SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Act of 1934
Date of Report (Date of earliest event reported): March 20, 1998
FONAR CORPORATION
__________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 0-10248 11-2464137
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
110 Marcus Drive
Melville, New York 11747
(516) 694-2929
__________________________________________________________________
(Address, including zip code, and telephone
number of registrant's principal executive offices)
Item 2. Acquisition or Disposition of Assets
Acquisition of New Business
Effective March 20, 1998, Fonar Corporation's (the "Company"
or "Fonar") wholly-owned subsidiary, U.S. Health Management Corporation
("HMC") acquired 100% of the issued and outstanding stock of A & A
Services, Inc. ("A & A Services"), a management services organization
(MSO) engaged in the business of managing four primary care practices
located in Queens County, New York (the "Practices").
The Acquired Company provides the Practices with management
services, office space, equipment, repair and maintenance service for the
equipment and clerical and other non-medical personnel.
The Practices are primary care practices specializing in
Family Medicine. The office locations for the Practices are located in
Woodhaven, Richmond Hill, Corona and Ridgewood in Queens County, New York.
Consideration
Pursuant to the terms of the stock purchase agreement (the
"Stock Purchase Agreement"), the former shareholders of A & A Services
(the "Sellers") will receive, in the aggregate, ten million dollars
($10,000,000) payable in a combination of cash, promissory notes and HMC
stock.
Additional consideration is payable to the Sellers depending
on financial performance in the first five years following the closing, as
set forth in detail in the Stock Purchase Agreement.
U.S. Health Management Corporation's Reasons for Acquisitions
U.S. Health Management Corporation ("HMC") was formed in
March 1997 as a subsidiary by the Company in order to enable the Company
to expand into the physician practice management (PPM) business.
Item 7. Financial Statements and Exhibits
Financial Statements
The financial statement required by this item will be filed
no later than June 5, 1998.
Exhibits
2. Stock Purchase Agreement dated March 20, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
FONAR CORPORATION
(Registrant)
By: /s/ Raymond V. Damadian
Raymond V. Damadian
President and Chairman
Dated: April 6, 1998
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SECURITIES AND EXCHANGE COMMISSION
EXHIBITS
TO
FORM 8-K
Current Report
Under
The Securities And Exchange Act of 1934
FONAR CORPORATION
- ------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FONAR CORPORATION
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2 Stock Purchase Agreement
dated March 20, 1998
<PAGE>
EXHIBIT 2
STOCK PURCHASE AGREEMENT DATED MARCH 20, 1998
STOCK PURCHASE AGREEMENT
AGREEMENT, dated March 20, 1998, between DAMADIAN MRI IN FOREST HILLS,
P.C., a New York professional corporation having its principal place of
business in Forest Hills, New York ("Damadian MRI"), U.S. HEALTH
MANAGEMENT CORPORATION, a Delaware corporation having its principal place
of business in Melville, New York ("HMC"), FONAR CORPORATION, a Delaware
corporation having its principal place of business in Melville, New York
("Fonar"), RAYMOND V. DAMADIAN, M.D. ("RVD"), DR. GIOVANNI MARCIANO and
DR. GLENN MURACA PHYSICIANS, P.C. ("Physicians"), CORONA MEDICAL OFFICES,
P.C. ("Corona"), LIBERTY MEDICAL OFFICES, P.C. ("Liberty"), A & A
SERVICES, INC. ("A & A"), RIDGEWOOD MEDICAL CARE, P.C. ("Ridgewood"),
GLENN MURACA, M.D. ("Muraca") and GIOVANNI MARCIANO, M.D. ("Marciano"),
(Physicians, Corona, Liberty, A & A and Ridgewood are New York
corporations owned by Muraca and Marciano having their principal places of
business in Queens County, New York and are hereinafter sometimes referred
to as "the Selling Corporations", and Muraca and Marciano are hereinafter
sometimes referred to as "Selling Stockholders."
W I T N E S S E T H:
WHEREAS, the Selling Stockholders own and operate the Selling
Corporations, which consist of four professional corporations engaged in
the practice of medicine and one business corporation engaged in the
business of physician practice management in Queens County, New York;
WHEREAS, A & A provides physician practice management services to
Physicians, Corona, Liberty and Ridgewood (hereinafter sometimes referred
to as the "Professional Corporations");
WHEREAS, HMC is a business corporation engaged in the business of
physician practice management and wishes to purchase all of the issued and
outstanding shares of the stock of A & A;
WHEREAS, Damadian MRI is a New York professional corporation which
will direct and supervise the conduct of the medical practices of the
Professional Corporations following the Closing of the stock purchases
contemplated by this Agreement;
WHEREAS, pursuant to the terms and conditions of this Agreement and in
accordance with the direction of Damadian MRI, RVD will acquire all of the
issued and outstanding shares of the stock of the Professional
Corporations;
WHEREAS, pursuant to the terms and conditions of this Agreement
Damadian MRI will enter into employment agreements with Muraca and
Marciano at the Closing; and
WHEREAS, Fonar is the parent corporation of HMC, and in order to
induce the Selling Stockholders and the Selling Corporations to enter into
this Agreement, has agreed to guaranty certain obligations of HMC, as set
forth herein;
NOW THEREFORE, in consideration of the premises, representations and
covenants contained herein, the parties hereto agree as follows:
1. Sale and Purchase of Stock of A & A. At the Closing, as
hereinafter defined, HMC shall pay to the Selling Stockholders in exchange
for all of the issued and outstanding shares of A & A the aggregate sum of
Ten Million Dollars ($10,000,000) (the "A & A Purchase Price") plus
certain additional contingent consideration, payable at the times and in
the manner hereinafter set forth:
a. Four Million Dollars ($4,000,000) in cash, by certified
check or by wire transfer at the Closing ("Cash Consideration"). The Cash
Consideration shall be payable to the Selling Stockholders in accordance
with the allocations to be made pursuant to Section 3 hereof.
b. Four Million Dollars ($4,000,000) by delivery of a
promissory note or notes (the "Promissory Note Consideration") payable by
HMC providing for sixteen (16) equal consecutive quarterly installments of
principal and interest commencing one year following the Closing and
payable on the same day of each month until paid in full. Interest on
unpaid principal will accrue at the rate of six percent (6%) per annum
from the date of the Closing. Such note or notes shall be in the form of
Exhibit A hereto and shall be made payable to the Selling Stockholders in
accordance with the allocations to be made pursuant to Section 3 hereof.
Said note(s) shall be guaranteed by Fonar.
c. Two Million Dollars ($2,000,000) in shares of the Common
Stock of HMC (the "Stock Consideration"). Such shares of Common Stock
shall be valued at the price shares of the Common Stock of HMC are offered
to the public in HMC's initial public offering ("IPO").
If, however, HMC shall not have successfully completed its
initial public offering within two and one-half (2 1/2) years after the
Closing, then each Selling Stockholder, by giving written notice to HMC,
may require HMC to pay the portion of said Two Million Dollars
($2,000,000) which would have been payable to him by delivery of a
promissory note or notes ("Substitute Promissory Note Consideration")
providing for eight (8) equal quarterly installments of principal and
interest commencing on the next principal payment date under the
Promissory Note Consideration which is at least sixty (60) days following
the date of the giving of such notice by the Selling Stockholders.
Interest shall accrue on unpaid principal from the date of the note (which
shall be the date notice is given by the Selling Stockholder) at the rate
of six percent (6%) per annum. The Substitute Promissory Note
Consideration shall be in the form of Exhibit B hereto.
It is understood that unless the shares of stock comprising
the Stock Consideration are registered under the Securities Act of 1933,
as amended (the "Securities Act"), they will be "restricted securities,"
as defined under Rule 144 under the Securities Act, and subject to
restrictions on their resale.
For a period of one year following the issuance of any
shares of the Common Stock of HMC pursuant to this Section 1(c), if HMC
shall file a registration statement (excluding a registration statement on
Form S-8 or other form not permitting the inclusion of the shares of HMC
issued hereunder) with the Securities and Exchange Commission ("SEC")
seeking to register shares of its Common Stock, then, to the extent
permitted by then applicable rules and regulations of the SEC and to the
extent permitted by the underwriter or underwriters, if any, in connection
with such registration and contemplated offering, HMC will include in such
filing and all related filings under applicable state securities laws (to
the extent permitted thereunder) such number of the shares of the Common
Stock of HMC issued pursuant to this Section 1(c) as the Selling
Stockholders may request, at no expense to the Selling Stockholders.
In addition, if the Selling Stockholders have been unable to
sell all of the Stock Consideration by the end of the second year
following the issuance thereof, then within ninety (90) days of receiving
notice from the Selling Stockholders, HMC shall file a registration
statement on the appropriate form with the SEC covering any such shares
which could not have been sold because of the volume limitations or other
restrictions contained in Rule 144. HMC will use its best efforts to
cause such registration statement to become effective within ninety (90)
days of the initial filing of such registration statement. In addition,
HMC will make any necessary related filings under applicable state
securities laws and use its best efforts to cause the shares to be
qualified to be sold under such state securities laws at the time such
registration statement becomes effective.
If during the "Price Protection Period" (as hereinafter
defined) the Selling Stockholders sell on the open market all or any part
of the Stock Consideration which can then be sold for an aggregate sales
price which is less than the IPO price per share multiplied by the number
of shares sold, because of such market conditions, then HMC will pay the
difference between the IPO price per share and the selling price per
share, multiplied by the number of shares sold, to the Selling
Stockholders over a period of two years in equal quarterly installments
commencing on the first day of the first calendar quarter which is at
least sixty days following receipt of notice from the Selling Stockholders
(the "Price Protection Consideration"). Any Price Protection
Consideration to a Selling Stockholder shall be represented by a
promissory note in the form of Exhibit B-1 hereto, bearing interest at the
rate of six percent (6%) per annum from the date of the note. The note
shall be dated the first day following the expiration of the Price
Protection Period and shall be delivered to the appropriate Selling
Stockholder as soon after HMC receives notice from the Selling Stockholder
as practicable. For the purposes hereof, the Price Protection Period
shall mean the one-year period following the date on which any shares of
the Stock Consideration can first be sold legally under Rule 144. With
respect to any shares which cannot be sold legally under Rule 144 during
such one-year period and which are not included in a registration
statement which becomes effective under the Securities Act at least 90
days prior to the expiration of such one-year period, the Price Protection
Period shall be extended (a) with respect to any shares covered by a
registration statement which become effective prior to the expiration of
such one-year period, to the date which is 90 days after the effective
date of such registration statement or (b) with respect to any shares
which were not registered under the Securities Act prior to the expiration
of such one-year period and could not have been sold legally under Rule
144 during said one-year period, to the date which is the earlier of (i)
90 days after the effective date of any registration statement which is
filed under the Securities Act covering said shares or (ii) 90 days after
the date or dates (if all such shares cannot be legally sold at the same
time) such shares can be legally sold under Rule 144. After the
expiration of the Price Protection Period with respect to any shares of
the Stock Consideration, the foregoing obligation of HMC to guarantee the
IPO price shall expire with respect to such shares which could have been
legally sold under Rule 144 or by reason of their registration under the
Securities Act during the Price Protection Period.
2. Sale of Stock of Professional Corporations. At the Closing, the
Selling Stockholders shall sell all of the issued and outstanding shares
of the stock of the Professional Corporations as directed by Damadian MRI,
for a purchase price of $1.00 (the "P.C. Purchase Price") plus certain
additional contingent consideration as hereinafter provided. As
additional consideration for the purchase of the stock of the Professional
Corporations, Physicians, following the Closing, will pay the Selling
Stockholders One Million Five Hundred Thousand Dollars ($1,500,000) in
installments as hereinafter provided (the "Supplemental P.C. Purchase
Price"). At the Closing, Damadian MRI shall guaranty the payment of the
Supplemental P.C. Purchase Price. Unless Damadian MRI shall otherwise
direct, all of the issued and outstanding stock of the Professional
Corporations shall be transferred to RVD at the Closing.
The Supplemental P.C. Purchase Price shall be paid by
delivery of a non-negotiable promissory note or notes (the "P.C.
Promissory Notes") payable by Physicians without interest in sixty (60)
equal consecutive monthly payments of principal in the amount of $25,000
each, commencing one month following the Closing and payable on the same
day of each month until paid in full. Such note or notes shall be in the
form of Exhibit C hereto and shall be made payable to the Selling
Stockholders in accordance with the allocations to be made pursuant to
Section 3 hereof.
2.1. Additional Contingent Consideration. The A & A Purchase Price
and P.C. Purchase Price shall be increased as provided herein if,
following the Closing, the aggregate "net income," as hereinafter defined,
of A & A and the Professional Corporations (together, the Selling
Corporations), is greater than Two Million Three Hundred Thousand
($2,300,000) (the "Threshold") in any one or more of the five (5) years
following the Closing.
Except to the extent hereinafter provided, in any such year
in which the Threshold is exceeded, the Selling Stockholders shall
receive, in the aggregate, additional contingent consideration
("Additional Contingent Consideration") equal to:
(a) Seventy-Five percent (75%) of the aggregate net
income of the Selling Corporations in such year between $2,300,000 and
$2,800,000; plus
(b) Fifty percent (50%) of the aggregate net income of
the Selling Corporations in such year between $2,800,000 and $3,500,000,
plus
(c) Twenty-five percent (25%) of the aggregate net
income of the Selling Corporations in such year in excess of $3,500,000.
The first year for which Additional Contingent Consideration
shall be calculated shall commence on the date of the Closing. The
following four years for which Additional Contingent Consideration shall
be calculated shall commence on the anniversary dates of the Closing.
Unless the Selling Stockholders otherwise direct HMC and Damadian MRI in
writing, the Additional Contingent Consideration shall be divided equally
between the Selling Stockholders.
Additional Contingent Consideration hereunder shall be
calculated by HMC's independent certified public accountants within 120
days of the end of each year for which it is calculated and, except as
hereinafter provided, be paid within 60 days after the date it is
determined.
HMC's independent certified public accountants shall prepare
a report (the "Accountants' Report") detailing their calculation of
Additional Contingent Consideration and provide a copy to the Selling
Stockholders within 120 days of the end of the year for which it is
calculated. If the Selling Stockholders disagree with the determination
of Additional Contingent Consideration by HMC's independent certified
public accountants, they shall give written notice (a "Dispute Notice") of
such disagreement to HMC within thirty (30) days of their receipt of the
Accountants' Report, and in such case the Selling Stockholders may appoint
their own independent certified public accountants to review the
determination made by HMC's accountants. HMC and Damadian MRI shall give
the Selling Stockholders' accountants access to all books and records
necessary for them to review or redetermine HMC's accountants'
determination. If HMC's accountants and the Selling Stockholders'
accountants have not reached agreement within 60 days of the preparation
of the HMC's Accountants' Report, then such accountants shall prepare a
list of the items on which they disagree, and such disputed items shall be
submitted to arbitration in Nassau County, New York in accordance with the
rules of the American Arbitration Association. Any determination made by
the arbitrator(s) shall be binding upon the parties, but the arbitrators
shall have no authority to alter or disregard any of the applicable terms
or provisions of this Agreement. In the event that the Selling
Stockholders shall issue a Dispute Notice, the time for payment of the
Additional Contingent Consideration to which it relates shall be extended
to fifteen (15) days after the parties or their accountants reach
agreement in writing as to the amount of Additional Contingent
Consideration payable, or until twenty (20) days following the final
determination or disputed items by the arbitrators, provided, however,
that any undisputed portion of the Additional Contingent Consideration
shall be due and payable within 60 days of the issuance by HMC's
accountants of the Accountants' Report, or within 15 days of the date upon
which it is agreed in writing by the parties or their accountants,
whichever is later.
Each of HMC and Damadian MRI shall pay its proportionate
share of the total Additional Contingent Consideration, as determined by
their independent certified public accountants. HMC shall pay the portion
thereof attributable to the net income of A & A, and Damadian MRI shall
pay the portion thereof attributable to the net income of the Professional
Corporations. Notwithstanding the foregoing, HMC and Damadian MRI shall
be jointly and severally liable to the Selling Stockholders for the total
amount of the Additional Contingent Consideration.
For the purposes hereof, "net income" shall mean net income
of the Selling Corporations as determined in accordance with generally
accepted accounting principles by HMC's independent certified public
accountants, excluding, as an expense, however, management fees payable by
the Selling Corporations to Damadian MRI, HMC or HMC's subsidiaries other
than A & A (except where such fees are for services previously provided
for equal or greater fees by third parties), interest expenses with
respect to any debt incurred to purchase the Selling Corporations and
taxes, but including costs of revenue and expenses incurred by Damadian
MRI, HMC or HMC's subsidiaries other than A & A (including allocable
overhead and depreciation but excluding interest on any debt incurred to
purchase the Selling Corporations and taxes) in connection with managing
the business of and performing services for the Selling Corporations. In
computing "net income," the reserves for doubtful accounts shall be
determined based on the historical experience of the Selling Corporations.
For the purposes hereof, the "net income" of the Selling
Corporations shall represent the net income attributable to the management
of and conduct of business at the offices listed on Exhibit V hereto (the
"Offices"). It is contemplated, however, that additional offices may be
opened by the Professional Corporations following the Closing. Prior to
opening any such additional office by the Professional Corporations during
the five year period for which Additional Contingent Consideration is to
be calculated, however, HMC, Damadian MRI, Muraca and Marciano must agree
in writing thereto and to the time period over which the costs and
expenses of setting up such additional office will be charged for the
purpose of calculating net income hereunder (which may be different than
the time periods used for tax or financial reporting purposes). If such
agreement is reached, the net income attributable to such additional
office, as determined in accordance with this Agreement, shall be included
with the net income attributable to the Offices in determining the
aggregate net income of the Selling Corporations hereunder. During the
five year period for which Additional Contingent Consideration is to be
calculated, no allocation of salaries or other remuneration of HMC's
management personnel will be made to A & A or any of the Professional
Corporations and only the salary and other remuneration (not to exceed
$80,000 per annum) of one additional manager may be added to the expenses
of A & A and the Professional Corporations unless additional offices are
opened or the parties otherwise mutually agree. In addition, if during
the five year period for which Additional Contingent Consideration is to
be calculated, the Professional Corporations consider acquiring any item
of capital equipment with a purchase price in excess of $10,000, the
Professional Corporations will consult with the Selling Stockholders
respecting the necessity therefor and the effect thereof on the
profitability of the Professional Corporations.
If in any one or more of the five years for which Additional
Contingent Consideration can be earned hereunder, the aggregate net income
of the Selling Corporations is less than $2,300,000 (a "Shortfall"), then,
for the purpose of determining Additional Contingent Consideration in
subsequent years, the amount of the Shortfall shall be deducted from the
amounts by which the aggregate net income of the Selling Corporations
exceeds the Threshold ($2,300,000) in the following year or years, until
the full amount of the Shortfall has been deducted.
3. Closing. The Closing of the transactions contemplated hereby
shall take place at the offices of HMC located at 110 Marcus Drive,
Melville, New York, on March __, 1998 (such time and date is herein called
the "Closing Date"). The Cash Consideration, Promissory Note
Consideration, P.C. Purchase Price, P.C. Promissory Notes and Stock
Consideration (or Substitute Promissory Notes in place thereof) shall be
allocated between the Selling Stockholders in accordance with the
Allocation Schedule attached hereto as Exhibit F (the "Allocation
Schedule").
At the Closing:
(a) Payment of Cash Consideration for the Stock of A & A.
The Cash Consideration for the stock of A & A shall be paid by HMC to the
Selling Stockholders in accordance with the Allocation Schedule.
(b) Promissory Note Consideration for the Stock of A & A.
The promissory note or notes representing the Promissory Note
Consideration for the stock of A & A shall be executed and delivered by
HMC to the Selling Stockholders in accordance with the Allocation
Schedule.
(c) P.C. Purchase Price. The P.C. Purchase Price for the
stock of the Professional Corporations shall be paid by Damadian MRI to
the Selling Stockholders in accordance with the Allocation Schedule.
(d) P.C. Promissory Notes. The P.C. Promissory Notes
representing the Special Liability shall be executed and delivered by
Physicians to the Selling Stockholders in accordance with the Allocation
Schedule.
(e) Fonar Guaranty. Fonar shall execute and deliver the
Guaranty in the form of Exhibit E hereto respecting the obligations of HMC
under the Promissory Note Consideration, any Substitute Promissory Note
Consideration which may be required in substitution for the Stock
Consideration and for any Price Protection Consideration or Additional
Contingent Consideration.
(f) Damadian MRI Guaranty. Damadian MRI shall execute and
deliver the Guaranty in the form of Exhibit E-1 hereto respecting the
obligations of Physicians under the P.C. Promissory Notes.
(g) Security Agreement and Non-Recourse Guaranty of
Professional Corporations. The Professional Corporations shall execute
and deliver to the Selling Stockholders a security agreement and
non-recourse guaranty in the form of Exhibit D. Pursuant to the guaranty,
the Professional Corporations will guaranty, on a non-recourse basis, the
obligations of HMC under the Promissory Note Consideration and Substitute
Promissory Note Consideration and any obligations of HMC or Damadian MRI
for Price Protection Consideration or Additional Contingent Consideration.
Pursuant to the security agreement, the Professional Corporations will
grant to the Selling Stockholders a security interest in the assets of the
Professional Corporations to secure the payment of the P.C. Promissory
Notes, the Promissory Note Consideration, the Substitute Promissory Note
Consideration and any Price Protection Consideration or Additional
Contingent Consideration. The security agreement will permit the
Professional Corporations to transfer the assets or any part thereof to
HMC or Damadian MRI. In the case of any such transfer of assets to HMC or
Damadian MRI, HMC or Damadian MRI, as the case may be, will take such
assets subject to such security interest and will assume the obligations
of the Professional Corporations under such security agreement.
(h) Security Agreement and Non-Recourse Guaranty of A & A.
A & A shall execute and deliver to the Selling Stockholders a security
agreement and non-recourse guaranty in the form of Exhibit D-1. Pursuant
to the guaranty, A & A will guaranty, on a non-recourse basis, the
obligations of HMC under the Promissory Note Consideration and the
Substitute Promissory Note Consideration and any obligations of HMC or
Damadian MRI for Price Protection Consideration or Additional Contingent
Consideration. Pursuant to the security agreement, A & A will grant to
the Selling Stockholders a security interest in the assets of A & A to
secure the payment of the Promissory Note Consideration, the Substitute
Promissory Note Consideration and any Price Protection Consideration or
Additional Contingent Consideration. The security agreement will permit A
& A to transfer the assets or any part thereof to HMC. In the case of any
such transfer of assets to HMC, HMC will take such assets subject to such
security interest and will assume the obligations of A & A under such
security agreement.
(i) Agreements with Selling Stockholders. Damadian MRI
shall enter into Employment Agreements with Muraca and Marciano in the
form of Exhibit G hereto (the "Employment Agreements").
(j) Management Agreements. Prior to or at the Closing, the
Professional Corporations shall enter into management service agreements
("Management Agreements") with A & A in the form of Exhibit W hereto.
After the Closing, the Management Agreements may be amended from time to
time or terminated without the consent of the Selling Stockholders.
(k) IRS Election. The Selling Stockholders consent to the
making of an election by HMC and Damadian MRI under Section 338(h)(10) of
the Internal Revenue Code and will execute at the Closing or thereafter
such documents reflecting such consent and agreement as HMC and Damadian
MRI may reasonably request.
(l) Collateral Assignment of Leases. The parties shall
execute and deliver to the Selling Stockholders Collateral Assignments of
Leases to secure the payment of the A & A Purchase Price and P.C. Purchase
Price. The form and substance thereof shall be mutually agreeable to the
parties.
(m) Effectiveness of Transactions. The closing and
effectiveness of each of the transactions and other actions contemplated
at the Closing is contingent upon the closing and effectiveness of all of
said transactions and actions in accordance with the terms of this
Agreement, except to the extent any such contingency is waived or modified
in writing.
4. Representations and Warranties by the Selling Stockholders. The
Selling Stockholders jointly and severally represent and warrant to HMC,
with respect to A & A and to Damadian MRI and RVD, with respect to the
Professional Corporations, as follows:
(a) Organization and Standing of the Selling Stockholders,
Et Cetera. Each Selling Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
York, and has all requisite power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. Complete
and correct copies of each Selling Corporation's certificate of
incorporation and all amendments thereto or restatements thereof, and of
its By-Laws as presently in effect have been delivered by the Selling
Stockholders to HMC and Damadian MRI. The number and kinds of shares of
capital stock issued and outstanding of each Selling Corporation and the
owners thereof are set forth in Exhibit H. There are no record or
beneficial owners of any of the shares of the capital stock of any of the
Selling Corporations other than as set forth in Exhibit H, and in each
case such shares are owned free and clear of any and all pledges, security
interests, liens, options, calls, or other contracts or encumbrances. All
outstanding shares of the capital stock of each Selling Corporation are
duly and validly issued, fully paid and non-assessable and have not been
issued in violation of any preemptive or other rights. Neither any
Selling Stockholder nor any Selling Corporation is a party to or bound by
any commitment, plan or arrangement to issue or sell any capital stock or
any other equity interest in a Selling Corporation and there are no
outstanding options, warrants or other commitments or obligations
exercisable or convertible into any such security or interest in a Selling
Corporation.
(b) Authorization, Et Cetera. The execution and delivery
of this Agreement and the sale and all other transactions contemplated
hereby have been duly authorized by the necessary parties. No consent,
approval, authorization or order of, or registration, qualification,
designation, declaration or filing with, any governmental authority on the
part of any Selling Corporation or any Selling Stockholder is required in
connection with the execution and delivery of this Agreement or the
carrying out of any transactions contemplated hereby. The Selling
Stockholders have obtained or will obtain prior to the Closing all
consents necessary to authorize the transactions contemplated by this
Agreement under any contract, lease, indenture or other agreement to which
any Selling Corporation or any Selling Stockholder is a party or by which
it is bound. No such consents or registrations, filings or notifications
are required except as set forth in Exhibit I.
(c) Qualification. Each Selling Corporation is duly
qualified, licensed or domesticated and in good standing as a foreign
entity authorized to do business in each State wherein the character of
the properties of the Selling Corporation or the nature of the business
transacted by the Selling Corporation therein makes such qualification,
licensing or domestication necessary.
(d) Subsidiaries. No Selling Corporation owns any stock or
other equity interest in any corporation, limited liability company,
partnership or other entity.
(e) Financial Statements. The Selling Stockholders have or
will deliver to HMC and Damadian MRI:
(i) balance sheets prepared on a cash basis for each
of the Selling Corporations and for the Selling Corporations
on a consolidated basis as at December 31, 1997 and December
31, 1996 (the "Balance Sheet Dates").
(ii) an income statement for each of the Selling
Corporations and for the Selling Corporations on a
consolidated basis for the one-year periods ending December
31, 1997 and December 31, 1996;
(iii) schedules of accounts receivable as at the
Balance Sheet Dates for each of the Selling Corporations and
for the Selling Corporations on a consolidated basis,
together with aged trial balances and analyses of aged trial
balances as at the Balance Sheet Dates.
As soon as practicable, but in no event later than three days prior to the
Closing Date, the Selling Stockholders will deliver to HMC and Damadian
MRI updated schedules of accounts receivable, aged trial balances and
analyses of aged trial balances as of a date no more than five (5) days
prior to the Closing Date.
All financial statements, schedules, trial balances and analyses referred
to above are, or will be when delivered, complete and correct in all
material respects, prepared in accordance with proper accounting
principles consistently followed throughout the periods indicated, fairly
present or will when delivered fairly present, the consolidated financial
position of the Selling Corporations and the individual financial
positions of the Selling Corporations as at the respective dates indicated
and the results of their consolidated and individual operations for the
periods indicated, and disclose all liabilities, contingent or otherwise,
of the Selling Corporations as at said dates. Notwithstanding anything to
the contrary reflected on any such financial statements or other financial
information provided by the Selling Stockholders to HMC and Damadian MRI,
the Selling Stockholders shall indemnify and hold harmless HMC, Damadian
MRI and following the Closing, the Selling Corporations, from any
liability of any one or more of the Selling Corporations to Parkway
Hospital.
(f) Absence of Certain Changes. Since December 31, 1997,
there has not been:
(i) any change in the business, condition
(financial or otherwise), assets or liabilities of any of
the Selling Corporations, whether or not covered by
insurance and whether or not arising from transactions in
the ordinary course of business, which, individually or in
the aggregate, has been materially adverse;
(ii) any damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the
business or prospects of any of the Selling Corporations or
any of the assets and properties of the Selling
Corporations;
(iii) any increase in the compensation, pensions or
other benefits payable or to become payable by any Selling
Corporation to any of its officers or employees or any bonus
payment or arrangement made to or with any thereof other
than those which are consistent with past practices and have
been disclosed in writing to HMC and Damadian MRI;
(iv) any payment to any stockholder, director, officer
or employee of any Selling Corporation or to any member of
his or her immediate family other than payments of salary
pursuant to employment relationships existing prior to June
30, 1997 other than those which have been disclosed in
writing to HMC and Damadian MRI;
(v) any dividend or distribution of any kind by or
with respect to any Selling Corporation, authorized,
declared, paid or effected, or any direct or indirect
redemption, purchase or other acquisition of the outstanding
capital stock or other equity interests of any Selling
Corporation other than those which have been disclosed in
writing to HMC and Damadian MRI;
(vi) any event or condition of any character
materially and adversely affecting the businesses of any
Selling Corporation;
(vii) the operations and business of each of the
Selling Corporations has been conducted in all respects only
in the ordinary course and substantially in the manner in
which they have been conducted since the formation and
organization of such Selling Corporation; and
(viii) at the time of Closing, and on the effective
date of the Merger, the cash balances in the Selling
Corporations' accounts will not be less than $100,000 in the
aggregate.
(g) Tax Returns and Payments. All tax returns and reports
of each of the Selling Corporations required by law to be filed have been
duly filed, and all taxes, assessments, fees and other governmental
charges upon any properties, assets, income or franchises of any Selling
Corporation or for which any Selling Corporation is otherwise liable,
which are due and payable have been paid (with the exception of Federal,
State and local income tax returns and taxes for the year ended December
31, 1997 which are on extension to September 15, 1998), other than those
presently payable without penalty or interest and which have been
disclosed in writing to HMC and Damadian MRI. The charges, accruals and
reserves on the books of the Selling Corporations with respect to taxes
for all fiscal periods are adequate and the Selling Corporations do not
know of any actual or proposed tax assessment for any fiscal period or of
any basis therefor other than as so reflected on their respective books
and records. No extension of time for the assessment of deficiencies in
any federal or state tax has been requested of or granted by any of the
Selling Corporations. The Selling Stockholders shall file when due (or as
may be extended) the Federal, State and local income tax returns for the
Selling Corporations for all periods up to the Closing Date, shall pay all
taxes, interest and penalties as may be due for such periods and shall be
entitled to any refunds for any such periods up to the Closing Date.
(h) Real Property. None of the Selling Corporations owns
any real property. Exhibit J attached hereto contains a summary
description of all leases of any real property held by any of the Selling
Corporations. All real property used by the Selling Corporations in the
conduct of their businesses is leased by one of the Selling Corporations.
The Selling Corporations have delivered to HMC and Damadian MRI complete
and correct copies of all leases for real property leased by the Selling
Corporations. The Selling Corporations enjoy peaceful and undisturbed
possession under all of said leases. All of such leases are valid and
subsisting and none of them is in default. All real property leased and
referred to in Exhibit J and the operation thereof conform in all material
respects with all applicable ordinances, regulations and building, zoning
and other laws which may affect the use of the property. No toxic,
medically hazardous or radioactive materials are used in or produced by
any operations of the Selling Corporations and no such materials are
disposed of or stored on any properties leased by the Selling Corporations
other than medical waste and x-ray materials which are produced or used in
the ordinary conduct of the Professional Corporations' medical practices
and which are used, stored and disposed of in accordance with applicable
laws and regulations. To the extent indicated on Exhibit J, certain
leases of real property have been personally guaranteed by one or both of
the Selling Stockholders. Following the Closing, HMC and Damadian MRI
jointly and severally shall indemnify the Selling Stockholders and hold
them harmless from and against any losses, claims, lawsuits, judgments,
costs and expenses arising from such guarantees. In the event that a
claim is made against a Selling Stockholder for payment under any such
guaranty, the Selling Stockholder shall give prompt notice thereof to HMC
and Damadian MRI, and HMC and Damadian MRI shall pay or cause to be paid
said claim or shall have the right to assume the defense thereof with
counsel of their own choosing reasonably acceptable to the Selling
Stockholder provided that such defense is conducted with diligence and
continuity and provided further that the Selling Stockholder shall have
the right to participate in the defense of any such claim with counsel of
his choosing at the Selling Stockholder's expense. The parties shall
cooperate in the defense of any such claim. Neither party shall have the
right to settle any such claim without the consent of the other except
that HMC and Damadian MRI may settle any such claim with or without the
consent of the Selling Stockholder if they pay the amount of the
settlement in full upon the settlement thereof.
(i) Personal Property. All personal properties and assets
used, or held for use, in the Selling Corporations' businesses are owned
by the Selling Corporations and are listed in Exhibit L hereto. The
Selling Corporations have good and marketable title to each of said items
of personal property and assets, in each case subject to no mortgage,
pledge, lien, conditional sale agreement, encumbrance or charge, except as
set forth in Exhibit L attached hereto. None of said personal properties
or assets is held by a Selling Corporation as lessee under or subject to
any lease or as conditional vendee under any conditional sale or other
title retention agreement, except as set forth in Exhibit K. All accounts
and notes receivable reflected in the financial statements of the Selling
Corporations delivered pursuant hereto and on the schedule of accounts
receivable attached hereto as Exhibit M represent valid and binding
obligations and are stated and reserved against in accordance with
generally accepted accounting principles and the Selling Corporations'
historical experience. All inventory and supplies are usable on a normal
basis in the existing businesses of the Selling Corporations. There have
been no acquisitions or dispositions of any inventory or supplies since
December 31, 1997 except in the ordinary course of business.
(j) Energy and Materials. No Selling Corporation has
received any notice or other communication, whether formal or informal,
from any supplier of gas, oil or electric power or of supplies or other
materials used in its business or operations to the effect that any such
energy source, supplies or material will become unavailable to an extent
which might impair the continued conduct of its business or operations at
the greater of their current or historic levels.
(k) Insurance. All property and operations of the Selling
Corporations are adequately insured with responsible insurers against all
risks normally insured against by companies in similar lines of business.
The insurance policies currently maintained by the Selling Corporations
are listed on Exhibit N hereto and each is fully paid for periods
extending in all cases beyond the Closing Date.
(l) Disclosure. Neither this Agreement nor any
certificate, list or other instrument purporting to disclose facts germane
to the businesses of the Selling Corporations delivered or to be delivered
to HMC or Damadian MRI by or on behalf of the Selling Corporations
pursuant hereto or in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact. To the
best of the Selling Stockholders' knowledge, there is no fact directly
related to the Selling Corporations' businesses known to the Selling
Corporations which materially and adversely affects the business,
properties, operations, condition or prospects, financial or otherwise, of
the Selling Corporations, which has not been set forth in this Agreement
or in the other documents, certificates and statements already furnished
to HMC or Damadian MRI by or on behalf of the Selling Stockholders in
connection with the transactions contemplated hereby.
(m) Contracts. With the exception of those contracts and
commitments listed or referred to in Exhibit O, no Selling Corporation is
a party to or bound by any contract or commitment, whether written or
oral, other than:
(i) orders and commitments for the purchase of supplies
or services entered into in the ordinary course of business not involving
commitments to suppliers in the aggregate of more than Five Thousand United
States Dollars (U.S. $5,000);
(ii) requests for medical services or medical or
diagnostic procedures scheduled by patients or referring physicians,
independently of any other agreement or contract, not involving, in each
case, in excess of Five Thousand United States Dollars (U.S. $5,000); and
(iii) maintenance, service and other contracts for the
Selling Corporations' equipment, each of which (A) is in the ordinary course
of business and (B) involves an aggregate expenditure of less than Five
Thousand United States Dollars (U.S. $5,000) after the date hereof; and
The Selling Corporations have delivered to HMC and Damadian MRI complete
and correct copies of all written contracts or commitments listed or
referred to in Exhibit O. The Selling Corporations have complied fully
with all the provisions of their outstanding agreements, contracts and
commitments and are not in default under any of the terms thereof. At the
time of the Closing there will be no loans or other indebtedness
outstanding between any one or more of the Selling Corporations and either
one or both of the Selling Stockholders.
(n) Names, Copyrights, Patents, Trademarks, Et Cetera. The
names or designations, trademarks, trade names, copyrights, patents and
other statutory rights of the Selling Corporations are listed in Exhibit P
and are valid and in good standing and are owned or held by the Selling
Corporation indicated without any known or suspected conflict with the
rights of others. The Selling Corporations have all franchises, permits,
licenses and other authority as are necessary to enable them to conduct
their respective businesses as now being conducted and as proposed to be
conducted, and no Selling Corporation is in default under any of such
franchises, permits, licenses or other authority. To the best of the
Selling Stockholders' knowledge, the Selling Corporations possess all
trademarks, trademark rights, trade names, trade name rights, copyrights,
patents, patent rights and other statutory rights necessary for them to
conduct their respective businesses as now being conducted and as proposed
to be conducted, without conflict with any valid rights of others. No
Selling Corporation has licensed any other person to use, or to have
access to for any reason, any such rights owned or possessed by such
Selling Corporation.
(o) Compliance with Law and Government Regulations. To the
best of the Selling Stockholders' knowledge, each Selling Corporation is
in compliance with all applicable statutes, regulations, decrees, orders,
restrictions, guidelines and standards, imposed by the United States of
America, any state, county, municipality or agency of any thereof, and any
foreign country or government to which such Selling Corporation or any of
its respective operations may be subject, in respect of the conduct by
such Selling Corporation of its business as currently conducted and the
ownership and operation of its respective properties.
(p) Compensation. Attached hereto as Exhibit Q is a true
and complete list of all officers, and of all persons employed by or for
the account of each Selling Corporation specifying the rate of
compensation (including bonuses and commissions, if any) and position held
by each such person.
(q) Employee Stock Ownership Plan, Pension and
Profit-Sharing Obligations. The Selling Corporations have delivered to
HMC and Damadian MRI complete and correct copies or descriptions of, and
any publications of the Selling Corporations relating to, current or
future pensions, retirement pay or other obligations for deferred
compensation applicable to persons employed by the Selling Corporations,
whether or not such obligations are of a legally binding nature or in the
nature of informal understandings, including, without limitation, any
Employee Stock Ownership Plan and Trust ("ESOP") maintained by any of the
Selling Corporations. A list of all employee profit-sharing, incentive,
deferred compensation, or pension or retirement plans of the Selling
Corporations is attached hereto as Exhibit R. None of said plans has
incurred any "accumulated funding deficiency" as such term is defined in
Section 302 of the Employee Retirement Income Security Act of 1974, as
amended (whether or not such deficiency is being waived).
(r) Employee Benefit Plans. The Selling Corporations have
delivered to HMC and Damadian MRI complete and correct descriptions of,
and any publications of the Selling Corporations relating to, any employee
benefit plans, other than those referred to in Section 4 (q) above,
applicable to persons employed by the Selling Corporations, including but
not limited to health insurance plans. A list of such employee benefit
plans is attached hereto as Exhibit S.
(s) Labor Contracts, Et Cetera. No Selling Corporation is
a party to any collective bargaining or other labor union contract
applicable to any persons employed by such Selling Corporation. No
Selling Stockholder knows of any activities or proceedings of any labor
union (or representatives thereof) to organize any employees of any
Selling Corporation, or of any threats of strikes or work stoppages by any
employees of the Selling Corporations.
(t) Litigation. There is no litigation, arbitration,
proceeding or investigation pending, or to the Selling Stockholders'
knowledge, threatened, which might, either individually or collectively,
result in any material adverse change in the business or condition
(financial or otherwise) of any Selling Corporation or in any of its
respective properties or assets, or in any material liability on the part
of any Selling Corporation, or in any material change in the methods of
doing business of any Selling Corporation, or which questions the validity
of this Agreement or of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement and, to the Selling
Corporations' knowledge, there is no basis for any such litigation,
arbitration, condemnation, proceeding or investigation. Each litigation,
arbitration, proceeding or investigation which is pending or threatened
with respect to any of the Selling Corporations is referred to in Exhibit
T hereto.
(u) Compliance with Other Instruments, Et Cetera. No
Selling Corporation is bound by any agreement or instrument or subject to
any charter or other restriction which materially and adversely affects
its business, properties, operations or condition, financial or otherwise.
Neither the execution and delivery of this Agreement nor the carrying out
of the transactions contemplated hereby will result in any violation, or
be in conflict with any term, of the certificate of incorporation or the
by-laws of any Selling Corporation, or any shareholder agreement or other
governing agreement or document applicable to any Selling Stockholder or
to any Selling Corporation. The Selling Stockholders warrant that the
consummation of the transactions contemplated hereby will not result in
any violation of or be in conflict with any contract or other instrument
to which any Selling Stockholder or any Selling Corporation is a party, or
by which it is otherwise bound.
(v) Banks, Et Cetera. Attached hereto as Exhibit U is a
true and complete list of every bank in which funds of the Selling
Corporations are on deposit or in which any Selling Corporation has a
safety deposit box.
(w) No Broker. Neither the Selling Corporations nor the
Selling Stockholders have employed any finder, broker, agent or other
intermediary in connection with the negotiation or consummation of this
Agreement or any of the transactions contemplated hereby, and the Selling
Stockholders will indemnify HMC, Damadian MRI and RVD and hold them
harmless against all liabilities, expenses, costs, losses and claims, if
any, arising from the employment by, or services rendered to, the Selling
Stockholders or Selling Corporations (or any allegation of any such
employment by, or services rendered to, any of them) of any finder,
broker, agent or other intermediary in such connection.
5. Representations and Warranties of HMC and Damadian MRI. Each of
HMC and Damadian MRI represents and warrants to the Selling Stockholders
with respect to itself as follows:
(a) Organization and Standing. It is a corporation duly
organized, validly existing, and in good standing under the laws of the
state of its incorporation (Delaware in the case of HMC, New York in the
case of Damadian MRI) and has all requisite corporate power and authority
to enter into this Agreement and to carry out the transactions
contemplated hereby.
(b) Authorization, Et Cetera. The execution and delivery
of this Agreement and the sale and all other transactions contemplated
hereby have been duly authorized by the necessary parties on behalf of
Damadian MRI and HMC. Damadian MRI and HMC have obtained or will obtain
prior to the Closing all consents necessary to authorize the transactions
contemplated hereby under any contract, indenture or other agreement to
which either of them is a party or by which it is bound. Damadian MRI and
HMC shall also make all necessary governmental and non-governmental
registrations, filings and notifications required to be made by them in
connection therewith.
(c) Litigation, Et Cetera. There is no litigation,
arbitration, proceeding or investigation pending or threatened against it
which questions the validity of this Agreement or of any action taken or
to be taken pursuant to or in connection with the provisions of this
Agreement, or which, either individually or collectively, might result in
any material adverse change in its business or condition (financial or
otherwise) or in any of its properties or assets, or in any material
liability on its part, or in any material change in its business, and to
its knowledge, there is no basis for any such litigation, arbitration,
condemnation, proceeding or investigation.
(d) Compliance with Other Instruments. Neither the
execution and delivery of this Agreement nor the carrying out of the
transactions contemplated hereby will result in any violation of or be in
conflict with any term of its certificate of incorporation or by-laws or
of any contract or other instrument to which it is a party, or of any
judgment, decree, order, statute, rule or regulation by which it is bound.
(e) Broker. It has not employed any finder, broker, agent
or other intermediary in connection with the negotiation or consummation
of this Agreement or any of the transactions contemplated hereby, and it
will indemnify the Selling Stockholders and hold them harmless against all
liabilities, expenses, costs, losses and claims, if any, arising from the
employment by, or services rendered to it (or any allegation of any such
employment by, or services rendered to it) of any finder, broker, agent or
other intermediary in such connection.
6. Covenants of the Selling Stockholders. The Selling Stockholders
covenant and agree with HMC and Damadian MRI as follows:
(a) Access, Information and Documents. The Selling
Stockholders will give to HMC, Damadian MRI and their counsel, accountants
and other authorized representatives full access during normal business
hours to all of the assets and properties of the Selling Corporations, to
the Selling Corporations' key personnel and persons with whom the Selling
Corporations do business and to all books, contracts, commitments and
records of the Selling Corporations and will deliver to HMC and Damadian
MRI all such documents and copies of documents (certified, if requested)
and information with respect to such properties and such business of the
Selling Corporations as HMC and Damadian MRI from time to time may
reasonably request. Without limiting the generality of the foregoing,
prior to the Closing the Selling Corporations and the Selling Stockholders
shall afford the representatives of (i) Messrs. Tabb, Conigliaro & McGann,
P.C., or other accountants appointed by HMC and Damadian MRI such access
and assistance as such accountants may reasonably request and (ii) any
appraisers appointed by HMC and Damadian MRI such access and assistance as
such appraisers may reasonably request in connection any appraisal which
may be deemed desirable by HMC and Damadian MRI. The parties and their
respective representatives mutually shall endeavor to conduct such
examinations and appraisals in a manner designed to be at once the most
efficient and the least disruptive of the Selling Corporations' conduct of
business as is possible consistent with the due accomplishment of such
examinations and appraisals.
(b) Books and Records. At the Closing, the Selling
Stockholders will turn over to Damadian MRI and HMC, all patient records
and files, physician lists, lists of insurance companies, lists of health
maintenance organizations and preferred provider organizations, books of
account, inventory records, personnel records, financial books and records
and other books and records, including without limitation tax records and
returns, which are kept by or relate to the Professional Corporations, in
the case of Damadian MRI and which are kept by or relate to A & A, in the
case of HMC. The personnel of the Selling Corporations will cooperate in
HMC's and Damadian MRI's obtaining necessary data in any manner which they
may reasonably request.
(c) Non-Competition. For a period of ten (10) years after
the Closing, or for such longer period as may be required under any
employment or other agreement to which he is or may become a party,
neither Muraca nor Marciano will directly or indirectly form, own, manage,
operate, join, control or participate in the formation, ownership,
management, operation or control of, or be connected in any manner with,
any business (whether as an officer, director, stockholder, employee or
otherwise) (i) involving the management of, or the provision of management
services to, any medical, physician or multi-specialty practice, or any
medical center or other medical facility, anywhere in the United States of
America, (ii) involving the ownership or operation of any medical,
physician or multi-specialty practice, or any medical center or other
medical facility in Queens, Kings, Nassau, Suffolk, Richmond, New York,
Bronx and Westchester Counties in New York, Fairfield County in
Connecticut and Bergen, Hudson, Union, Essex, Passaic and Middlesex
Counties in New Jersey, (iii) engaged in any other business engaged in by
any Selling Corporation on the date of the Closing in the aforesaid
Counties, or (iv) otherwise competitive with the business of HMC, Damadian
MRI, the Selling Corporations and their subsidiaries as the same may from
time to time be conducted in the aforesaid Counties, provided, however,
that if after the first five (5) years of the term of this covenant,
either Muraca or Marciano shall no longer be employed by Damadian MRI,
HMC, the Selling Corporations or their respective affiliates other than by
reason of a default, breach or wrongful termination on his part, then,
with respect to the party whose employment shall have terminated, the
restriction contained in Subsection (iv) will terminate, the term of this
covenant shall extend no longer than two (2) years following the
termination of such employment, and the geographic scope of the covenants
contained in Subsections (ii) and (iii) shall be limited to Queens, Kings,
Nassau, Suffolk, Richmond, New York, Bronx and Westchester Counties in New
York. Notwithstanding anything to the contrary contained herein, this
covenant shall not prohibit either Muraca or Marciano from teaching
part-time at any educational institution or providing medical
consultations or other services on a part-time basis in connection with
any such teaching position, any charitable activity or any research
conducted for charitable, educational or other non-profit entities. In
addition, nothing contained herein shall prohibit either Muraca or
Marciano from purchasing and holding shares of stock of a competitor of
HMC, Damadian MRI, the Selling Corporations or their respective affiliates
which are traded on any national or regional stock exchange or on the
NASDAQ System as long as the shares owned by him at any one time do not
exceed one percent (1%) of the total shares of such class outstanding and
provided further that he exercises no control over and performs no
executive, management or other services for such competitor. The
ownership of real estate by the Selling Stockholders and the leasing of
such real estate to tenants, including physicians and other medical
providers, is not in itself prohibited by this covenant. Muraca and
Marciano each agree that the remedy at law for any breach by either of
them of the foregoing covenant would be inadequate and that HMC or
Damadian MRI would be entitled to injunctive relief in the case of any
such breach. Should it be held at any time that the restriction placed
upon Muraca and Marciano by this Section 6(c) is too onerous and is not
necessary for the protection of HMC, Damadian MRI, the Selling
Corporations and their respective affiliates, Muraca and Marciano agree
that any court of competent jurisdiction may impose any lesser restriction
which such court may consider to be necessary or appropriate properly to
protect HMC, Damadian MRI, the Selling Corporations and their respective
affiliates, but any such determination as to the invalidity or
unenforceability of this covenant shall not affect the validity or
enforceability hereof in any State or other jurisdiction over which such
court does not have jurisdiction. In the event that HMC or Damadian MRI
shall default in the performance of any of its obligations under this
Agreement and such default is not cured within any applicable grace or
cure period, the obligations of Muraca and Marciano under this Paragraph
6(c) will terminate.
(d) Collection of Accounts Receivable. After the Closing,
the Selling Stockholders shall assist Damadian MRI in the collection of
the accounts receivable of the Selling Corporations as existing on the
Closing Date in such manner as Damadian MRI may from time to time request,
at Damadian MRI's expense if any expense is entailed.
(e) Employment Agreements. At the Closing, each of the
Selling Stockholders will enter into an employment agreement with Damadian
MRI in the form of Exhibit G hereto (the "Employment Agreements").
(f) Cash. The amount of cash on deposit in the Selling
Corporations' accounts shall not be less than $100,000 on the Closing
Date.
(g) Further Assurances. From time to time, at HMC's or
Damadian MRI's request (whether at or after the Closing) and without
further consideration, the Selling Stockholders will execute and transfer
and will take such other action as HMC or Damadian MRI may reasonably
request in order to more effectively give effect to the transactions
contemplated hereby.
(h) Management Agreements. Prior to or at the Closing, the
Professional Corporations shall enter into Management Agreements with A &
A in the form of Exhibit W hereto.
7. Covenants of HMC and Damadian MRI. Each of HMC and Damadian MRI
covenants and agrees with the Selling Stockholders that:
(a) Books and Records. After the Closing, HMC or Damadian
MRI, as the case may be, will permit the Selling Stockholders and their
representatives, at such reasonable times as they may request, to inspect
and make extracts from any books and records turned over by the Selling
Stockholders to HMC or Damadian MRI, as the case may be, at the Closing
for the purpose of preparing any tax returns, liquidating or complying
with other governmental requirements.
(b) Wayne Muraca. After the Closing, A & A or one or more
of the Professional Corporations will continue to employ Wayne Muraca,
whose employment will not be terminated by A & A or the Professional
Corporations other than for cause. Until otherwise agreed with Wayne
Muraca, his compensation shall be $60,000 per annum plus a car allowance
in accordance with policies adopted by A & A or HMC (presently $360 per
month).
8. Conditions of HMC's and Damadian MRI's Obligations. The
obligations of HMC and Damadian MRI under this Agreement are subject to
the fulfillment to their reasonable satisfaction, prior to or at the
Closing, of each of the following conditions:
(a) Representations and Warranties True at Closing. The
representations and warranties made by the Selling Stockholders in this
Agreement and in any certificate or document delivered pursuant to the
provisions hereof shall be true at and as of the time of Closing as though
such representations and warranties were made at and as of such time.
(b) Performance. The Selling Stockholders and Selling
Corporations shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
(c) Appraisal Reports. HMC and Damadian MRI shall have
received prior to the Closing such appraisal reports with respect to the
assets of the Selling Corporations as HMC and Damadian MRI may deem
necessary and appropriate, and the form and substance of such appraisal
reports shall be in all respects satisfactory to HMC and Damadian MRI.
(d) No Government Opposition. No governmental entity shall
have made known any opposition to, or questioning of, the consummation of
the transactions contemplated hereby.
(e) No Private Opposition. No private party shall have
commenced an action or filed suit against any of the parties or their
respective shareholders questioning in any way the validity of this
Agreement or the transactions contemplated hereby.
(f) Compliance Certificate. The Selling Stockholders shall
have delivered to HMC and Damadian MRI a certificate or certificates dated
the Closing Date, in form satisfactory to HMC's and Damadian MRI's
counsel, to the fulfillment of the conditions specified in Sections 8(a)
and 8(b).
(g) Consents. The Selling Stockholders shall have obtained
all consents and approvals required to be obtained by them hereunder to
the transactions contemplated by this Agreement.
(h) Opinion of the Selling Stockholders' Counsel. HMC and
Damadian MRI shall have received a favorable opinion of the Selling
Stockholders' counsel, Lawrence and Walsh, P.C., dated the Closing Date,
and satisfactory to HMC, Damadian MRI and their counsel, covering the
following matters:
(i) Representations and Warranties. The matters
referred to in Sections 4(a), 4(b), 4(c) and 4(d).
(ii) Proceedings. All corporate and other proceedings
required by law or by the provisions of this Agreement to be
taken by the Selling Corporations and Selling Stockholders
in connection with the due consummation of the transactions
contemplated hereby have been duly and validly taken.
(i) Agreements with the Selling Stockholders. Each of the
Selling Stockholders shall have entered into the Employment Agreements.
(j) Condition of Assets. The tangible assets of the
Selling Corporations shall be in operating condition and shall have
suffered no loss or damage, whether by reason of causes within or without
the control of the parties and whether covered by insurance or not.
(k) Proceedings and Documents. All proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory
in legal substance and form to counsel for HMC and Damadian MRI, and HMC,
Damadian MRI and their counsel shall have received all such counterpart
originals or certified or other copies of such documents as they or their
counsel may reasonably request.
(l) Management Agreements. The Professional Corporations
shall enter into Management Agreements with A & A in the form of Exhibit W
hereto.
9. Conditions of the Selling Stockholders' Obligations. The
obligations of the Selling Stockholders under this Agreement are subject
to the fulfillment to the Selling Stockholders' reasonable satisfaction,
prior to or at the Closing, of each of the following conditions:
(a) Representations and Warranties True at Closing. The
representations and warranties made by HMC and Damadian MRI in this
Agreement and in any certificate or document delivered pursuant to the
provisions hereof shall be true at and as of the time of Closing as though
such representations and warranties are made at and as of such time.
(b) Performance. HMC and Damadian MRI shall have performed
and complied with all agreements and conditions required by this Agreement
to be performed or complied with by them prior to or at the Closing.
(c) Compliance Certificate. HMC and Damadian MRI shall
have delivered to the Selling Stockholders a certificate or certificates
of appropriate executive officers dated the Closing Date, certifying in
form satisfactory to the Selling Stockholders' counsel, as to the
fulfillment of the conditions specified in Sections 9(a) and 9(b).
(d) Guaranties. Fonar and Damadian MRI shall execute and
deliver guaranties to the Selling Stockholders in the forms of Exhibits E
and E-1, respectively.
(e) Security Agreements. The Professional Corporations and
A & A shall execute and deliver to the Selling Stockholders the Security
Agreements and Non-Recourse Guaranties in the forms of Exhibits D and D-1,
respectively.
(f) P.C. Promissory Notes. Physicians shall execute and
deliver to the Selling Stockholders the P.C. Promissory Notes.
10. Expenses. Except as otherwise provided herein, the Selling
Stockholders will pay all costs and expenses attributable to the
performance of and compliance with all agreements and conditions contained
in this Agreement to be performed or complied with by the Selling
Stockholders and Selling Corporations (including, without limitation, all
fees and expenses of their counsel), and HMC and Damadian MRI will pay all
costs and expenses attributable to the performance of and compliance with
all agreements and conditions contained in this Agreement to be performed
or complied with by them (including, without limitation, all fees and
expenses of their counsel.
11. Survival of Representations and Warranties. All statements,
representations and agreements contained in any certificate or other
instrument delivered by officers, employees, representatives or agents of
the Selling Corporations, Selling Stockholders or any of them pursuant to
this Agreement, or otherwise made by them or any of them in writing as a
condition of, or otherwise in connection with, the transactions
contemplated hereby, shall be deemed also to be representations and
warranties by the Selling Stockholders hereunder. Such statements,
representations and agreements and the representations and warranties made
by the Selling Stockholders in this Agreement shall survive the Closing.
Except in cases of fraud (whether against HMC, Damadian MRI or a third
party, which third party by reason thereof has a claim against a Selling
Corporation) or with respect to tax liabilities of any Selling Corporation
for corporate income taxes or any personal income tax liabilities of the
Selling Stockholders, the survival of such statements, representations,
warranties and agreements shall be limited to a period of three years
following the Closing.
12. Indemnification. The Selling Stockholders jointly and severally
shall indemnify and hold harmless HMC and Damadian MRI from all losses,
liabilities, obligations, claims, lawsuits, judgments, costs and expenses
(including reasonable attorneys' fees) arising from any material
misrepresentation, breach of warranty or breach of covenant by the Selling
Stockholders under this Agreement or the failure of the Selling
Stockholders to perform any obligation required to be performed by either
of them hereunder. In the event that any claim is made with respect to
which HMC or Damadian MRI (each an "Indemnified Party") intends to seek
indemnification hereunder, the Indemnified Party shall give each of the
Selling Stockholders ("Indemnifying Parties") prompt written notice of
such claim and the Indemnifying Parties shall have the right to assume the
defense of the claim with counsel of their own choosing reasonably
acceptable to the Indemnified Party provided that such defense is
conducted with diligence and continuity and provided further that the
Indemnified Party shall have the right to participate in the defense of
such claim with counsel of its choosing. The parties shall cooperate in
the defense of any such claim and neither the Indemnifying Parties or
Indemnified Party shall have the right to settle or pay any such claim
without the consent of the other. The foregoing indemnification
provisions shall not be applicable to any obligations of the Selling
Stockholders which arise solely under the Employment Agreements.
13. Offsets. In the event that the Selling Stockholders shall be
required to indemnify HMC or Damadian MRI pursuant to Paragraph 12 hereof,
the amount of any such liability, obligation, loss, claim, judgment, cost
or expense may be deducted from any amounts remaining to be paid on
account of the A & A Purchase Price, the P.C. Promissory Notes or the
Additional Contingent Consideration. Any such offset shall first be made
against any unissued Stock Consideration, or if Substitute Promissory Note
Consideration shall have been issued in lieu of Stock Consideration, from
the payments under said note or notes. The remedy provided herein shall
not be exclusive, and HMC and Damadian MRI may elect to pursue other
remedies available at law, in equity or as provided by this Agreement in
lieu of such remedy or concurrently with such remedy.
13.1 Indemnification by HMC and Damadian MRI. HMC and Damadian MRI
shall indemnify and hold harmless the Selling Stockholders from all
losses, liabilities, obligations, claims, lawsuits, judgments, costs and
expenses (including reasonable attorneys' fees) arising after the Closing
from events, acts or omissions (other than acts or omissions of a Selling
Stockholder) occurring after the Closing, which are incurred or suffered
by, or asserted or claimed against, a Selling Stockholder solely because
prior to the Closing he was a stockholder of A & A, in the case of
indemnification by HMC or one or more of the Professional Corporations, in
the case of indemnification by Damadian MRI. In the event that any claim
is made with respect to which a Selling Stockholder (each an "Indemnified
Party") intends to seek indemnification hereunder, the Indemnified Party
shall give the party from which he intends to seek indemnification
hereunder ("Indemnifying Party") prompt written notice of such claim and
the Indemnifying Party shall have the right to assume the defense of the
claim with counsel of its own choosing reasonably acceptable to the
Indemnified Party provided that such defense is conducted with diligence
and continuity and provided further that the Indemnified Party shall have
the right to participate in the defense of such claim with counsel of its
choosing. The parties shall cooperate in the defense of any such claim
and neither the Indemnifying Party nor the Indemnified Party shall have
the right to settle or pay any such claim without the consent of the
other.
14. Notices, Et Cetera. All notices, consents and other
communications hereunder shall be in writing (except for those relating to
day-to-day transactions in the ordinary course of business where
representatives of the parties may reach a decision, subsequently to be
confirmed in writing) and shall be deemed to have been given when
delivered personally, sent by Federal Express or other overnight courier
service, or mailed by first-class, registered or certified mail, postage
prepaid, addressed (a) if to the Selling Stockholders or Selling
Corporations, at Woodhaven Medical Center, 86-18 Jamaica Avenue,
Woodhaven, New York 11421; or at such other address as the Selling
Stockholders shall have furnished to HMC and Damadian MRI in writing, (b)
if to HMC, at 110 Marcus Drive, Melville, New York 11747; Attention:
President, or at such other address as HMC shall have furnished to the
Selling Stockholders in writing, or (c) if to Damadian MRI, at 109-15
Queens Boulevard, Forest Hills, New York 11375, Attention: President, or
at such other address as Damadian MRI shall have furnished to the Selling
Stockholders in writing.
15. Publicity; Confidentiality. No party to this Agreement shall
directly or indirectly make or cause to be made any public announcements
or issue any notices in any form (other than as may be required by law)
with respect to this Agreement or the transactions contemplated hereby
without the consent in writing of the other parties, provided, however,
that following the Closing HMC or Damadian MRI may issue any such public
announcements or notices. Following the issuance of a public announcement
by HMC or Damadian MRI, the Selling Stockholders may do so as well. In
the event that the transactions contemplated by this Agreement shall not
be consummated, HMC and Damadian MRI shall return to the Selling
Stockholders all such written information as they shall have received from
them in connection with this Agreement, and the Selling Stockholders shall
return to HMC and Damadian MRI all such written information as they shall
have received from them in connection with this Agreement. Thereafter
each party shall continue to hold the others' information in confidence,
according to such information the same degree of security generally
accorded its own proprietary information.
16. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof, and shall be binding upon and inure to the benefit of and
be enforceable by the successors and assigns of such parties. This
Agreement may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against whom enforcement of such
change, waiver, discharge or termination is sought. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
The headings of this Agreement are for reference only, and shall not limit
or otherwise affect any of the terms or provisions hereof. This Agreement
may be executed in several counterparts and may be executed by the
respective parties hereto on separate counterparts, each of which shall be
an original but all of which together shall constitute one and the same
instrument. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in the manner legally binding upon them as
of the date first above written.
DAMADIAN MRI IN FOREST HILLS, P.C.
By: /s/ Raymond V. Damadian
Raymond V. Damadian,
[Seal] President
ATTEST:
/s/ Ron Conigliaro
Ron Conigliaro
U.S. HEALTH MANAGEMENT CORPORATION
By: /s/ Timothy Damadian
Timothy Damadian,
President
[Seal]
ATTEST:
/s/ Ron Conigliaro
Ron Conigliaro
FONAR CORPORATION
By: /s/ Raymond V. Damadian
[Seal] Raymond V. Damadian, President
ATTEST:
/s/ Ron Conigliaro
Ron Conigliaro
/s/ Raymond V. Damadian
RAYMOND V. DAMADIAN
DR. GIOVANNI MARCIANO AND DR. GLENN
MURACA PHYSICIANS, P.C.
[Seal] By: /s/ Glenn Muraca
ATTEST:
/s/ Giovanni Marciano
Giovanni Marciano
CORONA MEDICAL OFFICES, P.C.
By: /s/ Glenn Muraca
[Seal]
ATTEST:
/s/ Giovanni Marciano
Giovanni Marciano
LIBERTY MEDICAL OFFICES, P.C.
By: /s/ Glenn Muraca
Glen Muraca
[Seal]
ATTEST:
/s/ Giovanni Marciano
Giovanni Marciano
A & A SERVICES, INC.
By: /s/ Glenn Muraca
Glenn Muraca
[Seal]
ATTEST:
/s/ Giovanni Marciano
Giovanni Marciano
RIDGEWOOD MEDICAL CARE, P.C.
By: /s/ Glenn Muraca
Glenn Muraca
[Seal]
ATTEST:
/s/ Giovanni Marciano
Giovanni Marciano
/s/ Glenn Muraca
GLENN MURACA, M.D.
/s/ Giovanni Marciano
GIOVANNI MARCIANO, M.D.
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EXHIBITS OMITTED
