EXHIBIT 10.42 PURCHASE AND CONTRIBUTION AGREEMENT

 

EXHIBIT 10.42

 

P URCHASE AND C ONTRIBUTION A GREEMENT

 

T HIS P URCHASE AND C ONTRIBUTION A GREEMENT , made and entered into effective as of May 1, 2004, is by and among M & S I MAGING P ARTNERS , L.P., a Delaware limited partnership (“ Seller ”), VHS S AN A NTONIO I MAGING P ARTNERS , L.P., a Delaware limited partnership (“ Buyer ”), VHS S AN A NTONIO P ARTNERS , L.P., a Delaware limited partnership (“ San Antonio Partners ”), R ADIOLOGIX , I NC ., a Delaware corporation (“ Radiologix ”), and V ANGUARD H EALTH S YSTEMS , I NC ., a Delaware corporation (“ Vanguard ”).

 

R ECITALS :

 

W HEREAS , Seller and San Antonio Partners are owners and holders of 100% of the economic and beneficial interests in and to the following partnerships:

 

(i)

Baptist Imaging Center, a Texas joint venture,

 

(ii)

North Central Baptist Imaging Center, a Texas joint venture,

 

(iii)

Southeast Baptist Imaging Center, a Texas joint venture,

 

(iv)

Northeast Baptist MRI Center, a Texas joint venture, and

 

(v)

Lexington MR, Ltd., a Texas limited partnership; and

 

W HEREAS , this Agreement provides for the sale by Seller to Buyer of all right, title and interest of Seller in and to the Partnerships and for the contribution by San Antonio Partners to Buyer of all right, title and interest of San Antonio Partners in and to the Partnerships; and

 

W HEREAS , pursuant to the terms of that certain Asset Purchase Agreement, dated of even date herewith, among Buyer, Seller, Vanguard and Radiologix, Buyer is also purchasing from Seller substantially all of the assets of the Wholly-Owned Center (the “ Related Agreement ”).

 

N OW , T HEREFORE , for and in consideration of the premises, and the agreements, covenants, representations and warranties hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are forever acknowledged and confessed, the Parties, intending to be legally bound, agree as follows:

 

A GREEMENT :

 

1.	D EFINITIONS AND R EFERENCES

 

1.01. Definitions : As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings given:

 

Accounts Receivable : all accounts receivable of the Partnerships for patient services provided by the Partnerships through the close of business on the day immediately prior to the Closing Date (including the MRI and CT owned by North Central Baptist Imaging Center), accrued and unaccrued, including Government Payment

 

Program receivables and accounts that have been written off and accounts receivable due to the Partnerships from Seller, but excluding any receivables that are owed from one Partnership to another Partnership or are owed to the Partnerships by the Seller;

 

Affiliate : any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with another Person and includes the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of securities, election or appointment of directors, by Contract or otherwise;

 

Agreement : this Purchase and Contribution Agreement and all Exhibits and Schedules attached hereto, as amended, consolidated, supplemented, novated or replaced by the Parties from time to time;

 

Annual Financial Statements : the unaudited balance sheet of each of the Centers as of December 31, 2002 and December 31, 2003, and the unaudited statement of earnings for each of the years then ended;

 

Buyer : VHS San Antonio Imaging Partners, L.P., a Delaware limited partnership and an Affiliate of Vanguard;

 

Buyer’s Indemnified Persons : Buyer, Vanguard, and Buyer’s and Vanguard’s partners, stockholders, Affiliates, successors and assigns from time to time, and their respective stockholders, partners, Affiliates, directors, trustees, officers, employees, agents and representatives, provided that Buyer’s Indemnified Persons shall expressly exclude San Antonio Partners with respect to any claim for indemnification or contribution made pursuant to the terms of this Agreement or otherwise;

 

Center : each of the diagnostic imaging centers owned by the Partnerships;

 

Claim Notice : written notification of a Third Party Claim by an Indemnified Party to an Indemnifying Party under Article 9, including a Revenue Agent’s Report, Statutory Notice of Deficiency, Notice of Proposed Assessment, or any other official written notice from a Taxing authority that Taxes are due or that a Tax audit will be conducted;

 

Closing : defined in Section 8.01;

 

Closing Date : the date as of which the Closing occurs;

 

Closing Documents : all instruments, agreements, certificates or other documents executed or delivered by any Party to another Party at Closing;

 

Code : the Internal Revenue Code of 1986, as amended;

 

Contract : each commitment, contract, lease, license, agreement and understanding, written or oral, to which any of the Partnerships is a party or by which it or any of its assets or properties are bound, including agreements with physicians, managed care plans and other payers, management, employment, retention and severance

 

2

agreements, vendor agreements, real and personal property leases and schedules, maintenance agreements and schedules, agreements with municipalities and labor organizations, and bonds, mortgages and other loan agreements;

 

Controlled Group : with respect to a Partnership, a group consisting of each trade or business (whether or not incorporated) which, together with the Partnership, would be deemed a “ single employer ” within the meaning of section 4001(a)(14) of ERISA;

 

Effective Date : the date as of which this Agreement was entered into by the Parties, as set forth on the first page of this Agreement;

 

Employee Benefit Plan : any (1) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (2) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), (3) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (4) Employee Welfare Benefit Plan or material fringe benefit plan or program;

 

Employee Pension Benefit Plan : defined in section 3(2) of ERISA;

 

Employee Welfare Benefit Plan : defined in section 3(1) of ERISA;

 

Encumbrances : liabilities, levies, claims, charges, assessments, mortgages, security interests, liens, pledges, conditional sales agreements, title retention contracts, leases, subleases, rights of first refusal, options to purchase, restrictions (including those on transferring, pledging and mortgaging) and other encumbrances, and Contracts to create or suffer any of the foregoing;

 

Environmental Claim : any written notice (or oral notice reduced to writing by Seller or a Partnership) by a Person alleging potential liability (including potential liability for investigatory costs, cleanup costs, Governmental Authority response costs, natural resource damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (1) the presence, or release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by a Partnership, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Laws;

 

Environmental Laws : any and all Legal Requirements relating to pollution or protection of human health or the environment (including ground water, land surface or subsurface strata), including Legal Requirements relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, recycling, reporting or handling of Materials of Environmental Concern;

 

ERISA : the Employee Retirement Income Security Act of 1974, as amended;

 

ERISA Fiduciary : defined in section 3(21) of ERISA;

 

3

Financial Statements : the Annual Financial Statements, Interim Financial Statements, the balance sheet described in Section 2.04(d), and the financial statements described in Section 5.04(b)(i);

 

Governmental Authorities : all agencies, authorities, bodies, boards, commissions, courts, instrumentalities, legislatures and offices of any nature whatsoever of any federal, state, county, district, municipal, city, foreign or other government or quasi-government unit or political subdivision, and private arbitration panels or dispute resolution makers;

 

Government Payment Programs : federal and state Medicare, Medicaid and TRICARE programs, and similar or successor programs with or for the benefit of Governmental Authorities;

 

Immaterial Contracts : Contracts that (i) require the future payment by a Partnership of $15,000 or less or the future performance by a Partnership of services having a value of $15,000 or less, or (ii) are terminable by a Partnership at any time without cause upon notice of 90 days or less, and that require during the period prior to termination the payment of $15,000 or less or the future performance of services having a value of $15,000, provided that notwithstanding the foregoing, Immaterial Contracts shall not include any Contracts described in paragraphs (a) through (g) of Section 3.16;

 

Indemnified Party : any Person entitled to indemnification under Article 9;

 

Indemnifying Party : any Person obligated to indemnify another Person under Article 9;

 

Indemnity Notice : written notification of a claim for indemnity under Article 9, other than a Third Party Claim, made by an Indemnified Party to an Indemnifying Party pursuant to Section 9.05(b);

 

Intellectual Properties : all marks, names, trademarks, service marks, patents, patent rights, assumed names, logos, copyrights, trade secrets and similar intangibles (including variants of and applications for the foregoing);

 

Interim Financial Statements : the balance sheets and statements of earnings of each of the Centers as of and for the two months ended February 29, 2004;

 

Investments : shares of capital stock of any corporation, interests in partnerships or limited liability companies, or other equity or debt instruments in any other Person, and proceeds from the sale thereof;

 

Legal Requirements : with respect to any Person, all statutes, ordinances, by-laws, codes, rules, regulations, restrictions, orders, judgments, writs, injunctions, decrees, determinations or awards of any Governmental Authority having jurisdiction over such Person or any of such Person’s assets or businesses;

 

Losses : any and all damages, claims, costs, losses (including any diminution in value), liabilities, expenses or obligations (including Taxes, interest, penalties, court

 

4

costs, costs of preparation and investigation, and attorneys’, accountants’ and other professional advisors’ fees and expenses);

 

Material Adverse Effect : a material adverse effect, either individually or in the aggregate, on the business, assets, liabilities, financial condition or results of operations of the Partnerships, taken as a whole, but excluding the effect of (i) matters described in any Schedule, (ii) changes in the economy of the United States in general, and (iii) changes in Legal Requirements or Government Payment Programs generally applicable to owners or operators of diagnostic imaging centers in the city where the Centers are located;

 

Materials of Environmental Concern : chemicals, pollutants, contaminants, wastes (including medical waste), toxic substances, petroleum and petroleum products, including hazardous wastes under the Resource, Conservation and Recovery Act, 42 U.S.C. § 6903 et seq. , hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq. , asbestos, polychlorinated biphenyls and urea formaldehyde, and low-level nuclear materials, special nuclear materials or nuclear-byproduct materials, all within the meaning of the Atomic Energy Act of 1954 as amended, and any rules, regulations or policies promulgated thereunder;

 

Multiemployer Plan : defined in section 3(37) of ERISA or section 4001(a)(3) of ERISA;

 

Multiple Employer Plan : an Employee Pension Benefit Plan which is not a Multiemployer Plan and for which a Person who is not a member of a Controlled Group that includes a Partnership is or has been a contributing sponsor;

 

Notice Period : defined in Section 9.05(a)(i);

 

Other Plan : any Contract, program or arrangement which provides cash or non-cash benefits or perquisites to current or former employees, but which is not an Employee Benefit Plan;

 

Partnership : each of Baptist Imaging Center, a Texas joint venture, North Central Baptist Imaging Center, a Texas joint venture, Southeast Baptist Imaging Center, a Texas joint venture, Northeast Baptist MRI Center, a Texas joint venture, and Lexington MR, Ltd., a Texas limited partnership;

 

Partnership Agreement : each of the following agreements, to which Seller and San Antonio Partners are parties: (i) the amended and restated joint venture agreement of Baptist Imaging Center effective November 23, 1998, as amended by amendment effective May 30, 1998 and amendment no. 1 dated effective January 1, 2003; (ii) the joint venture agreement of North Central Baptist Imaging Center effective January 1, 1998, as amended by amendment no. 1 effective January 1, 2003; (iii) the joint venture agreement of Southeast Baptist Imaging Center effective January 1, 1998, as amended by amendment effective May 30, 1998 and amendment no. 1 effective January 1, 2003; (iv) the joint venture agreement of Northeast Baptist MRI Center effective January 1, 1998,

 

5

as amended by amendment effective May 30, 1998 and amendment no. 1 effective January 1, 2003; and (v) the amended and restated agreement of limited partnership of Lexington MR, Ltd. effective January 1, 1998, as amended by amendment dated as of May 30, 1998 and amendment no. 1 effective January 1, 2003;

 

Partnership Interest : all right, title and interest of a Person in and to a Partnership;

 

Party : any party to this Agreement, its successors and assigns;

 

Party in Interest : a “ party in interest ” as defined in section 3(14) of ERISA, and a “ disqualified person ” as defined in the Code;

 

PBGC : the Pension Benefit Guaranty Corporation;

 

Permitted Encumbrances : (i) each of the Partnership Agreements, (ii) each Encumbrance related to a liability or obligation identified on the Interim Financial Statement or on any Schedule, (iii) liens for Taxes that are not yet due or delinquent, (iv) mechanics’ and landlord liens arising in the ordinary course of business under the Centers’ leases, and (v) such other Encumbrances accepted in writing by Buyer to which the Partnership Interests or the assets or properties of the Partnerships may be subject at Closing;

 

Person : any individual, company, body corporate, association, partnership, firm, joint venture, trust, trustee or Governmental Authority;

 

Physician Group : M & S Imaging Associates, P.A., a Texas professional association;

 

Prohibited Transaction : defined in section 406 of ERISA and section 4975 of the Code;

 

Purchase Price : defined in Section 2.05;

 

Radiologix : Radiologix, Inc., a Delaware corporation;

 

Reportable Event : defined in section 4043 of ERISA;

 

San Antonio Partners : San Antonio Partners, L.P., a Delaware limited partnership, one of the partners in the Partnerships and an Affiliate of Vanguard;

 

Schedule : One or more of the schedules prepared and delivered to Buyer by Seller or San Antonio Partners, or prepared and delivered to Seller by Buyer, in which a Party sets forth certain exceptions to the representations, warranties or covenants of such Party in this Agreement and other information specified in this Agreement as being included in such Schedule or Schedules;

 

Seller : M & S Imaging Partners, L.P., a Delaware limited partnership, one of the partners in the Partnerships and an Affiliate of Radiologix;

 

6

Seller’s Indemnified Persons : Seller and Radiologix and Seller’s and Radiologix’s stockholders, Affiliates, successors and assigns, and their respective partners, stockholders, directors, trustees, officers, employees, agents and representatives;

 

Tax : any income, unrelated business income, gross receipts, license, payroll, employment, excise, severance, occupation, privilege, premium, net worth, windfall profits, environmental (including taxes under section 59A of the Code), customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, recording, stamp, sales, use, service, service use, transfer, registration, escheat, unclaimed property, value added, alternative or add-on minimum, estimated or other tax, assessment, charge, levy or fee of any kind whatsoever, including payments or services in lieu of Taxes, interest or penalties on and additions to all of the foregoing, which are due or alleged to be due to any Governmental Authority, whether disputed or not;

 

Tax Return : any return, declaration, report, claim for refund, information return or statement, including schedules and attachments thereto and amendments, relating to Taxes;

 

Third Party Claim : defined in Section 9.05(a)(i);

 

Vanguard : Vanguard Health Systems, Inc., a Delaware corporation; and

 

Wholly-Owned Center : the M & S Imaging and P.E.T. Center, a single diagnostic imaging center located in San Antonio, Texas.

 

1.02. Certain References . As used in this Agreement, and unless the context requires otherwise:

 

(a) references to “ include ” or “ including ” mean including without limitation;

 

(b) references to “ partners ” include general and limited partners of partnerships and members of limited liability companies;

 

(c) references to “ partnerships ” include general and limited partnerships, joint ventures and limited liability companies;

 

(d) references to any document are references to that document as amended, consolidated, supplemented, novated or replaced by the parties thereto from time to time;

 

(e) references to any law are references to that law as amended, consolidated, supplemented or replaced from time to time and all rules and regulations promulgated thereunder;

 

(f) references to time are references to San Antonio, Texas time;

 

(g) references in this Agreement to the “ knowledge” of a Party or variants thereof mean the actual knowledge of each of the Persons whose names or titles are set

 

7

forth in Schedule 1.02 , after the reasonable inquiry by such Persons, but no further inquiry by such Persons;

 

(h) the gender of all words includes the masculine, feminine and neuter, and the number of all words includes the singular and plural;

 

(i) references to articles or sections are references to articles or sections of this Agreement, unless otherwise expressly stated; and

 

(j) the table of contents, the division of this Agreement into articles and sections, and the use of captions and headings in connection therewith are solely for convenience and shall have no legal effect in construing the provisions of this Agreement.

 

2.	S ALE OF P ARTNERSHIP I NTERESTS ; C ONTRIBUTION OF P ARTNERSHIP I NTERESTS

 

2.01. Sale of Partnership Interests . Subject to the terms and conditions of this Agreement, at Closing Seller shall sell, assign, convey, transfer and deliver to Buyer, or cause to be sold, assigned, conveyed, transferred and delivered to Buyer, and Buyer shall purchase the Partnership Interests owned by Seller, free and clear of all Encumbrances other than the Permitted Encumbrances.

 

2.02. Contribution of Partnership Interests; Dissolution of Partnerships . Subject to the terms and conditions of this Agreement, at Closing San Antonio Partners shall contribute, assign, convey, transfer and deliver to Buyer the Partnership Interests owned by San Antonio Partners, subject to any and all Encumbrances to which such Partnership Interests may be subject at Closing. Such contribution shall be effective immediately after the sale of Seller’s Partnership Interests pursuant to this Agreement. Promptly after San Antonio Partners contributes its Partnership Interests to Buyer, Buyer will cause the Partnerships to be dissolved in accordance with the terms of their respective Partnership Agreements and applicable Legal Requirements.

 

2.03. Accounts Receivable. Subject to the terms and conditions of this Agreement, at Closing, Buyer, San Antonio Partners and Seller shall cause the Partnerships to transfer and distribute to Seller all right, title and interest of the Partnerships in and to the Accounts Receivable of the Partnerships.

 

2.04. Purchase Price; Issuance of Shares .

 

(a) Subject to the terms and conditions of this Agreement, in reliance upon the representations, warranties and covenants of Seller herein set forth, and as consideration for the sale and purchase of Seller’s Partnership Interests, at Closing Buyer shall tender to Seller as the purchase price (collectively, the “ Purchase Price ”) (1) $5,300,000 less (2) the aggregate amount that is due to the Partnerships from Seller as of the close of business on the day immediately prior to the Closing Date, plus (3) the aggregate amount that is due to Seller from the Partnerships as of the close of business on the day immediately prior to the Closing Date. Any amounts due Seller or the Partnerships that are included in the calculation of the Purchase Price shall be deemed to be paid in full as of the Closing Date by Seller or by the Partnerships, as the case may be.

 

8

(b) As consideration for the contribution of San Antonio Partners’ Partnership Interests, at Closing Buyer shall issue and deliver to San Antonio Partners one or more certificates evidencing an ownership interest in Buyer.

 

(c) Buyer shall pay the Purchase Price by wire transfer of immediately available funds to an account or accounts designated by Seller and Seller shall execute such receipts or other acknowledgments as are reasonably requested by Buyer to evidence payment and receipt of the Purchase Price.

 

(d) The amounts due to the Partnerships from Seller, or to Seller from the Partnerships, shall be initially determined at Closing from the most recently available balance sheet delivered to Buyer pursuant to Section 5.04(b). As soon as practical (and in no event later than 30 days after the Closing Date), Seller shall prepare and deliver to Buyer a calculation of the (1) aggregate amount that was due to the Partnerships from Seller as of the close of business on the day immediately prior to the Closing Date and (2) the aggregate amount that was due to Seller from the Partnerships as of the close of business on the day immediately prior to the Closing Date. Seller shall prepare the above balance sheet using the same methodologies, policies and practices used by Seller in preparing the other Financial Statements and in a consistent manner. The Purchase Price shall be reduced or increased, as the case may be, to reflect the differences between the amounts included in the determination of the Purchase Price at the Closing compared to the actual amounts set forth in the calculation delivered by Seller to Buyer. The adjustment to the Purchase Price, if any, will be paid by Seller or Buyer, as the case may be, within five business days after the Seller delivers the actual amounts to Buyer pursuant to the provisions of this paragraph.

 

3.	R EPRESENTATIONS AND W ARRANTIES OF S ELLER

 

Subject to the exceptions described in the Schedules attached to this Agreement and made a part hereof, Seller makes the following representations and warranties to Buyer and Vanguard on and as of the Effective Date and shall be deemed to make them again at and as of the Closing:

 

3.01. Organization .

 

(a) Seller is duly organized and validly existing in good standing under the laws of the State of Delaware.

 

(b) Each of Baptist Imaging Center, Northeast Baptist Imaging Center, Southeast Baptist Imaging Center and Northeast Baptist MRI Center is a joint venture partnership duly organized and validly existing under the laws of the State of Texas, and Lexington MR, Ltd., is a limited partnership duly organized and validly existing under the laws of the State of Texas. No Partnership is licensed, qualified or admitted to do business in any other jurisdiction and there is no other jurisdiction in which the ownership, use or leasing of a Partnership’s assets or properties, or the conduct or nature of its business, makes such licensing, qualification or admission necessary.

 

9

3.02. Powers; Consents; Absence of Conflicts, Etc. of Seller . Seller has the requisite power and authority to conduct its businesses as now being conducted, to enter into this Agreement and to perform its obligations hereunder, and the execution, delivery and performance by Seller of this Agreement and the Closing Documents and the consummation of the transactions contemplated herein:

 

(a) are within Seller’s partnership powers, are not in contravention of any of the terms of its governing documents, as amended to date, and have been duly authorized by all appropriate partnership and member action;

 

(b) do not conflict with, result in any breach or contravention of, or permit the acceleration of the maturity of, any liabilities of Seller;

 

(c) do not violate any Legal Requirement to which Seller may be subject; and

 

(d) do not conflict with or result in a breach or violation of any material Contract to which Seller is a party or by which it is bound.

 

3.03. Powers; Consents; Absence of Conflicts, Etc of the Partnerships . Each of the Partnerships has the requisite power and authority to conduct its businesses as now being conducted, and the consummation of the transactions contemplated herein:

 

(a) are not in contravention of any of the terms of its governing documents, as amended to date;

 

(b) do not conflict with, result in any breach or contravention of, or permit the acceleration of the maturity of, any liabilities of the Partnership, and do not create or permit the creation of any Encumbrance on or affecting any assets or properties of the Partnership;

 

(c) do not violate any Legal Requirement to which the Partnership’s assets may be subject; and

 

(d) do not conflict with or result in a breach or violation of any material Contract to which any Partnership is a party or by which it is bound.

 

3.04. Binding Agreement . This Agreement and each of the Closing Documents to which Seller is or becomes a party are (or upon execution will be) valid and legally binding obligations of Seller, enforceable against Seller in accordance with the respective terms hereof or thereof, except as enforceability may be restricted, limited or delayed by applicable bankruptcy or other laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity.

 

3.05. Capitalization of Partnerships; Subsidiaries; Partnership Records .

 

(a) The Seller owns of record and holds the percentage interests in each of the Partnerships set forth on Schedule 3.05 , free and clear of all Encumbrances and no Person other than San Antonio Partners owns or holds any legal or beneficial interest in

 

10

or to any of the Partnership Interests. Seller has full voting power over the Partnership Interests owned by it, subject to no proxy, shareholders’ agreement, voting trust or other agreement relating to the voting of any of the Partnership Interests. Neither Seller nor any of the Partnerships has issued or granted any outstanding securities, rights, subscriptions, warrants, calls, options, “phantom” stock rights or other Contracts of any kind that give any Person the right to purchase or otherwise receive or be issued any economic or beneficial interest in any of the Partnerships or in any of the Partnership Interests owned by Seller. Other than this Agreement and the Partnership Agreements, there is no Contract between Seller and any other Person with respect to the disposition of the Partnership Interests owned by Seller. At the Closing, Seller will transfer to Buyer good and valid title to all Partnership Interests owned by Seller, free and clear of all Encumbrances.

 

(b) None of the Partnerships owns any capital stock of any corporation, any interest in any general or limited partnership or joint venture, or any other investment interest (whether equity or debt) in any Person. Neither Seller nor any of the Partnerships has entered into any outstanding Contracts with any Person to acquire, directly or indirectly, any of the Partnership’s assets (other than in the ordinary course of business) or any interest therein.

 

(c) Seller has delivered to Buyer true and complete copies of the minute books and other partnership records of the Partnerships, and the minute books contain a complete and accurate summary of all material actions taken at all meetings, and by all written consents in lieu of meetings, of the partners.

 

3.06. Legal and Regulatory Compliance . Each of the Partnerships has complied with all Legal Requirements, and has timely filed all reports, data and other information required to be filed with Governmental Authorities, except where a failure to so comply or timely file would not have a Material Adverse Effect. Neither Seller nor, to the knowledge of Seller, any Partnership has received notice from any Person of any proceeding or investigation by Governmental Authorities alleging or based upon a violation of any Legal Requirements that (i) is currently pending or (ii) if not currently pending, would not otherwise have a Material Adverse Effect on any of the Partnerships. Neither Seller nor, to the knowledge of Seller, any Partnership has been threatened by any Person with any proceeding or investigation by Governmental Authorities alleging a violation of any Legal Requirements by the Partnerships. There is no (i) corporate integrity agreement with the Office of Inspector General of the United States Department of Health and Human Services or written agreement with such Governmental Authority to establish or maintain a corporate integrity program applicable to any of the Centers or (ii) settlement or similar agreement with any other Governmental Authority which imposes any continuing obligations on any of the Centers or contains obligations which have not been fully discharged.

 

3.07. Financial Statements . Attached as Schedule 3.07 are true and complete copies of the Annual Financial Statements and the Interim Financial Statements. The Financial Statements fairly present, in all material respects, the financial condition and results of operations of each of the Centers and the Wholly-Owned Center as of the respective dates thereof and for the periods therein referred to, all in accordance with generally accepted accounting principles, subject to

 

11

normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes, and the Financial Statements reflect the consistent application of such accounting principles throughout the periods involved.

 

3.08. Undisclosed Liabilities . Schedule 3.08 contains a summary of (i) all guarantees by the Partnerships of third party obligations, including contingent or conditional guarantees, and (ii) all other obligations or liabilities of the Partnerships incurred or accrued subsequent to the date of the Interim Financial Statements, which would be required by generally accepted accounting principles to be included in audited financial statements (or the notes thereto), except liabilities incurred in the ordinary course of business consistent with past practices since the date of the Interim Financial Statements.

 

3.09. Recent Activities . Since February 29, 2004:

 

(a) no damage, destruction or loss (whether or not covered by insurance) has occurred affecting the assets of any Partnership, except damage, destruction or loss to assets suffered in the ordinary course of the business of the Centers, which individually or in the aggregate have not had or are not reasonably expected to have a Material Adverse Effect;

 

(b) no labor dispute, enactment of state or local law, promulgation of state or local regulation, or other event or condition has occurred materially adversely affecting a Center;

 

(c) none of the Partnerships has sold, assigned, transferred, distributed or otherwise disposed of any of its assets, except in the ordinary course of business of the Centers consistent with past practices;

 

(d) none of the Partnerships has canceled or waived any material rights in respect of its assets, except in the ordinary course of business of the Centers consistent with past practices;

 

(e) none of the Partnerships has created, incurred, assumed, guaranteed or otherwise become liable for any indebtedness or capitalized lease obligations or, except in the ordinary course of business of the Centers consistent with past practices, incurred any other liability;

 

(f) none of the Partnerships has made any distribution or other payment in respect of its Partnership Interests;

 

(g) there has been no change in any accounting method, policy or practice of the Partnerships;

 

(h) other than compensation paid in the ordinary course of employment, no Partnership has paid any amount to, sold any Partnership assets to, or entered into any Contract with, any partner, officer or agent of the Partnership, or any Affiliate of any such Person;

 

12

(i) no Partnership has paid or agreed to pay to any Person damages, fines, penalties or other amounts in respect of actual or alleged violation of any Legal Requirement;

 

(j) no Partnership has entered into or agreed to enter into any transaction outside the ordinary course of business of its Center which may cause a liability or obligation in excess of $15,000; and

 

(k) no event, occurrence or development of a state of circumstances or facts has occurred which has had or reasonably could be expected to have a Material Adverse Effect.

 

3.10. Supplies . All supplies on hand consist of items of a quality usable in the ordinary course of business of the Centers, except for those items which are obsolete, below standard quality or in the process of repair, are carried at the lower of cost or market on a first-in, first-out basis, and are properly stated in the Interim Financial Statements as of the date thereof.

 

3.11. Equipment . Schedule 3.11 consists of or includes a depreciation schedule as of the date set forth therein that, to Seller’s knowledge, takes into consideration all the material equipment owned or leased by the Partnerships. All material equipment used in the operations of the Centers, whether reflected in the Financial Statements or otherwise, is maintained in good operating condition, except for reasonable wear and tear. All material medical and leased equipment has been maintained in accordance with manufacturer and lessor requirements, and complete and accurate maintenance logs or journals have been maintained at all times.

 

3.12. Title to Partnership Assets . Each Partnership owns all of its assets and properties free and clear of any Encumbrances, except the Encumbrances identified as such on the Interim Financial Statements or on the Schedules. At Closing each Partnership will own all of its assets and properties free and clear of any Encumbrances, except for Permitted Encumbrances.

 

3.13. Environmental Matters . To Seller’s knowledge, there are no circumstances in existence that may prevent or interfere with compliance by the Partnerships in all material respects with Environmental Laws. Neither Seller nor any Partnership has received any written communication (or reduced to writing any oral communication) from any Person alleging that any of the Partnerships is not in material compliance with Environmental Laws. Each Partnership has all material permits, licenses and approvals required under applicable Environmental Laws to own its assets and properties and to conduct the business of the Centers. No actions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge or disposal of any Materials of Environmental Concern, have occurred at the Centers that could reasonably be expected to form the basis of any Environmental Claim against any Person whose liability for any Environmental Claim Seller has or may have retained or assumed either contractually or by operation of law.

 

3.14. Insurance . Schedule 3.14 summarizes all insurance arrangements, including self-insurance, in place for the benefit of the assets of the Partnerships and the operation of the business of the Centers, including, the name of each insurer, whether such insurer is an Affiliate of Seller, and the coverage for each such policy of insurance. All of such policies are now and

 

13

until Closing will remain valid, outstanding, in full force and effect, and enforceable with no premium arrearages, except with respect to any such policy which has been replaced by a comparable policy.

 

3.15. Licenses and Permits . Schedule 3.15 contains a summary of all material licenses and permits held by the Partnerships relating to the ownership of the Partnerships’ assets and the business of the Centers, all of which, to Seller’s knowledge, are in good standing and not subject to meritorious challenge. Each Center is duly and properly licensed to conduct its business by all appropriate state agencies and is in material compliance with all licensing requirements and conditions of issuance.

 

3.16. Agreements and Commitments . Schedule 3.16 sets forth certain information regarding, among other Contracts, all Contracts of the Partnerships described in paragraphs (a) through (g) below. Seller has delivered to Buyer true and correct copies of such Contracts. Except for Contracts described on Schedule 3.16 :

 

(a) there are no Contracts with referral sources to a Center and no Contracts between any Partnership, on the one hand, and Seller, any Affiliate of Seller, or any physician or physician group who is (or any of whose members is) an employee of Seller or of any Affiliate of Seller, on the other hand;

 

(b) there are no Contracts with respect to Intellectual Properties;

 

(c) there are no Contracts relating to information and data processing systems, hardware and software utilized in connection with a Center;

 

(d) there are no collective bargaining agreements or other Contracts with labor unions or other employee representatives or groups;

 

(e) there are no requirements or exclusive Contracts or Contracts prohibiting or limiting competition or the conduct of any lawful business by a Center;

 

(f) there are no Contracts providing for payments based in any manner on the revenues, purchases or profits of a Center or any part thereof;

 

(g) there are no Contracts for the administration, operation or funding of any Employee Benefit Plan; and

 

(h) there are no other Contracts other than Immaterial Contracts.

 

3.17. The Contracts . Except as described in Schedule 3.17 and except for Immaterial Contracts:

 

(a) the Contracts constitute lawful, valid and legally binding obligations of the parties thereto and are enforceable in accordance with their terms;

 

(b) each Contract is in full force and effect and constitutes the entire agreement by and between the parties thereto;

 

14

(c) in all material respects, all obligations required to be performed prior to the date hereof under the Contracts by the parties thereto have been performed, and no event has occurred or failed to occur which constitutes, or with the giving of notice, the lapse of time or both would constitute, a default by a Partnership under one of the Contracts;

 

(d) no Contract prohibits or requires the consent of any Person to the transfer of the Partnership Interests by Seller to Buyer;

 

(e) no Contract will prohibit competition or restrict the ability of a Partnership to engage in any lawful business after Closing (including diagnostic imaging centers); and

 

(f) the transfer of the Partnership Interests to Buyer by Seller will not give a third party the right to terminate such Contract, or result in any penalty or premium to, or adverse change in the rights, remedies, benefits or obligations of, any party thereunder.

 

3.18. Related-Party Transactions . Schedule 3.18 describes all goods or services purchased, acquired or leased from, or sold, transferred or leased to, any Affiliate of Seller, or any partner, Affiliate, officer, employee or other agent of Seller or of any Affiliate of Seller, since December 31, 2002.

 

3.19. Employees and Employee Relations . The Partnerships do not currently employ and have never employed any Persons. All Persons who perform services for the Partnerships are employed directly by Seller.

 

3.20. Employee Benefit Plans . None of the Partnerships participates in or has any Employee Benefit Plan or Other Plan. All Employee Benefit Plans in which Persons who perform services for the Partnerships participate are offered by Seller.

 

3.21. Litigation and Proceedings . Schedule 3.21 contains a summary of all litigation, arbitration, mediations, investigations and other material claims, actions or proceedings pending against the Partnerships, and in the case of uninsured matters, Schedule 3.21 also sets forth the reserves therefor included in the Financial Statements. All such litigation, arbitration, mediations, investigations and other material claims, actions or proceedings pending against the Partnerships are fully insured (except for applicable deductibles and other policy limits) and no insurer has issued a “ reservation of rights ” letter or otherwise qualified its obligation to insure and defend the Partnerships against losses arising therefrom. Except as set forth on Schedule 3.21 , there are no litigation, arbitration, mediations, investigations, or other material claims, actions or proceedings (including qui tam actions) pending or, to Seller’s knowledge threatened, against the Partnerships. To Seller’s knowledge, there exist no facts that might reasonably be expected to form the basis of any such litigation, arbitration, mediation, investigation, or other material claim, action or proceeding.

 

3.22. Taxes .

 

(a) Each Partnership has filed all material Tax Returns required to be filed by or on behalf of it, all such Tax Returns are correct and complete in all material respects,

 

15

and the Partnership has duly paid or made provision in the Financial Statements for the payment of all Taxes; no claim has ever been made by a Governmental Authority in a jurisdiction where a Partnership does not file Tax Returns that it is or may be subject to Tax by that jurisdiction; and there are no Encumbrances on any Partnership assets that arose in connection with any failure (or alleged failure) to pay any Tax.

 

(b) Each Partnership has withheld and paid, or caused to be withheld and paid, all Taxes on monies paid by the Partnership to independent contractors, creditors and other Persons for which withholding or payment is required by law.

 

(c) To Seller’s knowledge, no Governmental Authority intends to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax liability of any Partnership either claimed or raised by any Governmental Authority in writing, or as to which Seller has notice or knowledge based upon personal contact with any agent of such authority; Schedule 3.22 lists all federal, state, local and foreign income Tax Returns filed with respect to the Partnerships for the last three complete fiscal years of the Partnerships and for the current year-to-date, and indicates those Tax Returns that have been audited and those that currently are the subject of audit or that have not been audited.

 

(d) There is not currently in effect any waiver of a statute of limitations in respect of Taxes by the Partnerships or any Contract to extend the time with respect to a Tax assessment or deficiency.

 

(e) No Partnership is a party to any Tax allocation or sharing Contract; no Partnership is or has been a member of any affiliated group (within the meaning of section 1504 of the Code or any similar group defined under a similar provision of state, local or foreign law) for filing a consolidated federal income Tax Return.

 

(f) No Partnership has or will have any liability for the Taxes of any Person (other than under Internal Revenue Service regulation 1.1502-6 or any similar provision of state, local or foreign law), as a transferee or successor, by Contract or otherwise.

 

(g) No Person has (i) provided tax advice to Seller or Radiologix in connection with the transactions contemplated by this Agreement, and (ii) limited (expressly or otherwise) Seller’s or Radiologix’s ability to disclose the tax treatment or tax structure of, and such advisor’s tax strategies with respect to, the transactions contemplated by this Agreement, and (iii) received (or is expected to receive) a fee of at least $250,000.

 

3.23. Brokers and Finders . Neither Seller nor any Affiliate of Seller, nor any officer, trustee, director, employee or agent thereof, has engaged any finder or broker in connection with the transactions contemplated hereunder.

 

3.24. Solvency . Seller, after Closing as a result of the transactions contemplated hereby, will not be rendered insolvent or otherwise unable to pay its debts as they become due; Seller has no intention of filing in any court pursuant to any statute either of the United States or of any state a petition in bankruptcy or insolvency or for reorganization or for the appointment of

 

16

a receiver or trustee of all or any portion of Seller’s property; and, to Seller’s knowledge, no other Person has filed or threatened to file such a petition against Seller. The Purchase Price, as adjusted, constitutes the fair market value of and adequate consideration for the Partnership Interests sold by Seller to Buyer.

 

3.25. Operation of the Centers . Except for the Accounts Receivable which are being transferred to Seller at Closing, and except for the assets described in the last sentence of this Section, the assets and properties owned by each Partnership constitute all assets, properties, goodwill and businesses necessary to operate each Center in all material respects in the manner in which it has been operated since December 31, 2002. Schedule 3.25 sets forth a list of the ten largest non-governmental payors of the Centers, determined on the basis of gross revenues from services provided for the fiscal year ended December 31, 2003. No non-governmental payor has terminated or curtailed its business relationship with or reduced reimbursement rates to the Centers which has resulted in a Material Adverse Effect on the Centers, and neither Seller nor any Partnership has received any notice to the effect that any such non-governmental payor intends to terminate or curtail its business relationship with or reduce reimbursement rates to the Centers which could reasonably be expected to result in a Material Adverse Effect on the Centers. Buyer acknowledges that, as more particularly described in the Related Agreement, the following assets used in the conduct of Seller’s business are not assets of the Partnerships to be acquired by Buyer: all assets used solely in the conduct of Seller’s physician practice management business; the tele-radiology system of Seller; and computer hardware and software owned or leased by Seller that is primarily utilized to conduct patient satisfaction surveys.

 

3.26. Bank Accounts . Schedule 3.26 sets forth a complete list of all Partnership bank accounts and the names of all authorized signatories on each such account.

 

4.	R EPRESENTATIONS AND W ARRANTIES OF B UYER

 

Subject to the exceptions described in the Schedules attached to this Agreement and made a part hereof, Buyer makes the following representations and warranties to Seller and Radiologix on and as of the Effective Date and shall be deemed to make them again at and as of the Closing Date:

 

4.01. Organization . Each of Buyer and San Antonio Partners is a limited partnership duly organized and validly existing in good standing under the laws of the State of Delaware and is or by Closing will be qualified to do business in the State of Texas. Vanguard is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware.

 

4.02. Corporate Powers; Consents; Absence of Conflicts, Etc . Each of Buyer, Vanguard and San Antonio Partners has the requisite power and authority to conduct its business as now being conducted, to enter into this Agreement, and to perform its obligations hereunder. The execution, delivery and performance by Buyer, Vanguard and San Antonio Partners of this Agreement and the consummation of the transactions contemplated herein by it:

 

(a) are within its partnership or corporate powers and are not in contravention of the terms of its governing documents, as amended to date, and have been approved by all requisite partnership or corporate action;

 

17

(b) do not conflict with or result in any breach or contravention of, any material agreement to which Buyer, Vanguard or San Antonio Partners is a party or by which it is bound; and

 

(c) do not violate any Legal Requirement to which Buyer, Vanguard or San Antonio Partners may be subject.

 

4.03. Binding Agreement . This Agreement and each of the Closing Documents to which Buyer, Vanguard and San Antonio Partners is or becomes a party are (or upon execution will be) valid and legally binding obligations of each of Buyer, Vanguard and San Antonio Partners, enforceable against it in accordance with the respective terms hereof and thereof, except as enforceability against it may be restricted, limited or delayed by applicable bankruptcy or other laws affecting creditors’ rights generally and except as enforceability may be subject to general principles of equity.

 

4.04. Tax Advice . No Person has (i) provided tax advice to Buyer or Vanguard in connection with the transactions contemplated by this Agreement, and (ii) limited (expressly or otherwise) Buyer’s or Vanguard’s ability to disclose the tax treatment or tax structure of, and such advisor’s tax strategies with respect to, the transactions contemplated by this Agreement, and (iii) received (or is expected to receive) a fee of at least $250,000.

 

4.05. Solvency . Buyer, after Closing as a result of the transactions contemplated hereby, will not be rendered insolvent or otherwise unable to pay its debts as they become due; Buyer has no intention of filing in any court pursuant to any statute either of the United States or of any state a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or any portion of Buyer’s property; and, to Buyer’s knowledge, no other Person has filed or threatened to file such a petition against Seller. The Purchase Price, as adjusted, constitutes the fair market value of and adequate consideration for the Partnership Interests sold by Seller to Buyer.

 

4.06. Brokers and Finders . Neither Buyer, Vanguard nor any of their respective Affiliates, nor any officer, director, employee or agent thereof, has engaged any finder or broker in connection with the transactions contemplated hereunder.

 

5.	C OVENANTS AND A GREEMENTS OF THE P ARTIES

 

5.01. Operations . From the Effective Date until the Closing Date and except as otherwise expressly provided in this Agreement, or agreed to in writing by Buyer, Seller and San Antonio Partners will cause each Partnership to:

 

(a) carry on the business of its Center in the ordinary course, in substantially the same manner as it has heretofore;

 

(b) maintain the Partnership’s assets and properties in as good working order and condition as at present, ordinary wear and tear excepted, and make all normal, planned and budgeted capital expenditures related to its Center;

 

18

(c) maintain and preserve the business organizations and operations of the Partnerships intact; maintain the relationships of the Partnerships with physicians, suppliers, patients and other Persons doing business with the Partnerships; and take such actions as are reasonably necessary and achievable to assist Buyer in the transition to Buyer of the business of the Centers at Closing;

 

(d) prepare for any and all licensure or accreditation surveys and inspections that will or may take place in connection with the transactions contemplated by this Agre