies annually. Delivering access to extensive subspecialty coverage, Virtual Radiologic contributes to improved quality of patient care. And with its next-generation technology, Virtual Radiologic enhances productivity, helping to lower the overall cost of care while expediting time to diagnosis and treatment.

 

Virtual Radiologic’s principal executive offices are located at 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344, and its telephone number is (952) 595-1100.

 

Viking Holdings LLC, or Parent, is a Delaware limited liability company formed solely in anticipation of the merger by investment funds affiliated with Providence Equity Partners L.L.C., a leading global private equity firm specializing in investments in media, entertainment, communications and information services companies around the world. Parent currently has de minimis assets and has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

 

Parent’s principal executive offices are located at 50 Kennedy Plaza, 18th Floor, Providence, Rhode Island 02903, and its telephone number is (401) 751-1700.

 

Viking Acquisition Corporation, or Merger Sub, is a Delaware corporation formed by Parent solely for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger. Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Merger Sub will merge with and into Virtual Radiologic, with Virtual Radiologic continuing as the surviving corporation. Merger Sub currently has de minimis assets and has not conducted any activities to date other than activities incidental to its formation and in connection with the transactions contemplated by the merger agreement.

 

Merger Sub’s principal executive offices are located at 50 Kennedy Plaza, 18th Floor, Providence, Rhode Island 02903, and its telephone number is (401) 751-1700.

 

If the merger is completed, all of the equity interests in Virtual Radiologic will be owned by Parent, which immediately following the effective time of the merger will be owned directly or indirectly by investment funds affiliated with Providence.

 

The following chronology summarizes the key meetings and events that led to the signing of the merger agreement. During this period, representatives of Virtual Radiologic held many conversations, both by telephone and in person, about possible strategic and restructuring alternatives, including the sale of the company, capital raising and other investment transactions. The following chronology covers only the key events that led to the signing of the merger agreement, and does not purport to catalogue every conversation among representatives of the company or between representatives of the company and other parties.

 

Our Board of Directors has periodically reviewed strategic and business alternatives to maximize value for our stockholders as a part of the Board’s general oversight of our business and strategy. These reviews have included consideration of possible business combination opportunities, securities offerings, and the potential sale or recapitalization of the company. As a part of this consideration, the company has from time to time engaged in preliminary discussions with other companies regarding potential strategic transactions.

 

On August 20, 2009, our Board of Directors held a regularly scheduled meeting at which all directors other than Mr. David L. Schlotterbeck were present. At this meeting, Goldman Sachs was invited to present information regarding strategic alternatives. Representatives of Goldman Sachs provided our Board of Directors with information regarding credit, equity and merger and acquisition market conditions and potential strategic alternatives available to us, including organic growth pursuant to management plans, strategic acquisition alternatives, conducting a secondary offering, repurchasing equity, or engaging in a sale or recapitalization as a means of providing value to our stockholders.

 

On December 16, 2009, our Board of Directors held a regularly scheduled meeting attended by all directors. At this meeting, the directors reviewed our current performance and market environment and discussed potential strategic alternatives, including continued pursuit of our business and operational strategy, pursuit of a transformational business combination, or consideration of a sale or recapitalization of our company as a means of maximizing value to our stockholders. Mr. Michael J. Kolar, our General Counsel and Secretary, and representatives from Oppenheimer Wolff & Donnelly LLP, our outside legal counsel, reviewed various legal matters related to the Board’s consideration of strategic alternatives. At the request of the Board of Directors, representatives from Goldman Sachs provided their perspectives on the trading history of our common stock and the potential strategic alternatives available to the company, including a review of various potential valuations under such alternatives.

 

During this discussion, Mr. Mark E. Jennings, a member of our Board of Directors and the Managing Director and co-founder of Generation Partners LLC, disclosed that Generation Partners, its principals or affiliates, might potentially have an interest in investing in any potential transaction involving the sale of the company, if the possibility was presented.

 

After considering the information presented, our Board of Directors authorized management, with the assistance of legal counsel and investment banking advisors, to begin to explore the viability of a transaction involving the sale or recapitalization of our company as a means of maximizing value to our stockholders. Based upon his prior experience with the sale of a public company, Mr. Brian F. Sullivan, a member of our Board of Directors, was directed to work with management to identify appropriate investment banking resources and to negotiate terms of engagement to be presented to our Board of Directors for consideration.

 

From December 16, 2009 to January 12, 2010, Mr. Sullivan, Mr. Robert C. Kill, our Chairman of the Board, President and Chief Executive Officer, and Mr. Kolar held discussions with several investment banking firms and negotiated terms of an engagement with representatives of Goldman Sachs.

On January 12, 2010, our Board of Directors retained Goldman Sachs as its financial advisor in exploring strategic alternatives.

 

From January 12 to February 5, 2010, the company worked with representatives of Goldman Sachs to develop initial offering materials and to identify potential buyers to be contacted in order to explore a potential strategic transaction. Based upon prior interest in the company expressed by Providence, Providence was included in the list of potential buyers to contact, along with three other potential financial and two other potential strategic buyers who had similarly expressed interest in the company in the past.

 

Beginning on February 4, 2010 and continuing to March 10, 2010 and acting at the instruction of the Board of Directors, representatives of Goldman Sachs contacted 48 potential buyers, 13 of which were strategic buyers and 35 of which were financial buyers, identified by the Board of Directors, in consultation with Goldman Sachs, as companies in related health care services industries or financial sponsors that had expressed interest in investing in the health care services industry, and Mr. Kill contacted four potential buyers, three of which were financial buyers, including Providence, and one of which was a strategic buyer, all of which had previously expressed interest in a potential transaction involving the company in prior discussions with Mr. Kill.

 

From February 9, 2010 to March 10, 2010, the company negotiated and executed confidentiality and non-disclosure agreements with 30 parties, consisting of 28 financial buyers and two strategic buyers. The remaining 22 potential bidders initially contacted either failed to respond by March 10, 2010, or declined the opportunity to participate.

 

On February 11, 2010, our Board of Directors held a telephonic meeting with all members present. At this meeting, representatives of Goldman Sachs provided the Board with an update regarding our exploration of strategic alternatives. In light of the possibility that Generation Partners might participate in an acquisition of the company, the Board formed a transaction committee to oversee the exploration of potential strategic transaction process alternatives comprised of all members of our Board of Directors other than Mr. Jennings and Mr. Andrew P. Hertzmark, a partner of Generation Partners. The directors also discussed contacting another potential strategic buyer based upon the nature of its business, which we refer to as “Party A,” and concluded that it would invite Party A into the process as a bidder only after our Board of Directors reviewed the initial bids and determined that the company was still interested in exploring the sale of the company as a viable option in reviewing its strategic alternatives.

 

On February 19, 2010, acting at the instruction of the Board of Directors, representatives of Goldman Sachs distributed a confidential information memorandum to the parties that had executed a confidentiality agreement with the company through such date, and on February 23, 2010, Goldman Sachs distributed a process letter to such parties. The process letter requested interested parties to submit an initial indication of interest by March 11, 2010.

 

From February 26, 2010 to March 9, 2010, the company’s executive officers held management calls with interested parties who had executed a confidentiality agreement to provide more information regarding the company’s business, industry and strategic plans. Of the parties executing confidentiality agreements, 12 participated in these management calls, including Providence.

 

Between March 11 and March 14, 2010, 13 parties, all of which were financial buyers, submitted initial indications of interest with per share price ranges including amounts or ranges from $11.75 to $16.50.

 

On March 12, 2010, and prior to receipt of any initial bid information, Generation Partners informed Mr. Kill of its determination, based upon the status of Generation Partners’ current investment plans, that neither it nor its affiliates would participate in any acquisition of the company that might result from the current process.

 

On March 15, 2010, our transaction committee held a meeting with all members in attendance. At the beginning of the meeting, Mr. Kill reported the determination by Generation Partners that neither it nor its affiliates would participate in any acquisition of the company that might result from the current process. Based upon this information and following receipt of legal advice, Messrs. Jennings and Hertzmark were invited to join the meeting. Representatives of Goldman Sachs reviewed the status of our strategic alternative exploration efforts, including the indications of interest submitted prior to the meeting and indications of interest that were expected following the meeting. The committee directed management and Goldman Sachs to continue discussions with those parties

submitting indications of interest at or above $14.00 per share, the lowest common price encompassed by the bid prices and indicated price ranges of the six highest bids received as of that date, which were selected by the committee as indicative of higher levels of interest and potential value that might be achieved. The transaction committee members also discussed contacting Party A to determine its interest as a potential strategic bidder and authorized Mr. Kill to contact Party A to invite exploration of a potential acquisition.

 

Following the March 15, 2010 meeting, two additional potential financial buyers submitted initial indications of interest with ranges of $13.00 - $13.50 per share and $14.00 - $16.00 per share and one first round bidder increased the price included in its indication of interest to a range of $14.00 - $15.50. Acting at the instruction of the Board of Directors, representatives of Goldman Sachs provided feedback to all first round bidders regarding their level of interest. Based upon confirmation or modification of first round bids to $14.00 per share or higher, at the instruction of the Board of Directors, Goldman Sachs invited 10 parties, including Providence, to participate in the next round of the process.

 

On March 22, 2010, the company opened an electronic data room to facilitate due diligence investigations by parties participating in the process.

 

On March 28, 2010, the company entered into a confidentiality agreement with the additional financial buyer that had submitted the indication of interest on April 1, 2010 of $14.00 to $16.00 per share, and such buyer was invited to participate further in the process.

 

From March 24, 2010 to April 7, 2010, the company’s executive management conducted presentations to second round bidders in Minneapolis and New York City. A presentation to Providence took place in New York on April 6, 2010.

 

On March 31, 2010, Mr. Kill contacted the chief executive officer of Party A and indicated that the company was engaged in a process to explore strategic alternatives.

 

On April 5, 2010, acting at the instruction of the Board of Directors, representatives of Goldman Sachs informed second round bidders of the requirements for further bids, which were due on April 12, 2010.

 

On April 9, 2010, the company entered into a confidentiality and non-disclosure agreement with Party A. On April 12, 2010, Mr. Kill and the chief executive officer of Party A held a telephone conference, in which the chief executive officer of Party A informed Mr. Kill that his company would not participate in the company’s sale process.

 

Between April 12 and 13, 2010, seven parties submitted second round bids, with per share price ranges including amounts or ranges from $14.25 to $17.00.

 

On April 13, 2010, our Board of Directors held a meeting via teleconference at which all members were present. At this meeting, representatives of Goldman Sachs provided our Board of Directors with an update on the status of the exploration of strategic alternatives, and reviewed in detail the seven second round bids. Mr. Kill also reported on his conversations with the chief executive officer of Party A. The Board of Directors decided to invite a final bid by Providence (its second round bid had a range of $15 to $16 per share) and one other bidder (with a second round bid of $16 to $17 per share) and final bids by any other second round bidders that might subsequently raise their level of interest to or above $16 per share, the highest common price of the indicated price ranges of the two highest bids received as of that date. The bidders were told that final bids were due before the Board’s regularly scheduled meeting on May 13, 2010.

 

Following the April 13, 2010 board meeting, representatives of Goldman Sachs, acting at the instruction of the Board of Directors contacted Providence and the other high bidder and informed them of the process for the final round. On April 15, a third bidder raised its indication of interest to $16 to $16.50 per share and was also invited to participate in the final round.

 

From April 13, 2010 to May 10, 2010, management and representatives of Goldman Sachs held meetings and engaged in discussions with interested bidders and their representatives regarding final due diligence items, including meetings with Providence and its representatives in Minneapolis.

 

On April 20, 2010, a fourth bidder, which we refer to as “Party B,” communicated to Goldman Sachs its willingness to increase its bid to $16 per share, subject to participation by a second equity source. At the instruction

of the Board of Directors, Goldman Sachs gave permission to Party B to seek additional equity participation. As of May 11, 2010, Party B had not yet secured additional equity funding, and did not submit a final bid.

 

On April 27, 2010, the company added a proposed form of merger agreement to its electronic data room. Goldman Sachs informed the remaining bidders of the availability of this form of merger agreement.

 

On May 10, 2010, two of the final round bidders contacted Goldman Sachs to indicate that they would not bid in the final round, and Providence confirmed that it would deliver its final bid on May 11, 2010.

 

On May 11, 2010, Goldman Sachs received a final offer letter from Providence indicating a cash offer of $16.50 per share, providing that such offer was not subject to a financing contingency, stating that all necessary internal approvals had been obtained, and providing comments to our form of merger agreement. Providence included a proposed form of guarantee with its mark-up of the merger agreement. Goldman Sachs contacted the two final round parties other than Party B to determine their final bid status prior to the Board of Directors meeting scheduled for May 13, 2010.

 

On May 12, 2010, a package was delivered to each of our directors for the regularly scheduled meeting to be held on May 13, 2010. The board package included Providence’s final offer letter, a summary of the terms of the merger agreement, and a financial analysis prepared by Goldman Sachs of the Providence bid.

 

On May 12, 2010, Goldman Sachs contacted Providence to discuss the terms of its final offer, and specifically its $16.50 per share offer price, and to inform Providence that the Board of Directors would be considering final offers on May 13, 2010. Following this discussion, Providence indicated that it would consider submitting a revised offer prior to the board meeting on May 13, 2010. Mr. Kolar and representatives of Oppenheimer also contacted Weil, Gotshal & Manges LLP, legal counsel to Providence, to discuss certain aspects of the merger agreement markup submitted by Providence.

 

During the evening of May 12, 2010, Weil Gotshal provided a revised markup of the merger agreement for consideration at the board meeting. On the morning of May 13, representatives of Providence contacted representatives of Goldman Sachs to increase the Providence bid to $17.25 per share.

 

On May 13, 2010, our Board of Directors held a regularly scheduled board meeting at which all directors were in attendance, except Mr. Sullivan. Representatives of Goldman Sachs presented an overview of the process of considering the company’s strategic alternatives, the terms of the Providence offer letter, and the discussions with Providence on May 12, 2010, which had resulted in an increase in its offer from $16.50 to $17.25 per share. Following this discussion, representatives of Goldman Sachs told the Board of Directors that if a $17.25 per share proposal were presented to the Board, based on current information, Goldman Sachs expected to be able to deliver an opinion that, based upon and subject to the factors and assumptions to be set forth in its written opinion, the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of the shares of the company’s common stock would be fair from a financial point of view to such holders. Representatives of Oppenheimer then summarized the merger agreement, noting the revisions to the merger agreement proposed by Providence as part of its offer letter, as supplemented by the revised markup delivered the prior evening (copies of which were provided at the board meeting). The Board authorized management and Oppenheimer to continue negotiating with Providence on the merger agreement and related agreements and agreed to reconvene on May 16, 2010 to give final consideration to the proposed transaction with Providence.

 

During the course of discussions with Providence, Providence informed us that it would require discussions with Mr. Kill, prior to entering into the merger agreement, on potential terms of his employment, specifically, and other management generally, in connection with the transaction. Accordingly, as part of the continuing negotiations with Providence, the Board authorized our executive officers to engage separate legal counsel and to discuss the terms of their employment and potential equity interests following completion of the merger with Providence.

 

On the evening of May 13, 2010, Weil Gotshal delivered to Oppenheimer a form of voting agreement that it was requesting be signed by Generation Partners and Dr. Eduard Michel. From May 13 through May 15, 2010, management and Oppenheimer continued to negotiate the terms of the definitive merger agreement, guarantee and voting agreements with Weil Gotshal and representatives of Providence (and, in the case of the voting agreements, with Gibson, Dunn & Crutcher LLP, counsel to Generation Partners).

On May 14, 2010, Mr. Kill and representatives of Providence had initial discussions regarding proposed general terms of employment and equity based compensation arrangements for management following the merger, after which Providence provided Mr. Kill with a term sheet, outlining the proposal.

 

On May 15, 2010, materials were delivered to each of our directors for a special telephonic board meeting to be held in the afternoon of May 16, 2010 to formally consider the definitive merger agreement and related agreements. On May 16, 2010, prior to our board meeting, representatives of Goldman Sachs electronically delivered to company management a presentation of its financial analysis of the proposed transaction, which was then sent to our Board of Directors. A summary of Goldman Sachs’ analysis is set forth under “The Merger — Opinion of the Financial Advisor to Virtual Radiologic.”

 

On May 16, 2010, our Board of Directors held a special telephonic board meeting at which all directors were in attendance to consider the definitive merger agreement and the transactions contemplated by the merger agreement. At this meeting, representatives of Oppenheimer summarized the terms of the merger agreement and the directors’ legal duties and responsibilities in connection with the proposed merger. Representatives of Goldman Sachs discussed the financial aspects of the proposed merger and the procedures that it had undertaken to evaluate the merger from a financial point of view, and responded to questions from our board members. At the conclusion of its presentation, Goldman Sachs orally rendered its opinion to the Board of Directors, subsequently confirmed in writing, that as of May 16, 2010 and based upon and subject to the factors and assumptions set forth in the written opinion, the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of the shares of the Company’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders. Following a discussion of a number of issues related to the merger agreement and the positive and negative factors bearing on whether the merger should be approved, our Board of Directors unanimously (i) determined that the merger was advisable and that the terms of the merger and the merger agreement were fair to, and in the best interests of, our stockholders, (ii) recommended that our stockholders vote in favor of the adoption and approval of the merger agreement and the merger, and (iii) authorized management to execute the merger agreement and related agreements.

 

Following the Board meeting, Mr. Kill and representatives of Providence discussed Providence’s proposal for the terms of Mr. Kill’s continued employment and his and management’s equity interest in the surviving corporation following the merger. A summary of current status of the negotiations between Mr. Kill and Providence is set forth under “The Merger — Interests of Our Directors and Officers in the Merger — Management Discussions with Providence.”

 

On the evening of May 16, 2010, Parent and Merger Sub signed the merger agreement, the company signed the merger agreement and the guarantee, and Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P. signed the guarantee. On May 16, 2010, Parent and each of Dr. Eduard Michel and the Generation Funds signed voting agreements representing 31.3% of the company’s then outstanding voting stock.

 

On the morning of May 17, 2010, Providence and the company publicly announced the merger through the issuance of a press release and filing of a Current Report on Form 8-K by the company.

 

Our Board of Directors has determined that the merger agreement and the merger are fair to and in the best interest of Virtual Radiologic and our stockholders. Our Board of Directors unanimously approved the merger agreement, declared the merger agreement and the merger to be advisable and in the best interests of our stockholders, and resolved to recommend to Virtual Radiologic’s stockholders that the stockholders approve and adopt the merger agreement.

 

Our Board of Directors considered a number of factors in determining to recommend that our stockholders approve and adopt the merger agreement, as more fully described below. Our Board of Directors unanimously recommends that you vote “FOR” the approval and adoption of the merger agreement.

In reaching its conclusion regarding the fairness of the merger agreement to our stockholders, our Board of Directors considered the following factors, each of which our Board of Directors believes supported its conclusion, but which are not listed in any relative order of importance:

 

 

 

 

 

Our Board of Directors also considered a variety of potentially negative factors concerning the merger agreement and the merger, including the following factors, which are not listed in any relative order of importance:

 

 

 

 

The foregoing discussion addresses the material factors considered by our Board of Directors in their consideration of the merger agreement and the merger, but is not exhaustive and does not present all of the factors considered by our Board of Directors. In light of the number and variety of factors and the amount of information considered, our Board of Directors did not find it practicable to quantify, rank, or otherwise assign relative weights to the specific factors considered in reaching their determination. Individual members of our Board of Directors may have given different weights to different factors. The determination to approve the merger agreement was made after consideration of all of the relevant factors as a whole, and our Board of Directors based their ultimate decisions to approve the merger agreement and the merger on their business judgment that the potential risks and other negative aspects of the merger did not outweigh the benefits of the merger to our stockholders.

 

At the meeting of the Board of Directors of Virtual Radiologic on May 16, 2010, Goldman Sachs orally rendered its opinion to the Board of Directors of Virtual Radiologic, subsequently confirmed in writing, that as of May 16, 2010 and based upon and subject to the factors and assumptions set forth in the written opinion, the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of the shares of Virtual Radiologic’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

 

The full text of the written opinion of Goldman Sachs, dated May 16, 2010, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix B. Goldman Sachs provided its opinion for the information and assistance of the Board of Directors of Virtual Radiologic in connection with its consideration of the merger. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Virtual Radiologic’s common stock should vote with respect to the merger or any other matter.

 

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

 

Goldman Sachs also held discussions with members of the senior management of Virtual Radiologic regarding its assessment of the past and current business operations, financial condition and future prospects of Virtual Radiologic; reviewed the reported price and trading activity for the shares of Virtual Radiologic’s common stock; compared certain financial and stock market information for Virtual Radiologic with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the healthcare staffing and department outsourcing industries specifically and in other industries generally; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

 

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it and it did not assume any responsibility for any such information. In that regard, Goldman Sachs assumed with the consent of the Board of Directors of Virtual Radiologic that the Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Virtual Radiologic. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Virtual Radiologic or any of its subsidiaries, nor was any evaluation or appraisal of the assets or liabilities of Virtual Radiologic or any of its subsidiaries furnished to Goldman Sachs. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs has also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion did not address the underlying business decision of Virtual Radiologic to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to Virtual Radiologic; nor did it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view, as of the date of the opinion, of the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of the shares of Virtual Radiologic’s common stock pursuant to the merger agreement.

 

Goldman Sachs’ opinion did not express any view on, and did not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of Virtual Radiologic; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Virtual Radiologic, or class of such persons, in connection with the merger, whether relative to the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of shares of Virtual Radiologic’s common stock pursuant to the merger agreement or otherwise. Goldman Sachs did not express any opinion as to the impact of the merger on the solvency or viability of Virtual Radiologic or Parent or the ability of Virtual Radiologic or Parent to pay its obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary market and other conditions, as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. In addition, Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Board of Directors of Virtual Radiologic in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 14, 2010, which was the last business day prior to the date that Goldman Sachs delivered its opinion to the Board of Directors of Virtual Radiologic, and is not necessarily indicative of current market conditions.

 

Historical Stock Trading Analysis.   Goldman Sachs analyzed the $17.25 per share in cash to be paid to holders of Virtual Radiologic’s common stock pursuant to the merger agreement in relation to the historical trading price of Virtual Radiologic’s common stock (the “per share merger consideration”). This analysis indicated that the price per share to be paid to the holders of the shares of Virtual Radiologic’s common stock pursuant to the merger agreement represented:

 

 

Selected Companies Analysis.   Goldman Sachs reviewed and compared certain financial information for Virtual Radiologic to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the radiology, healthcare department outsourcing and healthcare staffing industries:

 

Radiology

 

 

 

Department Outsourcing

 

 

Staffing

 

 

Although none of the Selected Companies are directly comparable to Virtual Radiologic, the Selected Companies were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Virtual Radiologic. With respect to each of NightHawk, Alliance Healthcare, a composite average of the Staffing Companies, a composite average of the Department Outsourcing Companies and Virtual Radiologic, Goldman Sachs calculated the following multiples for the two-year period ended May 14, 2010:

 

 

For each point in time during the two-year period ended May 14, 2010, this EV to EBITDA multiple analysis, using data from FactSet Research Systems, compared the then-current EV as a multiple of then-current estimates of EBITDA for the forward fiscal year for Virtual Radiologic against the multiples of then-current EV to estimated EBITDA for the forward fiscal year for NightHawk, Alliance Healthcare, a composite average of the Staffing Companies and a composite average of the Department Outsourcing Companies. Median EBITDA estimates from the Institutional Brokers’ Estimate Service (“IBES”) were used for Virtual Radiologic and the Selected Companies. The results of this analysis are as follows:

 

 

For each point in time during the two-year period ended May 14, 2010, this P/E multiple analysis compared the then-current closing price per share as a multiple of then-current estimates of earnings per share for Virtual Radiologic against the then-current P/E multiples for NightHawk, Alliance Healthcare, a composite average of the Staffing Companies and a composite average of the Department Outsourcing Companies. Median earnings

estimates from IBES were used for Virtual Radiologic and the Selected Companies. The results of this analysis are as follows:

 

 

With respect to each of the Selected Companies and Virtual Radiologic, Goldman Sachs also calculated:

 

 

These calculations for the Selected Companies and Virtual Radiologic were based on the closing prices per share of the Selected Companies’ respective common stock on May 14, 2010, information from SEC filings, IBES estimates and other publicly available Wall Street research.

 

The results of these analyses are summarized as follows:

 

 

With respect to Virtual Radiologic, Goldman Sachs also calculated:

 

 

The results of these analyses are summarized as follows:

 

Illustrative Present Value of Future Share Price of Virtual Radiologic.   Goldman Sachs performed illustrative analyses of the present value of the future price per share of Virtual Radiologic’s common stock, using the Forecasts. These analyses were designed to provide indications of the present value of a theoretical future value of Virtual Radiologic’s equity as a function of Virtual Radiologic’s estimated future earnings or estimated EBITDA, and its assumed P/E multiple and EV to EBITDA multiple.

 

Illustrative Present Value of Future Share Price — P/E Analysis.

 

For this analysis, Goldman Sachs first calculated the illustrative future values per share of Virtual Radiologic’s common stock by applying P/E multiples of 14.0x and 16.0x to estimates of earnings per share for the applicable forward fiscal year for each of fiscal years 2010 through 2014. These illustrative P/E multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical average P/E multiples for Virtual Radiologic’s common stock during the two-year period ended May 14, 2010. The illustrative future values per share of Virtual Radiologic’s common stock in each year were then discounted back to March 31, 2010, using discount rates of 11% and 14%, reflecting estimates of Virtual Radiologic’s cost of equity based on certain financial metrics, including betas, for Virtual Radiologic and the Selected Companies. This analysis resulted in illustrative ranges of present values per share of Virtual Radiologic’s common stock for each of fiscal years 2010 through 2014 as follows:

 

 

Illustrative Present Value of Future Share Price — EBITDA Analysis.

 

For this analysis, Goldman Sachs first calculated the illustrative future values per share of Virtual Radiologic’s common stock by applying EV to EBITDA multiples of 5.0x and 6.0x to estimates of EBITDA for the applicable forward fiscal year for each of fiscal years 2010 through 2014. These illustrative EV to EBITDA multiples were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical average EV to EBITDA multiples for Virtual Radiologic’s common stock during the two-year period ended May 14, 2010. The illustrative future values per share of Virtual Radiologic’s common stock in each year were then discounted back to March 31, 2010, using discount rates of 11% and 14%, reflecting estimates of Virtual Radiologic’s cost of equity based on certain financial metrics, including betas, for Virtual Radiologic and the Selected Companies. This analysis resulted in illustrative ranges of present values per share of Virtual Radiologic’s common stock for each of fiscal years 2010 through 2014 as follows:

 

 

Illustrative Discounted Cash Flow Analysis.   Goldman Sachs performed an illustrative discounted cash flow analysis on Virtual Radiologic using the Forecasts. Goldman Sachs calculated indications of net present value of unlevered free cash flows for Virtual Radiologic for each of fiscal years 2010 through 2014, discounted back to March 31, 2010. Goldman Sachs used illustrative discount rates ranging from 9.00% to 11.00%, reflecting estimates of Virtual Radiologic’s weighted average cost of capital based on certain financial metrics, including betas, for Virtual Radiologic and the Selected Companies, and to determine illustrative terminal EBITDA values, Goldman Sachs used perpetuity growth rates of unlevered free cash flows for Virtual Radiologic ranging from 2.0% to 3.0%. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and

experience, taking into account the Forecasts and market expectations regarding long-term growth of gross domestic product and inflation. Based on guidance from Virtual Radiologic, EBITDA estimates used in this analysis were adjusted to add back into estimated earnings medical malpractice reserve accruals. This analysis resulted in a range of illustrative per share value indications of $13.87 to $18.88 for Virtual Radiologic’s common stock.

 

Illustrative Leveraged Buyout Analysis.   Goldman Sachs performed an illustrative leveraged buyout analysis using the Forecasts and publicly available historical information. In performing the illustrative leveraged buyout analysis, Goldman Sachs assumed a hypothetical financial buyer’s purchase price of $17.25 per share of Virtual Radiologic’s common stock in cash. Goldman Sachs assumed illustrative leverage ratios for the transaction ranging from 3.5x to 4.5x and an assumed weighted average interest rate range on the buyer’s debt in connection with the transaction of 7.00% to 11.00%, derived by Goldman Sachs utilizing its professional judgment and experience. Goldman Sachs assumed an exit in 2014 at exit multiples of estimated one-year forward EBITDA of 5.5x to 7.5x, which reflect illustrative implied prices at which a hypothetical financial buyer might exit its investment through a sale transaction. These exit multiples were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical average EV to EBITDA multiples for Virtual Radiologic’s common stock during the two-year period ended May 14, 2010. Based on guidance from Virtual Radiologic, estimated EBITDA was adjusted to add back medical malpractice reserve accruals, stock-based compensation and $1.0 million in annual cost savings as a result of no longer being a public company and deduct estimated medical malpractice cash expenses. This analysis resulted in illustrative internal rate of equity returns to a hypothetical buyer ranging from 19.3% to 22.6%.

 

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company used in the above analyses as a comparison is directly comparable to Virtual Radiologic or the contemplated merger.

 

Goldman Sachs prepared these analyses for purposes of Goldman Sachs providing its opinion to the Board of Directors of Virtual Radiologic that, as of May 16, 2010 and based upon and subject to the factors and assumptions set forth therein, the $17.25 per share in cash to be paid to the holders (other than Parent and its affiliates) of the shares of Virtual Radiologic’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Virtual Radiologic, Parent, Merger Sub, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

 

The merger consideration was determined through arm’s-length negotiations between Virtual Radiologic and Parent and was approved by Virtual Radiologic’s Board of Directors. Goldman Sachs provided advice to Virtual Radiologic during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to Virtual Radiologic, the Board of Directors of Virtual Radiologic or that any specific amount of consideration constituted the only appropriate consideration for the merger. As described above, Goldman Sachs’ opinion to the Board of Directors of Virtual Radiologic was one of many factors taken into consideration by the Board of Directors of Virtual Radiologic in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Appendix B.

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, Virtual Radiologic, any of its affiliates, or any of the affiliates and portfolio companies of Providence, or any currency or commodity that may be involved in the merger for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to Virtual Radiologic in connection with, and participated in certain of the negotiations leading to, the merger. In addition, Goldman Sachs has provided certain investment banking and other financial services to Virtual Radiologic and its affiliates from time to time for which the investment banking division of Goldman Sachs has received, and may receive, compensation, including having acted as a joint bookrunning manager with respect to the initial public offering of 4,600,000 shares of Virtual Radiologic’s common stock in November 2007. Goldman Sachs also has provided certain investment banking and other financial services to Providence and its affiliates and portfolio companies from time to time for which the investment banking division of Goldman Sachs has received, and may receive, compensation, including having acted as a joint bookrunning manager with respect to an offering of 9.5% Senior Secured Notes due June 2016 for Warner Music Group Corp., a portfolio company of Providence, (aggregate principal amount $1,100,000,000) in May 2009; sole bookrunning manager with respect to an offering of 11.25% Senior Secured Notes due October 2014 for Stream Global Services, Inc., a portfolio company of Providence, (aggregate principal amount $250,000,000) in September 2009; and lead bookrunning manager on an initial public offering of 20,000,000 shares of common stock of Education Management Corporation, a portfolio company of Providence, in October 2009. Goldman Sachs also may provide investment banking and other financial services to Virtual Radiologic and its affiliates and Providence and its affiliates and portfolio companies in the future for which the investment banking division of Goldman Sachs may receive compensation. In addition, affiliates of Goldman Sachs may have co-invested with Providence and its affiliates from time to time and may have invested in limited partnership units of affiliates of Providence from time to time and may do so in the future.

 

The Board of Directors of Virtual Radiologic selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated January 12, 2010, Virtual Radiologic engaged Goldman Sachs to act as its financial advisor in connection with the contemplated merger. Pursuant to the terms of this engagement letter, Virtual Radiologic has agreed to pay Goldman Sachs a transaction fee of approximately $3 million, all of which is contingent upon consummation of the merger. In addition, Virtual Radiologic has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Certain Financial Forecasts and Other Information

 

Other than annual guidance that we make publicly available, we do not as a matter of course make public projections as to our future performance, earnings or other results due to the unpredictability of the underlying assumptions and estimates. However, we provided to Providence and to other interested parties certain non-public financial projections in connection with their due diligence review of Virtual Radiologic. We also provided these internal financial projections to our Board of Directors and our financial and legal advisors. We have included below a summary of these projections to give our stockholders access to certain non-public information that was furnished to third parties and was considered by Goldman Sachs and by our Board of Directors for purposes of evaluating the merger. These projections were prepared on a basis consistent with the accounting principles used in our historical financial statements.

Financial Projections for the Five Years Ending December 31, 2014

 

 

Note: Adjusted EBITA deducts stock based compensation expense and depreciation from Adjusted EBITDA.

 Assumes 40% tax rate.

 

The projections set forth above were prepared for internal use and not prepared with a view to public disclosure and are being included in this proxy statement only because the projections were provided to and relied upon by Goldman Sachs in performing its financial analysis for our Board of Directors, and because certain of the projections were provided to Providence and other potential buyers contacted by Goldman Sachs, acting at the instruction of our Board of Directors, during the course of our discussions and negotiations regarding potential transactions. The projections were not prepared with a view to compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The projections do not purport to present operations in accordance with U.S. generally accepted accounting principles, and our registered public accounting firm has not examined, compiled or otherwise applied procedures to the projections and accordingly assumes no responsibility for them. The projections have been prepared by, and are solely the responsibility of, our management. The inclusion of the projections in this proxy statement should not be regarded as an indication that these projections will be predictive of actual future results, and the forecasts should not be relied upon as such. Neither we nor any other person makes any representation to any of our stockholders regarding our ultimate performance compared to the information contained in the projections set forth above. Although presented with numerical specificity, the projections are not fact and reflect numerous assumptions and estimates as to future events made by our management that our management believed were reasonable at the time the projections were prepared and other factors such as industry performance and general business, economic, regulatory, market and financial conditions, as well as factors specific to our business, all of which are difficult to predict and many of which are beyond the control of our management. In addition, the projections do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to the merger or any changes to our operations or strategy that may be implemented after the consummation of the merger. Further, the projections do not take into account the effect of any failure of the merger to occur and should not be viewed as accurate or continuing in that context. Accordingly, there can be no assurance that the projections will be realized, and actual results may be materially greater or less than those reflected in the projections. We do not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown

to be in error. The projections are forward-looking statements. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

 

In considering the recommendations of the Board of Directors, you should be aware that certain of our directors and executive officers have interests in the transaction that are different from, or in addition to, the interests of our stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests are described below. Our Board of Directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger agreement and the merger and in recommending that our stockholders vote in favor of approving and adopting the merger agreement.

 

Pursuant to the terms of the employment agreements that we entered into with Mr. Kill, Dr. Michel, Mr. Kolar, Mr. Purkis and Richard W. Jennings, our Chief Technology Officer, in July 2009 and that are currently in effect, in the event that Messrs. Kill, Jennings, Purkis, Kolar and/or Dr. Michel’s employment is terminated by the executive for good reason or by us without cause (as each is defined in the agreement) in connection with a change in control, such as the merger, the executive will be entitled to the following severance benefits: (i) a lump sum payment equal to the sum of (a) 12 months of base salary, (b) 60%, in the case of Mr. Kill, 29%, in the case of Dr. Michel, and 50%, in the case of Messrs. Jennings, Purkis and Kolar, of the executive’s base salary, as compensation for the cancellation of the executive’s incentive compensation opportunity, (c) 12 times the monthly premium amount that we would have been required to pay for group life insurance and group long term disability had the executive continued to be employed by us, and (ii) subject to the executive’s continued co-payment of premiums, continued participation for 12 months in our group medical and/or dental plans, or payment of our portion of all premiums under such plans if participation is not feasible.

 

The employment agreements with each of Messrs. Kill, Jennings, Purkis and Kolar and Dr. Michel additionally provide that all equity awards granted to such individuals will vest immediately upon a change of control, as defined therein. Messrs. Kill, Jennings, Purkis and Kolar and Dr. Michel are all subject to non-compete and non-solicit obligations during the term of the employment and for two years thereafter pursuant to the terms of their employment agreement.

 

Upon termination for any reason, including the circumstances discussed above, Messrs. Kill, Jennings, Purkis and Kolar and Dr. Michel would each be entitled to (i) any unpaid base salary through the date of termination, (ii) any unpaid incentive compensation earned with respect to any fiscal year ending on or preceding the date of termination, and (iii) reimbursement for any unreimbursed expenses, in addition to the severance benefits described above.

 

If the aggregate payments to Mr. Kill, Dr. Michel, Mr. Jennings, Mr. Purkis or Mr. Kolar under their employment agreement or otherwise in connection with any change of control of our company would subject the executive officer to an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, then the aggregate payments to the executive officer would be reduced to the greatest amount that could be paid without triggering the excise tax on the executive officer, but only if such reduction would result in a greater after tax amount paid to the executive officer.

 

Our directors and executive officers own Virtual Radiologic common stock and, like our other stockholders, will be entitled to receive the merger consideration for their shares. See below under the caption “Security Ownership of Certain Beneficial Owners and Management.”

 

In addition, our directors and executive officers hold options to purchase shares of Virtual Radiologic common stock and restricted shares of Virtual Radiologic common stock. Like the other holders of Virtual Radiologic stock options, our directors and executive officers will be entitled to receive cash in exchange for the cancellation of their vested and currently unvested stock options pursuant to the terms of the merger agreement, less applicable withholding taxes. Like the other holders of Virtual Radiologic restricted stock, all restrictions on restricted stock

awards held by our directors and officers will lapse immediately prior to the effective time of the merger and will entitle the holder to receive the merger consideration less any applicable withholding taxes.

 

Our directors and executive officers would receive the following amounts in connection with their vested and currently unvested stock options and the lapse of restrictions on shares of restricted stock they hold upon consummation of the merger:

 

 

 

 

The merger agreement provides that all rights to indemnification, expense advancement, and exculpation from personal liability existing in favor of our and our subsidiaries’ current directors, officers, and employees contained in our and our subsidiaries’ current charter or other organizational documents with respect to matters occurring at or before the effective time of the merger will continue for a period of six years after the effective time of the merger. In addition, under the merger agreement Parent has agreed to cause Virtual Radiologic to prepay for directors and officers liability insurance covering a period of six years following the effective time of the merger and providing coverage that is no less favorable than Virtual Radiologic’s current directors and officers liability insurance.

 

As of the date of this proxy statement, neither we, Providence nor any affiliate thereof has entered into any new employment agreements with our management, nor amended or modified any existing employment agreements in connection with or in contemplation of the merger. Providence has informed us that it currently intends to retain members of our management team following the merger, and that it anticipates that Mr. Robert C. Kill, our President and Chief Executive Officer, will continue to serve in such role. Providence has also informed us that it intends to establish equity based incentive compensation plans for management of the surviving corporation, a substantial portion of which is likely to be allocated to our executive officers. The size of such equity based incentive compensation plans and the individual awards to be granted thereunder have not yet been finalized.

 

As described under “The Merger — Background of the Merger,” during the course of negotiations, Providence informed us that it would require discussions with Mr. Kill prior to entering into the merger agreement regarding potential terms of his employment, specifically, and other management generally, in connection with the transaction. Accordingly, our Board of Directors authorized our executive officers to engage separate counsel to review and negotiate the terms of employment and equity compensation arrangements that would take effect following the

completion of the merger. Mr. Kill and Providence have agreed in principle upon general terms regarding Mr. Kill’s employment and the management equity compensation plan, with the understanding that such terms would be used to negotiate the full terms of employment and equity grants for Mr. Kill and other members of management. Generally, such terms would provide for the establishment of an equity compensation plan under which stock options subject to both time-vesting and performance vesting criteria will be granted to Mr. Kill and certain other members of management, and give to Mr. Kill and certain other members of management the opportunity to purchase the equity of Parent’s parent entity. Additionally, certain amendments may be made to the employment agreements of Mr. Kill and certain other members of management that will, among other things, adjust the base salaries and bonus targets that are applicable to such persons.

 

As set forth above, management employment and equity investment arrangements following the merger were not discussed until shortly before the merger agreement was executed. Although general terms have been agreed in principle, as set forth above, no agreements reflecting such terms have been finalized as of the date of this proxy statement. These matters are subject to further negotiations and discussions and there can be no assurance that the parties will reach agreement.

 

Holders of record of our common stock who do not vote in favor of the approval and adoption of the merger agreement, and who otherwise comply with the applicable provisions of Section 262 of the Delaware General Corporation Law, or DGCL, will be entitled to exercise appraisal rights under Section 262 of the DGCL in connection with the merger. A person having a beneficial interest in shares of our common stock held of record in the name of another person, such as a broker, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

 

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is reprinted in its entirety as Appendix C and incorporated into this proxy statement by reference. All references in Section 262 of the DGCL and in this summary to a “stockholder” or “holder” are to the record holder of the shares of our common stock as to which appraisal rights are asserted.

 

Holders of shares of our common stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares of our common stock appraised by the Delaware Court of Chancery and to receive, in lieu of the merger consideration, payment in cash of the “fair value” of the shares of our common stock, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, as determined by that court. You should be aware that the fair value of your shares as determined under Section 262 of the DGCL could be less than, the same as, or more than the merger consideration that you are entitled to receive under the terms of the merger agreement.

 

Under Section 262 of the DGCL, when a proposed merger of a Delaware corporation is to be submitted for approval and adoption at a meeting of its stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders who was a stockholder on the record date for this meeting with respect to shares for which appraisal rights are available, that appraisal rights are so available, and must include in that required notice a copy of Section 262 of the DGCL.

 

This proxy statement constitutes the required notice to the holders of the shares of our common stock in respect of the merger, and Section 262 of the DGCL is attached to this proxy statement as Appendix C. Any Virtual Radiologic stockholder who wishes to exercise appraisal rights in connection with the merger or who wishes to preserve the right to do so should review the following discussion and Appendix C carefully, because failure to timely and properly comply with the procedures specified in Appendix C will result in the loss of appraisal rights under the DGCL.

 

A holder of our common stock wishing to exercise appraisal rights must not vote in favor of the approval and adoption of the merger agreement, and must deliver to us, before the taking of the vote on the approval and adoption of the merger agreement at the special meeting, a written demand for appraisal of the stockholder’s Virtual Radiologic common stock. This written demand for appraisal must be separate from any proxy or ballot abstaining from the vote on the approval and adoption of the merger agreement or instructing or effecting a vote against the

approval and adoption of the merger agreement. This demand must reasonably inform us of the identity of the stockholder and of the stockholder’s intent thereby to demand appraisal of the stockholder’s shares in connection with the merger. A holder of our common stock wishing to exercise appraisal rights must be the record holder of the shares of our common stock on the date the written demand for appraisal is made and must continue to hold the shares of our common stock through the effective date of the merger. Accordingly, a holder of our common stock who is the record holder of our common stock on the date the written demand for appraisal is made, but who thereafter transfers the shares of our common stock prior to consummation of the merger, will lose any right to appraisal in respect of the shares of our common stock.

 

A proxy that is signed and does not contain voting instructions will, unless revoked, be voted in favor of the approval and adoption of the merger agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who votes by proxy and who wishes to exercise appraisal rights must either vote AGAINST approval and adoption of the merger agreement or abstain from voting on the approval and adoption of the merger agreement.

 

Only a holder of record of our common stock on the date of the making of a demand for appraisal will be entitled to assert appraisal rights for the shares of our common stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, and must state that the person intends to demand appraisal of the holder’s shares. If the shares of our common stock are held of record by a person other than the beneficial owner, including a broker, fiduciary (such as a trustee, guardian or custodian), depository or other nominee, execution of the demand should be made in that capacity, and if our common stock is held of record by more than one holder as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint holders. An authorized agent, including an agent for one or more joint holders, may execute a demand for appraisal on behalf of a holder of record. The agent, however, must identify the record holder or holders and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record holder or holders. A record holder such as a broker who holds our common stock as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of our common stock held for one or more beneficial owners while not exercising appraisal rights with respect to our common stock held for other beneficial owners. In this case, the written demand should set forth the number of shares of our common stock as to which appraisal is sought. When no number of shares of our common stock is expressly mentioned, the demand will be presumed to cover all of our common stock in brokerage accounts or other nominee forms held by such record holder. If you hold shares in brokerage accounts or other nominee form and wish to exercise appraisal rights under Section 262 of the DGCL, we urge you to consult with your broker to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

All written demands for appraisal should be sent or delivered to Virtual Radiologic Corporation, 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344, Attention: Corporate Secretary. Failure of a stockholder to make the written demand for appraisal prior to the taking of the vote on the approval and adoption of the merger agreement at the stockholders’ meeting will constitute a waiver of his, her or its appraisal rights.

 

Within 10 days after the effective date of the merger, Virtual Radiologic, or its successor, which we refer to generally as the surviving corporation, will notify each former Virtual Radiologic stockholder who has properly asserted appraisal rights under Section 262 of the DGCL, and has not voted in favor of the approval and adoption of the merger agreement, of the date the merger became effective.

 

Within 120 days after the effective date of the merger, but not thereafter, the surviving corporation or any former Virtual Radiologic stockholder who has complied with the statutory requirements summarized above may file a petition in the Delaware Court of Chancery, with a copy served on the surviving corporation in the case of a petition filed by the stockholder, demanding a determination of the fair value of the shares of our common stock that are entitled to appraisal rights. None of Parent, Merger Sub, the surviving corporation or Virtual Radiologic is under any obligation to and none of them has any present intention to file a petition with respect to the appraisal of the fair value of the shares of our common stock, and stockholders seeking to exercise appraisal rights should not assume that the surviving corporation, Virtual Radiologic, Parent or Merger Sub will initiate any negotiations with respect to the fair value of such shares. Accordingly, it is the obligation of our stockholders wishing to assert appraisal rights to take all necessary action to perfect and maintain their appraisal rights within the time period prescribed in

Section 262 of the DGCL. A person who is the beneficial owner of shares of our common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file the petition described in this paragraph. We plan to issue a press release when the merger has become effective.

 

Within 120 days after the effective date of the merger, any former Virtual Radiologic stockholder who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving corporation a statement setting forth the aggregate number of shares of our common stock not voted in favor of approving and adopting the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of former holders of these shares of our common stock. These statements must be mailed within 10 days after a written request therefor has been received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal under Section 262 of the DGCL, whichever is later. A person who is the beneficial owner of shares of our common stock held in a voting trust or by a nominee on behalf of such person may, in such person’s own name, request from the surviving corporation the statement described in this paragraph.

 

If a petition for an appraisal is filed timely with the Delaware Court of Chancery and a copy thereof is served upon the surviving corporation, the surviving corporation will then be obligated within 20 days of service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all former Virtual Radiologic stockholders who have demanded appraisal of their shares of Virtual Radiologic common stock and with whom agreements as to value have not been reached. After notice to such former Virtual Radiologic stockholders as required by the Delaware Court of Chancery, the Delaware Court of Chancery will conduct a hearing on such petition to determine those former Virtual Radiologic stockholders who have complied with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the former Virtual Radiologic stockholders who demanded appraisal of their shares of our common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding. If any former stockholder fails to comply with such direction, the Delaware Court of Chancery may dismiss the proceedings as to that former stockholder.

 

After determining which, if any, former Virtual Radiologic stockholders are entitled to appraisal, the Delaware Court of Chancery will appraise their shares of our common stock, determining their “fair value,” exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. Our stockholders considering seeking appraisal should be aware that the fair value of their shares of our common stock as determined under Section 262 of the DGCL could be less than, the same as, or more than the value of the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares of our common stock and that Goldman, Sachs & Co.’s opinion, included in this proxy statement, as to fairness from a financial point of view of the merger consideration is not an opinion as to fair value under Section 262 of the DGCL. Unless the Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective time of the merger through the date of payment of the judgment will be compounded quarterly and will accrue at a rate of 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time of the merger and the date of payment of the judgment.

 

In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc. , the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger and that throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc. , the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger , the Delaware Supreme Court construed

Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

 

In addition, Delaware courts have decided that a stockholder’s statutory appraisal remedy may or may not be a dissenter’s exclusive remedy, depending on the factual circumstances.

 

The costs of the appraisal action may be determined by the Delaware Court of Chancery and levied upon the parties as the Delaware Court of Chancery deems equitable. Upon application of a former Virtual Radiologic stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by any former Virtual Radiologic stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all of the shares of our common stock entitled to appraisal.

 

Any holder of our common stock who has duly demanded an appraisal in compliance with Section 262 of the DGCL will not, after the consummation of the merger, be entitled to vote the shares of our common stock subject to this demand for any purpose or be entitled to the payment of dividends or other distributions on those shares of our common stock (except dividends or other distributions payable to holders of record of our common stock as of a record date prior to the effective date of the merger).

 

If any stockholder who properly demands appraisal of his, her or its common stock under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses, his, her or its right to appraisal, as provided in Section 262 of the DGCL, that stockholder’s shares of our common stock will be deemed to have been converted into the right to receive the merger consideration payable (without interest) in the merger. A stockholder will fail to perfect, or effectively lose or withdraw, his, her or its right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective date of the merger, or if the stockholder delivers to us or the surviving corporation, as the case may be, a written withdrawal of the stockholder’s demand for appraisal. Any attempt to withdraw an appraisal demand in this manner more than 60 days after the effective date of the merger will require the written approval of the surviving corporation and, once a petition for appraisal is filed, the appraisal proceeding may not be dismissed as to any holder absent court approval.

 

Failure to follow the steps required by Section 262 of the DGCL for perfecting appraisal rights may result in the loss of these rights, in which event the shares held by the Virtual Radiologic stockholder will be deemed to have been converted into the right to receive the merger consideration payable (without interest) in the merger.

 

Any stockholder wishing to exercise appraisal rights is urged to consult with legal counsel prior to attempting to exercise such rights.

 

 

All fees and expenses incurred in connection with the consummation of the merger will be paid by the party incurring those fees and expenses, except that Parent is responsible for the Hart-Scott-Rodino Act filing fees.

 

If the merger agreement is terminated, we will, in specified circumstances, be required to reimburse Parent for its expenses incurred in connection with the transactions contemplated by the merger agreement, up to a maximum of $2.4 million, and may also be required under certain circumstances to pay Parent a termination fee of $9.0 million (less any amount previously paid to Parent in reimbursement of Parent’s transaction expenses). See “The Merger Agreement — Termination Fee and Expenses” beginning on page 50.

 

 

The following is a discussion of certain material United States federal income tax consequences of the merger to U.S. holders (as defined below) whose shares of our common stock are converted into the right to receive cash in the merger. This discussion is for general information only and is not tax advice. The discussion is based upon the Internal Revenue Code, Treasury regulations, Internal Revenue Service published rulings and judicial and administrative decisions in effect as of the date of this proxy statement, all of which are subject to change (possibly with retroactive effect) and to differing interpretations. The following discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. This discussion applies only to stockholders who, on the date on which the merger is completed, hold shares of our common stock as

capital assets within the meaning of section 1221 of the Internal Revenue Code. The following discussion does not address taxpayers subject to special treatment under U.S. federal income tax laws, such as insurance companies, financial institutions, dealers in securities or currencies, traders of securities that elect the mark-to-market method of accounting for their securities, persons that have a functional currency other than the U.S. dollar, tax-exempt organizations, mutual funds, real estate investment trusts, S corporations or other pass-through entities (or investors in an S corporation or other pass-through entity), taxpayers subject to the alternative minimum tax, or taxpayers who have a direct or indirect interest in Parent after the closing. In addition, the following discussion may not apply to stockholders who acquired their shares of our common stock upon the exercise of employee stock options or otherwise as compensation for services or through a tax-qualified retirement plan or who hold their shares as part of a hedge, straddle, conversion transaction or other integrated transaction. If our common stock is held through a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. It is recommended that partnerships that are holders of our common stock and partners in those partnerships consult their own tax advisors regarding the tax consequences to them of the merger.

 

The following discussion also does not address tax consequences to holders of Virtual Radiologic stock options or potential alternative minimum tax, foreign, state, local and other tax consequences of the merger. All stockholders should consult their own tax advisors regarding the U.S. federal income tax consequences, as well as the foreign, state and local tax consequences of the disposition of their shares in the merger.

 

For purposes of this summary, a “U.S. holder” is a beneficial owner of shares of our common stock, who or that is, for U.S. federal income tax purposes:

 

 

This discussion is confined to the tax consequences to a stockholder who or that, for U.S. federal income tax purposes, is a U.S. holder.

 

For U.S. federal income tax purposes, the disposition of our common stock pursuant to the merger generally will be treated as a sale of our common stock for cash by each of our stockholders. Accordingly, in general, the U.S. federal income tax consequences to a stockholder receiving cash in the merger will be as follows:

 

 

Cash payments made pursuant to the merger will be reported to our stockholders and the Internal Revenue Service to the extent required by the Internal Revenue Code and applicable Treasury regulations. Non-corporate

stockholders may be subject to back-up withholding at a rate of 28% on any cash payments they receive. Stockholders who are U.S. holders generally will not be subject to backup withholding if they: (1) furnish a correct taxpayer identification number and certify that they are not subject to backup withholding on the substitute Form W-9 included in the election form/letter of transmittal they are to receive or (2) are otherwise exempt from backup withholding and comply with other applicable rules and certification requirements. Certain of our stockholders will be asked to provide additional tax information in the letter of transmittal for the shares of our common stock.

 

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

The foregoing is a general discussion of certain material U.S. federal income tax consequences. We recommend that you consult your own tax advisor to determine the particular tax consequences to you (including the application and effect of any foreign, state or local income and other tax laws) of the receipt of cash in exchange for shares of our common stock pursuant to the merger.

 

The following discussion summarizes the material regulatory requirements that we believe relate to the merger, although we may determine that additional consents from, or notifications to, governmental agencies are necessary or appropriate.

 

Under the Hart-Scott-Rodino Act we cannot complete the merger until we have submitted certain information to the Antitrust Division of the Department of Justice and the Federal Trade Commission and satisfied the statutory waiting period requirements, unless earlier terminated. Both Virtual Radiologic and Parent made the necessary initial filings under the HSR Act on May 21, 2010. The waiting period under the HSR Act was terminated on June 1, 2010. Clearance under the HSR Act, however, does not preclude the Department of Justice or the Federal Trade Commission from later challenging the merger on antitrust grounds.

 

In the merger agreement, the parties have agreed to use commercially reasonable efforts to assist each other in making all filings with governmental authorities and obtaining all governmental approvals and consents necessary to consummate the merger, subject to certain exceptions and limitations. Except as noted above with respect to the required filings under the HSR Act and the filing of a certificate of merger in Delaware at or before the effective date of the merger, we are not aware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.

 

We expect the merger to be accounted for as a business combination for financial accounting purposes, whereby the purchase price would be allocated to our assets and liabilities based on their relative fair values as of the date of the merger in accordance with Accounting Standards Codification 805, Business Combinations.

 

On June 1, 2010, a putative class action was filed by a stockholder against Virtual Radiologic, each of our directors, Providence Equity Partners and Merger Sub in the Fourth Judicial District of Minnesota, Hennepin County, under the caption Ravi Garg v. Virtual Radiologic Corporation, et al. In the complaint, the plaintiff alleges that Virtual Radiologic and our directors breached their fiduciary duties to our public stockholders by, among other things, failing to maximize stockholder value in the transaction, and that Providence Equity Partners and Merger Sub aided and abetted the breaches of fiduciary duty. Among other things, the complaint seeks an order certifying a plaintiff class consisting of all of our public stockholders, an order enjoining the merger of Merger Sub with and into Virtual Radiologic, damages in an unspecified amount, and an award of attorneys’ fees and costs of litigation. We have not yet answered or otherwise responded to the complaint.

 

Also on June 1, 2010, a putative class action was filed by a stockholder against each of our directors, Virtual Radiologic, Parent and Merger Sub in the Fourth Judicial District of Minnesota, Hennepin County, under the

caption Barry Semegram v. Robert Kill, et al. In the complaint, the plaintiff alleges that our directors breached their fiduciary duties to our public stockholders by, among other things, failing to maximize stockholder value in the transaction and failing to disclose material information in the preliminary proxy statement we filed on May 26, 2010 relating to the solicitation of proxies for the special meeting of stockholders to be held for the purpose of considering the approval and adoption of the merger and the merger agreement. The stockholder also alleges that Virtual Radiologic, Parent and Merger Sub aided and abetted the breaches of fiduciary duty. Among other things, the complaint seeks an order certifying a plaintiff class consisting of all of our public stockholders, an order enjoining the merger of Merger Sub with and into Virtual Radiologic, damages in an unspecified amount, and an award of attorneys’ fees and costs of litigation. We have not yet answered or otherwise responded to the complaint.

 

We do not believe that the claims alleged in the complaints have any merit, and we intend to vigorously defend each action.

 

This section of the proxy statement describes the material provisions of the merger agreement but it may not contain all of the information about the merger agreement that is important to you. The merger agreement is attached as Appendix A to this proxy statement and is incorporated into this proxy statement by reference. We encourage you to read the merger agreement in its entirety. The merger agreement is a document that establishes and governs the legal relations among us, Parent, and Merger Sub with respect to the transactions described in this proxy statement.

 

The effective time of the merger will occur at the time that we file the certificate of merger with the Delaware Secretary of State on the closing date of the merger or on such later date as may be mutually agreed to by Parent and us (or such later time as is provided in the certificate of merger). The closing date will occur on the second business day after all of the conditions to the consummation of the merger set forth in the merger agreement have been satisfied or waived (other than those conditions that by their nature are to be satisfied on the closing date), or on such other date as we and Parent may agree.

 

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Merger Sub, a wholly owned subsidiary of Parent, will merge with and into Virtual Radiologic. The separate corporate existence of Merger Sub will cease, and Virtual Radiologic will continue as the surviving corporation and a subsidiary of Parent. The surviving corporation will be a privately held corporation and our current stockholders will cease to have any ownership interest in the surviving corporation or rights as our stockholders. As a result of the merger, our current stockholders will not participate in the opportunity for future earnings or growth of the surviving corporation and will not benefit from any appreciation in value of the surviving corporation, except to the extent that our current executives and employees may participate through equity holdings in Parent or compensation plans involving options or other forms of Parent’s equity, as discussed under the heading “The Merger — Interests of Our Directors and Officers in the Merger — Management Discussions with Providence.”

 

At the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger will automatically be cancelled and will cease to exist and will be converted into the right to receive $17.25 in cash, without interest and less applicable withholding taxes, other than:

 

 

After the effective time of the merger, each stock certificate representing shares of our common stock will be cancelled and each holder of record of uncertificated shares of our common stock will cease to have any rights with respect to those shares, and the holder of such certificate or uncertificated shares will have only the right to receive the merger consideration of $17.25 in cash per share, without any interest and less applicable withholding taxes.

 

Each outstanding unvested Virtual Radiologic stock option will vest in full immediately prior to the effective time of the merger. At the effective time of the merger, each outstanding Virtual Radiologic stock option not exercised prior to the merger will be cancelled and converted into the right to receive, as soon as reasonably practicable following the effective time of the merger, an amount in cash (less any applicable withholding taxes) equal to (i) the number of shares subject to such option multiplied by (ii) the excess (if any) of $17.25 over the exercise price per share of such option. Each outstanding option with an exercise price that equals or exceeds the $17.25 per share merger consideration will be cancelled without payment.

 

All restrictions on restricted stock awards will lapse immediately prior to the effective time of the merger. At the effective time, each restricted share of our common stock will be cancelled and will cease to exist and will be converted into the right to receive $17.25 per share in cash, without interest and less any applicable withholding taxes.

 

BNY Mellon, or the paying agent, will act as the agent for payment of the merger consideration to the holders of our common stock. At or before the effective time of the merger, Parent will cause to be deposited with the paying agent for the benefit of our stockholders an amount in cash equal to the aggregate merger consideration.

 

Instructions with regard to the surrender of certificates formerly representing shares of our common stock or uncertificated shares of our common stock, together with the letter of transmittal to be used for that purpose, will be mailed to our stockholders by the paying agent promptly after the effective time of the merger. As soon as practicable following receipt from the stockholder of a duly executed letter of transmittal, together with (i) in the case of shares of our common stock represented by a certificate, receipt of any such certificate and (ii) in the case of shares of our common stock held in book-entry form, the receipt of an agent’s message, and any other items specified by the letter of transmittal, the paying agent will pay in cash to such stockholder an amount equal to the product of the number of shares of our common stock represented by such certificates remitted by the stockholder or agent’s message and the $17.25 per share merger consideration, without interest and less any applicable withholding tax.

 

No transfer of shares of our common stock will be made on the stock transfer books of the surviving corporation after the effective time of the merger. After the effective time of the merger, previous stockholders will have no rights with respect to shares of our common stock except to receive the merger consideration or statutory appraisal rights if they have properly demanded and not withdrawn or lost such rights.

 

After one year following the effective time of the merger, any amount remaining in the payment fund may be refunded to the surviving corporation of the merger, and any previous holders of our common stock who have not complied with the applicable provisions for payment summarized above will be entitled to payment of the merger consideration only from the surviving corporation, without interest.

 

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

 

We make various representations and warranties in the merger agreement with respect to Virtual Radiologic and our subsidiaries and affiliated medical practices. These include representations and warranties regarding:

 

 

 

Many of our representations and warranties are qualified by the absence of a material adverse effect on Virtual Radiologic, which means, for purposes of the merger agreement, any change, effect, event, circumstance, condition, occurrence or development that, individually or in the aggregate, has had or would be reasonably likely to have a material adverse effect on (i) the business, results of operations or condition (financial or otherwise) of Virtual Radiologic, our subsidiaries and our affiliated medical practices taken as a whole or (ii) our ability to consummate the transactions contemplated by the merger agreement on a timely basis, subject to a number of customary exceptions.

 

Parent and Merger Sub make various representations and warranties in the merger agreement with respect to Parent and Merger Sub. These include representations and warranties regarding:

 

 

 

The representations and warranties of each of the parties to the merger agreement will expire upon the effective time of the merger. The assertions embodied in the representations and warranties may not accurately characterize the current actual state of facts with respect to Parent, Merger Sub and us because they were made as of specific dates and are subject to important exceptions, limitations, and qualifications, including qualification by information contained in confidential disclosure schedules that the parties have exchanged in connection with signing the merger agreement (although any specific facts that contradict the representations and warranties in the merger agreement in any material respect as of the date of the merger agreement have been disclosed in this proxy statement). Moreover, certain representations and warranties may not be complete or accurate as of a particular date because they are subject to a contractual standard of materiality that is different from those generally applicable to disclosures to stockholders under securities laws and/or were used for the purpose of allocating risk among the parties rather than establishing certain matters as facts. Accordingly, you should not rely on the representations and warranties contained in the merger agreement as characterizations of the actual state of facts at the time they were made or otherwise.

 

We have undertaken certain customary covenants that place restrictions on us and our subsidiaries and affiliated medical practices until the effective time of the merger. From the date of the merger agreement until the effective time of the merger, we have agreed to (and to cause our subsidiaries and affiliated medical practices to) conduct our business in the ordinary course of business consistent with past practices and to use commercially reasonable efforts to preserve our business organization and goodwill, keep available the services of our employees and officers, and maintain our existing relations with vendors, suppliers, dealers, distributors, customers, and other third parties.

 

In addition, we have agreed, with certain limited exceptions, not to do (and not to permit our subsidiaries or affiliated medical practices to do) any of the following, except as expressly contemplated by the merger agreement or agreed to in writing by Parent:

 

 

 

Until the earlier of the effective time of the merger or the termination of the merger agreement, we have agreed that neither we nor any of our subsidiaries, officers, directors, financial advisors, representatives or agents will, directly or indirectly:

 

 

 

However, notwithstanding the foregoing, before the approval and adoption of the merger agreement at the special meeting or by the written consent of our stockholders, we may, in response to a bona fide written acquisition proposal that was not solicited by us or any of our representatives, furnish non-public information (pursuant to a confidentiality agreement no less favorable to us than our confidentiality agreement with Parent) and afford access to our and our subsidiaries’ properties, books, records, and personnel to, and enter into discussions and negotiations with, a third party in connection with an acquisition proposal and approve or recommend such proposal if:

 

 

The merger agreement defines an acquisition proposal as any inquiry, proposal or offer relating to (i) the acquisition, in any single transaction or series of related transactions, of more than 25% of the outstanding shares of capital stock or any other voting securities of Virtual Radiologic, (ii) a merger, consolidation, business combination, reorganization, share exchange, sale of assets, recapitalization, liquidation, dissolution or similar transaction which would result in any third party acquiring 25% or more of the fair market value of the assets of Virtual Radiologic and our subsidiaries, taken as a whole, (iii) any other transaction which would result in a third party 25% or more of the fair market value of the assets of Virtual Radiologic and our subsidiaries, taken as a whole, immediately prior to such transaction (whether by purchase of assets, acquisition of stock of a subsidiary or otherwise) or (iv) any combination of the foregoing.

 

The merger agreement defines a superior proposal as an acquisition proposal (with all of the percentages included in the definition of acquisition proposal increased to 50%) on terms which our Board of Directors determines in good faith (after consultation with its financial advisors and outside legal counsel and consideration of all terms and conditions of such acquisition proposal, including the conditionality and the timing and likelihood of consummation of such acquisition proposal) to be more favorable to our stockholders, including from a financial point of view, than those set forth in the merger agreement or the terms of any other proposal or revised proposal made by Parent in response to such an acquisition proposal.

 

Our Board of Directors may (i) make a company recommendation change, (ii) approve or recommend, or propose to approve or recommend, any acquisition proposal, (iii) enter into any agreement with respect to an acquisition proposal, or (iv) take any other action or make any recommendation or public statement in connection with a tender offer or exchange offer other than a recommendation against such offer or otherwise take any action inconsistent with the company recommendation, only if:

 

 

A company recommendation change, as defined in the merger agreement, occurs if our Board of Directors withdraws, modifies or changes, in a manner adverse to Parent, the company recommendation. If such company recommendation change is not in response to a superior proposal, it may only be made if directly related to an event, fact, circumstance, development or occurrence that affects the assets or operations of Virtual Radiologic that was unknown to our Board of Directors as of the date of the merger agreement and becomes known to it prior to obtaining stockholder approval of the merger agreement.

 

The merger agreement also requires that we provide written notice to Parent at least three business days before our board takes any of the actions described in the foregoing paragraph, and that we discuss such change of recommendation with Parent. The notice must describe the basis for the board action and the material terms of the proposal. In addition, during the three-business-day period after delivery of the notice we must provide Parent with an opportunity to submit an amended acquisition proposal to our Board of Directors and must discuss with Parent, to the extent Parent wishes to discuss, any proposed changes to the merger agreement. If any material revisions are made to the third party acquisition proposal, we are required to provide Parent with a new notice and opportunity to amend the merger agreement. Moreover, if we terminate the merger agreement to enter into an agreement with respect to a superior proposal, we must pay the termination fee described below under the caption “Termination Fee and Expenses.”

 

The merger agreement requires us to duly call, give notice of and hold a meeting of our stockholders for the purpose of considering and taking action on the merger and the merger agreement promptly following the date upon which this proxy statement is cleared by the SEC. Subject to certain fiduciary obligations of our directors, our Board of Directors is required to recommend that our stockholders vote in favor of the merger agreement at the stockholders’ meeting. Until our Board of Directors withdraws or modifies its recommendation in favor of the merger, we are required to use commercially reasonable efforts to solicit the number of votes needed for approval and adoption of the merger agreement. Under the merger agreement, we are required to submit the merger agreement to our stockholders even if our Board of Directors withdraws or modifies its recommendation in favor of the merger, unless the merger agreement is validly terminated pursuant to its terms. Notwithstanding the foregoing, we are required to use commercially reasonable efforts to obtain a written consent from a majority of our stockholders to approve the merger agreement.

 

The merger agreement provides that all rights to indemnification, expense advancement and exculpation from personal liability existing in favor of any of our or our subsidiaries’ present or former directors, officers or employees as provided in the applicable charter or organizational documents as in effect on the date of the merger agreement will survive the merger.

 

The merger agreement also requires Parent to cause the surviving corporation to negotiate and purchase “tail” insurance coverage that provides coverage for a period of six years and that is no less favorable in amount and terms and conditions of coverage than our existing directors and officers liability insurance programs.

 

Pursuant to a limited guarantee delivered by Providence in favor of Virtual Radiologic, Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P., which are investment funds affiliated with Providence, have guaranteed (severally and not jointly) certain of Parent’s and Merger Sub’s obligations under the merger agreement, including, subject to certain limitations as set forth in the limited guarantee, (i) the aggregate consideration due to our stockholders and optionholders in connection with the merger; (ii) any liabilities or damages incurred or suffered by the company as a result of the breach by Parent or Merger Sub of any of their representations, warranties, covenants or other agreements under the merger agreement to the extent such breach or breaches result in us terminating the merger agreement pursuant to Section 7.01(h) of the merger agreement; and (iii) Parent’s and Merger Sub’s obligations pursuant to Section 9.09 of the merger agreement to perform specifically the terms and provisions of the merger agreement, to the extent specific performance is found in a judicial

determination (or settlement tantamount thereto) to be required pursuant to the terms and conditions of, and subject to the limitations set forth in, the merger agreement.

 

Specific Performance

 

Virtual Radiologic, Parent and Merger Sub are each entitled to seek an injunction to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, in addition to any other legal or equitable remedy to which they are entitled, subject to the limitations and requirements set forth in the merger agreement.

 

Mutual Agreements

 

In addition to the other agreements described elsewhere in this section of the proxy statement, Virtual Radiologic, Parent and Merger Sub have agreed to take the following actions:

 

 

Virtual Radiologic Agreements

 

In addition to the other agreements described elsewhere in this section of the proxy statement, we have agreed to take the following actions:

 

 

Parent and Merger Sub Agreements

 

In addition to the other agreements described elsewhere in this section of the proxy statement, Parent and Merger Sub have agreed to take, or refrain from taking, the following actions:

 

 

Conditions of Virtual Radiologic, Parent and Merger Sub

 

The obligations of each party to effect the merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the merger of the following conditions:

 

 

Conditions of Virtual Radiologic

 

The obligations of Virtual Radiologic to effect the merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the merger of the following conditions:

 

 

Conditions of Parent and Merger Sub

 

The obligations of Parent and Merger Sub to effect the merger are subject to the fulfillment or waiver, to the extent permitted by law, at or before the effective time of the merger of the following conditions:

 

 

Termination by Mutual Consent

 

The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after approval and adoption of the merger agreement by our stockholders, by the mutual written consent of Virtual Radiologic and Parent.

 

Termination by Virtual Radiologic or Parent

 

Virtual Radiologic or Parent may terminate the merger agreement, without the consent of the other, in the event of any of the following:

 

 

 

Termination by Parent

 

Parent may terminate the merger agreement, without our consent, in the event of any of the following:

 

 

Termination by Virtual Radiologic

 

We may terminate the merger agreement if there shall have been any breach of any representation or warranty of Parent or Merger Sub, or any such representation or warranty of Parent or Merger Sub shall have become untrue and incapable of being cured prior to the effective time of the merger, or any breach of any covenant or agreement of Parent or the Merger Sub, such that a condition to our obligation to close would not be satisfied, and such breach or condition is not curable or, if curable, shall not have been remedied within 30 days after receipt by Parent of written notice from us. In addition, we may terminate the merger agreement to accept a superior proposal so long as we have complied in all material respects with the requirements in the merger agreement relating to third party acquisition proposals, as described above under the caption “Acquisition Proposals by Third Parties,” and have paid the termination fee described below.

 

Effect of Termination

 

If the merger agreement is terminated as described above, no party to the agreement will have any liability or further obligation under the agreement except with respect to:

 

 

We are obligated to pay Parent a termination fee of $9.0 million if we terminate the merger agreement in order to accept a superior acquisition proposal. We also are obligated to pay Parent a termination fee of $9.0 million if any

of the following occur and within one year after termination of the merger agreement we consummate a third party acquisition or enter into an agreement with respect to an acquisition by a third party:

 

 

We are obligated to reimburse Parent for up to $2.4 million of its documented, out-of-pocket expenses in the event that the merger agreement is terminated because our stockholders fail to approve and adopt the merger agreement or because the merger agreement is terminated by Parent because we have breached any representation or warranty, or any such representation or warranty of shall have become untrue and incapable of being cured prior to the effective time of the merger, or any breach of any covenant or agreement of ours, such that a condition to our obligation to close would not be satisfied, and such breach or condition is not curable or, if curable, shall not have been remedied within 30 days after our receipt of written notice from Parent.

 

The merger agreement may be amended by the parties at any time before or after approval and adoption by our stockholders of the matters presented in connection with the merger by an instrument signed by each party. However, after approval and adoption by our stockholders of the matters presented in connection with the merger, no amendment may be made without the approval and adoption of our stockholders if such approval and adoption would be required by law.

 

Eduard Michel, M.D., Ph.D., a director and the Chief Medical Officer of Virtual Radiologic, and the Generation Funds each entered into a voting and proxy agreement pursuant to which Dr. Michel and the Generation Funds agreed to vote in favor of or execute a written consent for the approval and adoption of the merger agreement and the other transactions contemplated by the merger agreement, and to vote against, among other things, any other acquisition proposals. Further, Dr. Michel and the Generation Funds irrevocably appointed Parent as their respective agent, attorney and proxy to vote their shares as set forth above. In addition, Dr. Michel and the Generation Funds each agreed not to directly or indirectly transfer their respective shares of our common stock during the term of the voting and proxy agreements, subject to certain exceptions. Dr. Michel and the Generation Funds collectively held approximately 31.3% of our total shares outstanding as of the date of the voting agreements. Further, the voting and proxy agreements contain a “no-shop” restriction on the ability of Dr. Michel and the Generation Funds to solicit alternative acquisition proposals from, provide information to, or and engage in discussions with, third parties.

 

Generation Capital Partners VRC LP and Generation Capital Partners II LP subsequently transferred all of their shares of our common stock to certain affiliates of the Generation Funds that have entered into an amended and restated voting and proxy agreement pursuant to which they have agreed to be subject to all of the terms of the voting and proxy agreement with the Generation Funds. All references to the Generation Funds in this proxy statement include these parties and all references to the voting and proxy agreement with the Generation Funds are to the agreement as amended and restated.

MARKET PRICE AND DIVIDEND INFORMATION

 

Our common stock is listed on the Nasdaq Global Market under the symbol “VRAD.” The following table shows, for the periods indicated, the reported high and low closing sale prices per share of our common stock on the Nasdaq Global Market:

 

 

 

 

On May 14, 2010, the last full day of trading prior to the announcement of the execution of the merger agreement, the reported closing price on Nasdaq for our common stock was $12.99 per share. On June 4, 2010, the record date of the special meeting, the reported closing price on Nasdaq for our common stock was $16.88 per share. Stockholders should obtain a current market quotation for the common stock before making any decision with respect to the merger. As of June 4, 2010, there were 16,359,359 shares of our common stock held and approximately 76 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to readily estimate the total number of stockholders represented by these record holders.

 

Except for a one-time special dividend paid in 2007, we have never declared or paid any cash dividends on our capital stock. We currently intend to retain future earnings to fund the operation, development and expansion of our business and we do not expect to pay any dividends in the foreseeable future. Under the terms of the merger agreement, we are not permitted to declare or pay dividends without Parent’s prior consent.

 

The following table indicates information regarding the beneficial ownership of our common stock as of June 4, 2010 by:

 

 

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, these rules include shares of common stock issuable pursuant to the exercise of stock options or warrants or conversion of convertible notes that are either immediately exercisable or convertible or exercisable or convertible within 60 days of June 4, 2010. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and dispositive authority with respect to all shares shown as beneficially owned by them.

 

The number of shares owned and percentage of ownership in the following table is based on 16,359,359 shares of common stock outstanding on June 4, 2010.

 

Except as otherwise indicated below, the address for each stockholder listed below is c/o Virtual Radiologic Corporation, 11995 Singletree Lane, Suite 500, Eden Prairie, Minnesota 55344.

 

 

 

 

 

We may ask our stockholders to vote on a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the adjournment to approve and adopt the merger agreement. We currently do not intend to propose adjournment at the special meeting if there are sufficient votes to approve and adopt the merger agreement. If our stockholders approve this proposal, we may adjourn the special meeting and use the additional time to solicit additional proxies, including proxies from our stockholders who have previously voted against approval and adoption of the merger agreement.

 

The approval of a majority of the votes cast is required to approve the adjournment of the special meeting for the purpose of soliciting additional proxies. Accordingly, abstentions will have no impact on the outcome of this proposal. Proxy cards submitted by registered stockholders without voting instructions will be voted “FOR” approval of adjournment of the special meeting to solicit additional proxies. Stockholders who hold their shares in street name and do not give instructions to their bank or brokerage firm will not be considered present at the special meeting, but the failure to provide instructions will have no effect on the outcome of this proposal.

 

Our Board of Directors unanimously recommends that our stockholders vote “FOR” the approval of the adjournment of the special meeting, if necessary, to solicit additional proxies.

 

As required by Article II, Section 2 of our Amended and Restated Bylaws, as amended, no business shall be transacted and no corporate action shall be taken at the special meeting other than that stated in this notice.

STOCKHOLDER PROPOSALS

 

If the merger is completed, there will be no public participation in any future meetings of our stockholders. If the merger is not completed, our stockholders will continue to be entitled to attend and participate in our stockholder meetings, and any stockholder nominations or proposals for other business intended to be presented at our next annual meeting must be submitted to us as set forth below. Subject to consummation of the merger, we do not intend to conduct any further annual meetings of stockholders.

 

If the merger is not consummated, in order for a stockholder proposal to be considered for inclusion in the proxy materials for the 2011 Annual Meeting of Stockholders, the written proposal must be received at our principal executive offices no later than the close of business on December 10, 2010. Any stockholder proposals intended to be presented in our proxy materials must satisfy the requirements of the proxy rules promulgated by the SEC.

 

Any other stockholder proposals to be presented at the 2011 Annual Meeting must be given in writing to our secretary at our corporate headquarters, and must be received not later than March 14, 2011 and no earlier than February 12, 2011. The proposal must contain specific information required by Article II, Section 4 of our Amended and Restated Bylaws, a copy of which may be obtained by writing to our secretary or accessing our public filings with the SEC at www.sec.gov . If a proposal is not timely and properly made in accordance with all necessary procedures, it will be defective and may not be brought before the meeting. If the proposal is nonetheless brought before the meeting and the chairman of the meeting does not exercise the power and duty to declare the proposal defective, the persons named in the proxy may vote on such matter in their discretion.

 

Our Nominating and Corporate Governance Committee will consider recommendations for the nomination of directors from stockholders who are eligible to vote for the election of directors. In accordance with our Amended and Restated Bylaws, stockholders of record may separately propose nominees for consideration by our Nominating and Corporate Governance Committee only after providing timely written notice to our secretary. In order to be timely for the 2011 Annual Meeting, the notice must be received at our corporate headquarters no later than February 12, 2011, and no earlier than January 13, 2011. The notice must set forth, among other things, (i) as to each nominee for election as a director, all information relating to such nominee that would be required to be disclosed in solicitations of proxies for election of directors, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including such person’s written consent to being named in the proxy statement

as a nominee and to serving as a director if elected, and (ii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (a) the name and address of such stockholder, as they appear on our stock transfer books, and of such beneficial owner and (b) the class, series and number of shares of our Company which are owned beneficially and of record by such stockholder and such beneficial owner.

 

The SEC rules governing delivery of certain corporate documents to our stockholders state that we may deliver one copy of a proxy statement, annual report or prospectus to an address shared by two or more stockholders. This “householding” of materials provides us with a significant cost savings. We have therefore provided one copy of this proxy statement to each address, unless we have received explicit instructions to provide more than one copy. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of either document and wish to receive only one, please notify your broker. We will deliver promptly upon written or oral request a separate copy of our proxy statement to a stockholder at a shared address to which a single copy was delivered. For copies of this proxy statement, stockholders should write to Investor Relations, Virtual Radiologic Corporation, 11995 Singletree Lane, Suite 500, Eden Prairie, MN 55344, (952)-595-1100.

 

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file reports, proxy and information statements and other information with the SEC. Such reports, proxy and information statements and other information we file can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. at prescribed rates. You can contact the SEC at 1-800-SEC-0330 for additional information about these facilities. The SEC maintains a web site that contains reports, proxy and information statements and other information filed with the SEC. This web site can be accessed at www.sec.gov .

 

The SEC allows us to “incorporate by reference” information into this proxy statement. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement, and later information filed with the SEC will update and supersede the information in this proxy statement.

 

The following documents filed with the SEC are incorporated by reference in this proxy statement:

 

1. Our Annual Report on Form 10-K for the year ended December 31, 2009;

 

2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2010; and

 

3. Our Current Report on Form 8-K filed with the SEC on May 17, 2010.

 

We also incorporate by reference each document we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and prior to final adjournment of the special meeting.

 

Documents incorporated by reference, excluding all exhibits (unless we have specifically incorporated by reference an exhibit into this proxy statement) are available without charge to stockholders upon written or oral request to Investor Relations, Virtual Radiologic Corporation, 11995 Singletree Lane, Suite 500, Eden Prairie, MN 55344 or by phone at (952)-595-1100.

 

You should rely only on the information contained in or incorporated by reference into this proxy statement. We have not authorized anyone to give any information different from the information contained in or incorporated by reference into this proxy statement. This proxy statement is dated June 18, 2010. You should not assume that the information contained in this proxy statement is accurate as of any later date, and the mailing of this proxy statement to you shall not create any implication to the contrary.

Appendix A

 

 

AGREEMENT AND PLAN OF MERGER
by and among
VIKING HOLDINGS LLC,
VIKING ACQUISITION CORPORATION
and
VIRTUAL RADIOLOGIC CORPORATION
May 16, 2010

 

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