S-1

As filed with the Securities and Exchange Commission on October 5, 2005

Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

NightHawk Radiology Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	8090	87-0722777
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

250 Northwest Boulevard, Suite 202

Coeur d’Alene, Idaho 83814

(208) 676-8321

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Paul E. Berger, M.D.

President and Chief Executive Officer

NightHawk Radiology Holdings, Inc.

250 Northwest Boulevard, Suite 202

Coeur d’Alene, Idaho 83814

(208) 676-8321

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Patrick J. Schultheis, Esq. Mark J. Handfelt, Esq. Mark A. Callon, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 701 Fifth Avenue, Suite 5100 Seattle, Washington 98104 (206) 883-2500 Paul E. Cartee, Esq. Vice President and General Counsel NightHawk Radiology Holdings, Inc. 250 Northwest Boulevard, Suite 202 Coeur d’Alene, Idaho 83814 (208) 676-8321 Bruce K. Dallas, Esq. Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ¨

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered	Proposed Maximum     Aggregate Offering Price (1)(2)	Amount of     Registration Fee
Common Stock, $0.001 par value per share	$86,250,000	$10,151.63

(1) Estimated solely for the purpose of computing the amount of registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) Includes shares the underwriters have the option to purchase to cover over-allotments, if any.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued October 5, 2005

            Shares

COMMON STOCK

NightHawk Radiology Holdings, Inc. is offering                      shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $             and $             per share.

We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “NHWK.”

Investing in our common stock involves risks. See “ Risk Factors” beginning on page 7.

PRICE $             A SHARE

	Price to Public	Underwriting Discounts and Commissions	Proceeds to NightHawk
Per Share	$	$	$
Total	$	$	$

The selling stockholders have granted the underwriters the right to purchase up to an additional                      shares of common stock to cover over-allotments. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on                     , 2005.

MORGAN STANLEY

BANC OF AMERICA SECURITIES LLC

PIPER JAFFRAY

SG COWEN & CO.

MONTGOMERY & CO., LLC

                    , 2005

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	7
Special Note Regarding Forward-Looking Statements and Industry Data	20
Use of Proceeds	21
Dividend Policy	21
Capitalization	22
Dilution	24
Unaudited Pro Forma Condensed Combined Financial Data	26
Selected Consolidated Financial Data	30
Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Business	55

	Page
Management	68
Certain Relationships and Related Party Transactions	78
Principal and Selling Stockholders	81
Description of Capital Stock	83
Shares Eligible For Future Sale	87
Material United States Federal Tax Considerations for Non-U.S. Holders of Common Stock	89
Underwriters	92
Legal Matters	95
Experts	95
Where You Can Find Additional Information	95
Index to Financial Statements	F-1

You should rely only on the information contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Until                     , 2005 (25 days after the commencement of this offering), all dealers that effect transactions in shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors.”

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

Our Business

We are the leading provider of nighttime and weekend, or off-hours, emergency radiology services to radiology groups and hospitals across the United States. Our team of American Board of Radiology-certified, U.S. state-licensed and hospital-privileged radiologists uses our proprietary workflow technology to provide radiological interpretations, or reads, remotely to our customers in the United States primarily from our centralized reading facilities located in Sydney, Australia and Zurich, Switzerland. By locating our affiliated radiologists in Australia and Switzerland, we can provide off-hours reads in the United States during our radiologists’ local daylight hours. The reads that we currently provide to our customers primarily consist of preliminary diagnoses of emergency trauma and non-traumatic emergency conditions.

As of June 30, 2005, our affiliated radiologists provided services to 347 customers serving 693 hospitals, or approximately 12% of all hospitals in the United States. Most of these customers do not currently contract for all of the hours of coverage that we are able to provide. Since our first full year of operations, we have experienced significant revenue growth, from $4.7 million in 2002 to $16.2 million in 2003 and to $39.3 million in 2004.

The U.S. healthcare market is experiencing a substantial increase in the development and use of diagnostic imaging technologies and procedures. From 1993 to 2003, the volume of diagnostic radiology procedures increased at an average annual rate of 3.2%. From 2000 to 2003, computed tomography procedures, which currently comprise approximately 89% of the reads performed by our affiliated radiologists, increased at an average annual rate of 14.0%. In contrast, the number of radiologists is only increasing by approximately 1.5% annually. In addition, U.S. hospitals generally require their contracted radiology groups to provide services 24-hours per day, seven days a week. As a consequence, radiologists have experienced, and we believe will continue to experience, increased workloads and increased demands to provide reads during off-hours periods.

For radiology groups, providing off-hours reads often results in the allocation of scarce physician resources to periods during which the volume of diagnostic imaging procedures for any one radiology group is typically low, resulting in operating inefficiencies and related costs. In addition, requirements to provide off-hours reads often limit the growth of radiology groups because of the difficulty of recruiting new radiologists into radiology groups that have off-hours coverage commitments. These radiology groups, which provide substantially all emergency radiology services in the United States, comprise the principal market for our services. By reducing the burdens associated with providing off-hours reads, we believe that we can improve the efficiency and productivity of radiology groups by enabling them to allocate their scarce physician resources to regular business hours, which typically are periods of higher demand. We also believe that our services enable radiology groups to recruit and retain radiologists more effectively, which permits them to pursue additional growth opportunities.

For individual radiologists, providing off-hours reads often results in a significant quality-of-life burden. During an on-call period, a radiologist may be required to perform reads several times during a night, often waking the radiologist or otherwise disrupting the radiologist’s evening. By providing off-hours reads on behalf of radiologists, we believe that our service improves their quality of life.

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We currently bill our customers directly for our services, and, as a result, we are not currently dependent on payment by third-party payors or patients. Also, because third-party payors and patients pay only for the final, or primary, reads performed by our radiology group customers and not the preliminary reads that we provide, our services do not result in any incremental costs to third-party payors or patients.

We provide services to our customers typically pursuant to one-year service contracts. Our customer contracts provide for service fees that vary by customer based on a number of factors, including hours of coverage, volume of reads and technical and administrative services provided. Since our inception, more than 97% of our contracts up for renewal have been renewed.

As of June 30, 2005, we had 30 affiliated radiologists who were providing services for us, and an additional 12 radiologists who had entered into contracts with us but had not yet begun to provide services. Our affiliated radiologists are independent contractors, and we typically enter into two- or three-year professional services contracts with them.

Our Solution

We currently provide off-hours emergency radiology services to our radiology group and hospital customers across the United States from 5:00 p.m. to 8:00 a.m., U.S. local time, on weekdays and 24-hours per day during weekends and holidays primarily from our centralized reading facilities located in Australia and Switzerland.

We believe that our solution offers the following benefits to our radiology group customers and the hospitals and patients that they serve:

· improved efficiency,

· enhanced quality of patient care,

· enhanced ability to recruit and retain radiologists,

· highly-qualified radiologists providing services,

· efficient delivery of services, and

· no additional cost to patient and third-party payors.

We believe that our business model has resulted in a market-leading position within our industry and several associated benefits for our business, including:

· first-mover advantage,

· strong customer retention,

· enhanced ability to recruit and retain radiologists,

· capital-efficient scalability, and

· licensing and privileging expertise.

Our Strategy

Our objective is to expand on our position as the leading provider of off-hours emergency radiology services to radiology groups across the United States. We intend to capitalize on our strong customer relationships, scalable business model and team of affiliated radiologists to provide high-quality services to our radiology group customers so that they are better able to efficiently manage and expand their practices. Key elements of our strategy include:

· target new customers and territories with expanded sales and marketing efforts,

· expand our customers’ utilization of our current service hours,

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· extend our service offering to provide greater hours of coverage and provide primary as well as preliminary reads,

· pursue strategic acquisitions, and

· develop a market for our proprietary software technology.

Corporate Information

Nighthawk Radiology Services, LLC, which is a wholly-owned subsidiary of NightHawk Radiology Holdings, Inc., was founded in Coeur d’Alene, Idaho in 2001 as an Idaho limited liability company and is currently the entity through which we conduct our operations. In March 2004, NightHawk Radiology Holdings, Inc., was formed to facilitate a recapitalization of Nighthawk Radiology Services, LLC. Our principal executive offices are located at 250 Northwest Boulevard, Suite 202, Coeur d’Alene, Idaho 83814, and our telephone number is (208) 676-8321. Our website address is www.nighthawkrad.net. The information on our website is not part of this prospectus.

Except where the context requires otherwise, in this prospectus the “Company,” “NightHawk,” “NightHawk Radiology,” “we,” “us” and “our” refer to NightHawk Radiology Holdings, Inc., a Delaware corporation, and, where appropriate, its subsidiaries. NightHawk Radiology, Nighthawk Radiology Services and NightHawk Radiology Holdings are unregistered trademarks of NightHawk Radiology in the United States and other countries. This prospectus also includes other trademarks of NightHawk Radiology and other persons.

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THE OFFERING

Shares of common stock offered              shares

Shares of common stock to be outstanding after this offering              shares

Use of proceeds We plan to use the net proceeds of the offering to repay approximately $32 million of outstanding indebtedness and for general corporate purposes, including for further development and expansion of our service offerings as well as for possible acquisitions of complementary businesses, technologies or other assets. If the underwriters’ over-allotment option is exercised, we will not receive any of the proceeds of the sale of shares by the selling stockholders. See “Use of Proceeds.”

Proposed Nasdaq National Market symbol NHWK

The number of shares of common stock that will be outstanding after this offering is based on the number of shares outstanding at June 30, 2005, and excludes:

· 1,868,094 shares of common stock issuable upon the exercise of options outstanding at June 30, 2005, at a weighted average exercise price of $1.85 per share,

· 119,440 shares of common stock issuable upon the exercise of options granted after June 30, 2005, at an exercise price of $7.00 per share,

· 92,722 shares of common stock reserved for future issuance under our 2004 Stock Plan,

· 2,000,000 shares of common stock reserved for future issuance under our 2005 Equity Incentive Plan, and

· 394,090 shares of common stock issued on September 30, 2005 in connection with our acquisition of American Teleradiology Nighthawks, Inc., or ATN, and the additional shares of common stock that may be issued based upon the future financial performance of the ATN businesses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition.”

Unless otherwise indicated, all information in this prospectus assumes:

· the conversion of all outstanding shares of our redeemable preferred stock into 8,125,000 shares of common stock effective upon the completion of this offering; and

· no exercise by the underwriters of their right to purchase up to              shares of common stock from the selling stockholders to cover over-allotments.

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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following tables summarize historical, pro forma and non-GAAP adjusted consolidated financial data and certain operating data regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and our pro forma financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the six months ended June 30, 2004 and 2005 and the consolidated balance sheet data as of June 30, 2005 set forth below are derived from our unaudited historical consolidated financial statements included elsewhere in this prospectus. In the opinion of management, our unaudited consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of results for these periods. The consolidated statement of operations data for the fiscal years ended December 31, 2002, 2003, and 2004 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods. The pro forma combined financial data gives effect to our acquisitions of DayHawk Radiology Services, LLC and American Teleradiology Nighthawks, Inc. as if the acquisitions occurred on January 1, 2004. The non-GAAP adjusted consolidated financial data gives effect to these acquisitions and excludes the non-cash charges associated with the change in fair value of the redeemable preferred stock conversion feature and the accretion of our redeemable preferred stock. We believe that this non-GAAP data is useful to investors because these non-cash charges will terminate as a result of the conversion of our redeemable preferred stock into common stock upon the completion of this offering.

	Year Ended December 31,															Six Months Ended June 30,
	2002			2003			2004			Pro forma 2004 (1)			Non-GAAP adjusted 2004 (2)			2004			2005			Pro forma 2005 (1)			Non-GAAP adjusted 2005 (2)
	(in thousands, except per share data)
Consolidated Statement of Operations Data:
Service revenue	$	4,666		$	16,216		$	39,283		$	42,969		$	42,969		$	16,701		$	28,444		$	30,096		$	30,096
Operating costs and expenses (3)		3,625			11,456			27,569			31,481			31,481			11,498			21,667			23,184			23,184
Operating income (loss)		1,041			4,760			11,714			11,488			11,488			5,203			6,777			6,912			6,912
Other income (expense):
Interest expense		(40	)		(7	)		(881	)		(881	)		(881	)		(302	)		(461	)		(461	)		(461	)
Interest income		—			4			41			41			41			8			32			32			32
Other, net		(3	)		28			(29	)		(29	)		(29	)		(35	)		(48	)		(47	)		(47	)
Change in fair value of redeemable preferred stock conversion feature		—			—			(3,857	)		(3,857	)		—			(1,277	)		(11,372	)		(11,372	)		—
Total other income (expense)		(43	)		25			(4,726	)		(4,726	)		(869	)		(1,606	)		(11,849	)		(11,848	)		(476	)
Income (loss) before income taxes		998			4,785			6,988			6,762			10,619			3,597			(5,072	)		(4,936	)		6,436
Income tax expense		—			—			3,663			3,532			3,532			1,358			2,464			2,517			2,517
Net income (loss)		998			4,785			3,325			3,230			7,087			2,239			(7,536	)		(7,453	)		3,919
Redeemable preferred stock accretion		—			—			(765	)		(765	)		—			(250	)		(521	)		(521	)		—
Net income (loss) applicable to common stockholders	$	998		$	4,785		$	2,560		$	2,465		$	7,087		$	1,989		$	(8,057	)	$	(7,974	)	$	3,919
Earnings (loss) per common share:
Basic	$	.02		$	.08		$	.08		$	.08		$	.18		$	.05		$	(.37	)	$	(.35	)	$	.13
Diluted	$	.02		$	.08		$	.08		$	.08		$	.18		$	.05		$	(.37	)	$	(.35	)	$	.13
Weighted averages of common shares outstanding (4):
Basic		62,165			62,165			30,246			31,231			39,356			39,474			21,493			22,478			30,603
Diluted		62,165			62,165			30,246			31,231			39,356			39,474			21,493			22,478			30,896

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	As of December 31,			As of June 30,
	2002	2003	2004	2004	2005
Selected Operating Data:
Affiliated radiologists providing services	8	14	27	20	30
Radiology group customers	46	149	253	205	297
Hospital customers	5	16	38	26	50
Total customers	51	165	291	231	347
Hospitals served	107	313	572	469	693

	As of June 30, 2005
	Actual			Pro Forma (5)			Pro Forma As Adjusted (6)
	(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	6,038		$	6,299
Working capital (7)		8,759			9,107
Total current assets		17,153			17,876
Total long-term debt (including current portion)		11,250			31,250
Total liabilities		33,558			38,365
Total stockholders’ equity (deficit)		(31,067	)		(4,414	)

(1) Reflects our acquisitions of DayHawk Radiology Services, LLC and American Teleradiology Nighthawks, Inc.

(2) Reflects (i) our acquisitions of DayHawk Radiology Services, LLC and American Teleradiology Nighthawks, Inc. and (ii) the conversion of all outstanding shares of our redeemable preferred stock into common stock upon the completion of the offering, resulting in the termination of the redeemable preferred stock conversion feature and the accretion of our redeemable preferred stock.

(3) Includes the non-cash stock-based compensation charges set forth in the following table (which amounts include a non-recurring, non-cash professional services charge of approximately $1.5 million in 2004 associated with the issuance of shares of our common stock to one of our affiliated radiologists and a non-recurring, non-cash sales, general and administrative charge of approximately $2.9 million in the six months ended June 30, 2005 associated with the full acceleration of shares of common stock held by a member of our board of directors).

	Year Ended December 31,						Six Months Ended June 30,
	2002		2003		2004		2004		2005
Professional services
Non-cash stock-based compensation	$	262,765	$	653,050	$	1,544,781	$	513,589	$	241,388
Sales, general and administrative
Non-cash stock-based compensation		—		—		144,822		7,542		3,030,504
Total non-cash stock-based compensation	$	262,765	$	653,050	$	1,689,603	$	521,131	$	3,271,892

(4) The weighted average shares of common stock outstanding for the years ended December 31, 2002, 2003 and 2004 are based on the assumed conversion of LLC units into common stock at the beginning of 2002 based on the conversion ratio from the recapitalization transaction.

(5) Reflects (i) our acquisition of American Teleradiology Nighthawks, Inc., (ii) special distributions to our stockholders of $13 million in September 2005 and of $7 million immediately prior to this offering, (iii) the conversion of all outstanding shares of our redeemable preferred stock into shares of common stock upon the completion of this offering, resulting in the termination of the redeemable preferred stock conversion feature and the accretion of our redeemable preferred stock and (iv) the termination of the redemption rights associated with 2,089,286 shares of our common stock upon the completion of this offering.

(6) Reflects (i) the pro forma adjustments described in footnote (4) above, (ii) the receipt of net proceeds from the sale of                  shares of common stock by us in this offering at an assumed initial public offering price of $             per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, as set forth under “Use of Proceeds” and “Capitalization,” and (iii) the application of $32 million of the net proceeds from this offering to repay all outstanding indebtedness under our term loan facility, including amounts we intend to borrow immediately prior to this offering to effect a $7 million special distribution to our stockholders as described in footnote (4) above.

(7) Defined as current assets minus current liabilities.

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RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well as other risks not currently known to us or that we currently deem immaterial. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment. In assessing the risks described below, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes, before deciding to purchase any shares of our common stock.

Risks Related to Our Business and Industry

We have a short operating history in an emerging market, which makes it difficult to evaluate our business and prospects.

We have a short operating history in an emerging market. As a result, our current business and future prospects are difficult to evaluate. You must consider our business and prospects in light of the risks and difficulties we encounter as an early-stage company in a rapidly evolving market. Some of these risks relate to our potential inability to:

· effectively manage our business and technology,

· recruit and retain radiologists and other key personnel,

· acquire additional customers,

· successfully provide high levels of service quality as we expand the scale of our business,

· manage rapid growth in personnel and operations,

· effectively manage our medical liability risk,

· develop new services that complement our existing business, and

· successfully address the other risks described throughout this prospectus.

We may not be able to successfully address these risks. Failure to adequately do so would harm our business and cause our operating results to suffer.

Our growth strategy depends on our ability to recruit and retain qualified radiologists and other skilled personnel. If we are unable to do so, our future growth would be limited and our business and operating results would be harmed.

Our success is dependent upon our continuing ability to recruit and retain qualified radiologists to work at our reading facilities located in Australia and Switzerland. An inability to recruit and retain radiologists would have a material adverse effect on our ability to grow and would adversely affect our results of operations. We face competition for radiologists from other healthcare providers, including radiology groups, research and academic institutions, government entities and other organizations. In addition, our affiliated radiologists are typically U.S. citizens who must obtain visas to work in Australia or Switzerland. We have worked with the government of Australia to establish a visa program and have assisted our affiliated radiologists in the visa application process with the government of Switzerland, and to date all of our professionals have successfully obtained work visas in a timely manner. However, any future inability to obtain or difficulty in obtaining work visas for our affiliated radiologists, due to changing immigration regulations or otherwise, would jeopardize our business and harm our results.

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In addition to recruiting radiologists for our facilities in Australia and Switzerland, we must identify, recruit and retain skilled executive, technical, administrative, sales, marketing and operations personnel to our headquarters in Coeur d’Alene, Idaho. Competition for highly qualified and experienced personnel is intense due to the limited number of people available with the necessary skills. In addition, Coeur d’Alene has a relatively small pool of potential employees with the skills that we require, and is a small city in a relatively rural part of the country, making it difficult for us to recruit employees from larger metropolitan areas of the country. Failure to attract and retain the necessary personnel would inhibit our growth and harm our business.

The market in which we participate is competitive and we expect competition to increase in the future, which will make it more difficult for us to sell our services and may result in pricing pressure, reduced revenue and reduced market share.

The market for off-hours emergency radiology services is competitive and rapidly changing, barriers to entry are relatively low, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future. If we fail to compete effectively, our operating results will be harmed. Some of our principal competitors offer their services at a lower price, which has resulted and will continue to result in pricing pressure. If we are unable to maintain our current pricing, our operating results could be negatively impacted. In addition, pricing pressures and increased competition could result in reduced revenue, reduced profits or the failure of our service to achieve or maintain more widespread market acceptance, any of which could harm our business.

In addition, if one or more of our competitors were to merge or partner with another of our competitors, or if companies larger than we are enter the market through internal expansion or acquisition of one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. These competitors could have established customer relationships and greater financial, technical, sales, marketing and other resources than we do, and could be able to respond more quickly to new or emerging technologies or devote greater resources to the development, promotion and sale of their services. This competition could harm our ability to sell our services, which may lead to lower prices, reduced revenue and, ultimately, reduced market share.

If our arrangements with our affiliated radiologists or our customers are found to violate state laws prohibiting the corporate practice of medicine or fee splitting, our business, financial condition and our ability to operate in those states could be adversely impacted.

The laws of many states, including states in which our customers are located, prohibit us from exercising control over the medical judgments or decisions of physicians and from engaging in certain financial arrangements, such as splitting professional fees with physicians. These laws and their interpretations vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. We enter into independent contractor relationships with our affiliated radiologists pursuant to which the radiologists render professional medical services. In addition, we enter into service agreements with our customers to provide professional radiology interpretation services in exchange for a service fee. We structure our relationships with our affiliated radiologists and our customers in a manner that we believe is in compliance with prohibitions against the corporate practice of medicine and fee splitting. However, state regulatory authorities or other parties could assert that we are engaged in the corporate practice of medicine or that the payment of service fees to us by our customers constitutes fee splitting. If such a claim were successfully asserted, we could be subject to civil and criminal penalties and could be required to restructure or terminate the applicable contractual arrangements. A determination that these arrangements violate state statutes, or our inability to successfully restructure our relationships with our affiliated radiologists to comply with these statutes, could eliminate customers located in certain states from the market for our services, which would have a materially adverse effect on our business, financial condition and operations.

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If our affiliated radiologists are characterized as employees, we would be subject to employment and withholding liabilities and may be subject to prohibitions against the corporate practice of medicine.

We structure our relationships with our affiliated radiologists so that they are independent contractors, not employees. An independent contractor is generally distinguished from an employee by his or her degree of autonomy and independence in providing services. A high degree of autonomy and independence is generally indicative of a contractor relationship, while a high degree of control is generally indicative of an employment relationship. Although we believe that our affiliated radiologists are properly characterized as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these relationships. If such regulatory authorities or state, federal or foreign courts were to determine that our affiliated radiologists are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and pay social security, Medicare and similar taxes and to pay unemployment and other related payroll taxes. We would also be liable for unpaid past taxes and subject to penalties. In addition, such a determination may also result in a finding that we are engaged in the corporate practice of medicine in violation of the laws of many states. As a result, any determination that our affiliated radiologists are our employees would materially harm our business and operating results.

We have been subject to medical liability claims and may become subject to additional claims, which could cause us to incur significant expenses and may require us to pay significant damages if not covered by insurance.

Our business entails the risk of medical liability claims against our affiliated radiologists and us. We or our affiliated radiologists are currently subject to five medical liability claims, and, in the past, have been subject to a medical liability claim for which a settlement was paid by our insurance carrier. Although we maintain medical liability insurance for ourselves and our affiliated radiologists with coverages that we believe are appropriate in light of the risks attendant to our business, successful medical liability claims could result in substantial damage awards which exceed the limits of our insurance coverage. In addition, medical liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services to include primary reads. As a result, adequate medical liability insurance may not be available to our affiliated radiologists or us in the future at acceptable costs or at all.

Any claims made against us that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the attention of our management and our affiliated radiologists from our operations, which could adversely affect our operations and financial performance. In addition, any claims might adversely affect our business or reputation.

We indemnify our radiology group and hospital customers against damages or liabilities that they may incur as a result of the actions of our affiliated radiologists or us. We also indemnify some of our affiliated radiologists against medical liability claims. Our indemnification obligations are typically payable only to the extent that damages incurred are not covered by insurance.

We have also assumed and succeeded to substantially all of the obligations of some of the operations that we have acquired. Medical liability claims may be asserted against us for events that occurred prior to these acquisitions. In connection with our acquisitions, the sellers of the operations that we have acquired have agreed to indemnify us for certain claims. However, we may not be able to collect payment under these indemnity agreements, which could affect us adversely.

Our customers may terminate their agreements with us, or their agreements with the hospitals that they serve may be terminated, either of which could adversely affect our financial condition and operating results.

Our revenue is derived primarily from fee-for-service billings to our radiology group customers. Our agreements with our customers generally provide for one-year terms and automatically renew for successive one-year terms unless terminated by our customers or us upon 30 days’ prior notice. Following the first anniversary

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of the agreements, the agreements typically may be terminated at any time by our customers or us upon 60 days’ prior notice. Our customers may elect not to renew their contracts with us, they may seek to renegotiate the terms of their contracts or they may choose to reduce or eliminate our services in the future. If our arrangements with our customers are canceled, or are not renewed or replaced with other arrangements having at least as favorable terms, our business, financial condition and results of operations could be adversely affected. In addition, to the extent that our radiology group customers’ agreements with the hospitals that they serve are terminated, our business, financial condition and results of operations could be adversely affected.

Enforcement of federal and state laws regarding privacy and security of patient information may adversely affect our business, financial condition or operations.

The use and disclosure of certain healthcare information by healthcare providers and their business associates have come under increasing public scrutiny. Recent federal standards under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, establish rules concerning how individually-identifiable health information may be used, disclosed and protected. Historically, state law has governed confidentiality issues and HIPAA preserves these laws to the extent they are more protective of a patient’s privacy or provide the patient with more access to his or her health information. As a result of the implementation of the HIPAA regulations, many states are considering revisions to their existing laws and regulations that may or may not be more stringent or burdensome than the federal HIPAA provisions. As a service provider to our customers, we must operate in a manner that does not jeopardize the ability of our customers to comply with all applicable laws, both federal and state. We believe that our operations are consistent with these legal standards. Nevertheless, these laws and regulations present risks for healthcare providers and their business associates that provide services to patients in multiple states. Because these laws and regulations are recent and few have been interpreted by government regulators or courts, our interpretations and activities may be challenged. If a challenge to our activities is successful, it could have an adverse effect on our operations, may require us to forgo relationships with customers in certain states, and may restrict the territory available to us to expand our business. In addition, even if our interpretations of HIPAA and other federal and state laws and regulations are correct, we could be held liable for unauthorized uses or disclosures of patient information as a result of inadequate systems and controls to protect this information or due to the theft of information by unauthorized computer programmers who penetrate our network security.

Our business could be adversely affected if additional patient privacy restrictions are imposed through federal or state legislation or regulation.

On April 14, 2005, U.S. Senator Hillary Clinton and U.S. Representative Edward Markey reintroduced legislation that, if enacted, would prohibit healthcare organizations from sharing patient information with foreign affiliates or subcontractors without first obtaining consent from patients. A similar type of provision was proposed, but was not enacted, in the 2004 California legislative session. If a provision such as this were passed, it could impede our ability to obtain service contracts with radiology group practices or hospitals, as those providers would be required to obtain patient consent prior to transmitting the patient’s information to any of our reading facilities located outside of the United States.

Changes in the regulatory environment may constrain or require us to restructure our operations, which may harm our revenue and operating results.

Healthcare laws and regulations change frequently and may change significantly in the future. We monitor legal and regulatory developments and modify our operations from time to time as the regulatory environment changes. However, we may not be able to adapt our operations to address every new regulation, and new regulations may adversely affect our business. In addition, although we believe that we are operating in compliance with applicable foreign, federal and state laws, neither our current nor anticipated business operations have been scrutinized or assessed by judicial or regulatory agencies. We cannot assure you that a review of our business by courts or regulatory authorities would not result in a determination that adversely affects our operations or that the healthcare regulatory environment will not change in a way that restricts our operations.

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Our growth and our transition to a publicly-traded company could strain our personnel, management and infrastructure resources, which may harm our business.

We are currently experiencing a period of rapid growth in our headcount and operations, which has placed, and will continue to place, a significant strain on our management, administrative, operational and financial infrastructure. We also anticipate that further growth will be required to address increases in the scope of our operations and size of our customer base. Our success will depend in part upon the ability of our current senior management team to manage this growth, as well as to manage the transition to a publicly-traded company effectively. None of our executive officers has previously held a senior management position at a publicly-traded company.

To effectively manage our anticipated growth, we will need to continue to improve our operational, financial and management processes and controls and our reporting systems and procedures. In addition, the additional headcount we are adding and capital investments we are making will increase our costs, which will make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully manage our growth and our transition to a publicly-traded company, our business and operating results will be harmed.

We have significant international operations, which expose us to economic, regulatory and other risks.

Our operations in Australia and Switzerland, where most of our affiliated radiologists provide services for us, expose us to numerous risks that could harm our business, including:

· difficulties in managing our remote facilities,

· potentially adverse tax consequences,

· management, staffing, legal and other costs of operating an enterprise spread over various countries,

· fluctuations in the exchange rate of the U.S. dollar and foreign currencies, and

· the burdens of complying with a variety of foreign laws and other government controls, such as employment restrictions.

Any of these factors could harm our business and operating results.

We are exposed to foreign currency exchange risks, which could harm our business and operating results.

We maintain significant operations in Australia and Switzerland, and are exposed to adverse changes in exchange rates associated with the expenses of our operations in these countries. However, we do not currently engage in any hedging transactions to mitigate these risks. Although from time to time we review our foreign currency exposure and evaluate whether we should enter into hedging transactions, we may not adequately hedge against any future volatility in currency exchange rates and, if we engage in hedging transactions, the transactions will be based on forecasts which later may prove to be inaccurate. Any failure to hedge successfully or anticipate currency risks properly could adversely affect our operating results.

In addition, most of our affiliated radiologists live in Australia and Switzerland, but receive compensation from us in U.S. dollars. Any relative weakness in the U.S. dollar compared to the Australian dollar or Swiss franc may increase the cost of living for our affiliated radiologists and make it less attractive for our affiliated radiologists to sign or renew their service contracts with us. As a result, foreign currency exchange fluctuations may make it difficult for us to attract and retain qualified radiologists to work in our reading centers in Australia and Switzerland.

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Interruptions or delays in our information systems or in network or related services provided by third-party suppliers could impair the delivery of our services and harm our business.

Our operations depend on the uninterrupted performance of our information systems, which are substantially dependent on systems provided by third parties over which we have little control. Failure to maintain reliable information systems, or disruptions in our information systems, could cause disruptions and delays in our business operations which could have a material adverse effect on our business, financial condition and results of operations.

We rely on broadband connections provided by third party suppliers to route digital images from hospitals in the United States to our facilities in Australia, Switzerland and Coeur d’Alene, Idaho. Any interruption in the availability of the network connections between the hospitals and our reading facilities would reduce our revenue and profits. Frequent or persistent interruptions in our services could cause permanent harm to our reputation and brand and could cause current or potential customers to believe that our systems are unreliable, leading them to switch to our competitors. Because our customers may use our services for critical healthcare services, any system failures could result in damage to our customers’ businesses and reputation. These customers could seek significant compensation from us for their losses, and our agreements with our customers do not limit the amount of compensation that they may receive. Any claim for compensation, even if unsuccessful, would likely be time-consuming and costly for us to resolve.

Although our systems have been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, break-ins, sabotage, and acts of vandalism. In addition, the connections from hospitals to our reading facility in Australia rely on two cables that link the west coast of the United States with Australia. Despite any precautions that we may take, the occurrence of a natural disaster or other unanticipated problems at our reading facilities or in the networks that connect our reading facilities with our hospitals could result in lengthy interruptions in our services. We do not carry business interruption insurance to protect us against losses that may result from interruptions in our service as a result of system failures.

Hospital privileging requirements or physician licensure laws may limit our market, and the loss of hospital privileges or state medical licenses held by our affiliated radiologists could have a material adverse affect on our business, financial condition and results of operations.

Each of our affiliated radiologists must be granted privileges to practice at each hospital from which the radiologist receives radiological images and must hold a license in good standing to practice medicine in the state in which the hospital is located. The requirements for obtaining and maintaining hospital privileges and state medical licenses vary significantly among hospitals and states. If a hospital or state restricts or impedes the ability of physicians located outside of the United States to obtain privileges or a license to practice medicine at that hospital or in that state, the market for our services could be reduced. In addition, any loss of existing privileges or medical licenses held by our affiliated radiologists could impair our ability to serve our existing customers and have a material adverse affect on our business, financial condition and results of operations.

Changes in the healthcare industry or litigation reform could reduce the number of diagnostic radiology procedures ordered by physicians, which could result in a decline in the demand for our services, pricing pressure and decreased revenue.

Changes in the healthcare industry directed at controlling healthcare costs and perceived over-utilization of diagnostic radiology procedures could reduce the volume of radiological procedures performed. For example, in an effort to contain increasing imaging costs, some managed care organizations and private insurers are instituting pre-authorization policies which require physicians to pre-clear orders for diagnostic radiology procedures before those procedures can be performed. If pre-clearance protocols are broadly instituted

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throughout the healthcare industry, the volume of radiological procedures could decrease, resulting in pricing pressure and declining demand for our services. In addition, it is often alleged that many physicians order diagnostic procedures even when the procedures may have limited clinical utility in large part to establish a record for defense in the event of a medical liability claim. Changes in litigation law could reduce the number of radiological procedures ordered for this purpose and therefore reduce the total number of radiological procedures performed each year, which could harm our operating results.

We will incur increased costs as a result of being a public company, which may adversely affect our operating results.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur substantial costs associated with our public company reporting requirements, and will incur costs associated with recently-adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and new rules implemented by the Securities and Exchange Commission and the Nasdaq Stock Market. We will also incur additional costs of maintaining director and officer liability insurance, which coverage we intend to increase in connection with our transition to a public company. In addition, to the extent that the premiums associated with director and officer liability insurance increase, we may be required to accept reduced policy limits and coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.

We may not have adequate intellectual property rights in our brand, which could limit our ability to enforce such rights.

Our success depends in part upon our ability to market our services under the “NightHawk” brand. However, we believe that the term “NightHawk” cannot be afforded trademark protection as it is a generic term used to describe the provision of off-hours radiology services. Other than “DayHawk,” we have not secured registrations of our other marks. Other businesses may have prior rights in the brand names that we market under or in similar names, which could limit or prevent our ability to use these marks, or to prevent others from using similar marks. If we are unable to prevent others from using our brand names, or if others prohibit us from using them, our revenue could be adversely affected. Even if we are able to protect our intellectual property rights in such brands, we could incur significant costs in doing so.

Any failure to protect our intellectual property rights in our workflow technology could impair its value and our competitive advantage.

We rely heavily on our workflow technology to distribute radiological images to the appropriately licensed and privileged radiologist best able to provide the necessary clinical insight in the least amount of turnaround time. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology, and our business may be harmed. We currently do not hold any patents with respect to our technology, and, other than one provisional application, we have not filed any applications for patents. Although we intend to file applications for patents covering our workflow technology, we may be unable to obtain patent protection for this technology. In addition, any patents we may obtain may be challenged by third parties. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We may in the future become subject to intellectual property rights claims, which could harm our business and operating results.

The information technology industry is characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. If a third party asserts that our technology violates that third-party’s proprietary rights, or if a court holds that our technology violates such rights, we may be required to re-engineer our

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technology, obtain licenses from third parties to continue using our technology without substantial re-engineering or remove the infringing functionality or feature. In addition, we may incur substantial costs defending against any such claim. We may also become subject to damage awards, which could cause us to incur additional losses and hurt our financial position.

Monitoring potential infringement of and defending or asserting our intellectual property rights may entail significant expense. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel.

We are dependent on our management team, and the loss of any key member of this team may prevent us from implementing our business plan in a timely manner.

Our success depends largely upon the continued services of our executive officers and other key personnel, particularly Dr. Paul Berger, our Chief Executive Officer and Chairman of the Board. The loss of Dr. Berger or other key personnel could have a material adverse effect on our business, financial condition, results of operations and the trading price of our common stock. In addition, the search for replacements could be time consuming and could distract our management team from the day-to-day operations of our business.

If we acquire any companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operating results.

A key element of our strategy is to pursue strategic acquisitions that are complementary to our business or offer us other strategic benefits. For example, in September 2005, we acquired American Teleradiology Nighthawks, Inc., or ATN. Our acquisition of ATN, as well as other acquisitions in which we may engage, involve numerous risks, including:

· difficulties in integrating operations, technologies, services and personnel,

· diversion of financial and management resources from existing operations,

· risk of entering new markets,

· potential write-offs of acquired assets,

· potential loss of key employees, and

· inability to generate sufficient revenue to offset acquisition costs.

We may experience these difficulties as we integrate the operations of ATN, or the operations of future companies we acquire, with our operations.

In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted which could affect the market price of our stock. We have only made two acquisitions to date, and our management has limited experience in completing acquisitions and integrating acquired businesses with our operations. If we fail to properly evaluate and execute acquisitions, our business and prospects may be harmed.

We may be unable to successfully expand our services beyond the off-hours emergency radiology market.

To date, we have focused our business on providing emergency radiology services during the hours of 5:00 p.m. to 8:00 a.m. and 24-hours per day on weekends and holidays. We expect in the future to seek to expand our hours of service and to enter into other markets beyond the off-hours emergency radiology market. However, any efforts to expand beyond the off-hours emergency radiology market may not result in significant revenue growth for us. In addition, efforts to expand our services beyond the off-hours emergency radiology market may divert management

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resources from existing operations and require us to commit significant financial resources to an unproven business, or may be resisted by our radiology group customers, which in each case may harm our business and operating results or impair our growth.

We have recently had to improve our internal accounting systems and controls, and if we fail to make continued improvements, our business may suffer.

Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. As a private company, we have had limited accounting personnel and other resources with which to design and implement our internal controls and procedures. As a result, when our auditors audited our financial statements as of and for the year ended December 31, 2004, they identified in their report to our audit committee material weaknesses relating to the adequacy and competency of our financial reporting personnel. Following our receipt of this report, we consulted with our audit committee and undertook remedial steps to address these deficiencies, including hiring additional staff and training our new and existing staff. However, such steps may not be effective in addressing the weaknesses. If we fail to adequately staff our accounting and finance function and maintain internal controls adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act of 2002, our business may suffer.

If we fail to implement and maintain an effective system of internal controls, we may not be able to report our financial results in an accurate or timely manner, prevent fraud or comply with Section 404 of the Sarbanes-Oxley Act of 2002, which may harm our business and affect the trading price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports in a timely manner and prevent fraud. In addition, beginning with our annual report on Form 10-K for our fiscal year ending December 31, 2006, we will be required to comply with the requirement of Section 404 of the Sarbanes-Oxley Act of 2002 to include in each of our annual reports an assessment by our management of the effectiveness of our internal controls over financial reporting and a report of our independent registered public accounting firm addressing these assessments. We have in the past discovered, and may in the future discover, areas of our internal controls that are deficient. Implementing any appropriate future changes to our internal controls may require training of our officers and employees, entail substantial costs and take a significant period of time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls. Any failure to maintain adequate internal controls, or consequent inability to produce accurate financial statements on a timely basis or to prevent fraud, could increase our operating costs and materially impair our ability to operate our business and could result in regulatory penalties. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements in a timely manner or prevent fraud may negatively affect the trading price of our stock or result in stockholder litigation.

We may be unable to enforce non-compete agreements with our affiliated radiologists.

Our independent contractor agreements with our affiliated radiologists typically provide that the radiologists may not compete with us for a period of time, typically one year, after the agreements terminate. These covenants not to compete are enforceable to varying degrees from jurisdiction to jurisdiction. In most jurisdictions, a covenant not to compete will be enforced only to the extent that it is necessary to protect the legitimate business interest of the party seeking enforcement, that it does not unreasonably restrain the party against whom enforcement is sought and that it is not contrary to the public interest. This determination is made based upon all the facts and circumstances of the specific case at the time enforcement is sought. It is unclear whether our interests will be viewed by courts as the type of protected business interest that would permit us to enforce a non-competition covenant against the radiologists. Since our success depends in substantial part on our ability to preserve the business of our affiliated radiologists, a determination that these provisions are not enforceable could have a material adverse effect on us.

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Enforcement of state and federal anti-kickback laws may adversely affect our business, financial condition or operations.

Various federal and state laws govern financial arrangements among healthcare providers. The federal anti-kickback law prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or with the purpose to induce, the referral of Medicare, Medicaid, or other federal healthcare program patients, or in return for, or with the purpose to induce, the purchase, lease or order of items or services that are covered by Medicare, Medicaid, or other federal healthcare programs. Similarly, many state laws prohibit the solicitation, payment or receipt of remuneration in return for, or to induce the referral of patients in private as well as government programs. Violation of these anti-kickback laws may result in substantial civil or criminal penalties for individuals or entities and/or exclusion from participating in federal or state healthcare programs. We believe that we are operating in compliance with applicable law and believe that our arrangements with providers would not be found to violate the anti-kickback laws. However, these laws could be interpreted in a manner inconsistent with our operations.

Because our customers submit claims to the Medicare program based on the services we provide, it is possible that a lawsuit could be brought against us or our customers under the federal False Claims Act, and the outcome of any such lawsuit could have a material adverse effect on our business, financial condition and operations.

The Federal False Claims Act provides, in part, that the federal government may bring a lawsuit against any person whom it believes has knowingly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim approved. The government has taken the position that claims presented in violation of the federal anti-kickback law may be considered a violation of the Federal False Claims Act. The Federal False Claims Act further provides that a lawsuit brought under that act may be initiated in the name of the United States by an individual who was the original source of the allegations, known as the relator. Actions brought under the Federal False Claims Act are sealed by the court at the time of filing. The only parties privy to the information contained in the complaint are the relator, the federal government and the court. Therefore, it is possible that lawsuits have been filed against us that we are unaware of or which we have been ordered by the court not to discuss until the court lifts the seal from the case. Penalties include fines ranging from $5,500 to $11,000 for each false claim, plus three times the amount of damages that the federal government sustained because of the act of that person. We believe that we are operating in compliance with the Medicare rules and regulations, and thus, the Federal False Claims Act. However, if we were found to have violated certain rules and regulations and, as a result, submitted or caused our customers to submit allegedly false claims, any sanctions imposed under the Federal False Claims Act could result in substantial fines and penalties or exclusion from participation in federal and state healthcare programs which could have a material adverse effect on our business and financial condition.

Our business could be materially affected if a U.S. Department of Health & Human Services Office of Inspector General, or HHS-OIG, study results in a recommendation that Medicare only pay for interpretations performed contemporaneously in an emergency room setting.

In its Fiscal Year 2004 Work Plan, the HHS-OIG indicated that it would conduct a study and issue a report in the 2005 fiscal year assessing the appropriateness of Medicare billings for diagnostic tests performed in hospital emergency rooms. Part of the assessment will include a determination as to whether the tests were interpreted contemporaneously with the patient’s treatment. It is possible that in the final report, the HHS-OIG could recommend to the Medicare program that it change its reimbursement rules to clearly indicate that Medicare will only pay for interpretations performed contemporaneously with the patient’s treatment by a physician located within the United States. If the HHS-OIG makes such a recommendation, it could adversely impact our business, financial condition and operations.

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Risks Related to this Offering

The trading price of our common stock may be volatile, and you might not be able to sell your shares at or above the initial public offering price.

The trading prices of many newly publicly-traded companies are highly volatile, particularly companies such as ours that have limited operating histories. Accordingly, the trading price of our common stock may be subject to wide fluctuations. Further, our common stock has no prior trading history. Factors affecting the trading price of our common stock will include:

· variations in our operating results,

· announcements of new services, strategic alliances or significant agreements by us or by our competitors,

· recruitment or departure of key personnel,

· changes in the estimates of our operating results or changes in recommendations by any securities analysts that follow our common stock, and

· market conditions in our industry, the industries of our customers and the economy as a whole.

In addition, if the market for healthcare stocks or healthcare services or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.

Failure to comply with the Nasdaq’s requirements regarding the composition of our board of directors and audit committee could result in the delisting of our common stock from the Nasdaq National Market and adversely affect the market for our common stock.

In order for our common stock to continue to be listed on the Nasdaq National Market, we must comply with listing standards regarding the independence of our board of directors and members of our audit committee. In particular, the Nasdaq’s rules require that a majority of our directors and all of the members of our audit committee be “independent,” as defined under the Nasdaq’s rules, by no later than the first anniversary following the completion of this offering. We do not currently meet these requirements, as only three of our seven directors and two of our three audit committee members currently satisfy the standards for independence under the Nasdaq’s rules. Compliance with the Nasdaq’s listing requirements will require us to increase the number of independent directors on our board of directors and audit committee, seek the resignation of directors who are not independent, or some combination thereof. If we are unable to change the composition of our board of directors and our audit committee to comply with these requirements, our common stock may be delisted from the Nasdaq National Market and the liquidity and trading price of common stock may be adversely affected.

If securities analysts do not publish research or reports about our business, or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock will rely in part on the availability of research and reports that third-party industry or financial analysts publish about us. There are many large, publicly-traded companies active in the healthcare services industry, which may mean it will be less likely that we receive widespread analyst coverage. Furthermore, if one or more of the analysts who do cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

Future sales of shares by existing stockholders could cause our stock price to decline.

If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up agreements (which may be extended by up to 34 days under

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certain conditions) and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares outstanding as of June 30, 2005, upon completion of this offering, we will have outstanding              shares of common stock. Of these shares, only the              shares of common stock sold in this offering will be freely tradable, without restriction, in the public market as of the date of this offering. Morgan Stanley & Co. Incorporated may, in its sole discretion, permit our officers, directors, employees and current stockholders who are subject to the 180-day contractual lock-up to sell shares prior to the expiration of the lock-up agreements.

After the lock-up agreements pertaining to this offering expire, up to an additional              shares will be immediately eligible for sale in the public market,              of which are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, the 1,868,094 shares that are subject to options outstanding as of June 30, 2005 under our 2004 Stock Plan and the 2,000,000 shares reserved for future issuance under our 2005 Equity Incentive Plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Our management will have broad discretion over the use of the proceeds to us from this offering and might not apply the proceeds of this offering in ways that increase the value of your investment.

We intend to use the net proceeds from this offering to repay in full approximately $32 million of indebtedness that will be outstanding under our loan and security agreement with Comerica Bank at the completion of this offering, and for general corporate purposes, including for further development and expansion of our service offerings as well as for possible acquisitions of complementary businesses, technologies or other assets. We used the proceeds of the loan from Comerica Bank for repayment of a $3 million credit facility with Silicon Valley Bank, repayment of approximately $9 million of subordinated promissory notes held by entities affiliated with Summit Partners and payment of special distributions to the holders of our common stock and redeemable preferred stock totaling $20 million, including a special distribution to our stockholders of $7 million that we intend to effect immediately prior to this offering. Other than with respect to the repayment of debt, we have not allocated these net proceeds for any specific purposes. Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. They might not apply the net proceeds of this offering in ways that increase the value of your investment, and may not be able to yield a significant return, if any, on any investment of these net proceeds.

You will experience immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

The initial public offering price of our common stock will be substantially higher than the book value per share of the outstanding common stock after this offering. Therefore, based on an assumed offering price of $             per share, if you purchase our common stock in this offering, you will suffer immediate and substantial dilution of approximately $             per share. If outstanding options to purchase our common stock are exercised, you will experience additional dilution.

The concentration of our capital stock ownership with insiders upon the completion of this offering will likely limit your ability to influence corporate matters.

We anticipate that our executive officers, directors, current five percent or greater stockholders and affiliated entities will together beneficially own approximately         percent of our common stock outstanding after this offering. As a result, these stockholders, acting together, will have control over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate

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transactions. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

Provisions in our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

· establish a classified board of directors so that not all members of our board are elected at one time,

· provide that directors may only be removed “for cause”,

· authorize the issuance of “blank check” preferred stock that our board could issue to increase the number of outstanding shares and to discourage a takeover attempt,

· eliminate the ability of our stockholders to call special meetings of stockholders,

· prohibit stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of stockholders,

· provide that the board of directors is expressly authorized to make, alter or repeal our bylaws, and

· establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company.

19

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to confirm these statements to actual results or revised expectations.

You may rely only on the information contained in this prospectus. Neither we nor the selling stockholders nor any of the underwriters have authorized anyone to provide information different from that contained in this prospectus. Neither the delivery of this prospectus, nor the sale of our common stock, means that information contained in this prospectus is correct after the date of this prospectus. This prospectus is not an offer to sell or solicitation of an offer to buy shares of common stock in any circumstances under which the offer or solicitation is unlawful.

Information contained in this prospectus concerning our industry and the historic growth rate of the markets in which we participate is based on industry publications, surveys and forecasts generated by Frost & Sullivan, the American College of Radiology and other sources. Such industry publications, surveys and forecasts generally indicate that their information has been obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the reports are reliable, we have not independently verified their data.

20

USE OF PROCEEDS

We estimate that we will receive net proceeds of $             from our sale of the              shares of common stock offered by us in this offering, based upon an assumed initial public offering price of $             per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds of the sale of shares by the selling stockholders pursuant to the exercise of the underwriters’ over-allotment option, if exercised.

We intend to use approximately $32 million of the net proceeds from this offering to repay in full the principal and accrued interest that will be outstanding on our loan and security agreement with Comerica Bank at the completion of this offering. The loan and security agreement is subject to a variable interest rate equal to either the prime rate announced by Comerica Bank or the LIBOR rate per annum plus up to 3.25% per annum, and has a final maturity date of August 2009. We used the proceeds of the loan for repayment of a $3 million credit facility with Silicon Valley Bank, repayment of approximately $9 million in subordinated promissory notes held by entities affiliated with Summit Partners and payment of special distributions to the holders of our common stock and redeemable preferred stock totaling $20 million, including a special distribution of $7 million that we intend to effect immediately prior to this offering.

Additional purposes of this offering are to create a public market for our common stock, to facilitate our future access to the public equity markets and to obtain additional capital. Except as set forth above, we currently have no specific plans for the use of the net proceeds of this offering. We anticipate that we will use the net proceeds received by us from this offering after repayment of indebtedness for general corporate purposes, including further development and expansion of our service offerings as well as possible acquisitions of complementary businesses, technologies or other assets. Except as described elsewhere in this prospectus, we have no current agreements or commitments with respect to any material acquisitions. Pending such uses, we plan to invest the remaining portion of the net proceeds in highly liquid, investment grade securities.

DIVIDEND POLICY

In September 2005, we borrowed $13 million under our term loan facility with Comerica Bank and distributed the full amount as a special distribution to the holders of our common stock and redeemable preferred stock. Immediately prior to this offering, we intend to borrow an additional $7 million under our term loan facility with Comerica Bank and distribute the full amount as another special distribution to the holders of our common stock and redeemable preferred stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.” Our loan and security agreement with Comerica Bank limits our ability to pay other dividends or distributions.

Except for the special distributions noted above, we have never declared or paid any cash dividend on our capital stock. We currently intend to retain future earnings and do not expect to pay any dividends in the foreseeable future.

21

CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of June 30, 2005, as follows:

· On an actual basis;

· On a pro forma basis to give effect to (i) special distributions to the holders of our common stock and redeemable preferred stock of $13 million in September 2005 and of $7 million immediately prior to this offering, (ii) the conversion of all outstanding shares of our redeemable preferred stock into shares of common stock upon the completion of this offering, resulting in the termination of the redeemable preferred stock conversion feature and the accretion of our redeemable preferred stock and (iii) the termination of the redemption rights associated with 2,089,286 shares of our common stock upon the completion of this offering. The pro forma information does not give effect to our acquisition of American Teleradiology Nighthawks, Inc. on September 30, 2005.

· On a pro forma as adjusted basis to give effect to (i) the pro forma adjustments described above, (ii) the receipt of net proceeds from the sale of              shares of common stock by us in this offering at an assumed initial public offering price of $             per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (iii) the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering, and (iv) the application of approximately $32 million of the net proceeds from this offering to repay all outstanding indebtedness under our term loan facility, including amounts we intend to borrow immediately prior to this offering to effect a $7 million special distribution to our stockholders as described above.

You should read this table together with the sections of this prospectus entitled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements included elsewhere in this prospectus.

	As of June 30, 2005
	Actual			Pro Forma			Pro Forma As Adjusted
Cash and cash equivalents	$	6,037,642		$	6,037,642		$
Long-term debt (including current portion)	$	11,250,000		$	31,250,000		$
Fair value of redeemable preferred stock conversion feature		16,899,998			—
Redeemable common stock		7,981,073			—
Redeemable convertible preferred stock		12,615,518			—
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value per share; no shares authorized, issued or outstanding, actual; no shares authorized, issued or outstanding, pro forma; 5,000,000 shares authorized, no shares issued or outstanding, pro forma as adjusted		—			—
Common stock, $0.001 par value per share; 40,000,000 shares authorized, 19,403,571 shares issued and outstanding, actual; 40,000,000 shares authorized, 29,617,857 shares issued and outstanding, pro forma; 150,000,000 shares authorized,                     shares issued and outstanding, pro forma as adjusted		19,404			29,618
Additional paid-in capital		6,184,411			43,670,786
Retained earnings (deficit)		(37,270,416	)		(57,270,416	)
Total stockholders’ equity (deficit)		(31,066,601	)		(13,570,012	)
Total capitalization	$	17,679,988		$	17,679,988		$

22

The table above excludes the following shares:

· 1,868,094 shares of common stock issuable upon the exercise of options outstanding at June 30, 2005, at a weighted average exercise price of $1.85 per share,

· 119,440 shares of common stock issuable upon the exercise of options granted after June 30, 2005, at an exercise price of $7.00 per share,

· 92,722 shares of common stock reserved for future issuance under our 2004 Stock Plan,

· 2,000,000 shares of common stock reserved for future issuance under our 2005 Equity Incentive Plan, and

· 394,090 shares of common stock issued on September 30, 2005, in connection with our acquisition of ATN and the additional shares of common stock that may be issued based upon the financial performance of the ATN businesses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition.”

23

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted pro forma net tangible book value per share of our common stock upon completion of this offering. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding at June 30, 2005, after giving effect to the conversion of our redeemable preferred stock into common stock and special distributions to our stockholders of $13 million in September 2005 and $7 million immediately prior to this offering.

The pro forma net tangible book value attributable to our common stock was $             million, or $             per share of common stock outstanding, at June 30, 2005. Assuming the sale by us of              shares of common stock offered in this offering at an initial public offering price of $             per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted pro forma net tangible book value at June 30, 2005 would have been $             million, or $             per share of common stock. This represents an immediate increase in pro forma net tangible book value of $             per share to our existing stockholders and an immediate dilution of $             per share to the new investors purchasing shares in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share of common stock		$
Pro forma net tangible book value per share of common stock at June 30, 2005	$
Increase in pro forma net tangible book value per share attributable to this offering
As adjusted pro forma net tangible book value per share after the offering
Dilution per share to new investors		$

The following table sets forth, on an as adjusted basis as of June 30, 2005, the number of shares of common stock purchased or to be purchased from us, the total consideration paid or to be paid and the average price per share paid or to be paid by existing holders of common stock and by the new investors, at an assumed initial public offering price of $             per share, before deducting estimated underwriting discounts and estimated offering expenses payable by us.

	Shares Purchased		Total Consideration		Average Price Per Share
	Number	Percent	Amount	Percent
Existing stockholders		%	$	%	$
Effect of special distributions to our stockholders
Total
New investors
Total		%	$	%	$

If the underwriters exercise their over-allotment option in full, our existing stockholders would own         % and our new investors would own         % of the total number of shares of our common stock outstanding after this offering.

The discussion and tables above are based on the number of shares of common stock outstanding at June 30, 2005. The discussion and tables above exclude the following shares:

· 1,868,094 shares of common stock issuable upon the exercise of options outstanding at June 30, 2005, at a weighted average exercise price of $1.85 per share,

24

· 119,440 shares of common stock issuable upon the exercise of options granted after June 30, 2005, at an exercise price of $7.00 per share,

· 92,722 shares of common stock available for future issuance under our 2004 Stock Plan,

· 2,000,000 shares of common stock available for future issuance under our 2005 Equity Incentive Plan, and

· 394,090 shares of common stock issued on September 30, 2005 in connection with our acquisition of ATN and the additional shares of common stock that may be issued based upon the financial performance of the ATN businesses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition.”

To the extent outstanding options are exercised, new investors will experience further dilution.

25

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following tables summarize our unaudited pro forma condensed combined balance sheet as of June 30, 2005 and our unaudited pro forma condensed combined statements of operations for the year ended December 31, 2004 and for the six months ended June 30, 2005. You should read this financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements included elsewhere in this prospectus and the financial statements of DayHawk Radiology Services, LLC, or DayHawk, and American Teleradiology Nighthawks, Inc., or ATN, included elsewhere in this prospectus.

The unaudited pro forma condensed combined balance sheet data gives effect to our September 2005 acquisition of ATN as if the acquisition had occurred on January 1, 2004. The effects of this acquisition are summarized in the column entitled “Pro Forma Adjustments for Acquisition.” The column entitled “Pro Forma Adjustments prior to this Offering” reflects: (i) special distributions to our stockholders of $13 million in September 2005 and $7 million immediately prior to this offering, (ii) the conversion of all outstanding shares of our redeemable preferred stock into shares of common stock upon the completion of this offering, resulting in the termination of the redeemable preferred stock conversion feature and the accretion of our redeemable preferred stock, and (iii) the termination of the redemption rights associated with 2,089,286 shares of our common stock upon the completion of this offering. The column entitled “Pro Forma Adjustments for this Offering” reflects the receipt of net proceeds from the sale of              shares of common stock by us in this offering at an assumed initial offering price of $         per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the application of approximately $32 million of the net proceeds from this offering to repay existing indebtedness.

The unaudited pro forma condensed combined statements of operations data gives effect to our November 2004 acquisition of DayHawk and our September 2005 acquisition of ATN as if the acquisitions had occurred on January 1, 2004.

The unaudited pro forma condensed combined financial data is presented for illustrative purposes only and does not represent what our results of operations actually would have been if the transactions referred to above had occurred as of the dates indicated or what our results of operations will be for future periods.

26

Unaudited Pro Forma Condensed Combined Balance Sheet Data:

	As of June 30, 2005
	Historical NightHawk Radiology Holdings, Inc.			Historical American Teleradiology Nighthawks, Inc.		Pro Forma Adjustments for Acquisition(10)			Pro Forma Combined			Pro Forma Adjustments prior to this Offering			Pro Forma As Adjusted NightHawk Radiology Holdings, Inc.			Pro Forma Adjustments for this Offering	Pro Forma As Adjusted Nighthawk Radiology Holdings, Inc.
ASSETS
Current assets
Cash and cash equivalents	$	6,037,642		$	260,910	$	—		$	6,298,552		$	—		$	6,298,552		$	$
Trade accounts receivable, net		10,008,771			413,726		—			10,422,497			—			10,422,497
Prepaids and other current assets		1,106,448			48,558		—			1,155,006			—			1,155,006
Total current assets		17,152,861			723,194		—			17,876,055			—			17,876,055
Property and equipment, net		3,744,146			179,473		—			3,923,619			—			3,923,619
Goodwill (1)		954,788			—		7,053,762			8,008,550			—			8,008,550
Intangible assets, net (1)		868,751			—		2,906,019			3,774,770			—			3,774,770
Deferred income taxes		237,965			—		—			237,965			—			237,965
Other assets, net		129,750			—		—			129,750			—			129,750
Total	$	23,088,261		$	902,667	$	9,959,781		$	33,950,709			—		$	33,950,709		$	$
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses (2)(7)(8)	$	3,699,843		$	73,485	$	138,222		$	3,911,550			—		$	3,911,550		$	$
Accrued payroll and related benefits		1,650,275			163,484		—			1,813,759			—			1,813,759
Deferred income taxes		40,060			—		—			40,060			—			40,060
Long-term debt, due within one year		3,000,000			—		—			3,000,000			—			3,000,000
Capital lease obligations, due within one year		3,542			—		—			3,542			—			3,542
Total current liabilities		8,393,720			236,969		138,222			8,768,911			—			8,768,911
Long-term debt (3)		8,250,000			—		—			8,250,000		$	20,000,000			28,250,000
Due to related party		—			156,132		—			156,132			—			156,132
Fair value of redeemable preferred stock conversion feature (4)		16,899,998			—		—			16,899,998			(16,899,998	)		—
Deferred income taxes (2)		—			2,528		1,172,893			1,175,421			—			1,175,421
Capital lease obligations		14,553			—		—			14,553			—			14,553
Total liabilities		33,558,271			395,629		1,311,115			35,265,015			3,100,002			38,365,017
Commitments and contingencies
Redeemable common stock (5)		7,981,073			—		—			7,981,073			(7,981,073	)		—
Redeemable convertible preferred stock (5)		12,615,518			—		—			12,615,518			(12,615,518	)		—
Stockholders’ equity (deficit):
Common stock, par (5)		19,404			500		485			20,389			10,214			30,603
Additional paid-in capital (4)(9)		6,184,411			79,500		9,919,515			16,183,426			37,486,375			53,669,801
Retained earnings (deficit) (3)		(37,270,416	)		427,038		(1,271,334	)		(38,114,712	)		(20,000,000	)		(58,114,712	)
Total stockholders’ equity (deficit)		(31,066,601	)		507,038		8,648,666			(21,910,897	)		17,496,589			(4,414,308	)
Total	$	23,088,261		$	902,667	$	9,959,781		$	33,950,709		$	—		$	33,950,709		$	$

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Unaudited Pro Forma Condensed Combined Statements Of Operations

	Year Ended December 31, 2004
	Historical NightHawk Radiology Holdings, Inc.			Historical Combined for Acquisitions		Pro Forma Adjustments for Acquisitions (10)			Pro Forma Combined
Service revenue	$	39,283,002		$	3,685,904	$	—		$	42,968,906
Operating costs and expenses:
Professional services		15,049,399			1,267,212		—			16,316,611
Sales, general, and administrative		11,991,386			1,667,189		—			13,658,575
Depreciation and amortization (6)		528,126			8,448		969,347			1,505,921
Total operating cost and expenses		27,568,911			2,942,849		969,347			31,481,107
Operating income		11,714,091			743,055		(969,347	)		11,487,799
Other income (expense):
Interest expense		(880,671	)		—		—			(880,671	)
Interest income		40,835			15		—			40,850
Other, net		(28,953	)		—		—			(28,953	)
Change in fair value of redeemable preferred stock conversion feature		(3,857,500	)		—		—			(3,857,500	)
Total other income (expense)		(4,726,289	)		15		—			(4,726,274	)
Income before income taxes		6,987,802			743,070		(969,347	)		6,761,525
Income tax expense (7)(8)		3,662,563			91,173		(221,750	)		3,531,986
Net income		3,325,239			651,897		(747,597	)		3,229,539
Redeemable preferred stock accretion		(764,742	)		—		—			(764,742	)
Income applicable to common stockholders	$	2,560,497		$	651,897	$	(747,597	)	$	2,464,797
Earnings per common share:
Basic	$	0.08							$	0.08
Diluted	$	0.08							$	0.08
Weighted averages of common shares outstanding:
Basic		30,245,546					1,524,566			31,770,112
Diluted		30,245,546					1,524,566			31,770,112

Unaudited Pro Forma Condensed Combined Statements Of Operations

	Six Months Ended June 30, 2005
	Historical NightHawk Radiology Holdings, Inc.			Historical American Teleradiology Nighthawks, Inc.		Pro Forma Adjustments for Acquisitions (10)			Pro Forma Combined
Service revenue	$	28,443,923		$	1,651,963	$	—		$	30,095,886
Operating costs and expenses:
Professional services		9,514,299			564,147		—			10,078,446
Sales, general, and administrative		11,600,118			748,168		—			12,348,286
Depreciation and amortization (6)		552,142			2,328		203,205			757,675
Total operating costs and expenses		21,666,559			1,314,643		203,205			23,184,407
Operating income		6,777,364			337,320		(203,205	)		6,911,479
Other income (expense):
Interest expense		(461,424	)		—		—			(461,424	)
Interest income		32,131			412		—			32,543
Other, net		(47,495	)		—		—			(47,495	)
Change in fair value of redeemable preferred stock conversion feature		(11,372,221	)		—		—			(11,372,221	)
Total other income (expense)		(11,849,009	)		412		—			(11,848,597	)
Income (loss) before income taxes		(5,071,645	)		337,732		(203,205	)		(4,937,118	)
Income tax expense (8)		2,464,155			—		52,466			2,516,621
Net income (loss)		(7,535,800	)		337,732		(255,671	)		(7,453,739	)
Redeemable preferred stock accretion		(521,053	)		—		—			(521,053	)
Income (loss) applicable to common stockholders	$	(8,056,853	)	$	337,732	$	(255,671	)	$	(7,974,792	)
Earnings (loss) per common share:
Basic	$	(0.37	)						$	(0.35	)
Diluted	$	(0.37	)						$	(0.35	)
Weighted averages of common shares outstanding:
Basic		21,492,857					985,222			22,478,079
Diluted		21,492,857					985,222			22,478,079

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(1) Preliminary estimate to record the purchase of intangible assets and goodwill associated with the acquisition of ATN.

(2) Deferred tax liabilities for the preliminary estimate of basis differences of intangible assets and the change in deferred tax liabilities for the reversal of a portion of these differences for the period January 1, 2004 - June 30, 2005.

(3) Special dividends declared in September 2005 funded through long-term debt.

(4) Termination of the redeemable preferred stock conversion feature. Upon the completion of this offering, the balance in the fair value of redeemable preferred stock conversion feature will be reported as additional paid-in capital.

(5) Conversion of all outstanding shares of our redeemable preferred stock into shares of common stock upon the completion of the offering. The redemption rights associated with 2,089,286 shares of common stock will also terminate upon completion of this offering.

(6) Amortization expense for intangible assets associated with the acquisitions.

(7) Income tax expense for DayHawk’s 2004 income utilizing our statutory tax rate of 39% and the tax effect of the pro forma adjustment for the additional amortization expense.

(8) Income tax expense for ATN’s income utilizing our effective tax rate of 39% for the six months ended June 30, 2005 along with the tax effect of the pro forma adjustment for the additional amortization expense. This pro forma adjustment reflects ATN as a subchapter C corporation for 2004.

(9) The preliminary estimated acquisition value of ATN is $10 million.

(10) Pro forma financial statements related to our acquisition of DayHawk begin on F-42 and our acquisition of ATN begin on F-55.

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus. The consolidated statements of operations data for the fiscal years ended December 31, 2002, 2003 and 2004 and the consolidated balance sheet data as of December 31, 2003 and 2004 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2002 was derived from our audited consolidated financial statements not included in this prospectus. The consolidated statement of operations data for the fiscal year ended December 31, 2001 and for the six months ended June 30, 2004 and 2005 and the consolidated balance sheet data as of December 31, 2001 and June 30, 2005 were derived from our unaudited consolidated financial statements. The unaudited consolidated financial statements were, in the opinion of management, prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments necessary for the fair presentation of the financial information contained in those statements. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods.

	Year Ended December 31,												Six Months Ended June 30,
	2001			2002			2003			2004			2004			2005
Consolidated Statements of Operations data:
Service revenue	$	38,355		$	4,666,645		$	16,216,322		$	39,283,002		$	16,700,544		$	28,443,923
Operating costs and expenses (1):
Professional services		219,464			1,941,452			6,417,803			15,049,399			6,354,973			9,514,299
Sales, general and administrative		367,840			1,624,654			4,862,452			11,991,386			4,954,669			11,600,118
Depreciation and amortization		9,392			59,063			175,780			528,126			188,032			552,142
Total operating costs and expenses		596,696			3,625,169			11,456,035			27,568,911			11,497,674			21,666,559
Operating income (loss)		(558,341	)		1,041,476			4,760,287			11,714,091			5,202,870			6,777,364
Other income (expense):
Interest expense		(7,312	)		(40,072	)		(6,915	)		(880,671	)		(302,466	)		(461,424	)
Interest income		—			—			3,927			40,835			8,249			32,131
Other, net		—			(3,001	)		28,266			(28,953	)		(34,605	)		(47,495	)
Change in fair value of redeemable preferred stock conversion feature		—			—			—			(3,857,500	)		(1,276,482	)		(11,372,221	)
Total other income (expense)		(7,312	)		(43,073	)		25,278			(4,726,289	)		(1,605,304	)		(11,849,009	)
Income (loss) before income taxes		(565,653	)		998,403			4,785,565			6,987,802			3,597,566			(5,071,645	)
Income tax expense		—			—			—			3,662,563			1,358,099			2,464,155
Net income (loss)		(565,653	)		998,403			4,785,565			3,325,239			2,239,467			(7,535,800	)
Redeemable preferred stock accretion		—			—			—			(764,742	)		(250,248	)		(521,053	)
Net income (loss) applicable to common stockholders	$	(565,653	)	$	998,403		$	4,785,565		$	2,560,497		$	1,989,219		$	(8,056,853	)
Earnings (loss) per common share:
Basic	$	(.01	)	$	.02		$	.08		$	.08		$	.05		$	(.37	)
Diluted	$	(.01	)	$	.02		$	.08		$	.08		$	.05		$	(.37	)
Weighted averages of common shares outstanding (2):
Basic		62,165,195			62,165,195			62,165,195			30,245,546			39,473,501			21,492,857
Diluted		62,165,195			62,165,195			62,165,195			30,245,546			39,473,501			21,492,857

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	As of December 31,										As of June 30, 2005
	2001			2002		2003		2004
Consolidated Balance Sheet data:
Cash and cash equivalents	$	7,824		$	53,269	$	2,184,120	$	5,813,861		$	6,037,642
Working capital (3)		(676,478	)		267,248		4,350,332		4,181,402			8,759,141
Total current assets		66,299			999,005		5,267,631		12,226,876			17,152,861
Total long-term debt (including current portion)		—			—		—		12,000,000			11,250,000
Total liabilities		701,797			731,757		917,299		23,468,421			33,558,271
Total stockholders’ equity (deficit)		(565,653	)		695,515		5,634,130		(22,708,950	)		(31,066,601	)

(1) Includes the non-cash stock-based compensation charges set forth in in the following table (which amounts include a non-recurring, non-cash professional services charge of approximately $1.5 million in 2004 associated with the issuance of shares of our common stock to one of our affiliated radiologists and a non-recurring, non-cash sales, general and administrative charge of approximately $2.9 million in the six months ended June 30, 2005 associated with the full acceleration of shares of common stock held by a member of our board of directors).

	Year Ended December 31,								Six Months Ended June 30,
	2001		2002		2003		2004		2004		2005
Professional services
Non-cash stock-based compensation	$	—	$	262,765	$	653,050	$	1,544,781	$	513,589	$	241,388
Sales, general and administrative
Non-cash stock-based compensation		—		—		—		144,822		7,542		3,030,504
Total non-cash stock-based compensation	$	—	$	262,765	$	653,050	$	1,689,603	$	521,131	$	3,271,892

(2) The weighted average shares of common stock outstanding for the years ended December 31, 2001, 2002, 2003 and 2004 are based on the assumed conversion of LLC units into common stock at the beginning of 2001 based on the conversion ratio from the recapitalization transaction.

(3) Defined as current assets minus current liabilities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements that appear elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results may differ materially from those discussed in these forward-looking statements due to a number of factors, including those set forth in the section entitled “Risk Factors” and elsewhere in this prospectus.

Overview

We are the leading provider of off-hours, emergency radiology services to radiology groups and hospitals across the United States. Our team of American Board of Radiology-certified, U.S. state-licensed and hospital-privileged radiologists uses our proprietary workflow technology to provide radiological interpretations to our customers in the United States primarily from centralized reading facilities located in Sydney, Australia and Zurich, Switzerland. The interpretations that we currently provide consist primarily of preliminary diagnoses of emergency trauma and non-traumatic emergency conditions.

Nighthawk Radiology Services, LLC, an Idaho limited liability company, was founded in August 2001 and began providing off-hours emergency radiology services in October 2001. On March 31, 2004, our management team, along with entities affiliated with Summit Partners, consummated a series of related transactions that resulted in the creation and capitalization of NightHawk Radiology Holdings, Inc., a Delaware corporation, and its acquisition of all the outstanding membership units of Nighthawk Radiology Services, LLC. These transactions resulted in Nighthawk Radiology Services, LLC becoming a wholly-owned subsidiary of NightHawk Radiology Holdings, Inc. NightHawk Radiology Holdings, Inc. conducts its operations primarily through Nighthawk Radiology Services, LLC.

In November 2004, we acquired all of the outstanding membership units of DayHawk Radiology Services, LLC, a Delaware limited liability company. This resulted in DayHawk Radiology Services, LLC becoming our wholly-owned subsidiary. We acquired DayHawk Radiology Services, LLC, primarily for the purpose of expanding our service hours. The operations of DayHawk Radiology Services, LLC have been integrated into our operations. Historical financial statements for DayHawk Radiology Services, LLC appear elsewhere in this prospectus.

In April 2005 and August 2005, we entered into a series of transactions with Comerica Bank that provided us a $32 million term loan facility and a $3 million revolving line of credit. In April 2005, we borrowed $12 million under the term loan facility and used the proceeds to repay all outstanding indebtedness to certain entities affiliated with Summit Partners and to repay a revolving credit facility with Silicon Valley Bank. In September 2005, we borrowed $13 million under the term loan facility and distributed the full amount as a special distribution to the holders of our common stock and redeemable preferred stock. Immediately prior to this offering, we intend to borrow an additional $7 million under the term loan facility and distribute the full amount as another special distribution to the holders of our common stock and redeemable preferred stock. We intend to use a portion of the proceeds from this offering to repay our obligations under the term loan facility with Comerica Bank.

Recent Acquisition

On September 30, 2005, we acquired American Teleradiology Nighthawks, Inc., or ATN. We regard the ATN acquisition as an acquisition of two distinct businesses: an off-hours teleradiology business that is supplemental to our current business, and an early-stage business that will focus on the provision of teleradiology services to hospitals that do not currently have adequate coverage from radiologists located in their vicinities. The consideration to the ATN stockholders in connection with the acquisition is based primarily upon the future

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financial performance of these two businesses. Specifically, the consideration to the stockholders of ATN consists of:

· 394,090 shares of our common stock issued at the completion of the acquisition;

· additional shares of our common stock that may be issued based upon the revenue generated by the off-hours teleradiology business during the twelve month period following completion of the acquisition; and

· additional shares of our common stock that may be issued based upon earnings before interest, taxes, depreciation and amortization, or EBITDA, generated by the hospital business during the twelve month period ending eighteen months following the completion of the acquisition.

The operations of ATN have not yet been fully integrated into our operations. Historical financial statements for ATN appear elsewhere in this prospectus.

The 394,090 shares of common stock that were issued at the completion of the acquisition will be recorded at par value as common stock with additional amounts up to fair value recorded as “Additional Paid-In Capital.” The shares that may be issued as a result of the future financial performance of ATN are considered contingent consideration and will be recorded in a similar manner upon issuance, if any.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements in accordance with U.S. GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during a fiscal period. The SEC considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires the exercise of significant judgment and the use of estimates on the part of management in its application. We have discussed the selection and development of the critical accounting policies with the audit committee of our board of directors, and the audit committee has reviewed our related disclosures in this prospectus. Although we believe that our judgments and estimates are appropriate, actual results may differ from those estimates.

We believe the following to be our critical accounting policies because they are both important to the portrayal of our financial condition and results of operations and they require critical management judgment and estimates about matters that are uncertain:

· revenue recognition and allowance for doubtful accounts,

· accounting for redeemable preferred stock,

· stock-based compensation,

· use of estimates,

· long-lived assets including goodwill and other acquired intangible assets, and

· income taxes.

If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See “Risk Factors” for certain matters that may affect our future results of operations or financial condition.

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Revenue Recognition and Allowance for Doubtful Accounts

We enter into services contracts with our customers. These contracts typically have a one year term, and automatically renew for each successive year unless terminated by the customer or by us. The amount we charge for our radiology services varies by customer based on a number of factors, including the hours of coverage we provide for the customer, the number of reads we provide to the customer and the technical and administrative services we provide to the customer. We recognize revenue when we have satisfied all of our significant contractual obligations to our customers and we determine that the collection of the resulting receivable is reasonably assured. Revenue from services is recognized in the fiscal month in which the radiological interpretation is complete and forwarded to the customer. We review our historical collection experience on a quarterly basis to determine the necessity of a provision for doubtful accounts. To date, we have not had any material difficulties in collecting payment for our services. As of June 30, 2005, we had reserved $16,000 for doubtful accounts based on our estimate of the collectibility of our outstanding receivables as of that date.

Accounting for Redeemable Preferred Stock

We account for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We record derivative financial instruments as assets or liabilities in our consolidated balance sheets, measured at fair value. We record the change in fair value of such instruments as non-cash gains or losses in our consolidated statements of operations. We do not enter into derivative contracts for trading purposes.

On March 31, 2004, in connection with the organization and capitalization of NightHawk Radiology Holdings, Inc., we issued 8,125,000 shares of redeemable preferred stock for a total consideration of $13 million. Each share of redeemable preferred stock is convertible, at the option of the holder, into one share of common stock. The conversion feature of the redeemable preferred stock is considered an embedded derivative under the provisions of SFAS No. 133, and accordingly is accounted for separately from the redeemable preferred stock. We determined the fair value of the redeemable preferred stock conversion feature based upon the fair value of the underlying common stock. On the date of issuance, the estimated fair value of the conversion feature was $1,670,277 which was recorded as a liability on the date of issuance, thus reducing the recorded value of the redeemable preferred stock to $11,329,723. At each balance sheet date, we adjust the carrying value of the embedded derivative to estimated fair value and recognize the change in such estimated value in our consolidated statements of operations.

We also classify the redeemable preferred stock as mezzanine equity. As such, we accrete the carrying value of such stock to its redemption value using the effective interest method through the redemption period. In addition, the redeemable preferred stock has accrued dividends since the date of issuance. We recognize these two types of accretion of redeemable preferred stock in our consolidated statement of operations as a decrease in net income available to common stockholders.

Upon completion of this offering, all outstanding shares of redeemable preferred stock will convert into common stock, and, as a result, we will not record any additional expenses associated with the change in fair value of the conversion feature. The amount reported as fair value of the redeemable preferred stock conversion feature will be reported as additional paid-in capital in the equity section of the balance sheet. Also, the rights of the holders of redeemable preferred stock to receive accrued dividends or to exercise redemption rights will terminate. As a result, the accretion of redeemable preferred stock will also terminate. Following the completion of this offering, these amounts will be reported within stockholders’ equity.

Stock-Based Compensation

We currently record stock-based compensation expense in connection with any grant of stock options, warrants or other issuance of shares of common stock to our affiliated radiologists. We calculate the stock-based

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compensation expense associated with the issuance of stock options and warrants to our affiliated radiologists in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123 (SFAS No. 148) and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF No. 96-18), by determining the fair value using a Black-Scholes model. We calculate the stock-based compensation expense related to issuance of common stock to our affiliated radiologists based on the fair value of common stock at the date the shares are issued. Stock-based compensation to our affiliated radiologists is included in professional services expense.

We also record stock-based compensation expense in connection with any grant of stock options, warrants or other issuance of shares of common stock to employees, directors and non-physician contractors. We calculate the stock-based compensation expense associated with the issuance of stock options and warrants to our employees and directors in accordance with SFAS No. 123 and SFAS No. 148 by determining the fair value using a Black-Scholes model. We calculate the stock-based compensation expense related to the issuance of common stock to our employees, directors and non-physician contractors based on the fair value of common stock on the date the shares are issued. Stock-based compensation to employees and non-physician contractors is included in sales, general and administrative expense.

Use of Estimates

On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable allowance, fair value of acquired intangible assets and goodwill, fair value of the redeemable preferred stock conversion feature, useful lives of intangible assets and property and equipment, and income taxes, among others, as well as the loss contingency for medical liability claims and the value of common stock for the purpose of determining stock-based compensation. We base our estimates on our historical experience (which is limited) and on various other assumptions that are believed to be reasonable along with the guidance provided by Statement of Financial Accounting Standard, or SFAS, No. 5, Accounting for Contingencies, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets

The value of goodwill and intangible assets is stated at the lower of cost or fair value. Goodwill is not subject to amortization; however it is subject to periodic impairment assessments. Under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, we are required to perform at least an annual impairment test and to consider other indicators that may arise throughout the year to re-evaluate carrying value. Some factors we consider important, which could trigger an interim impairment review, include:

· significant underperformance relative to historical or projected future operating results,

· significant changes in the manner of our use of acquired assets or the strategy for our overall business, and

· significant negative industry or economic trends.

If we determine through the impairment review process that goodwill or intangible assets have been impaired, we reduce goodwill and intangible assets by recording an impairment charge in our consolidated statement of operations in an amount equal to the amount that book value exceeds fair value at the date impairment is determined. We perform our annual impairment test in the last quarter of each fiscal year. SFAS No. 142 also requires that intangible assets with definite lives be amortized over their estimated useful lives. We are currently amortizing our acquired intangible assets with definite lives over periods ranging from seven months to ten years.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires impairment losses to be recognized for long-lived assets through operations when indicators of impairment exist and the underlying

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cash flows are not sufficient to support the assets’ carrying value. In addition, SFAS No. 144 requires that a long- lived asset (disposal group) to be sold that meets certain recognition criteria be classified as “held for sale” and measured at the lower of carrying amount or fair value less cost to sell. SFAS No. 144 also requires that a long-lived asset subject to closure (abandonment) before the end of its previously estimated useful life continue to be classified as “held and used” until disposal, with depreciation estimates revised to reflect the use of the asset over its shortened useful life.

We regularly evaluate the carrying value of intangible and long-lived assets for events or changes in circumstances that indicate that the carrying amount may not be recoverable or that the remaining estimated useful life should be changed. Potential indicators of impairment can include, but are not limited to (1) history of operating losses or expected future losses, (2) significant adverse change in legal factors, (3) changes in the extent or manner in which the assets are used, (4) current expectations to dispose of the assets by sale or other means, and (5) reductions or expected reductions of cash flow. If we determine there is an indication of impairment, we compare undiscounted net cash flows to the carrying value of the respective asset. If the carrying value exceeds the undiscounted net cash flows, we perform an impairment calculation using discounted cash flows, valuation analysis from independent valuation specialists or comparisons to recent sales or purchase transactions to determine estimated fair value.

Income Taxes

As a limited liability company, or LLC, for all periods from inception through March 31, 2004, we were not subject to federal income taxes directly. Rather, the LLC members were subject to federal income taxation based on their respective allocation of the LLC’s net taxable income or loss.

Since our recapitalization, we have recognized income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Developing our provision for income taxes, including our effective tax rate, and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowances we deem necessary to value deferred tax assets. Our judgments and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our income tax liabilities in our consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

How We Generate Revenue

We generate substantially all of our revenue from the radiology services that we provide our customers. We typically provide these services pursuant to one-year services contracts that automatically renew for each successive year unless terminated by the customer or by us. The amount we charge for our radiology services varies by customer based upon a number of factors, including the hours of coverage we provide for the customer, the number of reads we provide to the customer and the technical and administrative services we provide to the customer.

We recognize revenue generated by our services during the month in which services are provided and we bill our customers at the beginning of the following month. Because the invoices are paid directly by our customers, we do not currently depend upon payment by third-party payors or patients.

Since our first full year of operations, we have experienced significant revenue growth, from $4.7 million in 2002 to $16.2 million in 2003 and to $39.3 million in 2004. This growth in service revenue resulted primarily from:

· an increase in our customer base,

· an increase in utilization of our service by our customers,

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· an expansion of our service hours, and

· a high customer retention rate.

As of June 30, 2005, our affiliated radiologists provided services to 347 customers serving 693 hospitals. The total number of hospitals we cover represents approximately 12% of all hospitals in the United States. Most of our customers do not currently contract for all of the hours of coverage that we are able to provide.

In addition to the current customers described above, as of June 30, 2005 we had services contracts with 11 radiology groups covering 75 hospitals for which we expected to begin to provide services upon completion of the credentialing, privileging and other implementation procedures at those sites. Once we receive an executed customer contract, it typically takes approximately 90 days to fully implement the site and begin deriving revenue from the customer. This implementation period provides us with reasonable visibility of future revenue associated with these customer contracts.

Since inception, we have experienced a high rate of customer retention, with more than 97% of our customer contracts up for renewal being renewed.

Our Operating Expenses

Our operating expenses consist primarily of professional services expense, sales, general and administrative expense, interest expense and income tax expense. We record stock compensation expense in connection with equity issuances to our affiliated radiologists (which we refer to as physician stock-based compensation) and in connection with equity issuances to our employees, directors and non-physician contractors (which we refer to as non-physician stock-based compensation). In our consolidated statement of income, we present our physician stock-based compensation expense as part of our professional services expenses and our non-physician stock-based compensation as part of our sales, general and administrative expense.

Professional Services Expense.    Our professional services expense consists primarily of the fees we pay to our affiliated radiologists for their services (which we refer to as physician compensation), physician stock-based compensation, the premiums we pay for medical liability insurance and medical liability loss contingency expense. Our affiliated radiologists are highly trained professionals and we compensate them accordingly. As a result, physician compensation is our most significant expense. We structure our relationships with our affiliated radiologists such that they have control over the number of hours that they work. We compensate our affiliated radiologists using a formula that is generally based upon the number of hours worked and the workload completed, and we also provide discretionary bonuses. We recognize physician compensation expense in the month in which the services are performed. We recognize expenses associated with medical liability premiums in the month in which the expense is incurred. We record medical liability loss contingency expense in the month in which we deem such liability to be probable.

Physician Stock-Based Compensation Expense.    We record physician stock-based compensation expense in connection with any grant of stock options, warrants or other issuance of shares of our common stock to our affiliated radiologists and present this expense in our consolidated statements of operations as part of our professional services expense. We calculate the stock-based compensation expense associated with the issuance of stock options and warrants to affiliated radiologists in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123 (SFAS No. 148) and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF No. 96-18), by determining the fair value using a Black-Scholes model. We calculate the stock-based compensation expense related to issuance of common stock to our affiliated radiologists based on the fair value of common stock at the date the shares were issued.

Sales, General and Administrative Expense.    Sales, general and administrative expense consists primarily of salaries and related expenses for all employees and non-physician contractors, non-physician stock-based

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compensation, information technology and telecommunications expenses, costs associated with licensing and privileging our affiliated radiologists, facilities and office-related expenses, sales and marketing expenses and other general and administrative expenses.

Non-Physician Stock-Based Compensation Expense.    We record non-physician stock-based compensation expense in connection with any grant of stock options, warrants or other issuance of shares of our common stock to our employees, directors and non-physician contractors and present this expense in our consolidated statement of income as part of our sales, general and administrative expense. We calculate the stock-based compensation expense associated with the issuance of stock options and warrants to our employees, directors and non-physician contractors in accordance with SFAS No. 123 and SFAS No. 148 by determining the fair value using a Black-Scholes model. We calculate the stock-based compensation expense related to the issuance of common stock to our employees, directors and non-physician contractors based on the fair value of common stock at the date the shares were issued.

Our Non-Operating Expenses

In addition to our operating expenses, we record the following non-operating expenses.

Interest Expense.    Interest expense is directly attributable to the principal amount of debt we have outstanding. We expect that we will use the proceeds of this offering to repay all currently outstanding debt obligations other than long-term capital lease obligations.

Change in Fair Value of Redeemable Preferred Stock Conversion Feature.    We have entered into a stockholders agreement with the holders of our Series A preferred stock pursuant to which we have agreed to repurchase all or any portion of the shares of redeemable preferred stock then held by such holders at any time after seven years from the date of issuance. The stockholders agreement provides that the repurchase price for such shares of redeemable preferred stock shall be the greater of (i) the market value of the common stock issuable upon conversion of the redeemable preferred stock or (ii) the liquidation value of such shares of redeemable preferred stock (including all accrued and unpaid dividends). The conversion feature of the redeemable preferred stock is considered an embedded derivative under the provisions of SFAS No. 133, and accordingly is accounted for separately from the redeemable preferred stock. On the date of issuance, the estimated fair value of the conversion feature was $1,670,277 which was recorded as a liability on the balance sheet date on the date of issue thus reducing the recorded value of the redeemable preferred stock to $11,329,723. At each balance sheet date, we adjust the carrying value of the embedded derivative to estimated fair value and recognize the change in such estimated value in our consolidated statements of operations.

Upon completion of this offering, all outstanding shares of redeemable preferred stock will convert into common stock, and, as a result, we will not record any additional expenses associated with the change in fair value of the conversion feature of our redeemable preferred stock.

Income Tax Expense.    We became subject to federal income taxes upon the formation and capitalization of NightHawk Radiology Holdings, Inc. Prior to that time, we operated our business as a limited liability company and, as such, were not subject to income taxes.

Redeemable Preferred Stock Accretion.    Shares of our redeemable preferred stock have accrued dividends since the date of issuance. The redeemable preferred stock dividends are cumulative and accrue at a rate of 6% per annum based on the sum of the liquidation value of each share of redeemable preferred stock, $1.60, plus all accumulated and unpaid dividends. Dividends accumulate at the end of each calendar quarter. In addition to accruing dividends, we also accrue the carrying amount of the redeemable preferred stock to its redemption value using the effective interest method through the redemption period. We recognize these two types of accretion of redeemable preferred stock in our consolidated statements of operations as a decrease in net income available to common stockholders.

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Upon the completion of this offering, all outstanding shares of redeemable preferred stock will convert into shares of common stock and the rights of the holders of redeemable preferred stock to receive accrued dividends or to exercise redemption rights will terminate. As a result, the accretion relating to our redeemable preferred stock will also terminate. Following the completion of this offering, these amounts will be reported within stockholders’ equity.

Trends in our Business and Results of Operations

Revenue Trends.    Our business has grown rapidly since inception. This growth has been driven primarily by an increase in our customer base, an increase in utilization of our service by our customers, an expansion of our service hours, a high customer retention rate and the growth in the use of diagnostic imaging technologies and procedures in the healthcare market. Our strategy is to expand on our position as the leading provider of off-hours emergency radiology services by:

· targeting new customers,

· expanding our radiology group customers’ utilization of our services as they implement coverage of additional hospitals,

· marketing to our customers the additional available hours of coverage,

· expanding our service offerings to include primary interpretations,

· pursuing strategic acquisitions,

· developing a market for our software technology, and

· maintaining our high customer retention rate.

Our revenue has increased in absolute dollars each year since inception and our revenue growth rate has been strong. However, our revenue growth rate declined from 2003 to 2004 and will likely continue to decline as a result of the increased revenue base against which future periods will be compared. We expect that a number of our customers will implement coverage for additional hospitals as well as begin to use additional hours of our service, resulting in an overall increase in the utilization of our service by those customers.

Trends in Physician Compensation Expense.    Since inception, our physician compensation expense has increased in absolute dollars each year, primarily due to the addition of new radiologists to perform an increased workload as our business has grown. However, physician compensation expense as a percentage of revenue has decreased each year since inception primarily due to increased productivity of our affiliated radiologists as well as increased efficiency due to improvements in our workflow technology. These increases in productivity and improved efficiencies have been offset in part by an increase in the hourly compensation we pay to our affiliated radiologists. We expect that our physician compensation will continue to increase in absolute dollars as we contract with additional radiologists to meet the increasing demand for our services, as we begin to offer services that we do not currently provide, and as a result of scheduled increases in hourly compensation under our existing professional services agreements with our affiliated radiologists.

Our medical liability expense has also increased in absolute dollars each year since inception, primarily due to increases in our medical liability premiums as our business has grown. Also, in 2004, we recorded our first claims loss contingency expense associated with two currently outstanding medical liability claims. We expect our medical liability premiums and, as a result, our medical liability expenses, to continue to increase in future periods as our business grows.

Trends in Physician Stock-Based Compensation Expense.    We recorded significant physician stock-based compensation expense in 2004, primarily as a result of a warrant we issued in 2003 to one of our affiliated radiologists and the related issuance of 1,259,375 fully vested shares of our common stock to the radiologist in the fourth quarter of 2004 in satisfaction of that warrant. In addition, we recorded physician stock-based compensation expense in connection with the grant of options to purchase an aggregate of 693,099 shares of our common stock to our affiliated radiologists in October and November 2004. These options were the first option

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grants we had made to our affiliated radiologists since inception and were granted at exercise prices equal to the fair value of our common stock on the date of grant as determined by our board of directors. As a result, we granted a relatively large number of options to our affiliated radiologists at one time, which we do not anticipate will occur again. Instead, we anticipate granting options to new radiologists as well as radiologists renewing their contracts with us at the end of their initial term. Because we do not anticipate issuing any additional warrants to our affiliated radiologists or any additional shares of fully vested common stock, we expect our physician stock-based compensation expense to decline in future periods.

Trends in Sales, General and Administrative Expense.    Our sales, general and administrative expense has increased in absolute dollars each year since inception primarily as a result of increased payroll expenses in connection with the addition of key management personnel, software development professionals and the implementation of executive and employee bonuses. We expect that these payroll expenses will continue to increase as we continue to increase headcount as our business grows. In addition to increased payroll expense, we expect that our general and administrative expense will increase in absolute dollars due to increases in telecommunications and information technology costs and licensing and privileging costs. Also, we expect that our general and administrative expense will increase in absolute dollars due to increases in legal, accounting, consulting, staffing and insurance costs associated with being a public company. Accordingly, we expect sales, general and administrative expense to increase in absolute dollars in future periods.

Trends in Non-Physician Stock-Based Compensation Expense.    We recorded relatively modest non-physician stock-based compensation expense in 2004. In 2004, our non-physician stock-based compensation expense consisted primarily of an expense recorded in connection with the issuance of 798,595 unvested shares of our common stock to one of the members of our board of directors, and an expense recorded in connection with the grant of options to our employees, directors and non-physician contractors to purchase shares of our common stock. In June 2005, our board of directors agreed to accelerate the vesting of the 798,595 shares of common stock held by one of our directors which resulted in a non-physician stock-based compensation expense of approximately $2.9 million, which contributed to a relatively significant non-physician stock-based compensation expense in the first half of 2005. However, because we do not anticipate issuing any shares of our common stock other than pursuant to the grant of options to our employees, directors and non-physician contractors in the ordinary course, we expect our non-physician stock-based compensation expense to decline in periods after 2005.

Trends in Interest Expense.    Our interest expense is attributable to the principal amount of debt we have outstanding. In April 2005, we entered into a loan agreement with Comerica Bank that provided us a $12 million term loan facility and a $3 million revolving line of credit. We used the proceeds from the term loan facility to repay in full all outstanding indebtedness under the promissory notes held by entities affiliated with Summit Partners and the revolving credit facility with Silicon Valley Bank. In August 2005 we amended our loan agreement with Comerica Bank to provide an additional $20 million under the term loan facility. In September 2005, we borrowed $13 million under the term loan facility and distributed the full amount as a special distribution to the holders of our common stock and redeemable preferred stock. Immediately prior to this offering, we intend to borrow an additional $7 million under the term loan facility and distribute the full amount as another special distribution to the holders of our common stock and redeemable preferred stock.

Trends and Treatment of Redeemable Preferred Stock.    Upon the completion of this offering, all outstanding shares of redeemable preferred stock will convert into shares of common stock and the rights of the holders of redeemable preferred stock to receive accrued dividends or to exercise redemption rights will terminate. As a result, we will not record any additional expenses associated with the change in fair value of the conversion feature of our redeemable preferred stock, and the accretion relating to our redeemable preferred stock will terminate. Following the completion of this offering, these amounts will be reported within stockholders’ equity.

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Results of Operations

The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of service revenue.

	Fiscal Year Ended December 31,						Six Months Ended June 30,
	2002		2003		2004		2004		2005
Service revenue	100	%	100	%	100	%	100	%	100	%
Operating costs and expenses:
Professional services (1)	42		39		38		38		33
Sales, general and administrative (2)	35		30		31		30		41
Depreciation and amortization	1		1		1		1		2
Total operating costs and expenses	78		70		70		69		76
Operating income	22		30		30		31		24
Other income (expense):
Interest expense	(1	)	—		(2	)	(2	)	(2	)
Interest income	—		—		—		—		—
Other, net	—		—		—		—		—
Change in fair value of redeemable preferred stock conversion feature	—		—		(10	)	(8	)	(40	)
Total other income (expense)	(1	)	—		(12	)	(10	)	(42	)
Income (loss) before income taxes	21		30		18		21		(18	)
Income tax expense	—		—		9		8		9
Net income (loss)	21		30		9		13		(27	)
Redeemable preferred stock accretion	—		—		(2	)	(1	)	(2	)
Net income (loss) applicable to common stockholders	21	%	30	%	7	%	12	%	(29	)%

(1) Includes non-cash stock-based compensation expense of $262,765 for 2002, $653,050 for 2003, $1,544,781 (which amount includes a non-recurring, non-cash professional services expense of approximately $1.5 million associated with the issuance of shares of our common stock to one of our affiliated radiologists) for 2004, $513,589 for the six months ended June 30, 2004 and $241,388 for the six months ended June 30, 2005.

(2) Includes non-cash stock-based compensation expense of $0 for 2002, $0 for 2003, $144,822 for 2004, $7,542 for the six months ended June 30, 2004 and $3,030,504 (which amount includes a non-recurring, non-cash sales, general and administrative expense of approximately $2.9 million associated with the full acceleration of shares of common stock held by a member of our board of directors) for the six months ended June 30, 2005.

Comparison of Six Months Ended June 30, 2004 and June 30, 2005

Service Revenue

	Six Months Ended June 30,				Change
	2004		2005		In Dollars		Percentage
Service revenue	$	16,700,544	$	28,443,923	$	11,743,379	70	%

The increase in service revenue from the six months ended June 30, 2004 to the six months ended June 30, 2005 resulted primarily from an increase in the number of our radiology group customers and their affiliated hospitals, increased utilization by our customers of our hours of service and the growth in the use of diagnostic imaging technologies and procedures in the healthcare market during this period. The number of radiology group and hospital customers to which we provided service increased from 231 as of June 30, 2004 to 347 as of

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June 30, 2005, a 50% increase in customers. The increase in the number of our customers resulted primarily from increased market acceptance of teleradiology as a solution, an increase in the recognition by the marketplace of the quality of our service offerings, the success by our sales professionals in generating new customers, and an improvement in our ability to meet the increased demand for our service, primarily through the addition of affiliated radiologists and the expansion of our hours of service. As of June 30, 2004, we provided service from 8 p.m. to 8 a.m. for hospitals located in the eastern time zone. As of June 30, 2005, we had expanded our service offering to 5 p.m. to 8 a.m. local time for all time zones in the continental United States as well as 24-hours per day on weekends and holidays. We were able to provide these additional hours of coverage in part due to our acquisition of DayHawk Radiology Services, LLC as well as the establishment of an additional reading facility in Zurich, Switzerland. In addition to the expansion of service hours, the increase in revenue from existing customers also resulted from an increase in the utilization of our service by our customers as a result of those customers adding new hospitals. The aggregate increase in service revenue due to these factors was offset partially by pricing pressure resulting from increased competition.

Operating Costs and Expenses

Professional Services

	Six Months Ended June 30,						Change
	2004			2005			In Dollars		Percentage
Professional services (1)	$	6,354,973		$	9,514,299		$	3,159,326	50	%
Percentage of service revenue		38	%		33	%

(1) Includes non-cash stock-based compensation expense of $513,589 for the six months ended June 30, 2004 and $241,388 for the six months ended June 30, 2005.

The increase in professional services expense from the six months ended June 30, 2004 to the six months ended June 30, 2005 resulted primarily from an increase in the number of our affiliated radiologists providing service as well as an increase in the service fees we paid to our affiliated radiologists as a result of scheduled increases in hourly compensation under the terms of the professional services agreements with our affiliated radiologists. From June 30, 2004 to June 30, 2005, we increased the number of our affiliated radiologists from 20 to 30. This increase was driven primarily by the increased demand for our services and was attributable to our ability to effectively recruit additional radiologists to meet such demand. While our professional services expense increased by 50% for the period, our professional services expense as a percentage of service revenue decreased from 38% for the six months ended June 30, 2004, to 33% for the six months ended June 30, 2005. This has resulted primarily from the following factors:

· Physician Compensation Expense.    While our physician compensation expense increased from $5.4 million for the six months ended June 30, 2004 to $8.8 million for the six months ended June 30, 2005, a 63% increase, our physician compensation expense as a percentage of service revenue decreased from 32% to 31% during that same period. This decrease as a percentage of service revenue resulted primarily from increased workload efficiencies of our affiliated radiologists and improvements in our workflow technologies, offset in part by contractual increases in hourly compensation for our affiliated radiologists.

· Medical Liability Expense.    Our medical liability expense decreased from approximately $467,000 for the six months ended June 30, 2004 to approximately $457,000 for the six months ended June 30, 2005, a 2% decrease. Of the approximately $467,000 expense recorded in the six months ended June 30, 2004, $200,000 was attributable to a claims loss contingency expense on two medical liability claims. We had no claims loss contingency expense for the six months ended June 30, 2005.

· Physician Stock-Based Compensation Expense.    Physician stock-based compensation expense decreased from approximately $514,000 for the six months ended June 30, 2004 to approximately $241,000 for the six months ended June 30, 2005. The physician stock-based compensation expense recorded for the six months ended June 30, 2004 resulted entirely from a warrant we had issued to one of our affiliated

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radiologists. In November 2004, we issued shares of our common stock in satisfaction of such warrant and, therefore, did not record any additional compensation expense related to that warrant after that time. In the six months ended June 30, 2005, we recorded physician stock-based compensation expense only as a result of options granted to our affiliated radiologists.

Sales, General and Administrative

	Six Months Ended June 30,						Change
	2004			2005			In Dollars		Percentage
Sales, general and administrative (1)	$	4,954,669		$	11,600,118		$	6,645,449	134	%
Percentage of service revenue		30	%		41	%

(1) Includes non-cash stock-based compensation expense of $7,542 for the six months ended June 30, 2004 and $3,030,504 for the six months ended June 30, 2005.

The increase in our sales, general and administrative expense from the six months ended June 30, 2004 to the six months ended June 30, 2005 resulted primarily from increases in payroll expense due to increases in executive bonuses as well as our increased number of personnel in our management, software development, quality control and licensing and privileging departments. In addition, our sales, general and administrative expense for this period increased as a result of increases in information technology and telecommunications expenses, facilities and office-related expenses, licensing and privileging expenses, sales and marketing expenses and other general and administrative expenses. Finally, as described more fully below under “Non-Physician Stock-Based Compensation Expense,” our sales, general and administrative expense for the six months ended June 30, 2005 expressed as a percentage of service revenue would have been 30% had it not been for an expense of approximately $2.9 million associated with the acceleration of vesting on shares of stock held by one of our directors.

· Payroll and Related Expense.    Our sales, general and administrative headcount increased from 76 at June 30, 2004 to 134 at June 30, 2005, a 76% increase, and resulted in an increase in payroll expense from approximately $2.9 million for the six months ended June 30, 2004 to $5.1 million for the six months ended June 30, 2005, a 76% increase. This increase in payroll expense resulted primarily from the implementation of an executive bonus plan as well as personnel additions in our quality control, information technology, finance, and licensing and privileging departments. Expressed as a percentage of service revenue, our sales, general and administrative payroll and related expenses were approximately 18% of service revenue for both the six months ended June 30, 2004 and the six months ended June 30, 2005.

· Information Technology and Telecommunications Expense.    Our non-payroll information technology and telecommunications expense increased from approximately $348,000 for the six months ended June 30, 2004 to approximately $824,000 for the six months ended June 30, 2005, a 137% increase. This increase resulted primarily from continued investment in the redundancy and reliability of our network as well as increased costs associated with implementing and supporting an increased number of customer sites.

· Facilities Expense.    Our facilities and office-based expense increased from approximately $390,000 for the six months ended June 30, 2004 to $745,000 for the six months ended June 30, 2005, a 91% increase. The increase in facilities and office-based expense was driven primarily by increased facilities occupancy expenses associated with office expansions in Sydney, Australia and Coeur d’Alene, Idaho, and the addition of our facility in Zurich, Switzerland.

· Licensing and Privileging Expense.    Our non-payroll licensing and privileging expense consists primarily of fees paid in connection with the state medical licenses and hospital privileges we obtain on behalf of our affiliated radiologists. Our affiliated radiologists are licensed to practice medicine in an average of 34 states and have been granted privileges at an average of 438 hospitals. As a result of our efforts to obtain these medical licenses and staff privileges for our affiliated radiologists, we incur

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administrative expenses as well as fees payable to the states and hospitals. Each state typically requires a fee to be paid in connection with the issuance of a medical license as well as an additional annual fee that must be paid to maintain the medical license. In addition, many hospitals have annual fees associated with the granting of medical staff privileges. Non-payroll licensing and privileging expenses increased from approximately $530,000 for the six months ended June 30, 2004 to approximately $537,000 for the six months ended June 30, 2005, a 1% increase. We believe these non-payroll related costs for licensing and privileging expenses are typically higher when a physician begins providing services as compared to subsequent periods because annual renewal fees are typically lower than initial licensing and privileging fees.

· Other General and Administrative Expense.    Our other general and administrative expense consists primarily of professional accounting and legal expenses. Other general and administrative expense increased from approximately $613,000 for the six months ended June 30, 2004 to approximately $1.3 million for the six months ended June 30, 2005, a 112% increase. The increase in other general and administrative expense was driven primarily by increased accounting and legal fees related to the costs of becoming a public company.

· Non-Physician Stock-Based Compensation Expense.    Our non-physician stock-based compensation expense increased from approximately $7,500 for the six months ended June 30, 2004 to approximately $3.0 million for the six months ended June 30, 2005. This increase resulted primarily from a non-physician stock-based compensation expense of approximately $2.9 million associated with the acceleration of vesting on 798,595 shares of common stock held by one of our directors. In addition, during the six months ended June 30, 2005, we granted options to purchase 433,750 shares of common stock to our employees and non-physician contractors, resulting in an additional stock compensation expense of approximately $104,000. As of June 30, 2004, we had not adopted a stock option plan and had not issued any options or any other equity securities to our employees and non-physician contractors.

Other Income (Expense)

Interest Expense

	Six Months Ended June 30,						Change
	2004			2005			In Dollars		Percentage
Interest expense	$	302,466		$	461,424		$	158,958	53	%
Percentage of service revenue		2	%		2	%

The interest expense for the six months ended June 30, 2004 and for the first quarter of 2005 consisted primarily of interest payable under outstanding promissory notes issued to certain affiliates of Summit Partners and interest payable under a $3 million revolving line of credit with Silicon Valley Bank. The aggregate principal balance of the outstanding promissory notes was approximately $9 million through April 20, 2005. The aggregate principal balance of our revolving credit facility with Silicon Valley Bank was $3 million through April 20, 2005. On April 20, 2005, we entered into a loan agreement with Comerica Bank that provided us a $12 million term loan facility and a $3 million revolving line of credit. We used the proceeds from the term loan facility to repay in full all outstanding indebtedness under the promissory notes held by entities affiliated with Summit Partners and the revolving credit facility with Silicon Valley Bank.

Change in Fair Value of Redeemable Preferred Stock Conversion Feature

	Six Months Ended June 30,						Change
	2004			2005			In Dollars		Percentage
Change in fair value of redeemable preferred stock conversion feature	$	1,276,482		$	11,372,221		$	10,095,739	791	%
Percentage of service revenue		8	%		40	%

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We first issued shares of our redeemable preferred stock on March 31, 2004. The fair value of the redeemable preferred stock conversion feature was determined to be approximately $1,670,277 on March 31, 2004 and was recorded as a liability at the date of issuance, reducing the recorded value of redeemable preferred stock. From March 31, 2004 to June 30, 2004, the fair value of the redeemable preferred stock conversion feature increased from $1,670,277 at March 31, 2004 to $2,946,759 at June 30, 2004, resulting in a non-cash expense of $1,276,482 for the six months ended June 30, 2004. In the six months ended June 30, 2005, the fair value of the embedded conversion feature increased from $5,527,777 at December 31, 2004 to $16,899,998 at June 30, 2005, resulting in a non-cash expense of $11,372,221. Upon completion of this offering, all outstanding shares of redeemable preferred stock will convert into common stock, and, as a result, we will not record any additional expenses associated with the change in fair value of the conversion feature of our redeemable preferred stock.

Income Tax Expense

	Six Months Ended June 30,						Change
	2004			2005			In Dollars		Percentage
Income tax expense	$	1,358,099		$	2,464,155		$	1,106,056	81	%
Percentage of service revenue		8	%		9	%

We recorded an income tax expense of approximately $1.4 million for the six months ended June 30, 2004 and approximately $2.5 million for the six months ended June 30, 2005. Because we operated as a limited liability company during the first quarter of 2004, we were subject to federal income taxes for only a portion of the six months ended June 30, 2004, resulting in a lower income tax expense as compared to the same period for 2005.

Comparison of Fiscal Years Ended December 31, 2003 and December 31, 2004

Service Revenue

	Fiscal Year Ended December 31,				Change
	2003		2004		In Dollars		Percentage
Service revenue	$	16,216,322	$	39,283,002	$	23,066,680	142	%

The increase in service revenue from 2003 to 2004 resulted primarily from an increase in the number of our radiology group and hospital customers, increased utilization by our customers of our hours of service and the growth in the use of diagnostic imaging technologies and procedures in the healthcare market during this period. The number of customers to which we provided service increased from 165 as of December 31, 2003 to 291 as of December 31, 2004, a 76% increase. The increase in the number of our customers resulted primarily from increased market acceptance of teleradiology as a solution, an increase in the recognition by the marketplace of the quality of our service offerings, the success by our sales professionals in generating new customers, and an improvement in our ability to meet the increased demand for our service, primarily through the addition of affiliated radiologists and the expansion of our hours of service. As of December 31, 2003, we provided service from 8 p.m. to 8 a.m. for hospitals located in the eastern time zone. As of December 31, 2004, we had expanded our service offering to 5 p.m. to 8 a.m. local time for all time zones in the continental United States as well as 24 hours-a-day coverage on weekends and holidays. We were able to provide these additional hours of coverage in part due to our acquisition of DayHawk Radiology Services, LLC as well as the establishment of an additional reading facility in Zurich, Switzerland. In addition to the expansion of service hours, the increase in revenue from existing customers resulted from an increase in the utilization of our service by our customers as a result of those customers adding new hospitals. The aggregate increase in service revenue due to these factors was offset partially by pricing pressure resulting from increased competition.

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Operating Costs and Expenses

Professional Services

	Fiscal Year Ended December 31,						Change
	2003			2004			In Dollars		Percentage
Professional services (1)	$	6,417,803		$	15,049,399		$	8,631,596	134	%
Percentage of total revenue		39	%		38	%

(1) Includes non-cash stock-based compensation expense of $653,050 for 2003 and $1,544,781 for 2004.

The increase in professional services expense from 2003 to 2004 resulted primarily from the following factors:

· Physician Compensation Expense.    Our physician compensation expense increased from $5.3 million for 2003 to $12.7 million for 2004, a 140% increase. This increase resulted primarily from an increase in the number of our affiliated radiologists providing service as well as an increase in the service fees we paid to our affiliated radiologists as a result of scheduled increases in hourly compensation under the terms of the professional services agreements with our affiliated radiologists. From December 31, 2003 to December 31, 2004, we increased the number of our affiliated radiologists from 14 to 27. This increase was driven primarily by the increased demand for our services and was attributable to our ability to effectively recruit additional radiologists to meet such demand. However, our physician compensation expense as a percentage of service revenue decreased from 33% to 32% from 2003 to 2004. This decrease as a percentage of service revenue resulted primarily from increased workload efficiencies of our affiliated radiologists and improvements in our workflow technologies, offset in part by contractual increases radiologist hourly compensation.

· Medical Liability Expense.    Our medical liability insurance related expense increased from approximately $491,000 for 2003 to $792,000 for 2004, a 61% increase. Of the approximately $792,000 expense recorded in 2004, $200,000 was attributable to a claims loss contingency expense on two medical liability claims. We had no claims loss contingency expense for 2003.

· Physician Stock-Based Compensation Expense.    In 2003, we recorded physician stock-based compensation expense of approximately $653,000 in connection with the issuance of warrants to purchase membership units in Nighthawk Radiology Services, LLC to two of our affiliated radiologists. In 2004, one of these warrants remained outstanding, which we satisfied by issuing 1,259,375 shares of our common stock to that radiologist, resulting in a stock compensation expense of approximately $1.5 million. In addition, in 2004, we granted options to purchase an aggregate of 693,099 shares of our common stock to our affiliated radiologists, resulting in a stock compensation expense of approximately $46,000.

Sales General and Administrative

	Fiscal Year Ended December 31,						Change
	2003			2004			In Dollars		Percentage
Sales, general, and administrative (1)	$	4,862,452		$	11,991,386		$	7,128,934	147	%
Percentage of service revenue		30	%		31	%

(1) Includes non-cash stock-based compensation expense of $0 for 2003 and $144,822 for 2004.

The increase in our sales, general and administrative expense from 2003 to 2004 resulted primarily from increases in payroll expense due to the implementation of our executive bonus plan as well as increases in personnel in our management, software development, quality control and licensing and privileging departments. In addition, sales, general and administrative expense for this period increased as a result of increases in

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information technology and telecommunications expenses, facilities and office-related expenses, licensing and privileging expenses, sales and marketing expenses and other general and administrative expenses. Finally, sales general and administrative expense was greater for 2004 than for 2003 due to certain equity issuances in 2004 that resulted in non-physician stock compensation expense.

· Payroll and Related Expense.    Our sales, general and administrative headcount increased from 53 at December 31, 2003 to 98 at December 31, 2004, an 85% increase. This resulted in an increase in payroll expense from approximately $2.6 million for 2003 to $7.1 million for 2004, a 173% increase. This increase in payroll expense resulted primarily from the implementation of our executive bonus plan as well as personnel additions in our quality control, information technology, finance, and licensing and privileging departments. Expressed as a percentage of service revenue, sales, general and administrative payroll expense increased from 16% of service revenue for 2003 to 18% of service revenue for 2004. This increase in sales, general and administrative payroll expense, expressed as a percentage of service revenue, resulted primarily from the implementation of the executive bonus plan.

· Information Technology and Telecommunications Expense.    Our non-payroll information technology and telecommunications expense increased from approximately $381,000 for 2003 to $904,000 for 2004, a 137% increase. This increase resulted primarily from our continued investment in the redundancy and reliability of our network as well as increased costs associated with implementing and supporting an increased number of operating sites.

· Facilities Expense.    Our facilities and office-based expense increased from approximately $431,000 for 2003 to $949,000 for 2004, a 120% increase. The increase in facilities and office based expense was driven primarily by increased facilities occupancy expenses associated with our office expansions in Sydney, Australia and Coeur d’Alene, Idaho, and the establishment of our reading facility in Zurich, Switzerland and our office in Milwaukee, Wisconsin.

· Licensing and Privileging Expense.    Our non-payroll licensing and privileging expense consists primarily of fees paid in connection with the state medical licenses and hospital privileges we obtain on behalf of our affiliated radiologists. Non-payroll licensing and privileging expenses increased from $593,000 for 2003 to $931,000 for 2004, a 57% increase.

· Other General and Administrative Expense.    Our other general and administrative expense increased from approximately $603,000 for 2003 to $1.6 million for 2004, or a 165% increase. The increase in other general and administrative expense was driven primarily by increased legal, consulting, accounting, and travel expenses.

· Non-Physician Stock Compensation Expense.    We recorded non-physician stock compensation expense of zero in 2003 because we did not issue any options or other equity securities to our employees, directors or non-physician contractors. In October 2004, we adopted the 2004 Stock Plan and began issuing options to employees and certain of our non-physician contractors. In 2004, we issued options to purchase an aggregate of 613,000 shares of our common stock to our employees, directors and non-physician contractors, resulting in stock compensation expense of $35,000. In addition, in June 2004, we issued 798,595 unvested shares of our common stock to an individual who now serves as a member of our board of directors. This resulted in a stock compensation expense of approximately $100,000 in 2004.

Other Income (Expense)

Interest Expense

	Fiscal Year Ended December 31,						Change
	2003			2004			In Dollars		Percentage
Interest expense	$	6,915		$	880,671		$	873,756	12,636	%
Percentage of service revenue		—	%		2	%

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Our interest expense in 2003 consisted primarily of interest paid on an outstanding $1.1 million line of credit, while our interest expense in 2004 consisted primarily of interest payable under outstanding promissory notes issued to entities affiliated with Summit Partners as well as interest payable under a $3 million revolving line of credit with Silicon Valley Bank. The aggregate principal balance of the outstanding promissory notes was approximately $9 million at December 31, 2004. The aggregate balance of our revolving credit facility with Silicon Valley Bank was $3 million at December 31, 2004.

Change in Fair Value of Redeemable Preferred Stock Conversion Feature

	Fiscal Year Ended December 31,						Change
	2003			2004			In Dollars		Percentage
Change in fair value of redeemable preferred stock conversion feature	$	—		$	3,857,500		$	3,857,500	—	%
Percentage of service revenue		—	%		10	%

There were no shares of redeemable preferred stock outstanding in 2003 and, as a result, we did not record any expense related to the redeemable preferred stock conversion feature in 2003. We first issued shares of our redeemable preferred stock on March 31, 2004. The fair value of the redeemable preferred stock conversion feature was approximately $1,670,277 on March 31, 2004 and approximately $5,527,777 at December 31, 2004. This increase in fair value of the redeemable preferred stock conversion feature resulted in expense of $3,857,500 for 2004. Upon completion of this offering, all outstanding shares of redeemable preferred stock will convert into common stock, and, as a result, we will not record any additional expense associated with the change in fair value of the conversion feature of our redeemable preferred stock.

Income Tax Expense

	Fiscal Year Ended December 31,						Change
	2003			2004			In Dollars		Percentage
Income tax expense	$	—		$	3,662,563		$	3,662,563	—	%
Percentage of service revenue		—	%		9	%

We recorded an income tax provision of $0 for 2003 and approximately $3.7 million for 2004. Because we operated as a limited liability company, or LLC, during 2003, we were not subject to federal income taxes and therefore did not record an income tax provision for that period.

Redeemable Preferred Stock Accretion

	Fiscal Year Ended December 31,						Change
	2003			2004			In Dollars		Percentage
Redeemable preferred stock accretion	$	—		$	764,742		$	764,742	—	%
Percentage of service revenue		—	%		2	%

The redeemable preferred stock accretion is comprised of two types of accretion based on the underlying redeemable preferred stock: (1) $168,171 represents the accretion of dividends at a daily rate of 6% per annum, and (2) $596,571 represents the accretion of the carrying amount of the redeemable preferred to its redemption value using the effective interest method through the redemption period.

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Comparison of Fiscal Years Ended December 31, 2002 and December 31, 2003

Service Revenue

	Fiscal Year Ended December 31,				Change
	2002		2003		In Dollars		Percentage
Service revenue	$	4,666,645	$	16,216,322	$	11,549,677	247	%

The increase in service revenue from 2002 to 2003 resulted primarily from an increase in the number of our radiology group and hospital customers, increased utilization by our customers of our hours of service and the growth in the use of diagnostic imaging technologies and procedures in the healthcare market during this period. The number of customers to whom we provided service increased from 51 as of December 31, 2002 to 165 as of December 31, 2003, a 224% increase. The increase in the number of our customers that we provided service to resulted primarily from increased market acceptance of teleradiology as a solution, an increase in the recognition by the marketplace of the quality of our service offerings, the success by our sales professionals in generating new customers, as well as an improvement in our ability to meet the increased demand for our service, primarily through the addition of affiliated radiologists. In addition, the increase in revenue also resulted from an increase in the utilization of our service by our customers as a result of those customers adding new hospitals.

Operating Costs and Expenses

Professional Services

	Fiscal Year Ended December 31,						Change
	2002			2003			In Dollars		Percentage
Professional services (1)	$	1,941,452		$	6,417,803		$	4,476,351	231	%
Percentage of service revenue		42	%		39	%

(1) Includes non-cash stock-based compensation expense of $262,765 for 2002 and $653,050 for 2003.

The increase in professional services expense from 2002 to 2003 resulted primarily from the following factors:

· Physician Compensation Expense.    Our physician compensation expense increased from $1.5 million for 2002 to $5.3 million for 2003, a 253% increase. This increase resulted primarily from an increase in the number of affiliated radiologists providing service as well as an increase in the service fees we paid to affiliated radiologists as a result of scheduled increases in hourly compensation under the terms of the professional services agreements with our affiliated radiologists. From December 31, 2002 to December 31, 2003, we increased the number of affiliated radiologists from 8 to 14. This increase was driven primarily by the increased demand for our services and was attributable to our ability to effectively recruit additional radiologists to meet such demand.

· Medical Liability Expense.    Our medical liability insurance related expense increased from approximately $144,000 for 2002 to $491,000 for 2003, a 241% increase.

· Physician Stock-Based Compensation Expense.    In 2002, we recorded physician stock-based compensation expense of approximately $263,000 in connection with the issuance of a warrant to purchase membership units in Nighthawk Radiology Services, LLC to one of our affiliated radiologists. In 2003, we issued an additional warrant to purchase membership units in Nighthawk Radiology Services, LLC to one of our affiliated radiologists, resulting in stock compensation expense of $653,000 in 2003.

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Sales General and Administrative Expense

	Fiscal Year Ended December 31,						Change
	2002			2003			In Dollars		Percentage
Sales, general, and administrative (1)	$	1,624,654		$	4,862,452		$	3,237,798	199	%
Percentage of service revenue		35	%		30	%

(1) Includes non-cash stock-based compensation expense of $0 for 2002 and $0 for 2003.

The increase in our sales, general and administrative expense from 2002 to 2003 resulted primarily from increases in payroll expense due to increases in personnel in our software development, quality control and licensing and privileging departments. In addition, sales, general and administrative expense for this period increased as a result of increases in information technology and telecommunications expense, facilities and office-related expense, licensing and privileging expense, sales and marketing expense and other general and administrative expense.

· Payroll and Related Expense.    Our sales, general and administrative headcount increased from 17 at December 31, 2002 to 53 at December 31, 2003, a 212% increase resulting in an increase in payroll expense from approximately $814,000 for 2002 to $2.6 million for 2003, a 219% increase. This increase in payroll expense resulted primarily from the personnel additions in our quality control, information technology, finance, and licensing and privileging departments. Expressed as a percentage of service revenue, sales, general and administrative payroll expense decreased from 17% of service revenue for 2002 to 16% of service revenue for 2003.

· Information Technology and Telecommunications Expense.    Our non-payroll information technology and telecommunications expense increased from approximately $98,000 for 2002 to $381,000 for 2003, a 289% increase. This increase resulted primarily from continued investment in the redundancy and reliability of our network as well as increased costs associated with implementing and supporting an increased number of operating sites.

· Facilities Expense.    Our facilities and office-based expense increased from approximately $235,000 for 2002 to $431,000 for 2003, a 83% increase. The increase in facilities and office based expense was driven primarily by increased facilities occupancy expense associated with office expansions in Sydney, Australia and Coeur d’Alene, Idaho.

· Licensing and Privileging Expense.    Our non-payroll licensing and privileging expense consists primarily of fees paid in connection with the state medical licenses and hospital privileges we obtain on behalf of our affiliated radiologists. Our non-payroll licensing and privileging expense increased from $201,000 for 2002 to $593,000 for 2003, a 195% increase.

· Other General and Administrative Expense.    Our other general and administrative expense increased from approximately $210,000 for 2002 to $603,000 for 2003, a 187% increase. The increase in other general and administrative expense was driven primarily by increased legal, travel and radiologist recruiting expenses.

Other income (expense)

Interest Expense

	Fiscal Year Ended December 31,						Change
	2002			2003			In Dollars			Percentage
Interest expense	$	40,072		$	6,915		$	(33,157	)	(83	)%
Percentage of service revenue		1	%		—	%

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Interest Expense.    Our interest expense in both 2002 and 2003 consisted primarily of interest incurred on amounts outstanding under a line of credit. Interest expense decreased from 2002 to 2003 because we did not utilize the line of credit in 2003 to the same extent that we did in 2002, primarily because we were able to use the revenue generated from our services to fund our operating expenses.

Liquidity and Capital Resources

Cash and Cash Equivalents

Our financial position includes cash and cash equivalents of $6 million and $5.8 million at June 30, 2005 and December 31, 2004, respectively.

Operating Activities

Since our inception in August 2001, we have funded our operations primarily from cash flows generated by our operating activities. Net cash from operations in 2002, 2003 and 2004 was approximately $468,000, $4.3 million and $10.2 million, respectively. Net cash from operations was $6.0 million for the six months ended June 30, 2004, and $2.6 million for the six months ended June 30, 2005, a decrease of 57%.

For the six months ended June 30, 2005, we generated net cash from operations of approximately $2.6 million from a net loss of approximately $7.5 million (which net loss reflects approximately $14.7 million of non-cash charges that did not impact our net cash from operations during this period). Our net cash from operations during this period included an increase in our accounts payable and accrued expenses of approximately $525,000 and was offset by an increase in accounts receivable of approximately $4.0 million, an increase in prepaid expenses and other assets of approximately $867,000, a decrease in deferred income taxes of approximately $352,000, a decrease in accrued payroll and related benefits of approximately $194,000 and a decrease in our accrued interest payable of approximately $248,000. These changes can be attributed primarily to the growth in our business as well as other factors described more fully below.

For the six months ended June 30, 2004, we generated net cash from operations of approximately $6.0 million from net income of approximately $2.4 million (which reflects approximately $2.0 million of non-cash charges that did not impact our net cash from operations during this period). Our net cash from operations during this period included an increase in our accounts payable and accrued expenses of approximately $2.5 million, an increase in our accrued payroll and related benefits of approximately $1.1 million and an increase in our deferred income taxes of approximately $277,000 and was offset by an increase in accounts receivable of approximately $2.0 million and an increase in prepaid expenses and other assets of approximately $69,000. These changes can be attributed primarily to the growth in our business.

The changes in our operating assets and liabilities and the associated impacts on our net cash from operations during the six months ended June 30, 2004 as compared to the changes during the six months ended June 30, 2005 are primarily due to the following factors:

· Accounts Receivable.    Accounts receivable increased by $4.0 million during the six months ended June 30, 2005 compared to a $2.0 million increase during the six months ended June 30, 2004. Increases in accounts receivable decrease cash from operations. This change was attributable primarily to increased service revenues during the six months ended June 30, 2005 coupled with an increase in our days sales outstanding, or DSO, from 45 to 53. We calculate our DSO based upon a three month average of accounts receivable and revenue. The increase in our DSO was primarily due to an increase in the amount of time required to prepare and issue our monthly customer invoices during the transition period associated with our implementation of an automated billing system. We completed implementation of this automated billing process in September 2005 and believe it, together with an increased focus on the collection process, will enable us to prepare and deliver invoices more quickly.

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· Accounts Payable and Accrued Expenses.    Accounts payable and accrued expenses increased by $0.5 million during the six months ended June 30, 2005 compared to $2.5 million during the six months ended June 30, 2004. Increases in accounts payable and accrued expenses increase cash from operations. This increase was primarily due to the expansion of our operations and the change in the timing of our payment of physician compensation. Prior to January 1, 2004, we paid our affiliated radiologists on the last day of the month during which services were rendered. In January 2004, we began to compensate our affiliated radiologists in the first week following the month in which the radiologists rendered the professional services. This change in the timing of payments to our affiliated radiologists resulted in an accrual for physician compensation at the end of the six months ended June 30, 2004 that was not present at the beginning of that period.

· Accrued Payroll and Related Benefits.    Our accrued payroll and related benefits decreased by $0.2 million during the six months ended June 30, 2005 compared to a $1.1 million increase during the six months ended June 30, 2004. Increases in accrued payroll and related benefits increase cash from operations. This change was due primarily to the implementation of an expanded executive, employee, and physician bonus plan and the timing of the payments of these liabilities. Prior to 2004, we did not accrue any liabilities associated with staff or physician bonuses as these bonuses were entirely discretionary and were declared and satisfied at the end of 2003. In 2004, we implemented a bonus plan for our executives, employees and physicians and accrued a liability for these bonuses throughout the year.

· Prepaid Expenses and Other Assets. Our prepaid expense and other assets decreased by $0.9 million during the six months ended June 30, 2005 compared to a decrease of $0.1 million during the six months ended June 30, 2004. Decreases in prepaid expenses and other assets decrease cash from operations. This change was due primarily to an increase in expenses related to this offering as well as an increase in prepaid medical liability premiums.

Net Cash Used in Investing Activities

Net cash used in investing activities was $1.6 million for the six months ended June 30, 2005 compared to $996,000 for the six months ended June 30, 2004. This increase in net cash used in investing activities over this period resulted primarily from increased capital expenditures associated with purchases of equipment and continued investment in our information technology infrastructure. Net cash used in investing activities was $418,000 in 2002, $1.0 million in 2003 and $2.8 million in 2004. In November 2004, we acquired DayHawk Radiology Services, LLC for $1.2 million in cash (of which $500,000 was issued in the form of a promissory note which was repaid in May 2005) and the issuance of 600,000 shares of our common stock.

Net Cash Used in Financing Activities

Net cash used in financing activities was $752,000 for the six months ended June 30, 2005 compared to $3.4 million for the six months ended June 30, 2004. In 2004, cash provided from financing activities included $12 million in proceeds from the issuance of promissory notes and $13 million in proceeds from the issuance of redeemable preferred stock in connection with our recapitalization in March 2004. Of these proceeds, approximately $24.7 million was used to purchase all of the outstanding units in Nighthawk Radiology Services, LLC, held by persons other than our executive officers and approximately $1.5 million was used to satisfy expenses incurred in connection with the recapitalization. In addition, in 2004, we distributed approximately $2.2 million to the members of Nighthawk Radiology Services, LLC as a distribution of the LLC’s earnings in fiscal 2003 and the first quarter of 2004. Finally, in 2004, we entered into a $3.5 million revolving credit facility with Silicon Valley Bank, the proceeds of which we used to satisfy an aggregate of $3 million of the promissory notes issued in March 2004 to the holders of our redeemable preferred stock.

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In April 2005, we entered into a term loan facility and revolving line of credit with Comerica Bank pursuant to a loan and security agreement, the proceeds from which we used to repay all outstanding indebtedness under the promissory notes held by entities affiliated with Summit Partners and the revolving credit facility with Silicon Valley Bank. In June 2005, we paid $750,000 to Comerica Bank as our first principal payment under our term loan facility. Any borrowing under this loan agreement is secured by a first priority security interest in all of our assets. The loan and security agreement includes customary affirmative and negative covenants and we are required to maintain certain leverage and coverage ratios. As of the date of this prospectus, we were not in default of any such restrictions or covenants.

In August 2005 we amended our term credit facility with Comerica Bank to provide for an additional $20 million of indebtedness. We borrowed an aggregate of $13 million under our term facility and distributed the amount as a special dividend to our common and preferred stockholders. Immediately prior to this offering we intend to borrow an additional $7 million under our term loan facility and distribute the amount as a special dividend to our common and preferred stockholders. We anticipate repaying all outstanding indebtedness to Comerica Bank with the proceeds of this offering.

We believe that our cash balances and the expected cash flow from operations will be sufficient to fund our operating activities, working capital, acquisitions and capital expenditure requirements for the next eighteen months. We expect our long-term liquidity needs to consist primarily of working capital, capital expenditure requirements and future acquisitions. We intend to fund these long-term liquidity needs from cash generated from operations. However, our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors. Many of these factors are beyond our control and cannot be anticipated at this time. To the extent that funds generated by this public offering, together with existing cash and securities and cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. If additional funds are obtained by issuing equity securities, substantial dilution to existing stockholders may result. Other than our agreement with ATN, we are not currently a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, although we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

Contractual Obligations and Commitments

The following table presents a summary of our contractual obligations and commitments as of June 30, 2005 excluding the redeemable preferred stock and redeemable common stock. Upon the completion of this offering all outstanding shares of redeemable preferred stock will convert into shares of common stock, the rights of the holders of redeemable preferred stock to receive accrued dividends will terminate and the redemption rights of certain holders of common stock will terminate. Professional services agreements with our affiliated radiologists are not included because they are terminable by either party, subject to certain notice provisions. We intend to use a portion of the proceeds from this offering to repay in full all outstanding long term debt and accrued interest.

	Payments Due Within
	1 Year		2-3 Years		4-5 Years		More than 5 Years	Total
Long term debt to bank (including current portion)	$	3,000,000	$	6,000,000	$	2,250,000	—	$	11,250,000
Interest on long term debt (1)		691,747		860,497		170,038	—		1,722,282
Operating and capital lease commitments		801,200		1,311,600		608,200	—		2,721,000
Total contractual obligations	$	4,492,947	$	8,172,097	$	3,028,238	—	$	15,693,282

(1) Future interest payments are calculated based on the assumption that all debt is outstanding until maturity. Interest has been calculated for all future periods using a rate of 6%.

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Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

Although our affiliated radiologists primarily work from our centralized reading facilities in Australia and Switzerland, the professional service fees we pay to our affiliated radiologists are primarily denominated in U.S. dollars. As such, only our operating leases in those countries represent foreign currency exchange risks. As a result, we are not currently subject to material foreign currency exchange risk, and we have not, to date, entered into any hedging contracts. If a weakening U.S. dollar requires us to increase the amounts we pay to our affiliated radiologists in the future, our results of operations and cash flows may be affected. Primarily, these risks are related to the foreign currency exchange rates between the U.S. dollar, the Australian dollar and the Swiss franc.

Interest Rate Sensitivity

We had cash and cash equivalents totaling $2.2 million at December 31, 2003, $5.8 million at December 31, 2004 and $6.0 million at June 30, 2005. These amounts were invested primarily in interest-bearing money market accounts. The cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. However, any declines in interest rates will reduce future investment income.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which is a revision of SFAS No. 123. SFAS No. 123(R) and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments. Upon adoption, the fair value of all employee stock option awards will be expensed in the Company’s statement of income, typically, over the related vesting period of the options. SFAS No. 123(R) requires use of fair value to measure share-based awards issued to employees, computed at the date of grant. SFAS No. 123(R) will be effective beginning January 1, 2006. The Company has not yet completed its assessment and has not yet determined the effect of adopting SFAS No. 123(R).

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005. We have not determined the effect of adopting SFAS No. 153.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principles. This Statement applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The provisions of SFAS No. 154 are effective for fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 in 2006 to have a material impact on its results of operations or financial position.

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BUSINESS

Overview

We are the leading provider of nighttime and weekend, or off-hours, emergency radiology services to radiology groups and hospitals across the United States. Our team of American Board of Radiology-certified, U.S. state-licensed and hospital-privileged radiologists uses our proprietary workflow technology to provide radiological interpretations, or reads, to our customers in the United States primarily from our centralized reading facilities located in Sydney, Australia and Zurich, Switzerland. By locating our affiliated radiologists in Australia and Switzerland, we can provide off-hours reads in the United States during our radiologists’ local daylight hours. The reads that we provide to our customers primarily consist of preliminary diagnoses of emergency trauma and non-traumatic emergency conditions. As of June 30, 2005, our affiliated radiologists provided services to 347 customers serving 693 hospitals, or approximately 12% of all hospitals in the United States. Most of these customers do not currently contract for all of the hours of coverage that we are able to provide. Since our first full year of operations, we have experienced significant revenue growth, from $4.7 million in 2002 to $16.2 million in 2003 to $39.3 million in 2004.

The U.S. healthcare market is experiencing a substantial increase in the development and use of diagnostic imaging technologies and procedures. From 2000 to 2003, computed tomography procedures, which currently comprise approximately 89% of the reads performed by our affiliated radiologists, increased at an average annual rate of 14.0%. In contrast, the number of radiologists is only increasing by approximately 1.5% annually. In addition, U.S. hospitals now generally require their contracted radiology groups to provide services 24-hours per day, seven days a week. As a consequence, radiologists have experienced, and we believe will continue to experience, increased workloads and increased demands to provide reads during off-hours periods.

For radiology groups, providing off-hours reads often results in the allocation of scarce physician resources to periods during which the volume of diagnostic imaging procedures for any one radiology group is typically low, resulting in operating inefficiencies and related costs. In addition, requirements to provide off-hours reads often limit the growth of radiology groups because of the difficulty of recruiting new radiologists into radiology groups that have off-hours coverage commitments. These radiology groups, which provide substantially all emergency radiology services in the United States, comprise the principal market for our services. By reducing the burdens associated with providing off-hours reads, we believe that we can improve the efficiency and productivity of radiology groups by enabling them to allocate their scarce physician resources to regular business hours, which typically are periods of higher demand. We also believe that our services enable radiology groups to recruit and retain radiologists more effectively, which permits them to pursue additional growth opportunities.

For individual radiologists, providing off-hours reads often results in a significant quality-of-life burden. During an on-call period, a radiologist may be required to perform reads several times during a night, often waking the radiologist or otherwise disrupting the radiologist’s evening. By providing off-hours reads on behalf of radiologists, we believe that our service improves their quality of life.

We bill our radiology group and hospital customers directly for our services, and, as a result, we are not currently dependent on payment by third-party payors or patients. Also, because third-party payors and patients pay only for the final, or primary, reads performed by our customers and not the preliminary reads that we provide, our services do not result in any incremental costs to third-party payors or patients.

Industry Background

Diagnostic Imaging

The practice of diagnostic radiology involves the interpretation of images of the human body to aid in the diagnosis and treatment of diseases, conditions and injuries. Diagnostic imaging procedures include computed tomography, or CT, magnetic resonance imaging, or MRI, ultrasound, nuclear medicine and X-ray technologies.

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Diagnostic radiologists correlate imaging findings with clinical information and other medical examinations, make diagnoses and may recommend further examinations or treatments. Frost & Sullivan, a research firm, estimates that 420.7 million diagnostic imaging procedures were performed in the United States in 2003.

Due to significant advances in imaging quality and technology, diagnostic imaging procedures are becoming increasingly essential components of the practice of medicine in most medical centers and hospitals. The non-invasive nature of most diagnostic imaging procedures, combined with faster digital processing capabilities and rapid broadband connectivity that allows for the transmission of images to radiology experts, has made the performance of these procedures in the emergency room and in other treatment venues more appealing and practical. As a result, physicians are relying more heavily on imaging procedures and radiological interpretations provided by radiologists as a standard of care to aid in patient care management decisions, resulting in continuing growth in the volume of radiological procedures performed. According to Frost & Sullivan, the volume of diagnostic radiology procedures increased during the periods indicated as follows:

Type:	Procedures in 2000	Procedures in 2003	Average Annual Increase (1)		Description
Computed Tomography (CT)	34.1 million	50.6 million	14.0	%	Uses specialized X-ray equipment to create cross-sectional views of internal anatomy
Magnetic Resonance Imaging (MRI)	14.5 million	21.0 million	13.0	%	Uses radio frequency waves and a strong magnetic field to produce images of internal anatomy
Type:	Procedures in 1993	Procedures in 2003	Average Annual Increase (1)		Description
Computed Tomography (CT)	20.0 million	50.6 million	9.7	%	Uses specialized X-ray equipment to create cross-sectional views of internal anatomy
Ultrasound	40.0 million	60.0 million	4.1	%	Uses high-frequency sound waves to obtain images of internal anatomy
Magnetic Resonance Imaging (MRI)	7.9 million	21.0 million	10.3	%	Uses radio frequency waves and a strong magnetic field to produce images of internal anatomy
X-ray	231.5 million	270.1 million	1.6	%	Uses radiation passing through the body to produce images of internal anatomy

(1) Percentages calculated by NightHawk Radiology Holdings, Inc.

The diagnostic imaging services industry is expected to continue to grow as a result of:

Positive market dynamics.    Increasing physician awareness and utilization of imaging as a standard of care to aid in patient diagnosis, including its use as a preventive screening method, as well as an increased availability of diagnostic imaging equipment in medical centers and hospitals, has fueled the growth of the diagnostic imaging industry. Also, the use of diagnostic imaging procedures has risen with the increased provision of healthcare services generally due to an aging population in the United States. In addition, hospital emergency rooms are increasingly the first point of entry into the healthcare system for patients, resulting in a greater number of radiological procedures being ordered by emergency room physicians. Finally, diagnostic imaging procedures are being ordered more frequently than in the past as physicians seek to better manage medical liability risks by gathering as much data as possible to support their diagnoses and treatment protocols.

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Advances in diagnostic imaging technologies.    Advances in diagnostic imaging technologies and techniques have resulted in higher quality images, which facilitate the diagnosis of a wide variety of diseases and injuries quickly and accurately without exploratory surgery or other invasive procedures that are typically more expensive and result in higher risk and rehabilitation time to the patient. New imaging technologies and techniques have also permitted radiologists to make additional diagnoses not previously possible and have resulted in broader applications for diagnostic imaging technologies.

Advances in diagnostic-quality image transmission technologies.    The advent of the Digital Imaging and Communications in Medicine, or DICOM, standard for transferring images and associated information, high-speed broadband internet connections, digitization and picture archival and communication systems, or PACS, has contributed to increased utilization of diagnostic imaging technologies by permitting radiologists to practice remotely. As a result of these improvements in image transmission technologies, the time needed for an offsite radiologist to complete a read has generally decreased. Particularly in an emergency room setting, more rapid diagnosis of acute medical problems aids in the prompt identification of patients that need urgent surgery or hospital admission, decreases mortality and morbidity, and reduces healthcare costs by averting unnecessary hospital admissions and surgery.

The Current Approach to Off-hours Radiology

Emergency room physicians increasingly consider radiological interpretations a necessary resource that must be immediately available to them, including during off-hours periods, to aid their diagnoses. As a result, hospitals typically contract with outside radiology groups to provide radiological interpretations 24-hours per day, seven days a week.

At most hospitals, when an emergency occurs outside regular business hours and a radiological procedure has been performed, either the emergency room physician or a radiologist from the contracted radiology group will interpret the radiological images. For certain simple procedures, such as an X-ray of a broken bone, the emergency room physician often performs the interpretation. For more complex images of intricate anatomy generated by CT, MRI, ultrasound and nuclear medicine procedures, the on-call radiologist, rather than the emergency room physician, typically performs the interpretation. When an on-call radiologist is required to perform the read, emergency room personnel will contact the radiologist, often waking the radiologist or otherwise disrupting the radiologist’s evening, and then transmit the images, often to the radiologist’s home office. The radiologist will interpret the images and call or fax preliminary findings to the emergency room physician for appropriate patient management. During any given night, an on-call radiologist may repeat this routine several times. The following morning, a primary interpretation is performed by the same or a different radiologist in order to confirm the overnight analysis.

This approach presents certain challenges to radiology groups, including:

· Decreased productivity and efficiency.    As a consequence of the interrupted sleep patterns that often result from performing off-hours reads, a radiologist may be less productive or may not work at all the following day. In addition, providing off-hours reads requires the allocation of scarce physician resources to off-hours periods that for any one radiology group are typically characterized by lower volumes of procedures, which results in operating inefficiencies and related costs for a radiology group.

· Recruitment and retention.    The on-call paradigm, characterized by nighttime and weekend service requirements, results in a compromised quality of life for on-call radiologists. The current shortage of radiologists has resulted in a job market where radiologists can be selective regarding professional opportunities and has increased the challenges associated with recruiting and retaining radiologists willing to provide off-hours reads. As a consequence, radiology groups are increasingly finding it difficult to retain radiologists or increase the size of their practice groups if they have off-hours coverage commitments.

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Some radiology groups and hospitals have responded to these challenges by designating certain radiologists to work exclusively during the night. This approach also presents challenges due to the scarcity of radiologists interested in working nighttime shifts, high turnover rates and higher salary demands for such work. Also, there is often less camaraderie and onsite interaction with colleagues.

Our Solution

We are the leading provider of off-hours emergency radiology services to radiology groups and hospitals across the United States. Our team of American Board of Radiology-certified, U.S. state-licensed and hospital-privileged radiologists provides radiological interpretations to our customers in the United States primarily from our centralized reading facilities located in Sydney, Australia and Zurich, Switzerland. We contract with radiology groups and hospitals in the United States to cover their off-hours radiology needs.

Key benefits of our solution to radiologists, hospitals and patients include:

· Improved efficiency for our customers.    By using our services, radiology groups with off-hours coverage commitments may allocate scarce physician resources to periods during which the volume of radiological procedures is typically higher than during off-hours periods. This reallocation of resources can reduce the operating inefficiencies and related costs typically associated with providing off-hours coverage.

· Enhanced quality of patient care.    We believe that our solution enhances the ability of our customers to provide high-quality healthcare services to their patients 24-hours per day, seven days a week as a result of the following:

_° Focus on emergency radiology.    Our affiliated radiologists currently receive emergency radiological examinations from more than 693 hospitals, resulting in our affiliated radiologists devoting their working hours almost exclusively to performing emergency radiology interpretations. Due to this focus, we consider our affiliated radiologists to be specialists in the area of emergency radiology.

_° Multiple physician review.    Our affiliated radiologists typically perform preliminary reads in order to assist emergency room physicians in determining what immediate care, if any, is necessary for emergency room patients. Following our preliminary read, a radiologist associated with the radiology group servicing the applicable hospital will typically perform a primary, or final, read. Because two independent radiologists review each set of radiological images, we believe that the expertise brought to each examination and the resulting quality of patient care is increased.

_° Wider access to care.    Any hospital that has or installs a DICOM image server and that has broadband internet access can utilize our services. As a result, patients in underserved or rural communities, which are often challenged in recruiting radiologists to practice in their locales, can have the same access to radiological services as patients in other areas.

_° Practice during daylight hours.    U.S. radiologists typically provide reads during nighttime shifts as a result of on-call coverage commitments. Our affiliated radiologists work primarily in our reading facilities located in Sydney, Australia and Zurich, Switzerland where, due to geographic time differences, they perform off-hours reads for our customers during the radiologists’ local daylight hours.

· Recruitment and retention of radiologists by our customers.    Our solution enhances the quality of life of our customers’ radiologists by reducing their off-hours coverage commitments. As a consequence, we believe that our customers can more effectively recruit and retain highly-qualified radiologists in a competitive job market where off-hours coverage commitments often result in lower job satisfaction.

· Highly-qualified radiologists.    Our affiliated radiologists are American Board of Radiology-certified in the United States and have received their medical training at some of the most respected medical schools in the United States. These radiologists include former chief residents and fellows from Cornell University, Harvard University, New York University, Northwestern University, the University of

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Pennsylvania, Stanford University and Vanderbilt University. In recognition of the expertise that our affiliated radiologists have developed in emergency radiology, Harvard’s Brigham & Women’s Hospital has established a program that places their emergency radiology fellows in our Sydney facility in order to train with our affiliated radiologists.

· Efficient delivery of services.    We have developed proprietary workflow technology that is designed to distribute radiological images and data to the appropriately licensed and privileged radiologist best able to provide the radiological interpretation in the least amount of turnaround time. As a result of this technology, together with the support provided by our administrative professionals, our affiliated radiologists can better focus on the interpretation of radiological images without the burden of dedicating valuable time to administrative matters, resulting in more efficient delivery of our services to our customers and their patients.

· Centralized reading facilities.    We deliver our solution primarily from centralized reading facilities located in Sydney, Australia and Zurich, Switzerland. By utilizing a centralized approach to the provision of radiology services, we believe that we are able to enhance the quality, efficiency and reliability of the services that we provide to our customers in the following ways:

_° Quality-control professionals.    Our quality-control professionals relieve much of the administrative and technical burden typically associated with a radiology practice by coordinating the communication and transmission of images with the originating hospitals, remediating any technology failures, and finalizing and delivering the results of our affiliated radiologists’ reads. By reducing administrative burdens on our affiliated radiologists, our quality-control professionals enable our affiliated radiologists to better focus on the interpretation of radiological images, which we believe enhances the quality and efficiency of our solution.

_° Quality-assurance professionals.    Our quality-assurance professionals serve as liaisons to our customers and evaluate and respond to any feedback that we may receive. We believe that these professionals enable us to quickly and effectively improve our services in order to respond to the changing needs of our customers.

_° Collaboration among radiologists.    When working in our centralized facilities, our affiliated radiologists are able to collaborate with one another regarding their reads, which we believe can increase the expertise that can be brought to any particular read.

_° Technology infrastructure and technical-support professionals.    Our approach enables us to centrally deploy the computers and servers that comprise our technical infrastructure and to maintain a staff of on-site, technical-support personnel. As a result, we are able to monitor our computer systems and to take appropriate actions to prevent or respond to technical problems quickly and efficiently. We believe that this limits downtime and enhances the reliability of our services. Since our inception, our systems and our online connections to our customers have been operational during more than 99.9% of our service periods.

_° No additional cost to patient or third-party payors.    We currently contract directly with radiology groups and hospitals to provide off-hours radiology coverage, and bill the customer for the preliminary reads that we perform. Because the contracts between our customers and third-party payors typically permit the radiologists to charge a prescribed fixed fee only for primary reads, there are no additional costs for our services to the patients or third-party payors.

Key benefits of our business model include:

· First-mover advantage.    Our early entry into the emerging field of off-hours emergency radiology services has permitted us to become well-established with our customers and to establish a brand that we believe has become synonymous with off-hours radiology coverage. As a consequence of the relationships that we have developed with our customers, the current shortage of radiologists, and the burdens associated with licensing and privileging radiologists for a multi-state, multi-hospital practice, we

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believe that we can leverage our current market position to effectively compete with existing and future market entrants. In addition, we believe that newer market entrants may have difficulty recruiting and retaining the number of highly-qualified radiologists necessary to provide the breadth of off-hours coverage that we provide, and that they may be unable to efficiently manage the licensing and privileging requirements necessary to rapidly increase the size and geographic scope of their businesses.

· Strong customer retention.    Since our formation in 2001, we have secured approximately 297 radiology groups and 50 hospitals as customers. Our customer contracts typically have one-year terms that automatically renew each successive year unless terminated by the customer or by us. Since our inception, more than 97% of our contracts up for renewal have been renewed. We believe that our outstanding customer retention rate confirms the economic and other benefits that our solution provides to our customers and their patients.

· Recruitment and retention of radiologists by us.    We have been able in the past, and believe that we will continue to be able in the future, to recruit and retain radiologists as necessary to meet increasing demand for our services and the growth of our business. We believe that our success in recruiting and retaining radiologists in a competitive labor market is largely a result of our ability to provide our affiliated radiologists with flexible schedules that permit them to avoid nighttime work and our competitive compensation packages. In addition, we have strategically located our primary reading facilities in Sydney and Zurich in an effort to provide opportunities for radiologists to work in attractive, cosmopolitan cities.

· Capital-efficient scalability.    We have designed our technology, workflow processes and facilities to accommodate continuing growth in our business and the volume of diagnostic images delivered to our affiliated radiologists for interpretation. We believe that we can accommodate future growth in our business in a capital-efficient manner because our fixed costs are a relatively small portion of our expenses and are largely unaffected by the volume of diagnostic images transmitted to our facilities or the distance of the transmissions. In addition, we believe that we can increase our number of affiliated radiologists and associated administrative professionals in a timely manner in response to increased demand for our services.

· Licensing and privileging expertise.    All of our affiliated radiologists have the necessary licenses and privileges to read the images that are delivered to them, and we have developed a staff of more than 30 full-time professionals dedicated to obtaining and renewing the necessary licenses and privileges. We are accredited by the Joint Commission on the Accreditation of Healthcare Organizations, or JCAHO, which permits our customers’ hospitals, to the extent that they are also JCAHO-accredited, to rely on our internal privileging processes for our affiliated radiologists. This enables us to streamline a privileging process that otherwise can vary significantly among hospitals and to reduce the time required to launch services to a new customer. Our affiliated radiologists are licensed to practice medicine in an average of 34 states and have been granted privileges at an average of 438 hospitals.

Our Strategy

Our objective is to expand on our position as the leading provider of off-hours emergency radiology services to radiology groups across the United States. We believe that our brand has become synonymous with off-hours radiology coverage and that we have established a position as a leading innovator and thought-leader in the industry. We intend to capitalize on our brand and reputation to facilitate greater acceptance and expansion of teleradiology services while at the same time improving the overall quality of patient care. Key elements of our strategy include:

· Target new customers with expanded sales and marketing efforts.    We intend to increase our customer base through a combination of sales and marketing initiatives, continued focus on customer service and the provision of services and technologies that meet our customers’ needs. We recently increased the number of direct sales professionals that we employ from five to twelve in order to continue to aggressively target radiology groups of all sizes.

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· Expand our customers’ utilization of our current service hours.    Our customers currently have the flexibility to contract with us for coverage commitments between the hours of 5 p.m. and 8 a.m., local time, Monday through Friday, and up to 24-hours per day on weekends and holidays. Most of our customers do not currently contract for all of the hours of coverage that we are able to provide. Through our sales and marketing efforts, we will seek to convince these customers to use additional hours of coverage during these time periods.

· Expand our service offering.    Our centralized approach enables us to expand the hours of coverage that we make available to our customers. We intend to expand our hours of coverage beyond our current offerings. In addition, we intend to expand our services to include the provision of primary, not just preliminary, reads of radiological images. For example, we recently entered into a contract with U.S. Department of Veterans Affairs hospitals located in New York and New Jersey to provide primary reads to those hospitals.

· Pursue strategic acquisitions.    We regularly consider, and intend to continue to pursue, strategic acquisitions that are complementary to our business or offer us other strategic benefits, such as broadening our service offerings, expanding our technology platform or strengthening our position in existing markets. For example, in September 2005, we acquired American Teleradiology Nighthawks, Inc. This acquisition provided us with a business that allows us to increase our customer base by acquiring the customer contracts previously held by ATN, and we believe will accelerate our entry into a complementary teleradiology business in which we will provide radiological services to hospitals across the United States that are currently underserved by the radiologists located in their vicinities. In November 2004, we acquired DayHawk Radiology Services, a teleradiology service provider, primarily to facilitate the expansion of our service hours. Although we have integrated the operations of DayHawk into our solution, we have yet to integrate the operations of ATN into our operations. In addition to the benefits described above, strategic acquisitions may also facilitate our entry into other domestic or international markets.

· Develop a market for our software technology.    We believe that there may be an opportunity to market our proprietary information management technology to radiology groups in the United States and around the world. Our software is designed to optimally distribute radiological images to the appropriately licensed and privileged radiologist best able to provide the radiological interpretation in the least amount of turnaround time, enabling the radiology group to operate its practice more efficiently and effectively.

Operations

Hours of service.    We primarily contract directly with radiology groups to provide off-hours radiology coverage for the hospitals that are their customers. We currently offer our services to our radiology group customers between the hours of 5 p.m. and 8 a.m., local time, Monday through Friday, and up to 24-hours per day on weekends and holidays. Our affiliated radiologists perform these off-hours reads primarily from our centralized reading facilities located in Australia and Switzerland where, due to geographic time differences, they are working during daylight hours. By locating our affiliated radiologists in Australia and Switzerland, we can provide off-hours reads in the United States during local daylight hours at our reading facilities. We also maintain a smaller reading facility in Coeur d’Alene, Idaho in order to supplement the coverage that we provide from Australia and Switzerland.

Affiliated radiologists.    As of June 30, 2005, we had 30 affiliated radiologists who were providing services for us, and an additional 12 radiologists who had entered into contracts with us but had not yet begun to provide services. Our affiliated radiologists are independent contractors, and we have no control over the radiological services or interpretations rendered by the radiologists or their independent judgment concerning the practice of medicine. We typically enter into two- or three-year professional services contracts with our affiliated radiologists. The contracts typically provide that we will make available a minimum number of hours that the radiologists can work per year and specify which of our reading facilities the radiologist will work from. In some

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cases, a contract will also provide that the radiologist may perform some work from the radiologist’s home in the United States. In each case, the contract is structured so that the radiologist has significant flexibility in determining, and control of, the radiologist’s work schedule.

We believe that our affiliated radiologists consider this flexibility an attractive and unique aspect of their relationship with us. Although we believe that our affiliated radiologists are satisfied with their relationships with us, due to our limited operating history, we are unable to predict our future retention rate with any certainty.

Our goal is to recruit the best radiologists in the United States. Our current affiliated radiologists include former chief residents and fellows from Cornell University, Harvard University, New York University, Northwestern University, the University of Pennsylvania, Stanford University and Vanderbilt University. By locating our primary reading facilities in Sydney and Zurich, we believe that we are able to provide opportunities for radiologists to work in attractive, cosmopolitan cities. In addition, by utilizing a centralized approach, we offer radiologists the opportunity to work together and collaborate in a professional atmosphere intended to enhance their job satisfaction.

Our affiliated radiologists are required to hold a current license in good standing to practice medicine in each of the states from which they receive radiological images. In addition, our affiliated radiologists are required to have been granted privileges at each hospital from which those images originate. Due to these requirements, and because we currently serve more than 693 hospitals, our affiliated radiologists are licensed to practice medicine in an average of 34 states and have been granted privileges at an average of 438 hospitals.

Network and workflow.    We deliver our solution through a workflow process that utilizes public network infrastructures, virtual private networks, on-site servers, and proprietary workflow technologies. Our network has been designed to be secure, scalable, efficient and redundant. The following is a description of our workflow process:

· Requisition of interpretations.    When a radiological procedure is performed on a patient, the radiology technologist at the hospital will order an interpretation by either faxing a requisition to our toll-free telephone number or sending the requisition electronically utilizing our software. The information faxed or sent electronically contains basic patient and procedural information and relevant clinical data. Upon completion of the procedure, the technologist transfers the images to us via an established virtual private network, or VPN. Upon receipt of the requisition order and images, one of our designated quality-control professionals faxes a confirmation of the receipt of the images and order to the technologist at the hospital.

· Image transmission.    We process all incoming images and patient data at one of our centralized facilities located in Sydney, Australia, Zurich, Switzerland or Coeur d’Alene, Idaho, depending on the time of day. These facilities are connected to hospitals through VPNs, which encrypt the patient and clinical data for secure delivery. Typically, the radiological images are initially transferred to the internet via the hospital’s internet service provider. The images and data then traverse the internet through standard networking infrastructure and are automatically directed to one of our reading facilities.

We have designed our networks, server infrastructure, and workflow technologies to be efficient and redundant. In the event of a network or server failure, the originating hospital has been instructed to deliver the images and data set to an assigned radiologist from our radiology group customer. As a result, our processes are intended to ensure that a radiologist is always available to perform the necessary services for the hospital and the emergency room patient.

· Order acceptance and assignment.    After the images and data sets are received at our reading facilities, they are processed for interpretation by our quality-control professionals using our proprietary workflow technology. We employ quality-control professionals who perform many of the administrative functions associated with performing radiological interpretations. These administrative tasks include ensuring the accuracy of patient information, coordinating and communicating with the emergency room and

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radiology department staff, ensuring the full receipt of the radiological-image data set, using our proprietary workflow solutions to distribute the images to one of our affiliated radiologists, and delivering the results back to the requesting physician.

· Interpretation and delivery of report.    After the images and data sets have been received by our quality-control professionals, the assigned radiologist interprets the images, dictates his or her findings, reviews the transcription and submits a report back to the designated quality-control professional. The quality-control professional then proofreads the radiologist’s report and transmits it back to the requesting physician. After the report has been transmitted, the quality-control professional contacts the originating hospital to confirm that the report has been received. In certain cases, the quality-control professional will verbally communicate the findings to the healthcare professional at the originating hospital.

· Quality-assurance processes.    We employ quality-assurance professionals whose primary responsibility is to serve as liaisons to our customers. Our quality-assurance professionals also process any feedback from our customers on any discrepancies between the preliminary reads by our affiliated radiologists and the primary reads by our customers’ radiologists.

Licensing and Privileging

For each hospital from which an affiliated radiologist receives radiological images, the affiliated radiologist must hold a current license in good standing to practice medicine in the state in which the hospital is located and must have been granted privileges to practice at that particular hospital. As a result, and because we currently provide services to more than 693 hospitals, we have licensed each of our affiliated radiologists in an average of 34 states and have privileged each of our affiliated radiologists at an average of 438 hospitals. By ensuring that our affiliated radiologists are licensed and privileged at many of our hospital sites, we design redundancy into our solution in order to minimize or eliminate the periods of time during which we do not have an affiliated radiologist available to provide services to a particular hospital.

The licensing procedures and requirements vary according to each state’s laws and regulations governing the issuance of medical licenses. These procedures typically include an extensive application process that covers significant aspects of the applicant’s professional and personal life. In addition, to maintain a license to practice medicine in a given state, the state will often require the physician to undergo continuing education and training and maintain minimum thresholds of medical liability insurance.

To facilitate compliance with the licensing requirements of the various states to which we provide services, we employ licensing specialists to manage the state medical license application processes for our affiliated radiologists. These state-licensing specialists perform a number of functions, including tracking expiration dates, implementing procedures to renew licenses, and tracking continuing medical education, medical liability insurance coverage and other ongoing licensing-related obligations.

As with state licensing procedures, the privileging requirements of each hospital can vary significantly. However, hospitals that are accredited under the Joint Commission on Accreditation of Healthcare Organizations, or JCAHO, are permitted to rely upon the privileging information and procedures from other JCAHO-accredited institutions. We have been a JCAHO-accredited entity since October 2003; as a result, JCAHO hospitals can accept our privileging information and procedures, which reduces the period of time before we can begin providing reads for those hospitals.

Technology and Development

Site implementation.    After we enter into a contract with a new customer, our site-implementation professionals work with the technology personnel of the hospital that will provide images to us to configure a virtual private network, or VPN, connection and DICOM routing information to transfer images. Upon successful testing of the encryption and transfer of images via the VPN connection, we provide the hospital with written

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operating procedures that prescribe how to order a radiological interpretation, including through our proprietary online ordering system. Typically, we also conduct a telephonic, workflow training session to educate the appropriate hospital personnel about this process.

Systems and network administration.    We employ information technology professionals to maintain our systems and network and to provide technical support to our customers. Our customers may contact us for technical support 24-hours per day, seven days a week.

Software development.    We focus our research and development efforts on improving and enhancing our existing workflow solutions as well as on developing new solutions to enable us to more efficiently and effectively deliver our services to our customers. Our proprietary workflow solutions were developed by software engineers located in our Sydney, Australia and Milwaukee, Wisconsin offices.

Customers

Since our formation in 2001, we have secured approximately 297 radiology groups and 50 hospitals as customers. Our customer contracts typically have a one-year term that automatically renews for each successive year unless terminated by the customer or by us. Since our inception, more than 97% of our contracts that have been up for renewal have been renewed. We believe that our customer retention rate confirms the benefits that our solution provides to our customers. We do not have any one customer that represents more than 3% of our annual revenue.

Sales and Marketing

Sales.    We sell our services primarily through our direct sales force comprised of 12 telesales and field sales personnel who are organized by geographic regions in the United States. Our sales professionals focus their efforts on radiology groups of all sizes in addition to imaging centers and, in some cases, directly with hospitals. In addition, we have experienced in the past, and expect to experience in the future, the acquisition of new customers as a result of communications among radiology groups. We do not pay any fees or discounts associated with customers who generate new customer leads for us.

Marketing.    Our marketing objectives are to generate qualified sales leads, build our brand and raise awareness of NightHawk as the leading provider of off-hours emergency radiology services to radiology groups across the United States.

Our principal marketing initiatives include:

· direct mail campaigns,

· participation in, and sponsorship of, radiology conferences and trade shows, and

· using our website to provide service and company information.

Competition

The market for off-hours radiology services is highly competitive, rapidly evolving and fragmented, and subject to changing technology and market dynamics. Our primary competitors include both large and small scale service providers, some of which have only a local or regional presence while others have a more national presence.

We believe the principal competitive factors in our market include:

· quality of the service provided,

· turnaround time required to complete and return interpretations,

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· reputation of service provider,

· number of states and hospitals in which radiologists are licensed and privileged,

· market acceptance by radiology groups and hospitals,

· quality and reliability of service-provider technology and workflow infrastructure,

· quality of customer support,

· sales and marketing capabilities of the service provider,

· financial stability of the service provider, and

· price of services.

We believe that we compete favorably on these factors. While some of our competitors offer similar types of radiological services to those that we provide, we believe that none of them has been able to capture all of the benefits of our solution. We cannot assure you that our competitors will not offer or develop services that are more attractive than ours or that will achieve greater market acceptance.

Government Regulation and Supervision

General.    The healthcare industry is highly regulated. Our ability to operate profitably will depend in part upon the ability of us, our affiliated radiologists, and our customers and their radiologists to obtain and maintain all necessary licenses and other approvals and operating in compliance with applicable healthcare regulations. We believe that healthcare regulations will continue to change. Therefore, we monitor developments in healthcare law and are likely to be required to modify our operations from time to time as the business and regulatory environment changes. Although we believe that we are operating in compliance with applicable federal and state laws, neither our current nor anticipated business operations has been the subject of judicial or regulatory interpretation. We cannot assure you that a review of our business by courts or regulatory authorities will not result in a determination that could adversely affect our operations or that the healthcare regulatory environment will not change in a way that restricts our operations.

Physician licensure laws.    The practice of medicine, including the practice of radiology and teleradiology, is subject to state licensure laws, regulations and approvals. Physicians who provide professional medical services to a patient via a telemedicine system must, in most instances, hold a valid license to practice medicine in the state in which the patient is located. We have established a system for ensuring that our affiliated radiologists are appropriately licensed under applicable state law.

Corporate practice of medicine; fee splitting.    The laws of many states, including states in which our customers are located, prohibit us from exercising control over the medical judgments or decisions of our affiliated radiologists and from engaging in certain financial arrangements, such as splitting professional fees with physicians. These laws and their interpretations vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. We structure our relationships with our affiliated radiologists and our customers in a manner that we believe is in compliance with prohibitions against the corporate practice of medicine and fee splitting, and in a manner that requires that our affiliated radiologists exercise complete control over their own medical judgments and decisions.

Medicare and Medicaid reimbursement programs.    Professional radiology interpretation services performed from a location outside of the United States are generally not reimbursable by the Medicare program and certain state Medicaid programs. Accordingly, we do not bill Medicare or Medicaid programs for professional services performed by our affiliated radiologists located outside of the United States. Instead, our revenue is primarily derived from service fees paid to us by our customer radiology groups and hospitals. As a result, our service fees do not fluctuate or change based solely on changes in Medicare or Medicaid reimbursement levels.

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Federal and state anti-kickback prohibitions.    Various federal and state laws govern financial arrangements among healthcare providers. The federal anti-kickback law prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or with the purpose to induce, the referral of Medicare, Medicaid, or other federal healthcare program patients, or in return for, or with the purpose to induce, the purchase, lease or order of items or services that are covered by Medicare, Medicaid, or other federal healthcare programs. Similarly, many state laws prohibit the solicitation, payment or receipt of remuneration in return for, or to induce the referral of patients in private as well as government programs. Violation of these anti-kickback laws may result in substantial civil or criminal penalties for individuals or entities and/or exclusion from participating in federal or state healthcare programs. We believe that we are operating in compliance with applicable federal and state anti-kickback laws and that our contractual arrangements with our customers are structured in a manner that is compliant with such laws.

Health Insurance Portability and Accountability Act of 1996.    HIPAA authorizes the imposition of civil money penalties against entities that employ or enter into contracts with individuals or entities who have been excluded from participation in the Medicare or Medicaid programs. We perform background checks on our affiliated radiologists, and do not believe that we employ or contract with any excluded individuals or entities. However, a finding that we have violated this provision of HIPAA could have a material adverse effect on our business and financial condition.

HIPAA also established several separate criminal penalties for making false or fraudulent claims to insurance companies and other non-governmental payors of healthcare services. These provisions are intended to punish some of the same conduct in the submission of claims to private payors as the Federal False Claims Act covers in connection with governmental health programs. We believe that our services have not historically been provided in a way that would place either our clients or ourselves at risk of violating the HIPAA anti-fraud statutes. As our business grows and develops, we may enter into agreements that involve direct or indirect reimbursement of the services we provide. We could be vulnerable to prosecution under these statutes if any of our customers deliberately or recklessly submits claims that contain false, misleading or incomplete information.

In addition, the Administrative Simplification provisions of HIPAA require the promulgation of regulations establishing national standards for, among other things, certain electronic healthcare transactions, the use and disclosure of certain individually identifiable patient health information, and the security of the electronic systems maintaining this information. These are commonly known as the HIPAA transaction and code set standards, privacy standards, and security standards, respectively.

The administrative provisions of HIPAA direct the federal government to adopt national electronic standards for automated transfer of certain healthcare data among healthcare payors, plans and providers. HIPAA is designed to enable the entire healthcare industry to communicate electronic data using a single set of standards. Our customers are “covered entities” under HIPAA and, as such, must operate in compliance with the electronic transaction code standards, privacy standards and security standards. We are a “health care provider” as that term is defined by HIPAA. However, because our services are not reimbursed by third-party payors, we do not use or disclose health information in connection with any of the electronic healthcare transactions covered by HIPAA. Consequently, we are not a “covered entity” required to comply with HIPAA. Further, because we only provide treatment services to patients of our contracted radiology groups and hospitals that are either independent or jointly provided with services rendered by those entities, we do not fall within the definition of a “business associate.” A “business associate” is an entity that performs services for or on behalf of a covered entity and is required to enter into an agreement with that covered entity to comply with certain components of the HIPAA administrative simplification provisions. Although we believe that we are not subject to HIPAA, in an effort to assure our customers that we manage patient health information in compliance with HIPAA, we have developed policies, procedures and systems for handling patient health information that we believe are compatible and consistent with HIPAA.

In addition to HIPAA, Australia and many U.S. states have adopted statutes and regulations that are similar to or, in some cases, more stringent than HIPAA. We believe that our operations are consistent with these statutes and regulations.

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Intellectual Property

Our principal intellectual property assets include our brand and our proprietary software technology. We rely primarily on trade secret and unfair competition laws in the United States and other jurisdictions as well as confidentiality procedures and contractual provisions to protect these assets. We believe that the name “NightHawk” cannot be afforded trademark protection as it is a generic term used to describe the provision of off-hours radiology services. However, we intend to pursue all protections available, including common law claims for unfair competition practices, for improper use of the NightHawk name. We also hold the registered trademark “DayHawk,” which is used internally to represent our hours of coverage during weekends and holidays.

In addition to our trade names, we have filed one provisional patent application covering certain aspects of our proprietary workflow technology.

We enter into confidentiality and proprietary rights agreements with our employees, affiliated radiologists, consultants and other third parties and control access to software, documentation and other proprietary information.

If a claim is asserted that we have infringed the intellectual property of a third party, we may be required to seek licenses to that technology. In addition, we license third-party technologies that are incorporated into some elements of our services. Licenses from third-party technologies may not continue to be available to us at a reasonable cost, or at all. Additionally, the steps we have taken to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary rights. Competitors may also independently develop technologies that are substantially equivalent or superior to the technologies we employ in our services. If we fail to protect our proprietary rights adequately, our competitors could offer similar services, potentially significantly harming our competitive position and decreasing our revenue.

Legal Proceedings

We are involved in various legal proceedings arising in the ordinary course of our business activities. We are currently subject to five medical malpractice claims and, in the past, have been subject to a malpractice claim for which a settlement was paid by our insurance carrier. We maintain insurance policies with coverages that we believe are appropriate in light of the risks attendant to our business, and believe that the resolution of the current claims will not have a material adverse impact on our consolidated results of operations, cash flows or our financial position. However, depending on the amount of damages resulting from a current or future claim, an unfavorable resolution of a claim could materially affect our future results of operations, cash flows or financial position.

Employees and Independent Contractors

As of June 30, 2005, we had 130 full-time equivalent employees. In addition, as of June 30, 2005, we had 30 affiliated radiologists who provide services to our customers and an additional 12 radiologists who have entered into contracts with us but had not yet begun to provide services. None of our employees is represented by a labor union. We consider our relationships with our employees and independent contractors to be good.

Facilities

Our executive offices and principal office for marketing, sales and administration occupy approximately 10,600 square feet in Coeur d’Alene, Idaho under leases that expire in July and September 2006. Our reading facility and support staff operations in Sydney, Australia occupy approximately 6,900 square feet under two subleases that expire in October 2008. Our reading facility and support staff operations in Zurich, Switzerland occupy approximately 3,500 square feet under a lease that expires in August 2009. Our office for information technology development occupies approximately 1,650 square feet in Milwaukee, Wisconsin under a lease that expires in February 2007. If we require additional space, we believe that we will be able to obtain such space on acceptable, commercially reasonable terms.

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MANAGEMENT

Executive Officers, Directors and Key Employees

The following table provides information regarding our executive officers, directors and key employees as of September 30, 2005:

Executive Officers, Directors and Key Employees	Age	Position(s)
Executive Officers:
Paul E. Berger, M.D.	63	President, Chief Executive Officer and Director
Christopher R. Huber	37	Chief Financial Officer, Vice President of Operations and Director
Jon D. Berger	38	Vice President of Sales, Marketing and Business Development and Director
Other Directors:
David J. Brophy, Ph.D. (1)(2)(3)	69	Director
Peter Y. Chung (2)(3)	37	Director
Timothy M. Mayleben (1)(2)	45	Director
William G. Bradley M.D., Ph.D (1)	57	Director
Key Employees:
Paul E. Cartee	32	Vice President, General Counsel and Secretary
Andrea Clegg	38	Vice President of Finance
Peter Hausback	46	Vice President and Chief Accounting Officer

(1) Member of the audit committee

(2) Member of the compensation committee

(3) Member of the nominating and governance committee

Paul E. Berger, M.D. is one of our founders and has served as a director and as our President and Chief Executive Officer since 2004. From 2001 to 2004, Dr. Berger served as President of Nighthawk Radiology Services, LLC, our predecessor. Prior to joining us, Dr. Berger served as President of MD3 Corporation, a provider of radiological picture archiving and communications services, from 2000 to 2001. From 1996 to 2003, he served as President of Berger & Associates, a medical expert witness consulting firm, and as a physician with Radiology Associates of Northern Idaho. From 1989 through 1995, he served as President and Chief Executive Officer of MEMRAD Medical Group, Inc., the largest radiology group in the state of California. Dr. Berger received a B.S. from Tufts University and an M.D. from the State University of New York-Downstate. He received his radiology training at the University of Michigan and completed a fellowship in pediatric neuroradiology at the Hospital for Sick Children, Toronto, Canada. Dr. Berger is certified by the American Board of Radiology and is a member of the American College of Radiology.

Christopher R. Huber is one of our founders and has served as a director and as our Vice President of Operations since 2004, and as our Chief Financial Officer since January 2005. From 2001 to 2004, Mr. Huber served as Vice President, Treasurer and Secretary of Nighthawk Radiology Services, LLC, our predecessor. Prior to joining us, Mr. Huber served as Finance Director of MD3 Corporation, a provider of radiological picture archiving and communications services, from 2000 to 2001. From 1998 to 2001, Mr. Huber served as Finance Director of Berger & Associates, a medical expert witness consulting firm. From 1997 to 1998, he served as a Platform Commodity Manager for Intel Corporation. From 1995 to 1997, Mr. Huber served as a Capital Markets Product Specialist for Wachovia Corporate Services Inc. Mr. Huber received a B.A. from the University of California, Irvine and a Masters in International Management from Thunderbird—The Garvin School of International Management.

Jon D. Berger is one of our founders and has served as a director and as our Vice President of Sales and Marketing since 2004. From 2001 to 2004, Mr. Berger served as Vice President of Nighthawk Radiology Services,

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LLC, our predecessor. Prior to joining us, he served as Vice President for MD3 Corporation, a provider for radiological picture archiving and communications services, from 2000 to 2001. Mr. Berger received a B.S. from the University of California, Irvine.

David J. Brophy, Ph.D. has served as a director since 2004. Dr. Brophy is the Director of the Office for the Study of Private Equity and an Associate Professor of Finance at the University of Michigan, Ross School of Business, where he has been employed since 1966. Dr. Brophy also serves as a director of Munder Funds, an investment management firm. Dr. Brophy received a B.A. and a B.Comm. from St. Francis Xavier University, an M.B.A. from the University of Detroit and a Ph.D. from the Ohio State University.

Peter Y. Chung has served as a director since 2004. Mr. Chung is a general partner and member of various entities affiliated with Summit Partners, a private equity and venture capital firm, which he joined in August 1994. Mr. Chung also serves as a director of SeaBright Insurance Holdings, Inc., a provider of multi-jurisdictional workers’ compensation insurance, Sirenza Microdevices, Inc., a designer and supplier of radio frequency components and a number of privately-held companies. Mr. Chung received an A.B. from Harvard University and an M.B.A. from Stanford University.

Timothy M. Mayleben has served as a director since 2005. Since 2004, Mr. Mayleben has served as a consultant with ElMa Advisors LLC, an entity formed by Mr. Mayleben, where he has been advising life science and health care companies. Mr. Mayleben also serves as a director of Aastrom Biosciences, Inc., a biotechnology company. Prior to joining us, Mr. Mayleben served as Chief Financial Officer of Esperion Therapeutics, a biopharmaceutical company, from 1998 to 2004 and as Chief Operating Officer of Esperion from 2002 to 2004. Prior to joining Esperion, he was an executive with Transom Technologies, Inc., a simulation software company. From 1990 to 1997, Mr. Mayleben held various financial and operating management positions with Applied Intelligent Systems, Inc., a machine vision company. Mr. Mayleben started his professional career with an international public accounting firm in 1984. Mr. Mayleben received a B.B.A. from the University of Michigan and an M.B.A. with distinction from Northwestern University.

William G. Bradley M.D., Ph.D. has served as a director since 2005. Dr. Bradley is the chairman of radiology at the University of California, San Diego School of Medicine where he has been employed since 2002. Prior to that, Dr. Bradley served from 1990 to 2002 as Director of Magnetic Resonance Imaging and Radiology Research at Long Beach Memorial Medical Center. From 1991 to 2002, he served as Professor of Radiological Services at the University of California, Irvine. Dr. Bradley received a B.S. from the California Institute of Technology, an M.A. and a Ph.D. from Princeton University and an M.D. from the University of California, San Francisco.

Paul E. Cartee has served as our Vice President and General Counsel since 2005. Prior to joining us, Mr. Cartee practiced corporate and securities law at Wilson Sonsini Goodrich & Rosati, Professional Corporation, in Seattle, Washington from 2001 to 2005. From 1994 to 1998, he served as a lieutenant in the U.S. Navy at the Naval Nuclear Power School as an instructor of physics and mechanical engineering. Mr. Cartee received a B.S. from Murray State University and a J.D. from Duke University.

Andrea Clegg has served as our Vice President of Finance and Corporate Treasurer since 2004. From 2003 to 2004, Ms. Clegg served as our Director of Credentialing and Licensing. Prior to joining us, Ms. Clegg served as the Vice President of Finance & Controller of Twentieth Century Fox Film Corporation’s Home Entertainment Division from 1999 to 2003. She has also worked at several manufacturing and distribution companies including Mattel Inc., Wham-O Toys Inc., and Northrop-Grumman Inc. Ms. Clegg received a B.A. in Economics and a B.A. in Geography from the University of California at Santa Barbara and an M.B.A. from Loyola Marymount University.

Peter P. Hausback has served as our Vice President and Chief Accounting Officer since 2005. Prior to joining us, Mr. Hausback served as Vice President and Chief Financial Officer for WestCoast Hospitality Corp., a provider of lodging and entertainment services, from 2002 to 2005. From 2001 to 2002, Mr. Hausback served

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as Vice President and Chief Financial Officer of BriteSmile, Inc., a developer of teeth whitening products and systems. From 1992 to 2001, he served in various management positions with Il Fornaio (America) Corporation, a restaurant and bakery chain, including as Vice President of Finance and Chief Financial Officer from 1999 to 2001. From 1987 to 1992, Mr. Hausback served as an accountant with Price Waterhouse LLP in San Francisco. Mr. Hausback is a certified public accountant and received a B.S. from Long Beach State University and an M.B.A. from Saint Mary’s College of California.

Board of Directors

Our board of directors currently consists of seven members. Our bylaws permit our board of directors to establish by resolution the authorized number of directors, and seven directors are currently authorized.

As of the completion of this offering, our board of directors will be divided into three classes of directors, each serving staggered three-year terms, as follows:

· Class I will consist of Dr. Bradley and Mr. Huber, whose terms will expire at the annual meeting of stockholders to be held in 2006,

· Class II will consist of Mr. Jon Berger and Mr. Chung, whose terms will expire at the annual meeting of stockholders to be held in 2007, and

· Class III will consist of Dr. Paul Berger, Dr. Brophy and Mr. Mayleben, whose terms will expire at the annual meeting of stockholders to be held in 2008.

Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which such term expires. Each director’s term is subject to the election and qualification of his successor, or his earlier death, resignation or removal. The authorized number of directors may be changed by resolution duly adopted by at least a majority of our entire board of directors, although no decrease in the authorized number of directors will have the effect of removing an incumbent director from the board of directors until the incumbent director’s term expires. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. Accordingly, this classification of our board of directors may have the effect of delaying or preventing changes in control of management.

Dr. Paul Berger and Mr. Jon Berger are related as father and son. Except for this relationship, there are no family relationships among any of our directors or executive officers.

Director Independence

In September 2005, our board of directors undertook a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that Messrs. Brophy, Chung and Mayleben, representing three of our seven directors, are “independent directors” as defined under the rules of the Nasdaq.

Under the corporate governance standards of the Nasdaq, by no later than the first anniversary of the completion of this offering, a majority of our directors must be independent directors. We intend to reconstitute our board of directors prior to the first anniversary of the completion of this offering in order to comply with these requirements.

Committees of the Board of Directors

Our board of directors has an audit committee, a compensation committee, and a nominating and governance committee, each of which has the composition and responsibilities described below as of the completion of this offering.

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Audit Committee

Messrs. Mayleben, Brophy and Bradley, each of whom is a non-employee member of our board of directors, comprise our audit committee. Mr. Mayleben is the chairman of our audit committee. Our board has determined that each of Mr. Mayleben and Dr. Brophy meets the requirements for independence and financial literacy under the current requirements of the Nasdaq and SEC rules and regulations. The board of directors has also determined that Mr. Mayleben is an “audit committee financial expert” as defined in SEC rules and satisfies the financial sophistication requirements of the Nasdaq. The audit committee is responsible for, among other things:

· selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors,

· evaluating the qualifications, performance and independence of our independent auditors,

· monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters,

· reviewing the adequacy and effectiveness of our internal control policies and procedures,

· acting as our qualified legal compliance committee, and

· preparing the audit committee report that the SEC requires in our annual proxy statement.

Under the corporate governance standards of the Nasdaq, by no later than the first anniversary of the completion of this offering, each member of our audit committee must be an independent director. We intend to replace Dr. Bradley as a member of our audit committee prior to the first anniversary of the completion of this offering in order to comply with this requirement.

Compensation Committee

Messrs. Brophy, Chung and Mayleben, each of whom is a non-employee member of our board of directors, comprise our compensation committee. Dr. Brophy is the chairman of our compensation committee. Our board has determined that each member of our compensation committee meets the requirements for independence under the current requirements of the Nasdaq. The compensation committee is responsible for, among other things:

· reviewing and approving our chief executive officer and other executive officers’ annual base salaries, annual incentive bonuses, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control agreements/provisions, and any other benefits, compensation or arrangements,

· evaluating and recommending to the board incentive compensation plans,

· administering our equity incentive plans, and

· preparing the compensation committee report that the SEC requires in our annual proxy statement.

Nominating and Governance Committee

Messrs. Brophy and Chung, each of whom is a non-employee member of our board of directors, comprise our nominating and governance committee. Mr. Chung is the chairman of our nominating and governance committee. Our board has determined that each member of our nominating and governance committee meets the requirements for independence under the current requirements of the Nasdaq. The nominating and governance committee is responsible for, among other things:

· assisting the board in identifying prospective director nominees and recommending to the board director nominees for each annual meeting of stockholders,

· developing and recommending to the board governance principles applicable to us,

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· overseeing the evaluation of the board of directors and management, and

· recommending members for each board committee.

Director Compensation

In May 2005, our board of directors adopted a compensation program for outside directors. Pursuant to this program, each non-employee director will receive the following cash compensation for board services, as applicable:

· $4,000 per quarter for service as a director,

· $5,000 per quarter for service as chairman of the audit committee, $1,000 per quarter for service as chairman of the compensation committee and $1,000 per quarter for service as chairman of the nominating and corporate governance committee, and

· $1,000 for each board meeting attended in person ($500 for meetings attended by telephone) and $1,000 for each committee meeting attended in person ($500 for meetings attended by telephone).

Our non-employee directors have received options to purchase shares of our common stock under our 2004 Stock Plan. In October 2004, we granted options to purchase 45,000 shares of common stock at an exercise price of $1.25 per share to each of Peter Y. Chung and David J. Brophy. In March 2005, we granted options to purchase 45,000 shares of common stock at an exercise price of $2.90 per share to each of William Bradley, M.D., Ph.D. and Timothy M. Mayleben. Each of these options has the following 3-year vesting schedule: 1/3 of the shares subject to the option vest on the first anniversary of the vesting commencement date, and 1/36 of the shares subject to the option vest each month thereafter. In the event of certain change of control transactions, including our merger with or into another corporation or the sale of substantially all of our assets, the vesting of all shares subject to each option will accelerate fully.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Executive Compensation

The following table provides information regarding the compensation of our chief executive officer and our two other executive officers during the fiscal year ended December 31, 2004.

Summary Compensation Table

Name and Principal Position	Annual Compensation		Long-Term Compensation Awards	All Other Compensation ($)
			Securities Underlying Options
	Salary ($)	Bonus ($)
Paul E. Berger, M.D. President and Chief Executive Officer	608,809	600,000	—	345,670	(1)
Jon D. Berger Vice President of Sales, Marketing and Business Development	324,136	350,000	—	138,596	(2)
Christopher R. Huber Chief Financial Officer and Vice President of Operations	326,097	350,000	—	138,596	(2)

(1) Includes $271,548 as an equity distribution and $66,165 in consulting fees

(2) Includes $138,596 as an equity distribution

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Stock Option Grants in Last Fiscal Year

We did not grant options to any of our executive officers during the year ended December 31, 2004.

Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

None of our executive officers exercised stock options during the year ended December 31, 2004, nor held any stock options as of December 31, 2004.

Employment Agreements and Change in Control Arrangements

Employment Agreements

Paul E. Berger, M.D.    Dr. Berger’s employment agreement provides for an annual base salary of $600,000 and an annual incentive bonus of up to 100% of his base salary. The agreement provides that Dr. Berger will receive 50% of his base salary if we reach revenue and EBITDA goals determined by the compensation committee of our board of directors (after consultation with Dr. Berger). For every 1% we exceed or fall short of the revenue goal, Dr. Berger’s bonus is adjusted accordingly by 1.67%, up to 25% of his base salary. For every 1% we exceed or fall short of the EBITDA goal, Dr. Berger’s bonus is adjusted accordingly by 1.25%, up to 25% of his base salary. Dr. Berger’s salary and target bonus amount are subject to review by our compensation committee for market and performance adjustments within 30 days of the beginning of each calendar year and may be increased after such review with the unanimous written consent of the compensation committee. If we terminate Dr. Berger’s employment without cause or if Dr. Berger terminates his employment for good reason, each as defined in his employment agreement, he will be entitled to receive his base salary and bonus (prorated to the date of termination) payable in regular installments from the date of termination for a period of 12 months thereafter. Dr. Berger has also entered a confidentiality and non-compete agreement that prohibits him from engaging in specified competitive activities and soliciting our employees, customers, suppliers or other business relations for a period of 24 months following the date of his termination.

Jon D. Berger.    Mr. Berger’s employment offer letter provides for an annual base salary of $350,000 and an annual incentive bonus of up to 100% of his base salary. The offer letter provides for the same incentive bonus structure as Dr. Berger’s incentive bonus structure described above. Mr. Berger has also entered a confidentiality and non-compete agreement that prohibits him from engaging in specified competitive activities and soliciting our employees, customers, suppliers or other business relations for a period of 24 months following the date of his termination.

Christopher R. Huber.    Mr. Huber’s employment offer letter provides for an annual base salary of $350,000 and an annual incentive bonus of up to 100% of his base salary. The offer letter provides for the same incentive bonus structure as Dr. Berger’s incentive bonus structure described above. Mr. Huber has also entered a confidentiality and non-compete agreement that prohibits him from engaging in specified competitive activities and soliciting our employees, customers, suppliers or other business relations for a period of 24 months following the date of his termination.

Change in Control Arrangements

Our 2004 Stock Plan and 2005 Equity Incentive Plan provide for the acceleration of vesting of awards in certain circumstances in connection with or following a change in control of us. See “Employee Benefit Plans.”

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Employee Benefit Plans

2004 Stock Plan

Our board of directors adopted our 2004 Stock Plan in October 2004. Our 2004 Stock Plan provides for the grant of nonstatutory stock options and stock purchase rights. We anticipate that following the completion of this offering, we will no longer issue awards under the 2004 Stock Plan.

Share Reserve.    A total of 2,077,256 shares of our common stock is authorized for issuance under the 2004 Stock Plan. Appropriate adjustments will be made in the number of authorized shares and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a spin-off, stock split or other change in our capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2005 Equity Incentive Plan.

Eligibility, Term and Administration of Awards.    Our board of directors or a committee of our board administers our 2004 Stock Plan. The administrator has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards and the form of consideration payable upon exercise.

Stock Options.    The administrator determines the exercise price of options granted under our 2004 Stock Plan, but with respect to stock options granted to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the exercise price must equal at least 110% of the fair market value on the grant date. Stock options granted to any other participant must have an exercise price no less than 85% of the fair market value per share on the grant date.

Upon termination of a participant’s service with us or with a subsidiary of ours, he or she may exercise his or her option within 30 days of termination or such longer period of time stated in the option agreement, to the extent his or her option is vested on the date of termination. An option may never be exercised later than the expiration of its term.

Stock Purchase Rights.    Stock purchase rights may be granted alone, in addition to or in tandem with other awards granted under our 2004 Stock Plan. Stock purchase rights are rights to purchase shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares subject to a stock purchase right granted to any employee. The administrator may impose whatever conditions to vesting it determines to be appropriate. Unless the administrator determines otherwise, we have a repurchase option exercisable within 90 days of termination of the purchaser’s service with us. Shares subject to stock purchase rights that do not vest are subject to our right of repurchase or forfeiture.

Effect of a Change in Control.    Our 2004 Stock Plan provides that in the event of certain change in control transactions, including our merger with or into another corporation or the sale of substantially all of our assets, the successor corporation will assume or substitute an equivalent award with respect to each outstanding award under the plan. If there is no assumption or substitution of outstanding awards, such awards will become fully vested and exercisable immediately prior to the change in control unless otherwise determined by the administrator, and the administrator will provide notice to the recipient that he or she has the right to exercise such outstanding awards for a period of time stated in the notice. The awards will terminate upon the expiration of such stated notice period.

Transferability.    Unless otherwise determined by the administrator, the 2004 Stock Plan generally does not allow for the sale or transfer of awards under the 2004 Stock Plan other than by will or the laws of descent and distribution, and may be exercised only during the lifetime of the participant and only by such participant.

Additional Provisions.    Our board of directors has the authority to amend, suspend or terminate the 2004 Stock Plan provided such action does not impair the rights of any participant.

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2005 Equity Incentive Plan

Our board of directors adopted our 2005 Equity Incentive Plan in September 2005. The 2005 Equity Incentive Plan provides for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares.

Share Reserve.    A total of 2,000,000 shares of our common stock is authorized for issuance under the 2005 Equity Incentive Plan plus the number of shares which have been reserved but not issued under the 2004 Stock Plan as of the effective date of this offering. In addition, shares available for grant under the 2004 Stock Plan upon completion of this offering will become available for grant under the 2005 Equity Incentive Plan, as will shares subject to options granted under the 2004 Stock Plan outstanding upon completion of this offering that are terminated or shares issued under the 2004 Stock Plan that are repurchased by us. In addition, on the first day of each fiscal year beginning in 2007, the number of shares available for issuance may be increased by an amount equal to the lesser of:

· 3% of the outstanding shares of our common stock on the first day of the fiscal year, and

· such other amount as our board of directors may determine.

Appropriate adjustments will be made in the number of authorized shares and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of, among other things, a spin-off, stock split or other change in our capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2005 Equity Incentive Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy the purchase price of an award or tax withholding obligations.

Eligibility, Term and Administration of Awards.    Our board of directors or a committee of our board administers our 2005 Equity Incentive Plan. In the case of options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, the committee will consist of two or more “outside directors” within the meaning of Section 162(m). The administrator has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards and the form of consideration payable upon exercise.

Stock Options.    The administrator determines the exercise price of options granted under our 2005 Equity Incentive Plan, but with respect to nonstatutory stock options intended to qualify as “performance-based compensation” within the meaning of Section 162(m), the exercise price must at least be equal to the fair market value of our common stock on the date of grant. The administrator determines the term of all options.

Upon termination of a participant’s service with us or with a subsidiary of ours, he or she may exercise his or her option for the period of time stated in the option agreement. In the absence of a stated period in the option agreement, if termination is due to death or disability, the option will remain exercisable for 12 months after such termination. In all other cases and if not otherwise stated in the option agreement, the option will generally remain exercisable for three months. However, an option may never be exercised later than the expiration of its term.

Restricted Stock.    Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant. The administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

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Restricted Stock Units.    An award of restricted stock units provides the participant the right to receive payment at the end of a vesting period based on the value of a share of or common stock at the time of vesting. Stock units are subject to vesting requirements, restrictions and conditions to payment as the administrator determines is appropriate. Such vesting requirements may be based on, among other things, the attainment of organizational or individual performance goals established by the administrator. The administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. Payments of earned restricted stock units may be made in cash, shares or a combination of cash and shares.

Stock Appreciation Rights.     Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. The administrator determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof.

Performance Units and Performance Shares.     Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. After the grant of a performance unit/share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provision for such performance unit/share. Performance units will have an initial dollar value established by the administrator on or before the grant date. Performance shares will have an initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units/shares in the form of cash, in shares or in a combination thereof.

Exchange Program.    The administrator, in its sole discretion, may institute an exchange program under which (A) outstanding awards may be surrendered or cancelled in exchange for awards of the same type (which may have lower exercise prices and different terms), awards of a different type, or for cash, or a combination of cash and such other awards, or (B) the exercise price of any outstanding award is reduced.

Effect of a Change in Control.    Our 2005 Equity Incentive Plan provides that in the event of our “change in control,” the administrator may determine that the successor corporation will assume or substitute an equivalent award for each outstanding award under the plan. If there is no assumption or substitution of outstanding awards, such awards will become fully vested and exercisable immediately prior to the change in control unless otherwise determined by the administrator, and the administrator will provide notice to the recipient that he or she has the right to exercise such outstanding awards for a period of time stated in the notice. The awards will terminate upon the expiration of such stated notice period.

Transferability.    Unless otherwise determined by the administrator, the 2005 Equity Incentive Plan does not allow for the sale or transfer of awards under the plan other than by will or the laws of descent and distribution, and may be exercised only during the lifetime of the participant and only by such participant.

Additional Provisions.    Our 2005 Equity Incentive Plan will automatically terminate in 2015, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the 2005 Equity Incentive Plan provided such action does not impair the rights of any participant.

Retirement Plans

401(k) Plan.    We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to participate in the 401(k) plan as of the first day of the month on or following the date they begin employment and participants are able to defer up to 100% of their eligible compensation subject to applicable annual Internal Revenue Code limits. The 401(k) plan permits us to make profit sharing contributions to eligible participants, although such

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contributions are not required and are not currently contemplated. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. All accounts are 100% vested at all times. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan and all contributions are deductible by us when made.

Other.    We sponsor a number of employee benefit plans outside the United States.

Limitations on Liability and Indemnification Matters

Our certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

· any breach of the director’s duty of loyalty to us or our stockholders,

· any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law,

· unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or

· any transaction from which the director derived an improper personal benefit.

Our certificate of incorporation provides that we are required to indemnify our directors and our bylaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our bylaws also provide that we shall advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

We describe below transactions and series of similar transactions, during our last three fiscal years, to which we were a party or will be a party, in which:

· the amounts involved exceeded or will exceed $60,000, and

· a director, executive officer, holder of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

We also describe below certain other transactions with our directors, executive officers and stockholders.

Common Stock Sales

In connection with the creation and recapitalization of NightHawk Radiology Holdings, Inc. in March 2004, we issued 10,571,785 shares of our common stock to Dr. Paul Berger, 5,160,536 shares of our common stock to Mr. Jon Berger and 5,160,536 shares of our common stock to Mr. Huber, each of whom is one of our directors and executive officers, in exchange for all the outstanding membership units of Nighthawk Radiology Services, LLC held by them.

In November 2004, we issued an aggregate of 1,259,375 shares of our common stock to Michael Cooney, M.D. in satisfaction of a warrant held by Dr. Cooney and for other services rendered.

Preferred Stock Sale

In March 2004, we issued an aggregate of 8,125,000 shares of our redeemable preferred stock to entities affiliated with Summit Partners, a private equity and venture capital firm, at a purchase price of $1.60 per share. Peter Y. Chung, one of our directors, is a general partner and member of various entities affiliated with Summit Partners. In connection with this sale of shares, we entered into a stockholders agreement that provides for, among other things, board and committee designation rights, restrictions on share transfers, and rights of first refusal in connection with proposed transfers of shares. The agreement also grants certain affiliates of Summit Partners and our founders, Dr. Paul Berger, Mr. Huber and Mr. Jon Berger, rights to require us to repurchase shares of our stock held by them. The rights and restrictions will terminate upon the consummation of this offering.

Subordinated Promissory Notes

In March 2004, Nighthawk Radiology Services, LLC, our wholly-owned subsidiary, issued $12 million in subordinated promissory notes to certain affiliates of Summit Partners. Peter Y. Chung, one of our directors, is a general partner and member of various entities affiliated with Summit Partners. Each note was due on March 31, 2010 with accrued interest at the rate of 10% per annum. We repaid these notes in full on April 20, 2005 using proceeds of our loan and security agreement with Comerica Bank.

Registration Agreement

In connection with the March 2004 sale of shares of our redeemable preferred stock to entities affiliated with Summit Partners, we entered into a registration agreement that provides for rights relating to the registration of the shares of common stock issuable upon conversion of the redeemable preferred stock. These rights include demand, short-form and piggyback registration rights. In addition, Dr. Paul Berger, Mr. Huber and Mr. Jon Berger, each of whom is one of our directors and executive officers, are parties to, and have piggyback registration rights under, this agreement. See “Description of Capital Stock—Registration Rights” for additional information.

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Stock Option Grants

Certain stock option grants to our directors and related option grant policies are described in this prospectus under the captions “Management—Director Compensation.” Pursuant to our director compensation policy and prior arrangements, we granted the following options to certain non-employee directors:

· In October 2004, we granted Mr. Chung an option to purchase 45,000 shares of our common stock at an exercise price of $1.25 per share, vesting over a three-year period from April 1, 2004.

· In October 2004, we granted Dr. Brophy an option to purchase 45,000 shares of our common stock at an exercise price of $1.25 per share, vesting over a three-year period from April 1, 2004.

· In March 2005, we granted Dr. Bradley an option to purchase 45,000 shares of our common stock at an exercise price of $2.90 per share, vesting over a three-year period from the date of grant.

· In March 2005, we granted Mr. Mayleben an option to purchase 45,000 shares of our common stock at an exercise price of $2.90 per share, vesting over a three-year period from the date of grant.

· In the event of certain change in control transactions, including our merger with or into another corporation or the sale of substantially all of our assets, the vesting of all shares subject to these options will accelerate fully.

Employment Arrangements and Indemnification Agreements

We have entered into employment arrangements with certain of our executive officers. See “Management—Employment Agreements and Change in Control Arrangements.”

We have also entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. See “Management—Limitations on Liability and Indemnification Matters.”

Consulting Agreement

In June 2004, we entered into a consulting agreement with Dr. Bradley to provide at least 100 hours per year of consulting services as an independent contractor to assist in the coordination and management of our relationships with academic institutions and professional associations. We issued Dr. Bradley 798,595 shares of our common stock in connection with this agreement. These shares were subject to vesting upon the occurrence of certain events, including a change of control, after the expiration of any applicable lock-up period following an initial public offering, termination of Dr. Bradley’s status as a service provider without cause or his death or disability. The unvested shares remaining upon the termination of Dr. Bradley’s services to us were subject to forfeiture and automatic reacquisition by us at no cost. In June 2005, our board of directors approved full acceleration of vesting of Dr. Bradley’s 798,595 shares of common stock.

Radiology Services Agreements

In February 2004, we entered into a professional services agreement with Dr. Paul Berger, our director, president and chief executive officer, to provide us with radiology services at his discretion for a term of two years. The contract provides for a base compensation of $175 per hour and an additional $10 per examination after Dr. Berger has performed beyond a minimum threshold number of examinations. Prior to entering into this agreement, Dr. Berger had provided us with radiology services for which he received compensation pursuant to substantially similar terms. During 2002, 2003 and 2004, we paid Dr. Berger approximately $128,000, $104,000 and $65,000, respectively, for the radiology services that he provided in addition to his compensation as our president and chief executive officer.

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In August 2002, we entered into a professional services agreement with Michael Cooney, M.D., previously a holder of more than five percent of our common stock, to provide us with radiology services for a term through December 31, 2005 and automatically renewable for additional one-year terms, unless earlier terminated. We paid Dr. Cooney $990,170 and $1,536,273 as an independent contractor during 2003 and 2004, respectively, for the radiology services that he provided pursuant to the agreement.

In November 2004, we entered into a customer agreement with Regents, University of California, on behalf of the University of California San Diego School of Medicine, Department of Radiology of which William G. Bradley, M.D., Ph.D., one of our directors, is chairman. Pursuant to the contract, we provide up to 155 radiology scans per month free of charge in exchange for attendance to continued medical education courses sponsored by the Department of Radiology at the UCSD School of Medicine at no cost to our contract radiologists.

During 2003 and 2004, we provided radiology services to Radiology Associates of Northern Idaho, LLC, or RANI, a former member of Nighthawk Radiology Services, LLC, without charge. The estimated value of the services we provided to RANI, based on rates charged to unrelated third parties, was approximately $109,000 and $113,000 in 2003 and 2004, respectively.

Family Relationships

Dr. Paul E. Berger, our director, president and chief executive officer, is the father of Jon Berger, our director and vice president of sales, marketing and business development, and Scott Berger, who has served as our Director of Technology Development since June 2003. Scott Berger received compensation of $58,074 in 2003 and $134,876 in 2004. Scott Berger was also granted an option to purchase 20,000 shares of our common stock at an exercise price of $1.25 per share in October 2004 and an option to purchase an additional 20,000 shares of our common stock at an exercise price of $2.50 in February 2005. In addition, Dr. Berger’s son-in-law, Mark Kettell, has served as our Manager of Implementations since June 2003. Mr. Kettell received compensation of $28,616 in 2003 and $73,319 in 2004. In October 2004, Mr. Kettell was also granted an option to purchase 15,000 shares of our common stock at an exercise price of $1.25 per share.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock at September 30, 2005, as adjusted to reflect the sale of common stock offered by us in this offering, for:

· Each person who we know beneficially owns more than five percent of our common stock;

· Each of our directors;

· Each of our executive officers; and

· All of our directors and executive officers as a group.

In addition, up to              shares held by entities affiliated with Summit Partners, up to              shares held by Paul E. Berger, M.D., up to              shares held by Jon D. Berger, up to              shares held by Christopher R. Huber and up to              shares held by William G. Bradley, M.D., Ph.D. may be sold if the underwriters exercise their over-allotment option. No other stockholder is participating in this offering.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

Applicable percentage ownership is based on 30,011,947 shares of common stock outstanding at September 30, 2005. For purposes of the table below, we have assumed that              shares of common stock will be outstanding upon completion of this offering. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options, warrants or other convertible securities held by that person or entity that are currently exercisable or exercisable within 60 days of September 30, 2005. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than one percent is denoted with an “*.”

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o NightHawk Radiology Holdings, Inc., 250 Northwest Boulevard, Suite 202, Coeur d’Alene, Idaho 83814.

	Shares Beneficially Owned
Name of Beneficial Owner	Number	Percent
		Before Offering		After Offering
5% Stockholders (1)
Summit Partners (2)	8,125,000	27.1	%
Directors and Executive Officers:
Paul E. Berger, M.D. (3)	9,158,650	30.5	%
Jon D. Berger (4)	3,945,149	13.1	%
Christopher R. Huber (5)	4,002,171	13.3	%
William G. Bradley, M.D., Ph.D. (6)	798,595	2.7	%
David J. Brophy, Ph.D. (7)	23,750	*
Peter Y. Chung (8)	8,148,750	27.1	%
Timothy M. Mayleben	—	—
All executive officers and directors as a group (seven persons) (9)	26,077,065	86.8	%

 * Less than one percent.

(1) Dr. Paul Berger, Mr. Jon Berger and Mr. Huber are also holders of greater than five percent of our outstanding shares of common stock.

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(2) Represents (a) 5,312,424 shares of redeemable preferred stock held by Summit Ventures VI-A, L.P.; (b) 2,215,492 shares of redeemable preferred stock held by Summit Ventures VI-B, L.P.; (c) 253,906 shares of redeemable preferred stock held by Summit Subordinated Debt Fund II, L.P.; (d) 169,629 shares of redeemable preferred stock held by Summit VI Entrepreneurs Fund, L.P.; (e) 110,484 shares of redeemable preferred stock held by Summit VI Advisors Fund, L.P. and (f) 63,065 shares of redeemable preferred stock held by Summit Investors VI, L.P. (such entities collectively referred to as “Summit Partners”). Summit Partners is the managing member of Summit Partners VI (GP), LLC, which is the general partner of Summit Partners VI (GP), L.P., which is the general partner of each of Summit Ventures VI-A, L.P., Summit Ventures VI-B, L.P., Summit VI Advisors Fund, L.P., Summit VI Entrepreneurs Fund, L.P. and Summit Investors VI, L.P. Summit Partners SD II, LLC is the general partner of Summit Subordinated Debt Fund II, L.P. Summit Partners, through a three-person investment committee composed of certain of the members of Summit Master Company, LLC, has voting and dispositive authority over the shares held by each of these entities and therefore beneficially owns such shares. Decisions of the investment committee are made by a majority vote of its members and, as a result, no single member of the investment committee has voting or dispositive authority over the shares. Gregory M. Avis, John R. Carroll, Peter Y. Chung, Scott C. Collins, Bruce R. Evans, Charles J. Fitzgerald, Walter G. Kortschak, Martin J. Mannion, Kevin P. Mohan, Thomas S. Roberts, E. Roe Stamps, IV, Joseph F. Trustey and Stephen G. Woodsum are the members of Summit Master Company, LLC, which is the general partner of Summit Partners, and each disclaims beneficial ownership of the shares held by Summit Partners. The address for each of these entities is 222 Berkeley Street, 18th Floor, Boston, MA 02116. If the over-allotment option is exercised in full, the number of shares held by Summit Partners will be             , and Summit Partners’ beneficial ownership percentage will decrease to         %.

(3) Includes 7,358,651 shares held by Dr. Berger; 1,000,000 shares held by the Paul E. Berger Annuity Trust; and 799,999 shares held by the Jon and Heather Berger Family Trust. Dr. Berger serves as trustee of the Paul E. Berger Annuity Trust and the Jon and Heather Berger Family Trust. If the over-allotment option is exercised in full, the number of shares held by Dr. Berger will be             , and Dr. Berger’s beneficial ownership percentage will decrease to         %.

(4) Includes 3,092,349 shares held by Mr. Berger; 400,000 shares held by the Jon and Heather Berger Annuity Trust; 400,000 shares held by the Paul E. Berger Family Trust; and 52,800 shares held by the Paul E. Berger Grandchildren’s Trust. Mr. Berger serves as trustee of the Jon and Heather Berger Annuity Trust, the Paul E. Berger Family Trust, and the Paul E. Berger Grandchildren’s Trust. If the over-allotment option is exercised in full, the number of shares held by Mr. Berger will be             , and Mr. Berger’s beneficial ownership percentage will decrease to         %.

(5) If the over-allotment option is exercised in full, the number of shares held by Mr. Huber will be             , and Mr. Huber’s beneficial ownership percentage will decrease to         %.

(6) If the over-allotment option is exercised in full, the number of shares held by Dr. Bradley will be             , and Dr. Bradley’s beneficial ownership percentage will decrease to         %.

(7) Includes options exercisable for 23,750 shares of common stock within 60 days of September 30, 2005.

(8) Includes options exercisable for 23,750 shares of common stock within 60 days of September 30, 2005 and shares held by Summit Partners. Mr. Chung is a general partner of Summit Partners. Mr. Chung does not have voting or dispositive authority over these shares and disclaims beneficial ownership of these shares. If the over-allotment option is exercised in full, the number of shares beneficially owned by Mr. Chung will be             , and Mr. Chung’s beneficial ownership percentage will decrease to         %.

(9) Includes options exercisable for 47,500 shares of common stock within 60 days of September 30, 2005.

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DESCRIPTION OF CAPITAL STOCK

General

The following is a summary of the rights of our common stock and preferred stock and certain provisions of our certificate of incorporation and bylaws, as they will be in effect upon the completion of this offering. For more detailed information, please see our certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is part.

Immediately following the completion of this offering, our authorized capital stock will consist of 155,000,000 shares, with a par value of $0.001 per share, of which:

· 150,000,000 shares are designated as common stock, and

· 5,000,000 shares are designated as preferred stock.

At June 30, 2005, we had outstanding 29,617,857 shares of common stock, held of record by 20 stockholders, and no shares of preferred stock. These amounts assume the conversion of all outstanding shares of our preferred stock into common stock upon completion of this offering.

Common Stock

The holders of our common stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available therefor. In the event we liquidate, dissolve or wind up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive, conversion or subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

Our board of directors has the authority, without further action by the stockholders, to issue from time to time the preferred stock in one or more series, to fix the number of shares of any such series and the designation thereof and to fix the rights, preferences, privileges and restrictions granted to or imposed upon such preferred stock, including dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption, redemption prices, liquidation preference and sinking fund terms, any or all of which may be greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments and payments upon liquidation. Such issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock or even the ability to issue preferred stock could have the effect of delaying, deterring or preventing a change in control. We have no present plans to issue any shares of preferred stock.

Registration Rights

The holders of an aggregate of 25,230,970 shares of our common stock, or their permitted transferees, are entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of a registration agreement between us and the holders of these shares, and include demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

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Demand Registration Rights.    The holders of an aggregate of 8,125,000 shares of our common stock, or their permitted transferees, are entitled to demand registration rights. Under the terms of the registration agreement, we will be required, upon the written request of holders of a majority of these shares, to use our best efforts to register all or a portion of these shares for public resale. We are required to effect only two registrations pursuant to this provision of the registration agreement, but a registration will not count as one of the permitted registrations until it has become effective and unless the holders of these shares are able to register and sell at least 80% of the shares requested to be included in such registration. We are not required to effect a demand registration prior to 180 days after the completion of this offering.

Short-Form Registration Rights.    The holders of an aggregate of 8,125,000 shares of our common stock, or their permitted transferees, are also entitled to short-form registration rights. If we are eligible to file a registration statement on Form S-2 or Form S-3, these holders have the right, upon written request from holders of these shares to us, to have such shares registered by us at our expense provided that such requested registration has an anticipated aggregate offering price to the public of at least $2,500,000 and we have not already effected two short-form registrations in the preceding 12-month period.

Piggyback Registration Rights.    The holders of an aggregate of 25,230,970 shares of our common stock, or their permitted transferees, are entitled to piggyback registration rights. If we register any of our securities either for our own account or for the account of other security holders, the holders of these shares are entitled to include their shares in the registration. Subject to certain exceptions, we and the underwriters may limit the number of shares included in the underwritten offering if the underwriters believe that including these shares would adversely affect the offering.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

Certain provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquiror outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock

As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.

Limits on Ability of Stockholders to Act by Written Consent or Call a Special Meeting

We have provided in our certificate of incorporation that our stockholders may not act by written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a meeting of our stockholders called in accordance with our bylaws.

In addition, our bylaws provide that special meetings of the stockholders may be called only by the chairperson of the board, the chief executive officer, the president (in the absence of a chief executive officer), or the board of directors. A stockholder may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.

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Requirements for Advance Notification of Stockholder Nominations and Proposals

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. However, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

Board Vacancies Filled Only by Majority of Directors Then in Office

Vacancies and newly created seats on our board may be filled only by our board of directors. Only our board of directors may determine the number of directors on our board. The inability of stockholders to determine the number of directors or to fill vacancies or newly created seats on the board makes it more difficult to change the composition of our board of directors, but these provisions promote a continuity of existing management.

Board Classification

Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see “Management—Board of Directors.” This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

No Cumulative Voting

The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation and bylaws do not expressly provide for cumulative voting.

Directors Removed Only for Cause

Our certificate of incorporation provides that directors may be removed by stockholders only for cause.

Delaware Anti-Takeover Statute

We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:

· Prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

· Upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

· At or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 ²/3% of the outstanding voting stock which is not owned by the interested stockholder.

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Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Mellon Investor Services LLC. The transfer agent’s address is 85 Challenger Road, Overpeck Centre, Ridgefield Park, New Jersey 07660, and its telephone number is (201) 296-4000.

Nasdaq National Market Listing

We have applied to have our common stock listed on the Nasdaq National Market under the symbol “NHWK.”

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SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.

Upon the completion of this offering, a total of              shares of common stock will be outstanding, assuming that there are no exercises of options after June 30, 2005. Of these shares, all              shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ over-allotment option, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

The remaining              shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.

Subject to the lock-up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market as follows:

Date	Number of Shares
On the date of this prospectus
Between 90 and 180 days after the date of this prospectus
At various times beginning more than 180 days after the date of this prospectus

In addition, of the 1,868,094 shares of our common stock that were subject to stock options outstanding as of June 30, 2005, options to purchase 161,360 shares of common stock were vested as of June 30, 2005 and will be eligible for sale 180 days following the effective date of this offering.

Rule 144

In general, under Rule 144 as currently in effect, a person who owns shares that were acquired from us or an affiliate of ours at least one year prior to the proposed sale is entitled to sell upon the expiration of the lock-up agreements described below, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

· 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after the offering; or

· the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement in a

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transaction before the effective date of this offering that was completed in reliance on Rule 701 and complied with the requirements of Rule 701 will, subject to the lock-up restrictions described below, be eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.

Lock-Up Agreements

We, the selling stockholders, all of our directors and officers and the other holders of shares of common stock outstanding immediately prior to this offering have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:

· offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, or

· enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock,

whether any transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. This agreement is subject to certain exceptions, and is also subject to extension for up to an additional 34 days, as set forth in “Underwriters.”

Registration Rights

Upon completion of this offering, the holders of 25,230,970 shares of common stock or their transferees will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See “Description of Capital Stock—Registration Rights” for additional information.

Registration Statements

We intend to file a registration statement on Form S-8 under the Securities Act covering all of the shares of common stock subject to options outstanding or reserved for issuance under our stock plans. We expect to file this registration statement as soon as practicable after this offering. However, none of the shares registered on Form S-8 will be eligible for resale until the expiration of the lock-up agreements to which they are subject.

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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS

FOR NON-U.S. HOLDERS OF COMMON STOCK

This section summarizes certain material U.S. federal income and estate tax considerations relating to the ownership and disposition of common stock. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based on existing authorities. These authorities may change, or the IRS might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of common stock could differ from those described below. For purposes of this summary, a “non-U.S. holder” is any holder other than a citizen or resident of the United States, a corporation organized under the laws of the United States, any state or the District of Columbia, a trust that is (i) subject to the primary supervision of a U.S. court and the control of one of more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person or an estate whose income is subject to U.S. income tax regardless of source. A “non-U.S. holder” does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition of the common stock and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange of other disposition of common stock. If a partnership or other flow-through entity is a beneficial owner of common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. The summary generally does not address tax considerations that may be relevant to particular investors because of their specific circumstances, or because they are subject to special rules. Finally, the summary does not describe the effects of any applicable foreign, state, or local laws.

INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE, OR LOCAL LAWS, AND TAX TREATIES.

Dividends

Any dividend paid to a non-U.S. holder on our common stock will generally be subject to U.S. withholding tax at a 30 percent rate. However, the withholding tax might not apply or might apply at a reduced rate under the terms of an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence. A non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder can meet this certification requirement by providing a Form W-8BEN or appropriate substitute form to us or our paying agent. If the holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a foreign partnership or other flowthrough entity, the certification requirements generally apply to the partners or other owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners’ or other owners’ documentation to us or our paying agent. Special rules, described below, apply if a dividend is effectively connected with a U.S. trade or business conducted by the non-U.S. holder.

Sale of Common Stock

Non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange, or other disposition of common stock unless:

· the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business (in which case the special rules described below apply),

· the non-U.S. holder was a citizen or resident of the United States and thus is subject to special rules that apply to expatriates, or

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· the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, treat the gain as effectively connected with a U.S. trade or business.

The FIRPTA rules may apply to a sale, exchange or other disposition of common stock if we are, or were within five years before the transaction, a “U.S. real property holding corporation,” or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of our assets. We do not believe that we are a USRPHC or that we will become one in the future.

Dividends or Gain Effectively Connected With a U.S. Trade or Business

If any dividend on common stock, or gain from the sale, exchange or other disposition of common stock, is effectively connected with a U.S. trade or business conducted by the non-U.S. holder, then the dividend or gain will generally be subject to U.S. federal income tax at the regular graduated rates. If the non-U.S. holder is eligible for the benefits of a tax treaty between the United States and the holder’s country of residence, any “effectively connected” dividend or gain would generally be subject to U.S. federal income tax only if it is also attributable to a permanent establishment or fixed base maintained by the holder in the United States. Payments of dividends that are effectively connected with a U.S. trade or business, and therefore included in the gross income of a non-U.S. holder, will not be subject to the 30 percent withholding tax. To claim exemption from withholding, the holder must certify its qualification, which can be done by filing a Form W-8ECI. If the non-U.S. holder is a corporation, that portion of its earnings and profits that is effectively connected with its U.S. trade or business would generally be subject to a “branch profits tax.” The branch profits tax rate is generally 30 percent, although an applicable income tax treaty might provide for a lower rate.

U.S. Federal Estate Tax

The estates of nonresident alien individuals are generally subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent. The U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent’s country of residence.

Backup Withholding and Information Reporting

The Internal Revenue Code and U.S. Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or repeatedly failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28 percent. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign.

Payments to non-U.S. holders of dividends on common stock will generally not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status. The certification procedures to claim treaty benefits described under “—Dividends” will satisfy the certification requirements necessary to avoid the backup withholding tax as well. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to such dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.

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Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS.

THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

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UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus among us, the selling stockholders and the underwriters, the underwriters named below, for whom Morgan Stanley & Co. Incorporated is acting as representative, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:

Name	Number of Shares
Morgan Stanley & Co. Incorporated
Banc of America Securities LLC.
Piper Jaffray & Co.
SG Cowen & Co., LLC
Montgomery & Co., LLC
Total

The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $             a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $             a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

The selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of              shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them.

We, the selling stockholders, all of our directors and officers and holders of all our outstanding stock have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:

· offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, or

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· enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock;

whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. Subject to certain exceptions, the restrictions described in this paragraph do not apply to:

· the sale of shares to the underwriters,

· transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares; provided that no filing under Section 16 of the Securities Exchange Act of 1934 is made in connection with any such transaction,

· the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing,

· the issuance by us of shares or options to purchase shares of our common stock pursuant to our stock option plans,

· the issuance by us of shares of our common stock, or securities convertible into our common stock, in connection with merger or acquisition transactions, joint ventures or other strategic corporate transactions,

· transfers by Dr. Paul E. Berger or Christopher R. Huber of up to 5% of the common stock owned by each of them to any trusts the sole beneficiaries of which are the transferor and/or the immediate family members of the transferor,

· transfers by Jon D. Berger of up to $200,000 of common stock by gift or gifts to any charity,

· transfers of shares of common stock by any stockholder that is a corporation, partnership or other business entity to certain entities affiliated with the stockholder,

· distributions of shares of common stock without consideration by any stockholder that is a corporation, partnership or other business entity to its equity holders on a pro rata basis,

· transfers of shares of common stock as a gift, or on death of the stockholder by will or intestacy,

· transfers of shares of common stock to immediate family members of the stockholder,

· transfers of shares of common stock to any trust the sole beneficiaries of which are the immediate family members of the stockholder,

· transfers of shares of common stock solely in connection with cashless exercises of stock options held by the stockholder for the purpose of exercising such options, or

· transfers of shares of common stock by any stockholder that is a trust to a trustor or beneficiary of the stockholder.

provided that in the case of each of the last twelve types of transactions, each donee, distributee, transferee and recipient agrees to be subject to the restrictions described in this paragraph and, in the case of each of the last five types of transactions, no filing under Section 16 of the Securities Exchange Act of 1934 is made in connection with these transactions.

The 180-day restricted period described in the preceding paragraph will be extended if:

· during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs, or

· prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,

93

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the release or the occurrence of the material news or material event.

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. In addition, to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

Application has been made to have our common stock approved for quotation on the Nasdaq National Market under the symbol “NHWK.”

We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Directed Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to              shares offered in this prospectus for our directors, officers, employees, business associates and other related persons. The number of shares of common stock available for sale to the general public will be reduced to the extent that such persons purchase the reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered in this prospectus.

Pricing of the Offering

Prior to this offering, there has been no public market for the shares of common stock. The initial public offering price will be determined by negotiations among us, the selling stockholders and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, sales, earnings and other financial operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

94

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Seattle, Washington. Davis Polk & Wardwell, Menlo Park, California, is representing the underwriters in connection with this offering.

EXPERTS

The consolidated financial statements of NightHawk Radiology Holdings, Inc. and subsidiaries as of and for the years ended December 31, 2003 and December 31, 2004 included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph that describes the recapitalization of NightHawk Radiology Holdings, Inc.), and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

The consolidated financial statements of Nighthawk Radiology Services, LLC for the year ended December 31, 2002 included in this prospectus have been audited by Magnuson, McHugh & Company, P.A., independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

The financial statements of DayHawk Radiology Services, LLC as of November 11, 2004 and for the period January 1, 2004 to November 11, 2004 have been included herein and in the registration statement in reliance upon the report of Wright, Moore, DeHart, Dupuis & Hutchinson, L.L.C., independent public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.

The financial statements of American Teleradiology Nighthawks, Inc. as of and for the years ended December 31, 2003 and 2004, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Upon completion of this offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Securities Exchange Act of 1934. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

We intend to provide our stockholders with annual reports containing financial statements that have been audited by an independent registered public accounting firm, and to file with the SEC quarterly reports containing unaudited financial data for the first three quarters of each year.

95

INDEX TO FINANCIAL STATEMENTS

	Page
NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)	F-2
Report of Independent Registered Public Accounting Firm (Magnuson, McHugh & Co., P.A.)	F-3
Consolidated Balance Sheets	F-4
Consolidated Statements of Income	F-5
Consolidated Statements of Members’ And Stockholders’ Equity (Deficit)	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet	F-24
Condensed Consolidated Statements of Operations	F-25
Condensed Consolidated Statements of Cash Flows	F-26
Notes to Condensed Consolidated Financial Statements	F-27
DAYHAWK RADIOLOGY SERVICES, LLC.
Audited Financial Statements:
Independent Auditors’ Report	F-34
Balance Sheet	F-35
Statement of Income	F-36
Statement of Member’s Equity	F-37
Statement of Cash Flows	F-38
Notes to Financial Statements	F-39
Unaudited Pro Forma Condensed Combined Financial Statements:
Unaudited Pro Forma Condensed Combined Statement of Income Overview	F-42
Unaudited Pro Forma Condensed Combined Statement of Income	F-43
Notes to Unaudited Pro Forma Condensed Combined Statement of Income	F-44
AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.
Audited and Unaudited Financial Statements:
Independent Auditors’ Report	F-45
Balance Sheets	F-46
Statements of Operations	F-47
Statements of Stockholders’ Equity	F-48
Statements of Cash Flows	F-49
Notes to Financial Statements	F-50
Unaudited Pro Forma Condensed Combined Financial Statements:
Unaudited Pro Forma Condensed Combined Financial Information Overview	F-55
Unaudited Pro Forma Condensed Combined Balance Sheet	F-56
Unaudited Pro Forma Condensed Combined Statement of Income	F-57
Unaudited Pro Forma Condensed Combined Statement of Operations	F-58
Notes to Unaudited Pro Forma Condensed Combined Financial Information	F-59

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

NightHawk Radiology Holdings, Inc. and subsidiaries

Coeur d’Alene, Idaho

We have audited the accompanying consolidated balance sheets of NightHawk Radiology Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2003 and 2004, and the related consolidated statements of income, members’ and stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NightHawk Radiology Holdings, Inc. and subsidiaries as of December 31, 2003 and 2004, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, the Company was recapitalized in March 2004.

/s/ DELOITTE & TOUCHE LLP

Boise, Idaho

September 16, 2005

(September 30, 2005 as to Note 13)

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Members of

Nighthawk Radiology Services, LLC

Coeur d’Alene, Idaho

We have audited the accompanying statements of income, members’ equity, and cash flows of Nighthawk Radiology Services, LLC (the “Company”) an Idaho limited liability company for the year ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the statements of income, members’ equity, and cash flows, present fairly, in all material respects, the results of the Company’s operations and cash flows for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ Magnuson, McHugh & Co., P.A.

Coeur d’Alene, Idaho

June 19, 2003

(except for changes in equity balances related to fair value of outstanding warrants, and certain operating expenses related to the year ended December 31, 2002, as to which the date is July 21, 2005)

F-3

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2004

	December 31,
	2003		2004
ASSETS
Current assets:
Cash and cash equivalents	$	2,184,120	$	5,813,861
Trade accounts receivable		2,835,686		6,072,502
Prepaids and other current assets		247,825		340,513
Total current assets		5,267,631		12,226,876
Property and equipment, net		1,283,798		3,042,598
Goodwill				954,788
Intangible assets, net				1,004,322
Other assets, net				33,746
Total	$	6,551,429	$	17,262,330
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	698,484	$	3,173,864
Accrued payroll and related benefits		218,815		1,844,179
Accrued interest payable				248,219
Acquisition consideration payable				500,000
Deferred income taxes				25,334
Long-term debt, due within one year				2,250,000
Capital lease obligations, due within one year				3,878
Total current liabilities		917,299		8,045,474
Long-term debt				9,750,000
Fair value of redeemable preferred stock conversion feature				5,527,777
Deferred income taxes				128,846
Capital lease obligations				16,324
Total liabilities		917,299		23,468,421
Commitments and contingencies
Redeemable common stock				4,408,394
Redeemable convertible preferred stock				12,094,465
STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock—40,000,000 shares authorized; $.001 par value; 0 and 19,403,571 shares issued and outstanding at December 31, 2003 and 2004				19,404
Additional paid-in capital				2,912,525
Retained earnings (deficit)		4,718,315		(25,640,879	)
Members’ equity		915,815
Total stockholders’ equity (deficit)		5,634,130		(22,708,950	)
Total	$	6,551,429	$	17,262,330

The accompanying notes are an integral part of the consolidated financial statements.

F-4

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

	December 31,
	2002			2003			2004
Service revenue	$	4,666,645		$	16,216,322		$	39,283,002
Operating costs and expenses:
Professional services (includes non-cash compensation expense of $262,765, $653,050 and $1,544,781)		1,941,452			6,417,803			15,049,399
Sales, general, and administrative (includes non-cash compensation expense of $0, $0 and $144,822)		1,624,654			4,862,452			11,991,386
Depreciation and amortization		59,063			175,780			528,126
Total operating costs and expenses		3,625,169			11,456,035			27,568,911
Operating income		1,041,476			4,760,287			11,714,091
Other income (expense):
Interest expense		(40,072	)		(6,915	)		(880,671	)
Interest income					3,927			40,835
Other, net		(3,001	)		28,266			(28,953	)
Change in fair value of redeemable preferred stock conversion feature								(3,857,500	)
Total other income (expense)		(43,073	)		25,278			(4,726,289	)
Income before income taxes		998,403			4,785,565			6,987,802
Income tax expense								3,662,563
Net income		998,403			4,785,565			3,325,239
Redeemable preferred stock accretion								(764,742	)
Net income applicable to common stockholders	$	998,403		$	4,785,565		$	2,560,497
Earnings per common share:
Basic	$	0.02		$	0.08		$	0.08
Diluted	$	0.02		$	0.08		$	0.08
Weighted averages of common shares outstanding:
Basic		62,165,195			62,165,195			30,245,546
Diluted		62,165,195			62,165,195			30,245,546

The accompanying notes are an integral part of the consolidated financial statements.

F-5

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBERS’ AND STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

	Common Stock					Additional Paid-in Capital		Members’ Equity			Retained Earnings (Deficit)			Total
	Shares		Amount
Balance—January 1, 2002											$	(565,653	)	$	(565,653	)
Net income												998,403			998,403
Equity-based compensation expense								$	262,765						262,765
Balance—December 31, 2002									262,765			432,750			695,515
Net income												4,785,565			4,785,565
Distributions												(500,000	)		(500,000	)
Equity-based compensation expense									653,050						653,050
Balance—December 31, 2003									915,815			4,718,315			5,634,130
Net income												3,325,239			3,325,239
Redemption of member’s units									(556,293	)		(743,707	)		(1,300,000	)
Distributions to members												(2,885,259	)		(2,885,259	)
Recapitalization of the Company	18,803,571		$	18,804								(26,135,903	)		(26,117,099	)
Stock contributed by stockholders	(2,057,970	)		(2,058	)	$	2,058
Issuance of common stock to non-employees	1,259,375			1,259			1,812,240		(359,522	)					1,453,977
Issuance of restricted stock to non-employees	798,595			799			99,621								100,420
Issuances of stock options—employees							44,403								44,403
Issuances of stock options—non-employees							45,572								45,572
Stock compensation paid by principal stockholders							45,231								45,231
Stock issued in acquisition	600,000			600			863,400								864,000
Accretion of redeemable common stock												(3,154,822	)		(3,154,822	)
Accretion of redeemable preferred stock												(764,742	)		(764,742	)
Balance—December 31, 2004	19,403,571		$	19,404		$	2,912,525	$			$	(25,640,879	)	$	(22,708,950	)

The accompanying notes are an integral part of the consolidated financial statements.

F-6

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

	December 31,
	2002			2003			2004
Cash flows from operating activities:
Net income	$	998,403		$	4,785,565		$	3,325,239
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		59,063			175,780			528,126
Gain on disposal of property and equipment					(2,732	)
Change in fair value of redeemable preferred stock conversion feature								3,857,500
Non-cash stock compensation expense		262,765			653,050			1,689,603
Changes in operating assets and liabilities:
Accounts receivable		(756,004	)		(2,021,213	)		(2,764,779	)
Prepaid expenses and other assets		(112,872	)		(116,563	)		(117,983	)
Deferred income taxes								154,180
Accounts payable and accrued expenses		16,350			669,841			1,699,444
Accrued payroll and related benefits					183,856			1,625,364
Accrued interest payable								248,219
Net cash provided by operating activities		467,705			4,327,584			10,244,913
Cash flows from investing activities:
Purchase of property and equipment		(417,679	)		(1,034,456	)		(2,213,459	)
Acquisition of DayHawk, net of cash acquired of $119,618								(630,382	)
Proceeds from sale of property and equipment					5,878
Net cash used in investing activities		(417,679	)		(1,028,578	)		(2,843,841	)
Cash flows from financing activities:
Borrowings from line of credit		3,987,444						3,000,000
Repayments to line of credit		(3,992,030	)		(668,155	)
Proceeds from note payable								12,000,000
Repayment of note payable and debt								(3,260,000	)
Purchase of membership units								(24,185,672	)
Expenses related to recapitalization								(1,463,527	)
Proceeds from issuance of preferred stock								13,000,000
Distributions to members					(500,000	)		(2,862,132	)
Net cash used in financing activities		(4,586	)		(1,168,155	)		(3,771,331	)
Net increase in cash and cash equivalents		45,440			2,130,851			3,629,741
Cash and cash equivalents—beginning of year		7,829			53,269			2,184,120
Cash and cash equivalents—end of year	$	53,269		$	2,184,120		$	5,813,861
Supplemental disclosures of cash flow information:
Cash paid for interest	$	40,072		$	6,840		$	632,452
Cash paid for income taxes							$	3,366,775
Non-cash investing and financing activities:
Borrowing on capital lease obligation							$	20,202
Common stock issued in recapitalization							$	18,804
Distributions payable to former LLC member							$	23,127
Accretion of redeemable preferred stock							$	764,742
Accretion of redeemable common stock							$	3,154,822
Details of DayHawk acquisition:
Receivables							$	472,037
Other assets								26,038
Goodwill								954,788
Intangible assets								1,040,000
Accounts payable and other accrued expenses								(238,481	)
Notes payable assumed								(260,000	)
Payable to seller								(500,000	)
Issuance of common stock								(864,000	)
Net cash paid for acquisition							$	630,382

The accompanying notes are an integral part of the consolidated financial statements.

F-7

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

1.    THE COMPANY

Background—NightHawk Radiology Holdings, Inc., a Delaware corporation (the “Company”), is a provider of nighttime and weekend emergency radiology services to radiology groups and hospitals across the United States of America. The Company’s general offices are located in Coeur d’Alene, Idaho and its central and primary reading facility is in Sydney, Australia. A new facility was opened in late 2004 in Zurich, Switzerland where radiologists contracted with the Company provide preliminary radiological interpretations. The Company’s functional currency is the U.S. dollar. The Company has a single reporting segment and reporting unit structure.

Recapitalization—Until March 2004, the Company operated as Nighthawk Radiology Services, LLC, an Idaho limited liability company (the “LLC”). The Company was recapitalized in March 2004 and NightHawk Radiology Holdings, Inc. was formed for the purpose of acquiring all of the outstanding units of the LLC and all of the outstanding shares of NRS Corporation, whose only assets were outstanding units of the LLC.

As of December 31, 2004, the legal entity structure for the Company is as follows:

· NightHawk Radiology Holdings, Inc.—A Delaware corporation formed in March 2004.

· NRS Corporation—An Idaho corporation purchased in connection with the recapitalization and 100% owned by NightHawk Radiology Holdings, Inc.

· Nighthawk Radiology Services, LLC—An Idaho limited liability company formed in May 2001 which is 64.4% owned by NRS Corporation and 35.6% owned by NightHawk Radiology Holdings, Inc.

· NightHawk Services GmbH—A wholly owned subsidiary of Nighthawk Radiology Services, LLC formed in September 2004 and located in Zurich, Switzerland.

· DayHawk Radiology Services, LLC—A Delaware limited liability company, an unrelated party, which was acquired in November 2004 and which is a wholly owned subsidiary of NightHawk Radiology Holdings, Inc.

The consolidated financial statements include the assets, liabilities and results of operations of all the preceding entities. As discussed in Note 3, the results of operations of DayHawk Radiology Services, LLC have been included in the Company’s consolidated financial statements since the date of acquisition.

The significant aspects of the recapitalization were as follows:

· As of December 31, 2003, the LLC was authorized to issue up to 2,000 common membership units and 1,000 preferred membership units. As of December 31, 2003, total outstanding common and preferred membership units were 999 and 0 units, respectively.

· On January 2, 2004, the LLC redeemed 56 membership units owned by one member for $1,300,000 in cash.

· On March 31, 2004, the Company, the LLC, and certain members of the LLC entered into a Securities Purchase and Contribution Agreement with an investment firm pursuant to which the Company sold debt and equity securities to raise capital to fund the purchase of LLC membership units held by a selling member of the LLC. The investment firm purchased securities of the new Company for $25,000,000, consisting of $12,000,000 of subordinated debt (see Note 6) issued by the LLC and $13,000,000 of the Company’s Series A Convertible Redeemable Preferred Stock (8,125,000 shares).

F-8

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

· Proceeds from the investment firm’s $25,000,000 investment were used as follows:

_° $23,400,000 to purchase 607.25 membership units owned by a selling member.

_° $1,463,527 to fund recapitalization transaction expenses.

_° $136,473 for general working capital purposes.

As part of this recapitalization, certain LLC members who were also executive officers of the LLC exchanged their 335.75 membership units for 20,892,857 shares of common stock of the Company (which includes 2,089,286 shares of redeemable common stock as discussed in Note 12). As a result of the preceding transactions, the Company was capitalized with 8,125,000 shares of Series A preferred stock and 20,892,857 shares of common stock. The rights, preferences and privileges of the preferred and common stockholders are described in Note 12.

These transactions have collectively been accounted for as a recapitalization and no change in control of the Company occurred as a result of these transactions.

In November 2004, 2,057,970 shares of common stock of the Company were contributed to the Company by the stockholders who previously exchanged their membership units in the LLC for common stock of the Company (see above). These stockholders did not receive any consideration for this stock. The common stock was then issued by the Company pursuant to a restricted stock grant to a person who subsequently became a member of the Company’s board of directors and a stock grant to an affiliated radiologist who had previously been granted a warrant to purchase units in the LLC in 2003.

Through March 31, 2004, allocations of net profits and losses, calculated in accordance with the LLC agreement, were made in accordance with the members’ percentage interest. The Company made distributions to the members in proportion to their percentage interests. Additionally, quarterly distributions were made to the members of the Company (based on their percentage interests) for their estimated federal and state income tax liabilities.

The accompanying financial statements include the presentation of consolidated financial statements of NightHawk Radiology Holdings, Inc. since March 31, 2004 and the financial statements of Nighthawk Radiology Services, LLC for the periods prior to March 31, 2004. Both the Company and the LLC are collectively referred herein as the “Company.”

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable allowance, fair value of acquired intangible assets and goodwill, fair value of redeemable preferred stock

F-9

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

conversion feature, useful lives of intangible assets and property and equipment, and income taxes, among others, as well as the loss contingency for medical liability claims and the value of common stock and preferred stock for the purpose of determining stock-based compensation.

Cash and Cash Equivalents—The Company considers all highly liquid investments with a remaining maturity of three months or less at the date of purchase to be cash equivalents.

Trade Accounts Receivable—Trade accounts receivable represent receivables for radiology services and are recorded at the invoiced amount and are non-interest bearing. The Company has a history of minimal uncollectible receivables. Management reviews past due accounts receivable to identify specific customers with known disputes or collectibility issues.

Property and Equipment—Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of each asset, which ranges as follows:

Computers, diagnostic workstations and telecommunications systems	5–7 years
Office furniture and equipment	7–10 years
Software	3–7 years
Leasehold improvements	Term of lease or asset life, whichever is shorter

Expenditures for maintenance and repairs are charged to operating expense as incurred and expenditures for renewals and betterments are capitalized. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the records and any gain or loss is reflected in operating expenses.

Operating Leases—The Company leases various office space under operating leases. Certain lease arrangements contain rent escalation clauses for which the lease expense is recognized on a straight-line method over the terms of the leases.

Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets—The value of goodwill and intangible assets is stated at the lower of cost or fair value. Goodwill is not subject to amortization; however it is subject to periodic impairment assessments. Under the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, the Company is required to perform at least an annual goodwill impairment test and to consider other indicators that may arise throughout the year to re-evaluate carrying value. To the extent carrying value exceeds fair value at the date impairment is tested, the Company reduces goodwill by recording a charge to operations. We perform our annual impairment test in the last quarter of each fiscal year. SFAS No. 142 also requires that intangible assets with definite lives be amortized over their estimated useful lives (see Note 4).

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires impairment losses to be recognized for long-lived assets when indicators of impairment exist and the underlying cash flows are not sufficient to support the assets’ carrying value.

We regularly evaluate the carrying value of intangible and long-lived assets for events or changes in circumstances that indicate that the carrying amount may not be recoverable or that the remaining estimated useful life should be changed. Potential indicators of impairment can include, but are not limited to (1) history of operating losses or expected future losses; (2) significant adverse change in legal factors; (3) changes in the extent or manner in which the assets are used; (4) current expectations to dispose of the assets by sale or other means; and (5) reductions or expected reductions of cash flow. If we determine there is an indication of

F-10

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

impairment, we compare undiscounted net cash flows to the carrying value of the respective asset. If the carrying value exceeds the undiscounted net cash flows we perform an impairment calculation using discounted cash flows, valuation analysis from independent valuation specialists or comparisons to recent sales or purchase transactions to determine estimated fair value.

Cost of computer software used for internal use is capitalized and accounted for in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Capitalized costs are amortized based on the Company’s expected utilization of existing internally developed software.

Revenue Recognition and Presentation—Service revenue is recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Service revenue consists of fees for radiological interpretations and is recognized in the fiscal month when the radiological interpretation is complete and delivered to the customer.

Professional Services Expenses—Professional service expenses consist primarily of the fees we pay to our affiliated radiologists, any physician stock-based compensation, the premiums we pay for medical liability insurance and any medical liability claims loss expenses. Our affiliated radiologists are independent contractors and we compensate them using a formula that is generally based upon the number of hours worked, with additional incentives for the workload completed as well as year-end discretionary bonuses. We recognize professional services expenses in the month in which the services are performed. The Company recognizes expenses associated with medical liability premiums in the month in which the expense is incurred. The Company records medical liability loss contingency expenses in the month in which the Company deems such liability probable.

Stock-Based Compensation—The Company records stock-based compensation expense in connection with any grant of stock options, warrants or other issuance of shares of common stock to affiliated radiologists. We calculate the stock-based compensation expense associated with the issuance of stock-based compensation to affiliated radiologists in accordance with SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123 (SFAS No. 148) and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF No. 96-18), by determining the fair value using a Black-Scholes model. We calculate the stock-based compensation expense related to issuance of common stock to radiologists based on the fair value of common stock at the date the shares were issued. Stock-based compensation paid to affiliated radiologists is included in professional services expenses.

The Company also records stock-based compensation expense in connection with any grant of stock options, warrants or other issuance of shares of common stock to employees, directors and non-physician contractors. We calculate the stock-based compensation expense associated with the issuance of options to our employees and directors in accordance with SFAS No. 123 and SFAS No. 148 by determining the fair value using a Black-Scholes model. Stock-based compensation to employees and non-physician contractors is included in sales, general and administrative expenses.

Sales, General and Administrative Expenses—Selling, general and administrative expenses consist primarily of salaries and related expenses for all employees and non-physician contractors, information technology and telecommunications expenses, costs associated with licensing and privileging our affiliated

F-11

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

radiologists, facilities and office-related expenses, sales and marketing expenses and other general and administrative expenses.

Income Taxes—As previously indicated, the Company operated as a limited liability company prior to March 31, 2004. Consequently, the Company was not subject to federal income taxes. Rather, the members were subject to federal income taxation based on their respective allocation of the Company’s net taxable income or loss. Accordingly, the Company did not record any current or deferred assets, liabilities, or expenses related to income taxes through March 31, 2004.

Subsequent to its recapitalization, the Company recognizes income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

Developing our provision for income taxes, including our effective tax rate, and analysis of potential tax exposure items, if any, requires significant judgment and expertise in federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and any estimated valuation allowances we deem necessary to value deferred tax assets. Our judgments and tax strategies are subject to audit by various taxing authorities. While we believe we have provided adequately for our income tax liabilities in our consolidated financial statements, adverse determinations by these taxing authorities could have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Concentration of Credit Risk—Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with high quality credit institutions. At times, such amounts may be in excess of the Federal Deposit Insurance Corporation’s (FDIC) insurance limit of $100,000. As of December 31, 2003, three accounts for a total of approximately $2,057,000 were in excess of FDIC insurance limits and as of December 31, 2004, five accounts for a total of approximately $5,862,000 were in excess of FDIC insurance limits.

Credit risk related to accounts receivable is mitigated by the Company’s credit evaluation process and the reasonably short collection terms. Management makes judgments as to its ability to collect outstanding receivables based upon the Company’s collection history and has concluded that an allowance for uncollectible accounts is not necessary as of December 31, 2003 or December 31, 2004.

Promotional and Advertising Expenses—The Company expenses promotional and advertising costs in the period in which they are incurred. Promotional and advertising expense for the years ended December 31, 2002, 2003 and 2004 was approximately $66,000, $210,000 and $324,000, respectively.

Fair Value of Financial Instruments—The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, current liabilities and variable rate debt approximate their fair value because of their short maturities. The fair values of fixed-rate long-term debt is based on the discounted value of contractual cash flows with a discount rate that would be available for similar debt obligations at December 31, 2004. The carrying value of our fixed rate debt at December 31, 2004 approximated its fair value.

Derivative Financial Instruments—The Company accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The Company records derivative financial instruments as assets or liabilities in our consolidated balance sheet, measured at fair value. When available, the Company uses quoted market prices to determine fair value; however, if quoted

F-12

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

market prices are not available, the Company estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques. The Company records the changes in fair value of such instruments as non-cash gains or losses in the consolidated statements of income. The Company does not enter into derivatives for trading purposes.

Recent Accounting Pronouncements—In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities an interpretation of ARB No. 51. FIN 46, as amended through December 2003, which requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The adoption of FIN 46 did not have an impact on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The Company adopted SFAS No. 150 on July 1, 2003 and it did not have an impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which is a revision of SFAS No. 123. SFAS No. 123(R) supercedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments. Upon adoption, the fair value of all employee stock option awards will be expensed in the Company’s statement of operations, typically, over the related vesting period of the options. SFAS No. 123(R) requires use of fair value to measure share-based awards issued to employees, computed at the date of grant. SFAS No. 123(R) will be effective beginning January 1, 2006. The Company has not yet completed its assessment and has not yet determined the effect of adopting SFAS No. 123(R).

In December 2004, the FASB issued SFAS No 153, Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005. The Company has not yet completed its assessment and has not yet determined the effect of adopting SFAS No. 153.

3.    ACQUISITION

In November 2004, the Company completed the purchase of DayHawk Radiology Services, LLC (“DayHawk”), an unrelated party. The acquisition expanded the Company’s presence in additional markets. DayHawk was acquired for $1,250,000 in cash ($750,000 paid in 2004 and $500,000 paid in May 2005), 600,000 shares of common stock and the assumption of $498,481 in liabilities for total consideration of $2,612,481.

The acquisition of DayHawk resulted in the assets acquired and liabilities assumed being recorded based on their estimated fair values on the acquisition date. The results of operations of DayHawk have been included in the Company’s consolidated statements of income and cash flows since the date of acquisition.

F-13

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

The following table presents the allocation of the purchase price to the acquired assets and liabilities:

Current assets	$	600,106
Furniture and fixtures		17,587
Intangible assets		1,040,000
Goodwill		954,788
Assets acquired		2,612,481
Current liabilities assumed		(498,481	)
Net assets acquired	$	2,114,000

The amount allocated to intangible assets was attributed to the following categories:

Customer lists and relationships	$	740,000
Tradename and trademarks		150,000
Customer contracts		100,000
Noncompete agreements		50,000
	$	1,040,000

All intangible assets are amortized on a straight-line basis over their expected useful lives (Note 4).

The following pro forma information assumes the DayHawk acquisition occurred as of January 1, 2003. The unaudited pro forma financial information summarizes the results of operations for the years ended December 31, 2003 and 2004. The pro forma results are not necessarily indicative of what would have occurred had the acquisition actually been made at the beginning of the year or of future operations of the combined companies.

	2003		2004
	(unaudited)
Net service revenue	$	16,794,724	$	41,409,715
Net income	$	4,482,936	$	3,559,439
Net income applicable to common stockholders	$	4,482,936	$	2,794,697
Earnings per common share, basic and diluted	$	0.07	$	0.09

4.    INTANGIBLE ASSETS

A summary of intangible assets at December 31, 2004 is as follows:

	Estimated Useful Life	Amount
Customer lists and relationships	10 years	$	740,000
Tradename and trademarks	10 years		150,000
Customer contracts	7 months		100,000
Noncompete agreements	2 years		50,000
			1,040,000
Accumulated amortization			(35,678	)
Intangible assets, net		$	1,004,322

F-14

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

Amortization expense for 2004 was $35,678 and there was no amortization expense in 2003 or 2002. The estimated amortization expense for 2005 and 2006 is approximately $193,000 and $111,000, respectively, and $89,000 for each of 2007, 2008 and 2009, or $570,000 in the aggregate.

5.    PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

	2003			2004
Computers, diagnostic workstations, and telecommunications systems	$	719,667		$	1,729,237
Office furniture and equipment		216,985			373,787
Software		219,605			832,494
Leasehold improvements		360,883			832,871
		1,517,140			3,768,389
Less accumulated depreciation		(233,342	)		(725,791	)
	$	1,283,798		$	3,042,598

Depreciation expense for the years ended December 31, 2002, 2003 and 2004, was approximately $59,000, $176,000 and $492,000, respectively.

6.    LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION

On March 31, 2004, as part of the recapitalization of the Company, the Company received proceeds of $12,000,000 of subordinated debt from the investment firm that also purchased the Company’s redeemable convertible preferred stock (see Note 1). This long-term debt was comprised of six different promissory notes from sub-funds of the investment firm. Interest accrued at a rate of 10% per annum. Principal on the individual notes was due on March 10, 2010. The Company was required to pay the entire outstanding principal amount due on the notes and all accrued and unpaid interest upon the consummation of a prepayment event, as defined in the individual notes.

On October 26, 2004, $3,000,000 was repaid, and as described below, the balance was repaid in April 2005.

Revolving Credit Agreement—In March 2004, the Company entered into a primary revolving credit agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”). The Credit Agreement provided a revolving credit facility with a total of $3,500,000 in borrowing capacity. As of December 31, 2004, $3,000,000 was outstanding. The Company secured the Credit Agreement with all existing, and later acquired, collateral (as defined in the Credit Agreement) which included all goods and equipment, contract rights, general intangibles, cash and deposit accounts, and other various items. The committed revolving line included a letters-of-credit sublimit (see Note 7). Interest under the Credit Agreement accrued at SVB’s prime rate, which was 5.25% at December 31, 2004. As of December 31, 2004, the Company was in compliance with the financial covenants of the Credit Agreement.

On April 20, 2005, the Company entered into a new primary credit facility with Comerica Bank (“Comerica”). The agreement provides $15,000,000 in senior secured credit facilities comprised of a $12,000,000 term loan and a $3,000,000 revolving credit loan. The $12,000,000 term loan was used to repay the $9,000,000 in long-term debt outstanding at December 31, 2004 and the $3,000,000 outstanding under the credit facility with SVB. The entire facility with Comerica expires on April 20, 2009. Interest under the facility is

F-15

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

computed based, at the Company’s option, on Comerica’s prime rate, or certain LIBOR rates, plus a margin. The new credit agreement contains various restrictive financial covenants, which include a maximum total debt to EBITDA ratio, a minimum consolidated fixed charge coverage ratio and a minimum trailing twelve months of EBITDA at the end of each quarter as well as restrictions on capital expenditures.

The $9,000,000 in long-term debt outstanding at December 31, 2004 had no principal prepayment terms, with the balance due in full upon maturity at March 31, 2010. As indicated above, the Company refinanced the $9,000,000 in long-term debt along with the $3,000,000 credit facility into a $12,000,000 term debt with Comerica. Contractual maturities for the refinanced long-term debt of $12,000,000 are summarized by year as follows:

Year Ending December 31,
2005	$	2,250,000
2006		3,000,000
2007		3,000,000
2008		3,000,000
2009		750,000
	$	12,000,000

Capital Lease Obligation—During 2004, a capital lease obligation of $20,202 was incurred related to computer hardware. Depreciation associated with the assets is included in depreciation expense for the year ended December 31, 2004 and was $337. Future minimum capital lease payments, at December 31, 2004 are approximately $5,200, $4,800, $4,800, $4,800, $4,400 for the years ending December 31, 2005, 2006, 2007, 2008 and 2009, respectively. As of December 31, 2004, the amount representing interest is $3,798 and the present value of the net minimum lease payments is $20,202. The current maturity of the capital lease is $3,878 and the long term obligation is $16,324.

7.    COMMITMENTS AND CONTINGENCIES

The Company leases its office spaces in Coeur d’Alene, Idaho; Milwaukee, Wisconsin; Sydney, Australia; and Zurich, Switzerland under operating leases. Total rent expense under these leases was approximately $120,000, $184,000 and $457,000 for the years ended December 31, 2002, 2003 and 2004, respectively.

The following is a schedule of approximate future minimum lease payments under operating leases as of December 31:

2005	$	796,000
2006		701,000
2007		601,000
2008		525,000
2009		74,000
	$	2,697,000

The Company’s Sydney, Australia office lease and medical liability insurance are collateralized by separate letters of credit in the amounts of $128,064 and $100,000, respectively, as of December 31, 2003 and $132,918 and $300,000, respectively, as of December 31, 2004.

F-16

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

Litigation—The Company may be involved in litigation in the normal course of business. After consultation with legal counsel, management estimates that at December 31, 2004 and 2003 these matters would be resolved without material adverse effect on the Company’s financial position, results of operations, or cash flows.

Medical Liability Insurance—The Company is exposed to various risks of loss related to litigation that may arise related to malpractice and maintains insurance for medical liabilities in amounts considered adequate by Company management. The Company’s claims-made policy provides coverage up to the policy limits for claims filed within the period of the policy term, subject to deductible requirements. Coverage for affiliated radiologists is initiated when they begin providing services on behalf of the Company. The 2004 policy expired in February 2005, and a renewed policy was obtained through February 2006.

8.    RELATED PARTY TRANSACTIONS

A stockholder of the Company who is also an officer of the Company, provided radiology services to the Company. In addition to salary, the Company paid approximately $128,000, $104,000 and $65,000 for his radiology services for the years ended December 31, 2002, 2003 and 2004, respectively.

During the years ended December 31, 2004, 2003 and 2002, the Company provided radiology services to a former member of Nighthawk Radiology Services, LLC without charge. The former member provides radiology readings to a local hospital during business hours and the Company provided off-hours and emergency radiology readings to a local hospital on the member’s behalf. The estimated value of the services provided by the Company, based on rates charged to unrelated third parties, was approximately $113,000, $109,000 and $27,000, respectively. These services are included in service revenue and professional fees.

During the year ended December 31, 2004, the Company entered into a debt transaction for $12,000,000 with its preferred stockholder (see Note 6). The Company incurred approximately $850,000 of interest related to the debt in 2004. The debt was refinanced in April 2005 with a commercial bank.

On May 28, 2004, the Company issued 798,595 shares of restricted common stock to a person who subsequently became a non-employee member of the Company’s Board of Directors. These shares have been recorded in accordance with EITF No. 96-18. In 2004, the Company recognized non-cash stock compensation expense of $100,420. On June 9, 2005, the Company’s Board of Directors accelerated vesting of these shares and as a result, the Company recognized non-cash stock compensation expense of $2,926,255.

In November 2004, the Company issued 1,259,375 shares of common stock to a related party who had previously been granted a warrant to purchase units in the LLC in 2003. These warrants were accounted for in accordance with EITF No. 96-18 and resulted in non-cash stock compensation of $1,453,978 in 2004.

9.    EMPLOYEE BENEFIT AND STOCK PLANS

2004 Stock Plan—The 2004 Stock Plan (the “Plan”) was adopted by the Board of Directors and authorizes the grant or issuance of various options or other awards including a repurchase option. As of December 31, 2004 the Plan authorizes the grant of options to purchase 1,527,256 shares of common stock, subject to adjustment for stock splits, stock dividends and similar events. In March 2005, the Board of Directors increased the option pool by 400,000 shares to 1,927,256 shares. The shares may be authorized but unissued, or reacquired common stock. The Board of Directors administers the Plan and establishes to whom the awards are granted, and the terms and conditions, including the exercise period, of such awards.

F-17

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

The per share exercise price for the shares to be issued upon exercise of the nonstatutory stock option shall be such price as determined by the administrator, subject to the provisions of the Plan.

On October 27, 2004, the following three stock option grants were made:

(1) common stock options to certain employees covering 502,000 shares at an exercise price of $1.25 per share. For 311,000 of the options, one-third vested on April 1, 2005, and 1/36 of the shares vest each month thereafter; for 191,000 of the options, 33% will vest on an annual basis beginning on the one year anniversary of the date when the shares of the Company’s common stock are first quoted on an approved foreign market recognized by the Australian Securities and Investment Commission;

(2) common stock options to certain independent contractors for 579,712 shares at an exercise price of $1.25 per share. These options are earned based on hours performed and vest on the three year anniversary of the vesting commencement date (October 27, 2004); and

(3) common stock options to the Company’s outside directors for 90,000 shares at an exercise price of $1.25 per share. One third of these options vested on April 1, 2005, and 1/36 of the shares vest each month thereafter.

On November 29, 2004, the following two stock option grants were made:

(1) common stock options to certain employees for 21,000 shares at an exercise price of $2.25 per share. For 12,000 of the options, one-third vest on the one year anniversary of the vesting commencement date (which ranged from October 29, 2004 to November 15, 2004) and 1/36 of the shares vest each month thereafter; for 9,000 of the options, 33% will vest on an annual basis beginning on the one year anniversary of the date when the shares of the Company’s common stock are first quoted on an approved foreign market recognized by the Australian Securities and Investment Commission; and

(2) common stock options to certain independent contractors for 113,387 shares at an exercise price of $2.25 per share. These options vest on the three year anniversary of the vesting commencement date (which ranged from November 24, 2004 to September 1, 2005).

As of December 31, 2004 the Company has the following options issued under the Plan:

Number of Options	Weighted-Average Exercise Price	Range of Exercise Prices Per Option	Expiration Date
1,306,099	$1.35	$1.25 - $2.25	2014

Remaining stock options available for grant at December 31, 2004 were 221,157. At December 31, 2004, no options were exercisable.

For the year ended December 31, 2004, the Company recognized approximately $44,000 ($27,000 after-tax) of non-cash compensation for stock options granted and issued to employees and members of the Board of Directors. For the year ended December 31, 2004, the Company recognized approximately $46,000 ($28,000 after-tax) of non-cash compensation expense for stock options granted and issued to independent contractors.

The fair values derived for stock options granted in 2004 and key assumptions used to determine these values were as follows: risk-free interest rate of 3.25%, expected life of 3 years, expected volatility of 54% and dividend yield of zero. The weighted average grant-date fair value of new grants in 2004 was $1.43 per share.

F-18

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

Defined Contribution Plan—The Company established a defined contribution plan (the “401(k) Plan”) in February 2004. The 401(k) Plan was created for the benefit of substantially all employees of the Company. Employees are able to participate in the 401(k) Plan as of the first day of the quarter on or following the date they begin employment and participants are able to defer up to 100% of their eligible compensation subject to applicable annual Internal Revenue Code limits. There is no Company matching contribution requirement.

10.    EARNINGS PER SHARE

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings per common share computations for the years ended December 31:

	2002		2003		2004
Numerator:
Net income available in basic calculation	$	998,403	$	4,785,565	$	2,560,497
Plus: Income impact of assumed conversions of preferred stock dividends		—		—		(a)
Income available to common stockholders plus assumed conversions	$	998,403	$	4,785,565	$	2,560,497
Denominator:
Weighted-average common shares-basic (b)		62,165,195		62,165,195		30,245,546
Effect of dilutive stock options		—		—		(c)
Effect of convertible preferred stock		—		—		(a)
Weighted average common shares outstanding-dilutive		62,165,195		62,165,195		30,245,546
Earnings per common share—basic and diluted	$	0.02	$	0.08	$	0.08

(a) The income impact of assumed conversions of the preferred stock dividends and the effect of the convertible preferred stock in the denominator are anti-dilutive.

(b) The weighted-average common share basic computations were based on assumed conversion of LLC units into common stock at the beginning of 2002 based on the conversion ratio from the recapitalization transaction (Note 1).

(c) At December 31, 2004, 1,306,099 stock options were outstanding. The effects of the shares which would be issued upon exercise of these options have been excluded from the calculation of diluted earnings per share because they are anti-dilutive.

11.    INCOME TAXES

On March 31, 2004, Nighthawk Radiology Services, LLC reorganized and NightHawk Radiology Holdings, Inc., a Delaware corporation, was formed and acquired all of the outstanding membership units of the LLC. The income tax effect of operations prior to March 31, 2004 is not reported in the financial statements of the Company because such operations were conducted through a limited liability company whereby such income tax obligations were the responsibility of the LLC’s members. On March 31, 2004 a member of the LLC sold its membership units to NightHawk Radiology Holdings, Inc. (see Note 1) and as a result paid the Company approximately $514,000 for such member’s portion of the income tax effect of operations through March 31, 2004. In accordance with SFAS No. 109, Accounting for Income Taxes, deferred tax assets and liabilities are

F-19

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

recognized for temporary differences at the recapitalization date and the income tax effect of recognizing these deferred items was $291,533 and is included in income tax expense. The following information represents the income tax effect for the period March 31, 2004 to December 31, 2004.

Deferred income taxes are recognized for temporary differences between the financial statements and tax basis of assets and liabilities using presently enacted tax rates and laws. As discussed above, there are no deferred tax assets or liabilities at December 31, 2003.

Deferred tax assets and liabilities consist of the following at December 31, 2004:

Deferred tax assets:
Basis in LLC property	$	323,018
Accrued compensation and employee benefits		251,705
Malpractice claims reserve		77,716
Accrued professional fees		34,972
Other, net		6,648
Total deferred tax assets		694,059
Deferred tax liabilities:
Effect of change from cash to accrual accounting for tax		655,977
Basis in property and equipment		192,262
Total deferred tax liabilities		848,239
Net deferred tax liabilities	$	154,180

At December 31, 2004, income considered to be permanently reinvested in non-U.S. subsidiaries totaled approximately $23,000. Deferred U.S. income taxes have not been provided on this income, as the Company does not plan to initiate any action that would require the payment of U.S. income taxes on this income. It is not practical to estimate the amount of additional tax that might be payable on this undistributed foreign income.

Income tax expense for the year ended December 31, 2004 consists of the following:

Current:
Federal	$	2,721,537
State		548,772
Foreign		238,074
Total current		3,508,383
Deferred:
Federal		138,870
State		15,310
Total deferred		154,180
Total income tax expense	$	3,662,563

F-20

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

The reconciliation between the federal statutory tax rate and the Company’s effective tax rate for the year ended December 31, 2004 is as follows:

	Amount			Percent
Provision at federal statutory rate	$	2,375,850		34.00	%
State income taxes, net of federal income tax benefit		273,950		3.92
Net deferred tax liability recorded at March 31, 2004		291,533		4.17
Excluded LLC operations (pre-March 31, 2004)		(717,471	)	(10.27	)
Change in fair value of redeemable preferred stock conversion feature		1,311,550		18.77
Other, net		127,151		1.82
	$	3,662,563		52.41	%

12.    STOCKHOLDERS’ EQUITY AND MEMBERS’ EQUITY

Preferred Stock—At December 31, 2004, the Company had authorized and issued 8,125,000 shares of Series A redeemable, convertible preferred stock with a par value of $0.001 per share. The holders of the preferred stock have the right but not the obligation to participate proportionately in certain types of future financings. Significant terms of this preferred stock are as follows:

· Each share has the same voting rights as the number of common shares into which it is convertible. In addition, the holders of the Series A preferred have the right, voting separately from other stockholders, to elect one of five members of the Company’s Board of Directors (three of the remaining members are elected separately by the common stockholders and the last member is elected by both the common and preferred stockholders).

· Dividends are cumulative and accrue on a daily basis at the rate of 6% per annum beginning on the date of issuance and based on the sum of the liquidation value ($1.60 per share) plus all accumulated and unpaid dividends. Dividends become accumulated at the end of each calendar quarter. Accumulated, accrued and unpaid dividends at December 31, 2004 were $596,571 ($.07 per share).

· Upon any liquidation, dissolution or winding up of the Company, the preferred stockholders are entitled to a liquidation preference payment equal to the greater of (i) the sum of the liquidation value ($1.60 per share) plus all accumulated, accrued and unpaid dividends and (ii) the amount such holder would have been entitled to receive had such holder’s shares been converted into common stock immediately prior to the liquidation, dissolution or winding up. At December 31, 2004, the liquidation value plus accumulated, accrued and unpaid dividends was $13,596,571.

· Each share is convertible, at the option of the holder, into one share of common stock (subject to adjustments for events of dilution). In addition, the Company may require conversion of all preferred shares upon the approval of a majority of the preferred stockholders or upon the completion of a public offering of common shares underwritten by a nationally recognized investment bank yielding proceeds of at least $50,000,000 and a price of at least 4.3 times $1.60 per share (subject to adjustments for events of dilution) (a “Qualified Public Offering”).

· Upon conversion, each holder of preferred stock is also entitled to receive payment of all accumulated, accrued and unpaid dividends on the preferred stock unless such conversion is made in connection with a public offering of the Company’s common stock.

· In the event of a sale of more than 50% of the Company’s assets or certain changes in ownership of the Company’s stock as defined in the Company’s Amended and Restated Certificate of Incorporation, and

F-21

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

upon the consent of the holders of a majority of the preferred stock, each holder of preferred stock may require the Company to redeem all or a portion of such shares. The redemption price is equal to the liquidation value ($1.60 per share) plus all accumulated, accrued and unpaid dividends.

· At any time subsequent to March 31, 2011, the holders of a majority of the preferred shares may require the Company to redeem all or any portion of the preferred shares. The price paid by the Company to redeem the shares would be the greater of (i) the liquidation value ($1.60 per share) plus all accumulated, accrued and unpaid dividends, and (ii) the market value of the common stock issuable upon conversion of the preferred shares. This redemption right expires upon completion of a Qualified Public Offering.

The conversion feature of the redeemable preferred stock is considered an embedded derivative under the provisions of SFAS No. 133, and accordingly, is accounted for separately from the preferred stock. On the date of issuance, the estimated fair value of the conversion feature was $1,670,277 which was recorded as a liability on the date of issue thus reducing the recorded value of the redeemable preferred stock to $11,329,723. At each balance sheet date, we adjust the carrying value of the embedded derivative to estimated fair value and recognize the change in such estimated value in our consolidated statements of income. The estimated fair value at December 31, 2004 was $5,527,777.

The Company also classifies the redeemable preferred stock as mezzanine equity on the consolidated balance sheet. As such, the Company accretes the carrying value of such stock to its redemption value using the effective interest method through the redemption period. Total accreted value at December 31, 2004 was $12,094,465.

Redeemable Common Stock—At any time subsequent to March 31, 2006, three of the Company’s common stockholders who are also executives of the Company may require the Company to repurchase up to 2,089,286 shares of common stock. The repurchase price will be the estimated market value of the common stock at the date of repurchase. Each of the stockholders may require a redemption one time only. This redeemable common stock is classified as mezzanine equity on the consolidated balance sheet and we record periodic accretions such that the recorded value is equal to the redemption value at each balance sheet date. This redemption right expires upon completion of a Qualified Public Offering. On the date of issuance on March 31, 2004, the estimated fair value of the redeemable common stock was $1,253,572 which was recorded as mezzanine equity. We accrete the carrying value of such stock to its redemption value for each reporting period. Total accreted value at December 31, 2004 was $4,408,394.

13.    SUBSEQUENT EVENTS

In August 2005, the Company executed an amendment to its loan and security agreement with Comerica Bank to increase the Company’s term loan facility from an aggregate of $12,000,000 to $32,000,000. The loan maturity date was extended to August 25, 2009. Various covenants were also amended.

In September 2005, the Company’s Board of Directors declared two special dividends. The first dividend was $13,000,000 or $0.44 per share for each share of common stock and preferred stock outstanding as of September 9, 2005, the record date. This dividend was distributed to the Company’s stockholders in September 2005 and was funded by a Comerica term loan facility. As a result, the outstanding balance of the term loan facility as of September 30, 2005 was approximately $23,900,000.

The second dividend will be in the amount of $7,000,000 or $0.24 per share for each share of common stock and preferred stock outstanding as of September 9, 2005, the record date. Payment of this dividend is planned to occur immediately prior to the Company’s registration statement on Form S-1 being declared effective by the Securities and Exchange Commission.

F-22

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

On September 30, 2005, the Company completed the purchase of American Teleradiology Nighthawks, Inc. (“ATN”), an unrelated party.

The total consideration to the stockholders of ATN consisted of:

· 394,090 shares of our common stock at the close of the acquisition.

· contingent consideration of additional shares of our common stock that may be issued based upon the revenues generated by the off-hours business during the twelve month period following the completion of the acquisition.

· contingent consideration of additional shares of our common stock that may be issued based upon the EBITDA generated by the hospital business during the period from month six to month eighteen following the completion of the acquisition.

The acquisition of ATN will result in the assets acquired and liabilities assumed being recorded based on their estimated fair values on the acquisition date. The results of operations of ATN will be included in the Company’s consolidated statements of operations following the date of acquisition.

F-23

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

AS OF JUNE 30, 2005

	June 30, 2005
Assets
Current assets:
Cash and cash equivalents	$	6,037,642
Trade accounts receivable, net		10,008,771
Prepaids and other current assets		1,106,448
Total current assets		17,152,861
Property and equipment, net		3,744,146
Goodwill		954,788
Intangible assets, net		868,751
Deferred income taxes		237,965
Other assets, net		129,750
Total	$	23,088,261
Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	3,699,843
Accrued payroll and related benefits		1,650,275
Deferred income taxes		40,060
Long-term debt, due within one year		3,000,000
Capital lease obligations, due within one year		3,542
Total current liabilities		8,393,720
Long-term debt		8,250,000
Fair value of redeemable preferred stock conversion feature		16,899,998
Capital lease obligations		14,553
Total liabilities		33,558,271
Commitments and contingencies
Redeemable common stock		7,981,073
Redeemable convertible preferred stock		12,615,518
Stockholders’ equity (deficit)
Common stock—40,000,000 shares authorized; $.001 par value; 19,403,571 shares issued and outstanding		19,404
Additional paid-in capital		6,184,411
Retained earnings (deficit)		(37,270,416	)
Total stockholders’ equity (deficit)		(31,066,601	)
Total	$	23,088,261

The accompanying notes are an integral part of the condensed consolidated financial statements.

F-24

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND JUNE 30, 2005

	Six Months Ended June 30,
	2004			2005
Service revenue	$	16,700,544		$	28,443,923
Operating costs and expenses:
Professional services (includes non-cash compensation expense of $513,589 and $241,388)		6,354,973			9,514,299
Sales, general, and administrative (includes non-cash compensation expense of $7,542 and $3,030,504)		4,954,669			11,600,118
Depreciation and amortization		188,032			552,142
Total operating costs and expenses		11,497,674			21,666,559
Operating income		5,202,870			6,777,364
Other income (expense):
Interest expense		(302,466	)		(461,424	)
Interest income		8,249			32,131
Other, net		(34,605	)		(47,495	)
Change in fair value of redeemable preferred stock conversion feature		(1,276,482	)		(11,372,221	)
Total other income (expense)		(1,605,304	)		(11,849,009	)
Income (loss) before income taxes		3,597,566			(5,071,645	)
Income tax expense		1,358,099			2,464,155
Net income (loss)		2,239,467			(7,535,800	)
Redeemable preferred stock accretion		(250,248	)		(521,053	)
Net income (loss) applicable to common stockholders	$	1,989,219		$	(8,056,853	)
Earnings (loss) per common share:
Basic	$	0.05		$	(0.37	)
Diluted	$	0.05		$	(0.37	)
Weighted averages of common shares outstanding:
Basic		39,473,501			21,492,857
Diluted		39,473,501			21,492,857

The accompanying notes are an integral part of the condensed consolidated financial statements.

F-25

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

	Six Months Ended June 30,
	2004			2005
Cash flows from operating activities:
Net income (loss)	$	2,239,467		$	(7,535,800	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		188,032			552,142
Change in fair value of redeemable preferred stock conversion feature		1,276,482			11,372,221
Non-cash stock compensation expense		521,131			3,271,891
Provision for doubtful accounts					17,566
Changes in operating assets and liabilities:
Accounts receivable		(1,990,393	)		(3,953,835	)
Prepaid expenses and other assets		(68,607	)		(866,657	)
Deferred income taxes		277,566			(352,085	)
Accounts payable and accrued expenses		2,457,515			525,969
Accrued payroll and related benefits		1,144,690			(193,904	)
Accrued interest payable					(248,219	)
Net cash provided by operating activities		6,045,883			2,589,289
Cash flows from investing activities:
Purchase of property and equipment		(996,441	)		(1,113,401	)
Payment of amount related to a 2004 business acquisition					(500,000	)
Net cash used in investing activities		(996,441	)		(1,613,401	)
Cash flows from financing activities:
Repayment of line of credit					(3,000,000	)
Proceeds from long term debt		12,000,000			12,000,000
Repayment of long term debt and notes					(9,750,000	)
Purchase of membership units		(24,700,000	)
Expenses related to recapitalization		(1,463,527	)
Proceeds from issuance of preferred stock		13,000,000
Distributions to members		(2,222,437	)
Repayment of capital lease					(2,107	)
Net cash used in financing activities		(3,385,964	)		(752,107	)
Net increase in cash and cash equivalents		1,663,478			223,781
Cash and cash equivalents—beginning of period		2,184,120			5,813,861
Cash and cash equivalents—end of period	$	3,847,598		$	6,037,642
Supplemental disclosures of cash flow information:
Cash paid for interest	$	303,466		$	710,260
Cash paid for income taxes				$	2,507,455
Non-cash investing and financing activities:
Common stock issued in recapitalization	$	18,804
Accretion of redeemable preferred stock	$	250,248		$	521,053
Accretion of redeemable common stock	$	671,030		$	3,572,679

The accompanying notes are an integral part of the condensed consolidated financial statements.

F-26

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

1.    THE COMPANY

Background—NightHawk Radiology Holdings, Inc. and subsidiaries, a Delaware corporation (the “Company” or “NightHawk”), is a provider of nighttime and weekend emergency radiology services to radiology groups and hospitals across the United States of America. The Company’s general offices are located in Coeur d’Alene, Idaho and its central and primary reading facility is in Sydney, Australia. A new facility was opened in late 2004 in Zurich, Switzerland where radiologists contracted with the Company to provide preliminary radiological interpretations. The Company’s functional currency is the U.S. dollar. The Company has a single reporting segment and reporting unit structure.

Recapitalization—Until March 2004, the Company operated as Nighthawk Radiology Services, LLC, an Idaho limited liability company (the “LLC”). The Company was recapitalized in March 2004 and NightHawk Radiology Holdings, Inc. was formed for the purpose of acquiring all of the outstanding units of the LLC and all of the outstanding shares of NRS Corporation, whose only assets were outstanding units of the LLC.

The significant aspects of the recapitalization were as follows:

· As of December 31, 2003, the LLC was authorized to issue up to 2,000 common membership units and 1,000 preferred membership units. As of December 31, 2003, total outstanding common and preferred membership units were 999 and 0 units, respectively.

· On January 2, 2004, the LLC redeemed 56 membership units owned by one member for $1,300,000 in cash.

· On March 31, 2004, the Company, the LLC and certain members of the LLC entered into a Securities Purchase and Contribution Agreement with an investment firm pursuant to which the Company sold debt and equity securities to raise capital to fund the purchase of LLC membership units held by a selling member of the LLC. The investment firm purchased securities of the new Company for $25,000,000, consisting of $12,000,000 of subordinated debt issued by the LLC and $13,000,000 of the Company’s Series A Redeemable Preferred Stock (8,125,000 shares).

· Proceeds were used as follows:

_° $23,400,000 to purchase 607.25 membership units owned by a selling member

_° $1,463,527 to fund recapitalization transaction expenses

_° $136,473 for general working capital purposes

As part of this recapitalization, certain LLC members who were also executive officers of the LLC exchanged their 335.75 membership units for 20,892,857 shares of common stock of the Company (which includes 2,089,286 shares of redeemable common stock as discussed in Note 7). As a result of the preceding transactions, the Company was capitalized with 8,125,000 shares of Series A preferred stock and 20,892,857 shares of common stock.

These transactions have collectively been accounted for as a recapitalization and no change in control of the Company occurred as a result of these transactions.

Through March 31, 2004, allocations of net profits and losses, calculated in accordance with the LLC agreement, were made in accordance with the members’ percentage interest. The Company made distributions to the members, in proportion to their percentage interests. Additionally, quarterly distributions were made to the members of the Company (based on their percentage interests) for their estimated federal and state income tax liabilities.

F-27

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

The accompanying financial statements include the presentation of consolidated financial statements of NightHawk Radiology Holdings, Inc. and subsidiaries since March 31, 2004 and the financial statements of Nighthawk Radiology Services, LLC for the periods prior to March 31, 2004. Both the Company and the LLC are collectively referred herein as the “Company.”

2.    BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted as permitted by such rules and regulations. The Company believes that the disclosures included herein are adequate; however, these condensed consolidated statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2004.

In the opinion of management, these unaudited condensed consolidated financial statements contain all of the adjustments necessary to present fairly the consolidated financial position of the Company at June 30, 2005 and the consolidated results of operations and cash flows for the periods ended June 30, 2004 and 2005. The results of operations for the periods presented may not be indicative of those which may be expected for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting period and the disclosures of contingent liabilities. Accordingly, ultimate results could differ materially from those estimates.

3.    ACQUISITION

In November 2004, the Company completed the purchase of DayHawk Radiology Services, LLC (“DayHawk”), an unrelated party.

The following pro forma information assumes the DayHawk acquisition occurred as of the beginning of 2004. The unaudited pro forma financial information summarizes the results of operations for the six months ended June 30, 2004. The pro forma results are not necessarily indicative of what would have occurred had the acquisition actually been made at the beginning of the respective periods presented or of future operations of the combined companies.

	2004
Service revenue	$	17,671,725
Net income	$	2,318,400
Net income applicable to common stockholders	$	2,068,152
Net income per weighted average share, basic and diluted	$	0.05

4.    LONG-TERM DEBT

On April 20, 2005, the Company entered into a primary credit facility with Comerica Bank (“Comerica”). The agreement provides $15,000,000 in senior secured credit facilities comprised of a $12,000,000 term loan and a $3,000,000 revolving credit loan. The $12,000,000 term loan was used to repay the $9,000,000 in long-term

F-28

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

debt outstanding at December 31, 2004 under promissory notes issued by the LLC and the $3,000,000 outstanding under a credit facility with Silicon Valley Bank. The entire facility with Comerica expires on April 20, 2009. Interest under the facility is computed based, at the Company’s option, on Comerica’s prime rate, or certain LIBOR rates, plus a margin. As of June 30, 2005, the total outstanding balance of the credit facility was $11,250,000. The Company paid a scheduled principal payment of $750,000 on June 29, 2005.

The credit agreement contains various restrictive financial covenants, which include a maximum total debt to EBITDA ratio, a minimum consolidated fixed charge coverage ratio and a minimum trailing twelve months of EBITDA at the end of each quarter as well as restrictions on capital expenditures.

See update in subsequent events (Note 11).

5.    EARNINGS (LOSS) PER COMMON SHARE

The following table presents a reconciliation of the numerators and denominators used in the basic and diluted earnings (loss) per common share computations:

	Six Months Ended June 30,
	2004		2005
Numerator:
Net income (loss) available in basic calculation	$	1,989,219	$	(8,056,853	)
Plus: Income impact of assumed conversions of preferred stock dividends				(a)
Net income (loss) available to common stockholders plus assumed conversions	$	1,989,219	$	(8,056,853	)
Denominator:
Weighted-average common shares-basic (b)		39,473,501		21,492,857
Effect of dilutive stock options				(c)
Effect of convertible preferred stock		(a)		(a)
Weighted average common shares outstanding-dilutive		39,473,501		21,492,857
Earnings (loss) per common share—basic and diluted	$	0.05	$	(0.37	)

(a) The income impact of assumed conversions of the preferred stock dividends and the effect of the convertible preferred stock in the denominator are anti-dilutive.

(b) The weighted-average common shares basic computations were based on assumed conversion of LLC units into common stock at the beginning of 2004 based on the conversion ratio from the recapitalization transaction (Note 1).

(c) The effects of the shares which would be issued upon exercise of these options have been excluded from the calculation of diluted earnings (loss) per common share because they are anti-dilutive.

6.    STOCK BASED COMPENSATION

On May 28, 2004, the Company issued 798,595 shares of restricted common stock to a person who subsequently became a non-employee member of the Company’s Board of Directors. These shares have been recorded in accordance with EITF No. 96-18. For the six-months ended June 30, 2004, the Company recognized

F-29

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

non-cash stock compensation expense of $7,542. On June 9, 2005, the Company’s Board of Directors accelerated vesting of these shares and, as a result, the Company recognized non-cash stock compensation expense of $2,926,255.

7.    INCOME TAXES

Income tax expense for the six months ended June 30, 2004 and 2005 was $1,358,099 and $2,464,155. The change in fair value of the redeemable preferred stock conversion feature is not deductible for income tax purposes, which results in the Company’s effective tax rate differing significantly from its statutory rate.

8.    STOCK OPTIONS

2004 Stock Plan—The 2004 Stock Plan (the “Plan”) was adopted by the Board of Directors and authorizes the grant or issuance of various options or other awards including a repurchase option. The Plan authorizes the grant of options to purchase 1,927,256 shares of common stock, subject to adjustment for stock splits, stock dividends and similar events. The shares may be authorized but unissued, or reacquired common stock. The Board of Directors administers the Plan and establishes to whom the awards are granted, and the terms and conditions, including the exercise period, of such awards.

The per share exercise price for the shares to be issued upon exercise of the options shall be such price as determined by the administrator, subject to the provisions of the Plan.

On February 9, 2005, the Company granted common stock options to certain employees covering 123,000 shares at an exercise price of $2.50 per share. For 104,000 of the options, one-third will vest on the one year anniversary of the vesting commencement date (which ranged from December 1, 2005 to February 9, 2005) and 1/36 of the shares vest each month thereafter; for 19,000 of the options, 33% will vest on an annual basis beginning on the one year anniversary of the date when shares of the Company’s common stock are first quoted on an approved foreign market recognized by the Australian Securities and Investment Commission.

On March 22, 2005, the following three stock option grants were made:

(1) common stock options to certain employees covering 70,000 shares at an exercise price of $2.90 per share. For 65,000 of the options, one-third will vest on the one year anniversary of the vesting commencement date (which ranged from February 17, 2005 to March 31, 2005) and 1/36 of the shares vest each month thereafter; for 5,000 of the options, 33% will vest on an annual basis beginning on the one year anniversary of the date when shares of the Company’s common stock are first quoted on an approved foreign market recognized by the Australian Securities and Investment Commission;

(2) common stock options to certain independent contractors for 19,834 shares at an exercise price of $2.90 per share. These options are earned based on hours performed and vest on the three year anniversary of the vesting commencement date (which range from October 27, 2004 to March 22, 2005); and

(3) common stock options to certain of the Company’s outside directors for 90,000 shares at an exercise price of $2.90 per share. One-third will vest on the one year anniversary of the vesting commencement dated (March 22, 2005) and 1/36 of the shares vest each month thereafter.

F-30

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

On May 11, 2005, the following two stock option grants were made:

(1) common stock options to certain employees covering 85,000 shares at an exercise price of $3.75 per share. For 70,000 of the options, one-third vest on the one year anniversary of the vesting commencement date (which range from October 27, 2004 to May 11, 2005) and 1/36 vest each month thereafter; for 15,000 of the options, 33% will vest on an annual basis beginning on the one year anniversary of the date when shares of the Company’s common stock are first quoted on an approved foreign market recognized by the Australian Securities and Investment Commission; and

(2) common stock options to certain independent contractors for 62,961 shares at an exercise price of $3.75 per share. These options are earned based on hours performed and vest on the three year anniversary of the vesting commencement date (which range from October 27, 2004 to January 1, 2006).

On June 9, 2005, the following two stock option grants were made:

(1) common stock options to certain independent contractors for 60,945 shares at an exercise price of $4.00 per share. These options are earned based on hours performed and vest on the three year anniversary of the vesting commencement date (which range from September 1, 2005 to December 1, 2005); and

(2) common stock options to certain employees for 56,000 shares at an exercise price of $4.00 per share. One-third vest on the one year anniversary of the vesting commencement date of June 9, 2005 and 1/36 of the shares vest each month thereafter.

9.    STOCKHOLDERS’ EQUITY

Preferred Stock—At June 30, 2005, the Company had authorized and issued 8,125,000 shares of Series A redeemable preferred stock with a par value of $0.001 per share. The holders of the preferred stock have the right but not the obligation to participate proportionately in certain types of future financings.

The conversion feature of the redeemable preferred stock is considered an embedded derivative under the provisions of SFAS No. 133, and accordingly, is accounted for separately from the preferred stock. At each balance sheet date, we will adjust the carrying value of the embedded derivative to estimated fair value and recognize the change in such estimated value in our consolidated statements of operations. The estimated fair value at June 30, 2005 was $16,899,998.

We also classify the redeemable preferred stock as mezzanine equity on the consolidated balance sheet. As such, we accrete the carrying value of such stock to its redemption value using the effective interest method through the redemption period. Total accreted value at June 30, 2005 was $12,615,518.

Redeemable Common Stock—At any time subsequent to March 31, 2006, three of our common stockholders who are also executives of the Company may require the Company to repurchase up to 2,089,286 shares of common stock. The repurchase price will be the estimated market value of the common stock at the date of repurchase. Each of the stockholders may require a redemption one time only. This redeemable common stock is classified as mezzanine equity on the consolidated balance sheet and we record periodic accretions such that the recorded value is equal to the redemption value at each balance sheet date. This redemption right expires upon completion of a Qualified Public Offering. We accrete the carrying value of such stock to its redemption value for each reporting period. Total accreted value at June 30, 2005 was $7,981,703.

F-31

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

10.    RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments. Upon adoption, the fair value of all employee stock option awards will be expensed in the Company’s statement of operations, typically, over the related vesting period of the options. SFAS No. 123(R) requires use of fair value to measure share-based awards issued to employees, computed at the date of grant. SFAS No. 123(R) will be effective beginning January 1, 2006. The Company has not yet completed its assessment and has not yet determined the effect of adopting SFAS No. 123(R).

In December 2004, the FASB issued SFAS No 153, Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29 and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005. The Company has not yet completed its assessment and has not yet determined the effect of adopting SFAS No. 153.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This Statement replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principles. This Statement applies to all voluntary changes in accounting principles. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. The provisions of SFAS No. 154 are effective for fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 in 2006 to have a material impact on its results of operations or financial position.

11.    SUBSEQUENT EVENTS

In August 2005, the Company executed an amendment to its loan and security agreement with Comerica Bank to increase the term loan facility from an aggregate of $12,000,000 to $32,000,000. The loan maturity date was extended to August 25, 2009. Various covenants were also amended.

In September 2005, the Company’s Board of Directors declared two special dividends. The first dividend was $13,000,000 or $0.44 per share for each share of common stock and preferred stock outstanding as of September 9, 2005, the record date. This dividend was distributed to the Company’s stockholders in September 2005 and was funded by the Comerica term loan facility. As a result, the outstanding balance of the term loan facility as of September 30, 2005 was approximately $23,900,000.

The second dividend will be in the amount of $7,000,000 or $0.24 per share for each share of common stock and preferred stock outstanding as of September 9, 2005, the record date. Payment of this dividend is planned to occur immediately prior to the Company’s registration statement on Form S-1 being declared effective by the Securities and Exchange Commission.

F-32

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005

In September 2005, the Company completed the purchase of American Teleradiology Nighthawks, Inc. (“ATN”), an unrelated party.

The total consideration to the stockholders of ATN consisted of:

· 394,090 shares of common stock at the close of the acquisition,

· contingent consideration of additional shares of common stock that may be issued based upon the revenues generated by the off-hours business during the twelve month period following completion of the acquisition, and

· contingent consideration of additional shares of common stock that may be issued based upon the EBITDA generated by the hospital business during the twelve month period ending eighteen months following completion of the acquisition.

The acquisition of ATN will result in the assets acquired and liabilities assumed being recorded based on their estimated fair values on the acquisition date. The results of operations of ATN will be included in the Company’s consolidated statements of operations following the date of the acquisition.

F-33

INDEPENDENT AUDITORS’ REPORT

To the Members

DayHawk Radiology Services, LLC

We have audited the accompanying Balance Sheet of DayHawk Radiology Services, LLC as of November 11, 2004, and the related Statements of Income, Member’s Equity, and Cash Flows for the period January 1, 2004 to November 11, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit of the financial statement provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DayHawk Radiology Services, LLC as of November 11, 2004, and the results of its operations and its cash flows for the period then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ WRIGHT, MOORE, DEHART,

DUPUIS & HUTCHINSON, L.L.C.

Lafayette, Louisiana

July 7, 2005

F-34

DAYHAWK RADIOLOGY SERVICES, LLC

BALANCE SHEET

NOVEMBER 11, 2004

ASSETS
Current assets
Cash	$	119,618
Accounts receivable		472,037
Other receivables		7,900
Prepaid insurance		552
Total current assets				$	600,107
Property and equipment
Furniture and Fixtures		13,855
Less: accumulated depreciation		(909	)
Net Property and Equipment					12,946
Other assets
Deposit		1,000
Organizational costs (net of accumulated amortization—$171)		575
Total other assets					1,575
Total assets				$	614,628
LIABILITIES AND MEMBER’S EQUITY
Current liabilities
Accounts payable	$	12,186
Accrued expenses
Employee leasing		47,458
Insurance		16,318
Radiologist fees		118,956
Other		43,102
Membership buyout payable		260,000
Total current liabilities				$	498,020
Member’s equity
Membership units (2,500 units issued, 2,000 units outstanding)		2,500
Treasury membership units (500 units at cost)		(290,000	)
Retained equity		404,108
Total member’s equity					116,608
Total liabilities and member’s equity				$	614,628

The accompanying notes are an integral part of this statement.

F-35

DAYHAWK RADIOLOGY SERVICES, LLC

STATEMENT OF INCOME

FOR THE PERIOD JANUARY 1, 2004 TO NOVEMBER 11, 2004

Revenues			$	2,126,713
Direct costs
Radiologist fees				621,677
Gross profit				1,505,036
Operating expense
Operating expenses—scheduled	$	1,011,224
Amortization		171
Depreciation		909
Total operating expenses				1,012,304
Income from operations				492,732
Other income
Interest income				5
Net income			$	492,737

The accompanying notes are an integral part of this statement.

F-36

DAYHAWK RADIOLOGY SERVICES, LLC

STATEMENT OF MEMBER’S EQUITY

FOR THE PERIOD JANUARY 1, 2004 TO NOVEMBER 11, 2004

	Membership Units		Treasury Membership Units			Retained Equity			Total
Beginning balance	$	2,500	$	—		$	(88,629	)	$	(86,129	)
Net income		—		—			492,737			492,737
Purchase of treasury membership units		—		(290,000	)		—			(290,000	)
Ending balance	$	2,500	$	(290,000	)	$	404,108		$	116,608

The accompanying notes are an integral part of this statement.

F-37

DAYHAWK RADIOLOGY SERVICES, LLC

STATEMENT OF CASH FLOWS

FOR THE PERIOD JANUARY 1, 2004 TO NOVEMBER 11, 2004

Cash flows from operating activities				$	492,737
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Amortization	$	171
Depreciation		909
Change in assets and liabilities:
Accounts receivable		(299,732	)
Other receivables		(7,900	)
Prepaid insurance		(153	)
Accounts payable		(17,768	)
Accrued expenses		(20,980	)
Total adjustments					(345,453	)
Net cash provided by operating activities					147,284
Cash flows from investing activities
Due from related entity		14,260
Purchase of property and equipment		(13,855	)
Net cash provided by investing activities					405
Cash flows from financing activities
Purchase of treasury membership units		(30,000	)
Net cash used in financing activities					(30,000	)
Net increase in cash					117,689
Cash at beginning of year					1,929
Cash at end of year				$	119,618

The accompanying notes are an integral part of this statement.

F-38

DAYHAWK RADIOLOGY SERVICES, LLC

NOTES TO FINANCIAL STATEMENTS

NOVEMBER 11, 2004

(A)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business—DayHawk Radiology Services, LLC (the Company) was incorporated in December 2002. The Company provides teleradiology services, contracting with various hospitals and radiology groups throughout the United States to provide radiological coverage.

Accounts Receivable—The Company generally does not require collateral, and the majority of its trade receivables are unsecured. The carrying amount for accounts receivable approximates fair value because of the short maturity of these instruments. At November 11, 2004, the Company had trade receivables of $472,037.

Basis of Accounting—Assets and liabilities, and revenues and expenses are recognized on the accrual basis of accounting.

Cash and Cash Equivalents—For the purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at November 11, 2004.

Property and Equipment—Property and Equipment are stated at cost. Expenditures for property and equipment which substantially increase the useful lives of existing assets are capitalized at cost and depreciated. Routine expenditures for repairs and maintenance are expensed as incurred.

Depreciation is provided on the straight-line method over the useful lives of the assets, which is generally seven years. Depreciation expense for the period ended November 11, 2004 was $909.

Organizational Costs—The Company has elected to capitalize and amortize organizational costs. Amortization is provided on the straight-line method over sixty months. This is a departure from generally accepted accounting principles but is not considered material to the financial statements taken as a whole.

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Taxes—The Company is a limited liability company taxed as a partnership in which all elements of income and deductions are included in the tax returns of the members of the Company. Therefore, no income tax provision is recorded by the Company.

Advertising—The cost of advertising is expensed as incurred. Advertising expense for the period ended November 11, 2004 was $823.

(B)    INTANGIBLE ASSETS

Intangible assets consist of organizational costs associated with organizing the L.L.C. and are being amortized over a sixty-month period. Amortization expense for the period ended November 11, 2004 was $171.

F-39

DAYHAWK RADIOLOGY SERVICES, LLC

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOVEMBER 11, 2004

(C)    RELATED PARTY TRANSACTIONS

During the period ended November 11, 2004, the Company paid radiologist fees to two related parties in the amount of $407,179 and had accrued radiologist fees payable to these related parties in the amount of $83,950 at November 11, 2004.

During the period ended 11/11/04, the Company purchased treasury membership units from several of its members. The purchases were partially financed using non-interest bearing demand notes. The balance payable under these notes at November 11, 2004 was $260,000.

(D)    OPERATING LEASE

In May 2003, the Company entered into a three-year non-cancelable lease with 500 Dover, LLC (the lessor) for a building, expiring May 2006. This lease was amended on February 12, 2004, now expiring February 28, 2007. Monthly rent is $2,251.88 for the period March 1, 2004 through February 28, 2007. Rent expense paid under this operating lease for the period ended November 11, 2004 was $23,328.

Under this lease agreement, the Company also pays $1,801.50 per month in additional rent to cover operating expenses. Within sixty days after the end of each calendar year, the lessor computes the Company’s proportionate share of the operating expenses for the calendar year. If the computed amount exceeds the amount paid during the year, the Company shall pay the amount of the excess to the lessor within 30 days. If the computed amount is less than the amount paid during the year, the lessor will issue a credit against the next monthly installment. Additional rent expense paid under this operating lease for the period ended November 11, 2004 was $16,332.

Future minimum lease payments are as follows:

November 11,
2004	$	4,053
2005		48,636
2006		48,636
2007		8,106
Total	$	109,431

(E)    MAJOR CUSTOMERS

During the period ended November 11, 2004, the Company had sales to one customer comprising ten percent (10%) or more of the Company’s revenues, as follows:

Sales Amounts	Percentage of Total Revenue	Percentage of Total Accounts Receivable
$1,179,021	55.44%	61.95%

(F)    COMPENSATED ABSENCES

Employees of the Company are entitled to paid vacation and paid sick days, depending on length of service. No unused vacation or sick leave is payable to an employee upon separation. The Company’s policy is to recognize the costs of compensated absences when actually paid to employees. Accordingly, no accruals have been made.

F-40

DAYHAWK RADIOLOGY SERVICES, LLC

NOTES TO FINANCIAL STATEMENTS—(Continued)

NOVEMBER 11, 2004

(G)    RISK MANAGEMENT

At times, during the normal course of business, the Company may be involved in various legal actions and claims. Management is of the opinion that the outcome of any such actions or claims would not have a significant effect on the Company’s financial position. The Company is insured to reduce the exposure of these risks.

(H)    CONCENTRATION OF CREDIT RISK

At November 11, 2004, the Company had cash balances in excess of the FDIC limits at one financial institution in the amount of $19,373.

(I)    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Non-cash Financing Activities:

During the period ended November 11, 2004, Treasury Membership Units were purchase resulting in an increase in Membership Buyout Payable of $260,000.

(J)    SUBSEQUENT EVENTS

Effective at the close of business on November 11, 2004, the Company’s sole member sold his entire interest in the Company to a third party.

F-41

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

DAYHAWK RADIOLOGY SERVICES, LLC

UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF INCOME OVERVIEW

The following unaudited pro forma condensed combined statement of income has been prepared to give effect to the acquisition of DayHawk Radiology Services, LLC (DayHawk) after giving effect to the pro forma adjustments described in the accompanying notes. The acquisition has been accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.

The unaudited pro forma statement of income combines the historical statements of income of NightHawk Radiology Holdings, Inc. and subsidiaries (NightHawk) and DayHawk for the year ended December 31, 2004 and gives effect to the acquisition, as if it had occurred on January 1, 2004. This pro forma information should be read in conjunction with the consolidated financial statements and related notes of NightHawk for the year ended December 31, 2004 and the financial statements and related notes of DayHawk for the period from January 1, 2004 through November 11, 2004, appearing elsewhere in this prospectus. Certain of DayHawk’s historical financial information has been reclassified to conform with NightHawk’s financial statement presentation.

Unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not indicative of the results of operations that would have actually been reported had the acquisition occurred at the beginning of the period presented, nor is it necessarily indicative of future results of operations. This unaudited pro forma combined statement of income is based upon the respective historical financial statements of NightHawk and DayHawk and does not incorporate, nor does it assume, any benefits from cost savings or synergies of the combined company.

F-42

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

DAYHAWK RADIOLOGY SERVICES, LLC

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2004

	NightHawk Radiology Holdings, Inc.			DayHawk Radiology Services, LLC (1/1/04 to 11/11/04)		Pro Forma Adjustments			Pro Forma Combined			Notes
Service revenue	$	39,283,002		$	2,126,713	$	—		$	41,409,715
Operating costs and expenses:
Professional services		15,049,399			621,677		—			15,671,076
Sales, general, and administrative		11,991,386			1,011,224		—			13,002,610
Depreciation and amortization		528,126			1,080		178,321			707,527		(1	)
Total operating costs and expenses		27,568,911			1,633,981		178,321			29,381,213
Operating income		11,714,091			492,732		(178,321	)		12,028,502
Other income (expense):
Interest income		40,835			5		—			40,840
Interest expense		(880,671	)		—		—			(880,671	)
Other, net		(28,953	)		—		—			(28,953	)
Change in fair value of redeemable preferred stock conversion feature		(3,857,500	)		—		—			(3,857,500	)
Total other income (expense)		(4,726,289	)		5		—			(4,726,284	)
Income before income taxes		6,987,802			492,737		(178,321	)		7,302,218
Income tax expense		3,662,563			—		80,401			3,742,964		(2	)
Net income		3,325,239			492,737		(258,722	)		3,559,254
Redeemable preferred stock accretion		(764,742	)		—		—			(764,742	)
Net income applicable to common stockholders	$	2,560,497		$	492,737	$	(258,722	)	$	2,794,512
Earnings per common share:
Basic	$	0.08							$	0.09
Diluted	$	0.08							$	0.09
Weighted averages of common shares outstanding:
Basic		30,245,546					539,344			30,784,890
Diluted		30,245,546					539,344			30,784,890

See accompanying notes to unaudited pro forma condensed combined statement of income

F-43

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

DAYHAWK RADIOLOGY SERVICES, LLC

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF INCOME

Note 1:    Purchase Price

The unaudited pro forma combined statement of income included herein has been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

Effective November 11, 2004, NightHawk completed the purchase of DayHawk, an unrelated party. The acquisition expanded the NightHawk’s presence in additional markets. DayHawk was acquired for $1,250,000 in cash ($750,000 paid in 2004 and $500,000 paid in 2005), 600,000 shares of common stock and the assumption of $498,481 in liabilities for total consideration of $2,612,481.

The acquisition of DayHawk resulted in the assets acquired and liabilities assumed being recorded based on their estimated fair values on the acquisition date. The results of operations of DayHawk have been included in the NightHawk’s consolidated statements of income and cash flows since the date of acquisition.

The following table presents the allocation of the purchase price to the acquired assets and liabilities:

Current assets	$	600,106
Furniture and fixtures		17,587
Intangible assets		1,040,000
Goodwill		954,788
Assets acquired		2,612,481
Current liabilities assumed		(498,481	)
Net assets acquired	$	2,114,000

The amount allocated to intangible assets was attributed to the following categories:

Customer lists and relationships	$	740,000
Tradename and trademarks		150,000
Customer contracts		100,000
Noncompete agreements		50,000
Net assets acquired	$	1,040,000

All intangible assets are amortized on a straight-line basis over their expected useful lives.

Note 2:    Pro Forma Adjustments

The following adjustments are reflected in the unaudited pro forma combined statement of income to reflect the estimated impact of the acquisition on the historical combined results of NightHawk and DayHawk as if it had occurred on January 1, 2004.

(1) Adjustment to increase amortization expense for intangible assets acquired.

(2) Adjustment to revise income tax expense utilizing NightHawk’s statutory rate of 39%.

F-44

INDEPENDENT AUDITORS’ REPORT

To the Stockholders of

American Teleradiology NightHawks, Inc.:

We have audited the accompanying balance sheets of American Teleradiology NightHawks, Inc. (the “Company”) as of December 31, 2004 and 2003 and the related statements of operations, stockholders’ equity and cash flows for the year ended December 31, 2004 and the period from May 8, 2003 (inception) to December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the year ended December 31, 2004 and the period from May 8, 2003 (inception) to December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Chicago, IL

August 16, 2005

F-45

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2004,

AND JUNE 30, 2005 (UNAUDITED)

	December 31,					June 30, 2005
	2003			2004
						(unaudited)
ASSETS
Current assets:
Cash	$	674		$	135,688	$	260,910
Accounts receivable		52,213			258,645		413,726
Deferred tax assets		6,115					2,528
Prepaid expenses		49,147			34,002		37,728
Other current assets					1,866		8,302
Total current assets		108,149			430,201		723,194
Property and equipment—net		7,363			60,189		179,473
Deferred tax assets		36,403
Total assets	$	151,915		$	490,390	$	902,667
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	5,486		$	53,656	$	73,485
Accrued payroll and related benefits		5,750			62,847		114,828
Income taxes payable							48,656
Deferred tax liabilities					45,183
Other current liabilities		1,306
Total current liabilities		12,542			161,686		236,969
Due to related party		129,227			155,926		156,132
Deferred tax liabilities					3,472		2,528
Total liabilities		141,769			321,084		395,629
Stockholders’ equity:
Common stock, $0.01 par value; authorized shares-1,000,000 in 2003 and 2004; issued and outstanding shares-50,000 in 2003 and 2004		500			500		500
Additional paid-in-capital		79,500			79,500		79,500
Retained earnings (deficit)		(69,854	)		89,306		427,038
Total equity		10,146			169,306		507,038
Total liabilities and equity	$	151,915		$	490,390	$	902,667

See notes to financial statements.

F-46

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

STATEMENTS OF OPERATIONS

FOR THE PERIOD FROM

MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR THE

SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

						Six Months Ended June 30,
	2003			2004		2004			2005
						(unaudited)
Service revenue	$	179,549		$	1,559,191	$	477,956		$	1,651,963
Operating costs and expenses:
Professional services		166,147			645,535		274,349			564,147
Sales, general and administrative		125,619			655,965		230,548			748,168
Depreciation and amortization		155			7,368		776			2,328
Total operating costs and expenses		291,921			1,308,868		505,673			1,314,643
Operating income (loss)		(112,372	)		250,323		(27,717	)		337,320
Interest income					10					412
Income before income taxes		(112,372	)		250,333		(27,717	)		337,732
Provision (benefit) for income taxes		(42,518	)		91,173		(10,429	)
Net income (loss)	$	(69,854	)	$	159,160	$	(17,288	)	$	337,732

See notes to financial statements.

F-47

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM

MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR THE

SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

	Common Stock			Additional Paid-in Capital		Retained Earnings (Deficit)			Stockholders’ Equity
	Number of Shares	Amount
Initial capitalization—May 8, 2003	50,000	$	500	$	79,500	$	—		$	80,000
Net loss							(69,854	)		(69,854	)
Balance—December 31, 2003	50,000		500		79,500		(69,854	)		10,146
Net income							159,160			159,160
Balance—December 31, 2004	50,000		500		79,500		89,306			169,306
Net income (unaudited)							337,732			337,732
Balance—June 30, 2005 (unaudited)	50,000	$	500	$	79,500	$	427,038		$	507,038

See notes to financial statements.

F-48

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

STATEMENTS OF CASH FLOWS

FOR THE PERIOD FROM

MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR THE

SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

							Six Months Ended June 30,
	2003			2004			2004			2005
							(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(69,854	)	$	159,160		$	(17,288	)	$	337,732
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		155			7,368			776			2,328
Deferred income taxes		(42,518	)		91,173			(10,428	)		(48,656	)
Changes in operating assets and liabilities:
Accounts receivable		(52,213	)		(206,432	)		(129,918	)		(155,081	)
Prepaids and other current assets		(47,841	)		11,973			38,800			(10,162	)
Accounts payable and accrued expenses		5,486			48,170			9,872			19,829
Accrued payroll and related expenses		5,750			57,097			21,042			51,981
Income tax payable											48,656
Net cash provided by (used in) operating activities		(201,035	)		168,509			(87,144	)		246,627
Cash flows from investing activities:
Purchase of property and equipment		(7,518	)		(60,194	)		(25,258	)		(121,611	)
Net cash used in investing activities		(7,518	)		(60,194	)		(25,258	)		(121,612	)
Cash flows from financing activities:
Due to related party		129,227			26,699			157,794			206
Proceeds from sale of common stock		80,000
Net cash provided by financing activities		209,227			26,699			157,794			206
Net change in cash		674			135,014			45,392			125,221
Cash—beginning of period					674			674			135,688
Cash—end of period	$	674		$	135,688		$	46,066		$	260,910
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	—		$	—		$	—		$	—
Taxes	$	—		$	—		$	—		$	—

See notes to financial statements.

F-49

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM

MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR

THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

1.     ORGANIZATION AND BUSINESS

Description of Business—American Teleradiology Nighthawks, Inc. (the “Company”) is a C-Corporation, incorporated in the state of Delaware on May 1, 2003. As of January 1, 2005, the Company elected a Subchapter S-corporation status. The Company operates in the health and medical industry providing radiological services and consulting to hospitals, doctor groups and other entities which utilize radiology as part of their operations. The Company utilizes its advanced, high-technology Global RIS system to deliver preliminary and full scan readings to its customer base through physicians located in various parts throughout the United States of America. The Company provides its services three hundred sixty-five days per year, twenty-four hours per day.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Information—The balance sheet as of June 30, 2005, the statement of stockholders’ equity for the six months ended June 30, 2005 and the statement of operations and cash flows for the six months ended June 30, 2004 and 2005 and the related footnotes are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information. However, certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, the unaudited statements included herein contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position, the cash flows, and the results of operations for the periods then ended.

The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for any subsequent period or for the full year.

Management’s Use of Estimates—The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash—The Company considers all short-term investments with original maturities of three months or less when acquired to be cash.

Accounts Receivable—Accounts receivable represent receivables for radiology services and are recorded at the invoiced amount and are non-interest bearing. The Company has a history of virtually no or minimal uncollectible receivables. Management reviews past due accounts receivable to identify specific customers with known disputes or collectibility issues.

Property, Equipment and Depreciation—Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of each asset, which ranges as follows:

Asset Class	Useful Lives
Machinery and equipment	5 years
Computer software	3 years

Maintenance and repair costs are charged to expense as incurred. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the records and any gain or loss is reflected in operating expenses.

F-50

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE PERIOD FROM MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR

THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

Software Development Costs—The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. During 2003 and 2004, the Company capitalized $0 and $15,000 of software development costs associated with the development of a new software-based product. In accordance with SFAS No. 86, the capitalized costs were incurred after the achievement of technological feasibility and were originally amortized over a 3-year period.

Long-Lived Assets—The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Management believes that no material impairment of long-lived assets exists as of December 1, 2003 and 2004.

Revenue Recognition and Presentation—Service revenue is recognized when all significant contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. Service revenue consists of fees for radiological interpretations and is recognized in the month when the radiological interpretation is complete and delivered to the customer.

Professional Services Expenses—Professional service expenses consist primarily of the fees paid to radiologists, the premiums paid for medical liability insurance and any medical liability claims loss expenses. Professional services expenses are recognized in the month in which the services are performed or in the month the expense is incurred.

Sales, General and Administrative Expenses—Selling, general and administrative expenses consist primarily of salaries and related expenses for all employees and non-physician contractors, information technology and telecommunications expenses, costs associated with licensing and privileging radiologists, facilities and office-related expenses, sales and marketing expenses and other general and administrative expenses.

3.    TRANSACTIONS WITH RELATED PARTIES

The Company’s Chairman has direct investment and relations with, and is a member of, various radiology groups. Additionally, the Company’s Chairman also owns a 50% direct investment in an information technology company which serves as a vendor for the Company of which the Company paid $11,630 and $72,806 during 2003 and 2004, respectively and $17,376 (unaudited) and $81,378 (unaudited) for the six months ended June 30, 2004 and 2005, respectively. This same information technology company also provides an individual to act in the capacity of the Chief Technology Officer for the Company, initially at a rate of $2,500 per month from April 2004 through November 2004 and then beginning in December 2004 was paid $6,000 per month.

The brother of the Chairman also provides radiology reading services to the Company on an as needed basis as an outside contractor and was paid $0 and $42,000 in 2003 and 2004, respectively and $0 (unaudited) and $120,345 (unaudited) for the six months ended June 30, 2004 and 2005, respectively.

The Company owes the Chairman, who also provides services as the chief radiologist, $129,227 and $124,021 as of December 31, 2003 and 2004, respectively, and $124,227 as of June 30, 2005 for salaries and

F-51

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE PERIOD FROM MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR

THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

other various business reimbursements. Additionally, the Chairman made a loan to the Company on December 31, 2004 for $31,905. These amounts are in the due to related party in the accompanying balance sheets and are considered long-term as they will not be repaid until 2007.

4.    PROPERTY AND EQUIPMENT

The table below sets forth a summary of property and equipment, at cost:

	December 31,						June 30, 2005
	2003			2004
							(unaudited)
Machinery and equipment	$	3,518		$	37,229		$	141,855
Computer software					30,483			36,373
		3,518			67,712			178,228
Less accumulated depreciation		(155	)		(7,523	)		(9,851	)
		3,363			60,189			168,377
Construction in progress		4,000						11,096
Net property and equipment	$	7,363		$	60,189		$	179,473

5.    DEBT

The Company has a $10,000 revolving line of credit agreement with a bank, which expires on November 14, 2006. Interest is payable monthly at a rate prime plus 600 basis points which was 11.25% at December 31, 2004. At December 31, 2003 and 2004, there were no amounts outstanding on this line of credit.

6.    INCOME TAXES

Effective January 1, 2005, the Company elected to change its tax status from C-corporation to S-corporation for federal income tax purposes. As result of this change the Company will no longer have an entity level tax liability, but may be required to pay tax on any built-in gain items of the Company as of the effective date of the S-corporation election. The Company may be liable for built-in gain taxes for a period often years after the date of the S-election. The deferred tax assets and liabilities of the Company at December 31, 2004 have been valued to consider any potential built-in gain tax liability.

In accordance with SFAS No. 109, Accounting for Income Taxes, the Company provides deferred income taxes to reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The (benefit) provision for income taxes consists of the following for the periods ended:

	Year Ended December 31,					Six Months Ended June 30,
	2003			2004		2004			2005
						(unaudited)
Current	$	—		$	—	$	—		$	48,656
Deferred		(42,518	)		91,173		(10,429	)		(48,656	)
Total	$	(42,518	)	$	91,173	$	(10,429	)	$	—

F-52

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE PERIOD FROM MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR

THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

Deferred tax assets and liabilities recognized were as follows:

	December 31,						June 30, 2005
	2003			2004
							(unaudited)
Current deferred tax assets (liabilities):
Accounts receivable	$	(19,820	)	$	(90,526	)	$	—
Other current assets		2,373
Prepaid insurance		(18,656	)		(11,900	)		(1,304	)
Accrued expenses		865			(19,362	)
Accounts payable		1,217			16,792
Due to related party		39,955			37,817			3,832
Payroll expenses		181			21,996
Total current deferred tax assets (liabilities)	$	6,115		$	(45,183	)	$	2,528
Noncurrent deferred tax assets (liabilities):
Property and equipment	$	(393	)	$	(5,055	)	$	(2,528	)
Deferred state taxes		3,839
Net operating loss		32,957			1,583
Total noncurrent deferred tax assets (liabilities)	$	36,403		$	(3,472	)	$	(2,528	)

The federal statutory rate is reconciled to the effective tax rate as follows:

	Year Ended December 31,				Six Months Ended June 30,
	2003		2004		2004		2005
					(unaudited)
Federal statutory rate	34.0	%	34.0	%	34.0	%	35.0	%
State income taxes-net of federal tax impact	4.0		4.0		4.0
Other-net	(0.2	)	(1.6	)
Effective tax rate	37.8	%	36.4	%	38.0	%	35.0	%

As of December 31, 2004, the Company has approximately $4,200 of federal net operating loss carryforwards. Though the Company is now an S corporation for federal income tax purposes, the net carryforward as of December 31, 2004 has been deemed realizable by the Company and, as such, a no valuation reserve has been recorded against this net carryforward. The federal net operating loss can be utilized in a future year to minimize any built-in gain tax liabilities.

7.    COMMITMENTS AND CONTINGENCIES

Legal Matters—There are no outstanding or pending litigations involving the Company as of December 31, 2003 and 2004.

Rental Obligations—The Company leases certain information technology equipment and services. Rents charged to operating expenses in the accompanying statements of operations amounted to $11,428 and $19,765 in 2003 and 2004, respectively. These amounts include rents under long-term leases.

F-53

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

FOR THE PERIOD FROM MAY 8, 2003 (INCEPTION) TO DECEMBER 31, 2003,

THE YEAR ENDED DECEMBER 31, 2004 AND FOR

THE SIX MONTHS ENDED JUNE 30, 2004 AND 2005 (UNAUDITED)

The noncancelable long-term rental obligations as of December 31, 2004 are due as follows:

2005	$	19,765
2006		9,882
Total minimum lease payments	$	29,647

8.    SUBSEQUENT EVENTS

On July 7, 2005, the Company obtained a $350,000 unsecured line of credit from FNB-Salem Bank & Trust for the purchase of fixed assets. The line expires on July 7, 2015, and has an interest rate equal to the prime rate. Currently, the prime rate is at 6.25%. As of August 16, 2005 approximately $100,000 of the line has been utilized.

On September 30, 2005 the Company was acquired by NightHawk Radiology Holdings, Inc. (“NightHawk”), an unrelated party. The total consideration to the stockholders of the Company consists of:

· 394,090 shares of NightHawk common stock issued at the close of the acquisition;

· Contingent consideration of additional NightHawk common stock that may be issued based upon revenues generated by the Company’s off-hours business during the twelve month period following completion of the acquisition;

· Contingent consideration of additional NightHawk common stock that may be issued based upon the EBITDA generated by the Company’s hospital business during the twelve month period ending eighteen months following completion of the acquisition.

F-54

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION OVERVIEW

The following unaudited pro forma condensed combined balance sheet and statements of operations have been prepared to give effect to the acquisition of American Teleradiology Nighthawks, Inc. (ATN) after giving effect to the pro forma adjustments described in the accompanying notes. The acquisition has been accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations.

The unaudited pro forma balance sheet and statements of operations combine the historical financial statements of NightHawk Radiology Holdings, Inc. (NightHawk) and ATN for the year ended December 31, 2004 and the six months ended June 30, 2005 and gives effect to the acquisition, as if it had occurred on January 1, 2004. This pro forma information should be read in conjunction with the consolidated financial statements and related notes of NightHawk for the year ended December 31, 2004 and the six months ended June 30, 2005, and the financial statements and related notes of ATN for the year ended December 31, 2004 and the six months ended June 30, 2005 appearing elsewhere in this prospectus.

Unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not indicative of the results of operations that would have actually been reported had the acquisition occurred at the beginning of the period presented, nor is it necessarily indicative of future results of operations. This unaudited pro forma combined balance sheet and statements of operations are based upon the respective historical financial statements of NightHawk and ATN and does not incorporate, nor does it assume, any benefits from cost savings or synergies of the combined company.

F-55

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2005

	NightHawk Radiology Holdings, Inc.			American Teleradiology Nighthawks, Inc.		Pro Forma Adjustments			Pro Forma Combined			Notes
ASSETS
Current assets:
Cash and cash equivalents	$	6,037,642		$	260,910	$			$	6,298,552
Trade accounts receivable, net		10,008,771			413,726					10,422,497
Prepaids and other current assets		1,106,448			48,558					1,155,006
Total current assets		17,152,861			723,194					17,876,055
Property and equipment, net		3,744,146			179,473					3,923,619
Goodwill		954,788					7,053,762			8,008,550		(1	)(2)
Intangible assets, net		868,751					3,005,769			3,874,520		(1	)
Deferred income taxes		237,965								237,965
Other assets, net		129,750								129,750
Total	$	23,088,261		$	902,667	$	10,059,531		$	34,050,459
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	3,699,843		$	73,485	$	138,222		$	3,911,550		(4	)
Accrued payroll and related benefits		1,650,275			163,484				$	1,813,759
Deferred income taxes		40,060							$	40,060
Long-term debt, due within one year		3,000,000							$	3,000,000
Capital lease obligations, due within one year		3,542								3,542
Total current liabilities		8,393,720			236,969		138,222			8,768,911
Long-term debt		8,250,000								8,250,000
Due to related party					156,132					156,132
Fair value of redeemable preferred stock conversion feature		16,899,998								16,899,998
Deferred income taxes					2,528		1,172,893			1,175,421		(2	)
Capital lease obligations		14,553								14,553
Total liabilities		33,558,271			395,629		1,311,115			35,265,015
Commitments and contingencies
Redeemable common stock		7,981,073								7,981,073
Convertible redeemable preferred stock		12,615,518								12,615,518
Stockholders’ equity (deficit):
Common stock—40,000,000 shares authorized; $.001 par value; 19,403,571 shares issued and outstanding at June 30, 2004; pro forma 20,388,793 issued and outstanding		19,404			500		485			20,389		(5	)
Additional paid-in capital		6,184,411			79,500		9,919,515			16,183,426		(5	)
Retained earnings (deficit)		(37,270,416	)		427,038		(1,171,584	)		(38,014,962	)
Total stockholders’ equity (deficit)		(31,066,601	)		507,038		8,748,416			(21,811,147	)
Total	$	23,088,261		$	902,667	$	10,059,531		$	34,050,459

See accompanying notes to the unaudited pro forma condensed combined financial information.

F-56

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2004

	NightHawk Radiology Holdings, Inc. 2004			American Teleradiology Nighthawks, Inc. 2004		Pro Forma Adjustments			Pro Forma Combined			Notes
Service revenue	$	39,283,002		$	1,559,191	$	—		$	40,842,193
Operating costs and expenses:
Professional services		15,049,399			645,535		—			15,694,934
Sales, general, and administrative		11,991,386			655,965		—			12,647,351
Depreciation and amortization		528,126			7,368		791,026			1,326,520		(3	)
Total operating costs and expenses		27,568,911			1,308,868		791,026			29,668,805
Operating income		11,714,091			250,323		(791,026	)		11,173,388
Other income (expense):
Interest expense		(880,671	)		—		—			(880,671	)
Interest income		40,835			10		—			40,845
Other, net		(28,953	)		—		—			(28,953	)
Change in fair value of redeemable preferred stock conversion feature		(3,857,500	)		—		—			(3,857,500	)
Total other income (expense)		(4,726,289	)		10		—			(4,726,279	)
Income before income taxes		6,987,802			250,333		(791,026	)		6,447,109
Income tax expense		3,662,563			91,173		(302,151	)		3,451,585		(4	)
Net income		3,325,239			159,160		(488,875	)		2,995,524
Preferred stock accretion		(764,742	)		—		—			(764,742	)
Income applicable to common stockholders	$	2,560,497		$	159,160	$	(488,875	)	$	2,230,782
Earnings per common share:
Basic	$	0.08							$	0.07
Diluted	$	0.08							$	0.07
Weighted average of common shares outstanding:
Basic		30,245,546					985,222			31,230,768
Diluted		30,245,546					985,222			31,230,768

See accompanying notes to unaudited pro forma condensed combined financial information.

F-57

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2005

	NightHawk Radiology Holdings, Inc.			American Teleradiology Nighthawks, Inc.		Pro Forma Adjustments			Pro Forma Combined			Notes
Service revenue	$	28,443,923		$	1,651,963	$	—		$	30,095,886
Operating costs and expenses:
Professional services		9,514,299			564,147		—			10,078,446
Sales, general, and administrative		11,600,118			748,168		—			12,348,286
Depreciation and amortization		552,142			2,328		203,205			757,675		(3	)
Total operating costs and expenses		21,666,559			1,314,643		203,205			23,184,407
Operating income		6,777,364			337,320		(203,205	)		6,911,479
Other income (expense):
Interest expense		(461,424	)				—			(461,424	)
Interest income		32,131			412		—			32,543
Other, net		(47,495	)		—		—			(47,495	)
Change in fair value of redeemable preferred stock conversion feature		(11,372,221	)		—		—			(11,372,221	)
Total other income (expense)		(11,849,009	)		412		—			(11,848,597	)
Income (loss) before income taxes		(5,071,645	)		337,732		(203,205	)		(4,937,118	)
Income tax expense		2,464,155			—		52,466			2,516,621		(4	)
Net income (loss)		(7,535,800	)		337,732		(255,671	)		(7,453,739	)
Preferred stock accretion		(521,053	)		—		—			(521,053	)
Income (loss) applicable to common stockholders	$	(8,056,853	)	$	337,732	$	(255,671	)	$	(7,974,792	)
Earnings (loss) per common share:
Basic	$	(0.37	)						$	(0.35	)
Diluted	$	(0.37	)						$	(0.35	)
Weighted average of common shares outstanding:
Basic		21,492,857					985,222			22,478,079
Diluted		21,492,857					982,222			22,478,079

See accompanying notes to the unaudited pro forma condensed combined financial information.

F-58

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

Note 1:    Purchase Price

The unaudited pro forma combined balance sheet as of June 30, 2005 and statements of operations for the year ended December 31, 2004 and for the six months ended June 30, 2005 included herein has been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.

On September 30, 2005, the Company acquired American Teleradiology NightHawks, Inc., or ATN. The consideration to the ATN stockholders in connection with the acquisition is based primarily upon the financial performances of ATN’s off-hours teleradiology business and ATN’s hospital business. The Company’s preliminary estimate of total consideration to be paid in connection with the acquisition, after consideration and projections of ATN’s off-hours teleradiology business and hospital business during the earn-out periods, is $10 million. This amount, if earned, will be satisfied entirely through the issuance of shares of the Company’s common stock.

This preliminary estimate is based on the Company’s forecast of a number of factors including, but not limited to, (1) the financial performance and revenue generated by ATN’s off-hours teleradiology business, (2) the financial performance and earnings before interest, taxes, depreciation and amortization generated by ATN’s hospital business, and (3) an estimate of the future fair market value of the Company’s common stock.

Specifically, the consideration to the stockholders of ATN consists of:

· 394,090 shares of Company common stock at the close of the acquisition;

· contingent consideration of additional shares of Company common stock that may be issued based upon the revenues generated by the off-hours business during the 12 month period following the completion of the acquisition; and

· contingent consideration of additional shares of Company common stock that may be issued based upon the EBITDA generated by the hospital business during the period from month six to month eighteen following the completion of the acquisition.

The operations of ATN have not yet been integrated into the Company’s operations. The Company intends to integrate the operations of ATN into its operations over the six month period following the closing of the acquisition.

The acquisition of ATN will result in the assets acquired and liabilities assumed being recorded based on their estimated fair values on the acquisition date. The results of operations of ATN will be included in the Company’s consolidated statements of income and cash flows following the date of the acquisition.

F-59

NIGHTHAWK RADIOLOGY HOLDINGS, INC. AND

AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION—(Continued)

The following table presents the estimated allocation of the purchase price to the acquired assets and liabilities. This allocation is preliminary and based on management’s estimate. The Company has engaged the services of an independent valuation specialist to assist in this process. Based on the results of this formal valuation, the actual purchase allocation may be materially different from the preliminary estimates.

Current assets	$	723,194
Furniture and equipment		179,473
Intangible assets		4,000,000
Goodwill		7,053,762
Current liabilities assumed		(395,629	)
Deferred tax liability		(1,560,800	)
Net assets acquired	$	10,000,000

The estimated amount allocated to intangible assets was attributed to the following categories:

Customer lists and relationships	$	2,846,154
Tradename and trademarks		576,923
Customer contracts		384,615
Noncompete agreements		192,308
	$	4,000,000

All intangible assets are amortized on a straight-line basis over their expected useful lives.

Note 2:    Unaudited Pro Forma Adjustments

The following adjustments are reflected in the unaudited pro forma condensed combined financial statements to reflect the estimated pro forma impact of the acquisition on the historical combined financial position and operating results of NightHawk and ATN assuming the acquisition had occurred on January 1, 2004.

(1) Preliminary estimate to record the purchase of intangible assets and goodwill associated with the acquisition of ATN.

(2) Record deferred tax liabilities for the preliminary estimate of of basis differences related to intangible assets; as well as the change in deferred tax liabilities for the reversal of a portion of these differences for the period January 1, 2004-June 30, 2005.

(3) Record amortization expense for intangible assets associated with the acquisition.

(4) Record income tax expense for ATN’s income utilizing Nighthawk’s statutory tax rate of 39% for 2004 and 39% for the six months ended June 30, 2005 along with the tax effect of the pro forma adjustment for the additional amortization expense. This pro forma adjustment reflects ATN as a subchapter C corporation for 2004.

(5) The preliminary estimated acquisition value of ATN is $10 million.

F-60

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution

The following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.

SEC registration fee	$	10,152
NASD filing fee		9,125
Nasdaq National Market listing fee		*
Printing and engraving		*
Legal fees and expenses		*
Accounting fees and expenses		*
Blue sky fees and expenses (including legal fees)		*
Transfer agent and registrar fees		*
Miscellaneous		*
Total	$	*

* To be completed by amendment

Item 14.    Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law, the registrant’s certificate of incorporation includes provisions that eliminate the personal liability of its directors and officers for monetary damages for a breach of their fiduciary duty as directors and officers.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, the bylaws of the registrant provide that:

· The registrant shall indemnify its directors and officers for serving the registrant in those capacities or for serving other business enterprises at the registrant’s request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

· The registrant may, in its discretion, indemnify employees and agents in those circumstances in which indemnification is not required by law.

· The registrant is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

· The registrant will not be obligated pursuant to the bylaws to indemnify a person with respect to proceedings initiated by that person, except with respect to proceedings authorized by the registrant’s board of directors or brought to enforce a right to indemnification.

· The rights conferred in the bylaws are not exclusive, and the registrant is authorized to enter into indemnification agreements with its directors, officers, employees and agents and to obtain insurance to indemnify such persons.

II-1

· The registrant may not retroactively amend the bylaw provisions to reduce its indemnification obligations to directors, officers, employees and agents.

The registrant’s policy is to enter into separate indemnification agreements with each of its directors and officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and also provides for certain additional procedural protections. The registrant also maintains insurance to insure directors and officers against certain liabilities.

These indemnification provisions and the indemnification agreements entered into between the registrant and its officers and directors may be sufficiently broad to permit indemnification of the registrant’s officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities arising under the Securities Act and otherwise.

Item 15.    Recent Sales of Unregistered Securities

Since our inception in March 2004, we have issued unregistered securities to a limited number of persons as described below.

1. In March 2004, we issued 20,892,857 shares of common stock to three accredited investors. The consideration for each transaction was the surrender to us of all management units owned and held by each investor in Nighthawk Radiology Services, LLC. These transactions were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) and Regulation D based on the status of each of the investors as accredited under Rule 501.

2. In March 2004, we issued 8,125,000 shares of redeemable preferred stock for $1.60 per share and $12 million in subordinated promissory notes to six accredited investors. These transactions were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) and Regulation D based on the status of each of the investors as accredited under Rule 501.

3. In June 2004, in connection with consulting services, we issued 798,595 shares of common stock to an accredited investor. This transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) and Regulation D based on the status of the investor as accredited under Rule 501.

4. In November 2004, in connection with consulting services, we issued 1,259,375 shares of common stock to an accredited investor. This transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) and Regulation D based on the status of the investor as accredited under Rule 501.

5. In November 2004, we issued 600,000 shares of our common stock to an accredited investor. The consideration for this transaction was the surrender to us of all the membership units owned and held by the investor in DayHawk Radiology Services, LLC. This transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) and Regulation D based on the status of the investor as accredited under Rule 501.

6. In September 2005, in connection with our acquisition of American Teleradiology Nighthawks, Inc, we issued 394,090 shares of our common stock to twenty-one investors in exchange for all of the outstanding shares of common stock of American Teleradiology NightHawks, Inc. This transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) and Regulation D.

7. Since our inception, we have issued an aggregate 2,027,658 options to purchase our common stock to employees, directors, and consultants with exercise prices ranging from $1.25 to $7.00 per share. These transactions were exempt from the registration requirements of the Securities Act by virtue of Rule 701.

II-2

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes each transaction was exempt from the registration requirements of the Securities Act as stated above. The recipients of securities in such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients either received adequate information about the registrant or had access, through their relationships with the registrant, to such information.

Item 16.    Exhibits and Financial Statement Schedules

(a) Exhibits.    The following exhibits are included herein or incorporated herein by reference:

Exhibit Number	Description
1.1*	Form of Underwriting Agreement.
3.1	Form of Amended and Restated Certificate of Incorporation of the registrant, to be in effect upon the completion of this offering.
3.2	Form of Amended and Restated Bylaws of the registrant, to be in effect upon the completion of this offering.
4.1*	Form of registrant’s common stock certificate.
4.2	Registration Agreement, dated March 31, 2004, between the registrant and certain holders of the registrant’s common stock named therein.
5.1*	Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1	Form of Indemnification Agreement to be entered into between the registrant and its directors and officers.
10.2	2004 Stock Plan.
10.3	Form of Stock Option Agreement under the 2004 Stock Plan.
10.4	2005 Equity Incentive Plan, to be in effect upon the completion of this offering.
10.5	Form of Stock Option Agreement under the 2005 Equity Incentive Plan.
10.6	Employment Agreement, dated March 30, 2004, between the registrant and Paul E. Berger, M.D.
10.7	Offer Letter with Christopher R. Huber, dated March 31, 2004.
10.8	Offer Letter with Jon D. Berger, dated March 31, 2004.
10.9	Professional Services Agreement, dated February 1, 2004, between Nighthawk Radiology Services, LLC and Paul E. Berger, M.D.
10.10	Consulting Agreement, dated June 9, 2004, between the registrant and William G. Bradley, M.D.
10.11**	Loan and Security Agreement, dated April 20, 2005, among the registrant, Nighthawk Radiology Services, LLC, NRS Corporation and Comerica Bank.
10.12	First Amendment and Waiver to Loan and Security Agreement, dated August 25, 2005, among the registrant, Nighthawk Radiology Services, LLC, NRS Corporation and Comerica Bank.
10.13	Lease Agreement, dated May 1, 2005, between Nighthawk Radiology Services, LLC and Global Finance & Investment Co., Inc. for property in Coeur d’Alene, Idaho.
10.14	Lease Agreement, dated August 11, 2004, among the registrant, Stanley D. Moore and Judith K. Moore for property in Coeur d’Alene, Idaho.
10.15	Sublease Agreement, dated October 14, 2003, among Nighthawk Radiology Services, LLC, Commonwealth Funds Management Limited and BT Funds Management Limited for property in Sydney, Australia.

II-3

Exhibit Number	Description
10.16	Sublease Agreement, dated October 1, 2004, among Nighthawk Radiology Services, LLC, Commonwealth Custodial Services Limited, Commonwealth Funds Management Limited and Investa Properties Limited for property in Sydney, Australia.
10.17	Lease Agreement, dated September 1, 2004, between NightHawk Radiology AG and PSP Real Estate for property in Zurich, Switzerland.
10.18	Lease Agreement, dated February 25, 2004, between Nighthawk Radiology Services, LLC and Demco Wisconsin 5 for property in Milwaukee, Wisconsin.
10.19	Agreement and Plan of Merger and Reorganization, dated September 30, 2005, among the registrant, ATN Merger Sub, Inc. and American Teleradiology Nighthawks, Inc.
21.1	Subsidiaries of the registrant.
23.1	Consent of Deloitte & Touche LLP.
23.2	Consent of Magnuson, McHugh & Company, P.A.
23.3	Consent of Wright, Moore, DeHart, Dupuis & Hutchinson, L.L.C.
23.4	Consent of Deloitte & Touche LLP.
23.5*	Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1).
24.1	Power of Attorney (see page II-5 to this Form S-1).

* To be filed by amendment.

** Registrant has omitted portions of the referenced exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 promulgated under the Securities Act of 1933.

Item 17.    Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Coeur d’Alene, State of Idaho, on this 4th day of October, 2005.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:	/s/    PAUL E. BERGER, M.D.
	Paul E. Berger, M.D.
	President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Paul E. Berger, M.D., Christopher R. Huber and Paul E. Cartee, and each of them, as his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/    PAUL E. BERGER, M.D.         Paul E. Berger, M.D.	President, Chief Executive Officer and Director (Principal Executive Officer)	October 4, 2005
/s/    CHRISTOPHER R. HUBER         Christopher R. Huber	Chief Financial Officer, Vice President of Operations and Director (Principal Financial Officer)	October 4, 2005
/s/    JON D. BERGER         Jon D. Berger	Vice President, Sales, Marketing and Business Development and Director	October 4, 2005
/s/    DAVID J. BROPHY, PH.D.         David J. Brophy, Ph.D.	Director	October 4, 2005
/s/    PETER Y. CHUNG         Peter Y. Chung	Director	October 4, 2005
/s/    TIMOTHY M. MAYLEBEN         Timothy M. Mayleben	Director	October 4, 2005
/s/    WILLIAM G. BRADLEY, M.D., PH.D.     William G. Bradley, M.D., Ph.D.	Director	October 4, 2005
/s/    PETER P. HAUSBACK     Peter P. Hausback	Vice President and Chief Accounting Officer (Principal Accounting Officer)	October 4, 2005

II-5

EXHIBIT INDEX

Exhibit Number	Description
1.1*	Form of Underwriting Agreement.
3.1	Form of Amended and Restated Certificate of Incorporation of the registrant, to be in effect upon the completion of this offering.
3.2	Form of Amended and Restated Bylaws of the registrant, to be in effect upon the completion of this offering.
4.1*	Form of registrant’s common stock certificate.
4.2	Registration Agreement, dated March 31, 2004, between the registrant and certain holders of the registrant’s common stock as named therein.
5.1*	Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1	Form of Indemnification Agreement to be entered into between the registrant and its directors and officers.
10.2	2004 Stock Plan.
10.3	Form of Stock Option Agreement under the 2004 Stock Plan.
10.4	2005 Equity Incentive Plan, to be in effect upon the completion of this offering.
10.5	Form of Stock Option Agreement under the 2005 Equity Incentive Plan.
10.6	Employment Agreement, dated March 30, 2004, between the registrant and Paul E. Berger, M.D.
10.7	Offer Letter with Christopher R. Huber, dated March 31, 2004.
10.8	Offer Letter with Jon D. Berger, dated March 31, 2004.
10.9	Professional Services Agreement, dated February 1, 2004, between Nighthawk Radiology Services, LLC and Paul E. Berger, M.D.
10.10	Consulting Agreement, dated June 9, 2004, between the registrant and William G. Bradley, M.D.
10.11**	Loan and Security Agreement, dated April 20, 2005, among the registrant, Nighthawk Radiology Services, LLC, NRS Corporation and Comerica Bank.
10.12	First Amendment and Waiver to Loan and Security Agreement, dated August 25, 2005, among the registrant, Nighthawk Radiology Services, LLC, NRS Corporation and Comerica Bank.
10.13	Lease Agreement, dated May 1, 2005, between Nighthawk Radiology Services, LLC and Global Finance & Investment Co., Inc. for property in Coeur d’Alene, Idaho.
10.14	Lease Agreement, dated August 11, 2004, among the registrant, Stanley D. Moore and Judith K. Moore for property in Coeur d’Alene, Idaho.
10.15	Sublease Agreement, dated October 14, 2003, among Nighthawk Radiology Services, LLC, Commonwealth Funds Management Limited and BT Funds Management Limited for property in Sydney, Australia.
10.16	Sublease Agreement, dated October 1, 2004, among Nighthawk Radiology Services, LLC, Commonwealth Custodial Services Limited, Commonwealth Funds Management Limited and Investa Properties Limited for property in Sydney, Australia.
10.17	Lease Agreement, dated September 1, 2004, between NightHawk Radiology AG and PSP Real Estate for property in Zurich, Switzerland.
10.18	Lease Agreement, dated February 25, 2004, between Nighthawk Radiology Services, LLC and Demco Wisconsin 5 for property in Milwaukee, Wisconsin.
10.19	Agreement and Plan of Merger and Reorganization, dated September 30, 2005, among the registrant, ATN Merger Sub, Inc. and American Teleradiology Nighthawks, Inc.
21.1	Subsidiaries of the registrant.
23.1	Consent of Deloitte & Touche LLP.
23.2	Consent of Magnuson, McHugh & Company, P.A.
23.3	Consent of Wright, Moore, DeHart, Dupuis & Hutchinson, L.L.C.
23.4	Consent of Deloitte & Touche LLP.
23.5*	Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1).
24.1	Power of Attorney (see page II-5 to this Form S-1).

* To be filed by amendment.

** Registrant has omitted portions of the referenced exhibit and filed such exhibit separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 406 promulgated under the Securities Act of 1933.

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

Nighthawk Radiology Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

A. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on March 18, 2004.

B. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”), this Amended and Restated Certificate of Incorporation restates and amends the provisions of the Amended and Restated Certificate of Incorporation of the corporation.

C. This Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of the corporation in accordance with Sections 242 and 245 of the DGCL.

D. This Amended and Restated Certificate of Incorporation has been duly approved by the written consent of the stockholders of the corporation in accordance with Sections 228, 242 and 245 of the DGCL.

E. The Certificate of Incorporation of the corporation is hereby amended and restated in its entirety to read as follows:

ARTICLE I

The name of the corporation is Nighthawk Radiology Holdings, Inc.

ARTICLE II

The address of the corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808. The name of its registered agent at such address is Corporation Service Company.

ARTICLE III

The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE IV

The corporation shall have authority to issue shares as follows:

150,000,000 shares of Common Stock, par value $0.001 per share. Each share of Common Stock shall entitle the holder thereof to one (1) vote on each matter submitted to a vote at a meeting of stockholders.

5,000,000 shares of Preferred Stock, par value $0.001 per share, which may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of Preferred Stock, including without limitation authority to fix by resolution or resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing.

The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in the Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V

The number of directors that constitutes the entire Board of Directors of the corporation shall be determined in the manner set forth in the Bylaws of the corporation. At each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders’ meeting called and held in accordance with the DGCL.

The directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the effective date of this Amended and Restated Certificate of Incorporation (the “Effective Date”), the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified.

-2-

Notwithstanding the foregoing provisions of this Article, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Any director may be removed from office by the stockholders of the corporation only for cause. Vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next election of the Class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

ARTICLE VI

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the Bylaws of the corporation.

ARTICLE VII

The election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide.

ARTICLE VIII

No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws, and no action shall be taken by the stockholders by written consent.

ARTICLE IX

To the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated to the fullest extent permitted by the DGCL as so amended.

-3-

The corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding. The corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.

The corporation shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.

Neither any amendment nor repeal of this Article IX, nor the adoption of any provision of this corporation’s Certificate of Incorporation inconsistent with this Article IX, shall eliminate or reduce the effect of this Article IX in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article IX, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE X

Except as provided in Article IX above, the corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

-4-

IN WITNESS WHEREOF, Nighthawk Radiology Holdings, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by the President and Chief Executive Officer of the corporation on this              of                      2005.

By:
	Paul E. Berger
	President and Chief Executive Officer

-5-

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS OF

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

(initially adopted on March 18, 2004)

(as amended on                     , effective as of the

closing of the corporation’s initial public offering)

TABLE OF CONTENTS

			Page
ARTICLE I - CORPORATE OFFICES			1
	1.1	REGISTERED OFFICE	1
	1.2	OTHER OFFICES	1
ARTICLE II - MEETINGS OF STOCKHOLDERS			1
	2.1	PLACE OF MEETINGS	1
	2.2	ANNUAL MEETING	1
	2.3	SPECIAL MEETING	1
	2.4	ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS’ MEETINGS	2
	2.5	MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE	3
	2.6	QUORUM	3
	2.7	ADJOURNED MEETING; NOTICE	4
	2.8	CONDUCT OF BUSINESS	4
	2.9	VOTING	4
	2.10	STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING	4
	2.11	RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS	4
	2.12	PROXIES	5
	2.13	LIST OF STOCKHOLDERS ENTITLED TO VOTE	5
	2.14	INSPECTORS OF ELECTION	5
ARTICLE III - DIRECTORS			6
	3.1	POWERS	6
	3.2	NUMBER OF DIRECTORS	6
	3.3	ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS	7
	3.4	RESIGNATION AND VACANCIES	7
	3.5	PLACE OF MEETINGS; MEETINGS BY TELEPHONE	7
	3.6	REGULAR MEETINGS	8
	3.7	SPECIAL MEETINGS; NOTICE	8
	3.8	QUORUM	8
	3.9	BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING	9
	3.10	FEES AND COMPENSATION OF DIRECTORS	9
	3.11	REMOVAL OF DIRECTORS	9
ARTICLE IV - COMMITTEES			9
	4.1	COMMITTEES OF DIRECTORS	9
	4.2	COMMITTEE MINUTES	10
	4.3	MEETINGS AND ACTION OF COMMITTEES	10
ARTICLE V - OFFICERS			10
	5.1	OFFICERS	10
	5.2	APPOINTMENT OF OFFICERS	11

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TABLE OF CONTENTS

(continued)

			Page
	5.3	SUBORDINATE OFFICERS	11
	5.4	REMOVAL AND RESIGNATION OF OFFICERS	11
	5.5	VACANCIES IN OFFICES	11
	5.6	REPRESENTATION OF SHARES OF OTHER CORPORATIONS	11
	5.7	AUTHORITY AND DUTIES OF OFFICERS	11
ARTICLE VI - RECORDS AND REPORTS			12
	6.1	MAINTENANCE AND INSPECTION OF RECORDS	12
	6.2	INSPECTION BY DIRECTORS	12
ARTICLE VII - GENERAL MATTERS			12
	7.1	EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS	12
	7.2	STOCK CERTIFICATES; PARTLY PAID SHARES	12
	7.3	SPECIAL DESIGNATION ON CERTIFICATES	13
	7.4	LOST CERTIFICATES	13
	7.5	CONSTRUCTION; DEFINITIONS	13
	7.6	DIVIDENDS	14
	7.7	FISCAL YEAR	14
	7.8	SEAL	14
	7.9	TRANSFER OF STOCK	14
	7.10	STOCK TRANSFER AGREEMENTS	14
	7.11	REGISTERED STOCKHOLDERS	14
	7.12	WAIVER OF NOTICE	15
ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION			15
	8.1	NOTICE BY ELECTRONIC TRANSMISSION	15
	8.2	DEFINITION OF ELECTRONIC TRANSMISSION	16
	8.3	INAPPLICABILITY	16
ARTICLE IX - INDEMNIFICATION			16
	9.1	INDEMNIFICATION OF DIRECTORS AND OFFICERS	16
	9.2	INDEMNIFICATION OF OTHERS	16
	9.3	PREPAYMENT OF EXPENSES	17
	9.4	DETERMINATION; CLAIM	17
	9.5	NON-EXCLUSIVITY OF RIGHTS	17
	9.6	INSURANCE	17
	9.7	OTHER INDEMNIFICATION	17
	9.8	AMENDMENT OR REPEAL	17
ARTICLE X - AMENDMENTS			18

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BYLAWS OF NIGHTHAWK RADIOLOGY HOLDINGS, INC.

ARTICLE I - CORPORATE OFFICES

1.1        REGISTERED OFFICE.

The registered office of Nighthawk Radiology Holdings, Inc. shall be fixed in the corporation’s certificate of incorporation, as the same may be amended from time to time.

1.2        OTHER OFFICES.

The corporation’s board of directors (the “Board”) may at any time establish other offices at any place or places where the corporation is qualified to do business.

ARTICLE II - MEETINGS OF STOCKHOLDERS

2.1        PLACE OF MEETINGS.

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “DGCL”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.

2.2        ANNUAL MEETING.

The annual meeting of stockholders shall be held each year. The Board shall designate the date and time of the annual meeting. In the absence of such designation the annual meeting of stockholders shall be held on the second Tuesday of May of each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding business day. At the annual meeting, directors shall be elected and any other proper business may be transacted.

2.3        SPECIAL MEETING.

A special meeting of the stockholders may be called at any time by the Board, chairperson of the Board, chief executive officer or president (in the absence of a chief executive officer), but such special meetings may not be called by any other person or persons.

No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

2.4        ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS’ MEETINGS.

(i) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors; (B) otherwise properly brought before the meeting by or at the direction of the board of directors; or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days before the one year anniversary of the date on which the corporation first mailed its proxy statement to stockholders in connection with the previous year’s annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date of the prior year’s meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of one hundred twenty (120) calendar days in advance of such annual meeting and ten (10) calendar days following the date on which public announcement of the date of the meeting is first made. A stockholder’s notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (b) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business; (c) the class and number of shares of the corporation that are beneficially owned by the stockholder; (d) any material interest of the stockholder in such business; and (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (i). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (i), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

(ii) Only persons who are nominated in accordance with the procedures set forth in this paragraph (ii) shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (ii). Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (i) of this Section 2.4. Such stockholder’s notice shall set forth: (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person; (B) the principal occupation or employment of such person; (C) the class and number of shares of the corporation that are beneficially owned by such person; (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder; and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A

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under the 1934 Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (b) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (i) of this Section 2.4. At the request of the board of directors, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (ii). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

These provisions shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the board of directors, but in connection therewith no new business shall be acted upon at any such meeting unless stated, filed and received as herein provided. Notwithstanding anything in these bylaws to the contrary, no business brought before a meeting by a stockholder shall be conducted at an annual meeting except in accordance with procedures set forth in this Section 2.4.

All notices of meetings of stockholders shall be sent or otherwise given in accordance with either Section 2.5 or Section 8.1 of these bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

2.5        MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

Notice of any meeting of stockholders shall be given:

(i) if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the corporation’s records; or

(ii) if electronically transmitted as provided in Section 8.1 of these bylaws.

An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or any other agent of the corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.6        QUORUM.

The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

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2.7        ADJOURNED MEETING; NOTICE.

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place if any thereof, and the means of remote communications if any by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.8        CONDUCT OF BUSINESS.

The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.

2.9        VOTING.

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

2.10        STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof having a preference over the Common Stock as dividend or upon liquidation, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.

2.11        RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.

In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other such action.

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If the Board does not so fix a record date:

(i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

(ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

2.12        PROXIES.

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

2.13        LIST OF STOCKHOLDERS ENTITLED TO VOTE.

The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s principal executive office. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

2.14        INSPECTORS OF ELECTION

A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.

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Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

(i) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

(ii) receive votes, ballots or consents;

(iii) hear and determine all challenges and questions in any way arising in connection with the right to vote;

(iv) count and tabulate all votes or consents;

(v) determine when the polls shall close;

(vi) determine the result; and

(vii) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

ARTICLE III - DIRECTORS

3.1        POWERS.

Subject to the provisions of the DGCL and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.

3.2        NUMBER OF DIRECTORS.

The authorized number of directors shall be determined from time to time by resolution of the Board, provided the Board shall consist of at least one member. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

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3.3        ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.

Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.

If so provided in the certificate of incorporation, the directors of the corporation shall be divided into three classes.

3.4        RESIGNATION AND VACANCIES.

Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If the directors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

3.5        PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

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Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6        REGULAR MEETINGS.

Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

3.7        SPECIAL MEETINGS; NOTICE.

Special meetings of the Board for any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president, the secretary or a majority of the authorized number of directors.

Notice of the time and place of special meetings shall be:

(i) delivered personally by hand, by courier or by telephone;

(ii) sent by United States first-class mail, postage prepaid;

(iii) sent by facsimile; or

(iv) sent by electronic mail,

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records.

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive office) nor the purpose of the meeting.

3.8        QUORUM.

At all meetings of the Board, a majority of the authorized number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

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A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.9        BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.10        FEES AND COMPENSATION OF DIRECTORS.

Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

3.11        REMOVAL OF DIRECTORS.

Any director may be removed from office by the stockholders of the corporation only for cause.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

ARTICLE IV - COMMITTEES

4.1        COMMITTEES OF DIRECTORS.

The Board may, by resolution passed by a majority of the authorized number of directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.

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4.2        COMMITTEE MINUTES.

Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

4.3        MEETINGS AND ACTION OF COMMITTEES.

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

(i) Section 3.5 (place of meetings and meetings by telephone);

(ii) Section 3.6 (regular meetings);

(iii) Section 3.7 (special meetings and notice);

(iv) Section 3.8 (quorum);

(v) Section 7.12 (waiver of notice); and

(vi) Section 3.9 (action without a meeting)

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However:

(i) the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

(ii) special meetings of committees may also be called by resolution of the Board; and

(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

ARTICLE V - OFFICERS

5.1        OFFICERS.

The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the Board, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

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5.2        APPOINTMENT OF OFFICERS.

The Board shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 and 5.5 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.

5.3        SUBORDINATE OFFICERS.

The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

5.4        REMOVAL AND RESIGNATION OF OFFICERS.

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

5.5        VACANCIES IN OFFICES.

Any vacancy occurring in any office of the corporation shall be filled by the Board or as provided in Section 5.2.

5.6        REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

The chairperson of the Board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

5.7        AUTHORITY AND DUTIES OF OFFICERS.

All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board or the stockholders and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

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ARTICLE VI - RECORDS AND REPORTS

6.1        MAINTENANCE AND INSPECTION OF RECORDS.

The corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.

Any stockholder of record, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. In every instance where the stockholder is other than a record holder of stock, the demand under oath shall state the person’s status as a stockholder, be accompanied by documentary evidence of beneficial ownership of the stock, and state that such documentary evidence is a true and correct copy of what it purports to be. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal executive office.

6.2        INSPECTION BY DIRECTORS.

Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

ARTICLE VII - GENERAL MATTERS

7.1        EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

7.2        STOCK CERTIFICATES; PARTLY PAID SHARES.

The shares of the corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares.

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Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairperson or vice-chairperson of the Board, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

7.3        SPECIAL DESIGNATION ON CERTIFICATES.

If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

7.4        LOST CERTIFICATES.

Except as provided in this Section 7.4, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

7.5        CONSTRUCTION; DEFINITIONS.

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the

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singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

7.6        DIVIDENDS.

The Board, subject to any restrictions contained in either (i) the DGCL, or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.

The Board may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

7.7        FISCAL YEAR.

The fiscal year of the corporation shall be fixed by resolution of the Board and may be changed by the Board.

7.8        SEAL.

The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

7.9        TRANSFER OF STOCK.

Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

7.10        STOCK TRANSFER AGREEMENTS.

The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

7.11        REGISTERED STOCKHOLDERS.

The corporation:

(i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

(ii) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

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(iii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

7.12        WAIVER OF NOTICE.

Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

ARTICLE VIII - NOTICE BY ELECTRONIC TRANSMISSION

8.1        NOTICE BY ELECTRONIC TRANSMISSION.

Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:

(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and

(ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

Any notice given pursuant to the preceding paragraph shall be deemed given:

(i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

(ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

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(iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

(iv) if by any other form of electronic transmission, when directed to the stockholder.

An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

8.2        DEFINITION OF ELECTRONIC TRANSMISSION.

An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

8.3        INAPPLICABILITY.

Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.

ARTICLE IX - INDEMNIFICATION

9.1        INDEMNIFICATION OF DIRECTORS AND OFFICERS

The corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding. The corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.

9.2        INDEMNIFICATION OF OTHERS

The corporation shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.

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9.3        PREPAYMENT OF EXPENSES

The corporation shall pay the expenses incurred by any officer or director of the corporation, and may pay the expenses incurred by any employee or agent of the corporation, in defending any Proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by a person in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article IX or otherwise.

9.4        DETERMINATION; CLAIM

If a claim for indemnification or payment of expenses under this Article IX is not paid in full within sixty days after a written claim therefor has been received by the corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

9.5        NON-EXCLUSIVITY OF RIGHTS

The rights conferred on any person by this Article IX shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

9.6        INSURANCE

The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.

9.7        OTHER INDEMNIFICATION

The corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

9.8        AMENDMENT OR REPEAL

Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.”

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ARTICLE X - AMENDMENTS

These bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

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NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CERTIFICATE OF AMENDMENT OF BYLAWS

The undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary or Assistant Secretary of Nighthawk Radiology Holdings, Inc., a Delaware corporation and that the foregoing bylaws, comprising          pages, were amended and restated on                                  by the corporation’s board of directors.

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this              day of                     , 2005.

Paul E. Cartee

Secretary

EX-4.2

Exhibit 4.2

EXECUTION COPY

NIGHTHAWK RADIOLOGY HOLDINGS INC.

REGISTRATION AGREEMENT

THIS AGREEMENT is made as of March 31, 2004, by and among NightHawk Radiology Holdings, Inc., a Delaware corporation (the “Company”), the Persons listed on the Schedule of Investors attached hereto (each, an “Investor” and collectively, the “Investors”) and Dr. Paul E. Berger, M.D., Jon D. Berger and Christopher R. Huber (collectively, the “Founders”).

WHEREAS, the parties to this Agreement are parties to a Securities Purchase and Contribution Agreement of even date herewith (the “Purchase Agreement”);

WHEREAS, in order to induce the Investors to enter into the Purchase Agreement and consummate the transactions contemplated thereby, the Company has agreed to provide the registration rights set forth in this Agreement;

WHEREAS, the execution and delivery of this Agreement is a condition to the Closing under the Purchase Agreement; and

WHEREAS unless otherwise provided in this Agreement, capitalized terms used herein shall have the meanings set forth in paragraph 8 hereof.

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:

1. Demand Registrations.

(a) Requests for Registration. Subject to the terms and conditions of this paragraph 1, at any time after the fifth anniversary of the Closing under the Purchase Agreement or such earlier time as the Company has completed an initial public offering of its Common Stock under the Securities Act (an “Initial Public Offering”), the holders of a majority of the Investor Registrable Securities may request registration under the Securities Act of all or any portion of their Investor Registrable Securities on Form S-1 or any similar long-form registration (“Long-Form Registrations”), and the holders of a majority of the Investor Registrable Securities may request registration under the Securities Act of all or any portion of their Investor Registrable Securities on Form S-2 or S-3 or any similar short-form registration (“Short-Form Registrations”) if available. All registrations requested pursuant to this paragraph 1(a) are referred to herein as “Demand Registrations.” Each request for a Demand Registration shall specify the approximate number of Investor Registrable Securities requested to be registered, the anticipated per share price range for such offering and the intended method of distribution. Within ten days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Investor Registrable Securities and, subject to the terms of paragraph (d) hereof, shall include in such registration (and in all related registrations and qualifications under state blue sky laws or in compliance with other registration requirements and in any related underwriting) all Investor Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company’s notice.

(b) Long-Form Registrations. The holders of Investor Registrable Securities shall be entitled to request two (2) Long-Form Registrations in which the Company shall pay all Registration Expenses. A registration shall not count as one of the permitted Long-Form Registrations until it has

become effective and unless the holders of Investor Registrable Securities are able to register and sell at least 80% of the Investor Registrable Securities requested to be included in such registration; provided that in any event the Company shall pay all Registration Expenses in connection with any registration initiated as a Long-Form Registration whether or not it has become effective (subject to the next sentence) and whether or not such registration has counted as one of the permitted Long-Form Registrations hereunder. Notwithstanding the foregoing, if a Long-Form Registration is withdrawn by the holders of Investor Registrable Securities who requested such registration prior to the time that it has become effective for reasons other than the disclosure of information concerning the Company that is materially adverse to the Company or its stock price (which disclosure is made after the date such registration is requested pursuant to paragraph 1(a) above), such Long-Form Registration shall count as one of the permitted Long Form Registrations hereunder unless the holders of Investor Registrable Securities reimburse the Company for all of the Registration Expenses incurred by the Company prior to such withdrawal.

(c) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to paragraph 1(b), the holders of Investor Registrable Securities shall be entitled to request an unlimited number of Short-Form Registrations in which the Company shall pay all Registration Expenses; provided that the aggregate offering value of the Investor Registrable Securities requested to be registered in any Short-Form Registration must equal at least $2,500,000; and provided further, that the holders of Investor Registrable Securities may not request more than two (2) Short-Form Registrations within any twelve (12) month period. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form and if the managing underwriters (if any) agree to the use of a Short-Form Registration. After the Company has become subject to the reporting requirements of the Securities Exchange Act, the Company shall use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Investor Registrable Securities.

(d) Priority on Demand Registrations. The Company shall not include in any Demand Registration any securities which are not Investor Registrable Securities without the prior written consent of the holders of a majority of the Investor Registrable Securities included in such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Investor Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Investor Registrable Securities and other securities, if any, which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Investor Registrable Securities initially requesting registration, the Company shall include in such registration prior to the inclusion of any securities which are not Investor Registrable Securities the number of Investor Registrable Securities requested to be included which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the respective holders thereof on the basis of the amount of Investor Registrable Securities owned by each such holder.

(e) Restrictions on Demand Registrations. The Company shall not be obligated to effect any Demand Registration within 180 days after the effective date of the Company’s Initial Public Offering or within 90 days after the effective date of a previous Demand Registration. The Company may postpone for up to 60 days (in the case of clause (x) below) or 120 days (in the case of clause (y) below) the filing or the effectiveness of a registration statement for a Demand Registration if the Company’s board of directors determines in its reasonable good faith judgment that such Demand Registration (x) would be seriously detrimental to the Company and its shareholders or (y) would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer, reorganization or similar transaction; provided that in such event, the holders of Investor Registrable Securities initially requesting such Demand Registration shall be entitled to

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withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations hereunder and the Company shall pay all Registration Expenses in connection with such registration. The Company may delay a Demand Registration hereunder only once in any twelve-month period.

(f) Selection of Underwriters. The holders of a majority of the Investor Registrable Securities included in any Demand Registration shall have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the Company’s approval which shall not be unreasonably withheld or delayed.

(g) Other Registration Rights. The Company represents and warrants that it is not a party to, or otherwise subject to, any other agreement granting registration rights to any other Person with respect to any securities of the Company. Except as expressly provided in this Agreement, the Company shall not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the Investor Registrable Securities; provided that the Company may grant rights to other Persons to participate in Piggyback Registrations so long as such rights are subordinate to the rights of the holders of Investor Registrable Securities with respect to such Piggyback Registrations as set forth in paragraphs 2(c) and 2(d) below.

2. Piggyback Registrations.

(a) Right to Piggyback. Whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant to a Demand Registration or a registration relating to employee benefit plans or relating to a Rule 145 transaction) and the registration form to be used may be used for the registration of Registrable Securities (a “Piggyback Registration”), the Company shall give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and, subject to the terms of paragraphs 2(c) and 2(d) hereof, shall include in such registration (and in all related registrations or qualifications under blue sky laws or in compliance with other registration requirements and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the receipt of the Company’s notice.

(b) Piggyback Expenses. The Registration Expenses of the holders of Registrable Securities shall be paid by the Company in all Piggyback Registrations.

(c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the securities the Company proposes to sell, (ii) second, any Investor Registrable Securities and Other Registrable Securities requested to be included in such registration, allocated fifty percent (50%) to the holders of Investor Registrable Securities and fifty percent (50%) to the holders of Other Registrable Securities, and (iii) third, other securities requested to be included in such registration.

(d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company’s securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the

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securities requested to be included therein by the holders requesting such registration, (ii) second, any other Investor Registrable Securities and Other Registrable Securities requested to be included in such registration, allocated fifty percent (50%) to the holders of Investor Registrable Securities and fifty percent (50%) to the holders of Other Registrable Securities, and (iii) third, other securities requested to be included in such registration.

(e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering must be approved by the holders of a majority of the Investor Registrable Securities included in such Piggyback Registration. Such approval shall not be unreasonably withheld or delayed so long as such investment banker(s) and manager(s) are of recognized national standing.

(f) Other Registrations. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to paragraph 1 or pursuant to this paragraph 2, and if such previous registration has not been withdrawn or abandoned, the Company shall not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 90 days has elapsed from the effective date of such previous registration.

3. Holdback Agreements.

(a) No holder of Registrable Securities shall effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during such period of time following the effective date of the Company’s Initial Public Offering (not to exceed 180 days) or following the effective date of the Company’s next (but not any other) Public Offering (not to exceed 90 days) as may be determined by the underwriters managing such Initial Public Offering or next Public Offering (except, in each case, as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. This paragraph 3(a) shall not be applicable unless the Company causes all of its executive officers and directors to be similarly bound.

(b) The Company (i) shall not effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during such period of time (not to exceed 180 days as may be determined by the underwriters managing such underwritten registration) following the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) shall cause each holder (other than the Investors) of at least 2% (on a fully-diluted basis) of its Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree.

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4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible:

(a) prepare and file with the Securities and Exchange Commission a registration statement, and all amendments and supplements thereto and related prospectuses as may be necessary to comply with applicable securities laws, with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel);

(b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;

(c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;

(d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction);

(e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

(f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system and, if listed on the NASD automated quotation system, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a NASDAQ “national market system security” within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD;

(g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;

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(h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares);

(i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement;

(j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company’s first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

(k) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included;

(l) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Common Stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order;

(m) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities;

(n) obtain a cold comfort letter from the Company’s independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request; and

(o) provide a legal opinion of the Company’s outside counsel, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature.

5. Registration Expenses.

(a) All expenses incident to the Company’s performance of or compliance with this Agreement, including without limitation all registration, qualification and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees

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and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called “Registration Expenses”), shall be borne by the Company as provided in this Agreement, and the Company shall also pay all of its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system.

(b) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements (up to a maximum of $20,000) of one counsel chosen by the holders of a majority of the Investor Registrable Securities included in such registration.

6. Indemnification.

(a) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, actions, damages, liabilities and expenses caused by (i) any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and to pay to each holder of Registrable Securities, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act), as incurred, any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities.

(b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder expressly for use therein; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement.

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(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person’s right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicting indemnified parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying party. No indemnifying party, in the defense of such claim or litigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.

(d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company’s indemnification is unavailable for any reason.

7. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (i) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder and such holder’s intended method of distribution), or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise specifically provided in paragraph 6 hereof, or to agree to any lock-up or holdback restrictions, except as otherwise specifically provided in paragraph 3(a) hereof.

8. Definitions.

(a) “Investor Registrable Securities” means (i) any Common Stock issued or issuable upon the conversion of any Series A Convertible Preferred Stock issued pursuant to the Purchase Agreement, (ii) any Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, and (iii) any other shares of Common Stock held by Persons holding securities described in clauses (i) or (ii) above. As to any particular Investor Registrable Securities, such securities shall cease to be Investor Registrable Securities when they have been distributed to the public pursuant to a offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by the Company or any Subsidiary. As to any particular

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Investor Registrable Securities held by the Investors, such securities shall cease to be Investor Registrable Securities when they have been distributed by the Investors to any of their direct or indirect partners or members (but only if the Investors advise the Company in writing of their desire to exclude the securities so distributed from the definition of “Investor Registrable Securities” hereunder at any time before or after the date of such distribution). For purposes of this Agreement, a Person shall be deemed to be a holder of Investor Registrable Securities, and the Investor Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire directly or indirectly such Investor Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of Investor Registrable Securities hereunder.

(b) “Other Registrable Securities” means (i) any Common Stock held by any Founder, (ii) any Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, and (iii) any other shares of Common Stock held by Persons holding securities described in clauses (i) and (ii) above. As to any particular Other Registrable Securities, such securities shall cease to be Other Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or similar rule then in force) or repurchased by the Company or any Subsidiary.

(c) “Registrable Securities” means, collectively, Investor Registrable Securities and Other Registrable Securities.

(d) Unless otherwise stated, other capitalized terms contained herein have the meanings set forth in the Purchase Agreement.

9. Miscellaneous.

(a) No Inconsistent Agreements. The Company shall not hereafter enter into any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement.

(b) Adjustments Affecting Registrable Securities. The Company shall not take any action, or permit any change to occur, with respect to its securities which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would materially and adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares).

(c) Remedies. Any Person having rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that, in addition to any other rights and remedies existing in its favor, any party shall be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent violation of the provisions of this Agreement.

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(d) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of a majority of the Investor Registrable Securities; provided that no such amendment or waiver that would materially and adversely affect the holders of the Other Registrable Securities in a manner different than the holders of the Investor Registrable Securities shall be effective against the holders of the Other Registrable Securities without the prior written consent of holders of a majority of the Other Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each party to this Agreement, whether or not such party has signed such amendment or waiver, and each future holder of all such Registrable Securities and the Company. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

(e) Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities.

(f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

(g) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Agreement.

(h) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

(i) Governing Law. The corporate law of the State of Delaware shall govern all issues and questions concerning the relative rights of the Company and its stockholders. All other issues and questions concerning the construction, validity, interpretation and enforcement of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Idaho, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Idaho or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Idaho.

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(j) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to each Investor at the address indicated on the Schedule of Investors attached hereto, to each Founder at the address indicated on the Schedule of Founders attached hereto, and to the Company at the address indicated below:

NightHawk Radiology Holdings Inc.

250 Northwest Blvd., #202

Coeur d’Alene, Idaho 83814

Telephone: (208) 292-2251

Telecopy: (208) 664-2720

Attention: Chief Executive Officer

with a copy to:

(which shall not constitute notice to the Company)

Wilson Sonsini Goodrich & Rosati, P.C.

5300 Carillon Point

Kirkland, Washington 98033

Telephone: (425) 576-5800

Telecopy:   (425) 576-5899

Attention:   Patrick Schultheis, Esq.

Mark Handfelt, Esq.

or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have executed this Registration Agreement on the date first written above.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:	/s/ PAUL E. BERGER
	Paul E. Berger, M.D., President
SUMMIT VENTURES VI-A, L.P.
By:	Summit Partners VI (GP), L.P.
Its:	General Partner
By:	Summit Partners VI (GP), LLC
Its:	General Partner
By:	/s/ PETER CHUNG
Its:	Member
SUMMIT VENTURES VI-B, L.P.
By:	Summit Partners VI (GP), L.P.
Its:	General Partner
By:	Summit Partners VI (GP), LLC
Its:	General Partner
By:	/s/ PETER CHUNG
Its:	Member
SUMMIT VI ADVISORS FUND, L.P.
By:	Summit Partners VI (GP), L.P.
Its:	General Partner
By:	Summit Partners VI (GP), LLC
Its:	General Partner
By:	/s/ PETER CHUNG
Its:	Member

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SUMMIT VI ENTREPRENEURS FUND, L.P.
By:	Summit Partners VI (GP), L.P.
Its:	General Partner
By:	Summit Partners VI (GP), LLC
Its:	General Partner
By:	/s/ PETER CHUNG
Its:	Member
SUMMIT INVESTORS VI, L.P.
By:	Summit Partners VI (GP), L.P.
Its:	General Partner
By:	Summit Partners VI (GP), LLC
Its:	General Partner
By:	/s/ PETER CHUNG
Its:	Member
SUMMIT SUBORDINATED DEBT FUND II, L.P.
By:	Summit Partners SD II, LLC
Its:	General Partner
By:	/s/ PETER CHUNG
Its:	Member
FOUNDERS
By:	/s/ PAUL E. BERGER
	Paul E. Berger, M.D.
By:	/s/ JON D. BERGER
	Jon D. Berger
By:	/s/ CHRISTOPHER R. HUBER
	Christopher R. Huber

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SCHEDULE OF INVESTORS

Summit Ventures VI-A, L.P.

Summit Ventures VI-B, L.P.

Summit VI Advisors Fund, L.P.

Summit VI Entrepreneurs Fund, L.P.

Summit Investors VI, L.P.

Summit Subordinated Debt Fund II, L.P.

c/o Summit Partners, L.P.

499 Hamilton Ave.

Suite 200

Palo Alto, California 94301

Telephone:      (650) 321-1166

Telecopy:        (650) 321-1188

Attention:       Mr. Peter Y. Chung

    Mr. J. Scott Carter

with a copy to:

(which shall not constitute notice to the Investors)

Kirkland & Ellis LLP

200 East Randolph Drive

Chicago, Illinois 60601

Telephone:       (312) 861-2000

Telecopy:         (312) 861-2200

Attention:         Ted H. Zook, P.C.

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SCHEDULE OF FOUNDERS

Dr. Paul E. Berger, M.D.

P.O. Box 639

Coeur d’Alene, Idaho 83816

Jon D. Berger

835 Centennial Court

Coeur d’Alene, Idaho 83814

Christopher R. Huber

746 Dundee Drive

Post Falls, Idaho 83854

with a copy to:

(which shall not constitute notice to the Founders)

Wilson Sonsini Goodrich & Rosati, P.C.

5300 Carillon Point

Kirkland, Washington 98033

Telephone:   (425) 576-5800

Telecopy:     (425) 576-5899

Attention: Patrick Schultheis, Esq.

 Mark Handfelt, Esq.

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EX-10.1

Exhibit 10.1

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

DIRECTOR INDEMNIFICATION AGREEMENT

THIS AGREEMENT (this “Agreement”) is made as of                     , 200_, by and between NightHawk Radiology Holdings, Inc., a Delaware corporation (the “Company”, which term shall include, where appropriate, any Entity (as hereinafter defined) controlled directly or indirectly by the Company), and                     (the “Indemnitee”).

WHEREAS, it is essential to the Company that it be able to retain and attract as directors the most capable persons available;

WHEREAS, increased corporate litigation has subjected directors to litigation risks and expenses, and the limitations on the availability of directors and officers liability insurance have made it increasingly difficult for companies to attract and retain such persons;

WHEREAS, the Company desires to provide Indemnitee with specific contractual assurance of Indemnitee’s rights to full indemnification against litigation risks and expenses (regardless, among other things, of any amendment to the Company’s certificate of incorporation or revocation of any provision of the Company’s by-laws or any change in the ownership of the Company or the composition of its Board of Directors); and

WHEREAS, Indemnitee is relying upon the rights afforded under this Agreement in accepting Indemnitee’s position as a director of the Company.

NOW, THEREFORE, in consideration of the promises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

1. Definitions.

(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a director of the Company, including as a member of any committee thereof, (ii) in any capacity with respect to any employee benefit plan of the Company, or (iii) as a director, partner, trustee, officer, employee, or agent of any other Entity at the request of the Company. For purposes of subsection (iii) of this Section 1(a), an officer or director of the Company who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary (as defined below) shall be deemed to be serving at the request of the Company.

(b) “Entity” shall mean any corporation, partnership, limited liability company, joint venture, trust, foundation, association, organization or other legal entity.

(c) “Expenses” shall mean all fees, costs and expenses incurred in connection with any Proceeding (as defined below), including, without limitation, reasonable attorneys’ fees, disbursements and retainers (including, without limitation, any such fees, disbursements and retainers incurred by Indemnitee pursuant to Sections 8 and 10(c) of this Agreement), fees and disbursements of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), court costs, transcript costs, fees of experts, travel expenses, duplicating, printing and binding costs, telephone and fax transmission charges, postage, delivery services, secretarial services and other disbursements and expenses.

(d) “Indemnifiable Amounts” shall have the meaning ascribed to it in Section 3(a) below.

(e) “Indemnifiable Expenses,” shall have the meaning ascribed to it in Section 3(a) below.

(f) “Indemnifiable Liabilities” shall have the meaning ascribed to it in Section 3(a) below.

(g) “Liabilities” shall mean judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement.

(h) “Proceeding” shall mean any threatened, pending or completed claim, action, suit, arbitration, alternate dispute resolution process, investigation, administrative hearing, appeal, or any other proceeding, whether civil, criminal, administrative, arbitrative or investigative, whether formal or informal, including a proceeding initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce Indemnitee’s rights hereunder.

(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other Entity of which the Company owns (either directly or through or together with another Subsidiary of the Company) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other Entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other Entity.

2. Services of Indemnitee. In consideration of the Company’s covenants and commitments hereunder, Indemnitee agrees to serve or continue to serve as a director of the Company. However, this Agreement shall not impose any obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any.

3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee as follows:

(a) Subject to the exceptions contained in Section 4(a) below, if Indemnitee was or is a party or is threatened to be made a party to any Proceeding (other than an action by or in the right of the Company) by reason of Indemnitee’s Corporate Status, Indemnitee shall be indemnified by the Company against all Expenses and Liabilities incurred or paid by Indemnitee in connection with such Proceeding (referred to herein as “Indemnifiable Expenses” and “Indemnifiable Liabilities,” respectively, and collectively as “Indemnifiable Amounts”).

(b) Subject to the exceptions contained in Section 4(b) below, if Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of Indemnitee’s Corporate Status, Indemnitee shall be indemnified by the Company against all Indemnifiable Expenses.

4. Exceptions to Indemnification. Indemnitee shall be entitled to indemnification under Sections 3(a) and 3(b) above in all circumstances other than the following:

(a) If indemnification is requested under Section 3(a) and it has been adjudicated finally by a court of competent jurisdiction that, in connection with the subject of the Proceeding

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out of which the claim for indemnification has arisen, Indemnitee failed to act (i) in good faith and (ii) in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful, Indemnitee shall not be entitled to payment of Indemnifiable Amounts hereunder.

(b) If indemnification is requested under Section 3(b) and

(i) it has been adjudicated finally by a court of competent jurisdiction that, in connection with the subject of the Proceeding out of which the claim for indemnification has arisen, Indemnitee failed to act (A) in good faith and (B) in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, Indemnitee shall not be entitled to payment of Indemnifiable Expenses hereunder; or

(ii) it has been adjudicated finally by a court of competent jurisdiction that Indemnitee is liable to the Company with respect to any claim, issue or matter involved in the Proceeding out of which the claim for indemnification has arisen, including, without limitation, a claim that Indemnitee received an improper personal benefit, no Indemnifiable Expenses shall be paid with respect to such claim, issue or matter unless the court of law or another court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such Indemnifiable Expenses which such court shall deem proper.

5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall submit to the Company a written request specifying the Indemnifiable Amounts for which Indemnitee seeks payment under Section 3 of this Agreement and the basis for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee within ten (10) calendar days following receipt of the request.

6. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, Indemnitee shall be indemnified against all Expenses reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Agreement, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

7. Effect of Certain Resolutions. Neither the settlement nor termination of any Proceeding nor the failure of the Company to award indemnification or to determine that indemnification is payable shall create an adverse presumption that Indemnitee is not entitled to indemnification hereunder. In addition, the termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or proceeding, had reasonable cause to believe that Indemnitee’s action was unlawful.

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8. Agreement to Advance Expenses; Conditions. The Company shall pay to Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with any Proceeding, including a Proceeding by or in the right of the Company, in advance of the final disposition of such Proceeding, as the same are incurred. To the extent required by Delaware corporate law, Indemnitee hereby undertakes to repay the amount of Indemnifiable Expenses paid to Indemnitee if it is finally determined by a court of competent jurisdiction that Indemnitee is not entitled under this Agreement to indemnification with respect to such Expenses. This undertaking is an unlimited and unsecured general obligation of Indemnitee and no interest shall be charged thereon.

9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to the Company a written request specifying the Indemnifiable Expenses for which Indemnitee seeks an advancement under Section 8 of this Agreement, together with documentation evidencing that Indemnitee has incurred such Indemnifiable Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no later than ten (10) calendar days after the Company’s receipt of such request.

10. Remedies of Indemnitee.

(a) Right to Petition Court. In the event that Indemnitee makes a request for payment of Indemnifiable Amounts under Sections 3 and 5 above or a request for an advancement of Indemnifiable Expenses under Sections 8 and 9 above and the Company fails to make such payment or advancement in a timely manner pursuant to the terms of this Agreement, Indemnitee may petition a court of law to enforce the Company’s obligations under this Agreement.

(b) Burden of Proof. In any judicial proceeding brought under Section 10(a) above, the Company shall have the burden of proving that Indemnitee is not entitled to payment of Indemnifiable Amounts hereunder.

(c) Expenses. The Company agrees to reimburse Indemnitee in full for any Expenses incurred by Indemnitee in connection with investigating, preparing for, litigating, defending or settling any action brought by Indemnitee under Section 10(a) above, or in connection with any claim or counterclaim brought by the Company in connection therewith.

(d) Validity of Agreement. The Company shall be precluded from asserting in any Proceeding, including, without limitation, an action under Section 10(a) above, that the provisions of this Agreement are not valid, binding and enforceable or that there is insufficient consideration for this Agreement and shall stipulate in court that the Company is bound by all the provisions of this Agreement.

(e) Failure to Act Not a Defense. The failure of the Company (including its Board of Directors or any committee thereof, independent legal counsel or stockholders) to make a determination concerning the permissibility of the payment of Indemnifiable Amounts or the advancement of Indemnifiable Expenses under this Agreement shall not be a defense in any action brought under Section 10(a) above, and shall not create a presumption that such payment or advancement is not permissible.

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11. Representations and Warranties of the Company. The Company hereby represents and warrants to Indemnitee as follows:

(a) Authority. The Company has all necessary power and authority to enter into, and be bound by the terms of, this Agreement, and the execution, delivery and performance of the undertakings contemplated by this Agreement have been duly authorized by the Company.

(b) Enforceability. This Agreement, when executed and delivered by the Company in accordance with the provisions hereof, shall be a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the enforcement of creditors’ rights generally.

12. Insurance. The Company shall use its reasonable efforts to maintain requisite directors and officers indemnity insurance coverage in effect at all times (subject to appropriate cost considerations) and the Company’s Certificate of Incorporation and Bylaws shall at all times provide for indemnification and exculpation of directors to the fullest extent permitted under applicable law. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s officers and directors. The Company shall hereafter take all necessary or desirable actions to cause such insurers to pay, on behalf of the Indemnitee, all Indemnifiable Amounts in accordance with the terms of such policies; provided that nothing in this Section 12 shall affect the Company’s obligations under this Agreement or the Company’s obligations to comply with the provisions of this Agreement in a timely manner as provided.

13. Fees and Expenses. During the term of the Indemnitee’s service as a director, the Company shall promptly reimburse the Indemnitee for all expenses incurred by him in connection with his service as a director or member of any board committee or otherwise in connection with the Company’s business and shall pay or provide the Indemnitee with fees and other compensation, including stock options or awards, in amounts and value which are at least equal to those provided to any of the Company’s other non-employee directors from time to time.

14. Contract Rights Not Exclusive. The rights to payment of Indemnifiable Amounts and advancement of Indemnifiable Expenses provided by this Agreement shall be in addition to, but not exclusive of, any other rights which Indemnitee may have at any time under applicable law, the Company’s by-laws or certificate of incorporation, or any other agreement, vote of stockholders or directors (or a committee of directors), or otherwise, both as to action in Indemnitee’s official capacity and as to action in any other capacity as a result of Indemnitee’s serving as a director of the Company.

15. Successors. This Agreement shall be (a) binding upon all successors and assigns of the Company (including any transferee of all or a substantial portion of the business, stock and/or assets of the Company and any direct or indirect successor by merger or consolidation or otherwise by operation of law) and (b) binding on and shall inure to the benefit of the heirs, personal representatives, executors and administrators of Indemnitee. This Agreement shall continue for the benefit of Indemnitee and such heirs, personal representatives, executors and administrators after Indemnitee has ceased to have Corporate Status.

16. Subrogation. In the event of any payment of Indemnifiable Amounts under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of contribution or recovery of Indemnitee against other persons, and Indemnitee shall take, at the request and expense of the Company, all reasonable action necessary to secure such subrogation rights, including the execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

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17. Change in Law. To the extent that a change in Delaware law (whether by statute or judicial decision) shall permit broader indemnification or advancement of expenses than is provided under the terms of the certificate of incorporation and/or by-laws of the Company and this Agreement, Indemnitee shall be entitled to such broader indemnification and advancements, and this Agreement shall be deemed to be automatically amended to such extent.

18. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement, or any clause thereof, shall be determined by a court of competent jurisdiction to be illegal, invalid or unenforceable, in whole or in part, such provision or clause shall be limited or modified in its application to the minimum extent necessary to make such provision or clause valid, legal and enforceable, and the remaining provisions and clauses of this Agreement shall remain fully enforceable and binding on the parties.

19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this Agreement and in the next sentence, Indemnitee shall not be entitled to payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect to any Proceeding brought by Indemnitee against the Company, any Entity which it controls, any director or officer thereof, or any third party, unless such Company has consented to the initiation of such Proceeding. This Section shall not apply to counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee.

20. Modifications and Waiver. Except as provided in Section 17 above with respect to changes in Delaware law which broaden the right of Indemnitee to be indemnified by the Company, no supplement, modification or amendment of this Agreement shall be binding unless executed in writing by each of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement (whether or not similar), nor shall such waiver constitute a continuing waiver.

21. General Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered by hand, (b) when transmitted by facsimile and receipt is acknowledged, or (c) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(i)      If to Indemnitee, to:

[Address]

[Address]

(ii)      If to the Company, to:

NightHawk Radiology

Holdings, Inc.

250 Northwest Boulevard

Suite 202

Coeur d’Alene, ID 83814

Attention: Chief Executive

Officer

or to such other address as may have been furnished in the same manner by any party to the others.

22. Governing Law. This Agreement shall be governed by and construed and enforced under the laws of the State of Delaware without giving effect to the provisions thereof relating to conflicts of law.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:
	Paul Berger
	President and Chief Executive Officer
INDEMNITEE
[Name]

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EX-10.2

Exhibit 10.2

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

2004 STOCK PLAN

(As Amended March 22, 2005)

1. Purposes of the Plan. The purposes of this Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s business. Options granted under the Plan shall be Nonstatutory Stock Options. Stock Purchase Rights may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) “Administrator” means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.

(b) “Applicable Laws” means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.

(c) “Board” means the Board of Directors of the Company.

(d) “Change in Control” means the occurrence of any of the following events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities, except that any change in the beneficial ownership of the securities of the Company as a result of an equity financing of the Company that is approved by the Board, shall not be deemed to be a Change in Control; or

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or

(iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(e) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

(f) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.

(g) “Common Stock” means the Common Stock of the Company.

(h) “Company” means NightHawk Radiology Holdings, Inc., a Delaware corporation.

(i) “Consultant” means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.

(j) “Director” means a member of the Board.

(k) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(l) “Employee” means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.

(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n) “Exchange Program” means a program under which (a) outstanding Options are surrendered or cancelled in exchange for Options of the same type (which may have lower exercise prices and different terms), Options of a different type, and/or cash, and/or (b) the exercise price of an outstanding Option is reduced. The terms and conditions of any Exchange Program will be determined by the Administrator in its sole discretion.

(o) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.

(p) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(q) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

(r) “Option” means a stock option granted pursuant to the Plan.

(s) “Option Agreement” means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

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(t) “Optioned Stock” means the Common Stock subject to an Option or a Stock Purchase Right.

(u) “Optionee” means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

(v) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(w) “Plan” means this 2004 Stock Plan.

(x) “Restricted Stock” means Shares issued pursuant to a Stock Purchase Right or Shares of restricted stock issued pursuant to an Option.

(y) “Restricted Stock Purchase Agreement” means a written or electronic agreement between the Company and the Optionee evidencing the terms and restrictions applying to Shares purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the notice of grant.

(z) “Securities Act” means the Securities Act of 1933, as amended.

(aa) “Service Provider” means an Employee, Director or Consultant.

(bb) “Share” means a share of the Common Stock, as adjusted in accordance with Section 13 below.

(cc) “Stock Purchase Right” means a right to purchase Common Stock pursuant to Section 11 below.

(dd) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code or a limited liability company.

3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to Options or Stock Purchase Rights and sold under the Plan is 1,927,256 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.

If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

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4. Administration of the Plan.

(a) Administrator. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;

(iii) to determine the number of Shares to be covered by each such award granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi) to institute an Exchange Program;

(vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(viii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and

(ix) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan.

(c) Effect of Administrator’s Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Employees, Directors and Consultants.

6. At-Will Employment. Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the

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Company’s right to terminate such relationship at any time, with or without cause, and with or without notice.

7. Term of Plan. Subject to stockholder approval in accordance with Section 19, the Plan shall become effective upon its adoption by the Board. Unless sooner terminated under Section 15, it shall continue in effect for a term of ten (10) years from the later of (i) the effective date of the Plan, or (ii) the earlier of the most recent Board or stockholder approval of an increase in the number of Shares reserved for issuance under the Plan.

8. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be issued upon exercise of a Nonstatutory Stock Option shall be such price as is determined by the Administrator, subject to the following:

(i) if granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(ii) if granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant.

(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above in accordance with and pursuant to a transaction described in Section 424 of the Code.

(b) Forms of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator. Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other Shares, provided Shares acquired directly from the Company (x) have been owned by the Optionee, and not subject to a substantial risk of forfeiture, for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share. Except in the case of Options granted to officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted.

An Option shall be deemed exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise

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the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within thirty (30) days of termination, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). Unless the Administrator provides otherwise, if on the date of termination the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability, the Optionee may exercise his or her Option within six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). Unless the Administrator provides otherwise, if on the date of termination the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within six (6) months following Optionee’s death, or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee’s designated beneficiary, provided such beneficiary has been designated prior to Optionee’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee’s estate or by the person(s) to whom the Option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent and distribution. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(e) Leaves of Absence.

(i) Unless the Administrator provides otherwise, vesting of Options granted hereunder to officers and Directors shall be suspended during any unpaid leave of absence.

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(ii) A Service Provider shall not cease to be an Employee in the case of (A) any leave of absence approved by the Company or (B) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.

11. Stock Purchase Rights.

(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the purchaser’s service with the Company for any reason (including death or disability). Unless the Administrator provides otherwise, the purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase.

(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.

12. Limited Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Optionee, only by the Optionee.

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13. Adjustments; Dissolution or Liquidation; Merger or Change in Control.

(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Option or Stock Purchase Right; provided, however, that the Administrator shall make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

(c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation in a merger or Change in Control refuses to assume or substitute for the Option or Stock Purchase Right, then the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or Change in Control, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of time as determined by the Administrator, and the Option or Stock Purchase Right shall terminate upon expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share subject to the Option or Stock Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of common stock in the merger or Change in Control.

14. Time of Granting Options and Stock Purchase Rights. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such later date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.

15. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

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(b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

16. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Administrator may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

17. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

18. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

19. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.

20. Information to Optionees. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.

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PLAN ADOPTION AND AMENDMENTS

Date of Adoption/ Amendment	Section	Effect of Amendment
October 27, 2004		Aggregate number of Common Shares that may be subject to option or stock purchase rights under the Plan is 1,527,256.
March 22, 2005	3	Increase the aggregate number of Common Shares that may be subject to option and sold under the Plan from 1,527,256 to 1,927,256.

EX-10.3

Exhibit 10.3

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

2004 STOCK PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the 2004 Stock Plan shall have the same defined meanings in this Stock Option Agreement.

I. NOTICE OF STOCK OPTION GRANT

Name:

Address:

The undersigned Optionee has been granted a Nonstautory Stock Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:

Date of Grant
Vesting Commencement Date
Exercise Price per Share	$
Total Number of Shares Granted
Total Exercise Price	$
Term/Expiration Date:

Vesting Schedule:

This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

One-third (1/3) of the Shares subject to the Option shall vest on the one (1) year anniversary of the Vesting Commencement Date, and 1/36 of the Shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date, subject to Optionee continuing to be a Service Provider through each such date.

Termination Period:

This Option shall be exercisable for thirty (30) days after Optionee ceases to be a Service Provider. Upon Optionee’s death or Disability, this Option may be exercised for six (6) months after Optionee ceases to be a Service Provider. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above.

II. AGREEMENT

1. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant (the “Optionee”), an option (the “Option”) to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the “Exercise Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail.

2. Exercise of Option.

(a) Right to Exercise. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement.

(b) Method of Exercise. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the “Exercise Notice”) which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price.

No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

3. Optionee’s Representations. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B.

4. Lock-Up Period. Optionee hereby agrees that Optionee shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock (or other securities) of the Company held by Optionee (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of any registration statement of the Company filed under the Securities Act.

Optionee agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, Optionee shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a

registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. Optionee agrees that any transferee of the Option or shares acquired pursuant to the Option shall be bound by this Section.

5. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a) cash or check;

(b) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or

(c) surrender of other Shares which, (i) in the case of Shares acquired from the Company, either directly or indirectly, have been owned by the Optionee, and not subject to a substantial risk of forfeiture, for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

6. Restrictions on Exercise. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law.

7. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.

8. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option.

9. Tax Obligations. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

10. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of Idaho.

11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,

THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

OPTIONEE	NIGHTHAWK RADIOLOGY HOLDINGS, INC.
Signature	By
Print Name	Title
Residence Address

EXHIBIT A

2004 STOCK PLAN

EXERCISE NOTICE

NightHawk Radiology Holdings, Inc.

250 Northwest Blvd., Suite #202

Coeurd’Alene, Idaho 83814

Attention: Chief Financial Officer

1. Exercise of Option. Effective as of today,                                 ,                             , the undersigned (“Optionee”) hereby elects to exercise Optionee’s option to purchase          shares of the Common Stock (the “Shares”) of NightHawk Radiology Holdings, Inc. (the “Company”) under and pursuant to the 2004 Stock Plan (the “Plan”) and the Stock Option Agreement dated                                 ,                              (the “Option Agreement”).

2. Delivery of Payment. Optionee herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and all withholding taxes due in connection with the exercise of the Option.

3. Representations of Optionee. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised in accordance with the Option Agreement. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 13 of the Plan.

5. Company’s Right of First Refusal. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the “Right of First Refusal”).

(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating: (i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).

(b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase

all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.

(c) Purchase Price. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.

(d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice.

(e) Holder’s Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice, that any such sale or other transfer is effected in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.

(f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee’s lifetime or on the Optionee’s death by will or intestacy to the Optionee’s immediate family or a trust for the benefit of the Optionee’s immediate family shall be exempt from the provisions of this Section. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section.

(g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity securities that are publicly traded.

6. Tax Consultation. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

7. Restrictive Legends and Stop-Transfer Orders.

(a) Legends. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD NOT TO EXCEED 180 DAYS FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF THE COMPANY’S SECURITIES AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER WITHOUT THE CONSENT OF THE COMPANY OR THE MANAGING UNDERWRITER.

(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

(c) Refusal to Transfer. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

8. Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns.

9. Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties.

10. Governing Law; Severability. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of Idaho. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Exercise Notice will continue in full force and effect.

11. Entire Agreement. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof,

and may not be modified adversely to the Optionee’s interest except by means of a writing signed by the Company and Optionee.

Submitted by:	Accepted by:
OPTIONEE	NIGHTHAWK RADIOLOGY HOLDINGS, INC.
Signature	By
Print Name	Title
Address:	Address:
	Date Received

EXHIBIT B

INVESTMENT REPRESENTATION STATEMENT

OPTIONEE:

COMPANY: NIGHTHAWK RADIOLOGY HOLDINGS, INC.

SECURITY: COMMON STOCK

AMOUNT:

DATE:

In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following:

(a) Optionee is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

(b) Optionee acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee’s investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with any legend required under applicable state securities laws.

(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited “broker’s transaction” or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about

the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.

In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above.

(d) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event.

Signature of Optionee:

Date:                                                   ,                 

EX-10.4

Exhibit 10.4

NIGHTHAWK RADIOLOLGY HOLDINGS, INC.

2005 EQUITY INCENTIVE PLAN

1. Purposes of the Plan. The purposes of this Plan are:

• to attract and retain the best available personnel for positions of substantial responsibility,

• to provide additional incentive to Employees, Directors and Consultants, and

• to promote the success of the Company’s business.

The Plan permits the grant of Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares.

2. Definitions. As used herein, the following definitions will apply:

(a) “Administrator” means the Board or any of its Committees as will be administering the Plan, in accordance with Section 4 of the Plan.

(b) “Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

(c) “Award” means, individually or collectively, a grant under the Plan of Options, SARs, Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares.

(d) “Award Agreement” means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.

(e) “Board” means the Board of Directors of the Company.

(f) “Change in Control” means the occurrence of any of the following events:

(i) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets;

(iii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. “Incumbent Directors” means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or

(iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(g) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein will be a reference to any successor or amended section of the Code.

(h) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4 hereof.

(i) “Common Stock” means the common stock of the Company.

(j) “Company” means NightHawk Radiology Holdings, Inc., a Delaware corporation, or any successor thereto.

(k) “Consultant” means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

(l) “Director” means a member of the Board.

(m) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided that the Administrator in its discretion may determine whether a permanent and total disability exists in accordance with uniform and non-discriminatory standards adopted by the Administrator from time to time.

(n) “Employee” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

(o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(p) “Exchange Program” means a program under which (i) outstanding Awards are surrendered or cancelled in exchange for Awards of the same type (which may have lower exercise prices and different terms), Awards of a different type, and/or cash, and/or (ii) the exercise price of an outstanding Award is reduced. The Administrator will determine the terms and conditions of any Exchange Program in its sole discretion.

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(q) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value will be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share will be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) For purposes of any Awards granted on the Registration Date, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company’s Common Stock; or

(iv) In the absence of an established market for the Common Stock, the Fair Market Value will be determined in good faith by the Administrator.

(r) “Fiscal Year” means the fiscal year of the Company.

(s) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(t) “Nonstatutory Stock Option” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.

(u) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(v) “Option” means a stock option granted pursuant to the Plan.

(w) “Optioned Stock” means the Common Stock subject to an Award.

(x) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(y) “Participant” means the holder of an outstanding Award.

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(z) “Performance Share” means an Award denominated in Shares which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine pursuant to Section 10.

(aa) “Performance Unit” means an Award which may be earned in whole or in part upon attainment of performance goals or other vesting criteria as the Administrator may determine and which may be settled for cash, Shares or other securities or a combination of the foregoing pursuant to Section 10.

(bb) “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock are subject to restrictions and therefore, the Shares are subject to a substantial risk of forfeiture. Such restrictions may be based on the passage of time, the achievement of target levels of performance, or the occurrence of other events as determined by the Administrator.

(cc) “Plan” means this 2005 Equity Incentive Plan.

(dd) “Registration Date” means the effective date of the first registration statement that is filed by the Company and declared effective pursuant to Section 12(g) of the Exchange Act, with respect to any class of the Company’s securities.

(ee) “Restricted Stock” means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the early exercise of an Option.

(ff) “Restricted Stock Unit” means a bookkeeping entry representing an amount equal to the Fair Market Value of one Share, granted pursuant to Section 8. Each Restricted Stock Unit represents an unfunded and unsecured obligation of the Company.

(gg) “Rule 16b-3” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(hh) “Section 16(b)” means Section 16(b) of the Exchange Act.

(ii) “Service Provider” means an Employee, Director or Consultant.

(jj) “Share” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

(kk) “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with an Option, that pursuant to Section 9 is designated as a SAR.

(ll) “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan.

(a) Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 2,000,000, plus (i) the number of Shares which have been reserved but not issued under the

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Company’s 2004 Stock Plan (the “2004 Plan”) as of the Registration Date, (ii) any Shares returned to the 2004 Plan as a result of termination of options or repurchase of Shares issued under such plan, and (iii) an annual increase to be added on the first day of the Company’s fiscal year beginning in 2007, equal to the lesser of (A) 3% of the outstanding Shares on such date or (B) an amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock.

(b) Lapsed Awards. If an Award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an Exchange Program, or, with respect to Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, is forfeited to or repurchased by the Company, the unpurchased Shares (or for Awards other than Options and SARs, the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated). With respect to SARs, only Shares actually issued pursuant to an SAR will cease to be available under the Plan; all remaining Shares under SARs will remain available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if Shares of Restricted Stock, Performance Shares or Performance Units are repurchased by the Company or are forfeited to the Company, such Shares will become available for future grant under the Plan. Shares used to pay the tax and exercise price of an Award will become available for future grant or sale under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.

(c) Share Reserve. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan.

(ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as “performance-based compensation” within the meaning of Section 162(m) of the Code, the Plan will be administered by a Committee of two or more “outside directors” within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder will be structured to satisfy the requirements for exemption under Rule 16b-3.

(iv) Other Administration. Other than as provided above, the Plan will be administered by (A) the Board or (B) a Committee, which committee will be constituted to satisfy Applicable Laws.

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(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator will have the authority, in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Awards may be granted hereunder;

(iii) to determine the number of Shares to be covered by each Award granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator will determine;

(vi) to institute an Exchange Program;

(vii) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan;

(viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(ix) to modify or amend each Award (subject to Section 18(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Awards longer than is otherwise provided for in the Plan;

(x) to allow Participants to satisfy withholding tax obligations in such manner as prescribed in Section 14;

(xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

(xii) to allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under an Award

(xiii) to make all other determinations deemed necessary or advisable for administering the Plan.

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(c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations and interpretations will be final and binding on all Participants and any other holders of Awards.

5. Eligibility. Nonstatutory Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Units and Performance Shares may be granted to Service Providers.

6. Stock Options.

(a) Limitations.

(i) Each Option granted pursuant to the Plan will be a Nonstatutory Stock Option.

(ii) The following limitations will apply to grants of Options:

(1) No Service Provider will be granted, in any Fiscal Year, Options to purchase more than 1,000,000 Shares.

(2) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 2,000,000 Shares, which will not count against the limit set forth in Section 6(a)(2)(ii)(1) above.

(3) The foregoing limitations will be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 13.

(4) If an Option is cancelled in the same Fiscal Year in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (1) and (2) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option.

(b) Term of Option. The term of each Option will be stated in the Award Agreement.

(c) Option Exercise Price and Consideration.

(1) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of a Nonstatutory Stock Option will be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code, the per Share exercise price will be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised.

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(iii) Form of Consideration. The Administrator will determine the acceptable form of consideration for exercising an Option, including the method of payment. Such consideration may consist entirely of: (1) cash; (2) check; (3) promissory note; (4) other Shares, provided Shares acquired directly or indirectly from the Company, (A) have been owned by the Participant and not subject to substantial risk of forfeiture for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option will be exercised; (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (6) a reduction in the amount of any Company liability to the Participant, including any liability attributable to the Participant’s participation in any Company-sponsored deferred compensation program or arrangement; (7) any combination of the foregoing methods of payment; or (8) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws.

(d) Exercise of Option.

(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder will be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.

An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Administrator specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with an applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.

Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(ii) Termination of Relationship as a Service Provider. If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for three (3) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by

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the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified by the Administrator, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

(iii) Disability of Participant. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability, the Participant may exercise his or her Option within such period of time as is specified in the Award Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Award Agreement). In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following the Participant’s termination. Unless otherwise provided by the Administrator, if on the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will revert to the Plan. If after termination the Participant does not exercise his or her Option within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

(iv) Death of Participant. If a Participant dies while a Service Provider, the Option may be exercised following the Participant’s death within such period of time as is specified in the Award Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Award Agreement), by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to Participant’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of the Participant’s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Award Agreement, the Option will remain exercisable for twelve (12) months following Participant’s death. Unless otherwise provided by the Administrator, if at the time of death Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option will immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option will terminate, and the Shares covered by such Option will revert to the Plan.

7. Restricted Stock.

(a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, will determine.

(b) Restricted Stock Agreement. Each Award of Restricted Stock will be evidenced by an Award Agreement that will specify the Period of Restriction, the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, will determine. Unless the Administrator determines otherwise, the Company as escrow agent will hold Shares of Restricted Stock until the restrictions on such Shares have lapsed.

(c) Transferability. Except as provided in this Section 7, Shares of Restricted Stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction.

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(d) Other Restrictions. The Administrator, in its sole discretion, may impose such other restrictions on Shares of Restricted Stock as it may deem advisable or appropriate.

(e) Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of Restricted Stock covered by each Restricted Stock grant made under the Plan will be released from escrow as soon as practicable after the last day of the Period of Restriction or at such other time as the Administrator may determine. The Administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.

(f) Voting Rights. During the Period of Restriction, Service Providers holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.

(g) Dividends and Other Distributions. During the Period of Restriction, Service Providers holding Shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to such Shares unless otherwise provided in the Award Agreement. If any such dividends or distributions are paid in Shares, the Shares will be subject to the same restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect to which they were paid.

(h) Return of Restricted Stock to Company. On the date set forth in the Award Agreement, the Restricted Stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the Plan.

8. Restricted Stock Units.

(a) Grant. Restricted Stock Units may be granted at any time and from time to time as determined by the Administrator. After the Administrator determines that it will grant Restricted Stock Units under the Plan, it shall advise the Participant in an Award Agreement of the terms, conditions, and restrictions related to the grant, including the number of Restricted Stock Units and the form of payout, which, subject to Section 8(d), may be left to the discretion of the Administrator.

(b) Vesting Criteria and Other Terms. The Administrator shall set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of Restricted Stock Units that will be paid out to the Participant. The Administrator may set vesting criteria based upon the achievement of Company-wide, business unit, or individual goals (including, but not limited to, continued employment), or any other basis determined by the Administrator in its discretion.

(c) Earning Restricted Stock Units. Upon meeting the applicable vesting criteria, the Participant shall be entitled to receive a payout as specified in the Restricted Stock Unit Award Agreement. Notwithstanding the foregoing, at any time after the grant of Restricted Stock Units, the Administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout.

(d) Form and Timing of Payment. Payment of earned Restricted Stock Units shall be made as soon as practicable after the date(s) set forth in the Restricted Stock Unit Award

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Agreement. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in cash, Shares, or a combination thereof. Shares represented by Restricted Stock Units that are fully paid in cash again shall be available for grant under the Plan.

(e) Cancellation. On the date set forth in the Restricted Stock Unit Award Agreement, all unearned Restricted Stock Units shall be forfeited to the Company.

9. Stock Appreciation Rights.

(a) Grant of SARs. Subject to the terms and conditions of the Plan, a SAR may be granted to Service Providers at any time and from time to time as will be determined by the Administrator, in its sole discretion.

(b) Number of Shares. The Administrator will have complete discretion to determine the number of SARs granted to any Service Provider.

(c) Exercise Price and Other Terms. The Administrator, subject to the provisions of the Plan, will have complete discretion to determine the terms and conditions of SARs granted under the Plan.

(d) SAR Agreement. Each SAR grant will be evidenced by an Award Agreement that will specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, will determine.

(e) Expiration of SARs. An SAR granted under the Plan will expire upon the date determined by the Administrator, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 6(d) also will apply to SARs.

(f) Payment of SAR Amount. Upon exercise of an SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

(i) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

(ii) The number of Shares with respect to which the SAR is exercised.

At the discretion of the Administrator, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

10. Performance Units and Performance Shares.

(a) Grant of Performance Units/Shares. Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as will be determined by the Administrator, in its sole discretion. The Administrator will have complete discretion in determining the number of Performance Units and Performance Shares granted to each Participant.

(b) Value of Performance Units/Shares. Each Performance Unit will have an initial value that is established by the Administrator on or before the date of grant. Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.

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(c) Performance Objectives and Other Terms. The Administrator will set performance objectives or other vesting provisions (including, without limitation, continued status as a Service Provider) in its discretion which, depending on the extent to which they are met, will determine the number or value of Performance Units/Shares that will be paid out to the Service Providers. The time period during which the performance objectives or other vesting provisions must be met will be called the “Performance Period.” Each Award of Performance Units/Shares will be evidenced by an Award Agreement that will specify the Performance Period, and such other terms and conditions as the Administrator, in its sole discretion, will determine. The Administrator may set performance objectives based upon the achievement of Company-wide, divisional, or individual goals, applicable federal or state securities laws, or any other basis determined by the Administrator in its discretion.

(d) Earning of Performance Units/Shares. After the applicable Performance Period has ended, the holder of Performance Units/Shares will be entitled to receive a payout of the number of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a Performance Unit/Share, the Administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such Performance Unit/Share.

(e) Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares will be made as soon as practicable after the expiration of the applicable Performance Period. The Administrator, in its sole discretion, may pay earned Performance Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period) or in a combination thereof.

(f) Cancellation of Performance Units/Shares. On the date set forth in the Award Agreement, all unearned or unvested Performance Units/Shares will be forfeited to the Company, and again will be available for grant under the Plan.

11. Leaves of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder will be suspended during any unpaid leave of absence. A Service Provider will not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, or any Subsidiary.

12. Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.

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13. Adjustments; Dissolution or Liquidation; Merger or Change in Control.

(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Award and the numerical Share limits in Sections 3 and 6 of the Plan.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator will notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.

(c) Change in Control. In the event of a merger or Change in Control, each outstanding Award will be treated as the Administrator determines, including, without limitation, that each Award be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. The Administrator shall not be required to treat all Awards similarly in the transaction.

In the event that the successor corporation does not assume or substitute for the Award, unless the Administrator provides otherwise, the Participant will fully vest in and have the right to exercise all of his or her outstanding Options and Stock Appreciation Rights, including Shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock and Restricted Stock Units will lapse, and, with respect to Performance Shares and Performance Units, all Performance Goals or other vesting criteria will be deemed achieved at target levels and all other terms and conditions met. In addition, if an Option or Stock Appreciation Right is not assumed or substituted in the event of a Change in Control, the Administrator will notify the Participant in writing or electronically that the Option or Stock Appreciation Right will be exercisable for a period of time determined by the Administrator in its sole discretion, and the Option or Stock Appreciation Right will terminate upon the expiration of such period.

For the purposes of this subsection (c), an Award will be considered assumed if, following the Change in Control, the Award confers the right to purchase or receive, for each Share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a Stock Appreciation Right upon the exercise of which the Administrator determines to pay cash or a Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the consideration received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an Option or Stock Appreciation

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Right or upon the payout of a Restricted Stock Unit, Performance Share or Performance Unit, for each Share subject to such Award (or in the case of Restricted Stock Units and Performance Units, the number of implied shares determined by dividing the value of the Restricted Stock Units and Performance Units, as applicable, by the per share consideration received by holders of Common Stock in the Change in Control), to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control.

Notwithstanding anything in this Section 13(c) to the contrary, an Award that vests, is earned or paid-out upon the satisfaction of one or more performance goals will not be considered assumed if the Company or its successor modifies any of such performance goals without the Participant’s consent; provided, however, a modification to such performance goals only to reflect the successor corporation’s post-Change in Control corporate structure will not be deemed to invalidate an otherwise valid Award assumption.

14. Tax Withholding.

(a) Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an Award (or exercise thereof), the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with respect to such Award (or exercise thereof).

(b) Withholding Arrangements. The Administrator, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy such tax withholding obligation, in whole or in part by (a) paying cash, (b) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum amount required to be withheld, or (c) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount which the Administrator agrees may be withheld at the time the election is made, not to exceed the amount determined by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date that the amount of tax to be withheld is to be determined. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

15. No Effect on Employment or Service. Neither the Plan nor any Award will confer upon a Participant any right with respect to continuing the Participant’s relationship as a Service Provider with the Company, nor will they interfere in any way with the Participant’s right or the Company’s right to terminate such relationship at any time, with or without cause, to the extent permitted by Applicable Laws.

16. Date of Grant. The date of grant of an Award will be, for all purposes, the date on which the Administrator makes the determination granting such Award, or such other later date as is determined by the Administrator. Notice of the determination will be provided to each Participant within a reasonable time after the date of such grant.

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17. Term of Plan. Subject to Section 21 of the Plan, the Plan will become effective upon its adoption by the Board. It will continue in effect for a term of ten (10) years unless terminated earlier under Section 18 of the Plan.

18. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Stockholder Approval. The Company will obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.

19. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares will not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares will comply with Applicable Laws and will be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

20. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority will not have been obtained.

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EX-10.5

Exhibit 10.5

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

2005 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

Unless otherwise defined herein, the terms defined in the Nighthawk Radiology Holdings, Inc. 2005 Equity Incentive Plan (the “Plan”) will have the same defined meanings in this Stock Option Agreement (the “Option Agreement”).

I.        NOTICE OF STOCK OPTION GRANT

Name:

Address:

You have been granted a Nonstatutory Stock Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:

Grant Number	_________________________________________
Date of Grant	_________________________________________
Vesting Commencement Date	_________________________________________
Exercise Price per Share	$_________________________________________
Total Number of Shares Granted	_________________________________________
Total Exercise Price	$_________________________________________
Term/Expiration Date:	_________________________________________

Vesting Schedule:

Subject to accelerated vesting as set forth in the Plan, this Option may be exercised, in whole or in part, in accordance with the following schedule:

[1/3 of the Shares subject to the Option will vest twelve months after the Vesting Commencement Date, and 1/36 of the Shares subject to the Option will vest each month thereafter on the same day of the month as the Vesting Commencement Date (or if there is no corresponding day in an applicable month, the last day of such month), subject to Participant continuing to be a Service Provider through each such date.]

Termination Period:

This Option shall be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this Option shall be exercisable for one (1) year after Participant ceases to be Service Provider. Notwithstanding the foregoing, in no event may this Option be exercised after the Term/Expiration Date as provided above and may be subject to earlier termination as provided in Section 14(c) of the Plan.

II.        AGREEMENT

1. Grant of Option.

The Administrator hereby grants to individual named in the Notice of Grant attached as Part I of this Agreement (the “Participant”) an option (the “Option”) to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan will prevail.

2. Exercise of Option.

(a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement.

(b) Method of Exercise. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the “Exercise Notice”) or in such other form and manner as determined by the Administrator, which will state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice will be completed by Participant and delivered to the Company. The Exercise Notice will be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares together with any applicable withholding taxes. This Option will be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.

No Shares will be issued pursuant to the exercise of this Option unless such issuance and exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares will be considered transferred to Participant on the date the Option is exercised with respect to such Exercised Shares.

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3. Method of Payment.

Payment of the aggregate Exercise Price will be by any of the following, or a combination thereof, at the election of Participant:

(a) cash;

(b) check;

(c) surrender of other Shares which, (i) in the case of Shares acquired from the Company, either directly or indirectly, have been owned by the Participant and not subject to a substantial risk of forfeiture for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or

(d) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan.

4. Non-Transferability of Option.

This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Participant only by Participant.

5. Term of Option.

This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

6. Tax Obligations. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Participant) for the satisfaction of all Federal, state, and local income and employment tax withholding requirements applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise.

7. Entire Agreement; Governing Law.

The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s interest except by means of a writing signed by the Company and Participant. This Option Agreement is governed by the internal substantive laws, but not the choice of law rules, of Idaho.

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8. NO GUARANTEE OF CONTINUED SERVICE.

PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND WILL NOT INTERFERE WITH PARTICIPANT’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

[Remainder of Page Intentionally Left Blank]

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By Participant’s signature and the signature of the Company’s representative below, Participant and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Participant has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Participant further agrees to notify the Company upon any change in the residence address indicated below.

PARTICIPANT:	NIGHTHAWK RADIOLOGY HOLDINGS, INC.
Signature	By
Print Name	Title
Residence Address

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EXHIBIT A

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

2005 EQUITY INCENTIVE PLAN

EXERCISE NOTICE

Nighthawk Radiology Holdings, Inc.

[ADDRESS]

Attention:             

1. Exercise of Option. Effective as of today,                     ,         , the undersigned (“Purchaser”) hereby elects to purchase                     shares (the “Shares”) of the Common Stock of Nighthawk Radiology Holdings, Inc. (the “Company”) under and pursuant to the 2005 Equity Incentive Plan (the “Plan”) and the Option Agreement dated                     (the “Option Agreement”). The purchase price for the Shares will be $                    , as required by the Option Agreement.

2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares and any required withholding taxes to be paid in connection with the exercise of the Option.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions.

4. Rights as Stockholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired will be issued to Participant as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 14 of the Plan.

5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser’s purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.

6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all

prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser’s interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Idaho.

Submitted by:	Accepted by:
PURCHASER:	NIGHTHAWK RADIOLOGY HOLDINGS, INC.
Print Name	Its
Address:	Address:
	Date Received

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EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

This Agreement, dated as of March 30, 2004, is by and between NightHawk Radiology Holdings, Inc., a Delaware corporation (“Employer”), and Paul Berger, M.D. (“Executive”).

1. PERIOD OF EMPLOYMENT. Employer shall employ Executive to render services to Employer in the position and with the duties and responsibilities described in Section 2 for the period (the “Period of Employment”) commencing on the date of this Agreement and ending on the date upon which the Period of Employment is terminated in accordance with Section 4.

2. POSITION AND RESPONSIBILITIES.

(a) Position. Executive accepts employment with Employer as Chief Executive Officer and shall perform all services appropriate to that position, as well as such other services as may be assigned by Employer’s Board of Directors (the “Board”). Executive shall devote his best efforts and full-time attention to the performance of his duties. Executive shall be subject to the direction of the Board, which shall retain full control of the means and methods by which he performs the above services and of the place(s) at which all services are rendered. Executive shall be expected to travel if necessary or advisable in order to meet the obligations of his position.

(b) Other Activity. Except upon the prior written consent of the Board, Executive (during the Period of Employment) shall not (i) accept any other employment; or (ii) engage in, manage, control, participate in, consult with, or render services for, directly or indirectly, any other business, commercial, or professional activity (whether or not pursued for pecuniary advantage) that is competitive with Employer, creates a conflict of interest with Employer, or otherwise interferes with his duties to Employer or the business of Employer or any Affiliate (as such businesses exist or are in development during the Period of Employment) (and shall immediately cease any such ongoing activity that becomes so competitive, begins to create such a conflict or begins to interfere with his duties to Employer or the business of Employer or any Affiliate). An “Affiliate” shall mean any person or entity that directly or indirectly controls, is controlled by, or is under common control with Employer (but, for the avoidance of doubt, the term “Affiliate” as used herein shall specifically exclude any so-called “portfolio companies” of Summit Partners, L.P. other than Holdings and its direct and indirect subsidiaries (including, without limitation, Employer)).

3. COMPENSATION AND BENEFITS.

(a) Salary. In consideration of the services to be rendered under this Agreement, Employer shall pay Executive $600,000 per year (“Base Salary”), payable in regular installments in accordance with Employer’s general payroll policies for salaried employees, in effect from time to time. All compensation and comparable payments to be paid to Executive under this Agreement shall be less all applicable withholdings required by law. Executive’s Base Salary will be reviewed for market and performance adjustments within thirty (30) days of the beginning of each calendar year during the Period of Employment by the Compensation Committee of the Board and may be increased after such review with the unanimous approval of such Committee.

(b) Bonus. In addition to the Base Salary, Executive may (depending upon satisfaction of certain criteria) be entitled receive a performance bonus relating to the operating performance of NightHawk Radiology Services, LLC (“NRS”), as described below. The performance bonus could, in the aggregate, equal up to one-hundred percent (100%) of Executive’s Base Salary, less applicable withholding. Such performance bonus, if any, shall be based upon and subject to the performance criteria as follows, and shall be payable, if at all, in respect of any year (or portion thereof) within 30 days following the delivery of NRS’ annual consolidated audited financial statements for such year.

(i) Executive will be eligible to receive an annual bonus in an amount not to exceed 100% of Executive’s Base Salary for each calendar year (or portion thereof) based upon attainment by NRS of Total Revenue goals (“Total Revenue Goal”) and EBITDA goals (“EBITDA Goal”) established by the Compensation Committee of the Board (after consultation with Executive) on an annual basis prior to the commencement of each calendar year or as soon as reasonably practicable thereafter. If NRS shall attain the Total Revenue Goal and the EBITDA Goal for any fiscal year, Executive shall receive a bonus in an amount equal to 50% of Executive’s Base Salary, less applicable withholding and subject to adjustment as described in the next sentence. The bonus amount payable pursuant to the immediately preceding sentence is subject to upward and downward adjustment such that (i) for every one (1%) percentage point that audited Total Revenue exceeds or falls below, as the case may be, the Total Revenue Goal established for such year, such bonus amount shall be appropriately adjusted, upward or downward, by 1.67% of Executive’s Base Salary (such adjustment in no event to exceed 25% of Base Salary) and (ii) for every one (1%) percentage point that audited EBITDA exceeds or falls below, as the case may be, the EBITDA Goal established for such year, such bonus amount shall be appropriately adjusted, upward or downward, by 1.25 % of Executive’s Base Salary (such adjustment in no event to exceed 25% of Base Salary).

(ii) The Total Revenue Goal and the EBITDA Goal for fiscal year 2004 is hereby agreed to be $30.5 million and $11.2 million (after accrual for any and all bonus or incentive compensation amounts payable to the executive management team of NRS and Employer), respectively.

(iii) “Total Revenue” is hereby agreed to mean, for any particular period, total revenue derived from the sale by NRS of radiology services and related merchandise, less reserves for doubtful accounts “EBITDA” is hereby agreed to mean, for any particular period, NRS’ net income for such period, plus (i) the amount of the provision for foreign, federal, state and local income taxes for such period, plus (ii) the amount of depreciation, amortization and non-cash compensation expenses and any extraordinary and non-recurring charges incurred during such period, plus (iii) to the extent applicable, the aggregate costs and expenses incurred by NRS and Employer in connection with the transactions undertaken with Summit Partners, L.P. For the avoidance of doubt, EBITDA hereunder will be calculated after accrual for any and all amounts payable to Executive and other members of the executive management team NightHawk Radiology Services, LLC.

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(iv) The target amount of Executive’s bonus as set forth above will be reviewed for market and performance adjustments within thirty (30) days of the beginning of each calendar year and may be increased after such review in the Compensation Committee’s sole discretion.

(c) Benefits. Executive shall be entitled to vacation leave in accordance with Employer’s standard policies for salaried employees, in effect from time to time. As Executive becomes eligible, he shall have the right to participate in and to receive benefits from all present and future benefit plans specified in Employer’s policies and generally made available to salaried employees of Employer from time to time. The amount and extent of benefits to which Executive is entitled shall be governed by the specific benefit plan, as amended. Executive also shall be entitled to any benefits or compensation tied to termination as described in Section 4. Employer reserves the ability, in its sole discretion, to adjust benefits provided to Executive in connection with the adjustment of benefits to salaried employees. No statement concerning benefits or compensation to which Executive is entitled shall alter in any way the term of this Agreement, any renewal thereof, or its termination.

(d) Expenses. Employer shall reimburse Executive for reasonable travel and other business expenses incurred by Executive in the performance of his duties, subject to reasonable documentation thereof and in accordance with Employer’s policies in effect from time to time.

(e) Withholding. Any and all payments made pursuant to this Agreement shall be subject to all withholding required in accordance with applicable federal, state or local law.

4. TERMINATION OF EMPLOYMENT.

(a) By Employer Without Cause. At any time, Employer may terminate the Period of Employment without Cause (as defined below), effective as of the date specified in a written notice from Employer to Executive. Employer may dismiss Executive as provided in this Section 4 notwithstanding anything to the contrary contained in or arising from any statements, policies, or practices of Employer relating to the employment, discipline, or termination of its employees. If the Period of Employment is terminated by Employer without Cause, Executive shall be entitled to continue to receive his Base Salary and Bonus (pro-rated to the date of termination and paid in accordance with Section 3(b) above) payable in regular installments as special severance payments from the date of termination for a period of twelve (12) months thereafter, (the “Severance Period”), if and only if Executive has executed and delivered to Employer the General Release substantially in form and substance as set forth in Exhibit A attached hereto and only so long as Executive has not revoked or breached the provisions of the General Release or breached the provisions of this Agreement or the Confidentiality and Non-Compete Agreement between Holdings and Employer dated as of the date hereof (the “Non-Compete Agreement”) and does not apply for unemployment compensation chargeable to Employer during the Severance Period, and Executive shall not be entitled to any other salary, compensation or benefits after termination of the Period of Employment, except as specifically provided for in Employer’s employee benefit plans or as otherwise expressly required by applicable law (such as COBRA); provided that Employer shall pay Executive’s COBRA health insurance premiums from the date of termination through the date that is twelve (12) months after the date of termination. Notwithstanding anything to the contrary contained in this

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Section 4(a), in the event Executive breaches the provisions of this Agreement or the Non-Compete Agreement, the severance amounts payable by Employer under this Section 4(a) shall not terminate unless and until more than fifteen (15) days have elapsed from and after the date written notice of such breach has been delivered to Executive without such breach having been cured during such 15-day period, provided, however, Executive will be permitted to avail himself of the cure rights contained in this Section 4(a) one time only during the Period of Employment.

(b) By Employer For Cause. At any time, and without prior notice (except as otherwise provided in the definition of Cause set forth below), Employer may terminate the Period of Employment for Cause. Employer shall pay Executive all compensation then due and owing; thereafter, all of Employer’s obligations under this Agreement shall cease. Termination shall be for “Cause” if Executive: (i) breaches his duty of loyalty to Employer or any of its Affiliates or engages in any acts of dishonesty or fraud with respect to Employer or any of its Affiliates or any of their respective business relations; (ii) commits a felony or any crime involving dishonesty, breach of trust, or physical or emotional harm to any person (or enters a plea of guilty or nolo contendere with respect thereto); (iii) breaches any material term of this Agreement or any other agreement between Executive and Employer or any of its Affiliates and such breach (if capable of cure) is not cured within fifteen (15) days following written notice thereof from Employer, (iv) reports to work under the influence of alcohol or illegal drugs, the use of illegal drugs (whether or not at the workplace) or other repeated conduct causing Employer or any of its Affiliates substantial public disgrace, disrepute or economic harm, (v) substantial and repeated failure to perform the duties as reasonably directed by the Board, or (vi) gross negligence or willful misconduct with respect to the Employer or any of its Affiliates.

(c) By Executive for Good Reason. If Executive shall resign for Good Reason, Executive shall be entitled to continue to receive his Base Salary and Bonus (pro-rated to the date of termination and paid in accordance with Section 3(b) above) payable in regular installments as special severance payments from the date of termination for a period of twelve (12) months thereafter, if and only if Executive has executed and delivered to Employer the General Release substantially in form and substance as set forth in Exhibit A attached hereto and only so long as Executive has not revoked or breached the provisions of the General Release or breached the provisions of this Agreement or the Non-Compete Agreement and does not apply for unemployment compensation chargeable to Employer during such twelve (12) month period, and Executive shall not be entitled to any other salary, compensation or benefits after termination of the Period of Employment, except as specifically provided for in Employer’s employee benefit plans or as otherwise expressly required by applicable law (such as COBRA). Notwithstanding anything to the contrary contained in this Section 4(c), in the event Executive breaches the provisions of this Agreement or any Ancillary Agreement, the severance amounts payable by Employer under this Section 4(c) shall not terminate unless and until more than fifteen (15) days have elapsed from and after the date written notice of such breach has been delivered to Executive without such breach having been cured during such 15-day period provided, however, Executive will be permitted to avail himself of the cure rights contained in this Section 4(c) one time only during the Period of Employment. For purposes of this Section 4(c), “Good Reason” will mean Executive’s voluntary resignation within ninety (90) days after the occurrence of any of the following: (i) without the express written consent of Executive, a reduction in Executive’s annualized Base Salary; (ii) without the express written

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consent of Executive, a material diminution in Executive’s supervisory responsibilities; or (iii) the relocation of Executive in connection with any relocation of Employer’s principal place of business to a facility or a location more than fifty (50) miles outside of the greater Coeur d’Alene, Idaho area without Executive’s written consent. In addition, Employer shall pay Executive’s COBRA health insurance premiums from the date of termination by Executive for Good Reason through the date that is twelve (12) months after the date of termination by Executive for Good Reason. In the event that Executive terminates his employment for Good Reason, the Company shall be entitled to deliver written notice to Executive within fifteen (15) days following such termination demanding that the determination of the existence of Good Reason be determined by arbitration in accordance with the procedures set forth in Section 9 hereof. If the arbitrator determines that Good Reason did not exist, the termination shall be treated as a voluntary termination by Executive and the Company shall have no obligations to pay or provide to Executive the compensation payments and other benefits to which he would have otherwise been entitled to pursuant to a termination for Good Reason. If the arbitrator determines that Good Reason did exist, Executive shall be entitled to the compensation payments and other benefits set forth in this Section 4(c).

(d) Voluntary Termination By Executive. At any time, Executive may terminate the Period of Employment for any reason, with or without cause, by providing Employer at least thirty (30) days’ advance written notice. Employer shall have the option, in its complete discretion and upon payment of all compensation then due and owing (including Bonus, pro rated to the date of any such termination and paid in accordance with Section 3(b) above) through the last day of the notice period, to make Executive’s termination effective at any time prior to the end of such notice period and, thereafter, all of Employer’s obligations under this Agreement shall cease.

(e) Termination Upon Death or Permanent Disability. Executive’s employment with Employer shall also terminate upon Executive’s death or permanent mental or physical disability or other incapacity (as determined by the Board in its good faith judgment). Upon any such termination, Employer shall pay Executive (or Executive’s estate or legal representative or guardian) all compensation then due and owing (including Bonus, pro rated to the date of any such death or permanent mental or physical disability or other incapacity and paid in accordance with Section 3(b) above); thereafter, all of Employer’s obligations under this Agreement shall cease.

(f) Termination of Compensation. Except as otherwise expressly provided herein, all of Executive’s rights to salary, bonuses, employee benefits and other compensation hereunder which would have accrued or become payable after the termination or expiration of the Period of Employment shall cease upon such termination or expiration, other than those expressly required under applicable law (such as COBRA).

(g) Termination Obligations.

(i) Executive agrees that all property, including, without limitation, all equipment, Confidential Information (as defined in the Non-Compete Agreement), documents, books, records, reports, notes, contracts, lists, computer disks (and other computer-generated files and data), and copies thereof, created on any medium and

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furnished to, obtained by, or prepared by Executive in the course of or incident to his employment, belongs to Employer and shall be returned promptly to Employer upon termination or expiration of the Period of Employment.

(ii) All employee and other benefits to which Executive is otherwise entitled shall cease upon the termination or expiration of the Period of Employment, unless explicitly continued either under this Agreement or under any specific written policy or benefit plan of Employer.

(iii) Upon termination or expiration of the Period of Employment, Executive shall be deemed to have resigned from all offices and directorships then held with Employer or any Affiliate.

(iv) The representations and warranties contained in this Agreement and Executive’s obligations under this Section 4(g) shall survive the termination or expiration of the Period of Employment and the expiration of this Agreement.

(h) For sixty (60) days following any termination or expiration of the Period of Employment, Executive shall cooperate in a reasonable manner with Employer in all matters relating to the winding up of pending work on behalf of Employer and the orderly transfer of work to other employees of Employer. At all times following any termination or expiration of the Period of Employment, Executive shall also cooperate in the defense of any action brought by any third party against Employer that relates in any way to Executive’s acts or omissions while employed by Employer; provided that Employer shall reimburse Executive for his reasonable out-of-pocket expenses after being provided with reasonable documentation of such expenses.

5. ARBITRATION.

(a) Arbitrable Claims. To the fullest extent permitted by law, disputes between Executive (and his attorneys, successors, and assigns) and Employer (and its Affiliates, shareholders, directors, officers, employees, agents, successors, attorneys, and assigns) relating in any manner to the employment or termination of Executive, and all disputes arising under this Agreement (“Arbitrable Claims”) shall be resolved by arbitration. All persons and entities specified in the preceding sentence (other than Employer and Executive) shall be considered third-party beneficiaries of the rights and obligations created by this Section on Arbitration. Arbitrable Claims shall include, but are not limited to, contract (express or implied) and tort claims of all kinds, as well as all claims based on any federal, state, or local law, statute, or regulation, excepting only claims under applicable workers’ compensation law and unemployment insurance claims. By way of example and not in limitation of the foregoing, Arbitrable Claims shall include (to the fullest extent permitted by law) any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, as well as any claims asserting wrongful termination, harassment, breach of contract, breach of the covenant of good faith and fair dealing, negligent or intentional infliction of emotional distress, negligent or intentional misrepresentation, negligent or intentional interference with contract or prospective economic advantage, defamation, invasion of privacy, and claims related to disability.

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(b) Procedure. Arbitration of Arbitrable Claims shall be in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association, as amended (“AAA Employment Rules”), as augmented in this Agreement. Arbitration shall be initiated as provided by the AAA Employment Rules, although the written notice to the other party initiating arbitration shall also include a statement of the claim(s) asserted and the facts upon which the claim(s) are based. Arbitration shall be final and binding upon the parties and shall be the exclusive remedy for all Arbitrable Claims. Either party may bring an action in court to compel arbitration under this Agreement and to enforce an arbitration award. Otherwise, neither party shall initiate or prosecute any lawsuit or administrative action in any way related to any Arbitrable Claim. Notwithstanding the foregoing, either party may, at its option, seek injunctive relief under the laws of the State of Idaho. All arbitration hearings under this Agreement shall be conducted in Ada County, Idaho. The decision of the arbitrator shall be in writing and shall include a statement of the essential conclusions and findings upon which the decision is based. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS, INCLUDING WITHOUT LIMITATION ANY RIGHT TO TRIAL BY JURY AS TO THE MAKING, EXISTENCE, VALIDITY, OR ENFORCEABILITY OF THE AGREEMENT TO ARBITRATE.

(c) Arbitrator Selection and Authority. All disputes involving Arbitrable Claims shall be decided by a single arbitrator. The arbitrator shall be selected by mutual agreement of the parties within thirty (30) days of the effective date of the notice initiating the arbitration. If the parties cannot agree on an arbitrator, then the complaining party shall notify the AAA and request selection of an arbitrator in accordance with the AAA Employment Rules. The arbitrator shall have only such authority to award equitable relief, damages, costs, and fees as a court would have for the particular claim(s) asserted. The fees of the arbitrator shall be paid by the non-prevailing party. If the allocation of responsibility for payment of the arbitrator’s fees would render the obligation to arbitrate unenforceable, the parties authorize the arbitrator to modify the allocation as necessary to preserve enforceability. The arbitrator shall have exclusive authority to resolve all Arbitrable Claims, including, but not limited to, whether any particular claim is arbitrable and whether all or any part of this Agreement is void or unenforceable.

(d) Confidentiality. All proceedings and all documents prepared in connection with any Arbitrable Claim shall be confidential and, unless otherwise required by law, the subject matter thereof shall not be disclosed to any person other than the parties to the proceedings, their counsel, witnesses and experts, the arbitrator, and, if involved, the court and court staff. All documents filed with the arbitrator or with a court shall be filed under seal. The parties shall stipulate to all arbitration and court orders necessary to effectuate fully the provisions of this subsection concerning confidentiality.

(e) Continuing Obligations. The rights and obligations of Executive and Employer set forth in this Section 5 shall survive the termination of Executive’s employment and the expiration of this Agreement.

6. EXECUTIVE’S REPRESENTATIONS. Executive hereby represents and warrants to Employer that (i) the execution, delivery and performance of this Agreement by Executive does not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound,

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(ii) Executive is not a party to or bound by any employment agreement or noncompete agreement or confidentiality agreement with any other person or entity and (iii) upon the execution and delivery of this Agreement by Employer, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms.

7. NOTICES. Any notice or other communication under this Agreement must be in writing and shall be effective upon delivery by hand, or three (3) business days after deposit in the United States mail, postage prepaid, certified or registered, and addressed to Employer or to Executive at the corresponding address below. Executive shall be obligated to notify Employer in writing of any change in his address. Notice of change of address shall be effective only when done in accordance with this Section.

Employer’s Notice Address:

NightHawk Radiology Holdings, Inc.

250 Northwest Blvd., #202

Coeur d’Alene, ID 83814

Attn: Vice President - Finance

Telecopy: (208) 664-2720

with a copy to:

Summit Partners, L.P.

499 Hamilton Avenue

Suite 200

Palo Alto, California 94301

Attn: Peter Y. Chung

J. Scott Carter

Telecopy: (650) 321-1188

Kirkland & Ellis LLP

200 East Randolph

Chicago, IL 60601

Attn: Ted H. Zook, P.C.

Telecopy: (312) 861-2200

Executive’s Notice Address:

Paul Berger, M.D.

PO Box 639

Couer d’Alene ID 83814

8. ACTION BY EMPLOYER. All actions required or permitted to be taken under this Agreement by Employer, including, without limitation, exercise of discretion, consents, waivers, and amendments to this Agreement, shall be made and authorized only by a member of the Compensation Committee pursuant to a resolution duly adopted by such committee specifically authorizing such action.

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9. INTEGRATION. This Agreement is intended to be the final, complete, and exclusive statement of the terms of Executive’s employment by Employer. This Agreement supersedes all other prior and contemporaneous agreements and statements, whether written or oral, express or implied, pertaining in any manner to the employment of Executive, and it may not be contradicted by evidence of any prior or contemporaneous statements or agreements. To the extent that the practices, policies, or procedures of Employer, now or in the future, apply to Executive and are inconsistent with the terms of this Agreement, the provisions of this Agreement shall control.

10. AMENDMENTS; WAIVERS. This Agreement may not be amended except by an instrument in writing, signed by each of the parties. No failure to exercise and no delay in exercising any right, remedy, or power under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power under this Agreement preclude any other or further exercise thereof, or the exercise of any other right, remedy, or power provided herein or by law or in equity.

11. ASSIGNMENT; SUCCESSORS AND ASSIGNS. Executive agrees that he will not assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any rights or obligations under this Agreement. Any such purported assignment, transfer, or delegation shall be null and void. Nothing in this Agreement shall prevent the consolidation of Employer with, or its merger into, any other entity, or the sale by Employer of all or substantially all of its assets, or the assignment by Employer of any rights or obligations under this Agreement. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, legal representatives, successors, and permitted assigns, and shall not benefit any person or entity other than those specifically enumerated in this Agreement

12. SEVERABILITY. If any provision of this Agreement, or its application to any person, place, or circumstance, is held by an arbitrator or a court of competent jurisdiction to be invalid, unenforceable, or void, such provision shall be enforced to the greatest extent permitted by law, and the remainder of this Agreement and such provision as applied to other persons, places, and circumstances shall remain in full force and effect.

13. [INTENTIONALLY RESERVED]

14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the law of the State of Idaho. Subject to Section 5, the parties hereto irrevocably aqnd unconditionally submit to the exclusive jurisdiction of any state or federal court sitting in Boise, Idaho over any suit, action or proceeding brought pursuant to the terms of this Agreement.

15. INTERPRETATION. This Agreement shall be construed as a whole, according to its fair meaning, and not in favor of or against any party. By way of example and not in limitation, this Agreement shall not be construed in favor of the party receiving a benefit nor against the party responsible for any particular language in this Agreement. Captions are used for reference purposes only and should be ignored in the interpretation of the Agreement.

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16. EMPLOYEE ACKNOWLEDGMENT. Executive acknowledges that he has had the opportunity to consult legal counsel in regard to this Agreement, that he has read and understands this Agreement, that he is fully aware of its legal effect, and that he has entered into it freely and voluntarily and based on his own judgment and not on any representations or promises other than those contained in this Agreement.

[Signature Page Follows]

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The parties have duly executed this Agreement as of the date first written above.

EXECUTIVE

/s/ PAUL E. BERGER, M.D.

Paul E. Berger, M.D.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

/s/ CHRISTOPHER R. HUBER

Christopher R. Huber,

Vice President and Secretary

EXHIBIT A

GENERAL RELEASE

I, Paul Berger, M.D., in consideration of and subject to the performance by NightHawk Radiology Holdings, Inc. a Delaware corporation (the “Company”), of its obligations under the Employment Agreement, dated as of March 30, 2004 (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and each of its affiliates and all present and former directors, officers, agents, representatives, employees, successors and assigns of the Company and each of its affiliates and the Company’s direct or indirect owners (collectively, the “Released Parties”) to the extent provided below.

1. I understand that any payments or benefits paid or granted to me under Section 4(a) and Section 4(c) of the Agreement represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive the payments and benefits specified in Section 4(a) and Section 4(c) of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release. Such payments and benefits will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates. I also acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company.

2. Except as provided in paragraphs 4 and 13 below and except for the provisions of my Employment Agreement which expressly survive the termination of my employment with the Company, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including, without limitation, the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including (without limitation)

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attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).

3. I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.

4. I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).

5. In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including, without limitation, those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims. I further agree that I am not aware of any pending charge or complaint of the type described in paragraph 2 as of the execution of this General Release.

6. I represent that I am not aware of any claim by me other than the claims that are released by this Agreement.

7. I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.

8. I agree that I will forfeit all amounts payable by the Company pursuant to the Agreement if I challenge the validity of this General Release. I also agree that if I violate this General Release by suing the Company or the other Released Parties, I will pay all costs and expenses of defending against the suit incurred by the Released Parties, including (without limitation) reasonable attorneys’ fees, and return all payments received by me pursuant to the Agreement.

9. I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.

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10. Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the National Association of Securities Dealers, Inc. (NASD), any other self-regulatory organization or governmental entity.

11. I agree to reasonably cooperate with the Company in any internal investigation or administrative, regulatory, or judicial proceeding. I understand and agree that my cooperation may include, but not be limited to, making myself available to the Company upon reasonable notice for interviews and factual investigations; appearing at the Company’s request to give testimony without requiring service of a subpoena or other legal process; volunteering to the Company pertinent information; and turning over to the Company all relevant documents which are or may come into my possession all at times and on schedules that are reasonably consistent with my other permitted activities and commitments. I understand that in the event the Company asks for my cooperation in accordance with this provision, the Company will reimburse me solely for reasonable travel expenses, including, without limitation, lodging and meals, upon my submission of receipts.

12. I agree not to disparage the Company, its past and present investors, officers, directors or employees or its affiliates and to keep all confidential and proprietary information about the past or present business affairs of the Company and its affiliates confidential unless a prior written release from the Company is obtained. I further agree that as of the date hereof, I have returned to the Company any and all property, tangible or intangible, relating to its business, which I possessed or had control over at any time (including, but not limited to, company-provided credit cards, building or office access cards, keys, computer equipment, manuals, files, documents, records, software, customer data base and other data) and that I shall not retain any copies, compilations, extracts, excerpts, summaries or other notes of any such manuals, files, documents, records, software, customer data base or other data.

13. Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims (i) arising out of any breach by the Company or by any Released Party of (A) the Agreement after the date hereof or (B) the Stockholders Agreement and the Registration Agreement in each case executed and delivered on the date hereof in connection herewith, (ii) to indemnification for which I may be entitled to as a former officer or director of the Company under their respective charter and/or bylaws and/or other constituent documents so long as I am otherwise entitled to be indemnified as authorized thereunder.

14. Whenever possible, each provision of this General Release shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

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BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:

(i) I HAVE READ IT CAREFULLY;

(ii) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;

(iii) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

(iv) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;

(v) I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON                                              ,              TO CONSIDER IT AND THE CHANGES MADE SINCE THE                                              ,              VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART THE REQUIRED 21-DAY PERIOD;

(vi) THE CHANGES TO THE AGREEMENT SINCE                                              ,              EITHER ARE NOT MATERIAL OR WERE MADE AT MY REQUEST.

(vii) I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;

(viii) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND

(ix) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

DATE:                                 

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EX-10.7

Exhibit 10.7

March 31, 2004

Mr. Christopher R. Huber

746 Dundee Drive

Post Falls, ID 83854

Dear Chris:

I am pleased to confirm your position with NightHawk Radiology Services, LLC (the “Company”) as its Vice President – Finance, effective with respect to the terms contained herein as of March 30, 2004 (the “Effective Date”). As the Vice President - Finance, you will be reporting directly to the Company’s President and shall perform such duties as are customarily associated with such position and as the President may from time to time require. You shall devote your full business efforts and time to the Company and agree to perform your duties faithfully and to the best of your ability. You agree not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Compensation Committee of the Board of Directors of NightHawk Radiology Holdings, Inc.

You should be aware that your employment with the Company constitutes “at-will” employment. This means that your employment relationship with the Company may be terminated at any time with or without notice, with or without good cause or for any or no cause, at either party’s option. You understand and agree that neither your job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of your employment with the Company.

While employed hereunder, the Company will pay you as compensation for your services a base salary at the annualized rate of not less than $350,000 (the “Base Salary”). The Base Salary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to the usual, required withholding. Your Base Salary will be reviewed for market and performance adjustments within thirty (30) days of the beginning of each calendar year by the Compensation Committee of the Board of Directors of NightHawk Radiology Holdings, Inc. (“Holdings”) and may be increased after such review with the unanimous approval of such Committee.

In addition to the Base Salary, you may (depending upon satisfaction of certain criteria) be entitled receive a performance bonus relating to the Company’s operating performance, as described below. The performance bonus could, in the aggregate, equal one-hundred percent (100%) of your Base Salary, less applicable withholding. Such performance bonus, if any, shall be based upon and subject to the performance criteria as follows, and shall be payable if at all in respect of any year (or portion thereof) within 30 days following the delivery of the Company’s annual consolidated audited financial statements for such year. In the event of any voluntary resignation or other termination (including death or disability), any performance bonus payable

Mr. Christopher R. Huber

March 31, 2004

in respect of the year during which such resignation or termination shall occur shall be pro rated to the date of such resignation or termination.

(a) You will be eligible to receive an annual bonus in an amount not to exceed 100% of your Base Salary for each calendar year (or portion thereof) based upon attainment by the Company of Total Revenue goals (“Total Revenue Goal”) and EBITDA goals (“EBITDA Goal”) established by the Compensation Committee of Holdings (after consultation with you) on an annual basis prior to the commencement of each calendar year or as soon as reasonably practicable thereafter. If the Company shall attain the Total Revenue Goal and the EBITDA Goal for any fiscal year, you shall receive a bonus in an amount equal to 50% of your Base Salary, less applicable withholding and subject to adjustment as described in the next sentence. The bonus amount payable pursuant to the immediately preceding sentence is subject to upward and downward adjustment such that (i) for every one (1%) percentage point that audited Total Revenue exceeds or falls below, as the case may be, the Total Revenue Goal established for such year, such bonus amount shall be appropriately adjusted, upward or downward, by 1.67% of your Base Salary (such adjustment in no event to exceed 25% of Base Salary) and (ii) for every one (1%) percentage point that audited EBITDA exceeds or falls below, as the case may be, the EBITDA Goal established for such year, such bonus amount shall be appropriately adjusted, upward or downward, by 1.25% of your Base Salary (such adjustment in no event to exceed 25% of Base Salary).

(b) The Total Revenue Goal and the EBITDA Goal for fiscal year 2004 is hereby agreed to be $30.5 million and $11.2 million (after accrual for any and all bonus or incentive compensation amounts payable to the executive management team of the Company), respectively.

(c) “Total Revenue” is hereby agreed to mean, for any particular period, total revenue derived from the sale by the Company or radiology services and related merchandise, less reserves for doubtful accounts. “EBITDA” is hereby agreed to mean, for any particular period, the Company’s consolidated net income for such period, plus (i) the amount of the provision for foreign, federal, state and local income taxes for such period, plus (ii) the amount of depreciation, amortization and non-cash compensation expenses and any extraordinary and non-recurring charges incurred during such period, plus (iii) to the extent applicable, the aggregate costs and expenses incurred by the Company and its affiliated entities in connection with the transactions undertaken with Summit Partners, L.P. For the avoidance of doubt, EBITDA hereunder will be calculated after accrual for any and all bonus or incentive compensation amounts payable to the executive management team of the Company.

(d) The target amount of Executive’s bonus as set forth above will be reviewed for market and performance adjustments within thirty (30) days of the beginning of each calendar year and may be increased after such review in the Compensation Committee’s sole discretion.

While employed hereunder, you will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company’s group medical, dental,

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Mr. Christopher R. Huber

March 31, 2004

vision, disability, life insurance and vacation plans. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.

The Company will also reimburse you for reasonable and documented travel, entertainment or other expenses incurred by you in the furtherance of or in connection with the performance of your duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.

This letter will be binding upon and inure to the benefit of (a) your heirs, executors and legal representatives upon your death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this letter for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of your rights to receive any form of compensation payable pursuant to this letter may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of your right to compensation or other benefits will be null and void.

All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

If to the Company:

NightHawk Radiology Services LLC.

250 Northwest Blvd., #202

Coeur d”Alene, ID 83814

Attn: President

If to Christopher Huber:

at the last residential address known by the Company.

This letter represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this letter will continue in full force and effect without said provision. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto. This letter shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Idaho.

[Signature page follows]

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Mr. Christopher R. Huber

March 31, 2004

To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to Dr. Paul Berger. A duplicate original is enclosed for your records.

NightHawk Radiology Services, LLC.		Christopher Huber
By:	/s/ JON BERGER	/s/ CHRISTOPHER HUBER
	Jon Berger, Vice President	Signature

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EX-10.8

Exhibit 10.8

March 31 2004

Mr. Jon Berger

835 Centennial Court

Couer d’Alene, ID 83814

Dear Jon:

I am pleased to confirm your position with NightHawk Radiology Services, LLC (the “Company”) as its Vice President – Sales and Marketing, effective with respect to the terms contained herein as of March 30, 2004 (the “Effective Date”). As the Vice President – Sales and Marketing, you will be reporting directly to the Company’s President and shall perform such duties as are customarily associated with such position and as the President may from time to time require. You shall devote your full business efforts and time to the Company and agree to perform your duties faithfully and to the best of your ability. You agree not to actively engage in any other employment, occupation or consulting activity for any direct or indirect remuneration without the prior approval of the Compensation Committee of the Board of Directors of NightHawk Radiology Holdings, Inc.

You should be aware that your employment with the Company constitutes “at-will” employment. This means that your employment relationship with the Company may be terminated at any time with or without notice, with or without good cause or for any or no cause, at either party’s option. You understand and agree that neither your job performance nor promotions, commendations, bonuses or the like from the Company give rise to or in any way serve as the basis for modification, amendment, or extension, by implication or otherwise, of your employment with the Company.

While employed hereunder, the Company will pay you as compensation for your services a base salary at the annualized rate of not less than $350,000 (the “Base Salary”). The Base Salary will be paid periodically in accordance with the Company’s normal payroll practices and be subject to the usual, required withholding. Your Base Salary will be reviewed for market and performance adjustments within thirty (30) days of the beginning of each calendar year by the Compensation Committee of the Board of Directors of NightHawk Radiology Holdings, Inc. (“Holdings”) and may be increased after such review with the unanimous approval of such Committee.

In addition to the Base Salary, you may (depending upon satisfaction of certain criteria) be entitled receive a performance bonus relating to the Company’s operating performance, as described below. The performance bonus could, in the aggregate, equal one-hundred percent (100%) of your Base Salary, less applicable withholding. Such performance bonus, if any, shall be based upon and subject to the performance criteria as follows, and shall be payable if at all in respect of any year (or portion thereof) within 30 days following the delivery of the Company’s annual consolidated audited financial statements for such year. In the event of any voluntary resignation or other termination (including death or disability), any performance bonus payable in respect of the year during which

Mr. Jon Berger

March 31, 2004

such resignation or termination shall occur shall be pro rated to the date of such resignation or termination.

(a) You will be eligible to receive an annual bonus in an amount not to exceed 100% of your Base Salary for each calendar year (or portion thereof) based upon attainment by the Company of Total Revenue goals (“Total Revenue Goal”) and EBITDA goals (“EBITDA Goal”) established by the Compensation Committee of Holdings (after consultation with you) on an annual basis prior to the commencement of each calendar year or as soon as reasonably practicable thereafter. If the Company shall attain the Total Revenue Goal and the EBITDA Goal for any fiscal year, you shall receive a bonus in an amount equal to 50% of your Base Salary, less applicable withholding and subject to adjustment as described in the next sentence. The bonus amount payable pursuant to the immediately preceding sentence is subject to upward and downward adjustment such that (i) for every one (1%) percentage point that audited Total Revenue exceeds or falls below, as the case may be, the Total Revenue Goal established for such year, such bonus amount shall be appropriately adjusted, upward or downward, by 1.67% of your Base Salary (such adjustment in no event to exceed 25% of Base Salary) and (ii) for every one (1%) percentage point that audited EBITDA exceeds or falls below, as the case may be, the EBITDA Goal established for such year, such bonus amount shall be appropriately adjusted, upward or downward, by 1.25% of your Base Salary (such adjustment in no event to exceed 25% of Base Salary).

(b) The Total Revenue Goal and the EBITDA Goal for fiscal year 2004 is hereby agreed to be $30.5 million and $11.2 million (after accrual for any and all bonus or incentive compensation amounts payable to the executive management team of the Company), respectively.

(c) “Total Revenue” is hereby agreed to mean, for any particular period, total revenue derived from the sale by the Company of radiology services and related merchandise, less reserves for doubtful accounts. “EBITDA” is hereby agreed to mean, for any particular period, the Company’s consolidated net income for such period, plus (i) the amount of the provision for foreign, federal, state and local income taxes for such period, plus (ii) the amount of depreciation, amortization and non-cash compensation expenses and any extraordinary and non-recurring charges incurred during such period, plus (iii) to the extent applicable, the aggregate costs and expenses incurred by the Company and its affiliated entities in connection with the transactions undertaken with Summit Partners’ L.P. For the avoidance of doubt, EBITDA hereunder will be calculated after accrual for any and all bonus or incentive compensation amounts payable to the executive management team of the Company.

(d) The target amount of Executive’s bonus as set forth above will be reviewed for market and performance adjustments within thirty (30) days of the beginning of each calendar year and may be increased after such review in the Compensation Committee’s sole discretion.

While employed hereunder, you will be entitled to participate in the employee benefit plans currently and hereafter maintained by the Company of general applicability to other senior executives of the Company, including, without limitation, the Company’s group medical, dental, vision, disability, life insurance and vacation plans. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.

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Mr. Jon Berger

March 31, 2004

The Company will also reimburse you for reasonable and documented travel, entertainment or other expenses incurred by you in the furtherance of or in connection with the performance of your duties hereunder, in accordance with the Company’s expense reimbursement policy as in effect from time to time.

This letter will be binding upon and inure to the benefit of (a) your heirs, executors and legal representatives upon your death and (b) any successor of the Company. Any such successor of the Company will be deemed substituted for the Company under the terms of this letter for all purposes. For this purpose, “successor” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. None of your rights to receive any form of compensation payable pursuant to this letter may be assigned or transferred except by will or the laws of descent and distribution. Any other attempted assignment, transfer, conveyance or other disposition of your right to compensation or other benefits will be null and void.

All notices, requests, demands and other communications called for hereunder shall be in writing and shall be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) three (3) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

If to the Company:

NightHawk Radiology Services LLC.

250 Northwest Blvd., #202

Coeur d”Alene, ID 83814

Attn: President

If to Jon Berger:

at the last residential address known by the Company.

This letter represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this letter will continue in full force and effect without said provision. No waiver, alteration, or modification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties hereto. This letter shall be governed by the internal substantive laws, but not the choice of law rules, of the State of Idaho.

[Signature page follows]

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Mr. Jon Berger

March 31, 2004

To indicate your acceptance of the Company’s offer, please sign and date this letter in the space provided below and return it to Dr. Paul Berger. A duplicate original is enclosed for your records.

NightHawk Radiology Services, LLC.		Jon Berger
By:	/s/ CHRISTOPHER HUBER	/s/ JON BERGER
	Christopher Huber, Vice President	Signature

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EX-10.9

Exhibit 10.9

PROFESSIONAL SERVICES AGREEMENT

THIS AGREEMENT is made and entered into this 1^st day of February, 2004 to be effective March 1, 2004, by and between NIGHTHAWK RADIOLOGY SERVICES, LLC, an Idaho Limited Liability Company and PAUL E. BERGER M.D.

RECITALS

Paul E. Berger M.D. is the President / CEO of Nighthawk Radiology Services, LLC, and is also a licensed and qualified radiologist capable of providing professional diagnostic services.

From time to time there may be insufficient independent contracted physicians available to perform the volume of professional diagnostic services required by NRS.

NRS wishes and Dr. Berger has agreed, that when requested by NRS, Dr. Berger will at his discretion provide these professional services. These services will be provided from the United States in evening or overnight hours or during the daytime from Sydney, Australia or other operational sites. These services will be performed during times that otherwise might be utilized for vacation.

AGREEMENT

TERM. This Agreement will be effective as of March 1, 2004 and will continue in effect until February 28, 2006 (the “Date of Expiration”), unless terminated earlier as provided herein.

COMPENSATION. Base Compensation. NRS shall pay Paul E. Berger M.D., a base compensation of $175.00 per hour United States Dollars (herein after USD). Base compensation is paid monthly in arrears.

250 Northwest Blvd., #202 •Coeur d’Alene, ID 83814 • Toll Free 866-400-4295 • Fax 208-664-2720

Bonus Compensation. For the term of this Agreement, NRS shall pay an additional USD $10.00 per examination interpreted and reported on behalf of the NRS customers by Paul E. Berger M.D. above a threshold number to be determined as follows: total hours worked per month x 8.33 = threshold number (rounded to the nearest whole number).

TERMINATION. Either party may terminate the contract immediately without cause by providing one day’s written notice.

MALPRACTICE INSURANCE AND TAIL COVERAGE. NRS shall purchase and maintain at its expense professional liability insurance coverage insuring Paul E. Berger M.D. with minimum limits of USD $1,000,000 per occurrence and USD $3,000,000 in the aggregate, through an insurer or insurers of NRS’ choice. Upon termination of this agreement, NRS will provide at NRS’ expense Tail Coverage in order to insure against losses arising from acts of medical malpractice which occurred during the term of this Agreement. Such Tail Coverage shall extend for an indefinite period and contain provisions as near as possible to NRS’ existing malpractice insurance.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above, to be effective, however, as of March 1, 2004.

/s/ Paul E. Berger

Paul E. Berger M.D.

/s/ Christopher R. Huber

Christopher R. Huber

Vice-President

Nighthawk Radiology Services, LLC.

EX-10.10

Exhibit 10.10

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

CONSULTING AGREEMENT

This Consulting Agreement (the “Agreement”) is entered into by and between NightHawk Radiology Holdings, Inc., (the “Company”), a Delaware corporation and William Bradley, M.D. (“Consultant”).

1. Consulting Relationship. During the term of this Agreement, Consultant will provide consulting services (the “Services”) to the Company as described on Exhibit A attached to this Agreement. Consultant represents that Consultant is duly licensed (as applicable) and has the qualifications, the experience and the ability to properly perform the Services. Consultant shall use Consultant’s best efforts to perform the Services such that the results are satisfactory to the Company. Consultant shall devote at least 100 hours per year to performance of the Services.

2. Fees. As consideration for the Services to be provided by Consultant and other obligations, the Company shall issue to Consultant shares of Common Stock of the Company pursuant to and in accordance with that certain Restricted Stock Agreement dated as of the date hereof between the Company and Consultant.

3. Expenses. Consultant shall not be authorized to incur on behalf of the Company any expenses except as expressly specified in Exhibit B without the prior consent of the Company’s President, which consent shall be evidenced in writing for any expenses in excess of $1,000.00. As a condition to receipt of reimbursement, Consultant shall be required to submit to the Company reasonable evidence that the amount involved was expended and related to Services provided under this Agreement.

4. Term and Termination. Consultant shall serve as a consultant to the Company for a period commencing on the date hereof and terminating on the tenth anniversary of the date hereof, provided, however, either party may terminate the consulting relationship established hereby on thirty (30) days prior written notice to the other party.

Should either party default in the performance of this Agreement or materially breach any of its obligations under this Agreement, including but not limited to Consultant’s obligations under the Confidentiality Agreement between the Company and Consultant referenced below in Section 8, the Company may terminate this Agreement immediately.

5. Independent Contractor. Consultant’s relationship with the Company will be that of an independent contractor and not that of an employee.

(a) Method of Provision of Services: Consultant shall be solely responsible for determining the method, details and means of performing the Services.

(b) No Authority to Bind Company. Neither Consultant, nor any partner, agent or employee of Consultant, has authority to enter into contracts that bind the Company or create obligations on the part of the Company without the prior written authorization of the Company.

(c) No Benefits. Consultant acknowledges and agrees that Consultant will not be eligible for any Company employee benefits and, to the extent Consultant otherwise would be eligible for any Company employee benefits but for the express terms of this Agreement, Consultant hereby expressly declines to participate in such Company employee benefits.

(d) Withholding; Indemnification. Consultant shall have full responsibility for applicable taxes related to all compensation paid to Consultant under this Agreement, and for compliance with all applicable labor and employment requirements with respect to Consultant’s self-employment, sole proprietorship or other form of business organization. Consultant agrees to indemnify, defend and hold the Company harmless from any liability for, or assessment of, any claims or penalties with respect to such taxes, labor or employment requirements, including any liability for, or assessment of, withholding taxes imposed on the Company by the relevant taxing authorities with respect to any compensation paid to Consultant.

6. Supervision of Consultant’s Services. All of the Services to be performed by Consultant, including but not limited to the Services, will be as agreed between Consultant and the Company’s President. Consultant will be required to report to the President concerning the Services performed under this Agreement. The nature and frequency of these reports will be left to the discretion of the President.

7. Consulting or Other Services for Competitors. Consultant represents and warrants that Consultant does not presently perform or intend to perform, during the term of the Agreement, consulting or other services for, or engage in or intend to engage in an employment or consulting relationship with, companies whose businesses or proposed businesses in any way involve products or services which would be competitive with the Company’s products or services, or those products or services proposed or in development by the Company during the term of the Agreement. If, however, Consultant decides to do so, Consultant agrees that, in advance of accepting such work, Consultant will promptly notify the Company in writing, specifying the organization with which Consultant proposes to consult, provide services, or become employed by and to provide information sufficient to allow the Company to determine if such work would conflict with the terms of this Agreement, including the terms of the Confidentiality Agreement, the interests of the Company or further services which the Company might request of Consultant. If the Company determines that such work conflicts with the terms of this Agreement, the Company reserves the right to terminate this Agreement immediately.

8. Confidentiality Agreement. Consultant shall sign, or has signed, a Proprietary Information and Invention Agreement substantially in the form attached to this Agreement as Exhibit C (the “Confidentiality Agreement”), on or before June     , 2004.

9. Conflicts with this Agreement. Consultant represents and warrants that Consultant is not under any pre-existing obligation in conflict or in any way inconsistent with the provisions of this Agreement. Consultant represents and warrants that Consultant’s performance of all the terms of this Agreement will not breach any agreement to keep in confidence proprietary information acquired by Consultant in confidence or in trust prior to commencement of this Agreement. Consultant warrants that Consultant has the right to disclose and/or or use all

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ideas, processes, techniques and other information, if any, which Consultant has gained from third parties, and which Consultant discloses to the Company or uses in the course of performance of this Agreement, without liability to such third parties. Notwithstanding the foregoing, Consultant agrees that Consultant shall not bundle with or incorporate into any deliveries provided to the Company herewith any third party products, ideas, processes, or other techniques, without the express, written prior approval of the Company. Consultant represents and warrants that Consultant has not granted and will not grant any rights or licenses to any intellectual property or technology that would conflict with Consultant’s obligations under this Agreement. Consultant will not knowingly infringe upon any copyright, patent, trade secret or other property right of any former client, employer or third party in the performance of the Services required by this Agreement.

10. Miscellaneous.

(a) Amendments and Waivers. Any term of this Agreement may be amended or waived only with the written consent of the parties.

(b) Sole Agreement. This Agreement, including the Exhibits hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof.

(c) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, 48 hours after being deposited in the regular mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party’s address or facsimile number as set forth below, or as subsequently modified by written notice.

(d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Idaho, without giving effect to the principles of conflict of laws.

(e) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(f) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.

(g) Arbitration. Any dispute or claim arising out of or in connection with any provision of this Agreement will be finally settled by binding arbitration in Kootnai County, Idaho, in accordance with the rules of the American Arbitration Association by one arbitrator

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appointed in accordance with said rules. The arbitrator shall apply Idaho law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without breach of this arbitration provision. This Section 10(g) shall not apply to the Confidentiality Agreement.

(h) Advice of Counsel. EACH PARTY ACKNOWLEDGES THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

[Signature Page Follows]

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The parties have executed this Agreement on the respective dates set forth below.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:	/s/ PAUL E. BERGER, M.D.
	Paul E. Berger, M.D.,
	President and Chief Executive Officer
Address: 250 Northwest Blvd. #202 Coeur d’Alene ID 83814
Date: June 9, 2004
By:	/s/ WILLIAM BRADLEY, M.D.
	William Bradley, M.D.
Address: 5931 Citadel Circle La Jolla, CA 92037
Date: May 28, 2005

EXHIBIT A

DESCRIPTION OF CONSULTING SERVICES

1. Name of Consultant: William G. Bradley, M.D.

2. Address of Consultant for Notice: 5931 Citadel Circle, La Jolla, CA 92037

3. Term of Consulting Period:

4. Duties of Consultant:

Description of Services

1. Assist in the coordination and management of the Company’s relationships with academic institutions and professional associations.

4. Number of Hours of Consulting to be Performed Per Year: 100

Initialed By:

CONSULTANT:	WB
NIGHTHAWK:	PB

EXHIBIT B

EXPENSES

¨ Consultant is authorized to incur the following expenses:

x_____________________________________________________________________________________________________

_______________________________________________________________________________________________________

¨ Other:

x_____________________________________________________________________________________________________

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Initialed By:

CONSULTANT:	WB
NIGHTHAWK:	PB

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EXHIBIT C

FORM OF PROPRIETARY INFORMATION AND INVENTION AGREEMENT

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NIGHTHAWK RADIOLOGY HOLDINGS, INC.

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

In exchange for my being retained as a consultant, and for any cash and equity compensation for my services, I hereby agree as follows:

1. Duties. I will perform for the Company such duties as may be designated by the Company from time to time. During the period of my consulting relationship with the Company, I will devote my best efforts to the interests of the Company and will not engage in other employment, consulting relationship or other activities detrimental to the best interests of the Company without the prior written consent of the Company.

2. Confidentiality Obligation. I understand and agree that all Proprietary Information (as defined below) shall be the sole property of the Company and its assigns, including all trade secrets, patents, copyrights and other rights in connection therewith. I hereby assign to the Company any rights I may acquire in such Proprietary Information. I will hold in confidence and not directly or indirectly use or disclose, both during my consulting relationship with the Company and after its termination (irrespective of the reason for such termination), any Proprietary Information or Protected Health Information (as defined below) I obtain or create during the period of my consulting relationship, whether or not during working hours, except to the extent authorized by the Company, until such Proprietary Information or Protected Health Information, as the case may be, becomes generally known. I agree not to make copies of such Proprietary Information except as authorized by the Company. Upon termination of my consulting relationship or upon an earlier request of the Company, I will return or deliver to the Company all tangible forms of such Proprietary Information or Protected Health Information, as the case may be, in my possession or control, including but not limited to drawings, specifications, documents, records, devices, models or any other material and copies or reproductions thereof.

3. Ownership of Physical Property. All documents, apparatus, equipment and other physical property in any form, whether or not pertaining to Proprietary Information, furnished to me by the Company or produced by me or others in connection with my consulting relationship shall be and remain the sole property of the Company. I shall return to the Company all such documents, materials and property as and when requested by the Company, except only (i) my personal copies of any materials evidencing shares of the Company’s capital stock issued to me; (ii) my copy of this Agreement and (iii) my personal property and personal documents I bring with me to the Company and any personal correspondence and personal materials that I accumulate and keep at the Company (my “Personal Documents”). Even if the Company does not so request, I shall return all such documents, materials and property upon termination of my employment or consulting relationship, and, except for my Personal Documents, I will not take with me any such documents, material or property or any reproduction thereof upon such termination.

4. Assignment of Inventions.

(a) Without further compensation, I hereby agree promptly to disclose to the Company, all Inventions (as defined below) which I may solely or jointly develop or reduce to practice during the period of my consulting relationship with the Company which (i) pertain to any line of business activity of the Company, (ii) are aided by the use of time, material or facilities of the Company, whether or not during working hours or (iii) relate to any of my work during the period of my consulting relationship with the Company, whether or not during normal working hours (“Company Inventions”). All Company Inventions that I conceive, reduce to practice, develop or have developed (in whole or in part, either alone or jointly with others) shall be the sole property of the Company and its assigns to the maximum extent permitted by law (and to the fullest extent permitted by law shall be deemed “works made for hire”), and the Company

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and its assigns shall be the sole owner of all patents, copyrights, trademarks, trade secrets and other rights in connection therewith. I hereby assign to the Company any rights that I may have or acquire in such Company Inventions.

(b) I attach hereto as Exhibit A a complete list of all Inventions, if any, made by me prior to my consulting relationship with the Company that are relevant to the Company’s business, and I represent and warrant that such list is complete and accurate. If no such list is attached to this Agreement, I represent that I have no such Inventions at the time of signing this Agreement. If in the course of my consultancy with the Company, I use or incorporate into a product or process an Invention not covered by Section 4(a) of this Agreement in which I have an interest, the Company is hereby granted a nonexclusive, fully paid-up, royalty-free, perpetual, worldwide license of my interest to use and sublicense such Invention without restriction of any kind.

5. Further Assistance; Power of Attorney. I agree to perform, during and after my consulting relationship, all acts deemed necessary or desirable by the Company to permit and assist it, at its expense, in obtaining and enforcing the full benefits, enjoyment, rights and title throughout the world in the Inventions assigned to the Company as set forth in Section 4 above. Such acts may include, but are not limited to, execution of documents and assistance or cooperation in legal proceedings. I hereby irrevocably designate the Company and its duly authorized officers and agents as my agent and attorney-in fact, to execute and file on my behalf any such applications and to do all other lawful acts to further the prosecution and issuance of patents, copyright and mask work registrations related to such Inventions. This power of attorney shall not be affected by my subsequent incapacity.

6. Inventions. As used in this Agreement, the term “Inventions” means discoveries, developments, concepts, designs, ideas, know-how, improvements, inventions, trade secrets and/or original works of authorship, whether or not patentable, copyrightable or otherwise legally protectable. This includes, but is not limited to, any new product, machine, article of manufacture, biological material, method, procedure, process, technique, use, equipment, device, apparatus, system, compound, formulation, composition of matter, design or configuration of any kind, or any improvement thereon.

7. Proprietary Information; Protected Health Information.

(a) As used in this Agreement, the term “Proprietary Information” means information or physical material not generally known or available outside the Company or information or physical material entrusted to the Company by third parties. This includes, but is not limited to, Inventions, confidential knowledge, copyrights, product ideas, techniques, processes, formulas, object codes, biological materials, mask works and/or any other information of any type relating to documentation, laboratory notebooks, data, schematics, algorithms, flow charts, mechanisms, research, manufacture, improvements, assembly, installation, marketing, forecasts, sales, pricing, customers, the salaries, duties, qualifications, performance levels and terms of compensation of other employees, and/or cost or other financial data concerning any of the foregoing or the Company and its operations. Proprietary Information may be contained in material such as drawings, samples, procedures, specifications, reports, studies, customer or supplier lists, budgets, cost or price lists, compilations or computer programs, or may be in the nature of unwritten knowledge or know-how.

(b) As used in this Agreement, the term “Protected Health Information” means patient information created or received by a third-party medical institution with which the Company has a relationship that relates to the past, present or future physical or mental health or condition of an individual, the provision of health care to an individual, or the past, present or future payment for the provision of healthcare to an individual, including, but not limited to, name, address, date of birth, admission, discharge or death information, telephone and facsimile numbers, email addresses, social security number, medical record number, health plan beneficiary number, account numbers, certificate/license numbers, vehicle identifiers

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and serial numbers, device identifiers and serial numbers, URL and IP addresses and biometric identifiers, including finger and voice prints, full face photographic and other comparable images, and any other unique identifying number, characteristic or code.

8. Solicitation of Employees, Consultants and Other Parties. I will during the term of my consulting relationship with the Company, and for a period of one (1) year following the termination of my relationship with the Company for any reason, I shall not directly or indirectly solicit, induce, recruit or encourage any of the Company’s employees or consultants to terminate their relationship with the Company, or attempt any of the foregoing, either for myself or any other person or entity. For a period of one (1) year following termination of my relationship with the Company for any reason, I shall not solicit any licensor to or customer of the Company or licensee of the Company’s products, that are known to me, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the date of termination of my relationship with the Company.

9. Noncompetition. During the term of my consulting relationship with the Company and for one (1) year following the termination of my relationship with the Company for any reason, I will not, without the Company’s prior written consent, directly or indirectly engage in the provision of any services or the offering of any products that are competitive with products or services (a) being commercially developed or exploited by the Company during my consultancy and (b) on which I worked or about which I learned Proprietary Information during my employment or consultancy with the Company.

10. No Conflicts. I represent that my performance of all the terms of this Agreement as an employee of or consultant to the Company does not and will not breach any agreement to keep in confidence proprietary information, knowledge or data acquired by me in confidence or in trust prior to my becoming an employee or consultant of the Company, and I will not disclose to the Company, or induce the Company to use, any confidential or proprietary information or material belonging to any previous employer or others. I agree not to enter into any written or oral agreement that conflicts with the provisions of this Agreement.

11. No Interference. I certify that, to the best of my information and belief, I am not a party to any other agreement which will interfere with my full compliance with this Agreement.

12. Effects of Agreement. This Agreement (a) shall survive for a period of five (5) years beyond the termination of my consulting relationship with the Company, (b) inures to the benefit of successors and assigns of the Company and (c) is binding upon my heirs and legal representatives.

13. At-Will Relationship. I understand and acknowledge that consulting relationship with the Company is and shall continue to be at-will, as defined under applicable law, meaning that either I or the Company may terminate the relationship at any time for any reason or no reason, without further obligation or liability.

14. Injunctive Relief. I acknowledge that violation of this Agreement by me may cause irreparable injury to the Company, and I agree that the Company will be entitled to seek extraordinary relief in court, including, but not limited to, temporary restraining orders, preliminary injunctions and permanent injunctions without the necessity of posting a bond or other security and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement.

15. Miscellaneous. This Agreement supersedes any oral, written or other communications or agreements concerning the subject matter of this Agreement, and may be amended or waived only by a written instrument signed by me and the President of the Company. This Agreement shall be governed by the laws of the State of Idaho applicable to contracts entered into and performed entirely within the State of Idaho, without giving effect to principles of conflict of laws. If any provision of this Agreement is held to be unenforceable under applicable law, then such provision shall be excluded from this Agreement only to

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the extent unenforceable, and the remainder of such provision and of this Agreement shall be enforceable in accordance with its terms.

16. Acknowledgment. I certify and acknowledge that I have carefully read all of the provisions of this Agreement and that I understand and will fully and faithfully comply with such provisions.

NIGHTHAWK RADIOLOGY HOLDINGS, INC.		WILLIAM BRADLEY, M.D.:
By:	/s/ PAUL E. BERGER, M.D.	/s/ WILLIAM BRADLEY, M.D.
Title:	President and Chief Executive Officer	William Bradley, M.D.
Dated:	June 9, 2004.	Dated:	May 28, 2004.

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Exhibit A

NightHawk Radiology Holdings, Inc.

250 Northwest Blvd, Suite 202

Coeur d’Alene, ID 83814

Ladies and Gentlemen:

1. The following is a complete list of all Inventions relevant to the subject matter of my employment by the Company that have been made or conceived or first reduced to practice by me, alone or jointly with others or which has become known to me prior to my employment by the Company. I represent that such list is complete.

2. I propose to bring to my employment or consultancy the following materials and documents of a former employer:

x No materials or documents.

¨ See below:

By:	/s/ WILLIAM G. BRADLEY, M.D.
	WILLIAM G. BRADLEY, M.D.

EX-10.11

Exhibit 10.11

Execution Copy

NIGHTHAWK RADIOLOGY SERVICES, LLC

NIGHTHAWK RADIOLOGY HOLDINGS, INC.

NRS CORPORATION

LOAN AND SECURITY AGREEMENT

[†] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION

This LOAN AND SECURITY AGREEMENT is entered into as of April 20, 2005, by and among NIGHTHAWK RADIOLOGY SERVICES, LLC (“Borrower”), NIGHTHAWK RADIOLOGY HOLDINGS INC. (“Holdings”) and NRS Corporation (“NRS” and together with Holdings, the “Parent Guarantors”), and COMERICA BANK (“Bank”).

RECITALS

Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Loan and Security Agreement (“this Agreement”) sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.

AGREEMENT

The parties hereto hereby agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions. Unless otherwise defined herein, all capitalized terms used in this Agreement shall have the definitions set forth in Exhibit A. Any term used in the Code, and not defined herein, shall have the meaning given to the term in the Code.

1.2. Accounting Terms. Any accounting term not specifically defined in Exhibit A shall be construed in accordance with GAAP, and all calculations shall, except as and to the extent otherwise expressly provided in this Agreement, be made in accordance with GAAP. The term “financial statements” shall include the accompanying notes and schedules.

2. ADVANCES AND TERMS OF PAYMENT.

2.1. Credit Extensions.

(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United States of America, the entire unpaid principal amount of all Credit Extensions from time to time made by Bank to Borrower, together with interest on the unpaid principal amount of each of such Credit Extensions at rates in accordance with the terms hereof.

(b) Advances under Term Loan Commitment. Subject to and upon the terms and conditions of this Agreement, Borrower may request an Advance under the Term Loan Commitment in an aggregate original principal amount not to exceed $12,000,000 (i.e., the maximum amount of the Term Loan Commitment). The entire Borrowing consisting of one Advance under the Term Loan Commitment shall be made on the Closing Date. The entire proceeds of the Advance under the Term Loan Commitment shall be used by Borrower for the purposes described in paragraph (f) of this Section 2.1. Upon the making of the Advance under the Term Loan Commitment in the aggregate original principal amount of $12,000,000, the Term Loan Commitment shall expire, and Bank shall have no further obligations of any kind to make any other Credit Extensions to Borrower under the Term Loan Facility. No part of the principal of the Advance under the Term Loan Commitment may be reborrowed once paid. As provided by Section 2.2(a), Borrower may at any time prepay, without premium or penalty, all or any part of the Advance under the Term Loan Commitment.

(c) Advances under Revolving Commitment. Subject to and upon the terms and conditions of this Agreement, Borrower may from time to time during the Revolving Commitment Period request Advances under the Revolving Commitment in an aggregate outstanding principal amount not to exceed the sum of $3,000,000 (i.e., the maximum amount of the Revolving Commitment) minus the Letter of Credit Obligations. The entire proceeds of each Advance under the Revolving Commitment shall be used by Borrower for the purposes described in paragraph (f) of this Section 2.1. The Revolving Commitment shall expire on April 20, 2009, and Bank shall have no further obligations of any kind to make any other extensions of credit to Borrower or issue any Letters

[†] DESIGNATES PORTIONS OF THIS DOCUMENT THAT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED SEPARATELY WITH THE COMMISSION

of Credit for the account of the Borrower under the Revolving Commitment. Any Advance under the Revolving Commitment may be reborrowed once paid.

(d) Letters of Credit.

(i) Subject to the terms and conditions of this Agreement, Borrower may from time to time during the Revolving Commitment Period request the issuance of standby letters of credit and Bank shall issue standby letters of credit for the account of Borrower (each a “Letter of Credit”). Borrower may request the issuance of a Letter of Credit by delivering to Bank a duly executed letter of credit application and letter of credit agreement on Bank’s standard form (the “Application”), provided, however, (A) the Letter of Credit Obligations shall not at any time exceed the lesser of $750,000 and the unused Revolving Commitment and (B) the maximum undrawn amount under all outstanding Letters of Credit shall be deemed to constitute Advances under the Revolving Commitment for purposes of calculating the unused Revolving Commitment. Each Letter of Credit shall be, in form and substance, reasonably acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of the Application. Borrower will pay a letter of credit fee equal to the Applicable Margin for Eurodollar Rate Advances multiplied by the facing amount of each Letter of Credit upon issuance and annually thereafter and such other standard fees that Bank notifies Borrower will be charged for issuing and processing Letters of Credit. Unless Borrower shall have deposited with Bank cash collateral in an amount sufficient to cover all Letter of Credit Obligations and Bank shall have agreed in writing, no Letter of Credit shall have an expiration date that is later than the Final Maturity Date. If Borrower has not secured to Bank’s satisfaction its obligations with respect to any Letters of Credit by the Final Maturity Date or upon the termination date of the Revolving Commitment, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit issued by Bank in Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates), shall automatically secure such obligations to the extent of the then outstanding and undrawn Letters of Credit. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Letters of Credit are outstanding.

(ii) The obligation of Borrower to reimburse Bank for drawings made under the Letter of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, the Application, and such Letters of Credit, under all circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense or liability, including, without limitation, reasonable attorneys’ fees, arising out of or in connection with any Letter of Credit, except for expenses caused by Bank’s gross negligence or willful misconduct.

(e) Form of Request. Whenever Borrower desires an Advance under the Term Loan Commitment or an Advance under the Revolving Commitment, Borrower shall (subject always to the last sentence of this paragraph (e)) notify Bank by facsimile transmission or telephone no later than 3:00 p.m., Pacific time, on the Business Day on which the Advance is to be made. Each such notification shall be simultaneously confirmed by a written Loan Advance Request in or substantially in the form of Exhibit C. Bank is authorized to make Advances under this Agreement based upon instructions received from a Responsible Officer of Borrower, or without any instructions or directions if, in Bank’s discretion, such Advances are necessary to pay and satisfy any Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by any Person whom Bank reasonably believes to be a Responsible Officer of Borrower, and Borrower shall indemnify and hold Bank harmless for any damages or losses suffered by Bank as a result of any such reliance. Bank shall credit the amount of each Advance made under this Section 2.1 to one of Borrower’s Deposit Accounts with Bank in accordance with Borrower’s instructions or otherwise transfer the amount thereof in accordance with Borrower’s instructions or otherwise in accordance with the terms of this Agreement. Borrower shall, in the notice given to Bank pursuant to the first sentence of this paragraph (e), specify whether the Advance requested is to consist of one or more Prime Rate Advances or Eurodollar Rate Advances and, if the Advance so requested is to consist of one or more Eurodollar Rate Advances, Borrower shall also specify the duration of the first Interest Period to be applicable to each such Advance. Anything in the foregoing provisions of this paragraph (e) express or implied to the contrary notwithstanding, if the Borrower specifies the Eurodollar Rate option for any Advance, the notice required by the first sentence of this paragraph (e) shall be given by Borrower to Bank no later than the third Business Day before the Business Day on which the Advance is to be made.

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(f) Use of Proceeds. Borrower shall use the proceeds of the Advances made under the Commitments to repay in full the Existing Debt and for the payment of fees and expenses incurred in connection with the preparation and closing of this Agreement and the other Loan Documents, and the Advances under the Revolving Commitment shall be used for working capital, Letters of Credit and other general corporate requirements of Borrower and otherwise in accordance with the terms of this Agreement.

2.2. Prepayments.

(a) Borrower may at any time prepay, without premium or penalty, the unpaid principal of any of the Advances in a minimum amount equal to $250,000 or integral multiples of $50,000 in excess thereof. No part of the principal of the Advance under the Term Loan Commitment prepaid may be reborrowed. Principal repaid under the Revolving Commitment may be reborrowed during the Revolving Commitment Period, subject to the conditions contained in this Agreement.

(b) If Borrower or any other Credit Party shall at any time, while any Obligations remain outstanding under the Term Loan Facility, receive Net Cash Proceeds from any Asset Sale or Recovery Event, then the entire amount of the Net Cash Proceeds from such Asset Sale or Recovery Event not reinvested in the same or similar property within ninety (90) days after receipt thereof by Borrower or any other Credit Parties shall be paid to Bank promptly upon expiration of such ninety (90) day period by Borrower or such other Credit Parties, and such Net Cash Proceeds shall be applied by Bank towards prepayment of unpaid principal of all outstanding Term Loan Facility Advances in accordance with paragraph (e) of this Section 2.2, and the balance (if any) of such Net Cash Proceeds shall be credited to one of Borrower’s Deposit Accounts with Bank in accordance with Borrower’s instructions.

(c) If Holdings shall at any time, while any Obligations remain outstanding under the Term Loan Facility, receive Net Cash Equity Issuance Proceeds from any Equity Issuance, then one-third (1/3) of the entire amount of such Net Cash Equity Issuance Proceeds shall be paid to Bank promptly upon receipt thereof by Holdings, and such amount of Net Cash Equity Issuance Proceeds shall be applied by Bank towards prepayment of unpaid principal of all outstanding Term Loan Facility Advances in accordance with paragraph (e) of this Section 2.2.

(d) Nothing in paragraphs (b) or (c) of this Section 2.2 shall be construed as a consent of Bank for, or be deemed to permit, any Asset Sale or Equity Issuance not otherwise permitted by this Agreement.

(e) Each prepayment of principal of any Advances pursuant to paragraph (b) of this Section 2.2 shall be applied by Bank towards payment of the remaining scheduled installments of principal of the Advances under the Term Loan Facility pursuant to Section 2.3(a), in the inverse order of the respective maturities of such installments.

2.3. Maturity Dates.

(a) Mandatory Repayment of Advances under Term Loan Facility. Borrower shall repay the aggregate principal amount of the Advances made under the Term Loan Facility in sixteen (16) consecutive quarterly installments of principal, each of which shall become due and payable on the last calendar day of each quarter. The first such installment shall become due and payable on June 30, 2005 and the last of such sixteen (16) installments of principal shall become due and payable on the Final Maturity Date. Each of the first fifteen (15) of such quarterly installments of principal shall be in the amount of $750,000 and the last of such quarterly installments shall be in the amount of the outstanding principal amount of the Term Loan Facility.

(b) Advances under Revolving Commitment. The Revolving Commitment shall terminate in full on the Final Maturity Date, and there shall become and be absolutely and unconditionally due and payable on the Final Maturity Date, and Borrower hereby promises to pay to Bank on the Final Maturity Date, the entire principal of each of the Advances then remaining unpaid.

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(c) Final Maturity Date. There shall become and be absolutely and unconditionally due and payable on the Final Maturity Date, and Borrower hereby promises to pay to Bank on the Final Maturity Date, all of the unpaid interest accrued on any of the Advances, all of the unpaid fees accrued hereunder and other unpaid sums and all other Obligations owing to Bank under this Agreement or any of the other Loan Documents.

2.4. Interest Rates; Payments; and Calculations.

(a) Interest Rates. Except as set forth in Section 2.4(b), each of the Advances shall bear interest, on the outstanding daily balance thereof, at a variable rate equal to (i) in the case of each of the Prime Rate Advances, the Prime Rate plus the Applicable Margin for Prime Rate Advances, and (ii) in the case of each of the Eurodollar Rate Advances, the Eurodollar Rate plus the Applicable Margin for Eurodollar Rate Advances.

(b) Late Fee; Default Rate. If any payment of any of the Obligations of Borrower or any of its Subsidiaries shall not be made within five (5) days after the date on which such payment shall have first become due and payable, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid payment, or (ii) the maximum amount permitted to be charged under Applicable Law. All of the Obligations of Borrower or of the other Credit Parties shall bear interest and the Letter of Credit fees shall be payable hereunder, during the continuation of any Event of Default, at a rate equal to two and one-half percent (2.5%) above the rate of interest otherwise applicable to each Advance or, as the case may be, the Letter of Credit fees otherwise chargeable to Letters of Credit. During the continuation of any Event of Default, interest accrued on the Advances and other Obligations shall become due and payable on demand and on the first calendar day of each month.

(c) Payments. Interest accrued on each of the Advances and other Obligations shall (subject always to Section 2.4(b)) be due and payable in arrears (i) in the case of each Prime Rate Advance, quarterly on the last calendar day of each quarter, (ii) in the case of each Eurodollar Rate Advance, on the last day of each Interest Period applicable thereto and, if any such Interest Period has a duration of more than three (3) months, on the last day of each successive period of three (3) months during such period, and (iii) on the date on which all of the Obligations shall become due and payable hereunder (whether by acceleration or otherwise). Bank shall, at its option, charge such interest, all Bank Expenses and all (if any) Periodic Payments against any of Borrower’s Deposit Accounts held at Bank. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

(d) Computation. In the event that the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a 365 day year for the actual number of days elapsed for all Prime Rate Advances and on the basis of a 360 day year for the actual number of days elapsed for all Eurodollar Rate Advances.

2.5. Crediting Payments. So long as no Events of Default are continuing, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation of Borrower or any of the other Credit Parties as Borrower specifies. So long as any Event of Default is continuing, the receipt by Bank of any wire transfer of funds, check or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless and until such payment is in immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained in any of the Loan Documents, any wire transfer or payment received by Bank after 12:00 noon, Pacific time, shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under any of the Loan Documents would otherwise become due and payable (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead become due and payable on the next Business Day, and additional interest and fees, as the case may be, shall accrue and be payable for the period of such extension.

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2.6. Fees. Borrower shall pay to Bank the following:

(a) Closing Fee. An arrangement fee equal to $75,000, $50,000 of which shall be fully earned, nonrefundable and due and payable by Borrower to Bank on the Closing Date. The remaining $25,000 of the arrangement fee (the “Remainder Closing Fee”) shall be fully earned and non-refundable as of the Closing Date and, until paid to Bank in accordance with the provisions set forth below, will at all times be maintained in Borrower’s Deposit Account with the Bank. The Remainder Closing Fee shall be due and payable as follows:

(i) three (3) Business Days after acceptance by Borrower of Bank’s written commitment for a $35,000,000 credit facility (the “Commitment”) to be used, in part, to refinance all of the Obligations, which acceptance shall be delivered to Bank within the time period specified in the Commitment (as modified or extended from time to time upon written agreement by Borrower and Bank, the “Commitment Offer Period”) and shall be evidenced by Borrower’s countersignature on the Commitment; or

(ii) if Borrower has not responded to or has declined the Commitment during the Commitment Offer Period, upon the earlier of

(A) the ninetieth (90th) day after the end of the Commitment Offer Period, and

(B) the date Borrower or any Credit Party refinances, in whole or in part, the Obligations or enters into an additional credit facility other than with the Bank.

(b) Commitment Fee. A commitment fee calculated at the rate of one quarter of one percent (0.25%) on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Final Maturity Date by which the Revolving Commitment minus the sum of all Letter of Credit Obligations exceeds the outstanding amount of all Advances under the Revolving Commitment during such quarter. The commitment fee shall be payable quarterly in arrears on the last calendar day of each quarter for the immediately preceding calendar quarter commencing on March 31, 2005, with a final payment on the Final Maturity Date or any earlier date on which the Revolving Commitment is terminated.

(c) Bank Expenses. All Bank Expenses evidenced by an invoice or other documentation, as and when such Bank Expenses become due and payable by Borrower in accordance with the terms of this Agreement and the other Loan Documents.

2.7. Term of this Agreement; etc.

(a) This Agreement shall become effective on the Closing Date and, subject always to Section 12.7, shall continue in full force and effect for so long as any Obligations(other than indemnity obligations against which no claim has been made) remain outstanding or Bank has any Commitment or other obligations of any kind to make any Credit Extensions or other extensions of credit of any kind under this Agreement or any of the other Loan Documents. Notwithstanding the foregoing, Bank shall have the right to terminate all or any part of its obligations to make Credit Extensions under this Agreement immediately, and without notice, upon the occurrence and during the continuance of any Event of Default.

(b) Borrower may from time to time, upon not less than one (1) Business Day’s prior written notice to Bank, permanently terminate in whole or in part, or otherwise permanently reduce the amount of, the Revolving Commitment or the Term Loan Facility.

(c) Once the Revolving Commitment or the Term Loan Facility shall be terminated or reduced in accordance with paragraph (b) of this Section 2.7 or in accordance with Section 9.1, the Revolving Commitment or, as the case may be, the Term Loan Facility may not be reinstated or increased.

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2.8. Eurodollar Rate Advance Conversion and Continuation Procedures. Subject always to the provisions contained in Sections 2.9 and 2.10, Borrower may convert all or any part of (a) any Prime Rate Advance into a Eurodollar Rate Advance, or (b) any Eurodollar Rate Advance into a Prime Rate Advance, or continue all or any part of any outstanding Eurodollar Rate Advance for an additional Interest Period, by delivering a notice to Bank not later than (i) in the case of conversion into a Prime Rate Advance, 3:00 p.m., Pacific time, on the proposed date of such conversion, and (ii) in the case of a conversion into or a continuation of any Eurodollar Rate Advance, 3:00 p.m., Pacific time, at least three (3) Business Days prior to the proposed date of such conversion or continuation. Each such notice shall be irrevocable upon receipt by Bank and shall specify (A) the date and amount of such conversion or continuation, (B) the Advances (or portion thereof) to be so converted or continued, (C) the type of Advance to be converted into, and (D) in the case of a conversion into or a continuation of any Eurodollar Rate Advance, the new Interest Period therefore; provided, however, that no Eurodollar Rate Advance shall be converted or continued on any day other than the last day of its Interest Period. If, upon the expiration of any Interest Period applicable to any Eurodollar Rate Advance, Borrower shall have failed to select on a timely basis any new Interest Periods to be applicable thereto, such Eurodollar Rate Advance shall automatically convert into a Prime Rate Advance upon the expiration of such Interest Period. During the continuation of any Events of Default, Borrower may not elect to have any Advance converted into or continued as a Eurodollar Rate Advance.

2.9. Changed Circumstances.

(a) In the event that Bank shall at any time determine (which determination shall be conclusive and binding) that: (i) adequate and fair means do not exist for ascertaining the Eurodollar Rate on any date on which the Eurodollar Rate would otherwise be set; or (ii) the making of any Eurodollar Rate Advance or the continuation of or conversion of any Advance to a Eurodollar Rate Advance has been made impracticable or unlawful; or (iii) the Eurodollar Rate no longer represents the effective cost to Bank for U.S. dollar deposits in the London interbank market; then, and in any such event, Bank shall promptly so notify Borrower in writing, and the obligation of Bank to make, continue or maintain Eurodollar Rate Advances or to convert Prime Rate Advances into Eurodollar Rate Advances shall be suspended until Bank revokes such notice in writing.

(b) In case the adoption of or any change in any law, regulation, treaty or official directive or in the interpretation or application thereof by any Governmental Authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other Governmental Authority (whether or not having the force of law) after the date hereof, increases the cost to Bank, reduces the income receivable by Bank or imposes any expense upon Bank, in each case, with respect to making or maintaining any of the Eurodollar Rate Advances, Bank shall promptly notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank to Borrower of a written statement of the amount and setting forth in reasonable detail Bank’s calculation thereof, which statement shall be conclusive and binding on Borrower absent manifest error.

2.10. Indemnity. Borrower agrees to indemnify Bank and to hold Bank harmless from and against any actual loss, cost or expense that Bank may sustain or incur as a consequence of (a) any payment of principal of or interest on any Eurodollar Rate Advance other than on the last day of any Interest Period applicable thereto, including any such loss, cost or expense arising from interest or fees payable by Bank to lenders of funds obtained by Bank in order to maintain the Eurodollar Rate Advances, or (b) any default by Borrower in making a Borrowing of any Eurodollar Rate Advance or conversion into a Eurodollar Rate Advance after Borrower has given (or is deemed to have given) a notice relating thereto, or (c) the making of any payment of principal of or interest on any Eurodollar Rate Advance or the making of any conversion of any Eurodollar Rate Advance into a Prime Rate Advance on any day that is not the last day of the applicable Interest Period with respect thereto, including interest payable by Bank to lenders of funds obtained by Bank in order to maintain any such Advance. Bank shall provide Borrower with a written statement of the amount of any such loss, cost or expense setting forth in reasonable detail Bank’s calculation thereof, which statement shall be conclusive and binding on Borrower absent manifest error. Notwithstanding the foregoing provisions of this Section 2.10, if at any time a mandatory prepayment of any Eurodollar Rate Advance pursuant to Section 2.2 would result in Borrower incurring breakage costs under clause (a) above as a result of Eurodollar Rate Advances being prepared other than on the last day of the Interest Period applicable thereto (collectively, the “Affected Eurodollar Balances”), then Borrower may, in its sole discretion, deposit 100% of the amount that otherwise would have been paid in respect of the Affected Eurodollar Balances in a

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non-interest bearing account with the Bank to be held as security for the obligations of Borrower hereunder pursuant to a cash collateral agreement in form and substance satisfactory to Bank, with such cash collateral to be directly applied upon the first occurrence (or occurrences) thereafter of the last day of the Interest Period applicable to the Affected Eurodollar Balances (or such earlier date or dates as requested by Borrower or if a Default or Event of Default shall have occurred and be continuing), to repay the aggregate principal amount of the Eurodollar Rate Advance(s) equal to the Affected Eurodollar Balances not otherwise repaid pursuant to this sentence.

3. CONDITIONS OF CREDIT EXTENSIONS.

3.1. Conditions Precedent to any Credit Extension. The obligation of Bank to make any Credit Extension under this Agreement is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, each of the following:

(a) this Agreement, duly executed and delivered by Borrower;

(b) a Compliance Certificate, dated as of the Closing Date, certified by a Responsible Officer of Borrower, which Compliance Certificate shall contain financial information reasonably satisfactory to Bank showing that (i) Consolidated EBITDA for the twelve (12) month period ending February 28, 2005 is not less than $12,500,000 and (ii) the Consolidated Leverage Ratio for the twelve (12) month period ending on February 28, 2005 is not less than 1.00:1.00;

(c) each of the Security Agreement, Pledge Agreement and Guaranty Agreement duly executed and delivered by each of Borrower and the other Credit Parties party thereto;

(d) an officer’s certificate of each of the Borrower and the Parent Guarantors with respect to its Governing Documents, and, in the case of each of such Credit Parties, with respect to incumbency and resolutions authorizing the execution, delivery and performance by such Credit Party of each of the Loan Documents to which such Credit Party is or is to become a party, all as contemplated hereby;

(e) financing statements (Form UCC-1) from each of Borrower, Holdings, and NRS;

(f) the Disbursement Instructions, the Agreement to Provide Insurance, and the Automatic Debit Authorization, each duly executed and delivered by Borrower;

(g) payment of the fees then due specified in Section 2.6, and payment to Bank’s special counsel, Bingham McCutchen LLP, of all reasonable attorneys’ fees and related disbursements and expenses incurred in connection with the preparation, negotiation, execution and delivery of the Loan Documents and the implementation of the transactions contemplated hereby;

(h) current financial statements of Borrower and its Subsidiaries;

(i) the Closing Date Certificate, in or substantially in the form of Exhibit L, duly executed and delivered by Borrower; and

(j) evidence, in the form of a payoff and termination letter (in form and substance satisfactory to Bank) signed by each existing lender, that, concurrently with the making of the initial Credit Extension hereunder on the Closing Date, all of the commitments in respect of the Existing Credit Facilities shall be terminated, all loans and notes with respect thereto shall be repaid in full, together with interest thereon, all letters of credit issued thereunder shall be terminated, cancelled and returned to the issuing bank all other amounts (including premiums) owing pursuant to the Existing Credit Facilities shall have been paid in full, and all instruments in respect of the Existing Credit Facilities and all security interests, liens and guarantees with respect thereto shall have been terminated and shall be of no further force and effect;

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(k) executed copies of all employment agreements between key employees of the Credit Parties and the applicable Credit Party; and

(l) such other agreements, instruments and documents or certificates (including, without limitation, certificates of legal existence and good standing), and completion of such other matters, as Bank in its discretion may reasonably deem necessary or appropriate.

3.2. Additional Conditions Precedent to Each Credit Extension. The obligation of Bank to make each Credit Extension under this Agreement, including the initial Credit Extensions, is further subject to the satisfaction of each of the following additional conditions:

(a) timely receipt by Bank of a Loan Advance Request, as provided in Section 2.1;

(b) no Default or Event of Default shall be continuing on and as of the date of such Loan Advance Request or on the effective date of such Credit Extension, whether before or after giving effect to such Credit Extension and the application of the proceeds thereof; and

(c) the representations and warranties of Borrower contained in Section 5 shall be true, correct and complete in all material respects on and as of the date of such Loan Advance Request and on the effective date of such Credit Extension as though made on and as of each such date (provided, however, that the representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such other date). The making of such Credit Extension shall, for all purposes of this Agreement, be deemed to be a representation and warranty by Borrower and the Parent Guarantors on the date of such Credit Extension as to the accuracy of the facts referred to in this paragraph (c).

4. CREATION OF SECURITY INTERESTS.

4.1. Grant of Security Interests. Upon the terms contained in this Agreement, the Security Agreement and the other Collateral Documents, each of Borrower and the Parent Guarantors grants to Bank continuing security interests and Liens in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower and each of the Parent Guarantors of each of its covenants and duties under the Loan Documents. Notwithstanding the foregoing, the grant of security interests herein shall not extend to and the term Collateral shall not include (a) property (and any accessions, attachments, replacements or improvements thereon) that is subject to a Lien that is otherwise permitted by clause (c) of the definition of “Permitted Liens” if inclusion would constitute a breach by Borrower of its agreement with a third party lessor or lender, provided that upon release of any such Lien, such property (and any accessions, attachments, replacements or improvements thereon) shall be automatically deemed to be Collateral hereunder and shall be subject to the security interests granted in the Loan Documents, or (b) more than 65% of the issued and outstanding voting stock of any Foreign Subsidiary. Except for Permitted Liens, such security interests and Liens (i) shall constitute valid, first-priority security interests and Liens in the presently existing Collateral, and (ii) will constitute valid, first-priority security interests and Liens in Collateral acquired, created, arising or existing at any time after the Closing Date. Notwithstanding any termination of the Bank’s Commitments, Bank’s Liens on the Collateral shall remain in effect for so long as any Obligations (other than indemnity obligations against which no claim has been made) of Borrower or any of the other Credit Parties shall remain outstanding. The Obligations of each of Borrower and the Parent Guarantors under the Security Agreement, the other Collateral Documents and the other Loan Documents are supplemental and in addition to the Obligations of Borrower under this Agreement.

4.2. Perfection of Security Interests. Each of Borrower and the Parent Guarantors authorizes, and shall cause each of the other Credit Parties (other than the Excluded Subsidiaries) from time to time party to any Collateral Documents to authorize, Bank to file at any time financing statements, continuation statements and amendments thereto that describe the Collateral and to describe the Collateral as all assets of each such Credit Party of the kind pledged under the Collateral Documents and which contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement or amendment, including whether such Credit Party is an organization, the type of organization and any organizational identification number issued to such Credit Party, if applicable. Any such financing statements may be signed by Bank on behalf of each such Credit Party, as provided in the Code, and may be filed at any time in any

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jurisdiction. Borrower shall from time to time execute and deliver, and shall cause each of the other Credit Parties (other than the Excluded Subsidiaries) from time to time party to any Collateral Documents to execute and deliver, to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form reasonably satisfactory to Bank, to perfect and continue perfected Bank’s security interests and Liens in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents. Each Credit Party shall have possession of its property and assets constituting Collateral, except for (i) property and assets which by their nature are mobile; or (ii) where expressly otherwise provided in the Loan Documents or where Bank chooses to perfect its security interests by possession in addition to the filing of a financing statement. Where Collateral having a fair market value in excess of $100,000 in the aggregate is in possession of one or more third-party bailees, Borrower: (a) shall give Bank prompt written notice thereof identifying the names and addresses of the third-party bailees and briefly describing the Collateral in the possession of the third-party bailees; and (b) shall, and shall cause each of the other Credit Parties (other than the Excluded Subsidiaries) from time to time party to any Collateral Documents to, promptly take steps as reasonably requested by Bank to permit Bank to obtain from each of such third-party bailees an acknowledgment, in form and substance reasonably satisfactory to Bank, that such bailee holds such Collateral for the benefit of Bank. Each of Borrower and the Parent Guarantors shall, and shall cause each of the other Credit Parties from time to time party to any Collateral Documents to promptly take steps as reasonably requested by Bank to permit Bank to obtain “control” of any Collateral consisting of investment property, letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or issuing bank to execute a control agreement in form and substance reasonably satisfactory to Bank. None of Borrower or the Parent Guarantors shall, and nor shall they cause or permit any of the other Credit Parties to, create any chattel paper (other than those Capital Leases under which such Credit Party is the lessee) without placing a legend on the chattel paper reasonably acceptable to Bank indicating that Bank has a security interest in the chattel paper.

4.3. Rights to Inspect; etc.

(a) Each of Borrower and the Parent Guarantors shall, and shall cause each of the other Credit Parties to, permit Bank or any of Bank’s representatives, upon reasonable prior notice at reasonable times during ordinary business hours, to visit and inspect any of the offices and properties of Borrower or of any of the other Credit Parties, discuss financial matters relating to Borrower or any of the other Credit Parties with any Responsible Officers of Borrower or of any of the other Credit Parties and with Borrower’s independent public accountant (and Borrower hereby irrevocably authorizes its independent public accountant to discuss Borrower’s financial matters with Bank or any of Bank’s representatives), and examine and make abstracts or photocopies from any of the books or other corporate records of Borrower or of any of the other Credit Parties. Borrower also acknowledges and agrees that Bank (through any of Bank’s officers, employees or agents) shall also have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours, to check, test and appraise the Collateral, to audit the Accounts and Inventory of Borrower and the other Credit Parties (other than the Excluded Subsidiaries) and to perform other Collateral audits in order to verify the financial condition of Borrower and of each of the other Credit Parties (other than the Excluded Subsidiaries) or otherwise to verify the amount, condition of, or any other matter relating to, all or any part of the Collateral. Bank agrees with Borrower that Bank and its representatives shall, in connection with the exercise by Bank of any of its inspection and other rights under Section 4.3 of this Agreement, make reasonable efforts to minimize any disruption to Borrower’s business resulting therefrom.

(b) All of the reasonable out-of-pocket costs and expenses incurred or sustained by Bank, if any, in connection with the conduct of any such inspections, examinations, Collateral checks, testing, appraisals and Account and Inventory audits and other Collateral audits shall be for the account of Borrower. All of such costs and expenses incurred or sustained by Bank while Events of Default are continuing shall be for the account of Borrower.

4.4. Excluded Subsidiary; etc. Anything in this Agreement or any of the other Loan Documents express or implied to the contrary notwithstanding, the Excluded Subsidiary shall not be required to become a party to or bound by the Guaranty Agreement, the Security Agreement or any of the other Collateral Documents.

5. REPRESENTATIONS AND WARRANTIES.

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Each of Borrower and the Parent Guarantors represents and warrants to Bank as follows:

5.1. Due Organization and Qualification. Each of Borrower and the other Credit Parties is a corporation, limited liability company or (as the case may be) other organization duly existing and in good standing under the laws of the jurisdiction of its organization and qualified and licensed to do business in each state, country and other jurisdiction in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to be so qualified or licensed has not had and could not reasonably be expected to have any Material Adverse Effect.

5.2. Due Authorization; No Conflict; No Default. The execution, delivery and performance by each Credit Party of each of the Loan Documents to which it is or is to become a party, all as contemplated hereby, have been duly authorized, are not in conflict with and do not constitute a breach of any provision contained in the Governing Documents of any such Credit Party, and do not and will not constitute a default or an event of default under any material agreement by which any of such Credit Parties is or may become bound or affected. No Default or Event of Default is continuing hereunder.

5.3. Collateral. Each of Borrower and the other Credit Parties from time to time party to any of the Collateral Documents has rights in or the power to transfer its property constituting Collateral, and its title to its property constituting Collateral is free and clear of all Liens, adverse claims, and restrictions on transfer or pledge, except for Permitted Liens. All Collateral is located solely in the Collateral States; provided, however, all Accounts shall be located in the United States and payable in U.S. dollars. Except as set forth in Section 5.3 or Section 5.12 of the Disclosure Schedule or as otherwise disclosed to Bank pursuant to Section 7.11, none of the Collateral is maintained or invested with any Person other than Bank or Bank’s affiliates.

5.4. Intellectual Property. Each of Borrower and the other Credit Parties is the sole owner of its property and assets constituting Intellectual Property (or in the case of Intellectual Property where Borrower or any other Credit Party has rights under inbound licenses, has appropriate rights under such licenses), except for Permitted Liens. To Borrower’s and any other Credit Party’s knowledge, (i) each of the Copyrights, Trademarks and Patents owned by Borrower or any of the other Credit Parties is valid and enforceable, (ii) no part of the Intellectual Property has been judged invalid or unenforceable, in whole or in part, and (iii) no written claim has been made to Borrower or any of the other Credit Parties that any part of the Intellectual Property violates the rights of any third party.

5.5. Names; Location of Chief Executive Offices. Except as disclosed in Section 5.5 of the Disclosure Schedule, none of Borrower or any of the other Credit Parties has done business under any names other than the name of such Person specified in Section 5.5 of the Disclosure Schedule and, if such Person is a Credit Party, the name of such Credit Party specified on the signature pages to the Guaranty Agreement, and the exact legal name of each Credit Party is as set forth in the signature pages to the Guaranty Agreement. The chief executive office of each of Borrower and the other Credit Parties is located in the Chief Executive Office State identified in Section 5.5 of the Disclosure Schedule.

5.6. Litigation. Except as set forth in Section 5.6 of the Disclosure Schedule, there are no actions or proceedings pending by or against Borrower or any of the other Credit Parties before any court or administrative agency in which an adverse decision has had or could reasonably be expected to have any Material Adverse Effect.

5.7. No Material Adverse Change in Financial Condition. All consolidating and consolidated financial statements relating to Borrower and the other Credit Parties from time to time delivered by Borrower or any of the other Credit Parties to Bank fairly present in all material respects the consolidating and consolidated financial condition of Borrower and the other Credit Parties as of the respective dates thereof and the consolidating and consolidated results of operations of Borrower and the other Credit Parties for the respective periods then ended. There has not been a material adverse change in the consolidating or in the consolidated financial condition of Borrower and the other Credit Parties since the date of the most recent of such financial statements submitted to Bank. No event, occurrence or development has occurred at any time after December 31, 2003 which has had or could reasonably be expected to have any Material Adverse Effect.

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5.8. Solvency; Payment of Debts. Each of Borrower and the other Credit Parties is solvent and is able to pay its debts (including trade debts) as they mature; and the fair saleable value of assets (including goodwill minus disposition costs) of each of Borrower and the other Credit Parties exceeds the fair value of their liabilities.

5.9. Compliance with Laws and Regulations. Borrower and the other Credit Parties (other than the Excluded Subsidiaries) have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from the failure by Borrower or such other Credit Parties to comply with ERISA that is reasonably likely to result in the incurring of any liability that has had or could reasonably be expected to have any Material Adverse Effect. None of Borrower or such other Credit Parties is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. None of Borrower or such other Credit Parties is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Each of Borrower and the other Credit Parties has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Each of Borrower and such other Credit Parties is in compliance with all applicable Environmental Laws, except where the failure to comply has not had and could not reasonably be expected to have any Material Adverse Effect. Each of Borrower and the other Credit Parties, to the extent applicable, has complied in all material respects with all the rules, regulations and provisions of JCAHO. None of Borrower or the other Credit Parties has violated any statutes, laws, ordinances or rules applicable to it, violation of which has had or could reasonably be expected to have any Material Adverse Effect. Each of Borrower and its Subsidiaries has filed or caused to be filed all tax returns required to be filed, and has paid, or has made adequate provision for the payment of, all taxes reflected therein, except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or to pay such taxes has not had and could not reasonably be expected to have any Material Adverse Effect.

5.10. Corporate Structure; Subsidiaries; etc.

(a) Section 5.10 of the Disclosure Schedule identifies, as of the Closing Date, each direct or indirect Subsidiary of Borrower.

(b) (i) Holdings owns and controls (both legally and beneficially) 100% of all of the Equity Interests in NRS and Dayhawk and 35.6% of all of the Equity Interests in Borrower, (ii) NRS owns and controls (both legally and beneficially) 64.4% of Borrower, and (iii) Borrower owns and controls (both legally and beneficially) all of the Equity Interests in Nighthawk Zurich (other than any Equity Interests that are required by applicable law to be held by director(s) or Person(s) resident in the jurisdiction of formation of Nighthawk Zurich).

(c) No Credit Party is a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company,” within the meaning of the Public Utility Holding Company Act of 1935.

5.11. Existing Indebtedness; Liens; etc.

(a) The Indebtedness of each of Borrower and the other Credit Parties as of the Closing Date is identified in Section 5.11(a) of the Disclosure Schedule (the “Existing Indebtedness”). With respect to each item of Existing Indebtedness identified in Section 5.11(a) of the Disclosure Schedule, the outstanding principal amount of which will be paid in full upon the making of the initial Advances on the Closing Date, Borrower has delivered or otherwise made available to Bank a true and complete copy of the payoff letter evidencing the payoff arrangements of such Existing Indebtedness.

(b) Section 5.11(b) of the Disclosure Schedule identifies all of the Liens (i) upon any Intellectual Property of Borrower or of any of the other Credit Parties, or (ii) upon any property of Borrower or of any of the other Credit Parties that secure Existing Indebtedness or other material obligations or liabilities of Borrower or of any of the other Credit Parties and that are in existence on or as of the Closing Date.

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(c) Section 5.11(c) of the Disclosure Schedule identifies all Indebtedness of Borrower or of any of the other Credit Parties which is required to be repaid or prepaid in full or in part on (or within eighteen (18) months after) the Closing Date, in each case, showing the aggregate principal amount thereof so to be prepaid or prepaid, the names of the respective holders thereof, and the names of any Persons which directly or indirectly guaranteed any such Indebtedness.

(d) Section 5.11(d) of the Disclosure Schedule identifies each Investment of Borrower or of any of the other Credit Parties that is owned or held or is outstanding or in effect on or as of the Closing Date, other than (i) Investments by each of Borrower and the Parent Guarantors in any Equity Interests of any of its Subsidiaries, and (ii) Investments by any Subsidiaries of Borrower or the Parent Guarantors in any Equity Interests of any other Subsidiaries of Borrower or the Parent Guarantors.

(e) Except as otherwise disclosed in Section 5.11(e) of the Disclosure Schedule, no material default on the part of any party to any Material Contract, and no material breach by any such party in the payment, performance or observance of any of its material agreements, covenants or obligations thereunder, is continuing. No party to any Material Contract has exercised, or given notice of its intention or decision to exercise, any rights of termination, cancellation or rescission thereunder; and no event or condition is continuing which permits any party to any Material Contract to exercise any rights of termination, cancellation or rescission thereunder.

(f) None of Borrower or any of the other Credit Parties is in material default under any Material Contract to which it is a party or by which it is bound, except to the extent that such material default (i) has not resulted, and could not reasonably be expected to result, in any Default or Event of Default under Section 8.7 hereof, and (ii) has not had and could not reasonably be expected to have any Material Adverse Effect.

5.12. Deposit Accounts; etc.

(a) Section 5.12 of the Disclosure Schedule identifies each of the Deposit Accounts and other similar accounts of every kind maintained by Borrower or by any of the other Credit Parties on or as of the Closing Date with any bank or other financial institution or with any mutual fund, securities broker, investment banking firm or other Person (collectively, “Existing Deposit Accounts”). Section 5.12 of the Disclosure Schedule sets forth: (i) the name or other designation of each account identified therein; (ii) the name and address of the institution or other Person with which each such account is maintained; and (iii) the name, address, telephone number and facsimile number of the contact person with each such institution or other Person. Section 5.12 of the Disclosure Schedule also identifies each of the Existing Deposit Accounts which is to be closed by the Borrower or by any of the other Credit Parties, all in accordance with Section 6.7 of this Agreement. Each of Borrower and the Parent Guarantors has furnished to Bank accurate information regarding the account number of each of the Existing Deposit Accounts.

(b) None of Borrower or any of the other Credit Parties owns, controls or maintains any Deposit Accounts or any other similar accounts, except the Existing Deposit Accounts identified in Section 5.12 of the Disclosure Schedule.

5.13. Title to Real Properties, etc.

(a) All real property owned or leased by Borrower or by any of the other Credit Parties as of the Closing Date, and the nature of the interest therein, is identified in Section 5.13 of the Disclosure Schedule. Each of Borrower and the other Credit Parties has good record and marketable title in fee simple to, or valid leasehold interests in, all real property used in the ordinary conduct of its businesses, including all real property identified in Section 5.13 to the Disclosure Schedule or in the financial statements referred to in Section 5.7.

(b) The present and contemplated use of any real property owned or leased by Borrower or any of the other Credit Parties is in compliance in all material respects with all applicable Licenses and other Applicable Law, where failure so to comply could reasonably be expected to result in any Material Adverse

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Effect. Each Real Estate Lease pursuant to which Borrower or any of the other Credit Parties, as lessee, acquired rights in real property is in full force and effect; Borrower or such Credit Party has all rights of the lessee thereunder; there has been no material default in the performance of any of its terms or conditions by Borrower or any such Credit Party nor (to the best of Borrower’s knowledge) any other party thereto; and no claims of material default have been asserted with respect thereto, where such material default has resulted or could reasonably be expected to result in any Material Adverse Effect.

5.14. Material Contracts. Section 5.14 of the Disclosure Schedule identifies, as of the Closing Date, each contract, agreement or commitment (collectively, “Material Contracts”) to which Borrower or any of the other Credit Parties is a party, the termination, cancellation or rescission of which could reasonably be expected to have any Material Adverse Effect.

5.15. Transactions with Affiliates. Section 5.15 of the Disclosure Schedule identifies: (a) all Indebtedness of Borrower or of any of the other Credit Parties to any Affiliate of Borrower or the Parent Guarantors on or as of the Closing Date in an amount exceeding $100,000 in the aggregate, material contractual obligations of Borrower or of any of the other Credit Parties to any Affiliate of Borrower or the Parent Guarantors on or as of the Closing Date, and Investments in Borrower, the Parent Guarantors or in any of their Subsidiaries owned, held or controlled by any Affiliate of Borrower or the Parent Guarantors on or as of the Closing Date; and (b) all (if any) Indebtedness of any Affiliate of Borrower to Borrower or the Parent Guarantors or to any of their Subsidiaries on or as of the Closing Date in an amount exceeding $100,000 in the aggregate, material contractual obligations of any Affiliate of Borrower to Borrower or the Parent Guarantors or to any of their Subsidiaries on or as of the Closing Date, and Investments in any Affiliate of Borrower owned, held or controlled by Borrower or the Parent Guarantors or by any of their Subsidiaries on or as of the Closing Date. For purposes of this Section 5.15, the term “Affiliate of Borrower or the Parent Guarantors” shall not mean or include any Subsidiary of Borrower or the Parent Guarantors.

5.16. Governmental Consents, Etc. Each of Borrower and the other Credit Parties, and to the extent applicable, all of their physician employees and consultants, has obtained all Licenses and all other consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities, accrediting organizations, and health care institutions or providers granting staff privileges that are necessary for the continued operation of the business of each of Borrower and the other Credit Parties as currently conducted, except where the failure to do so has not had and could not reasonably be expected to have any Material Adverse Effect.

5.17. Full Disclosure. No representation, warranty or other statement made by Borrower or by any of the other Credit Parties in any of the Loan Documents or in any certificates or other written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in any of the Loan Documents or in any such certificates or statements not materially misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results, and it being understood that forecasts and projections by their nature involve approximations and uncertainties).

6. AFFIRMATIVE COVENANTS.

Each of Borrower and the Parent Guarantors covenants and agrees with Bank that, from and after the date hereof and until all of the Commitments and all other obligations of Bank to make extensions of credit or issue Letters of Credit under any of the Loan Documents shall have terminated in full, and until all of the Obligations (other than indemnity obligations against which no claim has been made) of Borrower and the other Credit Parties shall have been paid in full, each of Borrower and the Parent Guarantors shall, and shall cause each of its Subsidiaries to, do all of the following:

6.1. Good Standing and Government Compliance. Except as otherwise permitted by clauses (a) and (b) in Section 7.3, each of Borrower, the Parent Guarantors and the other Credit Parties shall maintain its corporate existence and good standing in its Credit Party State, shall maintain qualification and good standing in each jurisdiction in which the failure to so qualify could reasonably be expected to have any Material

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Adverse Effect, and shall furnish to Bank the organizational identification number issued to it by the authorities of the Credit Party State in which it is organized, if applicable. Each of Borrower and the Parent Guarantors shall meet, and shall cause each of the other Credit Parties (other than the Excluded Subsidiaries) to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, except where the failure to meet such requirements has not had and could not reasonably be expected to have any Material Adverse Effect. Each of Borrower and the Parent Guarantors shall, and shall cause each of the other Credit Parties to, comply in all material respects with all applicable Environmental Laws and maintain all material permits, licenses and approvals required thereunder where the failure to do so could reasonably be expected to have any Material Adverse Effect. Each of Borrower and the Parent Guarantors shall, and shall cause each of the other Credit Parties to, comply with all Applicable Law to which it is subject, and each of Borrower and the Parent Guarantors shall maintain, and shall cause each of the other Credit Parties to maintain, in force all Licenses, the loss of which or failure to comply with which could reasonably be expected to have any Material Adverse Effect.

6.2. Financial Statements; Reports; Certificates.

(a) Borrower shall deliver to Bank: (i) as soon as available, but in any event within 30 days, after the end of each calendar month, consolidated balance sheets and income statements covering operations of Borrower and the other Credit Parties during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer of Borrower; (ii) as soon as available, but in any event within 45 days, after the end of each of the first three calendar quarters, consolidated balance sheets and income statements covering the operations of Borrower and the other Credit Parties during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer of Borrower; (iii) as soon as available, but in any event within 90 days, after the end of Borrower’s fiscal year, audited consolidated and consolidating financial statements of Borrower and the other Credit Parties prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified (or otherwise consented to in writing by Bank) on such financial statements of one of the “Big 4” accounting firms; (iv) as soon as available, copies of all statements, reports and notices sent or made available generally by Holdings to its security holders and all reports of Holdings on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (v) promptly upon receipt of notice thereof, a report of any legal action pending or threatened against Borrower or any of the other Credit Parties that could reasonably be expected to result in damages or costs to Borrower or any of the other Credit Parties of $500,000 or more; and (vi) such budgets, sales projections, operating plans and other financial information generally prepared by Borrower or any of the other Credit Parties in the ordinary course of business as Bank may reasonably request from time to time.

(b) Borrower shall deliver to Bank, within 45 days after the end of each calendar quarter: (i) a Compliance Certificate, certified by a Responsible Officer of Borrower, and in or substantially in the form of Exhibit D hereto, together with agings of Accounts and accounts payable in detail reasonably satisfactory to Bank; and (ii) statements comparing the actual financial performance of Borrower and the other Credit Parties for such calendar quarter and for that part of the fiscal year ending with such calendar quarter to the projected financial performance for each of such fiscal periods set forth in the annual business plan and budget furnished to Bank pursuant to paragraph (e) of this Section 6.2.

(c) Promptly, and, in any event, within thirty (30) days, after Borrower or any of the other Credit Parties shall first become aware of any of the following events, occurrences or developments, Borrower shall deliver to Bank a written statement of a Responsible Officer of Borrower setting forth details of such event, occurrence or development and the action that Borrower or any of the other Credit Parties has taken or proposes to take with respect thereto: (i) the occurrence of any Default or Event of Default; (ii) the termination, cancellation or rescission of any Material Contract; (iii) the receipt by Borrower or either Parent Guarantor of any written notice of termination, cancellation or rescission of any Material Contract; or (iv) the taking of any action by any Person that is a party to any Material Contract to terminate, cancel or rescind that agreement.

(d) Borrower shall deliver to Bank, within 30 days after the end of each fiscal quarter, a written report setting forth in detail reasonably satisfactory to Bank the most up-to-date information then available to Borrower and the other Credit Parties relating to all Intellectual Property owned by Borrower and or any other Credit Party as of the last day of such fiscal quarter; provided that Borrower shall not be required to deliver such report if there are no changes to be reported to Bank with respect to Borrower’s and or any other Credit Party’s Intellectual Property.

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(e) Not later than 45 days after the end of each calendar year, Borrower shall deliver to Bank a copy of Borrower’s projections for the next fiscal year and promptly, following approval by Borrower’s board of managers, the annual business plan and budget for the next fiscal year, including projected consolidated and consolidating statements of operations and of cash flows of Borrower and the other Credit Parties for the next fiscal year, all as approved by Borrower’s Board of Directors.

6.3. Inventory. Each of Borrower and the Parent Guarantors shall keep, and shall cause each of the other Credit Parties to keep, all Inventory in good and merchantable condition, free from all material defects, except Inventory for which adequate reserves have been made.

6.4. Taxes. Each of Borrower and the Parent Guarantors shall make, and shall cause each of the other Credit Parties to make, due and timely payment or deposit of all material federal, state, local, foreign and other governmental taxes, assessments or contributions required of it by law, including, but not limited to, laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and each of Borrower and the Parent Guarantors shall execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that each of Borrower, the Parent Guarantors and the other Credit Parties have made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that none of Borrower or the Parent Guarantors, or (as the case may be) the other Credit Parties, need not make any such payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower and the other Credit Parties.

6.5. Insurance.

(a) Each of Borrower and the Parent Guarantors, at their expense, shall keep, and shall cause each of its Subsidiaries to keep, all of the Collateral and all other property insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where business of Borrower or of the other Credit Parties is from time to time conducted. Each of Borrower and the Parent Guarantors shall also maintain, and shall cause each of its Subsidiaries to maintain, malpractice (with respect to the Borrower, the other Credit Parties and each of their physician employees and consultants) and general liability and other insurance in amounts and of a type that are customary to businesses similar to business of Borrower, the Parent Guarantors or of their Subsidiaries.

(b) All of such policies of insurance shall be in such form, with such insurers, and in such amounts, as shall be reasonably satisfactory to Bank. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and each liability insurance policy shall show Bank as an additional insured and specify that the insurer must give at least 20 days prior notice to Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower or (as the case may be) the other Credit Parties to replace the property subject to the claim, provided that any such replacement property shall, except as otherwise provided by this Agreement, be deemed Collateral in which Bank has been granted a first-priority security interest upon the terms contained in the Loan Documents. If any Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.

6.6. Identification of Subsidiaries; Provision of Collateral.

(a) Subject always to the provisions contained in Section 4.4, if and whenever any direct or indirect Subsidiary of Borrower or any Parent Guarantor shall be created, formed or acquired by Borrower, any Parent Guarantor or by any of their Subsidiaries at any time after the Closing Date, Borrower or the applicable Parent Guarantor shall:

(i) furnish promptly to Bank a written notice identifying such Subsidiary and setting forth with respect to such Subsidiary all of the following information: (A) the State or other jurisdiction of organization of each such Person; (B) the number of authorized and outstanding shares or other units of each class of Capital Stock and all other Equity Interests of each such Person; and (C) with respect to each Subsidiary of

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Borrower or the Parent Guarantors, (1) each Person which owns or controls (whether legally or beneficially) any of the Capital Stock or other Equity Interests of each such Subsidiary, and (2) the number of shares or units of each class or kind of Capital Stock or other Equity Interests so owned or controlled by each such Person.; and

(ii) promptly comply with, and cause such Subsidiary to comply with, the applicable terms of paragraph (b) of this Section 6.6.

(b) Subject always to the provisions contained in Section 4.4, promptly after the consummation of any acquisition or the creation, formation or acquisition of any new Subsidiary of Borrower or a Parent Guarantor, Borrower or such Parent Guarantor shall:

(i) in the case of any acquisition of Equity Interests of any such Subsidiary by Borrower, by such Parent Guarantor or by any of their Subsidiaries, whether in connection with the creation, formation or acquisition of a Subsidiary or otherwise: (A) deliver or cause to be delivered to Bank in pledge all of the stock certificates representing such Equity Interests, such Equity Interests to be held by Bank in pledge in accordance with the terms of the Pledge Agreement; and (B) cause such Subsidiary to execute and deliver to Bank (1) joinder agreements in form and substance reasonably satisfactory to Bank upon the terms of which such Subsidiary shall become a party to and bound by the Guaranty Agreement, the Security Agreement, the Intellectual Property Security Agreement, and the Pledge Agreement, the effect of which shall be that, as of the date set forth in such joinder agreements, such Subsidiary shall become a party to each such instrument and be bound by the terms thereof, and (2) such UCC financing statements and other Security Instruments as shall be required by Bank to perfect the security interests and Liens in Collateral being pledged and granted by such Subsidiary pursuant to the Security Agreement and the other Collateral Documents;

(ii) in the case of any acquisition of property (other than Equity Interests) by Borrower, by such Parent Guarantor or by any of their Subsidiaries, deliver or cause to be delivered to Bank, duly executed by the Persons acquiring such property, such UCC financing statements and other Security Instruments as shall be required by Bank to perfect the security interests and Liens in the property so acquired; and

(iii) in each such case, comply with all of the other applicable provisions of Section 6.8, and provide to Bank all such other documentation including, without limitation, Governing Documents and resolutions as Bank shall reasonably deem necessary or advisable in connection with such acquisition of property or the creation, formation or acquisition of such Subsidiary.

(c) Subject always to the provisions contained in Section 4.4, with respect to any personal property acquired after the Closing Date by Borrower, the Parent Guarantors or any of their Subsidiaries (other than any property subject to any Lien expressly permitted by Section 7.5 as to which Bank does not have a perfected Lien), promptly (i) execute and deliver to Bank such amendments to the Collateral Documents or such other documents as Bank deems necessary or advisable to grant to Bank, a security interest in such property, and (ii) take all action necessary or advisable to grant to Bank a perfected first-priority security interest in such property, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Collateral Documents or by law or as may be requested by Bank.

6.7. Deposit Accounts; Banking Arrangements; etc.

(a) Neither Borrower nor any of the other Credit Parties shall, at any time or times after the Closing Date, except as and to the extent provided by paragraph (b) or paragraph (c) of this Section 6.7 or otherwise expressly permitted by Bank from time to time, open or maintain any Deposit Accounts (including any securities, investment or other similar accounts) with any banks or other financial institutions, except for (i) Deposit Accounts with Bank or with affiliates of Bank, and (ii) the Existing Deposit Accounts.

(b) Each of Borrower and the other Credit Parties shall close each Existing Deposit Account which is identified in the table below and transfer all Cash and other Investments from each such closed account to Deposit Accounts with Bank or with affiliates of Bank, each such closure and transfer to be completed by the Closure Date identified in the table below opposite each such Existing Deposit Account and Borrower shall

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cause each Financial Institution identified by an asterisk (*) in the table below to enter into a blocked account agreement or deposit account control agreement, in form and substance satisfactory to the Bank, as of the Closing Date. Each Existing Deposit Account identified in the table set forth below is identified by reference to the “Account#/Name” of such Existing Deposit Account set forth in Section 5.12 of the Disclosure Schedule.

Credit Party	Account#/Name	Financial Institution	Closure Date
Borrower	[†]	Silicon Valley Bank*	140 days after the Closing Date
Holdings	[†]	Silicon Valley Bank*	140 days after the Closing Date
Borrower	[†]	Westpac Bank	120 days after the Closing Date
Borrower (Dayhawk Radiology Services)	[†]	Bank One	120 days after the Closing Date

(c) The following Existing Deposit Accounts may be maintained by Borrower or (as the case may be) the other Credit Parties at all times after Closing Date, but Borrower shall not cause or permit at any time after the Closing Date (i) the aggregate balance of the ANZ Bank Australia and Credit Suisse Accounts identified in the table below to exceed $750,000, (ii) the balance of the Sterling Savings Bank Account identified in the table below to exceed $140,000 plus all accrued interest thereon or (iii) the balance of the Silicon Valley Bank Account identified in the table below to exceed $300,000 plus all accrued interest thereon.

Credit Party	Account#/Name	Financial Institution
Borrower	[†]	ANZ Bank Australia
Nighthawk Zurich	[†]	Credit Suisse
Borrower	[†]	Sterling Savings Bank
Borrower	[†]	Silicon Valley Bank

(d) It is the express intention and agreement of Borrower, the Parent Guarantors and Bank that Bank shall at all times have a perfected first-priority security interest and Lien upon each material Deposit Account from time to time maintained by Borrower, the Parent Guarantors or any of their Restricted Subsidiaries with any Person or Persons. In order to give effect to this express intention and agreement, each of Borrower and the Parent Guarantors hereby agrees, and hereby agrees to cause each of their Restricted Subsidiaries, to establish, and at all times after the Closing Date maintain, with Bank or with affiliates of Bank all such demand deposit accounts and other banking and transaction accounts as Bank shall from time to time reasonably request.

6.8. Lessor’s Waiver and Consent. Each of Borrower and the Parent Guarantors agrees, or will cause each of the other Credit Parties (other than the Excluded Subsidiaries), to use its best efforts to obtain a signed Lessor’s Waiver and Consent in or substantially in the form of Exhibit N, or otherwise reasonably satisfactory to Bank in form and substance, from each lessor under each Real Estate Lease which is outstanding on the Closing Date or which is negotiated, completed, renewed or extended by the Borrower, the Parent Guarantors or by any of their Subsidiaries at any time or from time to time after the Closing Date.

6.9. Merger of Dayhawk. Holdings shall cause Dayhawk to be merged with and into Borrower (the survivor of which shall be Borrower) as soon as possible after the Closing Date, but in any event within sixty (60) days of the Closing Date. Prior to the date of such merger, all Accounts of Dayhawk shall be paid to Borrower or into Borrower’s Deposit Account maintained with Bank and Dayhawk shall not engage in any business or activity other than that which it is engaged in as of the Closing Date, including without limitation, the incurrence of additional Indebtedness, the disposition of any of its property or the creation or incurrence of any

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Liens. From and after the date of such merger, NRS and Borrower shall be the only direct Subsidiaries of Holdings and all property of Dayhawk which existed prior to date of such merger shall be the property of Borrower.

6.10. Further Assurances.

(a) Each of Borrower and the Parent Guarantors shall from time to time, and shall cause each of the other Credit Parties that is a party to any of the Collateral Documents from time to time to, make, execute, endorse, acknowledge, file and/or deliver to Bank such vouchers, invoices, schedules, financing statements, powers of attorney, certificates, reports and other assurances or instruments (collectively, “Additional Security Documents”) to the extent necessary to maintain the perfection of Bank’s security interest in the Collateral, and take such further steps relating to the Collateral covered by any of the Collateral Documents as Bank may from time to time reasonably require. Furthermore, each of Borrower and the Parent Guarantors shall cause to be delivered to Bank such other related documents as may be reasonably requested from time to time by Bank. In addition, each of Borrower and the Parent Guarantors shall, and shall cause each of their Subsidiaries to, promptly execute and deliver such further instruments and promptly take such further action as shall be reasonably requested by Bank from time to time in order to effect the purposes of this Agreement and the other Loan Documents.

(b) Each of Borrower and the Parent Guarantors understands and agrees that time is of the essence of the covenants of Borrower under Section 6.6, Section 6.7 and this Section 6.8, and, accordingly, each of Borrower and the Parent Guarantors covenants that it shall, and shall cause each of its Subsidiaries to, comply in all material respects with each request or requirement of Bank made pursuant to Section 6.6, Section 6.7 or this Section 6.8, each such request or requirement to be complied with promptly but, in any event, within thirty (30) days after the date on which Borrower or a Parent Guarantor shall have first received from Bank written notice of such request or requirement.

7. NEGATIVE COVENANTS.

Each of Borrower and the Parent Guarantors covenants and agrees with Bank that, from and after the date hereof and until all of the Commitments and all other obligations of Bank to make extensions of credit or issue Letters of Credit under any of the Loan Documents shall have terminated in full, and until all of the Obligations (other than indemnity obligations against which no claim has been made) of Borrower and its Subsidiaries shall have been paid in full, none of Borrower or the Parent Guarantors shall, and nor shall they cause or permit any of their Subsidiaries to, do any of the following:

7.1. Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, “Transfer”), or cause or permit any of their Subsidiaries to Transfer, all or any part of its business or property, other than Permitted Transfers.

7.2. Changes in Name, Location or Chief Executive Office; Changes in Business; Changes in Fiscal Year; Change in Control. Change its name or its Credit Party State, or relocate its chief executive office, without, in each such case, 30 days’ prior written notification to Bank; engage in any business, or permit any of its Subsidiaries to engage in any business, other than business reasonably related or incidental to the businesses currently engaged in by Borrower or by any of the other Credit Parties; change its fiscal year end.

7.3. Mergers; Acquisitions. Merge or consolidate, or cause or permit any of their Subsidiaries to merge or consolidate, with or into any other business organization (other than (a) mergers or consolidations of any Restricted Subsidiary of Borrower into another Restricted Subsidiary of Borrower or into Borrower or (b) a merger of NRS into or with Holdings or Borrower or the merger of Dayhawk into Borrower); or acquire, or cause or permit any of their Subsidiaries to acquire, all or any substantial part of any of the Equity Interests or property and assets of any other Person, except Permitted Acquisitions and Permitted Investments.

7.4. Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or cause or permit any of their Subsidiaries so to do, except for Permitted Indebtedness; or prepay, repurchase or redeem, or otherwise repay prior to the scheduled maturity thereof, any Indebtedness of Borrower or of any of the other Credit Parties; or amend, restate or otherwise modify any instruments or documents

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evidencing or governing any such Indebtedness, or take any other action of any kind (whether direct or indirect), as a result of which Borrower or any of the other Credit Parties shall become obligated to make any such prepayment, repurchase, redemption or other repayment. The limitations on prepayment of Indebtedness set forth in this Section 7.4 shall not be applicable to any prepayment of any of the Obligations of Borrower or any of the other Credit Parties to Bank, or with respect to any Indebtedness that constitutes Permitted Indebtedness as described in clause (b) or clause (c) of the definition of Permitted Indebtedness.

7.5. Encumbrances. Create, incur, assume or allow any Liens with respect to any of its property, or assign or otherwise convey any rights to receive income, including the sale of any Accounts, or cause or permit any of their Subsidiaries so to do, except for Permitted Liens; or covenant with any other Person that Borrower, the Parent Guarantors or any of their Subsidiaries in the future will refrain from creating, incurring, assuming or allowing any Liens with respect to any of the property of Borrower, the Parent Guarantors or any of their Subsidiaries other than restrictions in agreements evidencing Indebtedness permitted by clause (c) of the definition of “Permitted Indebtedness” that impose restrictions on property (including all accessions, attachments, replacements or improvements and the proceeds of such property) financed by such Indebtedness or those restrictions set forth in Section 4C(xv) of the Securities Purchase Agreement.

7.6. Restricted Payments; etc. Make any Restricted Payments, or cause or permit any of their Subsidiaries to make any Restricted Payments. Notwithstanding the foregoing: (a) any direct or indirect Subsidiaries of Borrower may pay dividends to Borrower or to any intermediate Subsidiaries of Borrower; (b) Borrower may pay dividends in the form of common Capital Stock of Borrower; (c) Holdings may repurchase its Capital Stock pursuant to the terms of incentive compensation plans, employee stock purchase plans, employee restricted stock agreements or similar arrangements (i) from employees and (ii) so long as no Default or Event of Default shall have occurred and be continuing or would result after giving effect thereto, from its directors and consultants and (d) so long as no Default or Event of Default shall have occurred and be continuing or would result after giving effect thereto, (i) Borrower may pay cash dividends to Holdings in an aggregate amount not to exceed $500,000 at any time for the purpose of payment of dividends by Holdings and (ii) Holdings may pay cash dividends in a like amount.

7.7. Investments. Directly or indirectly acquire or own, or make any Investments in or to any Person, or cause or permit any of their Subsidiaries so to do, except for Permitted Investments.

7.8. Restrictions on Subsidiary Distributions. Except to the extent otherwise expressly permitted by the Loan Documents, enter into or cause or permit to exist any consensual encumbrance or restriction on the ability of any Subsidiary of Borrower or the Parent Guarantors to (a) make any dividends or other distributions in respect of any Equity Interests of such Subsidiary, (b) pay any Indebtedness owed by any such Subsidiary to Borrower, a Parent Guarantor or any of their Subsidiaries, (c) make any Investments in Borrower, the Parent Guarantors or any of their Subsidiaries, or (d) transfer any of its property to Borrower, the Parent Guarantors or any of their Subsidiaries.

7.9. Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower or the Parent Guarantors, or cause or permit any of their Subsidiaries to do so; except for: (a) agreements and transactions that are in the ordinary course of Borrower’s or such Parent Guarantor’s business and upon fair and reasonable terms that are no less favorable to Borrower or such Parent Guarantor than would be obtained in an arm’s length transaction with a non-affiliated Person; and (b) Permitted Investments. For purposes of this Section 7.9, the term “Affiliate” shall not mean or include any of the Subsidiaries of Borrower.

7.10. Subordinated Debt; etc. Amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms governing any Indebtedness expressly subordinated to the Obligations; except any such amendment, modification, waiver or other change which would (a) extend the maturity or reduce the amount of any payment of principal thereof, (b) reduce the rate or extend the date for payment of interest thereon, or (c) relax or eliminate any covenant or other restriction applicable to Borrower or any of its Subsidiaries.

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7.11. Inventory and Equipment. Store, or cause or permit any of their Restricted Subsidiaries to store, any Inventory or Equipment having a fair market value in excess of $100,000 in the aggregate, with any one or more third-party bailees, warehousemen or other similar third parties, unless: (a) Borrower or the Parent Guarantors shall promptly thereafter give Bank written notice thereof identifying the names and addresses of such third parties and briefly describing the Inventory or Equipment in the possession of such third parties; and (b) promptly (and, in any event, within thirty (30) days) after Bank so requests, each of the third parties shall be notified of Bank’s security interests and Liens, and Bank (i) shall receive an acknowledgment from each of the third parties that it is holding or will hold the Inventory or Equipment for Bank’s benefit, or (ii) shall be in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business, and, except for such other locations as Bank may approve in writing, Borrower and the Parent Guarantors shall keep, and shall cause each of their Restricted Subsidiaries to keep, its Inventory and Equipment only at the locations set forth in the Disclosure Schedule delivered by Borrower and the Parent Guarantors to Bank prior to the Closing Date, and at such other locations of which Borrower and the Parent Guarantors give Bank prior written notice and as to which Bank files Security Instruments where needed to perfect its security interests and liens in such Inventory and Equipment.

7.12. Financial Covenants.

(a) Maximum Consolidated Leverage Ratio. Cause or permit the Consolidated Leverage Ratio of the Borrower and the other Credit Parties for Reference Period to be greater than 1.25:1.00.

(b) Minimum Consolidated Fixed Charge Coverage Ratio. Cause or permit the Consolidated Fixed Charge Coverage Ratio of Borrower and the other Credit Parties for any Reference Period to be less than 1.40:1.00.

(c) Minimum Consolidated EBITDA. Cause or permit the Consolidated EBITDA of the Borrower and the other Credit Parties for any Reference Period ending on any date identified in the table below to be less than the amount specified for such Reference Period in the table below:

Date	Amount
March 31, 2005	$	13,000,000
June 30, 2005	$	14,600,000
September 30, 2005	$	15,400,000
December 31, 2005	$	17,200,000
March 31, 2006	$	18,300,000
June 30, 2006	$	19,000,000
September 30, 2006	$	19,800,000
December 31, 2006 and thereafter	$	20,500,000

(d) Maximum Consolidated Capital Expenditures. Cause or permit the Consolidated Capital Expenditures of Borrower and the other Credit Parties for (i) fiscal year 2005 of Borrower to exceed $3,500,000 in the aggregate and (ii) fiscal year 2006 and for each fiscal year thereafter of the Borrower to exceed $4,000,000 in the aggregate.

7.13. No Investment Company. Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for any such purpose.

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an “Event of Default” under this Agreement:

8.1. Payment Defaults.

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(a) If Borrower, any Parent Guarantor or any of their Subsidiaries shall fail to pay or prepay when due under this Agreement any principal of any of the Advances under the Term Loan Facility;

(b) If Borrower or any Parent Guarantor or any of their Subsidiaries shall fail to pay when due under this Agreement or any of the other Loan Documents (i) any interest on any of the Advances or other Obligations, or (ii) any fees payable under this Agreement or any of the other Loan Documents, and any such payment default under subclause (i) or (ii) of this clause (b) shall continue unremedied for a period of more than two (2) Business Days; or

(c) If Borrower or any Parent Guarantor or any of their Subsidiaries shall fail to pay when due under this Agreement or any of the other Loan Documents any other sum (other than any sum referred to in clause (a) or (b)), and any such payment default shall continue unremedied for a period of more than five (5) Business Days;

8.2. Covenant Defaults.

(a) If Borrower shall at any time fail or neglect to perform, comply with or observe any of the financial covenants contained in Section 7.12 of this Agreement;

(b) If Borrower or any of their Subsidiaries shall at any time fail or neglect to perform, comply with or observe any of the covenants contained in Article 6 or in Article 7 (other than Section 7.12) of this Agreement, and, as to any default under any such covenant that can be cured, shall fail to cure such default within five (5) Business Days after Borrower or (as the case may be) any Parent Guarantor or any of their Subsidiaries shall first receive notice thereof or after any Responsible Officer of Borrower or any Parent Guarantor or any of their Subsidiaries shall first become aware thereof; or

(c) If Borrower or any Parent Guarantor or any of their Subsidiaries shall at any time fail or neglect to perform, comply with or observe any other term, provision, condition or covenant contained in this Agreement (other than any covenant referred to in Section 8.1 or in clause (a) or (b) of this Section 8.2), any of the other Loan Documents or any other present or future agreements between Borrower or any Parent Guarantor or any of their Subsidiaries and Bank, and, as to any default under any such other term, provision, condition or covenant that can be cured, shall fail to cure such default within twenty (20) days after Borrower or (as the case may be) any Parent Guarantor or any of their Subsidiaries shall first receive notice thereof or after any Responsible Officer of Borrower or any Parent Guarantor or any of their Subsidiaries shall first become aware thereof;

8.3. Defective Perfection. If Bank shall determine, at any time after the Closing Date, that, except for Permitted Liens, Bank’s security interests and Liens in all or any material part of the Collateral are not prior to all other security interests or Liens of record reflected in the report, and, as to any such default that can be cured, Borrower or any Parent Guarantor shall fail to cure such default within ten (10) days after Borrower or (as the case may be) any Parent Guarantor or any of their Subsidiaries shall first receive notice thereof or after any Responsible Officer of Borrower or any Parent Guarantor or any of their Subsidiaries shall first become aware thereof;

8.4. Material Adverse Effect. If there shall occur, at any time after the Closing Date, any event, occurrence or development of whatsoever nature having any Material Adverse Effect;

8.5. Attachment. If any material portion of the property of Borrower or of any Parent Guarantor or any of their Subsidiaries shall be attached, seized, subjected to a writ or distress warrant, or shall be levied upon, or shall come into the possession of any trustee, receiver or Person acting in a similar capacity, and such attachment, seizure, writ or distress warrant or levy shall not be removed, discharged or rescinded within twenty (20) days, or if Borrower or any Parent Guarantor or any of their Subsidiaries shall be enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim shall become a Lien upon any material portion of the assets of Borrower or of any Parent Guarantor or any of their Subsidiaries, or if a notice of Lien, levy or assessment shall be filed of record with respect to any material portion of the property of Borrower or of any Parent Guarantor or any of their Subsidiaries by any

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Governmental Authority, and the same shall not be paid within twenty (20) days after Borrower or any Parent Guarantor or any of their Subsidiaries shall receive notice thereof;

8.6. Insolvency. If Borrower or any Parent Guarantor or any of their Subsidiaries shall become insolvent (as defined in the Bankruptcy Code), or if any Insolvency Proceeding shall be commenced by Borrower or by any Parent Guarantor or any of their Subsidiaries, or if any Insolvency Proceeding shall be commenced against Borrower or any Parent Guarantor or any of their Subsidiaries and shall not be dismissed or stayed within forty-five (45) days;

8.7. Other Agreements. If there shall be, at any time after the Closing Date, (a) any default or other failure under (i) the Stockholders Agreement that could reasonably be expected to result in a negative material effect on the rights of Bank under this Agreement or (ii) the Securities Purchase Agreement, or (b) any default or other failure any other agreement, instrument or contract (other than any Loan Document) by which Borrower or any Parent Guarantor or any of their Subsidiaries shall from time to time be bound: (i) to pay when due any sum or sums in excess of $250,000 in the aggregate; or (ii) to perform any covenant, promise or other agreement, and (A) as a result of any such default or failure under this clause (b)(ii), any Person or Persons shall have exercised (1) any rights to accelerate the maturity of any Indebtedness of Borrower or of any Parent Guarantor or any of their Subsidiaries in an amount in excess of $250,000, or (2) any remedies as secured parties or lienholders with respect to any property of Borrower or any Parent Guarantor or any of their Subsidiaries constituting collateral for any such Indebtedness, or (B) any such default or failure under this clause (b)(ii) has had or could reasonably be expected to have any Material Adverse Effect;

8.8. Subordinated Debt. If Borrower or any Parent Guarantor or any of their Subsidiaries shall make any payment on account of, or any payment or other distribution on account of the redemption, repurchase or other acquisition for value of, any Indebtedness expressly subordinated to the Obligations, except as and to the limited extent that any such payment shall, at the time it is to be made, be expressly permitted by the terms of any subordination agreement entered into with Bank;

8.9. Judgments. If any judgment, judgments, settlement or settlements for the payment of money in an amount, individually or in the aggregate, in excess of $500,000 after taking into account the amount of any insurance coverage therefore shall be rendered against Borrower or any Parent Guarantor or any of their Subsidiaries and shall remain unsatisfied and unstayed for a period of more than ten (10) days;

8.10. Misrepresentations. If any material representation, warranty, certification or other statement made by Borrower or any Parent Guarantor or any of their Subsidiaries in this Agreement or any other Loan Document or in any statement or certificate at any time given by Borrower or any Parent Guarantor or any of their Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made or deemed to have been made or repeated;

8.11. Guaranty Agreement; etc. If any Guarantor shall revoke or purport to revoke its guaranty under the Guaranty Agreement; or if the Guaranty Agreement or any of the Collateral Documents shall cease for any reason to be in full force and effect; or

8.12. Change in Control. Any Change in Control shall at any time occur, or any “Change of Control” or any other similar event under and as defined in any instruments governing any Indebtedness of Borrower or of any Parent Guarantor or any of their Subsidiaries shall at any time occur.

9. BANK’S RIGHTS AND REMEDIES.

9.1. Rights and Remedies. Upon the occurrence and during the continuance of any Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are irrevocably and unconditionally authorized by Borrower and the Parent Guarantors:

(a) declare any or all of the Obligations of Borrower, whether evidenced by this Agreement, any of the other Loan Documents, or otherwise, immediately due and payable (provided that, upon the occurrence of any Event of Default described in Section 8.6, all of the Obligations of Borrower shall automatically become immediately due and payable without any action by Bank);

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(b) demand that Borrower (i) deposit cash with Bank in an amount equal to the aggregate undrawn amount of all (if any) Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of all (if any) of such Letters of Credit, and Borrower shall promptly deposit and pay such amounts;

(c) so long as any such Event of Default shall be continuing, at any time or times terminate in full or in part, or otherwise reduce the amount of, in each case, as the Bank may from time to time elect in its sole and absolute discretion, the Term Loan Facility and Revolving Commitment; and otherwise Bank may cease advancing money or extending credit to or for the benefit of Borrower or any of its Subsidiaries under this Agreement, any other Loan Documents or under any other agreements between Borrower or any of its Subsidiaries and Bank;

(d) settle or adjust disputes and claims directly with account debtors of Borrower or any Parent Guarantor or any of their Subsidiaries for amounts, upon terms and in whatever order that Bank reasonably considers advisable;

(e) make such payments and do such acts as Bank considers necessary or reasonable to protect its security interests and Liens in the Collateral. Borrower agrees to assemble the Collateral, if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower and each of the Parent Guarantors authorizes Bank to enter any of the premises where any Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge or Lien which, in Bank’s determination, appears to be prior or superior to its security interests and Liens and to pay all expenses incurred in connection therewith. With respect to any of Borrower’s or any Parent Guarantor’s owned premises, Borrower and such Parent Guarantor hereby grants Bank an irrevocable license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;

(f) set off and apply to any of the Obligations of Borrower any and all (i) balances and deposits of Borrower held by Bank, and (ii) Indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;

(g) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) all or any part of the Collateral. Bank is hereby granted irrevocable licenses and other rights, solely pursuant to the provisions of this Section 9.1, to use, without any charge, Borrower’s labels, patents, copyrights, rights of use of any names, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to any Collateral, in completing production of, advertising for sale, and selling any Collateral, and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;

(h) sell all or any part of the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s or either Parent Guarantor’s premises) as Bank determines is commercially reasonable, and apply any proceeds to any of the Obligations in whatever manner or order Bank deems appropriate. Bank may sell all or any part of the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure shall not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower shall be credited only with payments actually made by the purchaser, received by Bank, and applied to the Indebtedness of the purchaser. If the purchaser fails to pay for any Collateral, Bank may resell the Collateral, and Borrower shall be credited with the proceeds of the sale;

(i) Bank may credit bid and purchase at any public sale;

(j) apply for the appointment of any receiver, trustee, liquidator or conservator of all or any part of the Collateral, without notice, and without regard to the adequacy of any other security or

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Collateral for any of the Obligations, and without regard to the solvency of Borrower, any Parent Guarantor or any of their Subsidiaries, any other guarantor or any other Person liable for any of the Obligations; and

(k) Borrower shall in any event remain liable for any deficiency that exists after disposition of all or any part of the Collateral as provided above, and such deficiency shall be paid immediately to Bank by Borrower.

Bank shall comply with any applicable state, federal or foreign law requirements in connection with any disposition of any Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of any Collateral.

9.2. Power of Attorney. Borrower hereby irrevocably appoints Bank (and each of Bank’s designated officers or employees) as Borrower’s true and lawful attorney to: (a) during the continuation of any Events of Default: (i) send requests for verification of Accounts or notify account debtors of Bank’s security interests and Liens in the Accounts; (ii) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (iii) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (iv) dispose of any Collateral; (v) make, settle and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (vi) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (vii) transfer all or any part of the Collateral into the name of Bank or a third party to the extent permitted under the California Uniform Commercial Code; and (b) file, in its sole discretion, one or more financing or continuation statements and amendments thereto relative to any of the Collateral without the signature of Borrower or any Parent Guarantor or any of their Subsidiaries where permitted by law. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations (other than indemnity obligations against which no claim has been made) of Borrower, the Parent Guarantors and their Subsidiaries have been fully repaid and performed, and all of Bank’s obligations to provide Advances, other Credit Extensions and any other extensions of credit or other financial accommodations to Borrower, the Parent Guarantors or any of their Subsidiaries under this Agreement or any of the other Loan Documents shall have terminated.

9.3. Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default: (a) Bank may notify any Person owing funds to Borrower of Bank’s security interests and Liens in such funds and verify the amount of such Account; and (b) Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.

9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves as Bank deems reasonably necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

9.5. Bank’s Liability for Collateral. Bank shall have no obligations to clean up or otherwise prepare all or any part of the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower and its Subsidiaries.

9.6. No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy any of the Obligations by collecting all or any part of the Obligations from any other Person liable for them, and Bank may, at any time during the continuation of Event of Default, release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Bank’s rights against Borrower or any Parent

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Guarantor or any of their Subsidiaries. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.

9.7. Remedies Cumulative. Bank’s rights and remedies under this Agreement, the other Loan Documents and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of any one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on the part of Borrower or any of its Subsidiaries shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed by or on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.

9.8. Demand; Protest. Borrower irrevocably waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable, except (in each case) for the demands and notices provided for or otherwise required by the express terms and provisions of this Agreement or any of the other Loan Documents.

10. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by any party hereto relating to this Agreement, any of the other Loan Documents or any other agreements entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, or by certified mail, postage prepaid, return receipt requested, or by telefacsimile, or by electronic mail, to Borrower or to Bank, as the case may be, at its addresses set forth below:

If to Borrower:	Nighthawk Radiology Services, LLC 250 Northwest Blvd. #202 Coeur d’Alene, ID 83814
	Attn:    Andrea Clegg   Vice President Finance
	Fax:     208-664-2720

If to Bank:	ComericaBank 100 Federal Street 28th Floor Boston, Massachusetts 02110
	Attn:    Timothy Clifford   Senior Vice President
	Fax:     617-757-6310

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BANK, BORROWER AND THE PARENT GUARANTORS EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON

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OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK, BORROWER OR PARENT GUARANTORS, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.

12. REFERENCE PROVISION.

The parties prefer that any dispute between them be resolved in litigation subject to a Jury Trial Waiver as set forth in Section 11 of this Agreement, but the availability of that process is in doubt because of the opinion of the California Court of Appeal in Grafton Partners LP v. Superior Court, 9 Cal.Rptr.3d 511. This Reference Provision will be applicable until the California Supreme Court completes its review of that case, and will continue to be applicable if either that court or a California Court of Appeal publishes a decision holding that a pre-dispute Jury Trial Waiver provision similar to that contained in the Loan Documents is invalid or unenforceable. Delay in requesting appointment of a referee pending review of any such decision, or participation in litigation pending review, will not be deemed a waiver of this Reference Provision.

12.1. Mechanics.

(a) Other than (i) nonjudicial foreclosure of security interests in real or personal property, (ii) the appointment of a receiver, or (iii) the exercise of other provisional remedies, including, without limitation, provisional remedies relating to claims for infringement or violation of Intellectual Property rights (any of which actions or proceedings of the kind described in clause (i), (ii) or (iii) may be initiated pursuant to Applicable Law), any controversy, dispute or claim (each, a “Claim”) between the parties arising out of or relating to this Agreement or any of the other Loan Documents will be resolved by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure (“CCP”), or their successor sections, which shall constitute the exclusive remedy for the resolution of any Claim, including whether the Claim is subject to the reference proceeding. Except as otherwise provided in the Loan Documents, venue for the reference proceeding will be in the Superior Court or Federal District Court in the County or District where venue is otherwise appropriate under Applicable Law (the “Court”).

(b) The referee shall be a retired Judge or Justice selected by mutual written agreement of the parties. If the parties do not agree, the referee shall be selected by the Presiding Judge of the Court (or his or her representative). A request for appointment of a referee may be heard on an ex parte or expedited basis, and the parties agree that irreparable harm would result if ex parte relief is not granted. The referee shall be appointed to sit with all the powers provided by law. Each party shall have one peremptory challenge pursuant to CCP §170.6. Pending appointment of the referee, the Court has power to issue temporary or provisional remedies.

(c) The parties agree that time is of the essence in conducting the reference proceedings. Accordingly, the referee shall be requested to (i) set the matter for a status and trial-setting conference within fifteen (15) days after the date of selection of the referee, (ii) if practicable, try all issues of law or fact within ninety (90) days after the date of the conference, and (iii) report a statement of decision within twenty (20) days after the matter has been submitted for decision. Any decision rendered by the referee will be final, binding and conclusive, and judgment shall be entered pursuant to CCP §644.

(d) The referee will have power to expand or limit the amount and duration of discovery. The referee may set or extend discovery deadlines or cutoffs for good cause, including a party’s failure to provide requested discovery for any reason whatsoever. Unless otherwise ordered, no party shall be entitled to “priority” in conducting discovery, depositions may be taken by either party upon seven (7) days written notice, and all other discovery shall be responded to within fifteen (15) days after service. All disputes relating to discovery which cannot be resolved by the parties shall be submitted to the referee whose decision shall be final and binding.

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12.2. Procedures. Except as expressly set forth in this Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter, except that when any party so requests, a court reporter will be used at any hearing conducted before the referee, and the referee will be provided a courtesy copy of the transcript. The party making such a request shall have the obligation to arrange for and pay the court reporter. Subject to the referee’s power to award costs to the prevailing party, the parties will equally share the cost of the referee and the court reporter at trial.

12.3. Application of Law. The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to proceedings at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, provide all temporary or provisional remedies, enter equitable orders that will be binding on the parties and rule on any motion which would be authorized in a trial, including, without limitation, motions for summary judgment or summary adjudication . The referee shall issue a decision at the close of the reference proceeding which disposes of all claims of the parties that are the subject of the reference. The referee’s decision shall be entered by the Court as a judgment or an order in the same manner as if the action had been tried by the Court. The parties reserve the right to appeal from the final judgment or order or from any appealable decision or order entered by the referee. The parties reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision.

12.4. Repeal. If the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by reference procedure will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge or Justice, in accordance with the California Arbitration Act §1280 through §1294.2 of the CCP as amended from time to time. The limitations with respect to discovery set forth above shall apply to any such arbitration proceeding.

12.5. THE PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN EFFECT WAIVING THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE PROVISION. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.

13. GENERAL PROVISIONS.

13.1. Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto and shall bind all Persons who become bound as debtors to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower or either Parent Guarantor without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the continuing right, without the consent of or any notice to Borrower or either Parent Guarantor, to sell, transfer, negotiate or grant participations in all or any part of, or any interests in, any of the Advances or other Credit Extensions, any of the Obligations of Borrower, any of the Parent Guarantors or any of their Subsidiaries or any of Bank’s obligations, rights and benefits under this Agreement or any of the other Obligations.

13.2. Costs and Expenses; Indemnification.

(a) Borrower shall, whether or not any of the transactions contemplated by this Agreement or any of the other Loan Documents shall be consummated: (i) pay or reimburse Bank, on demand, for all reasonable out-of-pocket costs and expenses (including Bank Expenses) incurred or sustained by Bank from time to time in connection with the development, preparation or delivery of the Commitment under, or execution and

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delivery of, or any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any of the other Loan Documents, any of the Collateral or the consummation of any of the transactions contemplated hereby or thereby, including the Bank Expenses incurred or sustained by Bank in connection therewith or with respect thereto; (ii) pay or reimburse Bank, on demand, for all reasonable costs and expenses (including Bank Expenses) incurred or sustained by Bank from time to time in connection with the enforcement, attempted enforcement or preservation of any rights or remedies (including in connection with any “workout” or restructuring relating to any of the Obligations or Collateral, and including in connection with any Insolvency Proceedings involving Borrower, the Parent Guarantors or any of their Subsidiaries) under this Agreement, any of the other Loan Documents or in relation to any of the Collateral.

(b) Borrower shall defend, indemnify and hold harmless Bank and its officers, employees and agents against: (i) all obligations, demands, claims and liabilities claimed or asserted by any other Person in connection with the transactions contemplated by this Agreement, except if and to the extent that such obligations, demands, claims and liabilities have been caused by Bank’s gross negligence or willful misconduct; and (ii) all losses or Bank Expenses in any way suffered, incurred or paid by Bank, its officers, employees and agents as a result of or in any way arising out of any transactions between Bank and Borrower, the Parent Guarantors or any of their Subsidiaries, whether under this Agreement or any of the other Loan Documents (including, without limitation, reasonable attorneys fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.

13.3. Time of Essence. Time is of the essence for the performance by Borrower and the Parent Guarantors of all of their Obligations set forth in this Agreement and the other Loan Documents.

13.4. Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

13.5. Amendments in Writing; Integration; etc. All amendments to this Agreement must be in writing. All prior agreements, understandings, representations, warranties and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are superseded in their entirety by this Agreement and the other Loan Documents.

13.6. Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Loan and Security Agreement.

13.7. Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any part of the Commitments shall remain in effect and so long as any of the Obligations (other than indemnity obligations against which no claim has been made) of Borrower, the Parent Guarantors or any of their Subsidiaries shall remain outstanding. The Obligations of Borrower to Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

13.8. Confidentiality. In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement, except that disclosure of such information may be made (a) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, (b) to prospective transferees or purchasers of any interest in the Advances, other Credit Extensions or any of the other Obligations, provided that they have entered into a comparable confidentiality agreement in favor of Borrower, the Parent Guarantors and their Subsidiaries and have delivered a copy to Bank, (c) as required by law, regulation, rule or order, subpoena, judicial order or similar order, (d) as may be required in connection with the examination, audit or similar investigation of Bank, and (e) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (i) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after

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disclosure to Bank through no fault of Bank; or (ii) is disclosed to Bank by any third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.

13.9. Delivery by Facsimile. Delivery of the signature pages to this Agreement by facsimile shall be as effective as delivery of manually executed counterparts of this Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this LOAN AND SECURITY AGREEMENT to be executed as of the date first above written.

NIGHTHAWK RADIOLOGY SERVICES, LLC
By:	/s/    Chris Huber
Name:	Chris Huber
Title:	CFO

NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:	/s/    Chris Huber
Name:	Chris Huber
Title:	CFO

NRS CORPORATION
By:	/s/    Chris Huber
Name:	Chris Huber
Title:	CFO

COMERICA BANK
By:	/s/    Timothy G. Clifford
Name:	Timothy G. Clifford
Title:	Senior Vice President

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EXHIBIT A

DEFINITIONS:

“Accounts” means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower or to any other Credit Parties arising out of the sale or lease of goods, the licensing, sale or other transfer of any Intellectual Property of Borrower or of any other Credit Parties, or the rendering of services by Borrower or by any other Credit Parties, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower or any other Credit Parties and all Credit Party Books relating to any of the foregoing.

“Additional Security Documents” has the meaning specified in Section 6.8.

“Advance” or “Advances” means a cash advance or cash advances under the Commitments.

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or to cause the direction of the management and policies of such other Person, whether through the ownership of Equity Interests, by contract or otherwise.

“Agreement to Provide Insurance” means the Agreement to Provide Insurance, in or substantially in the form of Exhibit F, to be executed and delivered to Bank by Borrower.

“Applicable Law” means, in relation to any Person or its property, statutes and rules and regulations thereunder, including all Healthcare Laws, and interpretations of any thereof by any Governmental Authority charged with the administration or the interpretation thereof, and orders, requests, directives, instructions and notices of any Governmental Authority, in each case, applicable to or binding upon such Person or any of its property.

“Applicable Margin” means, with respect to all Advances under (a) the Term Loan Commitment, (i) zero percent (0%) (i.e., zero basis points) per annum, in the case of Prime Rate Advances, and (ii) three percent (3%) (i.e., 300 basis points) per annum in the case of Eurodollar Rate Advances, and (b) the Revolving Commitment, (i) zero percent (0%) (i.e., zero basis points) per annum, in the case of Prime Rate Advances, and (ii) three percent (3%) (i.e., 300 basis points) per annum in the case of Eurodollar Rate Advances.

“Asset Sale” means any direct or indirect sale (including any sale pursuant to a sale and leaseback transaction), whether in a single transaction or in a series of related transactions, by Borrower or by any other Credit Party of any businesses or property of Borrower or any other Credit Party, whether now owned or from time to time hereafter created, arising or acquired; provided, however, that the term “Asset Sale” shall not include any Permitted Transfers (other than Permitted Transfers described in clause (d) of the definition thereof) and the sale of Equity Interests in any of the Credit Parties.

“Automatic Debit Authorization” means the Automatic Debit Authorization, in or substantially in the form of Exhibit G, to be executed and delivered to Bank by Borrower.

“Bank Expenses” means any and all reasonable costs and expenses (including reasonable attorneys’ fees and expenses, whether generated in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of any of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending any of the Loan Documents (including fees and expenses of appeal), incurred before, during and after any Insolvency Proceeding, whether or not suit is brought.

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended from time to time.

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“Business Day” means any day other than a Saturday, Sunday, legal holiday or other day on which banks in the State of California or in the Commonwealth of Massachusetts are required or authorized by law to close, and, with respect to all notices and determinations in connection with, and payments of principal of and interest on, Eurodollar Rate Advances, any day that is such a Business Day and that is also a day for trading between banks in U.S. dollar deposits in the London interbank market.

“Capital Assets” means, with respect to any Person, all equipment, fixed assets and real property or improvements of such Person, or replacements or substitutions therefor or additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such Person.

“Capital Expenditures” means, with respect to any Person for any period, all expenditures made directly or indirectly by such Person during such period for Capital Assets (whether paid in cash or other consideration or accrued as a liability and, including, without limitation, all expenditures for maintenance and repairs which are required, in accordance with GAAP, to be capitalized on the books of such Person).

“Capital Lease” has the meaning specified in the definition of the term “Capital Lease Obligations”.

“Capital Lease Obligations” means, with respect to any Person, all obligations of such Person to pay rent or other amounts under any lease of (or other arrangements conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases (each, a “Capital Lease”) on a balance sheet of such Person under GAAP, and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

“Capital Stock” means (a) in the case of any corporation, any corporate capital stock of any class or series, (b) in the case of any association or other business entity, any shares, interests, participations, rights or other equivalents (howsoever designated) of corporate capital stock, and (c) in the case of any partnership or limited liability company, partnership or membership interests (whether general or limited).

“Cash” means unrestricted cash and cash equivalents.

“Cash Collateral Account” has the meaning assigned in Section 4.4(a).

“Change in Control” means any event or series of related events as a result of which: (a) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act), directly or indirectly, of thirty percent (30%) or more of the outstanding shares of Capital Stock of Holdings (other than persons in the Existing Investor Group); or, prior to the consummation of an initial public offering by Holdings, during any period of twelve consecutive calendar months commencing after the Closing Date individuals who were directors of Holdings on the first day of such period shall cease to constitute a majority of the board of directors of Holdings; (b) Holdings and NRS shall together cease to own and control (both legally and beneficially) one hundred percent (100%) of all Equity Interests in Borrower, provided that if NRS is merged into or with Borrower or Holdings, than at all times thereafter, Holdings shall cease to own (both legally and beneficially) one hundred percent (100%) of all Equity Interests in Borrower, (c) at all times prior to any merger of NRS into or with Borrower or Holdings, Holdings shall cease to own and control (both legally and beneficially) one hundred percent (100%) of all of the Equity Interest in NRS, or (d) Borrower shall cease to own and control, directly or indirectly (both legally and beneficially) 100% of all of the Equity Interests in of all of its Subsidiaries (other than any Equity Interests that are required by applicable law to be held by director(s) or Person(s) resident in the jurisdiction of formation of any Foreign Subsidiary).

“Chief Executive Office State” means, in relation to Borrower or any of its Subsidiaries, the State of the United States or (as the case may be) the foreign country where the chief executive office of such Person is located.

“Closing Date” means the date of this Agreement.

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“Code” means the California Uniform Commercial Code, as amended or supplemented from time to time.

“Collateral” means any and all of the property of Borrower and the other Credit Parties (other than the Excluded Subsidiaries) described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent that (a) any such property is nonassignable by its terms without the consent of another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), or (b) the granting of a security interest therein is contrary to applicable law; provided, however, that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral.

“Collateral Documents” means, collectively, the Security Agreement, the Intellectual Property Security Agreements, the Pledge Agreement, the Additional Security Documents, all other agreements and instruments (including any account control agreements) executed and delivered to Bank pursuant to this Agreement, all other instruments executed and delivered to Bank on the Closing Date or from time to time thereafter pursuant to Section 3.1, Section 6.6 or Section 6.8, and all other Security Instruments executed and/or delivered from time to time pursuant to any of the foregoing.

“Collateral States” means, collectively, the States of the United States and the foreign countries where all or any part of the Collateral is located. The Collateral States have been identified by Borrower in the Disclosure Schedule prepared and completed by Borrower and furnished by Borrower to Bank on or prior to the Closing Date and after the Closing Date shall be deemed to include any additional locations as disclosed to Bank in compliance with the terms of Section 7.11.

“Commitments” means, collectively, all of the commitments and obligations of Bank in effect at any particular time to make Advances and other Credit Extensions to Borrower under the Term Loan Commitment and the Revolving Commitment, all upon the terms and subject to the conditions contained in this Agreement.

“Compliance Certificate” means a compliance certificate, in or substantially in the form of Exhibit D or otherwise in form and substance satisfactory to Bank, to be duly executed by a Responsible Officer of Borrower.

“Consolidated Capital Expenditures” means, in relation to the Borrower and the other Credit Parties for any period, all Capital Expenditures by the Borrower and the other Credit Parties for such period, all as determined on a consolidated basis in accordance with GAAP.

“Consolidated EBITDA” means, in relation to the Borrower and the other Credit Parties for any period, the sum of (a) Consolidated Net Income for such period, plus (b) in each case to the extent deducted in the calculation of Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined on a consolidated basis and in accordance with GAAP.

“Consolidated Fixed Charge Coverage Ratio” means, in relation to Borrower and the other Credit Parties as of any date of determination, the ratio of (a) the sum of (i) the Consolidated EBITDA for any Reference Period ending on such date of determination, minus (ii) all tax expense paid in cash by Borrower and the other Credit Parties during such period, over (b) the sum of (i) Consolidated Interest Expense for such period , plus (ii) Consolidated Capital Expenditures for such period, plus (iii) all regularly scheduled payments required to be made on account of any principal of any Indebtedness (including the Obligations) of Borrower or of any of the other Credit Parties, including the principal component of any scheduled payments in respect of Capital Lease Obligations for the twelve month period following such date of determination.

“Consolidated Interest Expense” means, in relation to the Borrower and the other Credit Parties for any period, interest expense on all Indebtedness of the Borrower and the other Credit Parties for such period, whether paid or accrued, all as determined on a consolidated basis in accordance with GAAP, and including: (a) interest expense in respect of Indebtedness (including the Obligations); (b) the interest component of Capital Lease Obligations; (c)

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commissions, discounts and other fees and charges payable in connection with letters of credit and bankers’ acceptances; (d) the net payment, if any, payable in connection with Hedge Agreements, less the net credit, if any, received in connection with Hedge Agreements; and (e) all fees payable by the Borrower and the other Credit Parties in respect of Indebtedness, determined on a consolidated basis and in accordance with GAAP.

“Consolidated Leverage Ratio” means, in relation to Borrower and the other Credit Parties for any Reference Period, the ratio of (a) the Consolidated Total Funded Debt of the Borrower and the other Credit Parties for such Reference Period to (b) the Consolidated EBITDA of the Borrower and the other Credit Parties for such Reference Period.

“Consolidated Net Income” means, in relation to the Borrower and the other Credit Parties for any period, the net income of the Borrower and the other Credit Parties for such period, after deduction of all expenses, taxes, and other proper charges for such period, determined on a consolidated basis in accordance with GAAP.

“Consolidated Total Funded Debt” means, in relation to Borrower and the other Credit Parties, the sum, without duplication, of (a) the aggregate amount of Indebtedness of the Borrower and the other Credit Parties relating to (i) the borrowing of money or obtaining of credit, including the issuance of notes or bonds (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), (iii) Capital Lease Obligations and (iv) the maximum drawing amount of all letters of credit outstanding and bankers acceptances, plus (b) Indebtedness of the types referred to in clause (a) of another Person guaranteed by the Borrower or any of the other Credit Parties.

“Contingent Obligations” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to: (a) any Indebtedness, lease, dividend, letter of credit or other obligation or liability of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (b) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (c) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect that Person against fluctuations in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligations” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“Copyrights” means, collectively, any and all United States copyrights or copyrightable works (whether registered or unregistered, statutory or common law), including, without limitation, any and all reissues, renewals or extensions thereof, and also including any and all registrations of any copyrights in the United States Copyright Office and applications for United States copyright registration made with the United States Copyright Office, any and all rights provided by international treaties or conventions with respect to any of the foregoing, and any and all rights under any agreements or licenses granting any rights or licenses to use any Copyrights or Copyright registrations.

“Credit Extension” means each Advance or other extension of credit by Bank to or for the benefit of Borrower under this Agreement.

“Credit Parties” means, collectively, Borrower, all Parent Guarantors and all of their Subsidiaries; and “Credit Party” means Borrower, any of the Parent Guarantors or any of their Subsidiaries.

“Credit Party Books” means, in relation to Borrower, the Parent Guarantors or any other Credit Party, all of such Person’s books and records including: all ledgers; records concerning its assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.

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“Credit Party State” means, in relation to Borrower or any other Credit Party, the State of the United States or (as the case may be) the foreign country or other jurisdiction under the laws of which such Person is organized.

“Dayhawk” means Dayhawk Radiology Services, LLC, a Delaware limited liability company and a wholly owned Subsidiary of Holdings.

“Default” means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or remedied during such time) constitute an Event of Default under Article 8 (including Sections 8.1 through 8.12) of this Agreement.

“Deposit Account” means any deposit, securities, investment or other similar account at any time or from time to time maintained by Borrower or any other Credit Party with any bank or other financial institution or with any mutual fund, securities broker, investment banking firm or other Person.

“Disbursement Instructions” means the Disbursement Instructions, in or substantially in the form of Exhibit E, to be duly executed and delivered by Borrower.

“Disclosure Schedule” means the First Schedule, dated as of the Closing Date, prepared and completed by Borrower, and delivered by Borrower to Bank in connection with this Agreement and identified as the “Disclosure Schedule”.

“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any federal, state, local foreign or other Governmental Authority pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.

“Equipment” means any and all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower or any other Credit Party at any time have any interests or rights.

“Equity Interests” means and includes Capital Stock and all warrants, options or other rights to purchase or otherwise acquire Capital Stock.

“Equity Issuance” means the issuance by any Credit Party to any Person (other than a Credit Party) of shares of its Equity Interests other than any stock or option to grant stock to an employee, a director or a consultant of any Credit Party under a stock option or other similar incentive or compensation plan of a Credit Party or upon exercise thereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

“Eurocurrency Reserve Requirement” means, for any day with respect to any Eurodollar Rate Advance, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against “Eurocurrency Liabilities” (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Requirement shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Requirement.

“Eurodollar Rate” means, for any Interest Period with respect to any Eurodollar Rate Advance, the LIBOR rate per annum equal to the quotient (rounded upwards to the next higher 1/16^th of one percent) of (a) (i) the rate per annum for deposits in U.S. dollars for a period comparable to such Interest Period which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the day that is two Business Days prior to the beginning of such Interest Period, or (ii) if such rate specified in subclause (i) does not appear on the Telerate Page 3750, the rate at which Bank is offered U.S. dollar deposits two (2) Business Days prior to the beginning of such Interest Period in the London interbank market at or about 11:00 a.m., Boston time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Rate Advance to

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which such Interest Period applies, divided in either case by (b) a number equal to 1.00 minus the Eurocurrency Reserve Requirement.

“Eurodollar Rate Advance” means any Advance that bears interest at a rate determined by reference to the Eurodollar Rate.

“Event of Default” has the meaning assigned in Article 8.

“Excluded Subsidiary” means Dayhawk, Nighthawk Zurich and any other Foreign Subsidiary.

“Existing Credit Facilities” means (a) the credit facility evidenced by the loan and security agreement, dated as of March 31, 2004 between Borrower and Silicon Valley Bank and all related loan documents and (b) the Subordinated Debt facility.

“Existing Debt” means the sum of all Indebtedness under Existing Credit Facilities.

“Existing Deposit Accounts” has the meaning assigned in Section 5.12.

“Existing Indebtedness” has the meaning assigned in Section 5.11(a).

“Existing Investor Group” means, collectively, the following Persons and each of their Affiliates (other than the Credit Parties) taken as a whole: (a)Summit Ventures VI-A, L.P., Summit Ventures VI-B, L.P., Summit VI Advisors Fund, L.P., Summit VI Entrepreneurs Fund, L.P., Summit Investors VI L.P., Summit Subordinated Debt Fund, II, LP, (b) Paul E. Berger, M.D., (c) Jon D. Berger; and (d) Christopher Huber.

“Final Maturity Date” means April 20, 2009.

“Foreign Subsidiary” means any Subsidiary of any Credit Party that is incorporated or organized in a jurisdiction other than the United States or any of its territories or possessions.

“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time.

“Governing Documents” means, with respect to any Person, the certificate of incorporation or registration (including, if applicable, certificate of change of name), articles of organization, incorporation or association, memorandum of association, charter, bylaws, partnership agreement, trust agreement, joint venture agreement, limited liability company operating or members agreement, or any one or more similar agreements, instruments or documents constituting the organization or formation of such Person.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guarantors” means, collectively, Borrower, all Subsidiary Guarantors and all Parent Guarantors.

“Guaranty Agreement” means the Guaranty Agreement, in or substantially in the form of Exhibit K, to be executed and delivered by Borrower and the other Credit Parties(other than the Excluded Subsidiaries).

“Healthcare Laws” means all applicable statutes, laws, ordinances, rules and regulations of any Governmental Authority with respect” to regulatory matters primarily relating to patient healthcare, healthcare providers and healthcare services (including without limitation Section 1128B(b) of the Social Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties Involving Medicare or State Health Care Programs), commonly referred to as the “Federal Anti-Kickback Statute,” and the Social Security Act, as amended, Section 1877, 42 U.S.C. Section 1395nn (Prohibition Against Certain Referrals), commonly referred to as “Stark Statute”).

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“Hedge Agreement” means any agreement, device or arrangement designed to protect a Person from the fluctuations of interest rates, exchange rates or forward rates applicable to its assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap, swap or collar protection agreements and forward rate currency or interest rate options, as the same may be amended or modified and in effect from time to time, and any cancellation, buy-back, reversal, termination or assignment of any of the foregoing.

“Holdings” means Nighthawk Radiology Holdings, Inc., a Delaware corporation.

“Indebtedness” of any Person means, without duplication: (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than (i) trade payables entered into in the ordinary course of business pursuant to ordinary terms, and (ii) ordinary course purchase price adjustments); (c) all reimbursement or payment obligations with respect to letters of credit or reimbursement or other payment obligations with respect to bankers’ acceptances, surety bonds and other similar documents; (d) all obligations evidenced by promissory notes, bonds, debentures or other similar instruments, including obligations so evidenced incurred in connection with the acquisition of property or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreements or sales of accounts receivable, in any such case, with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreements in the event of default are limited to repossession or sale of such property); (f) all Capital Lease Obligations; (g) all net obligations with respect to Hedge Agreements; (h) all indebtedness referred to in clause (a) through clause (g) secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness (in which event the amount of such indebtedness shall not be deemed to exceed the fair market value of such property); and (i) all Contingent Obligations in respect of indebtedness and obligations of the kinds referred to in clause (a) through clause (h) above.

“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” means, collectively, any and all of the rights, title and interests of Borrower or of any other Credit Party in and to any and all United States, international or foreign: (a) Trademarks; (b) Patents; (c) Copyrights; (d) confidential and proprietary information, including, without limitation, all trade secrets, technology, ideas, know-how, formulae and customer and supplier lists; (e) any and all intellectual property rights in computer software and computer software products (including, without limitation, source codes, object codes, data and related documentation); (f) any and all design rights owned or used by Borrower or by any of its Subsidiaries; and (g) all other intellectual property rights of every description.

“Intellectual Property Security Agreements” means, collectively, the Intellectual Property Security Agreements, in or substantially in the form of Exhibit I, to be executed and delivered by Borrower and certain of the other Credit Parties, but in any event other than the Excluded Subsidiaries.

“Interest Period” means, with respect to each Eurodollar Rate Advance, the period commencing on the date of the making or continuation of or conversion to such Eurodollar Rate Advance and ending one, two, three or six months thereafter, as Borrower may elect in Borrower’s applicable notice to Bank; provided, however, that:

(a) any Interest Period (other than an Interest Period determined pursuant to clause (c) below) that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day, unless such Business Day falls in the next calendar month, in which case, such Interest Period shall end on the immediately preceding Business Day;

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(b) any Interest Period applicable to any Eurodollar Rate Advance that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Business Day of a calendar month;

(c) any Interest Period that would otherwise end after the Final Maturity Date shall end on the Final Maturity Date; and

(d) notwithstanding clause (c) above, no Interest Period applicable to any Eurodollar Rate Advance shall have a duration of less than one (1) month; and, if any Interest Period applicable to such Advance would be for a shorter period, such Interest Period shall not be available hereunder.

“Inventory” means all present and future inventory in which Borrower or any of the other Credit Parties shall have any rights or interests, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower or of any of the Credit parties, including any and all such inventory as shall be temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and all Credit Party Books relating to any of the foregoing.

“Investment” means any beneficial ownership of (including Equity Interests or other securities) any Person, or any loan, advance or capital contribution to any Person.

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

“JCAHO” means the Joint Commission on Accreditation of Healthcare Organizations.

“Letter of Credit” has the meaning assigned to it in Section 2.1(d).

“Letter of Credit Obligations” means, as of any date, the sum of the maximum amount beneficiaries may draw under all outstanding Letters of Credit and all unpaid reimbursement obligations on account of any drawing under the Letters of Credit.

“License” means, with respect to any Person, any license, permit, consent, certificate of need, authorization, certification (including without limitation, physician board certification in radiology), accreditation, staff privileges, franchise, approval, or grant of rights by, or any filing or registration with, any Governmental Authority or any third Person necessary for such Person to own, build, maintain or operate its business or property.

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“Loan Advance Request” means the Loan Advance/Paydown Request Form, in or substantially in the form of Exhibit C or otherwise in form satisfactory to Bank, duly executed by a Responsible Officer of Borrower.

“Loan Documents” means, collectively, this Agreement, any note or notes from time to time executed by Borrower and delivered to Bank, the Guaranty Agreement, the Collateral Documents, and any other documents, instruments or agreements (including, without limitation, any Securities Account Control Agreements) from time to time executed and/or delivered to Bank by Borrower or any of its Subsidiaries pursuant to or in connection with this Agreement, all as amended or extended from time to time.

“Material Adverse Effect” means any material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a whole, or (b) the ability of Borrower and the other Credit Parties to repay the Obligations or otherwise perform, observe or otherwise comply with any of their other material Obligations under any of the Loan Documents, or (c) the validity or enforceability of (i) any of the Loan Documents, (ii) any of the Obligations of Borrower or any Credit Party, or (iii) any of the rights or remedies of Bank under any of the Loan Documents, (d) the validity, binding effect or priority of any of the security interests

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and Liens of Bank in any material portion of the property constituting Collateral, or (e) the value of all or any substantial portion of the Collateral.

“Material Contracts” has the meaning specified in Section 5.14.

“Negotiable Collateral” means, collectively, all of the present and future letters of credit of which the Borrower or any Credit Party (other than the Excluded Subsidiaries) shall be a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and all Credit Party Books relating to any of the foregoing.

“Net Cash Equity Issuance Proceeds” means, in connection with any Equity Issuance by any Person, the cash proceeds of such Equity Issuance, net of transaction costs (including any underwriting discounts or commissions and legal, advisory and other costs, fees and expenses, in each case, actually incurred and satisfactorily documented).

“Net Cash Proceeds” means, in connection with any Asset Sale or Recovery Event, the cash proceeds (including any cash payments received by way of deferred payment pursuant to any promissory note, receivable or otherwise, but only as and when received in cash) of such Asset Sale or Recovery Event, net of (a) transaction costs (including any underwriting, brokerage or other selling commissions and legal, advisory and other costs, fees and expenses, including taxes and title and recording costs and expenses, associated therewith, in each case, actually incurred and satisfactorily documented), and (b) required debt payments (other than pursuant hereto).

“Nighthawk Zurich” means Nighthawk Services, GmbH, a corporation organized under the laws of Switzerland and a wholly-owned Subsidiary of Borrower.

“NRS” means NRS Corporation, an Idaho corporation.

“Obligations” means, collectively, all Indebtedness, principal, interest, Bank Expenses, Letter of Credit Obligations and other amounts from time to time owing to Bank by Borrower or any of the other Credit Parties pursuant to this Agreement or any of the other Loan Documents, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of any Insolvency Proceeding. The foregoing shall also include any Hedge Agreements between Bank and any Credit Party.

“Other Letters of Credit” means the irrevocable letters of credit issued by (i) Silicon Valley Bank for the benefit of Arch Specialty Insurance Company in the original face amount of $300,000 and (ii) Sterling Savings Bank for the benefit of Australia and New Zealand Banking Group Ltd. in the original face amount of $140,000 or the Australian dollar equivalent thereof.

“Parent Guarantors” means NRS and Holdings.

“Patents” means, collectively, any and all United States patents, including, without limitation, any and all divisions, continuations, reissues, reexaminations, extensions or renewals thereof, all inventions or improvements thereto, any applications for any United States patents, any and all rights provided by international treaty or convention with respect to any of the foregoing, and any and all rights or licenses granting any rights or licenses with respect to any inventions subject to any Patents.

“Periodic Payments” means, collectively, all (if any) installments or other similar recurring payments that Borrower or any of the other Credit Parties may now or at any time hereafter become obligated to pay to Bank pursuant to the terms and provisions of any agreement, instrument or other document now or hereafter in existence between Borrower or any of the other Credit Parties and Bank.

“Permitted Acquisition” means an acquisition by Borrower of all of the Capital Stock or other Equity Interests, or substantially all of the assets, of a Person in the same or similar line of business as Borrower, so long as (a) the aggregate purchase price for which shall not exceed (i) $5,000,000 in cash plus (ii) any Capital Stock issued by Holdings in connection therewith, (b) such acquisition has been approved by such Person’s board of directors,

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managers or partnership, as the case may be, (c) Bank has received (i) not less than thirty (30) days prior to the consummation of such acquisition, notice of such acquisition and (ii) prior to the closing of such Acquisition a pro forma Compliance Certificate as of the most recently completed calendar month after giving effect to such acquisition, in form and substance satisfactory to Bank (provided, however, for purposes of determining compliance with clause (c) of Section 7.12, the minimum Consolidated EBITDA requirement shall be the amount specified in such clause (c) as of the most recent calendar quarter end prior to the date of such Acquisition), (d) Borrower has complied with all applicable provisions of Section 6.6, and (e) no Default or Event of Default has occurred and is continuing or would result after giving effect to such acquisition.

“Permitted Distribution” has the meaning specified in Section 7.6.

“Permitted Indebtedness” means, collectively:

(a) Indebtedness of Borrower or of any of the other Credit Parties in favor of Bank arising under this Agreement or any of the other Loan Documents;

(b) Indebtedness existing on the Closing Date and disclosed in Section 5.11(a) of the Disclosure Schedule;

(c) Indebtedness (including Indebtedness in the nature of Capital Lease Obligations) not at any time to exceed $500,000 in the aggregate (as determined for Borrower and the other Credit Parties on a consolidated basis) secured by Liens of the kind described in clause (c) of the defined term “Permitted Liens” including any refunding, refinancing, modification and amendment thereof, which does not have the effect of increasing the principal amount thereof (or accreted value thereof) plus accrued and unpaid interest on the Indebtedness so refunded, refinanced, modified or amended (plus the amount of necessary fees and expenses incurred in connection therewith and any premiums paid on the Indebtedness repaid); provided such Indebtedness shall not exceed the lesser of the cost or fair market value of the Equipment financed with such Indebtedness;

(d) Indebtedness secured by Permitted Liens of the kind described in and permitted by clause (b) and clause (f) of the definition of the defined term “Permitted Liens”;

(e) Indebtedness to trade creditors incurred in the ordinary course of business; and

(f) Indebtedness consisting of Investments otherwise permitted pursuant to clause (e) and (j) of the definition of Permitted Investments;

(g) Indebtedness created by and consisting of Hedging Agreements, provided that such Hedge Agreements shall have been entered into for the purpose of hedging actual risk and not for speculative purposes;

(h) other unsecured Indebtedness not otherwise permitted hereunder in an aggregate outstanding principal amount not to exceed $500,000 at any time.

(i) extensions, refinancings and renewals of any items of Permitted Indebtedness identified or described in any of clauses (a) through (c), inclusive, of this definition; provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or any of its Subsidiaries, as the case may be.

“Permitted Investments” means, collectively:

(a) Investments existing on the Closing Date and disclosed in Section 5.11(d) of the Disclosure Schedule;

(b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently

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having a rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than one (1) year from the date of investment therein, and (iv) Bank’s money market accounts;

(c) repurchases of Equity Interests from stockholders of Borrower or of any of the other Credit Parties; provided, however, that any Restricted Payments made in connection therewith as shall be expressly permitted by Section 7.6;

(d) Investments accepted in connection with Permitted Transfers;

(e) Investments by Borrower or any of the other Credit Parties in Restricted Subsidiaries; and Investments by any of Borrower’s Subsidiaries in Borrower;

(f) Investments not to exceed $500,000 in the aggregate (as determined for Borrower and the other Credit Parties on a consolidated basis) outstanding at any time consisting of travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business;

(g) Investments consisting of cashless loans to employees, officers or directors relating to the purchase of Equity Interests in Borrower pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;

(h) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business of Borrower or any of the other Credit Parties;

(i) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this clause (i) shall not apply to Investments of Borrower in any of the other Credit Parties;

(j) Investments in Foreign Subsidiaries in an amount equal to the ordinary course expenses of such Subsidiaries on a monthly basis plus during the term of this Agreement $200,000 for each such Subsidiary up to $750,000 in the aggregate outstanding at any time, plus the reasonable costs or expenses associated with the formation of such Subsidiaries in the aggregate;

(k) Permitted Acquisitions; and

(l) Other Investments (but excluding any Investments in addition to those Investments described in clauses (f), (j) and (k) above) in an aggregate amount not to exceed $500,000 in any fiscal year.

“Permitted Liens” means, collectively:

(a) any Liens existing on the Closing Date and disclosed in Section 5.11(b) of the Disclosure Schedule or arising under this Agreement, the Collateral Documents or any of the other Loan Documents;

(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower or any of the other Credit Parties maintains adequate reserves; provided that the same have no priority over any of Bank’s Liens;

(c) Liens not to exceed $500,000 in the aggregate (as determined for Borrower and the other Credit Parties on a consolidated basis) (i) upon or in any Equipment acquired or held by Borrower or any of the other Credit Parties to secure the purchase price of such Equipment or Indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition; provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds from the sale or disposition of such Equipment;

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(d) leases or subleases and licenses or sublicenses granted from time to time by Borrower or any of the other Credit Parties to any other Persons and that do not interfere in any material respect with the business, operations, property or condition of Borrower and the other Credit Parties, taken as a whole;

(e) Liens incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by Liens of the type described in clauses (a) through (c) above; provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase;

(f) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 8.5 or Section 8.9;

(g) Liens in favor of other financial institutions arising in connection with Deposit Accounts of Borrower or any of the other Credit Parties held at such institutions; provided that, if and to the extent required by this Agreement, Bank has perfected security interests in the amounts held in such Deposit Accounts;

(h) deposits in the ordinary course of Borrower’s business under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for repayment of borrowed money or other Indebtedness) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for repayment of borrowed money or other Indebtedness) or to secure statutory obligations (other than Liens arising under ERISA or Environmental Laws) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds;

(i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods; and

(j) Liens of materialmen, mechanics, warehousemen, carriers, artisans or other similar Liens arising in the ordinary course of Borrower’s business or by operation of law, which are not past due or which are being contested in good faith by appropriate proceedings and for which reserves have been established in accordance with GAAP.

“Permitted Transfer” means the conveyance, sale, lease, license, transfer or other disposition by Borrower or by any of the other Credit Parties of:

(a) Inventory in the ordinary course of its business;

(b) licenses and other similar arrangements for the use of any of the property of Borrower or of any of the other Credit Parties in the ordinary course of its business;

(c) worn-out or obsolete Equipment; and

(d) so long as the Borrower or such Credit Party shall be in compliance with Section 2.2(b) with respect to any such transfer or disposition, other transfers or dispositions in an aggregate amount not to exceed $500,000 in any fiscal year.

“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

“Pledge Agreement” means the Pledge Agreement, in or substantially in the form of Exhibit J, to be executed and delivered by Borrower and certain of the other Credit Parties (other than the Excluded Subsidiaries).

“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.

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“Prime Rate Advance” means any Advance not bearing interest at a rate determined by reference to the Prime Rate.

“Real Estate Lease” means any lease, including any ground lease or space lease or any rental or occupancy agreement (in each case, whether written or oral, and whether express or implied), that relates to and governs or otherwise evidences the terms and conditions for the leasing or use of, or any leasehold or other similar interest in, any real property, and pursuant to which Borrower or any of the other Credit Parties shall lease any real property, in each case, as lessee or sublessee thereof.

“Recovery Event” means the receipt by Borrower or any of the other Credit Parties of any insurance or other cash proceeds that are payable by reason of any theft, loss, physical destruction, condemnation or damage or any other similar event with respect to any property of Borrower or any of the other Credit Parties.

“Reference Period” means any period of twelve (12) consecutive calendar months ending on the last day of any calendar quarter.

“Responsible Officer” means, in relation to Borrower or any of the other Credit Parties, any of the chief executive officer, the chief operating officer, the chief financial officer or the controller of such Person.

“Restricted Payments” means, in relation to Borrower and the other Credit Parties, any declaration or payment by Borrower or by any of the other Credit Parties of any dividends or other distributions on account of, or any payment or other distribution by Borrower or by any of the other Credit Parties on account of the purchase, repurchase, redemption, retirement or other acquisition for value of, any Capital Stock of or any other Equity Interests in Borrower or the Parent Guarantors.

“Restricted Subsidiary” means any Subsidiary of Borrower that has executed and delivered to Bank, and that remains bound by, both (a) the Guaranty Agreement, and also (b) the Security Agreement.

“Revolving Commitment” means the commitment of Bank to make Advances to Borrower pursuant to Section 2.1(c) and to issue Letters of Credit in the maximum aggregate principal amount outstanding not to exceed $3,000,000.

“Revolving Commitment Period” means the period commencing on the Closing Date and ending on April 20, 2009.

“Securities Purchase Agreement” means Securities Purchase and Contribution Agreement, dated March 31, 2004, among Holdings, Borrower, such affiliates of Summit Partners, LP and former management of NRS, as in effect on the Closing Date.

“Security Agreement” means the Security Agreement, in or substantially in the form of Exhibit H, to be executed and delivered by Borrower and its Subsidiaries (other than the Excluded Subsidiaries).

“Security Instrument” means any security agreement, assignment, pledge agreement, financing or other similar statement or notice, continuation statement, other agreement or instrument, or any amendment or supplement to any thereof, creating, governing or providing for, evidencing or perfecting any security interest or Lien.

“SOS Report” means any official report from the Secretary of State of any Credit Party State or other applicable federal, state, local or foreign government office identifying current security interests and Liens filed on or against all or any part of the Collateral and Liens of record on all or any part of the Collateral as of the date of such report.

“Stockholders Agreement” has the meaning set forth in the Securities Purchase Agreement.

“Subordinated Debt” means the Indebtedness of Borrower to certain affiliates of Summit Partners, LP evidenced by the Subordinated Promissory Note(s), dated as of March 31, 2004, issued by Borrower pursuant to the Securities Purchase Agreement, all of which shall be paid in full on the Closing Date.

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“Subsidiary” means, in relation to any Person, any corporation, partnership or limited liability company or joint venture in which (a) any general partnership interest, or (b) more than 50% of the Equity Interests of which by the terms thereof hold ordinary voting power to elect the board of directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by such first Person, either directly or through an Affiliate of such first Person.

“Subsidiary Guarantors” means, collectively, all direct or indirect Subsidiaries of Borrower that shall from time to time be party to or otherwise bound by the Guaranty Agreement.

“Telerate Page 3750” means the display page designated 3750 on the Dow Jones Telerate Service (or such other page as may replace that page on that service, or such other service as may replace the Dow Jones Telerate Service as a customary reference for interest rates).

“Term Loan Commitment” means the commitment of Bank to make an Advance to Borrower pursuant to Section 2.1(b) in the maximum original principal amount of $12,000,000.

“Term Loan Facility” means the term loan facility in the maximum aggregate principal amount of $12,000,000 provided by Bank to Borrower upon the terms and subject to the conditions of this Agreement.

“Trademarks” means, collectively, any and all trademarks or service marks which are registered in the United States Patent and Trademark Office or in any other similar office or agency of the United States, any state thereof or any political subdivision thereof and any applications for such trademarks and service marks, and also including any and all unregistered marks and trade dress, including logos, proprietary icons, designs, trade names, trade styles, company names, corporate names, business names, URLs, fictitious business names and other business or source identifiers in connection with which any registered or unregistered marks are used in the United States, and including, without limitation, all common law rights therein, and registrations and applications for registration therefor, all rights provided by international treaties or conventions with respect to any of the foregoing, and any and all rights or licenses under any agreements or licenses granting any rights or licenses to use any Trademarks, and all reissuances, extensions and renewals of any of the foregoing, and all goodwill associated therewith.

“Transfer” has the meaning specified in Section 7.1.

“URLs” means, collectively, with respect to any Person, any and all internet domain names that are used primarily in connection with business conducted by such Person and that are owned or otherwise used by such Person.

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EXHIBIT B

EXHIBIT B TO THE FOREGOING LOAN AND SECURITY AGREEMENT, DATED AS OF APRIL 20, 2005, AMONG NIGHTHAWK RADIOLOGY SERVICES, LLC, AN IDAHO LIMITED LIABILITY COMPANY, AS THE BORROWER, NIGHTHAWK RADIOLOGY HOLDINGS, INC., A DELAWARE CORPORATION AND NRS CORPORATION, AN IDAHO CORPORATION, AS PARENT GUARANTORS, AND COMERICA BANK, AS THE BANK

COLLATERAL DESCRIPTION

Terms used without definition in this Exhibit B shall have the meanings ascribed to them in the Loan and Security Agreement, dated as of April 20, 2005 (as amended and from time to time in effect called the “Loan Agreement”), among Nighthawk Radiology Services, LLC, an Idaho limited liability company (hereinafter, together with its successors in title and assigns, called the “Borrower”), Nighthawk Radiology Holdings, Inc., a Delaware corporation and NRS Corporation, an Idaho corporation (hereinafter, together and with their respective successors in title and assigns, called the “Parent Guarantors”), and Comerica Bank (hereinafter, together with its successors in title and assigns, called the “Secured Party”), or, as applicable, the Security Agreement or the Pledge Agreement, each dated as of April 20, 2005, among the Borrower, certain Subsidiaries of the Borrower, and the Secured Party.

Each of the Borrower and certain of its Subsidiaries (each a “Debtor”) will (except as and to the limited extent otherwise expressly provided by the Loan Agreement) pledge and collaterally assign to the Secured Party, for the benefit of the Secured Party, and grant to the Secured Party, for the benefit of the Secured Party, a continuing security interest in and to all of the Debtor’s rights, title and interests in and to all of its personal and fixture property of every kind and nature, whether tangible or intangible, wheresoever located, whether now owned or at any time or from to time hereafter acquired, created, arising or existing (herein collectively called the “Collateral”). The Collateral shall in any event include, without limitation, all of the rights, title and interests of each of the Debtors in and to all of the property described in any of the following clauses (a) through (l), inclusive, whether tangible or intangible, wheresoever located, and whether now owned or at any time or from to time hereafter acquired, created, arising or existing:

(a) all of the Debtor’s Equipment in all of its forms (including all fixtures), and in any event including, without limitation, all substitutions therefor, replacements thereof and additions thereto and all attachments, components, parts and accessories installed thereon or affixed thereto, including all computer and telecommunications equipment;

(b) all of the Debtor’s Inventory in all of its forms, including: (i) all inventory, merchandise, goods and other personal property which are held for sale or lease by the Debtor, all raw materials, work in process, unfinished and finished goods with respect thereto, and all materials used or consumed in the manufacture or production thereof; (ii) all goods in which the Debtor has any interest in mass or a joint or other interest or right of any kind (including goods in which the Debtor has any interest or right as consignee); and (iii) all goods which are returned to or repossessed by the Debtor; together with, in each case, all accessions thereto and products and proceeds thereof and documents therefor;

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EXHIBIT B

(c) all Accounts (including health-care insurance receivables), contracts, contract rights, chattel paper (including tangible and electronic chattel paper), Deposit Accounts, documents (including negotiable documents), instruments (including promissory notes), general intangibles (including payment intangibles and software), letter of credit rights, supporting obligations and other rights of the Debtor of any kind, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services by the Debtor, including, in any event and without limitation, all of the following: (i) all rights and interests of the Debtor under each Real Estate Lease, including each ground lease, sublease agreement and other similar agreement; (ii) all rights and interests of the Debtor under each product purchase agreement, management agreement, franchise agreement or other similar agreement to which the Debtor is from time to time a party; (iii) all rights and interests of the Debtor under each limited liability company operating agreement, limited partnership agreement, partnership agreement, joint venture agreement or other similar agreement to which the Debtor is from time to time a party; (iv) all Accounts arising out of each of the agreements referred to in clause (i), (ii) or (iii) above; (v) all Accounts arising out of the licensing, sale or other transfer by the Debtor of any of its Intellectual Property, and all royalties from and all proceeds of any Intellectual Property or otherwise arising out of the licensing, sale or other transfer of any Intellectual Property; (vi) all rights and remedies in and to all Security Instruments, leases, and other instruments securing or otherwise relating to any such Accounts, contracts, contract rights, chattel paper, documents, Deposit Accounts, instruments, general intangibles, letter of credit rights, supporting obligations, Real Estate Leases, product purchase agreements, management agreements, franchise, lease and other agreements, or other obligations; and (vii) all agreements and instruments evidencing any of the foregoing Accounts, contracts, contract rights, chattel paper, Deposit Accounts, documents, instruments, general intangibles, letter of credit rights, supporting obligations, Real Estate Leases, product purchase agreements, management agreements, franchise, lease and other agreements, or other obligations;

(d) all of the Debtor’s Intellectual Property of every description, including, without limitation, any and all of the rights, title and interests of the Debtor in and to any and all United States, international or foreign: (i) Trademarks; (ii) Patents; (iii) Copyrights; (iv) confidential and proprietary information, including, without limitation, all trade secrets, technology, ideas, know-how, formulae and customer and supplier lists; (v) any and all intellectual property rights in computer software and computer software products (including, without limitation, source codes, object codes, data and related documentation); (vi) any and all design rights owned or used by the Debtor; and (vi) all other intellectual property rights of the Debtor of every description;

(e) all claims, demands, judgments, rights, choses in action, commercial tort claims, equities, credits, bank accounts, cash on hand and in banks (other than cash securing the obligations under the Other Letters of Credit in an amount equal to not more than the aggregate face amount of all Other Letters of Credit), insurance policies, including the cash surrender value thereof and all proceeds thereof, and all federal, state, local and foreign tax refunds and/or abatements to which the Debtor is

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EXHIBIT B

or may from time to time become entitled, no matter how or when arising, including, but not limited to, any loss carryback tax refunds;

(f) all ownership or other beneficial interests of the Debtor in any joint ventures, partnerships, limited liability companies or any other similar Persons;

(g) all other property of the Debtor of every kind and description (including all rights, permits and licenses of every kind and description), including fixtures and lease improvements and all other rights and interests under Real Estate Leases;

(h) all Capital Stock and other Equity Interests, including all Initial Pledged Interests; all Dividends and all Distributions; all partnership interests, limited liability company membership interests and joint venture interests; and all rights to receive profits and surplus of, and other Dividends and Distributions (including income, return of capital and liquidating distributions) from, any partnership, joint venture, limited liability company or other Person, including Distributions by any such Person to partners, joint venturers or members, and including rights, whether contractual or otherwise, under limited or general partnership agreements, joint venture agreements, limited liability company operating agreements, or as a limited partner in a limited partnership, as a general partner in a general partnership, as a joint venturer in a joint venture or as a member of a limited liability company;

(i) all Intercompany Notes and all other Debt Securities of every description, including all Initial Pledged Notes;

(j) all investment property (including all securities and securities entitlements) and investment securities of every description; and all other property (including Dividends and Distributions) that may from time to time be delivered or be required to be delivered by the Debtor to the Secured Party for the purpose of pledge;

(k) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing Collateral (including all computers and other equipment containing any such books, records and other information); and

(l) all products, royalties, rents, issues, profits, returns, dividends, distributions, income and proceeds (including all cash proceeds and all non-cash proceeds) of or rights with respect to any and all of the foregoing Collateral, including proceeds which constitute any property of the kind described in any of the foregoing clauses (a) through (k), inclusive, and, to the extent not otherwise included, all payments under any indemnity, warranty or guaranty payable by reason of any loss or damage of any kind to or otherwise with respect to any of the foregoing Collateral.

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EX-10.12

Exhibit 10.12

FIRST AMENDMENT AND WAIVER

TO LOAN AND SECURITY AGREEMENT

This FIRST AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of August 25, 2005, among NIGHTHAWK RADIOLOGY SERVICES, LLC (“Borrower”), NIGHTHAWK RADIOLOGY HOLDINGS INC. (“Holdings”) and NRS Corporation (“NRS” and together with Holdings, the “Parent Guarantors”), and COMERICA BANK (“Bank”).

WHEREAS, the Borrower, the Parent Guarantors and the Bank are parties to that certain Loan and Security Agreement, dated as of April 20, 2005 (as amended and in effect from time to time, the “Loan Agreement”), pursuant to which the Bank, upon certain terms and conditions, has agreed to make loans to the Borrower;

WHEREAS, the Borrower and the Parent Guarantors have requested that the Bank amend certain of the terms and provisions of the Loan Agreement; and

WHEREAS, the Bank has agreed, subject to the terms and conditions set forth herein, to so amend those certain provisions of the Loan Agreement;

NOW, THEREFORE, the parties hereto agree as follows:

§1. Defined Terms. Capitalized terms which are used herein without definition and which are defined in the Loan Agreement shall have the same meanings herein as in the Loan Agreement.

§2. Amendments to Loan Agreement.

(a) Section 2.1(b) of the Loan Agreement is hereby amended by deleting such Section 2.1(b) and restating it in its entirety as follows:

(b) Advances under Term Loan Commitment. Subject to and upon the terms and conditions of this Agreement, Borrower may request (i) on the Closing Date, an Advance under the Term Loan Commitment in an aggregate original principal amount not to exceed $12,000,000 (the “Initial Advance”), (ii) after the Conditions to Funding have been satisfied (which shall be prior to February 28, 2006), an Advance under the Term Loan Commitment in an aggregate original principal amount not to exceed $13,000,000 to be made to the Borrower (the “Second Advance” and together with the Initial Advance, collectively, the “Term Loan A”) and (iii) after the Conditions to Funding have been satisfied and prior to February 28, 2006, an Advance under the Term Loan Commitment in an aggregate original principal amount not to exceed $7,000,000 (the “Term Loan B”) to be deposited and at all times maintained in the Borrower’s money market account with the Bank until released in accordance with Section 2.1(g); provided that the outstanding principal amount of the Term Loan A plus the outstanding principal amount of the Term Loan B shall not exceed $32,000,000 in the aggregate (i.e., the maximum amount of the Term Loan Commitment). The entire amount of each Advance described in clauses (i) and (ii) above, respectively, shall be made on, and with respect to the Advance described in clause (iii) above, prior to, the date referred to in each such clause. The entire proceeds of the Advances under the Term Loan Commitment shall be used by Borrower for the purposes described in paragraph (f) of this

Section 2.1. Upon the making of the Advances under the Term Loan Commitment in the aggregate original principal amount of $32,000,000, the Term Loan Commitment shall expire, and Bank shall have no further obligations of any kind to make any other Credit Extensions to Borrower under the Term Loan Facility. The Second Advance portion and the Term Loan B portion of the Term Loan Commitment shall terminate on February 28, 2006 if the Advances thereunder are not made on or prior to such date, and Bank shall have no further obligations of any kind to make any Advance to Borrower thereunder after February 28, 2006. No part of the principal of the Advance under the Term Loan Commitment may be reborrowed once paid. As provided by Section 2.2(a), Borrower may at any time prepay, without premium or penalty, all or any part of the Advance under the Term Loan Commitment.

(b) Section 2.1(c) of the Loan Agreement is hereby amended by (i) inserting the text “minus the Credit Card Reserve” immediately before the period in the first sentence of such Section 2.1(c); (ii) deleting the date “April 20, 2009” in such Section 2.1(c) and substituting “August 25, 2009” in lieu thereof and (iii) adding the following new text at the end of such Section 2.1(c): “Unless Borrower shall have deposited with Bank cash collateral in an amount not less than the Credit Card Reserve and Bank shall have agreed in writing, no credit card, debit card or purchase card services or facilities extended to the Borrower, any Parent Guarantor or any of their Subsidiaries by the Bank or any of its Affiliates shall have an expiration date that is later than the Final Maturity Date. If Borrower has not secured to Bank’s satisfaction its obligations with respect to any such credit card, debit card or purchase card services or facilities by the Final Maturity Date or upon the termination date of the Revolving Commitment, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit (if any) issued by Bank in Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates), shall automatically secure such obligations to the extent of the Credit Card Reserve and, if the sums in such deposit accounts are less than the Credit Card Reserve, then the Bank may terminate credit card, debit card or purchase card services or facilities in accordance with the terms of the agreements governing such facilities or services. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as any such credit card, debit card or purchase card services or facilities remain outstanding. The requirements of this Section 2.1(c) are in addition to the requirements set forth in the last three sentences of Section 2.1(d)(i).”

(c) Section 2.1(d)(i) of the Loan Agreement is hereby amended by deleting the text “and the unused Revolving Commitment” in clause (A) of the proviso in the first sentence of such Section 2.1(d)(i) and substituting “and the sum of the unused Revolving Commitment minus the Credit Card Reserve” in lieu thereof.

(d) Section 2.1(f) of the Loan Agreement is hereby amended by deleting such Section 2.1(f) and restating it in its entirety as follows:

(f) Use of Proceeds. Borrower shall use the proceeds of (i) the Initial Advance to repay in full the Existing Debt and for the payment of fees and expenses incurred in connection with the preparation and closing of this Agreement and the other Loan Documents, (ii) the Second Advance and, unless the original principal amount of the Term Loan B shall be released to the Bank in accordance with Section 2.1(g) below, the Term Loan B, to make a distribution to the Parent Guarantors in an amount equal to the principal amount

of the Second Advance and the Term Loan B, which amounts will be distributed to the stockholders of Holdings, and (iii) the Advances under the Revolving Commitment shall be used for working capital, Letters of Credit and other general corporate requirements of Borrower and otherwise in accordance with the terms of this Agreement.

(e) Section 2.1 of the Loan Agreement is hereby amended by adding the following new Section 2.1(g) immediately following existing Section 2.1(f):

(g) Release and Use of Term Loan B Amount. The original principal amount of the Term Loan B shall be released (x) upon receipt by the Bank of written confirmation of the final pricing of the shares of Holdings to be traded pursuant to the Qualified Initial Public Offering, to the Borrower for the purpose of completing the distribution to the Parent Guarantors and the stockholders of Holdings described in Section 2.1(f)(ii) in an amount not to exceed $7,000,000 or (y) in the event that the Qualified Initial Public Offering does not occur on or before February 28, 2006, to the Bank on February 28, 2006 for application to the outstanding Advances under the Term Loan Facility, which shall be applied by Bank: first, to the outstanding interest owing in respect of the Term Loan B, second, to the outstanding principal amount of the Term Loan B until all amounts thereunder are repaid in full, and then, to the remaining scheduled installments of principal of the Term Loan A pursuant to Section 2.3(a), in the inverse order of the respective maturities of such installments.

(f) Section 2.2(b) of the Loan Agreement is hereby amended by deleting the reference to “paragraph (e)” in such Section 2.2(b) and substituting “paragraph (f)” in lieu thereof.

(g) Section 2.2(c) of the Loan Agreement is hereby amended by deleting such Section 2.2(c) and restating it in its entirety as follows:

(c) If Holdings shall at any time, while any Obligations remain outstanding under the Term Loan Facility, receive Net Cash Equity Issuance Proceeds from any Equity Issuance (including, without limitation, a Qualified Initial Public Offering), then one-third (1/3) of the entire amount of such Net Cash Equity Issuance Proceeds shall be paid to Bank promptly upon receipt thereof by Holdings, and such amount of Net Cash Equity Issuance Proceeds shall be applied by Bank towards prepayment of unpaid principal of all outstanding Term Loan Facility Advances in accordance with (x) in the case of a Qualified Initial Public Offering, paragraph (g) of this Section 2.2 or (y) in all other cases, paragraph (f) of this Section 2.2.

(h) Section 2.2 of the Loan Agreement is hereby further amended by (i) deleting paragraph (e) of such Section 2.2 and restating it in its entirety as set forth below and (ii) adding the following new Sections 2.2(f) and (g) immediately following Section 2.2(e):

(e) For each fiscal year of the Borrower ending on or after the First Amendment Effective Date and until the Final Maturity Date or until all amounts due under the Term Loan Facility have been paid in full, whichever first occurs, Borrower shall pay to the Bank an amount equal to the percentage of its Excess Cash Flow set forth in the table below with respect to the Consolidated Leverage Ratio as determined for the immediately preceding fiscal year. Each Excess Cash Flow payment shall be due and payable no later than one hundred (100) days after the Borrower’s fiscal year end and shall be applied by Bank first, towards prepayment of unpaid principal of all outstanding Term Loan Facility Advances in

accordance with paragraph (f) of this Section 2.2, second, towards repayment of the outstanding principal amount under the Revolving Credit Facility, and then, the balance (if any) of such Excess Cash Flow payment shall be credited to one of Borrower’s Deposit Accounts with Bank in accordance with Borrower’s instructions.

Consolidated Leverage Ratio for Fiscal Year	Percentage of Excess Cash Flow
Greater than or equal to 2.00:1.00	75%
Less than 2.00:1.00 but greater than or equal 1.00:1.00	50%
Less than 1.00:1.00	0%

(f) Each prepayment of principal of any Advances pursuant to paragraphs (b), (c) (other than any prepayment made in connection with a Qualified Initial Public Offering) or (e) of this Section 2.2 shall be applied by Bank towards payment of the remaining scheduled installments of principal of the Advances under the Term Loan Facility pursuant to Section 2.3(a), in the inverse order of the respective maturities of such installments with such payments to be allocated between Term Loan A and Term Loan B pro rata in accordance with the outstanding principal amounts thereof.

(g) Any prepayment of principal of any Advances under the Term Loan Facility made in connection with a Qualified Initial Public Offering shall be applied by Bank: first, to the outstanding interest owing in respect of the Term Loan B, second, to the outstanding principal amount of the Term Loan B until all amounts thereunder are repaid in full, and then, to the remaining scheduled installments of principal of the Term Loan A pursuant to Section 2.3(a), in the inverse order of the respective maturities of such installments.

(i) Section 2.3(a) of the Loan Agreement is hereby amended by deleting such Section 2.3(a) and restating it in its entirety as follows:

(a) Mandatory Repayment of Advances under Term Loan Facility.

(i) Term Loan A. Borrower shall repay the aggregate principal amount of the Term Loan A Advances in sixteen (16) consecutive quarterly installments of principal, each of which shall become due and payable on the last calendar day of each quarter. The first such installment shall become due and payable on September 30, 2005 and the last of such sixteen (16) installments of principal shall become due and payable on the Final Maturity Date. Each of the first fifteen (15) of such quarterly installments of principal shall be in the amounts as set forth opposite the applicable quarter in the table below and the last of such quarterly installments shall be in the amount of the outstanding principal amount of the Term Loan A.

Term Loan Facility Installment Date	Term Loan A Installment
September 30, 2005	$324,218.75

December 31, 2005	$1,074,218.75
March 31, 2006	$1,074,218.75
June 30, 2006	$1,074,218.75
September 30, 2006	$1,464,843.75
December 31, 2006	$1,464,843.75
March 31, 2007	$1,464,843.75
June 30, 2007	$1,464,843.75
September 30, 2007	$1,855,468.75
December 31, 2007	$1,855,468.75
March 31, 2008	$1,855,468.75
June 30, 2008	$1,855,468.75
September 30, 2008	$1,855,468.75
December 31, 2008	$1,855,468.75
March 31, 2009	$1,855,468.75
Final Maturity Date	The remaining outstanding amount of Term Loan A

(ii) Term Loan B. Borrower shall repay, and there shall become absolutely due and payable, the entire principal amount of the Term Loan B Advance on February 28, 2006.

(j) Section 2.3(b) of the Loan Agreement is hereby amended by deleting such Section 2.3(b) and restating it in its entirety as follows:

(b) Advances under Revolving Commitment. The Revolving Commitment shall terminate in full on (x) February 28, 2006, unless a Qualified Initial Public Offering has been completed on or prior to such date or (y) the Final Maturity Date, if a Qualified Initial Public Offering has been completed on or prior to February 28, 2006, and there shall become and be absolutely and unconditionally due and payable upon such termination, and Borrower hereby promises to pay to Bank on the date of such termination, the entire principal of each of the Advances under the Revolving Commitment then remaining unpaid.

(k) Section 2.6 of the Loan Agreement is hereby amended by adding the following new paragraph (d) to such Section 2.6 immediately following existing paragraph (c) thereof:

(d) Second Advance and Term Loan B Commitment Fee. A commitment fee calculated at the rate of one quarter of one percent (0.25%) multiplied by the sum of (x) the principal amount of the Second Advance available to be drawn during each calendar quarter or portion thereof, plus (y) the principal amount of the Term Loan B available to be drawn during such calendar quarter or portion thereof, in each case, from the First Amendment Effective Date through the earlier of (i) February 28, 2006, (ii) with respect to the Second Advance, the date that the Second Advance is made or, with respect to the Term Loan B, the date that the Term Loan B is made or (iii) the date that the Term Loan Commitment otherwise terminates. The commitment fee shall be payable quarterly in arrears on the last calendar day of each quarter for the immediately preceding calendar quarter commencing on June 30, 2005, with a final payment on February 28, 2006 or any earlier date on which the Term Loan B Advance is made or the Term Loan Commitment is otherwise terminated.

(l) Section 2.10 of the Loan Agreement is hereby amended by deleting the word “Borrowing” in such Section 2.10 and substituting the word “Advance” in lieu thereof.

(m) Section 6.2(b) of the Loan Agreement is hereby amended by deleting the text “, together with agings of Accounts and accounts payable in detail reasonably satisfactory to Bank” in clause (i) of such Section 6.2(b).

(n) Section 6.9 of the Loan Agreement is hereby amended by deleting the text “within one hundred five (105) days of the Closing Date” in such Section 6.9 and substituting the text “not later than August 31, 2005” in lieu thereof.

(o) Section 7.6 of the Loan Agreement is hereby amended by deleting clause (d) thereof and restating such clause (d) in its entirety as follows:

(d) so long as no Default or Event of Default shall have occurred and be continuing or would result after giving effect thereto, (i) Borrower may pay cash dividends to the Parent Guarantors in an aggregate amount not to exceed $500,000 at any time for the purpose of payment of dividends by Holdings, (ii) Borrower may make cash distributions to the Parent Guarantors as permitted under Sections 2.1(f) and (g) of this Agreement, and (iii) the Parent Guarantors may pay cash dividends and make cash distributions in amounts permitted under clauses (i) and (ii) of this Section 7.6(d).

(p) Section 7.12(a) of the Loan Agreement is hereby amended by deleting such Section 7.12(a) and restating it in its entirety as follows:

(a) Maximum Consolidated Leverage Ratio. Cause or permitted the Consolidated Leverage Ratio of Borrower and the Other Credit Parties for any Reference Period ending on any date identified in the table below to be greater than the ratio specified for such Reference Period in the table below.

Date	Ratio
6/30/05	2.00:1.00
9/30/05	2.00:1.00
12/31/05	1.75:1.00
3/31/06	1.50:1.00
6/30/06	1.50:1.00
9/30/06	1.50:1.00
12/31/06	1.50:1.00
3/31/07 and thereafter	1.00:1.00

(q) Section 7.12(b) of the Loan Agreement is hereby amended by deleting such Section 7.12(b) and restating it in its entirety as follows:

(b) Minimum Consolidated Fixed Charge Coverage Ratio. Cause or permit the Consolidated Fixed Charge Coverage Ratio of Borrower and the Other Credit Parties for any Reference Period ending on any date identified in the table below to be less than the ratio specified for such Reference Period in the table below.

Date	Ratio
6/30/05	1.25:1.00
9/30/05	1.25:1.00
12/31/05	1.25:1.00
3/31/06	1.25:1.00
6/30/06	1.25:1.00
9/30/06	1.25:1.00
12/31/06	1.25:1.00
3/31/07 and thereafter	1.40:1.00

(r) Section 7.12(c) of the Loan Agreement is hereby amended by deleting the table set forth in such Section 7.12(c) and substituting the table below in lieu thereof:

Date	Amount
6/30/05	$16,000,000
9/30/05	$16,000,000
12/31/05	$17,200,000
3/31/06	$18,300,000
6/30/06	$19,000,000
9/30/06	$20,000,000
12/31/06	$20,500,000
3/31/07	$21,000,000
6/30/07	$22,000,000
9/30/07	$23,000,000
12/31/07 and thereafter	$24,000,000

(s) The definition of “Applicable Margin” contained in Exhibit A of the Loan Agreement is hereby amended by deleting such definition and restating it in its entirety as follows:

“Applicable Margin” means, with respect to all Advances under (a) the Term Loan Commitment in respect of the Term Loan A, (i) zero percent (0%) (i.e., zero basis points) per annum, in the case of Prime Rate Advances, and (ii) three and one-quarter percent (3.25%) (i.e., 325 basis points) per annum in the case of Eurodollar Rate Advances, (b) the Term Loan Commitment in respect of the Term Loan B, (i) zero percent (0%) (i.e., zero basis points) per annum, in the case of Prime Rate Advances, and (ii) one percent (1.00%) (i.e., 100 basis points) per annum in the case of Eurodollar Rate Advances, and (c) the Revolving Commitment, (i) zero percent (0%) (i.e., zero basis points) per annum, in the case of Prime Rate Advances, and (ii) three and one-quarter percent (3.25%) (i.e., 325 basis points) per annum in the case of Eurodollar Rate Advances.

(t) The definition of “Final Maturity Date” contained in Exhibit A of the Loan Agreement is hereby amended by deleting such definition and restating it in its entirety as follows:

“Final Maturity Date” means August 25, 2009.

(u) The definition of “Obligations” contained in Exhibit A of the Loan Agreement is hereby amended by adding the following new text at the end of the last sentence of such definition: “and all obligations of the Borrower, any Parent Guarantor or any of their Subsidiaries in respect of

any credit card, debit card or purchase card services or facilities extended to any such Person by the Bank or any of its Affiliates.”

(v) The definition of “Revolving Commitment Period” contained in Exhibit A of the Loan Agreement is hereby amended by deleting such definition and restating it in its entirety as follows:

“Revolving Commitment Period” means the period commencing on the Closing Date and ending on August 25, 2009 or such earlier date that the Revolving Commitment is terminated pursuant to the terms of this Agreement.

(w) The definition of “Term Loan Commitment” contained in Exhibit A of the Loan Agreement is hereby amended by deleting such definition and restating it in its entirety as follows:

“Term Loan Commitment” means the commitment of Bank to make the Advances to Borrower pursuant to Section 2.1(b) in the maximum aggregate original principal amount of $32,000,000.

(x) The definition of “Term Loan Facility” contained in Exhibit A of the Loan Agreement is hereby amended by (i) deleting the amount “$12,000,000” in such definition and substituting “$32,000,000” in lieu thereof and (ii) adding the following new sentence at the end of such definition: “For the avoidance of doubt, the Term Loan A and the Term Loan B are both part of the Term Loan Facility.”

(y) Exhibit A of the Loan Agreement is further amended by adding the following new definitions in the appropriate alphabetical order in such Exhibit A:

“Conditions to Funding” means the Bank shall have received the audited consolidated and consolidating financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2004, prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified (or otherwise consented to in writing by Bank) on such financial statements of one of the “Big 4” accounting firms, and such financial statements shall be in form and substance satisfactory to the Bank.

“Consolidated Operating Cash Flow” means, in relation to the Borrower and the other Credit Parties for any period, an amount equal to Consolidated EBITDA for such period, minus Capital Expenditures made during such period to the extent permitted hereunder, minus cash income taxes paid in such period, all as determined on a consolidated basis in accordance with GAAP.

“Credit Card Reserve” means, at all times, an amount equal to $100,000.

“Excess Cash Flow” means, in relation to the Borrower and the other Credit Parties for any period, an amount equal to (a) the sum of (i) Consolidated Operating Cash Flow for such period, plus (ii) if applicable, positive changes in net working capital for such period, less (b) the sum of (i) Consolidated Interest Expense actually paid during such period, plus (ii) any mandatory repayments of principal on Indebtedness actually paid during such period, plus (iii) if applicable, negative changes in net working capital for such period, all as determined on a consolidated basis in accordance with GAAP.

“First Amendment” means that certain First Amendment and Waiver to this Agreement, dated as of August 25, 2005, by and among the Borrower, the Parent Guarantors and the Bank.

“First Amendment Effective Date” means August 25, 2005.

“Initial Advance” has the meaning given to such term in Section 2.1(b) of this Agreement.

“Qualified Initial Public Offering” means an initial public offering of Holdings completed on or before February 28, 2006 and pursuant to which Holdings shall receive Net Cash Equity Issuance Proceeds in an amount not less than $50,000,000.

“Second Advance” has the meaning given to such term in Section 2.1(b) of this Agreement.

“Term Loan A” has the meaning given to such term in Section 2.1(b) of this Agreement.

“Term Loan B” has the meaning given to such term in Section 2.1(b) of this Agreement.

(z) The First Schedule to the Loan Agreement is hereby amended by deleting the existing Annex 5.11(a) and Annex 5.12 to the First Schedule and substituting Annex 5.11(a) and Annex 5.12 (each attached hereto as Exhibit 1) in lieu thereof.

§3. Waiver. The Borrower has informed the Bank that it has failed to comply with the covenant contained in Section 6.2(a)(i) of the Loan Agreement for the calendar month ended May 31, 2005 (the “Specified Default”). The Borrower has requested that the Bank waive the provisions of Sections 6.2(a)(i) of the Loan Agreement, but only to the limited extent necessary to permit the Specified Default and only for the above-referenced calendar month ended May 31, 2005. In response to the Borrower’s request, upon the effectiveness of this Amendment, the Bank hereby waives the Specified Default; provided that the Borrower delivers to the Bank the financial statements required by Section 6.2(a)(i) of the Loan Agreement for the calendar month ended May 31, 2005 no later than July 19, 2005.

§4. Affirmation and Acknowledgment of the Borrower and the Guarantors.

(a) The Borrower hereby ratifies and confirms all of its Obligations to the Bank including, without limitation, the Advance made under the Term Loan Commitment on the effective date of this Amendment, and the Borrower hereby affirms its absolute and unconditional promise to pay to the Bank the Advances and all other amounts due under the Loan Agreement, as amended hereby. The Borrower hereby confirms that the Obligations, including, without limitation, the Advance made under the Term Loan Commitment on the effective date of this Amendment, are and remain secured pursuant to the Security Documents, and pursuant to all other instruments and documents executed and delivered by the Borrower as security for the Obligations.

(b) Each Parent Guarantor hereby acknowledges the provisions of this Amendment and hereby reaffirms its absolute and unconditional guaranty of the Borrower’s payment and performance

of the Obligations as more fully described in the Guaranty to which such Person is a party. Each Guarantor hereby confirms that its obligations under the Guaranty to which it is a party are and remain secured pursuant to the Security Documents to which it is a party.

§5. Representations and Warranties. The Borrower and each Parent Guarantor hereby represents and warrants to the Bank as follows:

(a) The execution and delivery by the Borrower and each Parent Guarantor of this Amendment and all other instruments and agreements required to be executed and delivered by the Borrower and each Parent Guarantor in connection with the transactions contemplated hereby or referred to herein, and the performance by the Borrower and each Parent Guarantor of its obligations and agreements under this Amendment and the Loan Agreement, as amended hereby, are within the authority of the Borrower and each Parent Guarantor, have been authorized by all necessary proceedings on behalf of the Borrower and each Parent Guarantor, and do not and will not contravene any provision of law, statute, rule or regulation to which the Borrower or any Parent Guarantor is subject or the Governing Documents of the Borrower or any Parent Guarantor or any stock provision or any amendment thereof or of any indenture, agreement, instrument or undertaking binding upon the Borrower or any Parent Guarantor.

(b) This Amendment and the Loan Agreement, as amended hereby, constitute legal, valid and binding obligations of the Borrower and each Parent Guarantor, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors’ rights.

(c) No approval or consent of, or filing with, any governmental agency or authority is required to make valid and legally binding the execution, delivery or performance by the Borrower or any Parent Guarantor of this Amendment or the Loan Agreement, as amended hereby, or the consummation by the Borrower or any Parent Guarantor of the transactions among the parties contemplated hereby and thereby or referred to herein.

(d) The representations and warranties contained in Section 5 of the Loan Agreement are true and correct at and as of the date made and as of the date hereof, except to the extent such representations and warranties relate expressly to an earlier date.

(e) The Borrower and each Parent Guarantor has performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and as of the date hereof, after giving effect to this Amendment, there exists no Event of Default or Default.

§6. Effectiveness. This Amendment shall become effective as of the date hereof upon the satisfaction of the following conditions precedent, each in form and substance satisfactory to the Bank:

(a) The Borrowers, the Parent Guarantors and the Bank shall have executed and delivered to the Bank this Amendment and the letter agreement regarding the limited waiver and amendment of Loan Agreement, dated as of May 31, 2005.

(b) The receipt by the Bank from the Borrower and each Parent Guarantor of resolutions authorizing the Borrower and each Parent Guarantor to enter into and carry out the terms of this

Amendment, the Loan Agreement, as amended hereby, and the other Loan Documents to which each such Person is a party in form and substance satisfactory to the Banks.

(c) A Compliance Certificate, dated as of the date hereof, certified by a Responsible Officer of Borrower, which Compliance Certificate shall contain financial information reasonably satisfactory to Bank showing that (i) Consolidated EBITDA for the twelve (12) month period ending March 31, 2005 is not less than $16,000,000 and (ii) the Consolidated Leverage Ratio for the twelve (12) month period ending on March 31, 2005 is not greater than 2.00:1.00.

(d) Reserved.

(e) The receipt by the Bank from the Borrower and each Parent Guarantor of a certificate of an authorized officer, manager or member of such Borrower or Parent Guarantor, as the case may be, certifying that there have been no changes to any Governing Documents since delivery of such Governing Documents to the Bank and the current good standing of each such entity.

(f) As of the date hereof, there shall have occurred no Default or Event of Default.

(g) The representations and warranties of the Borrower and each of the Parent Guarantors in each of the Loan Documents to which it is a party shall be true and correct on and as of the date hereof, except with respect to representations and warranties which relate by their terms to a prior date, in which case, they shall have been true and correct as of such prior date.

(h) There shall have occurred no material adverse change in the condition (financial or otherwise), assets or business of the Borrower and its Subsidiaries, taken as a whole, as of the date hereof.

(i) The Bank shall have received payment of a closing fee equal to $200,000, which shall be fully earned, non-refundable and due and payable by the Borrower to the Bank on the date hereof.

(j) The Bank shall have received payment for all fees and expenses including, without limitation, reasonable legal fees and expenses, for which invoices or reasonable estimates therefor have been provided to the Borrower on or prior to the date hereof.

(k) Such other agreements, instruments and documents or certificates (including, without limitation, certificates of legal existence and good standing), and completion of such other matters, as Bank in its discretion may reasonably deem necessary or appropriate.

§7. Miscellaneous Provisions.

(a) Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Loan Agreement shall remain the same. It is declared and agreed by each of the parties hereto that the Loan Agreement, as amended hereby, shall continue in full force and effect, and that the Loan Agreement shall, together with this Amendment, respectively be read and construed as one instrument.

(b) THIS AMENDMENT SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

(c) This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. Delivery of an executed signature page of this Amendment by facsimile or electronic transmission shall be as effective as delivery of a manually executed counterpart hereof.

(d) The Borrower hereby agrees to pay to the Bank, on demand by the Bank, all reasonable out-of-pocket costs and expenses incurred or sustained by the Bank in connection with the preparation of this Amendment (including reasonable legal fees and expenses).

(e) This Amendment shall constitute a Loan Document under the Loan Agreement, and all obligations included in this Amendment (including, without limitation, all obligations for the payment of principal, interest, fees, and other amounts and expenses) shall constitute Obligations under the Loan Documents and be secured by the collateral security for the Obligations.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above.

NIGHTHAWK RADIOLOGY SERVICES, LLC
By:	/s/    Paul E. Berger
Name:	Paul E. Berger, M.D.
Title:	President

NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:	/s/    Paul E. Berger
Name:	Paul E. Berger, M.D.
Title:	President

NRS CORPORATION
By:	/s/    Paul E. Berger
Name:	Paul E. Berger, M.D.
Title:	President

COMERICA BANK
By:	/s/    Timothy G. Clifford
Name:	Timothy G. Clifford
Title:	Senior Vice President

Exhibit 1

See attached Annex 5.11(a) and Annex 5.12 to the First Schedule.

EX-10.13

Exhibit 10.13

COMMERCIAL LEASE

COEUR D’ ALENE NORTH BUILDING

This Lease is made this 1st day of May 2005, by and between Global Finance & Investment Co., Inc. (“Landlord”) and Nighthawk Radiology Services, LLC (“Tenant”). As used in this Lease, the singular includes the plural and the masculine includes the feminine at all times.

1. Premises to be Leased. Landlord agrees to Lease to Tenant the premises known as and located at the following address:

Coeur d’ Alene North Building

Commercial Space 201,202,203, 205, 206 & 207

250 Northwest Blvd.

Coeur d’ Alene, ID 83014

2. Term of Lease. This Lease shall begin at 12:01 a.m. on May 1st, 2005 and end on September 30, 2006 at 12:00 p.m. for a term of One year. During the term of the Lease, Tenant shall pay Twelve Thousand One Hundred Fifty Eight Dollars and zero cents ($ 12,158.00) per month during the term of the Lease all as rent to the Landlord. Rent shall be due on the first day of each month through the term of this Lease.

3. Security Deposit. Landlord and Tenant acknowledge that Tenant has deposited with Landlord the sum of Three Thousand Seven Hundred Fifty Dollars ($ 3,750.00) as security for performance of all the terms of the Lease Agreement. Cleaning/Damage deposit of which $ 250.00 in non-refundable. Said sum shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease Agreement, including but not limited to the provisions relating to the payment of any rent or any other sum in default or for the payment of any rent or any amount which Landlord may spend or become obligated to spend by reason of Tenant’s default. If any portion of said deposit is so used or applied, Tenant shall, within ten (10) days after written demand therefore, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount, and Tenant’s failure to do so shall be a default under this Lease. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be returned to Tenant within Thirty (30) days following the expiration of the Lease term. In the event of termination of Landlord’s interest in this Lease, Landlord shall transfer said deposit to Landlord’s successor in interest.

4. Subletting. Tenant promises not to assign or transfer this Lease or any interest in this Lease, or sublet the premises or any part of the premises without the prior written consent of the Landlord.

5. Liens and Encumbrances. Tenant promises not to allow any liens or encumbrances to attach to the premises.

6. Occupancy. Tenant shall be entitled to use the premises for commercial purposes only. No pets shall be permitted on the premises at any time.

7. Maintenance. Tenant shall maintain the premises in a safe and sanitary condition; dispose of all garbage, rubbish and waste in a clean, safe and legal manner, the storage of garbage on the premises being strictly prohibited;; use and operate all electrical fixtures and plumbing fixtures properly; comply with all obligations imposed upon Tenants by applicable provisions of housing, building and health codes; refrain, and forbid any other person from destroying, defacing, damaging or removing any part of the premises. Tenant shall not make any alterations to the premises or change any locks on the premises without the prior written consent of Landlord. Tenant shall not do anything on the premises that will increase or make void Landlord’s insurance on the premises.

8. Utilities. The Real Estate Taxes and Condominium Maintenance Fees. Landlord shall be responsible for all deposits and payments for the following: real estate taxes and condominium maintenance fees. Tenant shall be responsible for all deposits and payments for the following utilities: electricity, refuse disposal, and telephone for said leased premises.

9. Landlord Duties. Landlord shall comply with the requirements of all building, housing and health codes as they apply to Landlord. Landlord pays all real estate taxes and assessments as due, but reserves the right to contest any such tax assessment.

10. Premises As Is. Tenant acknowledges that it has inspected the premises prior to signing this Lease and accepts the premises in its present condition.

11. Termination. Tenant must give Landlord four (4) months notice prior to vacating Suite 201, 202, 203, 205, 206 & 207. Therefore, notice must be given on or before May 31, 2006 if Tenant intends to vacate premises on September 30, 2006. If Tenant gives notice to vacate after May 31, 2006; the ending term of the Lease shall be the later of September 30, 2006 or four (4) months after written Tenant notice to vacate is received by Landlord.

12. Liabilities. Tenant agrees to assume all liabilities and hold the Landlord harmless from any and all injuries to persons or damage to property caused by Tenant or any other person on the premises with Tenant’s permission. Tenant agrees to pay any costs and attorney fees incurred by Landlord in defending any lawsuit or other action brought in regard to such injuries or damage. All personal property in the premises is at Tenant’s risk only and Landlord shall not be liable for any damages to it, nor is Landlord responsible for insuring Tenant’s personal property.

13. Destruction of Premises. In the event more than half of the premise is destroyed by fire or other loss, Landlord and Tenant agree that this Lease shall become void at the option of either Landlord or Tenant.

14. Default. If Tenant makes any default on this Lease, it shall be lawful for Landlord and his representatives and agents to re-enter and repossess the premises, or evict Tenant in the manner prescribed by the Law. Waiver of any default by the Landlord shall not be construed as a waiver of any subsequent default.

15. Access. Tenant shall allow Landlord access to the premises for purposes of repair and inspection. Landlord shall exercise this right of access in a reasonable manner. Landlord shall give Tenant reasonable notice before exercising this right of access, except in case of emergency.

16. Notice. All notices required by this Lease shall be provided in writing, mailed to the parties as follows:

If to Landlord:	Global Finance & Investment Co., Inc.
	Attn: Tiffany Hodkin
	2623 2nd Avenue
	Seattle, WA 98121
If to Tenant:	Nighthawk Radiology Inc.
	c/o Paul Cartree
	250 Northwest Blvd.
	Coeur d’ Alene, ID 83014

17. Parties Bound. This Lease, the promises and Agreements it contains shall be binding on the respective heirs, successors, representatives, agents and assigns of the parties.

18. Complete Agreement. This Lease is the complete and final agreement of Landlord and Tenant in regard to the premises described in the Lease.

19. Governing Law. This Lease shall be governed by the laws of the Stated of Idaho.

20. This Lease supersedes any oral or written agreements regarding these premises.

THIS LEASE IS A BINDING LEGAL AGREEMENT. YOU SHOULD NOT SIGN IT UNLESS YOU UNDERSTAND IT COMPLETELY. CONSULT WITH AN ATTORNEY FOR ASSISTANCE.

Signature Page Follows

IN WITNESS WHEREOF, the parties hereto have executed this Lease effective as of the date set forth in Section 2 above.

LANDLORD
Global Finance & Investment Co., Inc.
Signature:	/s/ Tiffany D. Hodkin
	Tiffany D. Hodkin – Property Manager
TENANT
NightHawk Radiology Services, LLC
Signature:	/s/ Christopher R. Huber
	Christopher R. Huber, Chief Financial Officer

SIGNATURE PAGE TO LEASE DATED MAY 1, 2005

EX-10.14

EXHIBIT 10.14

COMMERCIAL CONDOMINIUM OFFICE LEASE AND RECEIPT

STANLEY D. MOORE AND JUDITH K. MOORE, AS LESSOR, ACKNOWLEDGES RECEIPT FROM Nighthawk Radiology, Inc., AS LESSEE, THE SUM OF $3,150.00 DEPOSIT, TO BE APPLIED AS FOLLOWS: $150 AS DAMAGE and CLEANING DEPOSIT, $0 AS OTHER DEPOSIT, $1,500.00 ON FIRST MONTHS RENT, AND $1,500 ON LAST MONTHS RENT.

LESSOR LEASES TO THE LESSEE THE PREMISES SITUATED IN COEUR D’ALENE, COUNTY OF KOOTENAI, STATE OF IDAHO DESCRIBED AS 250 NORTHWEST BLVD., SUITE 209 (AKA: COEUR D’ALENE NORTH CONDOMINIUMS, UNIT 209.

ON THE FOLLOWING TERMS AND CONDITIONS.

TERM: TERM SHALL COMMENCE JANUARY 1, 2005 AND EXPIRE July 31, 2006.

RENT: RENT SHALL BE PAYABLE AS FOLLOWS: ON THE FIRST DAY OF EACH MONTH OF THE RENT PERIOD.

RENT SHALL BE PAID TO LESSOR OR AGENT AT THE FOLLOWING ADDRESS: 250 NORTHWEST BLVD., SUITE 106A, COEUR D’ALENE, ID 83814 OR SUCH OTHER PLACE AS LESSOR MAY DESIGNATE.

USE: PREMISES ARE TO BE USED FOR PROFESSIONAL SERVICES AND FOR NO OTHER PURPOSE, WITHOUT PRIOR WRITTEN CONSENT OF LESSOR.

PROHIBITED USE: PREMISES SHALL NOT BE USED FOR PURPOSES OTHER THAN AS STATED ABOVE, IN WAYS WHICH DECREASE IN VALUE OF THE PREMISES OR DECREASE ITS ACCEPTABILITY FOR INSURANCE, OR FOR AUCTION SALES.

ASSIGNMENT AND SUBLETTING: LESSEE SHALL NOT ASSIGN THIS LEASE OR SUBLET ANY PORTION OF THE PREMISES WITHOUT PRIOR WRITTEN CONSENT OF THE LESSOR. CONSENT SHALL NOT BE UNREASONABLE WITHHELD. ANY ASSIGNMENT OR SUBLETTING WITHOUT PRIOR CONSENT SHALL BE VOID AND, AT THE OPTION OF THE LESSOR, MAY TERMINATE THIS LEASE.

ORDINANCES, STATUTES, AND CONDOMINIUM RULES: LESSEE SHALL COMPLY WITH ALL STATUTES, ORDINANCES AND REQUIREMENTS OF ALL MUNICIPAL, STATE, FEDERAL AND DULY ELECTED CONDOMINIUM ASSOCIATION AUTHORITIES, PERTAINING TO THE PREMISES, OCCASIONED BY OR AFFECTING USE THEREOF BY LESSEE. COMMENCEMENT OR PENDENCY OF ANY ABATEMENT PROCEEDING AFFECTING USE OF THE PREMISES SHALL, AT THE OPTION OF LESSOR, BE DEEMED A BREACH HEREOF.

MAINTENANCE, REPAIRS, ALTERATIONS: LESSEE ACKNOWLEDGES THAT PREMISES IS IN GOOD ORDER AND REPAIR, EXCEPT NONE. LESSEE SHALL, AT HIS OWN EXPENSE, MAINTAIN PREMISES IN GOOD AND SAFE CONDITION, INCLUDING WIRING, HEATING, PLUMBING, GLASS AND ANY OTHER SYSTEM OR EQUIPMENT ON THE PREMISES, AND AT TERMINATION, SHALL SURRENDER SAME IN AS GOOD A CONDITION AS WHEN RECEIVED, NORMAL WEAR AND TEAR EXCEPTED.

LESSEE SHALL BE RESPONSIBLE FOR ALL REPAIRS AND MAINTENANCE, EXCEPT THE ROOF, EXTERIOR WALLS, STRUCTURAL FOUNDATIONS AND AREAS COMMON TO THE CONDOMINIUM ASSOCIATION, WHICH SHALL BE MAINTAINED BY LESSOR.

IMPROVEMENT OR ALTERATION TO THE PREMISES SHALL BE MADE ONLY WITH THE WRITTEN CONSENT OF THE LESSOR. BEFORE COMMENCING SUBSTANTIAL REPAIR, IMPROVEMENT OR ALTERATION, LESSEE SHALL GIVE LESSOR AT LEAST 2 DAYS WRITTEN NOTICE.

LESSEE SHALL NOT COMMIT OR PERMIT ANY WASTE UPON THE PREMISES, OR ANY NUISANCE OR ACT THAT MAY DISTURB THE QUIET ENJOYMENT BY ANY OTHER TENANT.

ENTRY AND INSPECTION: LESSEE SHALL PERMIT LESSOR OR LESSOR’S AGENT TO ENTER UPON THE PREMISES AT REASONABLE TIMES AND UPON REASONABLE NOTICE, FOR THE PURPOSE OF INSPECTING THE SAME. LESSEE SHALL PERMIT LESSOR OR LESSOR’S AGENT AT ANY TIME WITHIN SIXTY (60) DAYS PRIOR TO THE EXPIRATION OF THIS LEASE, TO PLACE UPON THE PREMISES ANY USUAL “TO LET”, “FOR RENT” OR “FOR LEASE” SIGNS, AND PERMIT PERSONS DESIRING TO OCCUPY THE SAME, TO INSPECT THE PREMISES.

INDEMNIFICATION OF LESSOR: LESSOR SHALL NOT BE LIABLE FOR DAMAGE OR INJURY TO LESSEE, OR ANY OTHER PERSON, OR TO ANY PROPERTY, OCCURRING ON THE DEMISED PREMISES AND LESSEE AGREES TO HOLD LESSOR HARMLESS FROM ANY CLAIMS FOR DAMAGES, NO MATTER HOW CAUSED.

POSSESSION: IF LESSOR IS UNABLE TO DELIVER POSSESSION AT COMMENCEMENT OF LEASE, LESSOR SHALL NOT BE LIABLE FOR ANY DAMAGE CAUSED THEREBY, NOR SHALL THIS LEASE BE VOID OR VOIDABLE, BUT LESSEE, SHALL NOT BE LIABLE FOR ANY RENT UNTIL POSSESSION IS DELIVERED. LESSEE MAY TERMINATE THIS LEASE IF POSSESSIONS NOT DELIVERED WITHIN {LESSEE IS IN POSSESSION} DAYS OF COMMENCEMENT OF LEASE TERM.

INSURANCE: LESSEE, AT HIS EXPENSE, SHALL MAINTAIN PUBLIC LIABILITY INSURANCE, INCLUDING BODILY INJURY AND PROPERTY DAMAGE, INSURING LESSEE AND LESSOR FOR AT LEAST $300,000, NAMING LESSOR AS CO-INSURED.

LESSEE SHALL PROVIDE LESSOR WITH CERTIFICATE OF INSURANCE SHOWING LESSOR AS AN ADDITIONAL INSURED. THE CERTIFICATE SHALL PROVIDE FOR AT LEAST A TEN-DAY WRITTEN NOTICE TO LESSOR IN EVENT OF CANCELLATION OR A MATERIAL CHANGE OF COVERAGE.

TO THE MAXIMUM EXTENT PERMITTED BY INSURANCE POLICIES OWNED BY THEM, LESSEE AND LESSOR, FOR THE BENEFIT OF EACH OTHER, WAIVE ANY AND ALL RIGHTS OF SUBROGATION THAT MIGHT OTHERWISE EXIST.

UTILITIES: LESSEE AGREES THAT HE SHALL BE RESPONSIBLE FOR PAYMENT OF ALL UTILITIES, INCLUDING ELECTRICITY, AND OTHER SERVICES DELIVERED TO THE PREMISES.

SIGNS: LESSOR RESERVES EXCLUSIVE RIGHTS TO EXTERIOR OF PREMISES WALLS. LESSEE SHALL CONSTRUCT NO EXTERIOR SIGNS OR AWNINGS WITHOUT WRITTEN CONSENT OF LESSOR. CONSENT SHALL NOT BE UNREASONABLE WITHHELD.

ABANDONMENT OF PREMISES: LESSEE SHALL NOT VACATE OR ABANDON PREMISES DURING THE TERM HEREOF. IF LESSEE SHALL ABANDON OR VACATE PREMISES, OR BE DISPOSSESSED BY PROCESS OF LAW, OR OTHERWISE, ANY PERSONAL PROPERTY BELONGING TO THE LESSEE LEFT UPON THE PREMISES SHALL BE DEEMED TO BE ABANDONED, AT THE ELECTION OF THE LESSOR.

CONDEMNATION: IF PART OF THE PREMISES IS TAKEN OR CONDEMNED FOR PUBLIC USE, AND PART REMAINING IS SUSCEPTIBLE OF OCCUPATION HEREUNDER, THIS LEASE, SHALL TERMINATE AS TO THE PART TAKEN, AS OF THE DATE THE CONDEMNOR ACQUIRES POSSESSION. THEREAFTER LESSEE SHALL BE REQUIRED TO PAY SUCH PROPORTION OF THE RENT FOR THE REMAINING TERM AS THE REMAINING VALUE IS TO THE TOTAL VALUE AT THE DATE OF CONDEMNATION. HOWEVER, LESSOR, AT HIS OPTION, MAY TERMINATE THIS LEASE AS OF THE DATE THE CONDEMNOR ACQUIRES POSSESSION.

IN THE EVENT THAT THE ENTIRE PREMISES IS CONDEMNED, OR THAT THE REMAINING PORTION IS NOT SUSCEPTIBLE FOR USE HEREUNDER, LEASE SHALL TERMINATE UPON THE DATE THAT THE CONDEMNOR ACQUIRES POSSESSION. ALL SUMS PAYABLE ON ACCOUNT OF CONDEMNATION SHALL BELONG TO THE LESSOR. LESSEE SHALL RETAIN ANY AMOUNT AWARDED TO HIM FOR HIS TRADE FIXTURES OR MOVING EXPENSES.

TRADE FIXTURES: ALL IMPROVEMENTS MADE TO THE PREMISES DURING THE TERM OF THIS LEASE SHALL BELONG TO THE LESSOR, EXCEPT TRADE FIXTURES OF THE LESSEE. UPON TERMINATION OF LEASE, LESSEE MAY REMOVE ALL HIS TRADE FIXTURES, BUT SHALL REPAIR OR PAY FOR REPAIRS TO THE PREMISES RESULTING FROM THE REMOVAL.

DESTRUCTION OF PREMISES: IN THE EVENT OF PARTIAL DESTRUCTION OF THE PREMISES, FROM ANY CAUSE, AND REPAIRS CAN BE MADE WITHIN 60 DAYS UNDER EXISTING LAWS AND REGULATIONS, LESSOR SHALL FORTHWITH REPAIR THE SAME. THE LEASE WILL CONTINUE IN EFFECT, EXCEPT THAT LESSEE SHALL BE ENTITLED TO PROPORTIONATE REDUCTION OF RENT WHILE REPAIRS ARE BEING MADE. IN EVENT REPAIRS CAN NOT BE MADE WITHIN 60 DAYS, LESSOR, AT HIS OPTION, MAY MAKE SUCH REPAIRS WITHIN A REASONABLE TIME. LEASE WILL CONTINUE IN EFFECT, SUBJECT TO RENT ABATEMENT NOTED ABOVE. SHOULD LESSOR ELECT NOT TO MAKE REPAIRS THAT CAN NOT BE MADE IN 60 DAYS, EITHER PARTY MAY TERMINATE LEASE.

-2-

TOTAL DESTRUCTION OF THE BUILDING WITHIN WHICH THE PREMISES IS SITUATED SHALL TERMINATE THIS LEASE. IN THE EVENT DAMAGE TO THE BUILDING IS ONE-THIRD OR MORE OF BUILDING REPLACEMENT COST, LESSOR MAY ELECT TO TERMINATE THIS LEASE.

ANY DISPUTE BETWEEN LESSOR AND LESSEE UNDER THIS SECTION SHALL BE SETTLED BY MEDIATION WITH A MUTUALLY ACCEPTABLE MEDIATOR; IN THE EVENT MEDIATION IS UNSUCCESSFUL, THEN THE PARTIES SHALL SUBMIT TO ARBITRATION IN SUCH MANNER AS THE PARTIES AGREE UPON, OR IN ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION.

INSOLVENCY: IN THE EVENT A RECEIVER IS APPOINTED TO TAKE OVER THE BUSINESS OF THE LESSEE, OR THAT THE LESSEE SHALL MAKE A GENERAL ASSIGNMENT FOR THE BENEFIT OF CREDITORS, OR LESSEE SHALL TAKE OR SUFFER ACTION UNDER AN INSOLVENCY OR BANKRUPTCY ACT, THE SAME SHALL CONSTITUTE A BREACH OF THIS LEASE BY LESSEE.

REMEDIES ON DEFAULT: IN EVENT OF BREACH OF LEASE BY LESSEE, LESSOR MAY, AT HIS OPTION, TERMINATE THE LEASE AND RECOVER FROM LESSEE (1) UNPAID EARNED RENT AT TIME OF TERMINATION, (2) THE AMOUNT BY WHICH THE UNPAID RENT THAT WOULD HAVE BEEN EARNED AFTER TERMINATION AND UNTIL THE TIME OF THE AWARD EXCEEDS THE AMOUNT THAT LESSEE PROVES COULD HAVE BEEN REASONABLY AVOIDED, (3) THE AMOUNT BY WHICH THE UNPAID RENT FOR THE BALANCE OF THE TERM EXCEEDS THE AMOUNT THAT LESSEE PROVES COULD HAVE BEEN REASONABLE AVOIDED, (4) COMPENSATION OF LESSOR FOR OTHER LOSSES DUE TO LESSEE’S FAILURE TO PERFORM HIS OBLIGATIONS UNDER THE LEASE.

LESSOR, AS AN ALTERNATIVE, MAY CONTINUE THE LEASE, MAINTAINING LESSEE’S RIGHT TO POSSESSION, AND ENFORCE HIS RIGHTS AND REMEDIES UNDER THE LEASE, INCLUDING RECOVERY OF RENT EARNED. IF BREACH OF LEASE CONTINUES, LESSOR MAY AT ANY TIME THEREAFTER ELECT TO TERMINATE THE LEASE.

NOTHING CONTAINED HEREIN SHALL LIMIT ANY OTHER RIGHTS OR REMEDIES THAT LESSOR MAY HAVE.

SECURITY: DEPOSITS, IF ANY, SECURE THE PERFORMANCE OF LESSEE’S OBLIGATIONS. LESSOR MAY, BUT IS NOT REQUIRED TO, APPLY DEPOSITS ON LESSEE’S OBLIGATIONS. LESSEE SHALL NOT HAVE THE RIGHT TO APPLY DEPOSITS IN PAYMENT OF RENT.

DEPOSIT REFUNDS: UPON TERMINATION, BALANCE OF DEPOSITS WITHIN TWO WEEKS FROM DATE POSSESSION IS RETURNED TO OWNER OR HIS AGENT, TOGETHER WITH STATEMENT SHOWING ANY CHARGES MADE AGAINST THE DEPOSITS.

ATTORNEY FEES: IN CASE SUIT IS BROUGHT BY EITHER PARTY, THE PREVAILING PARTY SHALL BE ENTITLED TO ALL COSTS INCURRED, INCLUDING REASONABLE ATTORNEY FEES.

WAIVER: FAILURE OF LESSOR TO ENFORCE ANY TERM HEREOF SHALL NOT BE DEEMED TO BE A WAIVER.

NOTICES: NOTICE SHALL BE MAILED POSTAGE PREPAID TO, LESSEE AT THE PREMISES, OR LESSOR AT ADDRESS SHOWN BELOW OR SUCH OTHER PLACE DESIGNATED BY THE PARTIES IN WRITING FROM TIME TO TIME.

HOLDING OVER: AFTER EXPIRATION OF LEASE, WITH CONSENT OF LESSOR, ANY ADDITIONAL HOLDING PERIOD IS CONSIDERED MONTH TO MONTH TENANCY AT A RENTAL OF $1,200.00 UNTIL December 15, 2004, at which time the rent shall increase to $1,500.00 per month TOGETHER WITH ALL INCREASES IN MONTHLY CONDOMINIUM ASSESSMENTS PER MONTH, SUBJECT TO EXISTING TERMS, AS APPLICABLE.

TIME: TIME IS THE ESSENCE OF THIS LEASE.

HEIRS, ASSIGNS, SUCCESSORS: THIS LEASE IS BINDING UPON AND INURES TO THE BENEFIT OF HEIRS, ASSIGNS, AND SUCCESSORS IN INTEREST TO THE PARTIES.

MONTHLY CONDOMINIUM ASSESSMENT: IN EVENT OF INCREASE IN MONTHLY CONDOMINIUM ASSESSMENT OVER THE AMOUNT ASSESSED FOR THE YEAR IN WHICH LEASE COMMENCED, LESSEE SHALL CONCURRENTLY PAY TO LESSOR AS INCREASED RENT AN AMOUNT EQUAL TO THE INCREASE IN ASSESSMENT FOR THE LEASED PREMISES.

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IT IS FURTHER AGREED: THERE SHALL BE NO ALLOWANCE FOR TENANT IMPROVEMENTS DURING THE TERM OF THIS LEASE.

ENTIRE AGREEMENT: THE FOREGOING CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND MAY BE MODIFIED ONLY IN WRITING SIGNED BY BOTH PARTIES.

THE FOLLOWING EXHIBITS, IF ANY, HAVE BEEN MADE A PART OF THIS LEASE: CONDOMINIUM ASSOCIATION RULES AND REGULATIONS ATTACHED TO THIS LEASE.

DATED: August 11, 2004

/s/ Stanley Moore	LESSOR
OR
	AGENT ADDRESS	250 Northwest Blvd., Ste. 106A
		Coeur d’Alene, ID 83814
/s/ Christopher R. Huber	LESSEE
	LESSEE ADDRESS

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EX-10.15

EXHIBIT 10.15

Form: Licence: Licensee: 07SL 01-11-030 Blake Dawson Waldron SUBLEASE New South Wales Real Property Act 1900 Leave this space clear. Affix additional pages to the top left-hand corner.

		PRIVACY NOTE: this information is legally required and will become part of the public record
	STAMP DUTY	Office of State Revenue use only
(A)	HEAD LEASE	X925185
(B)	TORRENS	Property leased: if appropriate, specify the part or premises
	TITLE	Part of Volume 8629 Folio 211 being premises known as Suite 1101, Level 11, Grosvenor Place, 225 George Street, Sydney
(C)	LODGED BY	Delivery Box	Name, Address or DX and Telephone	CODE
		238N	Blake Dawson Waldron DX 355 Sydney Tel: 02 9258 6000	SL
			Reference (optional): LC KMQ:
(D)	SUBLESSOR	COMMONWEALTH FUNDS MANAGEMENT LIMITED ACN 052 289 442 and BT FUNDS MANAGEMENT LIMITED ACN 002 916 458
		The sublessor leases to the sublessee the property referred to above.
(E)		Encumbrances (if applicable): 1.                     2.                     3.
(F)	SUBLESSEE	NIGHTHAWK RADIOLOGY SERVICES, LLC ARBN 098 194 640
(G)		TENANCY:

(H)	1.	TERM Five (5) years
	2.	COMMENCING DATE
	3.	TERMINATING DATE
	4.	With an OPTION TO RENEW for a period of N/A                                                                                           set out in N/A
	5.	Together with and reserving the RIGHTS set out in Clause 2.3
	6.	Incorporates the provisions or additional material set out in ANNEXURE(S) “A” and “B” hereto.
	7.	Incorporates the provisions set out in MEMORANDUM filed at Land and Property Information New South Wales as No. N/A
	8.	The RENT is set out in item 8 of Annexure “A”

ALL HANDWRITING MUST BE IN BLOCK CAPITALS Page 1 of 2

	DATE 14 / 10 / 03
	dd mm yyyy
(I)	See the last page of annexure A for execution.
Note: where applicable, the sublessor must complete the statutory declaration below.
(J)	STATUTORY DECLARATION
	I
	solemnly and sincerely declare that-
	1. The time for the exercise of option to renew in expired sublease No.		has ended;
	2. The sublessee under that sublease has not exercised the option.
	I make this solemn declaration conscientiously believing the same to be true and by virtue of the Oaths Act 1900.
	Made and subscribed at	in the State of
	on	in the presence of-
	Signature of witness:	Signature of sublessor:
	Name of witness:
	Address of witness:
	Qualification of witness:

ALL HANDWRITING MUST BE IN BLOCK CAPITALS Page 2 of 2

This is annexure “A” referred to in the lease between Commonwealth Funds Management Limited and BT Funds Management Limited and Nighthawk Radiology Services, LLC as lessee dated

CONTENTS

1.	DEFINITIONS AND INTERPRETATION		7
	1.1	Definitions	7
	1.2	Interpretation	12
	1.3	Exhibits	13
	1.4	Bodies and associations	13
	1.5	Measurement of areas	13
2.	GRANT OF LEASE, EXCLUSION OF IMPLIED COVENANTS AND POWERS AND LESSOR’S RESERVATIONS		13
	2.1	Grant of Lease	13
	2.2	Exclusion of implied covenants	13
	2.3	Lessor’s reservations	13
	2.4	Easements	14
	2.5	Building alterations	14
	2.6	Lessee’s rights	15
3.	RENT AND ABATEMENT		15
	3.1	Rent	15
	3.2	Termination on destruction or damage	15
	3.3	Abatement on destruction or damage	16
4.	RENT REVIEW		16
	4.1	Review	16
	4.2	Minimum amount	16
	4.3	Determination	17
	4.4	Factors to be considered	18
	4.5	Provision of adjustment	19
	4.6	Deferment of review	19
5.	LESSEE’S OUTGOINGS		20
	5.1	Building Outgoings	20
	5.2	Payments of account of Lessee’s Outgoings	20
	5.3	Outgoings Statement	20
	5.4	Adjustment of Building Outgoings	21
6.	USE OF PREMISES		21
	6.1	Permitted use	21
	6.2	Smoking	21
	6.3	Rules and Regulations	22

Page 1 of 75

	6.4	Compliance with the Rules for Development Area	22
	6.5	Additions and Amendments to the Rules for Development Area	23
	6.6	24 hour access	23
	6.7	Nuisance	24
	6.8	Heavy equipment	24
	6.9	Electrical equipment	24
	6.10	Pest Control	25
	6.11	Heating and Cooling	25
	6.12	Signs and Advertising	25
	6.13	Radio, TV, etc	25
	6.14	Requirements of Governmental Agencies	26
	6.15	Notice of defects	26
	6.16	Fire regulations	26
	6.17	No inflammable substances	27
	6.18	Security	27
	6.19	Testing Lessee’s fire, security or alarm systems	28
	6.20	Appointment of fire wardens	28
	6.21	Compliance with emergency procedures	29
	6.22	Appointment of fire wardens	29
	6.23	No liability	29
	6.24	Re-entry	29
	6.25	Bomb and firearm threats	29
	6.26	Prospective tenants and purchasers	29
7.	MAINTENANCE REPAIR AND ALTERATIONS		30
	7.1	Repair and maintenance	30
	7.2	Painting	30
	7.3	Breakages	31
	7.4	Lighting	31
	7.5	Carpets, blinds, etc	31
	7.6	Doors, drains and toilets	31
	7.7	Lessor may inspect	31
	7.8	Lessor may repair	32
	7.9	Lessor’s entry	32
	7.10	Alterations and Lessee’s Fittings	32
	7.11	Furniture and fittings	33
	7.12	Rectification of damage in Common Areas	33
8.	SERVICES		34
	8.1	Air-conditioning and elevators	34
	8.2	After hours use	34
	8.3	Payment for services to the Premises	35
	8.4	Supply failure	35
	8.5	Lessor’s Obligations	35
9.	CLEANING		36
	9.1	Cleaning by Lessor	36
	9.2	Monthly Cleaning Amount	36
	9.3	Payment of Monthly Cleaning Amount	36

Page 2 of 75

10.	INSURANCE		36
	10.1	Public Risk	36
	10.2	Plate glass	36
	10.3	Policies	37
	10.4	Insurance not to be avoided	37
	10.5	Attorney of Lessee	38
	10.6	Continuation of liability	38
11.	INDEMNITIES AND RELEASE		38
	11.1	Release of Lessor	38
	11.2	Specific Indemnities	39
12.	QUIET ENJOYMENT, HOLDING OVER, REMOVAL OF LESSEE’S FIXTURES ETC.		40
	12.1	Quiet Enjoyment	40
	12.2	Common Areas	40
	12.3	Holding over	40
	12.4	Removal of Lessee’s fixtures	40
	12.5	Lessee’s fixtures not removed	41
	12.6	Yielding up	41
13.	RESTRICTIONS ON CHARGES, ASSIGNMENTS AND SUB-LEASES		42
	13.1	Restrictions	42
	13.2	Modification of restrictions	42
	13.3	Restriction on transfer of shares	43
	13.4	Lessee’s obligations not affected by approved assignment, transfer or sub-lease	44
	13.5	Restriction on mortgage or charge	44
14.	DEFAULT, TERMINATION, ETC		45
	14.1	Re-entry or surrender on default	45
	14.2	Acceptance of Rent	45
	14.3	Lessor may remedy Lessee’s defaults	45
	14.4	Interest on moneys due	46
	14.5	Damages claimable after re-entry	46
	14.6	Essential terms	47
	14.7	Opportunity to rectify	47
	14.8	Attorney of Lessee	48
	14.9	Vacation by Lessee	48
15.	HEADLEASE AND OTHER SUPERIOR INTERESTS		49
	15.1	Lessor’s and superior interest holder’s right to review	49
	15.2	Covenants To Benefit Lessor’s Successors	49
	15.3	Lessor to protect Lessee’s estate	50
	15.4	Lessee not to prejudice Lessor’s interest	50

Page 3 of 75

16.	GENERAL		50
	16.1	Exclusion of warranties	50
	16.2	Waiver	50
	16.3	Cost of Lease, etc	51
	16.4	Lessee not to cause rent reduction	51
	16.5	Notices	52
	16.6	Caveats	52
	16.7	Consents	52
	16.8	No merger	52
	16.9	Lessee’s obligations	52
	16.10	Not used	52
	16.11	Moratorium	52
	16.12	Effect of Execution	53
	16.13	Manager	53
	16.14	Limitation of liability of Lessor	53
	16.15	Whole agreement	54
17.	STRATA TITLE		54
	17.1	Reservation of right to Strata Title	54
	17.2	Variation of Lease	54
	17.3	Requirements for Subdivision	54
18.	SECURITY		54
	18.1	Security deposit or bank guarantee	54
	18.2	Sale by Lessor	55
	18.3	Covenantor	55
	18.4	Guarantee	55
	18.5	Indemnity	55
	18.6	Covenants	56
	18.7	Joint and several liability	56
	18.8	Continuing effect	57
19.	OPTION OF RENEWAL		57
	19.1	Option of renewal	57
	19.2	Initial rent under renewed Lease	58
	19.3	Form of renewed lease	58
	19.4	Notice of exercise of option	58
	19.5	Existing Covenantor	59
20.	INDEPENDENT EXPERT		59
	20.1	Independent expert	59
21.	CMFL/BTFM TRUST PROVISIONS		60
	21.1	Definitions	60
	21.2	CFML’S Limitation Of Liability As Trustee	61
	21.3	BTFM’S Limitation Of Liability As Trustee	61
	21.4	Liability	62
22.	GOODS AND SERVICES TAX		62

Page 4 of 75

23.1	LESSEE’S WORKS		66
	23.2	Definitions	66
	23.2	Licence	67
	23.3	Works	67
	23.4	Lessee’s drawings and specifications	67
	23.5	Authorisations	68
	23.6	Variation to Works	68
	23.7	Conditions regarding Works	68
	23.8	Contractor’s insurance	69
	23.9	Structural work or alterations to services	69
	23.10	Preservation of Lessor’s warranties	69
	23.11	Lessor’s costs	69
	25.1	Definitions	70
	25.2	Premises to be surveyed	70
	25.3	Lessor calculation and notification	70
	25.4	Lease completion	70
	26.1	Future leases	71
	26.2	Lessor’s offer	71
	26.3	Lessee’s acceptance	71
	26.4	End of Lessor’s offer	71
	26.5	New lease	72
	26.6	Lessee execution of new lease	72
	26.7	Lessee’s acknowledgment	72
28.	RENT FREE PERIOD		73

Page 5 of 75

CONTINUATION OF REFERENCE SCHEDULE

ITEM 8:	Minimum Rent:	Year 1 - $ 309,632, being equal to $820.00 per square metre per annum Years 2 to 5 – the Minimum Rent paid in the immediately preceding year, increased by 4.5%
ITEM 9:	Permitted Use:	Commercial office premises
ITEM 10:	Public Risk	$20,000,000.00
ITEM 11:	Number of Years for Periodic Rent Review:	Not Applicable
ITEM 12:	Deleted
ITEM 13:	Covenantor:	Not Applicable while Nighthawk Radiology Services, LLC is the Lessee
ITEM 14:	Area of Premises:	377.6 m2
ITEM 15:	Lessee’s Proportion:	0.440%
ITEM 16:	Security Deposit Amount:	$170,297.60 being an amount equal to 6 months’ Minimum Rent (+ GST) as at the Commencing Date

/s/ Stephen Charles Etchell, Daniel Scamps, Paul E. Berger

Page 6 of 75

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions

“Accounting Year” means each year (or, where appropriate, part of a year) during the Term ending 30 June.

“Adjustment Event” means an Adjustment Event under the GST Law.

“Adjustment Note” means an Adjustment Note under the GST Law.

“Air Conditioning Plant” means the plant, machinery and equipment installed in the Building for heating, cooling or circulating air in the Premises and any alteration addition or replacement of this plant, machinery and equipment.

“Base Building Outgoings” means the amount of Building Outgoings paid or payable:

(a) at the Commencement Date – in respect of the year ending 30 June immediately before the Commencement Date; and

(b) if Minimum Rent is reviewed pursuant to clause 4 – in respect of the Accounting Year expiring immediately before the relevant Review Date.

“Building” means

(a) the building and improvements constructed on the Land;

(b) any alteration, addition or replacement in respect of the buildings and improvements; and

(c) any plant, machinery, equipment, fixtures, fittings and furnishings in the buildings and improvements owned by the Lessor.

“Building Outgoings” means all costs, charges, expenses, fees and other outgoings paid or payable by and reasonably incurred by the Lessor in respect of the Land or Building including, but not limited to:

(a) rates and taxes (including but not limited to, land tax and any GST or value added or consumption tax or other tax to a similar effect (to the extent that the Lessor does not receive an input tax credit) but excluding any income or capital gains tax) and including charges, assessments, duties and fees charged by a Governmental Agency or otherwise;

(b) insurance payments, including premiums in respect of:

(i) insurance of the Building to the full insurable reinstatement value against all risks required by the Lessor;

(ii) plate glass insurance;

(iii) public liability insurance;

(iv) workers’ compensation insurance;

Page 7 of 75

(v) loss of rents insurance; and

(vi) any other insurance effected by the Lessor in respect of the Lessor’s interest in the Building;

(c) all costs in respect of:

(i) the Air Conditioning Plant;

(ii) providing electricity, gas and oil;

(iii) fire protection including:

(A) maintaining, testing and replacing fire prevention and fighting equipment;

(B) establishing and maintaining emergency evacuation procedures;

(C) supplying, maintaining, servicing and monitoring the fire alarm system by or on behalf of the Lessor or the Fire Brigades Board, Telecom Australia or any Governmental Agency; and

(D) certification of all essential services including but not limited to fire dampers, stair pressurisation, smoke spill systems and fire doors.

(iv) the Elevators and escalators;

(v) providing pest control services to the Common Areas;

(vi) emergency systems including emergency warning system costs, training of fire wardens and tenants and occupants of the Building in evacuation procedures and systems;

(vii) repair, maintenance and renovation of the Building, including providing, maintaining and replacing signs (including illuminated signs);

(viii) repair and maintenance of the car park, including the cost of public signage;

(ix) landscaping and maintaining indoor and outdoor plants (including the replacement of plants), gardens, grounds and paved areas;

(x) providing security including the cost of guards, visitors’ passes and communication; and

(xi) management and control, including:

(A) salaries, wages and consultancy fees;

(B) payroll taxes, superannuation and pension payments and workers’ compensation insurance premiums;

(C) other employee related payments and fees;

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(D) legal and administrative costs;

(E) telephone services; and

(F) providing background music and public address system,

paid or payable to or by the Manager;

(xii) servicing the Common Areas;

but excluding expenditure of a capital and/or structural nature (except expenditure of a structural nature as part of routine and regular preventative maintenance and repair) and expenditure for which the Lessor is entitled to receive reimbursement from any other tenant or occupier.

“Business Day” means a day on which trading banks are open for business in Sydney.

“Commencement Date” means the commencing date in Item 2 of the Reference Schedule.

“Common Areas” means:

(a) any part of the Land and the Building provided for common use of tenants and occupants of, and visitors to the Building; and

(b) includes the plazas, pedestrian ways, forecourts, landscaped areas, entrances, lobbies, galleries, corridors, toilets, stairways, elevators and common amenities other than those reserved to the Lessor.

“Core Land” has the meaning assigned to the term “core land” in the Sydney Harbour Foreshore Authority Act 1998.

“Covenantor” means the covenantor in item 13 of the Reference Schedule and:

(a) its successors and permitted assigns; or

(b) if the covenantor is a natural person, its executors, administrators and permitted assigns.

“Current Market Rent” means the current annual market rental value of the Premises agreed or determined in accordance with clause 4.

“Development Approval” means a present or future development approval, building approval, plan, specification or consent of a Governmental Agency in respect of the Premises.

“Electricity Supply System” means the cables, switchboards and sub-boards through which electricity is conveyed through the Building to the Premises.

“Elevators” means any lift or escalator in the Building.

“Facade Garden” means any open area bounded by the exterior facade of the Building to which there is direct physical access from the Premises.

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“Governmental Agency” means any government or any governmental, semi-governmental, city, municipal, health, environmental, licensing, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity.

“GST” means a tax, levy, duty, charge or deduction, together with any related additional tax, interest, penalty, fine or other charge, imposed by or under a GST Law.

“GST Law” means the A New Tax System (Goods and Services Tax) Act 1999.

“GST Rate” means the rate of GST under the GST Law.

“GST Return” means a GST return under the GST Law.

“Increases in Building Outgoings” means the amount by which the Building Outgoings paid or payable in respect of an Accounting Year exceeds the Base Building Outgoings.

“Independent Expert” means the person agreed or appointed under Part 20.

“Invoice” means a tax invoice under the GST Law.

“Land” means the land the subject of the leasehold estate comprised in certificate of title Volume 8629 Folio 211.

“Lease” means the sub-lease or sub-tenancy that exists between the Lessor and the Lessee in relation to the Premises (of whatever nature and whether at law or in equity) as evidenced in whole or in part by this document including any exhibit, schedule or annexure to it.

“Lessee” means the sublessee in item (F) on the front page of the Lease and:

(a) its successors and permitted assigns;

(b) if the Lessee is a natural person, its executors, administrators and permitted assigns;

(c) its employees, agents, contractors and invitees; and

(d) where the context permits, a Covenantor.

“Lessee’s Covenants” means the obligations expressed or implied in the Lease to be observed and performed by the Lessee.

“Lessee’s Estimate” means the Lessee’s estimate of Current Market Rent in its notice under clause 4.3(a).

“Lessee’s Fittings” means any partitions, curtains, blinds or other fixtures or fittings which the Lessee installs in the Premises.

“Lessee’s Outgoings” means the Lessee’s Proportion of Increases in Building Outgoings.

“Lessee’s Proportion” means the proportion that the net lettable are of the Premises bears to the net lettable area of the Building, being the percentage in item 15 of the Reference Schedule (or any other corrected or recalculated percentage notified in writing by the Lessor to the Lessee from time to time).

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“Lessor” means the Sub-Lessor in item (D) on the front page of the Lease and:

(a) its successors and assigns; and

(b) and where not repugnant to the context its Manager, employees and agents.

“Lessor’s Estimate” means the Lessor’s estimate of Current Market Rent in a Review Notice.

“Manager” means:

(a) any manager appointed by the Lessor to manage the Land and the Building; and

(b) the employees and agents of that manager.

“Minimum Rent” means the amount in item 8 of the Reference Schedule as varied pursuant to clause 4.

“Monthly Cleaning Amount” means the monthly amount of cleaning costs payable by the Lessee calculated pursuant to clause 9.2.

“Normal Business Hours” means the hours so described in the Rules and Regulations.

“Outgoings Statement” means a statement given under clause 5.3(a).

“Permitted Use” means the use of the Premises described in item 9 of the Reference Schedule.

“Premises” means the premises described in item (B) on the front page of the Lease extending:

(a) between the upper face of the concrete slab below the raised floor and the underside of the concrete slab above the ceiling of those premises; and

(b) between the internal faces of all walls, glazing, doors and partitions which separate those premises from any other premises or Common Areas, and includes any Facade Garden incorporated in those premises,

and including the fixtures, fittings, furnishings, plant, machinery and equipment in the premises and owned by the Lessor.

“Prescribed Rights” means the voting, income or capital participation rights in the Lessee.

“Reference Schedule” means the reference schedule to the Lease.

“Rent” means all money required to be paid by the Lessee to the Lessor under the Lease.

“Review Date” means the day following the end of a Review Period.

“Review Notice” means a notice given by the Lessor under clause 4.1(a).

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“Review Period” means each period of six (6) months immediately preceding:

(a) the expiration of each period of years in Item 11 of the Reference Schedule commencing on the Commencement Date;

(b) the date of any transfer of the Lease or any subletting; and

(c) the date of commencement of any period of holding over pursuant to clause 12.3.

“Rules and Regulations” means the rules and regulations for the Land and the Building contained in Schedule 1 as amended from time to time under clause 6.4.

“Rules for Development Area” means the rules and regulations relating to the Core Land set out in Schedule 1 of the head lease between the Sydney Harbour Foreshore Authority and the Lessor dated 25 August 1988 (as amended) and every addition, amendment, variation, cancellation and/or suspension made in accordance with clause 6.6 of the Lease or incorporated in the Lease.

“Strata Titles Act” means the Strata Titles (Freehold Development) Act 1973 or similar legislation

“Supply and Supplied” means the same as in the GST Law.

“Term” means the term of the Lease in item 1 of the Reference Schedule.

1.2 Interpretation

In the Lease, unless the context otherwise requires:

(a) headings and underlinings are for convenience only and do not affect the interpretation of the Lease.

(b) words importing the singular include the plural and vice versa.

(c) words importing a gender include any gender.

(d) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate and any Governmental Agency;

(e) a reference to any thing includes a part of that thing;

(f) a reference to a part, clause, party, annexure, exhibit or schedule is a reference to a part and clause of, and a party, annexure, exhibit and schedule to, the Lease;

(g) a reference to any statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute;

(h) a reference to party to a document includes that party’s successors and permitted assigns;

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(i) where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the preceding Business Day;

(j) no rule of construction applies to the disadvantage of a party because that party was responsible for the preparation of the Lease or any part of it; and

(k) a covenant or agreement on the part of two or more persons binds them jointly and severally except that any covenants or agreements on the part of any of the Lessors shall bind them severally only.

1.3 Exhibits

Any exhibit has been shown to the parties to the Lease and executed or signed by them or on their behalf by way of identification.

1.4 Bodies and associations

Reference to any body (including, but not limited to, an institute, association or authority), whether or not it is a statutory body:

(a) which ceases to exist; or

(b) whose powers or functions are transferred to any other body,

refers to the body which replaces it or which substantially succeeds to its powers or functions.

1.5 Measurement of areas

When measuring areas, the relevant method most recently recommended by the Property Council of Australia Limited (ACN 008 474 422) is to be used.

2. GRANT OF LEASE, EXCLUSION OF IMPLIED COVENANTS AND POWERS AND LESSOR’S RESERVATIONS

2.1 Grant of Lease

The Lessor grants to the lessee and the Lessee takes a lease of the Premises for the Term upon and subject to the terms, covenants and provisions set out in the Lease.

2.2 Exclusion of implied covenants

Sections 84, 84A, 85 and 133A of the Conveyancing Act 1919 do not apply to, and are not implied in, the Lease.

2.3 Lessor’s reservations

(a) The Lessor reserves the right:

(i) to examine, test, install, maintain, use, repair, alter and replace; and

(ii) to pass drainage, water, sprinkler and fire alarm services, sewage, gas, oil, electricity, telephonic and electronic communication services and heated or cooled air through, any drains, pipes, ducts, conduits or wires leading into or through the Premises or the Common Areas;

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(iii) to use the exterior walls and the roof of the Building.

(b) For the purposes of this clause the Lessor may enter the Premises where possible outside normal business hours but must:

(i) except in an emergency when no notice is required, give reasonable notice to the Lessee;

(ii) cause the Lessee as little inconvenience as is reasonably practicable; and

(iii) make good any damage caused to the Premises or the Lessee’s fixtures fittings or other possessions kept at the Premises by reason of such entry without delay and at the Lessor’s cost, provided such damage was caused by the Lessor.

2.4 Easements

(a) The Lessor, as it thinks fit, may:

(i) grant easements; or

(ii) enter into any arrangement or agreement with:

(A) any owner, or occupier of nearby properties; or

(B) any Governmental Agency,

for the purpose of providing:

(iii) public or private access to and egress from the Building or the Premises;

(iv) support of existing or future structures erected on or from adjoining land; or

(v) services (including, but not limited to, water, drainage, gas electricity, and telephonic and electronic communication services).

(b) The Lessor, for the purposes of this clause, may:

(i) dedicate any part of the Land to any person; or

(ii) transfer or grant any privilege or right affecting the Land, the Building or the Premises, in favour of any person or land.

(c) The Lease is to be treated as subject to any agreement, dedication, arrangement, right, easement or privilege referred to in this clause.

2.5 Building alterations

(a) The Lessor may at any time improve, extend, or reduce the Building.

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(b) Without prejudice to the Lessee’s right of quiet enjoyment, the Lessor must use its reasonable endeavours to cause the Lessee as little inconvenience as is reasonably practicable in exercising its rights under this clause.

2.6 Lessee’s rights

The Lessor, in exercising its rights under this part must not:

(a) dedicate any land; or

(b) create any easement, privilege or other right,

which derogates substantially and permanently from the enjoyment of any rights conferred on the Lessee by the Lease.

3. RENT AND ABATEMENT

3.1 Rent

The Lessee must, during each Accounting Year, pay to the Lessor the Rent:

(a) free of all deductions;

(b) without demand;

(c) at the place and in the manner last notified by the Lessor in writing or, in the absence of that notification, at the address of the Manager; and

(d) in the case of Minimum Rent:

(i) by consecutive monthly payments in advance;

(ii) on the Commencement Date and then on the first day of each month during the Term; and

(iii) each payment must equal one/twelfth of the Minimum Rent (excluding the first and last payments which may be proportionate).

3.2 Termination on destruction or damage

(a) The following provisions apply if all or part of the Building or access to it is destroyed or damaged by fire, flood, lightning, storm, tempest or other cause and as a result:

(i) the Premises will be unfit for occupation by the Lessee for a period of at least six (6) months; or

(ii) the reinstatement of the Premises in their previous form will be impracticable or undesirable.

(b) Either the Lessor or the Lessee, by notice in writing to the other, may terminate the Lease without compensation.

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(c) Termination under this clause is without prejudice to any rights of the Lessor and the Lessee in respect of any prior breach, matter or thing.

(d) Nothing express or implied in the Lease imposes any obligation on the Lessor to rebuild the Building, reinstate the Premises or otherwise make them fit for occupation.

(e) The rights of the Lessee under this clause do not apply if:

(i) the destruction or damage is caused or contributed to by the Lessee; or

(ii) the Lessor fails to receive the benefit of any insurance in respect of the destruction or damage due to any act or omission of the Lessee.

3.3 Abatement on destruction or damage

(a) If all or part of the Building or access to it is destroyed or damaged by fire, flood, lightning, storm, tempest or other cause and as a result in all or part of the Premises are then unfit for occupation by the Lessee Minimum Rent and Lessee’s Outgoings (or a portion of them based on the lack of amenity) abate according to the nature and extent of the damage or destruction until the Premises are reinstated or made fit for occupation by the Lessee.

(b) The rights of the Lessee under this clause do not apply if and to the extent:

(i) the destruction or damage is caused or contributed to by the Lessee; or

(ii) the Lessor fails to receive the benefit of any insurance in respect of the destruction or damage due to any act or omission of the Lessee.

4. RENT REVIEW

4.1 Review

The procedure for reviewing Minimum Rent during the Term is that:

(a) the Lessor may give written notice to the Lessee during a Review Period:

(i) requiring Minimum Rent to be revised; and

(ii) stating the Lessor’s estimate of the Current Market Rent as at the Review Date; and

(b) at and from the Review Date, the Minimum Rent is the Current Market Rent agreed or determined pursuant to this part.

4.2 Minimum amount

The Current Market Rent may not be determined pursuant to this part as an amount less than the sum of the Minimum Rent and Lessee’s Outgoings payable immediately before the Review Date.

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4.3 Determination

The following procedure applies if the Lessee disagrees with the Lessor’s Estimate of the Current Market Rent:

(a) The Lessee, within thirty (30) days after the Lessor gives notice under clause 4.1, must give written notice to the Lessor disputing the Lessor’s Estimate and stating the Lessee’s estimate of Current Market Rent.

(b) If the Lessee fails to give the notice under paragraph (a) within the thirty (30) days, the Lessor’s Estimate will be the Current Market Rent as and from the Review Date.

(c) The Lessor and Lessee, within fourteen (14) days of the Lessee giving the notice in accordance with paragraph (a), must agree on a valuer to be appointed by the Lessor to determine the Current Market Rent as at the Review Date.

(d) A valuer appointed under this Part must:

(i) be a full member of not less than five (5) years’ standing of the Australian Property Institute Inc (NSW Division);

(ii) hold a licence to practise;

(iii) currently practise;

(iv) include in his practice the valuation of properties similar to the Land and the Building and the valuation of leases similar to the Lease; and

(v) not have been appointed as an expert to determine the Current Market Rent for other premises in the Building more than twice during the twelve (12) months before being nominated or appointed under this part.

(e) If the parties do not agree on a valuer in accordance with paragraph (c), the Lessor must request the President of the Australian Property Institute Inc (NSW Division) to nominate a valuer with the qualifications in paragraph (d) to be appointed by the Lessor to determine the Current Market Rent as at the Review Date.

(f) A valuer appointed under this part must make a determination within five (5) weeks of appointment or such longer period as the Lessor and Lessee allow. If the valuer does not do so, another valuer must be appointed under paragraph (c) or (e) of this clause.

(g) The valuer’s costs of determination of the Current Market Rent must be borne by the Lessor and the Lessee equally.

(h) In making a determination under this clause, a valuer is deemed to act as an expert and not as an arbitrator.

(i) Any determination under this clause:

(i) must be in writing;

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(ii) must include the valuer’s reasons and calculations in arriving at the determination; and

(iii) is final and binding on the parties.

(j) Time is of the essence of this clause.

4.4 Factors to be considered

In determining the Current Market Rent of the Premises, any valuer appointed under this part must:

(a) exclude:

(i) the value of any goodwill attributable to the Lessee’s business;

(ii) the value of the Lessee’s Fittings; and

(iii) any deleterious condition of the Premises arising out of a breach of any term of the Lease by the Lessee;

(iv) any thing done by the Lessee or any sub-lessee or licensee which has diminished the rental value of the Premises;

(b) have regard to:

(i) the terms and conditions of the Lease, in particular, but not limited to,

(A) the liability of the Lessee to contribute to Building Outgoings; and

(B) the period of time until the next Review Date;

(ii) the rentals for comparable premises in and in the vicinity of the Building;

(iii) any increase in rental value to the Lessee arising out of remaining in the Premises rather than moving to alternative premises;

(iv) the highest and best use to which the Premises may properly be put;

(v) the Premises on a floor by floor basis without a discount for bulk letting;

(vi) any written representation provided to the valuer by the Lessor or Lessee or their consultants, within fourteen (14) days after the valuer’s appointment, in respect of their estimates of Current Market Rent;

(c) not make a reduction in respect of any:

(i) payment or concession to secure or retain a lessee of comparable premises;

(ii) payment or concession to secure or retain the Lessee in the Premises;

(iii) period of rent abatement under a lease of premises referred to in sub-paragraph (c)(i) above; or

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(iv) period of rent abatement under the Lease; and

(d) value the Premises on the basis that:

(i) they are available and ready for fitting out by the Lessee;

(ii) if destroyed or damaged they are fully restored;

(iii) they are available to be let whole, without a premium payable by a lessee, by a willing landlord to a willing lessee;

(iv) the consent of all Governmental Agencies has been obtained for the highest and best use to which they can be put, whether or not the Lessee uses them in that way;

(v) all the Lessee’s Covenants have been fully performed and observed; and

(vi) if the Premises are sub-let, there is no reduction on rental value arising out of the sub-letting.

4.5 Provision of adjustment

(a) If the Current Market Rent is not agreed or determined before the end of a Review Period, the Lessee must pay to the Lessor:

(i) on account of Minimum Rent; and

(ii) on the due dates for payment of Minimum Rent,

an amount equal to the greater of one twelfth of:

(iii) the Minimum Rent payable immediately before the Review Date; and

(iv) the amount in (iii) plus eighty percent of the difference between that amount and the Lessor’s Estimate;

(b) When the Current Market Rent is agreed or determined, any necessary adjustment of Minimum Rent must be:

(i) calculated from the Review Date; and

(ii) paid by the Lessee, or refunded by the Lessor,

within fourteen (14) days of the agreement or determination.

4.6 Deferment of review

(a) If the Lessor does not give a Review Notice to the Lessee before a Review Date:

(i) the Lessor may give a Review Notice at any time before the next Review Date; and

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(ii) the Lessor may, in the Review Notice, nominate the date it gives the Review Notice too the Lessee as the Review Date and, if so, then despite clause 1.1:

(A) the Review Date is the date that the Lessor gives the Review Notice to the Lessee; and

(B) the Review Period is the period of six (6) months expiring on the date that the Lessor gives the Review Notice to the Lessee.

(b) The operation of this clause does not vary the commencement of any succeeding Review Period.

5. LESSEE’S OUTGOINGS

5.1 Building Outgoings

The Lessee must pay to the Lessor the Lessee’s Outgoings, in addition to the Minimum Rent payable during the Term.

5.2 Payments of account of Lessee’s Outgoings

(a) The Lessor must estimate the Lessee’s Outgoings in respect of each Accounting Year and notify the Lessee of the estimate.

(b) The Lessor may issue to the Lessee a substitute estimate at any time.

(c) The Lessee must pay to the Lessor the latest Lessor’s estimate of the Lessee’s Outgoings:

(i) by equal monthly instalments;

(ii) in advance during each Accounting Year; and

(iii) on the days and in the manner fixed for payment of Minimum Rent.

5.3 Outgoings Statement

(a) The Lessor must give to the Lessee an independently audited statement as soon as practical after the end of the each Accounting Year specifying in respect of that year:

(i) the amount of Building Outgoings, including particulars considered reasonable by the Lessor; and

(ii) the amount of the Lessee’s Outgoings.

(b) Irrespective of the date on which any item of Building Outgoings is paid, Building Outgoings:

(i) Are deemed to accrue from day to day; and

(ii) must be apportioned accordingly.

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(c) The Outgoings Statement is prima facie evidence of what it contains, unless there is a manifest error notified by the Lessor or Lessee to the other within fourteen (14) days of service of the statement on the Lessee. In the event of dispute reasonable evidence of outgoings will be provided.

5.4 Adjustment of Building Outgoings

(a) The Lessee must pay to the Lessor the Lessee’s Outgoings (less any amounts paid by the Lessee on account of Lessee’s Outgoings) within twenty-one (21) days of receipt by the Lessee of the Outgoings Statement.

(b) Subject to paragraph (c), termination of the Lease does not terminate or prejudice the liability of the Lessee to pay the Lessee’s Outgoings.

(c) If payments on account of the Lessee’s Outgoings exceed the Lessee’s Outgoings for an Accounting Year the excess must be:

(i) credited against:

(A) the next payment made by the Lessee on account of the Lessee’s Outgoings; or

(B) if the Lease is terminated, any amount owing by the Lessee to the Lessor; or

(ii) paid to the Lessee if nothing is owed to the Lessor.

6. USE OF PREMISES

6.1 Permitted use

(a) The Lessee must not:

(i) use the Premises; nor

(ii) permit them to be used,

for any purpose other than the Permitted Use.

(b) Without limiting the generality of paragraph (a) the Lessee must not use, nor permit the use of:

(i) the Premises for any residential purpose whether temporary or permanent; or

(ii) any storage space forming part of the Premises for any use other than storage.

6.2 Smoking

The Lessee:

(a) Must not smoke or allow any person to smoke in the Premises; and

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(b) Must not smoke or allow any person to smoke in the Building or the Common Areas.

6.3 Rules and Regulations

(a) The Lessee must:

(i) observe and comply with; and

(ii) not permit anything to be done contrary to,

the Rules and Regulations.

(b) Default in compliance with the Rules and Regulations will be treated in all respects as a breach of the Lessee’s Covenants.

(c) If there is any inconsistency between the provisions of the Lease and the Rules and Regulations, the provisions of the Lease shall prevail.

(d) Subject to paragraph (c), the Lessor may at any time:

(i) amend, add to, cancel or suspend any or all of the Rules and Regulations; or

(ii) make additional or substitute rules and regulations,

which, in the Lessor’s reasonable opinion are required for:

(iii) the management, use, safety, care, cleanliness or external appearance of the Premises, the Land or the Building; or

(iv) the convenience and health of occupiers and invitees.

(e) Without limiting paragraph (d), the Lessor may make Rules regarding environmentally desirable practices and the prohibition of smoking.

(f) Any amendment or addition to, or cancellation or suspension of, the Rules and Regulations:

(i) must be materially consistent with the rights of the Lessee under the Lease;

(ii) does not prevail over a provision of the Lease if materially inconsistent with the Lease; and

(iii) binds the Lessee when the Lessor gives written notice of it.

(g) The Lessor is not liable for any loss or damage, however caused, in respect of any non-enforcement of the Rules and Regulations.

6.4 Compliance with the Rules for Development Area

(a) The Lessee must comply with and cause to be complied with, the Rules for Development Area and will not do or permit anything contrary to the Rules for Development Area.

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(b) Failure of the Lessee to comply with the Rules for Development Area constitutes a breach of the Lease as if the Rules for Development Area were contained in the Lease as a covenant by the Lessee with the Lessor and the Lessee was in breach of this covenant.

6.5 Additions and Amendments to the Rules for Development Area

(a) The Lessor and or the Sydney Harbour Foreshore Authority may at any time:

(i) amend, add to, cancel or suspend any or all of the Rules for Development Area; or

(ii) make additional or substitute rules,

which, in their opinion, are necessary for:

(iii) regulating the use of the Core Land;

(iv) the safety, security, care, decoration, maintenance, cleanliness or other improvement; or

(v) the preservation of good order in and the convenience of persons using the Core Land.

(b) The Lessee is not required to comply with any Rules for Development Area which substantially and permanently derogate from the enjoyment of its rights under the Lease unless those Rules for Development Area are set out in Schedule 1 of the head lease (referred to as Rules and Regulations) between the Sydney Harbour Foreshore Authority and the Lessor dated 25 August 1988, as amended or are referred to in the Lease.

6.6 24 hour access

(a) The Lessor consents to the Lessee and persons authorised by the Lessee entering and using the Premises and the Lessor must make available Elevator access to the Premises:

(i) inside and outside Normal Business Hours;

(ii) for any purpose necessary or ancillary to the Permitted Use.

(b) The consent in paragraph (a) is subject to the conditions that:

(i) the Lessee complies with any reasonable requirements of the Lessor for:

(A) control of the entrances to the Building; or

(B) identification of persons entering or leaving the Building,

outside Normal Business Hours; and

(ii) the Lessee acknowledges that:

(A) comprehensive Elevator services may not be available; and

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(B) air conditioning is not normally available,

outside Normal Business Hours.

(c) Despite clause 6.6(b)(ii) the Lessor will make air conditioning available outside Normal Business Hours at the request and cost of the Lessee.

6.7 Nuisance

The Lessee must not do, nor permit anything that may cause damage or disturbance to:

(a) the Lessor or any occupier of the Building; or

(b) any owner or occupier of nearby properties.

6.8 Heavy equipment

(a) The Lessee must:

(i) not bring into the Building any heavy equipment (including machinery, plant, furniture, or materials) unless reasonably necessary or appropriate in respect of the Permitted Use;

(ii) inform the Lessor, before bringing any heavy equipment into the Building, of:

(A) the intention to do so; and

(B) the weight, dimensions and nature of the heavy equipment; and

(iii) observe and comply with any directions given by the Lessor in respect of routing, installing or locating the heavy equipment.

(b) The heavy equipment must not cause or, in the reasonable opinion of the Lessor, be likely to cause any structural or other damage to the Building.

6.9 Electrical equipment

(a) The Lessee must:

(i) not install any electrical equipment in the Premises which may overload the Electricity Supply System; and

(ii) demonstrate in writing to, and obtain the agreement of the Lessor that, any proposed installation of electricity equipment will not overload the Electricity Supply System.

(b) If the Lessee installs any electrical equipment in the Premises in breach of this clause, the Lessee must:

(i) pay to the Lessor all costs incurred in repairing:

(A) the Electricity Supply System;

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(B) any other damage to the Building;

(C) any damage to any occupier of the Building or their property; and

(ii) disconnect and remove from the Premises any electrical equipment which in the reasonable opinion of the Lessor is likely to overload the Electricity Supply System.

6.10 Pest Control

The Lessee must:

(a) take all reasonable precautions to keep the Premises free of rodents, vermin, insects, pests, birds and animals; and

(b) without limiting the generality of paragraph (a) as required by the Lessor, employ pest exterminators approved by the Lessor.

6.11 Heating and Cooling

The Lessee must not use nor permit any method of heating or cooling in the Premises other than the Air Conditioning Plant.

6.12 Signs and Advertising

The Lessee must obtain the prior written consent of the Lessor and any necessary Governmental Agency to affix or exhibit any sign, light, embellishment, advertisement, name or notice on or to the Land or Building, unless it:

(a) is within the Premises;

(b) is not visible from outside the Premises; and

(c) does not contravene any other provision of the Lease.

6.13 Radio, TV, etc

(a) The Lessee, without the prior written consent of the Lessor, must not:

(i) install any radio or television aerial or antenna; nor

(ii) use or permit the use of:

(A) any radio, record player, tape recorder, loudspeaker or television screen; or

(B) other similar equipment or media,

which may be heard or seen from outside the Premises.

(b) The Lessor, in its absolute discretion and at any time, may withdraw any consent given under this clause having regard to the interests of:

(i) the Lessor;

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(ii) other occupiers of the Building; or

(iii) the owners or occupiers of nearby properties.

6.14 Requirements of Governmental Agencies

(a) Subject to paragraph (b), the Lessee must comply promptly with any statutes, ordinances, proclamations, orders and regulations in respect of:

(i) the Premises or their use;

(ii) the health or safety of persons in their use of the Premises; or

(iii) any machinery, plant, equipment, fixtures, fittings or furnishings in the Premises,

and any requirements, notices or orders of any Governmental Agency having jurisdiction or authority in respect of any machinery, plant, equipment, fixtures, fittings or furnishings of the Lessee in the Premises.

(b) The Lessee is not liable for any structural or capital alteration required by any Governmental Agency unless required or made because of the Lessee’s particular use of the Premises.

(c) The Lessee must comply with the Occupational Health & Safety Act, 2000 and any other legislation relating to the health and safety of persons in their use of the Premises.

(d) The Lessee releases and indemnifies the Lessor for all damage, expense, loss or liability in respect of which the Lessor becomes or may become liable by reason of the Occupational Health and Safety Act, 2000, in respect of the Premises or its use.

6.15 Notice of defects

The Lessee must give prompt written notice to the Lessor of any:

(a) accident to, or defect or lack of repair in, any services, machinery, plant, equipment, fixtures, fittings or furnishings (other than Lessee’s Fittings) in the Premises or Common Areas; or

(b) circumstances causing or likely to cause any danger, risk or hazard to the Building or any person or property in the Building,

of which the Lessee becomes aware.

6.16 Fire regulations

The Lessee must:

(a) comply with insurance, sprinkler and fire alarm regulations in respect of the Premises; and

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(b) pay to the Lessor all costs of any alterations to the sprinkler and fire alarm installation in respect of any:

(i) non-compliance by the Lessee with paragraph (a); or

(ii) requirements of:

(A) the Insurance Council of Australia;

(B) an insurer of the Building or any interest in it; or

(C) any Governmental Agency.

(c) The Lessee is not required to comply with and is not liable for any requirements of or costs of a structural or capital nature unless required because of the Lessee’s particular use of the Premises or the location or nature of the Lessee’s Fittings.

6.17 No inflammable substances

The Lessee, without the prior written consent of the Lessor, must not:

(a) store in the Premises any substances of an inflammable, volatile or explosive nature;

(b) use in the Premises any of the substances in paragraph (a) for any purpose.

6.18 Security

(a) The Lessee must:

(i) use all reasonable endeavours to:

(A) protect and keep safe from theft or robbery, the Premises and any property in them; and

(B) close and securely fasten all doors, windows and other openings when the Lessee is not in the Premises;

(ii) ensure the security of all keys and cards issued to the Lessee which allow access to the Premises outside Normal Business Hours, including but not limited to:

(A) issuing access keys and cards only to responsible employees of the Lessee;

(B) maintaining a key register recording the full names residential addresses and telephone numbers of all employees to whom the Lessee issues an access key or card;

(C) make the key register available on request for inspection by the Lessor;

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(iii) not, subject to paragraph (b):

(A) cut, manufacture or reproduce; nor

(B) suffer or permit any person to cut, manufacture or reproduce,

any access key or card for the Building;

(iv) on termination of the Lease, deliver to the Lessor all access keys or cards;

(A) issued to the Lessee; and

(B) which enable access to the Premises or the Building;

(v) notify the Lessor promptly of any access key or card for the Premises or the Building which is stolen, destroyed, lost or mislaid; and

(vi) indemnify the Lessor for any damage, expense, loss or liability suffered or incurred in respect of the loss of the keys or cards in subparagraph (a)(v) including, but not limited to, any necessary changes to the security system of the Premises or the Building.

(b) The Lessor must arrange for the production of additional access keys or cards:

(i) when requested, and as required, by the Lessee; and

(ii) at the Lessee’s expense,

but subject to any limitation reasonably imposed by the Lessor for security reasons.

6.19 Testing Lessee’s fire, security or alarm systems

(a) The Lessee must not allow the testing or maintenance of any fire, security or alarm systems installed in the Premises (other than those which are part of the Building’s systems) to activate any of the fire, security or alarm systems which are part of the Building’s systems.

(b) The Lessee is responsible for and must pay any costs or expenses in respect of any failure to comply with paragraph (a):

(i) suffered or incurred by the Lessor or any occupier of the Building;

(ii) including, but not limited to, reacting to or complying with any emergency or evacuation procedures activated in respect of the breach.

(c) The Lessee must indemnify the Lessor in respect of any damage, expense, loss or liability suffered or incurred in respect of a breach of this clause.

6.20 Appointment of fire wardens

The Lessee must:

(a) at the request of the Lessor or Manager, appoint fire wardens; and

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(b) use its best endeavours to ensure that those fire wardens comply with any emergency evacuation procedures issued by the Lessor or the Manager.

6.21 Compliance with emergency procedures

The Lessee must observe and comply with all fire, emergency or other drills whether or not they involve evacuation of the Premises or the Building.

6.22 Appointment of fire wardens

(a) The Lessor or the Manager may request the Lessee to immediately evacuate the Premises or the Building or both if they believe there may be a situation which exposes the Premises, the Building or occupants to danger or risk.

(b) The Lessee must comply immediately with any request under this clause.

6.23 No liability

The Lessee has no right or claim against the Lessor or the Manager for any damage, loss, expense or liability (including, but not limited to, for loss of profits) suffered or incurred in respect of any drill or evacuation under this part.

6.24 Re-entry

The Lessee must not re-enter the Premises or the Building if prohibited by the police, fire brigade, other emergency authority, the Lessor or the Manager.

6.25 Bomb and firearm threats

The Lessee must notify the Lessor or the Manager immediately of any threat or demand (including, but not limited to, bomb and firearm threats) received by:

(a) the Lessee; or

(b) any invitee of the Lessee (if known to the Lessee),

which relates in any way to:

(c) the Building; or

(d) the safety of any person or property in the Building.

6.26 Prospective tenants and purchasers

The Lessee must:

(a) permit the Lessor to exhibit the Premises to prospective tenants or purchasers at all reasonable times;

(b) following reasonable notice and at reasonable times allow the Lessor, within the three (3) months immediately preceding termination of the Lease, to affix and exhibit the usual “For Sale” and “To Let” notices (containing the name and address of the Lessor or its agent) where the Lessor thinks fit; and

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(c) not remove any of the notices in this clause without the written consent of the Lessor.

7. MAINTENANCE REPAIR AND ALTERATIONS

7.1 Repair and maintenance

(a) The Lessee, at all times, must:

(i) maintain, repair, paint, renew and replace the Premises; and

(ii) keep them clean and in good and substantial repair, order and condition,

having regard to the condition at the date on which the Lessee was first given access to the Premises or, in the case of any part of the Premises which has been replaced or renewed, to the condition it was in upon being replaced or renewed taking into account its age.

(b) This clause does not apply to damage by:

(i) earthquake, fire, flood, lightning or storm, act of war or terrorism, the Lessor or any other extraneous event beyond the Lessee’s control; or

(ii) reasonable wear and tear,

unless and to the extent that any insurance payment is irrecoverable due to the neglect, default or misconduct of the Lessee.

(c) This clause does not apply in respect of any structural maintenance, repair or replacement unless it is due to:

(i) any act, neglect, default or omission by the Lessee; or

(ii) the Lessee’s particular use of the Premises.

(d) The Lessee agrees that the Premises are in good and substantial repair, order and condition at the date on which the Lessee was first given access to the Premises.

(e) This clause does not prejudice any specific obligation in this part.

7.2 Painting

(a) The Lessee must paint, paper, clean or otherwise appropriately treat (with good quality, suitable materials approved by the Lessor in writing) in a proper and workmanlike manner each part of the Premises treated in that way at the date on which the Lessee was first given access to the Premises or subsequently from time to time, if necessary or reasonably required by the Lessor.

(b) This clause is without prejudice to other provisions of the Lease.

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7.3 Breakages

The Lessee must immediately make good any breakage, defect or damage to:

(a) the Premises;

(b) any adjoining premises; or

(c) any facility of the Premises or any adjoining premises,

arising out of

(d) want of care, misuse or abuse, or

(e) any breach of the Lessee’s Covenants,

by the Lessee.

7.4 Lighting

The Lessee must promptly replace at its own expense any light globes or tubes which cease to function for any reason.

7.5 Carpets, blinds, etc

The Lessee must keep any carpets, floor coverings, blinds and curtains in the Premises in good and tenantable repair and condition. Despite any other clause to the contrary the Lessee will not be required to recarpet or replace or repair any carpet on the Premises during the term or on yielding up except for misuse or abuse arising otherwise than by fair wear and tear.

7.6 Doors, drains and toilets

The Lessee must:

(a) keep and maintain the doors, locks, and any internal windows, and window fittings of the Premises (but not any external windows and window fittings unless damaged by the Lessee) in good and efficient working order and condition;

(b) immediately notify the Lessor of any blockages in water pipes or drains on the Premises or in the Common Areas;

(c) not use or allow the use of lavatories and other sanitary appliances for any purpose;

(i) other than that for which they are constructed; or

(ii) which might block or otherwise affect or damage them.

7.7 Lessor may inspect

The Lessor may, at any reasonable time on giving the Lessee reasonable notice (other than in an emergency, when no notice is required) enter the Premises for the purpose of ascertaining whether the Lessee is complying with the Lessee’s Covenants.

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7.8 Lessor may repair

(a) The Lessor, at any reasonable time, on giving the Lessee reasonable notice (other than in an emergency, when no notice is required) enter the Premises with any consultants, workmen, other persons or materials needed to:

(i) comply with any requirement, notification or order (for which the Lessee is not liable under the Lease) of any Governmental Agency; or

(ii) carry out repairs, maintenance, modifications, or extensions to the Premises or the Building considered necessary or desirable by the Lessor.

7.9 Lessor’s entry

The Lessor use its best endeavours to cause the Lessee as little inconvenience as is reasonably practicable in exercising its rights under clauses 7.7 and 7.8 and must make good any damage caused to the Premises or the Lessee’s fixtures fittings or other possessions kept at the Premises by reason of such access without delay and at the Lessor’s cost.

7.10 Alterations and Lessee’s Fittings

The Lessee must:

(a) not install any Lessee’s Fittings in the Premises nor demolish or make any alterations or additions to the Premises, the Building or the Lessee’s Fittings without the Lessor’s written approval not to be unreasonably withheld or delayed;

(b) make written application to the Lessor for approval to:

(i) the installation of any Lessee’s Fittings; or

(ii) any proposed alterations or additions to the Premises, the Building or the Lessee’s Fittings;

and submit drawings and specifications in support prepared by a qualified consultant approved by the Lessor (such approval not to be unreasonably withheld or delayed);

(c) install only those Lessee’s Fittings which comply with:

(i) the Lessor’s reasonable requirements as to type, quality, colour and size; and

(ii) the master key system for the Building;

(d) use a builder, contractor or tradesman approved by the Lessor (acting reasonably) to install the Lessee’s Fittings:

(i) in a proper and workmanlike manner; and

(ii) if required by the Lessor, under the supervision and to the satisfaction of an architect approved by the Lessor (acting reasonably);

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(e) if required by the Lessor on completion of the installation of the Lessee’s Fittings, give the Lessor a certificate by a consultant approved by the Lessor (acting reasonably) that the work accords with:

(i) the drawings and specifications in respect of such work (or specifies any departure from the approved work); and

(ii) the requirements of all relevant Governmental Agency;

(f) pay all costs in respect of the installation of the Lessee’s Fittings and any alterations or additions to the Premises or the Building made necessary by the installation including, but not limited to, the cost of:

(i) any partitions, blinds or fixtures and fittings;

(ii) any doors, glass, vents, and other items incorporated into and forming part of the structure of any partitions;

(iii) any alterations or additions to:

(A) any power outlets and switches, or telephone outlets;

(B) the Air Conditioning Plant; or

(C) any sprinklers, fire alarm or prevention installations,

required by law, the positions of the Lessee’s Fittings or any reasonable requirements of the Lessor or Lessee;

(g) without prejudice to the generality of this clause, obtain the written consent of the Lessor (such consent not to be unreasonably withheld or delayed) and comply with this clause before:

(i) driving nails or screws into; or

(ii) in any way damaging or defacing,

any part of the Premises or the Building; and

(h) at the Lessee’s expense, keep and maintain the Lessee’s Fittings in good repair and condition.

7.11 Furniture and fittings

The Lessee must use only high quality office furniture and fittings within the Premises.

7.12 Rectification of damage in Common Areas

The Lessee must immediately make good any breakage, defect or damage to:

(a) the Common Areas;

(b) any adjoining premises; or

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(c) any facility or appurtenance of the Common Areas or any adjoining premises,

arising from:

(d) any want of care, misuse or abuse; or

(e) any breach of the Lease or the Rules and Regulations,

by the Lessee.

8. SERVICES

8.1 Air-conditioning and elevators

(a) The Lessee must at all times:

(i) comply with and observe the Lessor’s reasonable requirements in respect of; and

(ii) not do nor allow anything which might interfere with or impair the efficient operation of,

the Air-Conditioning Plant or Elevators subject to the same conditions of access set out at clause 2.3(b)(i) to 2.3(b)(iii) above.

(b) The Lessee must following reasonable notice and at reasonable times (except in the case of an emergency) allow the Lessor and the Lessor’s engineers or mechanics to enter the Premises at any time to:

(i) examine, maintain and repair; or

(ii) install or replace,

all or any of the Air Conditioning Plant or Elevators, subject to the Lessor ensuring their compliance with the terms of clause 7.9 above.

(c) The Lessee must not use the Elevators or permit them to be used for any purpose other than the conveyance of passengers (with or without their personal luggage) without the prior written consent of the Lessor.

8.2 After hours use

(a) The Lessor, if the Lessee uses the Premises outside Normal Business Hours, may apportion any reasonably and properly incurred expenses, charges and outgoings in respect of:

(i) Air Conditioning Plant, Elevators and maintenance;

(ii) overtime and additional staff required, in the Lessor’s opinion, for security of the Building or otherwise and cleaning the Common Areas; and

(iii) any other expense,

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arising out of the Lessee’s access to the Building and use of the Premises outside Normal Business Hours.

(b) The Lessor may issue an account to the Lessee in respect of paragraph (a) which will be payable by the Lessee on demand and recoverable as overdue rent.

(c) All amounts received by the Lessor on account of the provision of services including Airconditioning Plant and Elevators outside Normal Business Hours from the Lessee and any such sums receivable from any other tenant or occupier will be credited against Building Outgoings.

8.3 Payment for services to the Premises

(a) The Lessee must pay all accounts for the supply of gas, electricity, telephone and other services to or from the Premises as and when they become due and payable.

(b) The Lessee must permit the Lessor to arrange the installation of separate meters for any services capable of separate metering.

8.4 Supply failure

(a) The Lessor is not liable for any damage, expense, loss or liability suffered or incurred:

(i) by the Lessee or any other person; or

(ii) to any property or the effects or business of the Lessee or any other person;

in respect of the operation or failure of any services including, but not limited to, the Elevators, Air Conditioning Plant, public utility services or other machinery;

(iii) provided by the Lessor; or

(iv) enjoyed by the Lessee,

in conjunction with the Land, the Building or the Premises.

(b) The Lessee may not terminate the Lease, by reason of anything referred to in paragraph (a).

8.5 Lessor’s Obligations

(a) The Lessor must use all reasonable endeavours to maintain the Building in a sound structural and watertight condition consistent with buildings in Sydney comparable in age and standard to the Building.

(b) The Lessor must use all reasonable endeavours to provide the services and must carry out all necessary repairs, maintenance and replacements to all services in the Building including without limitation Air Conditioning Plant, Elevators and Electricity Supply System to ensure the Building services are functioning and are available during Normal Business Hours and where required outside Normal Business Hours (subject to reasonable interruptions required to carry out preventative repairs and maintenance).

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9. CLEANING

9.1 Cleaning by Lessor

(a) The Lessor must engage a competent cleaning contractor to clean the Premises and its windows.

(b) The Lessee must give the cleaning contractor:

(i) access to the Premises; and

(ii) permission to clean the Premises and its windows,

both during and outside Normal Business Hours.

(c) The Lessor, in respect of the cleaning arrangements in this clause, is not responsible for any loss or damage to the property or effects of the Lessee.

9.2 Monthly Cleaning Amount

The Lessee must, in addition to Minimum Rent and Lessee’s Outgoings, pay to the Lessor an amount equal to the Lessee’s Proportion of the total monthly cost reasonably and properly incurred of the cleaning of and the removal of garbage from the Building including, but not limited to:

(a) any areas in the Land occupied by the Lessor; and

(b) the Premises; and

(c) the Common Areas.

9.3 Payment of Monthly Cleaning Amount

(a) The Lessor must notify the Lessee from time to time of the Monthly Cleaning Amount.

(b) The Lessee must pay the Monthly Cleaning Amount to the Lessor on the days and in the manner fixed for payment of Minimum Rent.

10. INSURANCE

10.1 Public Risk

The Lessee must:

(a) effect and keep in force adequate public risk insurance in respect of the Premises for an amount required by the Lessor from time to time; and

(b) ensure that the insurance covers the indemnities in clause 11.

10.2 Plate glass

The Lessee must insure and keep insured all plate glass which is part of the Premises for its full insurable value.

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10.3 Policies

(a) The Lessee, in respect of all policies of insurance which the Lessee must effect under the Lease, must:

(i) place those policies with an insurer approved by the Lessor (such approval not to be unreasonably withheld);

(A) for the amounts;

(B) to cover the risks; and

(C) with only the conditions, endorsements and exclusions,

reasonably acceptable to or required by the Lessor from time to time;

(ii) not make or allow any exclusions, endorsements or alterations to the policies, without the prior written consent of the Lessor;

(iii) take out such policies in the name of the Lessee and note the interest of the Lessor;

(iv) cause the insurer to waive any claim against the Lessor;

(v) lodge with the Lessor a duplicate or copy of the certificate of currency of policies; and

(vi) punctually pay all premiums in respect of those policies and renewals of them

(b) This clause applies despite any other provision of the Lease.

10.4 Insurance not to be avoided

(a) The Lessee must not:

(i) do or omit to do; or

(ii) permit or suffer to be done or omitted,

any:

(iii) act, matter or thing; or

(iv) bringing or keeping of anything,

on the Premises, as a result of which:

(v) any insurance in respect of the Building or the Premises may be rendered void or voidable; or

(vi) the rate of premium on insurance of the Building is liable to be increased (unless approved in accordance with clause 10.4(b) below).

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(b) The Lessee must pay all additional insurance premiums in respect of the Building arising from any increased risk coverage;

(i) proposed by the Lessee; and

(ii) approved by the Lessor in writing.

10.5 Attorney of Lessee

(a) The Lessor:

(i) in its own name and as attorney of the Lessee;

(ii) in the name of the Lessee; or

(iii) otherwise,

may institute any proceedings against any office or company which issues a policy of insurance required by this part to recover any money payable under any indemnity in favour of the Lessor.

(b) The Lessee appoints the Lessor the attorney of the Lessee for the purposes of this clause.

(c) The Lessor may not exercise its power as attorney unless, in the reasonable opinion of the Lessor:

(i) the Lessee is not diligently pursuing its rights to recover the insurance money; or

(ii) there is a default under the Lessee’s Covenants,

and the Lessor has provided the Lessee 14 days prior written notice of the proposed exercise of its power of attorney and the Lessee has not within that 14 day period diligently pursued its rights to recover insurance money or rectified its default of a Lessee’s Covenant.

10.6 Continuation of liability

Any obligations of the Lessee under this part in respect of any thing which happens before the expiration or termination of the Lease continue after its expiration or termination.

11. INDEMNITIES AND RELEASE

11.1 Release of Lessor

(a) Subject to paragraph (b), the Lessee:

(i) agrees to occupy, use and keep the Premises at its own risk; and

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(ii) releases, to the extent not excluded by law, the Lessor and its contractors from any:

(A) claims and demands of every kind;

(B) liability which may arise in respect of any incident or damage to property or death of or injury to any person, of any nature in or near the Premises or the Building; and

(C) loss of or damage to the Lessee’s Fittings or personal property of the Lessee,

unless the damage, death or injury is caused by the negligence of the Lessor or its contractors.

(b) The amount recoverable by the Lessee from the Lessor under this clause in relation to any single claim may not exceed the amount that the Lessor recovers, in relation to that same claim, from insurance effected by the Lessee or the Lessor.

11.2 Specific Indemnities

Without limiting clause 11.1, the Lessee must indemnify the Lessor for all damage, expense, loss or liability suffered or incurred in respect of:

(a) the negligent or careless use, misuse, waste or abuse by the Lessee of any services (including, but not limited to, water, drainage, gas, electricity, air conditioning, telephonic and electronic communication services) and facilities of the Premises;

(b) any faulty fitting or fixture of the Lessee;

(c) overflow or leakage of water (including, but not limited to, rain water);

(i) in or from the Premises and originating in the Premises; or

(ii) caused or contributed to by any act or omission on the part of the Lessee;

(d) any damage, expense, loss or liability to property or person suffered or incurred by any person arising out of the use of the Premises by the Lessee;

(e) any damage, expense, loss or liability:

(i) to the Premises or any other property; or

(ii) suffered or incurred by any person,

whether in or out of the Premises, arising out of an act, omission, neglect or default of the Lessee.

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12. QUIET ENJOYMENT, HOLDING OVER, REMOVAL OF LESSEE’S FIXTURES ETC.

12.1 Quiet Enjoyment

The Lessee:

(a) while paying the Rent; and

(b) duly and punctually observing the Lessee’s Covenants,

is entitled to peaceably possess and enjoy the Premises during the Term without any interruption or disturbance from:

(c) the Lessor; or

(d) any other person lawfully claiming by, from or under the Lessor,

except to the extent specifically provided for in the Lease.

12.2 Common Areas

The Lessee is entitled to use the Common Areas in common with:

(a) the Lessor; and

(b) other persons entitled to use the Common Areas,

subject to compliance with the Lessee’s Covenants.

12.3 Holding over

(a) The Lessee, with the consent of the Lessor, may hold over after the expiry or earlier termination of the Term.

(b) Subject to part 4, the Lessee holding over under this clause is a monthly tenant of the Lessor at a monthly rental equal to the sum of the Monthly Cleaning Amount and a monthly proportion of the Minimum Rent and Lessee’s Outgoings payable by the Lessee under the Lease at the expiry of earlier termination of the Term, and the applicable terms and conditions of the Lease apply including, but not limited to, clause 4.

12.4 Removal of Lessee’s fixtures

The Lessee:

(a) may, at or prior to the termination of the Lease; and

(b) must, if required by the Lessor at or immediately on the expiry or earlier termination of the Term,

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remove from the Premises and the Building:

(c) all fixtures, fittings, plant, equipment, or other articles upon the Premises in the nature of trade or tenant’s fixtures brought on the Premises by or on behalf of the Lessee including any fixtures and fittings owned by the Lessor;

(d) any items of the Lessee within or affixed to the Building with the approval of the Lessor,

and must:

(e) do so without damaging the Premises or the Building; and

(f) immediately make good any damage which occurs.

12.5 Lessee’s fixtures not removed

(a) The Lessor, to the extent that the Lessee does not comply with clause 12.4, may remove and dispose of any items in clause 12.4 not removed by the Lessee, as if those items were the property of the Lessor.

(b) The Lessee must indemnify the Lessor for any damage, expense, loss or liability suffered or incurred by the Lessor in respect of paragraph (a).

12.6 Yielding up

The Lessee, on the expiry or termination of the Lease must:

(a) surrender peaceably and yield up the Premises to the Lessor:

(i) clean;

(ii) free from rubbish; and

(iii) in a state of repair, order and condition,

consistent with the full compliance with the Lessee’s Covenants in that regard;

(b) paint the internal walls of the Premises with two (2) coats of paint; and

(c) to the extent required by the Lessor, reinstate the Premises and services to the Premises which have been altered:

(i) prior to or during the Term;

(ii) by or on behalf of, or at the request of, the Lessee,

so that:

(iii) the Premises are in the state and condition they were in at the date on which the Lessee was first given access to the Premises subject to the exclusions in clause 7.1(b) and 7.1(c): and

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(iv) the services conform to the standard for those services prevailing in the Building at the date on which the Lessee was first given access to the Premises; and

(d) repair any damage to the Building or the Premises resulting from the performance by the Lessee of its obligations under this clause.

13. RESTRICTIONS ON CHARGES, ASSIGNMENTS AND SUB-LEASES

13.1 Restrictions

The Lessee must not without the Lessor’s consent which must not be unreasonably withheld or delayed having regard to clause 13.2:

(a) assign, transfer, mortgage, charge, encumber, or otherwise deal with the Lessee’s interest in the Premises;

(b) demise, sublet or part with possession of or grant any licence affecting the Premises; nor

(c) by any act or deed procure any of those things.

13.2 Modification of restrictions

An assignment, transfer or subletting is deemed not to be in breach of the Lessee’s Covenants if, before it takes effect, the following conditions are satisfied:

(a) the Lessee is not in default under the Lessee’s Covenants;

(b) the Lessee satisfies the Lessor that the ingoing party is:

(i) a respectable, responsible and solvent person who satisfies the Lessor’s leasing programme for the Building; and

(ii) able to carry on the business which the Lease allows in the Premises;

(c) if so requested by the Lessor, the Lessee ensures that any person whom the Lessor requires to guarantee the obligations of the ingoing party:

(i) executes, and

(ii) delivers to the Lessor,

a deed of guarantee and indemnity;

(iii) in favour of the Lessor; and

(iv) in a form required or approved by the Lessor;

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(d) in respect of an assignment, transfer or subletting of part only of the Lessee’s interest in the Lease:

(i) in respect of an assignment or transfer (but not a subletting) the Lessee satisfies the Lessor that the ingoing party must pay a full market rental; and

(ii) in the case of a subletting, the terms of the sublease (except for rent) are substantially similar to those of the Lease and the sub-lease contains an acknowledgment by the parties if required by the Lessor at its absolute discretion that the rent is below market; and

(iii) the Lessee:

(A) executes the sublease, transfer or assignment and procures its execution by the ingoing party; and

(B) delivers the sublease, transfer or assignment to the Lessor for execution; and

(iv) the ingoing party enters into a covenant with, and in the form required by, the Lessor that the ingoing party will observe the Lessee’s Covenants; and

(e) in respect of an assignment or transfer of the whole of the Lessee’s interest in the Lease, the Lessee enters into a deed in a form required by the Lessor releasing the Lessor from all claims against the Lessor in respect of the Lease.

13.3 Restriction on transfer of shares

(a) The Lessee, if it is a company whose shares are not listed on the Australian Stock Exchange:

(i) is in default under the Lease; and

(ii) there is deemed to be a breach of the Lessee’s Covenants,

if after:

(iii) the Commencement Date; or

(iv) the date of assignment or transfer of the Lease to the Lessee (if the Lease has been assigned or transferred to the Lessee),

any person, who at the date in subparagraphs (iii) or (iv) beneficially holds or controls more than fifty (50) per cent of:

(v) the Prescribed Rights;

transfers (including, but not limited to, assigns, grants any option or other rights over, or otherwise disposes of) the whole or any part of the Prescribed Rights without the prior written consent of the Lessor.

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(b) The consent of the Lessor in paragraph (a) must not be withheld where the Lessee:

(i) reasonably satisfies the Lessor that:

(A) the proposed transferee is a respectable and responsible person; and

(B) the Lessee will be able after the transfer to meets its financial obligations under the Lease and comply with all the other obligations of the Lessee under the Lease;

(ii) delivers to the Lessor a deed of guarantee and indemnity:

(A) prepared by the Lessor’s solicitors in a form reasonably required by the Lessor; and

(B) executed by any person the Lessor requires to guarantee the obligations of the Lessee under the Lease; and

(iii) is not in breach of the Lessee’s Covenants.

(c) An approved transferee under paragraph (b) is deemed to hold the Prescribed Rights:

(i) from the Commencement Date; and

(ii) subject to the provisions of this clause.

(d) Clause 13.3(a) and (b) will not apply where a related body corporate (as defined in the Corporations Act) of the Lessee remains the ultimate holding or parent company of the Lessee.

13.4 Lessee’s obligations not affected by approved assignment, transfer or sub-lease

A dealing permitted by the Lessee under this part does not release the Lessee from the Lessee’s liability under the Lease.

13.5 Restriction on mortgage or charge

A mortgage or charge is deemed not to be in breach of the Lessee’s Covenants if, before it takes effect, the mortgagee or chargee enters into a deed with the Lessor in a form required by the Lessor providing that, if the mortgagee or chargee enforces its security, the mortgagee or chargee immediately becomes jointly with the Lessee and severally liable to the Lessor for the performance by the Lessee of the Lessee’s Covenants. This clause 13 does not prohibit the Lessee from entering into fixed and floating charges in respect of its assets without the Lessor’s approval in the ordinary course of the Lessee’s business.

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14. DEFAULT, TERMINATION, ETC

14.1 Re-entry or surrender on default

(a) If the Lessee:

(i) fails to pay any Rent within fourteen (14) days of the date for payment (whether or not any formal or legal demand is made);

(ii) otherwise fails to perform or observe any of the Lessee’s Covenants (unless waived or excused by the Lessor in writing);

(iii) being a company, has an order made or a resolution is effectively passed for its winding up (other than for the purposes of amalgamation or reconstruction);

or an event occurs which entitles the holder or proprietor of any charge over any of the assets or undertaking of the Lessee to require immediate payment of any secured money, then the Lessor may at any time either:

(iv) re-enter, repossess and enjoy the Premises as its former estate and by this means absolutely determine the Lease; or

(v) call for the immediate surrender of the Lessee’s estate and interest under the Lease.

(b) Subparagraph (a)(v):

(i) is without prejudice to any claim the Lessor has against the Lessee in respect of any breach of the Lessee’s Covenants; and

(ii) applies despite any other provision of the Lease but subject to clause 14.7.

(c) The Lessor, on the termination of the Lease under this clause, is freed and discharged from any action, suit, claim or demand by, or obligation to the Lessee in respect of the Lease.

14.2 Acceptance of Rent

Demand or acceptance of Rent by the Lessor after default by the Lessee under the Lease is without prejudice to the exercise by the Lessor of:

(a) the powers conferred upon it by clause 14.1; and

(b) any other right, power or privilege of the Lessor under the Lease,

and is not an election by the Lessor to either exercise or not exercise any of those rights, powers or privileges.

14.3 Lessor may remedy Lessee’s defaults

(a) The Lessor, whenever the Lessee omits or neglects to:

(i) pay any money; or

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(ii) do or effect any thing,

for fourteen (14) days beyond the date by which the Lessee has covenanted to pay, do or effect it, may:

(iii) pay the money, or do or effect the thing itself, or by the Lessor’s contractors, at the Lessee’s cost; and

(iv) for that purpose, enter the Premises with the Lessor’s contractors and remain there for the purpose of doing or effecting the thing.

(b) The Lessee must indemnify the Lessor for any damage, expense, loss or liability suffered or incurred by the Lessor in respect of this clause.

(c) This clause is without prejudice to the Lessee’s obligations and the Lessor’s rights under any other provision of the Lease.

14.4 Interest on moneys due

(a) The Lessee must pay the Lessor on demand interest on any Rent due and payable to the Lessor under the Lease at the rate of two (2) per cent per annum above:

(i) the general commercial prime rate of interest charged by the Commonwealth Bank of Australia Head Office Sydney; or

(ii) if that rate is not available, the rate the Lessor reasonably determines is appropriate.

(b) The interest rate in this clause must be computed on a daily basis from the due date for payment until payment in full of the money in respect of which the interest is chargeable.

(c) The Lessor may produce a certificate indicating the amount due and payable by the Lessee under this clause and the Lessee must pay:

(i) that amount; or

(ii) the amount the Lessee proves is correct.

14.5 Damages claimable after re-entry

(a) Provided the Lessor takes steps to mitigate its losses, the Lessor may, on re-entry of the Premises under clause 14.1, recover as damages from the Lessee the difference between:

(i) any money which is or would have been payable in respect of the unexpired part of the Term at the date of re-entry; and

(ii) any money the Lessor reasonably anticipates the Lessor will receive from any tenant of the Premises for the period of that unexpired part of the Term.

(b) Paragraph (a) is in addition to any other right of action or remedy of the Lessor under this part.

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(c) If the amount recoverable under paragraph (a) constitutes an acceleration of an amount payable, it must discounted for early receipt:

(i) by applying the discount rate in paragraph (d);

(ii) from the date the discounted amount is received by the Lessor in full.

(d) The discount rate in paragraph (c) is:

(i) the Australian Government ten (10) year bond rate at the date of re-entry by the Lessor; or

(ii) if that rate is not available, the rate the Lessor reasonably determines is appropriate.

(e) This clause:

(i) is without prejudice to any other right of the Lessor to recover damages; and

(ii) continues to operate if the Lease is terminated.

14.6 Essential terms

Without limiting the operation of this part, the Lessee agrees that:

(a) the Lessee’s obligation to pay Rent;

(b) the Lessee’s covenants in clauses 6.1, 6.15, 6.17, 7.1(a), 8.1, 10.1, 10.2; 11.1 and 11.2

(c) the Lessee’s covenants in clause 13,

are essential terms of the Lease.

14.7 Opportunity to rectify

(a) Despite any other clause the Lessor must not:

(i) re-enter the Premises; or

(ii) determine, forfeit or require a surrender of the Lease,

unless it first gives the Lessee 14 days prior written notice of the particular breach of the Lessee’s Covenants on which the Lessor relies.

(b) The Lessor:

(i) must not rely on the breach in the notice in paragraph (a) as a ground for re-entry, determination, forfeiture or requiring surrender; and

(ii) waives the breach so that the Lease continues in full force and effect as if no breach has occurred,

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if the Lessee:

(iii) in respect of a breach remediable by payment of money, pays the Lessor all money necessary to remedy the breach within fourteen (14) days of service of that notice;

(iv) in respect of a breach remediable other than by payment of money:

(A) gives the Lessor a written undertaking, within twenty eight (28) days of the service of that notice, to remedy the breach; and

(B) remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within three (3) months of giving the undertaking); or

(v) in respect of a breach which is not remediable:

(A) pays compensation (within twenty eight (28) days of service of that notice) to the reasonable satisfaction of the Lessor having regard to the nature and extent of the breach; or

(B) undertakes (within twenty eight (28) days of service of that notice) to pay that compensation and pays it to the Lessor within three (3) months of giving the undertaking (or any further extended period the Lessor decides in its absolute discretion).

(c) This clause applies despite any other provision of the Lease.

14.8 Attorney of Lessee

(a) The Lessee appoints the Lessor and its officers severally as the Lessee’s attorney to act at any time if the Lessee is in breach of the Lessee’s Covenants and as a result of this Lease has been validly terminated to:

(i) execute and sign a surrender of the Lease; and

(ii) procure the surrender to be registered,

using the name of the Lessee for those purposes, and

(b) A statutory declaration of the Lessor that the rights of the Lessor under paragraph (a) are exercisable will be treated as conclusive evidence of its contents in favour of any person who is not a party to the Lease.

(c) The Lessee must ratify and confirm anything lawfully done or caused to be done in respect of the Premises by the Lessee’s attorney.

14.9 Vacation by Lessee

(a) The following provisions apply on vacation of the Premises by the Lessee during the Term whether or not the Lessee ceases to pay the Rent.

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(b) The Lessor does not (subject to paragraph (c));

(i) re-enter the Premises; or

(ii) forfeit or waiver any rights to recover in full all Rent payable by the Lessee under the Lease,

by

(iii) accepting the keys;

(iv) itself or any person on its behalf entering the Premises to show them to prospective lessees or licensees; or

(v) advertising the Premises for re-letting.

(c) The Lease is deemed to continue in full force and effect until:

(i) the date a new lessee or licensee actually occupies the Premises; or

(ii) the date of expiry of the Lease,

whichever occurs first, and until that date an entry by the Lessor is deemed to be an entry by the leave and licence of the Lessee.

(d) Paragraphs (b) and (c) do not apply if the Lessor:

(i) gives the Lessee written notice accepting the surrender of the Lessee’s interest under the Lease; or

(ii) serves a formal notice of forfeiture or re-entry on the Lessee.

15. HEADLEASE AND OTHER SUPERIOR INTERESTS

15.1 Lessor’s and superior interest holder’s right to review

The Lessee must at all times during the Term permit the Lessor, or any person having any estate or interest in the Premises superior to or concurrent with that of the Lessor, to:

(a) exercise the Lessor’s powers to enter and view the Premises;

(b) carry out repairs, renovations, maintenance and other work; and

(c) otherwise exercise or perform their respective lawful rights and obligations in respect of the Premises.

15.2 Covenants To Benefit Lessor’s Successors

The Lessee, if anyone other than the Lessor becomes entitled to receive the Rent (either by operation of law or otherwise):

(a) agrees that such person has the benefit of the Lessee’s Covenants; and

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(b) must enter, at the Lessor’s cost, into any covenants with that person reasonably required by the Lessor or that person.

15.3 Lessor to protect Lessee’s estate

The Lessor must not default under its headlease so as to permit the Lessee’s estate or interest under the Lease to determine by reason of the determination of any superior estate or interest.

15.4 Lessee not to prejudice Lessor’s interest

(a) The Lessee must not do or permit anything which might:

(i) prejudice; or

(ii) give ground for the determination of,

the estate or interest of the Lessor in the Premises, provided it has been reasonably notified of the terms of such estate or interest.

(b) It is acknowledged that without prejudice to clause 15.4(a) above, the Lessee’s occupation and use of the Premises in accordance with the terms of this Lease does not breach its obligations under clause 15.4(a).

16. GENERAL

16.1 Exclusion of warranties

The Lessee agrees that no representation or undertaking has been given by or on behalf of the Lessor in respect of:

(a) the suitability of the Premises for any business;

(b) the Building;

(c) the fittings, finishes, facilities and amenities of the Premises; or

(d) other businesses to be carried on in the Building.

16.2 Waiver

(a) Waiver of a breach of the Lessee’s Covenants or of any rights created by or arising upon default under the Lease, or upon an event of default, must be in writing and signed by the party granting the waiver,

(b) A breach of the Lessee’s Covenants is not waived by:

(i) a failure to exercise; or

(ii) a delay in exercising; or

(iii) a partial exercise of,

any remedy available under the Lease or in law or equity;

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(c) Any right created by, or arising upon, default under the Lease, or upon an event of default, is not waived by:

(i) a failure to exercise; or

(ii) a delay in exercising; or

(iii) a partial exercise of,

that right.

16.3 Cost of Lease, etc

The Lessee must pay:

(a) the Lessor’s legal costs and all duties, fees, charges and expenses in respect of:

(i) the preparation, completion, stamping, upstamping and registration of the Lease;

(ii) any renewal of the Lease or any other lease granted under an option of renewal;

(iii) any application for the consent or approval of the Lessor under the Lease;

(iv) any breach of the Lessee’s Covenants; and

(v) the exercise of any right, power, privilege, authority or remedy of the Lessor in respect of the Lease;

(b) all professional consultants’ fees properly incurred by the Lessor in respect of any of the matters in paragraph (a).

16.4 Lessee not to cause rent reduction

The Lessee, without the written consent of the Lessor, must not:

(a) do or omit to do; or

(b) permit to be done or omitted,

anything which might:

(c) impair, reduce or diminish (whether directly or indirectly) the Rent; or

(d) impose, cause or permit the imposition on the Lessor of, any liability of the Lessee in respect of the Lease,

even if entitled to do so for any reason (including, but not limited to, statute, ordinance, proclamation, order, regulation, or moratorium).

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16.5 Notices

Any notice or other communication including, but not limited to, any request, demand, consent or approval, to or by a party to the Lease:

(a) must be in legible writing and in English addressed to a party at that party’s address as shown in the Lease (unless otherwise notified in writing by that party to each other party) or, in the case of a corporation, at the registered office of that party;

(b) if to the Lessor, may be served, given or delivered to the Lessor or the Manager at the address of the Manager;

(c) if served, given or delivered by a corporation, must be signed by a director or secretary of that corporation; and

(d) can be relied upon by the addressee and the addressee is not liable to any other person for any consequences of that reliance if the addressee reasonably believes it to be genuine, correct and authorised by the sender.

16.6 Caveats

The Lessee must not lodge or cause to be lodged any caveat against the certificate of title to the Land to protect any of the Lessee’s interest under the Lease.

16.7 Consents

Any consent or approval of the Lessor which the Lessee requires under the Lease to do any act, matter or thing must be in writing and may be given (conditional or unconditionally) or withheld by the Lessor in its absolute discretion unless otherwise expressly provided.

16.8 No merger

Nothing in the Lease merges, extinguishes, postpones, lessens or otherwise prejudicially affects any right power authority discretion or remedy which the Lessor may have against the Lessee.

16.9 Lessee’s obligations

Unless the Lease otherwise provides, anything which must be done by the Lessee under the Lease, whether or not at the request of the Lessor, must be done at the cost of the Lessee.

16.10 Not used

16.11 Moratorium

A provision of any legislation which at any time directly or indirectly:

(a) lessens or otherwise varies or affects in favour of the Lessee any of the Lessee’s Covenants; or

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(b) stays, postpones or otherwise prevents or prejudicially affects the exercise by the Lessor of any of the Lessor’s rights under this Lease,

is negatived and excluded from the Lease and all relief and protection conferred on the Lessee by or under the legislation is also negatived and excluded unless its application is mandatory by law.

16.12 Effect of Execution

(a) The Lease, on execution by the Lessor, is binding on any other person who has executed it despite:

(i) non-execution or defective execution of the Lease by any other person named as a party;

(ii) avoidance or unenforceability of:

(A) any part of the Lease; or

(B) the Lease or any part of it against any signatory or intended signatory.

(b) Paragraph (a) is without prejudice to the Lessor’s rights under the Lease or otherwise.

(c) Each party, in executing the Lease, express it to be:

(i) executed by that party as a deed;

(ii) sealed by that party; and

(iii) delivered on the later of:

(A) the date of acceptance by the Lessee; or

(B) the date of execution by the Lessor.

16.13 Manager

(a) The Manager represents the Lessor in all matters in respect of the Lease unless the Lessor directly notifies the Lessee otherwise in writing.

(b) Any communication from the Lessor to the Lessee supersedes any communication from the Manager to the Lessee to the extent of any inconsistency.

16.14 Limitation of liability of Lessor

The registered proprietor of the leasehold estate in the Land:

(a) is bound by the Lessor’s covenants under the Lease; and

(b) is liable in damages only for those breaches of the Lessor’s covenants which occur,

while it is the registered proprietor of the leasehold estate in the Land.

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16.15 Whole agreement

The Lease comprises the whole agreement between all parties to the Lease in respect of its subject matter.

17. STRATA TITLE

17.1 Reservation of right to Strata Title

The Lessor may subdivide the Land and the Building in accordance with the Strata Titles Act.

17.2 Variation of Lease

Subject to clause 17.3 the parties to the Lease, if there is a subdivision under clause 17.1, must enter into a deed of agreement at the Lessor’s cost:

(a) varying the terms of the Lease; and

(b) containing any provision which is necessary or reasonably required,

to reflect those rights and obligations of the parties to the Lease:

(c) intended to continue during the Term; and

(d) modified to take into account the effect of the subdivision.

17.3 Requirements for Subdivision

The Lessor must ensure in respect of any subdivision that:

(a) the rights and benefits of the Lessee under this Lease are not prejudiced or derogated from; and

(b) the liability of the Lessee is not increased, as a result of any matter or thing arising from the subdivision.

18. SECURITY

18.1 Security deposit or bank guarantee

(a) The Lessee, on signing the Lease, must pay to the Lessor (or as directed in writing by the Lessor) the amount in item 16 of the Reference Schedule as a security deposit to secure the payment of the Rent by the Lessee to the Lessor and the performance by the Lessee of any other covenant in the Lease..

(b) The Lessee will be regarded as having paid to the Lessor the security deposit required under paragraph (a) if it provides the Lessor with an unconditional and irrevocable bank guarantee or bank guarantees in a form approved by the Lessor and in an amount equal to item 16 of the Reference Schedule.

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(c) The Lessor may, if the Lessee commits a breach of the Lease:

(i) appropriate any or all of the security deposit referred in paragraph (a), or draw down all or part of the bank guarantee referred to in paragraph (b), to reimburse or compensate (wholly or partly) the Lessor in respect of the breach; and

(ii) require the Lessee immediately to pay to it such further deposit or provide such further bank guarantee as is necessary to restore the security deposit to an amount equal to item 16 of the Reference Schedule.

(d) Paragraph (c) is without prejudice to any other right of the Lessor under the Lease.

18.2 Sale by Lessor

(a) If the Lessor transfers its interest in the Premises and hands over the bank guarantee to the transferee, the transferor is released from all obligations to the Lessee in relation to the bank guarantee;

(b) If requested by the transferee, the Lessee must promptly give to the transferee a replacement bank guarantee in favour of the transferee; and

(c) If the Lessee does not provide the replacement bank guarantee, the transferor may make demand under the bank guarantee and hand over the proceeds to the transferee to hold as a security deposit instead of the bank guarantee until the Lessee provides a replacement bank guarantee to the transferee.

18.3 Covenantor

(a) Subject to paragraph (b), the Covenantor grants the guarantees and indemnities in this part in consideration of the Lessor entering into the Lease at the Covenantor’s request.

(b) If the Covenantor executes the Lease after the Lessor, the Covenantor warrants that it grants the guarantees and indemnities in this part as a result of valuable consideration provided to it by the Lessor.

(c) The covenants, guarantees and indemnities in this part are severable.

18.4 Guarantee

The Covenantor guarantees to the Lessor the prompt performance and observance of the Lessee’s obligations under the Lease.

18.5 Indemnity

The Covenantor indemnifies the Lessor against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment with the Lessors pays, suffers, incurs, or is liable for, in respect of any unenforcability of the Lease against the Lessee.

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18.6 Covenants

(a) The Covenantor is jointly and severally with the Lessee liable to the Lessor for:

(i) the Lessee’s observance of the Lease; and

(ii) any damage incurred by the Lessor as a result of:

(A) the Lessee’s failure to observe the Lease or its default under the Lease; or

(B) the termination of the Lease by the Lessor.

(b) Until the Lessor has received all money payable by the Lessee or the Covenantor under the Lease and until the due performance by the Lessee and the Covenantor of the Lease, neither the Lessee nor the Covenantor may:

(i) claim or receive the benefit of any:

(A) dividend or distribution;

(B) payment out of the estate or assets; or

(C) payment in the liquidation, winding up or bankruptcy,

of any person liable jointly with the Lessee or the Covenantor to the Lessor or liable under any security for any money payable by the Lessee or the Covenantor; or

(ii) prove in any estate or in relation to any asset in any liquidation, winding up or bankruptcy in competition with the Lessor unless the amount the Lessor is entitled to will not be reduced as a result.

(c) The Covenantor must pay the Lessor on written demand by the Lessor any expense incurred by the Lessor in respect of the Lessor’s exercise or attempted exercise of any right of the Lessor under this part.

(d) A Covenantor’s obligations are not affected if:

(i) the Lessor releases or enters into a composition with the Lessee or another Covenantor;

(ii) a payment made to the Lessor is later avoided; or

(iii) the Lessor assigns or transfers its interest in the Lease.

(e) If the Lessor assigns or transfers its interests in the Lease, the assignee receives the benefit of the Covenantor’s covenants, agreements, guarantees and indemnities.

18.7 Joint and several liability

If there is more than one Covenantor, the Covenantors are jointly and severally bound even if a person named as Covenantor does not execute the Lease.

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18.8 Continuing effect

The obligations of the Covenantor under this part are not released, discharged or otherwise affected by:

(a) the grant of any time, waiver, covenant not to sue or other indulgence;

(b) the release (including, but not limited to, a release as part of any novation) or discharge of any person;

(c) any arrangement, composition or compromise entered into by the Lessor, the Lessee, the Covenantor or any other person;

(d) any extinguishment, failure, loss, release, discharge, abandonment, impairment, compound, composition or compromise, in whole or in part of any document or agreement;

(e) any variation of the Lease including, but not limited to, a variation in the date of expiry of the Lease;

(f) any moratorium or other suspension of any right, power, authority, discretion or remedy conferred on the Lessor by the Lease, any statute, any court or otherwise;

(g) any payment to the Lessor, including any payment which at or after the payment date is illegal, void, voidable, avoided or unenforceable; or

(h) the winding up of the Lessee.

19. OPTION OF RENEWAL

19.1 Option of renewal

(a) The Lessee, from the expiry of the Lease, is entitled to take a renewed lease of the Premises for the further term of years in item 4 of the Reference Schedule on the conditions of this part.

(b) The Lessor, if the Lessee:

(i) gives the Lessor six (6) months written notice substantially in the form in clause 19.4 of its intention to renew; and

(ii) is not in default under the Lessee’s Covenants,

must grant to the Lessee, at the Lessee’s own cost, a renewal of the Lease for that further term of years.

(c) The renewed lease in this clause is subject to the same covenants, agreements and provisions in the Lease except that:

(i) the term of the renewed lease is that in item 4 of the Reference Schedule;

(ii) the Minimum Rent payable from the commencement of that further term must be determined in accordance with clause 19.2; and

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(iii) item 4 of the Reference Schedule and this part are omitted.

19.2 Initial rent under renewed Lease

(a) The Minimum Rent payable at the commencement of the renewed lease is the Current Market Rent as at that date.

(b) If the option of renewal is exercised, the Current Market Rent at the commencement of the renewed lease must be agreed or determined based on the procedures set out in Part 4 modified to the extent necessary to give effect to this clause.

(c) For the purposes of this clause:

(i) the Review Period means the period commencing on the date of exercise of the option of renewal and expiring on the last day of the Term; and

(ii) Review Date means the last day of the Term.

(d) The Lessee, if the Current Market Rent has not been agreed or determined at the commencement of the renewed lease:

(i) must pay on account (pending agreement on or determination of the Current Market Rent) the Lessor’s Estimate of the Current Market Rent notified to the Lessee; and

(ii) when the Current Market Rent as at the commencement of the renewed lease is agreed or determined, an adjustment must be made,

in accordance with the procedure in clause 4.

19.3 Form of renewed lease

The Lessor may in its discretion require that the renewed lease be in the form of lease then current for the Building modified to the extent necessary:

(a) to give effect to the intentions of the parties as contained in this clause; and

(b) to ensure that the rights by the Lessee would have had (if the general provisions of the Lease had been adopted) are not adversely affected, either materially or substantially.

19.4 Notice of exercise of option

The Lessee, in order to exercise the option of renewal in clause 19.1, must give written notice to the Lessor substantially in the following form:

“Notice of Exercise of Option of Renewal

By this notice we exercise our option to renew our lease of the premises known as (insert description of Premises) in the Grosvenor Place building.

Dated:                                                                                       ”

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(To be completed, dated and signed personally by the Lessee if the Lessee is a person or executed under seal if the Lessee is a company).

19.5 Existing Covenantor

(a) Subject to paragraph (b), the grant of a renewed lease under this part is conditional on the Covenantor executing the renewed lease within fourteen (14) days after provision to the Covenantor by the Lessor of execution copies of that lease.

(b) If the Lessee requests the substitution of the Covenantor with another person, the grant of the renewed lease is conditional upon the execution of that lease by any person approved by the Lessor as Covenantor within fourteen (14) days after provision to that person by the Lessor of execution copies of that lease.

(c) For the purposes of this clause, the Lessor agrees to accept as Covenantor any person whom the Lessee establishes to the reasonable satisfaction of the Lessor is and is unlikely to remain capable of meeting the financial obligations of Covenantor under the renewed lease.

20. INDEPENDENT EXPERT

20.1 Independent expert

(a) If any dispute arises between:

(i) the Lessor and the Lessee; or

(ii) the Lessor and the Covenantor,

under the Lease other than in respect of review of Minimum Rent, any party may, by written notice to the others, demand that the dispute be determined by an Independent Expert.

(b) If the parties do not agree on an Independent Expert within seven (7) days or service of a notice under paragraph (a), any party may request:

(i) in the case of a dispute in respect of clause 3.2(e) – the President of the Australian Property Institute Inc (NSW Division); and

(ii) in any other case – the President of the New South Wales Law Society,

to appoint an Independent Expert.

(c) The Independent Expert need not be a valuer, solicitor or barrister but must have appropriate professional experience in matters of the nature of the dispute to be determined and may engage other consultants to advise him.

(d) The Independent Expert must determine:

(i) the dispute; and

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(ii) which party will bear his costs and those of any consultant engaged by him having regard to:

(A) the substance of the dispute;

(B) the reasonableness of the parties in relation to the dispute; and

(C) the result of his determination.

(e) The Independent Expert acts as an expert and not as an arbitrator and his determination is final and binding upon the parties.

(f) A party may not commence or continue litigation in relation to a dispute in respect of which a notice has been served under paragraph (a) until it has been determined by the Independent Expert.

(g) The Lessor, the Lessee and the Covenantor release the Independent Expert and any consultant engaged by the Independent Expert from any claim in respect of a determination under this part.

21. CMFL/BTFM TRUST PROVISIONS

21.1 Definitions

In this clause 21:

“Assets” includes all assets, property and rights, real or personal of any nature whatsoever.

“BTFM” means BT Funds Management Limited and any responsible entity, trustee or trustees for the time being and from time to time appointed as trustee of the Principal Office Fund.

“BTFM Obligations” means all obligations and liabilities of whatsoever kind, undertaken or incurred by, or devolving upon, BTFM under or in respect of this deed or given or entered into pursuant thereto whether express or implied by statute or arising otherwise howsoever.

“Principal Office Fund” means Principal Office Fund (ARSN 092 874 087) constituted by a Deed dated 20 June 1988 between Aust-Wide Management Limited as manager, Permanent Trustee Company Limited as guarantor and Permanent Trustee Australia Limited as trustee as amended from time to time.

“CFML” means Commonwealth Funds Management Limited and any trustee or trustees for the time being and from time to time duly appointed as trustee of the CFM Trust.

“CFML Obligations” means all obligations and liabilities of whatsoever kind, undertaken or incurred by, or devolving upon, CFML under or in respect of the Lease or given or entered into pursuant thereto whether express or implied by statute or arising otherwise howsoever.

“CFM Trust” means the trust fund known as the Commonwealth Property Fund (formerly CFM Property Fund, formerly SFIT Property Fund) established by a trust deed made by CFM (formerly Superannuation Fund Investment Trust) dated 19 December 1988 and subsequent variations thereto (the ”Trust Deed”).

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“Property” means the leasehold estate comprised in certificate of title Volume 8629 Folio 211 and all building and improvements on the land the subject of that leasehold estate.

21.2 CFML’S Limitation Of Liability As Trustee

(a) CFML enters into the Lease only in its capacity as trustee of the CFM Trust and in no other capacity. A liability arising under or in connection with the Lease can be enforced against CFML only to the extent to which it can be satisfied out of the Property. Except as expressly provided in this clause 21, this limitation of CFML’s liability applies despite any other provision of the Lease and extends to all liabilities and obligations of CFML in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to the Lease.

(b) The parties other than CFML may not take any action to seek recourse to any assets held by CFML in any capacity other than as trustee of the CFM Trust, including to seek the appointment of a receiver or receiver and manager (except in relation to the Property), a liquidator, an administrator or any similar person to CFML or prove in any liquidation, administration or arrangement of or affecting CFML (except in relation to the Property).

(c) The provisions of this clause do not apply to any obligation or liability of CFML to the extent that it is not satisfied because:

(i) under the Trust Deed or by operation of law there is a reduction in the extent of CFML’s indemnification out of the assets of the CFM Trust as a result of CFML’s fraud, negligence or breach of trust; or

(ii) CFML failed to exercise any right of indemnity it has under the Trust Deed in respect of that obligation or liability.

(d) No act or omission of CFML (including any related failure to satisfy its obligations under the Lease) will be considered fraud, negligence or breach of trust of CFML for the purpose of clause 21.3(c) to the extent to which the act or omission was caused or contributed to by any failure by any other person to fulfil its obligations relating to the CFM Trust or by any other act or omission of any other person.

(e) No attorney, agent, receiver or receiver and manager appointed in respect of CFML in accordance with the Lease has authority to act on behalf of CFML in a way which exposes CFML to any personal liability and no act or omission of any such person will be considered fraud, negligence or breach of trust of CFML for the purpose of clause21.2(c).

(f) CFML is not obliged to enter into any commitment or obligation under the Lease unless CFML’s liability is limited in accordance with this clause 21.

21.3 BTFM’S Limitation Of Liability As Trustee

(a) Notwithstanding any other provision of the Lease, all provisions of this deed will have effect and be applied subject to this clause 21.

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(b) The parties acknowledge and agree that, subject to clause 21.3(d):

(i) BTFM enters into the Lease in its capacity as responsible entity of the Principal Office Fund and in no other capacity; and

(ii) the BTFM Obligations are incurred by BTFM solely in its capacity as trustee of the Principal Office Fund.

(c) Subject to clause 21.3(d), BTFM shall only be liable to pay or satisfy the BTFM Obligations to the extent of the Assets of the Principal Office Fund available to meet the BTFM Obligations and the recourse of each party in relation to any failure by BTFM as responsible entity of the Principal Office Fund to pay or satisfy any moneys or damages in relation to the BTFM Obligations shall be limited to the availability of the Assets of the Principal Office Fund to meet the BTFM Obligations.

(d) BTFM is personally liable to a party in the case of:

(i) fraud by BTFM; and

(ii) any intentional act of BTFM actually known by BTFM to be in breach of trust which prejudices BTFM’s rights of indemnity as responsible entity in relation to the BTFM Obligations, to the extent that such party does not knowingly participate in such fraud or breach of trust and to the extent such fraud or breach of trust causes loss to that party.

(e) Under no circumstances is BTFM liable to pay or satisfy any BTFM Obligations out of:

(i) its personal Assets, other than as contemplated by clause 21.3(d) or

(ii) the fund of any other trust of which it is the responsible entity or trustee.

(f) BTFM is entering into the Lease with the intent and effect that BTFM shall apply the Assets of the Principal Office Fund and each of the parties may have recourse to those Assets to pay and satisfy the BTFM Obligations.

21.4 Liability

Any liability on the part of one of CFML or BTFM under or pursuant to the Lease, including the CFML Obligations and the BTFM Obligations shall be a liability which is several only in the shares in which they beneficially hold the head lease registered number X925185 (as amended) which shall be notified in writing by CFML and BTFM to the Lessee from time to time and which at the date of the Lease is acknowledged to be:

(a) CFML: 70%

(b) BTFM: 30%.

22. GOODS AND SERVICES TAX

22.1 This clause applies if the Lessor is or may become liable to pay GST in relation to any Supply under the Lease (a “Taxable Supply”).

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22.2 Unless otherwise stated, any amount, payment or consideration referred to in the Lease is exclusive of GST.

22.3 In addition to any other amounts payable by the Lessee to the Lessor under the Lease (the “GST Exclusive Consideration”), the Lessee must pay GST on any Taxable Supply to the Lessor of an amount equal to the GST Exclusive Consideration multiplied by the GST Rate within twenty one (21) days from the issue of an Invoice by the Lessor to the Lessee.

22.4 GST will be payable by the Lessee, without deduction or set-off of any other amount, at the same time as the GST Exclusive Consideration under this Lease is payable. In all other respects GST will be payable by the Lessee to the Lessor on the same basis as the GST Exclusive Consideration is payable by the Lessee under the Lease.

22.5 The Lessor will issue an Invoice or Invoices to the Lessee in respect of any Taxable Supplybefore the due date of payment of any amount on account of GST..

22.6 If the Lessee defaults in the payment on the due date of any amount payable pursuant to clauses 22.1 and 22.3 then, without prejudice to any other remedies of the Lessor, the Lessee must pay to the Lessor upon demand an amount equal to the amount of any penalties, damages or interest or additional GST that is payable by the Lessor

22.7 As between the Lessor and the Lessee, the Lessor is not be obliged to pay any GST on or to take any other steps to minimise the liability in respect of GST until the corresponding payment is received from the Lessee.

22.8 If GST payable in relation to a Taxable Supply made under the Lease varies from the additional amount paid by the Lessee under clause 22.3 then the Lessor will provide a corresponding refund or credit to, or will be entitled to receive the amount of the variation from the Lessee. Where the Lessor has paid the amounts of the variation to the Commissioner of Taxation, whether or not as part of a larger sum, no amount will be paid to the Lessee under this clause unless the Lessor is entitled to a refund or credit of such amount from the Commissioner of Taxation.

22.8 Where an Adjustment arises from an Adjustment Event in relation to any Taxable Supply the Lessor must provide an Adjustment Note to the Lessee within twenty eight (28) days after the Lessee requests an Adjustment Note.

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SCHEDULE 1

Rules and Regulations

1. The Lessee will not obstruct or permit the obstruction of the pavement, forecourt, entrance, arcade, vestibules, corridors, passages, stairways, landings, escalators, lifts, elevators, fire doors and escape doors or use them or any of them for any purpose other than ingress and egress.

2. The Lessee will not obstruct any skylights, glazed panel, ventilator or window that admits light or air into the Building or obstruct any light or other illumination in the Building or permit any goods, structure or fitting to be visible through the glass of any corridor or dividing partition without the prior written consent of the Lessor.

3. The Lessee will not display any sign, flag, notice, light, or object on the interior or exterior of the Premises or the Building except with the prior written consent of the Lessor and then only of the colour, size and style and in the place approved by the Lessor. The Lessor will not unreasonably withhold consent in respect of a sign or notice identifying the Lessee and conforming with standard signs in the Building. The cost of affixing the Lessee’s name and description on any Directory Board in the main foyer and on the Lessee’s floor will be borne by the Lessee.

4. No curtain will be erected on any external window.

5. No blind, screen, or awning will be erected on any window without the prior written consent of the Lessor.

6. No animal or bird will be kept at the Premises.

7. Except with the prior written consent of the Lessor no musical instrument will be played in or about the Premises, but this Rule 6 will not prohibit the Lessee from playing background music provided that the volume is kept at a level which does not cause a nuisance or annoyance to other occupiers of the Building.

8. The Lessee will not throw anything out of the windows or deposit rubbish anywhere except in proper receptacles or place any rubbish on any part of the Premises or the Common Areas.

9. The Lessee will not use any method of lighting, cooling, or heating other than as may be prescribed by the Lessor from time to time.

10. The Lessee will not smoke in the Common Areas.

11. The Lessee will only use and permit to be used for the delivery or other movement of any goods the part s of the Common Areas and at the times the Lessor permits and the Lessee will comply with all reasonable requirements of the Lessor in regard to these matters.

12. The Lessee will not leave any doors or windows unlocked when the Premises are unoccupied and the Lessor reserves the right for any person authorised by it to enter the Premises and lock the doors or windows.

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13. The Lessor will provide keys for locks on doors and of the Premises. The Lessee will return all keys on the determination of its lease and will not permit the keys to come into the possession of any person other than the Lessee.

14. No rubbish will be burned on the Land.

15. No auction, bankruptcy, winding-up, or fire sale will be conducted on the Premises.

16. The Common Areas and the car parking area will not be used for any business or commercial purpose or for the display or advertisement of any goods or services without the prior written consent of the Lessor.

17. No explosive power driven method of fixing articles to ceilings walls or floors will be used.

18. The Lessor may close the doors of the Building opening into any street and keep the doors closed outside Normal Business Hours. Normal Business Hours are:

Monday to Friday – 8 am to 6pm.

19. Except as provided in the relevant lease and/or with the consent of the Lessor or the Manager, the Lessee will not enter or remain in the Building outside Normal Business Hours and whenever entering the Building outside these hours the Lessee must produce to the Manager the security card supplied by the Lessor and will comply with the requirements of the Lessor or the Manager.

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ANNEXURE “B”

The Lessor, the Lessee and the Covenantor/s (if any) agree that this lease is varied as set out in this Annexure “B”.

1. The definition of “Base Building Outgoings” in clause 1.1 is amended by inserting the following words at the end of the definition:

“(c) if Minimum Rent is not reviewed pursuant to Part 4 – in respect of the Accounting Year expiring immediately before the expiration of each period of two (2) years during the Term commencing on 1 July 2003.”

2. The following clause is added:

23.1 LESSEE’S WORKS

23.2 Definitions

“Access Date” means the date the Lessor receives this Lease executed by the Lessee in registrable form together with:

(a) the bank guarantee for the estimated amount in accordance with clause 27;

(b) evidence of the Lessee’s insurance required under clause 10 and evidence of the Lessee’s contractor’s public liability insurance under clause 23.8; and

(c) cheques in payment of stamp duty and registration fees payable in connection with this Lease;

whichever is the latest to occur.

“Authorisation” means:

(a) an authorisation, consent, declaration, exemption, notarisation or waiver, however it is described; and

(b) in relation to anything that could be prohibited or restricted by law if a Governmental Agency acts in any way within a specified period, the expiry of that period without that action being taken,

including any renewal or amendment.

“Lessor’s Works” means the construction of a Common Area corridor wall and inter-tenancy wall.

“Works” means any of the following carried out by the Lessee:

(a) the installation of any fixtures or fittings in the Premises;

(b) any other alterations or improvements to the Premises, the Lessee’s Fittings or any services provided to the Premises or to the Building.

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23.2 Licence

The Lessor grants the Lessee a non-exclusive licence for the period from the Access Date to the day before the Commencement Date to occupy the Premises for the purpose of carrying out the Works on the same terms and conditions as this Lease except that:

(a) the payment of Rent will not apply; and

(b) clause 12.1 will not apply.

23.3 Works

(a) The Lessee must not carry out any Works unless it first obtains the Lessor’s written approval to the proposed Works, (such approval not to be unreasonably withheld or delayed) and the Lessee otherwise complies with the rest of this clause 23.

(b) The Lessor will carry out the Lessor’s Works in a good and workmanlike manner prior to the Access Date.

23.4 Lessee’s drawings and specifications

(a) The Lessee must, at its cost, prepare and give to the Lessor:

(i) 2 copies of detailed working drawings and specifications of the proposed Works; and

(ii) the names and other relevant details of the architect and the contractors that the Lessee intends to use.

(b) The Lessor must, as soon as practicable, notify the Lessee:

(i) whether or not the Lessor approves of, or requires alterations to, the drawings and specifications submitted by the Lessee;

(ii) whether or not it approves of the contractors that the Lessee intends to us; and

(iii) if it does not approve of the drawings or specifications, provide reasons why not.

(c) The Lessee acknowledges that the Lessor may refer the drawings and specifications to the Lessor’s architect and other consultants for their advice.

(d) If the Lessor does not approve of the drawings and specifications or the Lessee’s proposed architect or contractors the Lessee must alter and resubmit them.

(e) The Lessor must not unreasonably withhold or delay its approval under this clause.

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23.5 Authorisations

The Lessee must not start the Works until the Lessee gives the Lessor copies of all Authorisations required for the Works; and

(a) the Lessor approves of the drawings and specifications submitted by the Lessee; and

(b) the Lessor approves the contractors that the Lessee intends to use to carry out the Works.

23.6 Variation to Works

If the Lessee wishes to vary the Works approved under clause 23.4, the Lessee must follow the procedure contained in clause 23.4, in respect of the Works incorporating those variations.

23.7 Conditions regarding Works

The Lessee must, at its cost:

(a) (timing) start and complete the Works as soon as practicable after the Lessor approves of the drawings and specifications and the Lessee’s architect and contractors under clause 23.4;

(b) (Lessor’s approval) complete the Works in accordance with the plans and specifications approved by the Lessor under clause 23.4;

(c) (Lessor’s directions) comply with, and ensure that its contractors and employees comply with, all reasonable directions of the Lessor in relation to the carrying out of the Works;

(d) (no disturbance) cause as little disturbance as possible to the Lessor and any other occupier of, or invitee in, the Building;

(e) (compliance) comply with all relevant statutes, Authorisations and requirements of any Governmental Agency in relation to the Works;

(f) (quality) carry out the Works in a competent manner in accordance with the Lessor’s fit-out guidelines;

(h) (removal of rubbish) remove from the Building all rubbish or debris resulting from the Works;

(i) (repair damage) immediately repair to the Lessor’s satisfaction any damage directly or indirectly caused to the Building by the carrying out of the Works;

(j) (notice of completion) give the Lessor at least 5 Business Days notice of when the Works are likely to be completed; and

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(k) (heavy equipment) not bring any heavy equipment into the Building unless it is required to carry out the Works and it complies with the maximum floor loading weights for the Building.

23.8 Contractor’s insurance

The Lessee must ensure that the contractors it engages to carry out the Works have a current public liability insurance policy under which the maximum amount payable for a single claim is at least $20,000,000, or any other amount reasonably required by the Lessor.

23.9 Structural work or alterations to services

If any alteration is required to the services provided or to be provided to the Premises or to the Building, or to any plant or equipment in the Building:

(a) the Lessee must pay for the required alteration;

(b) the alteration must be carried out by contractors appointed by the Lessor.

23.10 Preservation of Lessor’s warranties

The Lessee must not carry out any Work or carry it out in any way which could prejudice the Lessor’s rights under any builder’s, contractor’s or other warranties in relation to the Building provided the Lessee has been made aware of the terms of such rights.

23.11 Lessor’s costs

The Lessee must pay all costs and expenses reasonably incurred by the Lessor in relation to any proposed Works, whether or not the Works proceed, including the cost of the Lessor’s architect, consultants and supervisor.

23.12 Lessor’s Works

The Lessor will carry out the Lessor’s Works:

(a) in a good and workmanlike manner;

(b) in accordance with any necessary approval or consent of any relevant authority;

(c) in a timely manner; and

(d) at the Lessor’s cost.

In carrying out the Lessor’s Works, the Lessor must not and must ensure that its contractors do not interfere with, disturb or otherwise do anything which would delay the commencement, execution or completion of the Works.

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3. The following clause is added:

24. DETERMINATION OF COMMENCING AND TERMINATING DATES

24.1 The Lessee acknowledges and agrees that the Commencing Date of the Lease will be the earlier of:

(a) completion of the Works as defined in clause 23.1 and notified in writing from the Lessee to the Lessor; and

(b) 1 September 2003.

24.2 The Lessee authorises and directs the Lessor to complete Items H2 and H3 of the Sublease by inserting the Commencing Date and the Terminating Date in accordance with clause 24.1.

4. The following clause is added:

25. SURVEY OF PREMISES AND COMPLETING THE LEASE

25.1 Definitions

In this clause:

“Survey” means a survey of the Premises using specifications for measurement of gross lettable area for commercial premises in the PCA Method of Measurement last published.

25.2 Premises to be surveyed

As soon as practicable after the Lessor has completed the Lessor’s Works the Lessor must at its cost carry out a Survey of the Premises.

25.3 Lessor calculation and notification

The Lessor must as soon as practicable after obtaining the Survey:

(a) use the surveyed area to calculate the Minimum Rent for the first year of the Lease;

(b) use the surveyed area to calculate the Lessee’s Proportion in Item 15 of the Reference Schedule;

(c) use the surveyed area to calculate the security deposit amount in Item 16 of the Reference Schedule; and

(d) provide the Lessee with a copy of the survey, the amount of Minimum Rent for the first year of the Lease, the Lessee’s Proportion and the security deposit amount.

25.4 Lease completion

The Lessee authorises and directs the Lessor to complete:

(a) Item 8 of the Reference Schedule by inserting the annual amount of the Minimum Rent for the first year of the Lease;

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(b) Item 14 of the Reference Schedule by inserting the surveyed area of the Premises;

(c) Item 15 of the Reference Schedule by inserting the Lessee’s Proportion;

(d) Item 16 of the Reference Schedule by inserting the security deposit amount; and

(e) any other Lease details that may need to be completed.

5. The following clause is added:

26. FIRST RIGHT OF REFUSAL

26.1 Future leases

Subject to clause 26.7, the Lessor must not grant any future lease of any part of the space indicated as the “FRR Space” on the plan attached to this Lease as Exhibit 1 (the “Alternative Premises”) during the term of this Lease without first complying with this clause, provided the Lessee is not at the date of the Lessor’s offer in material breach of the Lease, having been given a period of 7 days to remedy such breach.

26.2 Lessor’s offer

If the Lessor proposes to grant a lease of the Alternative Premises then the Lessor must offer the Lessee a lease of the Alternative Premises on the terms required by the Lessor (which must be no less favourable than the terms offered to the third party) (the “Lessor’s offer”).

26.3 Lessee’s acceptance

The Lessee may accept, by written notice, the Lessor’s offer within 10 days of receiving it.

26.4 End of Lessor’s offer

If the Lessee:

(a) does not accept the Lessor’s offer in accordance with clause 26.3;

(b) notifies the Lessor that the Lessee does not accept the Lessor’s offer; or

(c) does not respond to the Lessor’s offer,

the Lessor may then offer a lease of the Alternative Premises to any other person on the same terms as those offered to the Lessee and particularly at a commencing annual rental no less than the commencing annual rental in the Lessor’s offer.

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26.5 New lease

If the Lessee accepts the Lessor’s offer in accordance with clause 26.3 then the Lessor must within 14 days of receiving the Lessee’s notice submit to the Lessee a lease incorporating the terms of the Lessor’s offer and otherwise on the same terms and conditions as this lease (the “new lease”).

26.6 Lessee execution of new lease

The Lessee must execute the new lease and return it to the Lessor within 21 days of receiving it together with:

(a) a bank guarantee or security deposit, if applicable;

(b) payment of stamp duty (in the amount notified by the Lessor), registration fees and the Lessor’s legal costs; and

(c) certificates of currency in respect of the insurances the Lessee is required to take out under the new lease.

26.7 Lessee’s acknowledgment

(a) Subject to clause 26.7(b) the Lessor is obliged to make an offer to the Lessee under clause 26.1 at any time during the term of the Lease that it wishes to grant any lease of the Alternative Premises but this clause 26 will not be included in any new lease granted under clause 26.5.

(b) For the avoidance of doubt the Lessee acknowledges and confirms that if a lease is granted to a third party in accordance with clause 26.4 the Lessor’s obligations under clause 26 end in respect of the space over which such a lease is granted.

6. The following clause is added:

27. BANK GUARANTEE

27.1 In this clause “Estimated Amount” means an amount of $135,300.00 (such amount being equal to 6 months’ Minimum Rent calculated on an estimated area of the Premises of 300 square metres at a rental rate of $820.00 per square metre per annum) plus GST.

27.2 Despite clause 18.1 the Lessee must provide to the Lessor by no later than the Access Date in clause 23.1 an unconditional bank guarantee for the Estimated Amount on terms acceptable to the Lessor.

27.3 If after the Lessor carries out the Survey in accordance with clause 25 the security deposit amount in Item 16 of the Reference Schedule:

(a) is more than the bank guarantee for the Estimated Amount, the Lessee must provide the Lessor with an additional bank guarantee for the difference between the Bank Guarantee for the Estimated Amount and the security deposit amount in Item 16 of the Reference Schedule; and

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(b) is less than the Bank Guarantee for the Estimated Amount, the Lessee may provide the Lessor with a replacement bank guarantee for the amount in Item 16 of the Reference Schedule and the Lessor must do all things reasonably necessary to assist the Lessee in providing the replacement bank guarantee including attend an exchange of bank guarantees at the Lessee’s bank provided the Lessee’s bank is located in the Central Business District of Sydney.

7. The following clause is added:

28. RENT FREE PERIOD

Despite any other provision of this Lease, the Lessee is not required to pay Rent in respect of the period commencing on the Commencement Date and ending on the date which is 6 months from the Commencing Date.

8. The following clause is added:

29. COSTS

Despite any other provision of this Lease, each party must bear its own legal costs for the preparation, negotiation, execution and completion of this Lease.

/s/ Stephen Charles Etchell,Daniel Scamps, Paul E. Berger

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We certify this dealing to be correct for the purposes of the Real Property Act 1900 (NSW)

COMMONWEALTH FUNDS MANAGEMENT LIMITED (ACN 052 289 442)

/s/ Stephen Charles Etchell	/s/ Wendy Caroline Brown
Signature of attorney(s)	Witness: WENDY CAROLINE BROWN
I certify that the attorney(s) signing opposite, with whom I am personally acquainted or as to whose identity I am otherwise satisfied, signed this Sub-Lease in my presence.	Certified correct for the purposes of the Real Property Act 1900 by the attorney(s) named below who signed this Sub-Lease pursuant to the power of attorney specified.
/s/ Christopher Carroll	/s/ Daniel Scamps
Signature of witness	Signature of attorney(s)
	DANIEL SCAMPS
	Attorney[‘s/s’] name(s)
CHRISTOPHER CARROLL
Name of witness	Signing on behalf of BT FUNDS MANAGEMENT LIMITED (ACN 002 916 458)
[ILLEGIBLE]
Address of witness	Power of attorney - Book 4373
SYDNEY	- No 929

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I certify that the authorised officer signing opposite, with whom I am personally acquainted or as to whose identity I am otherwise satisfied, signed this Lease in my presence.	Certified correct for the purposes of the Real Property Act 1900 by the authorised officer named below.
/s/ Tracy Janda	/s/ Paul E. Berger
Signature of witness	Signature of authorised officer
Tracy Janda	Paul E. Berger, MD
Name of witness	Authorised officer’s name
1/31 Sutherland St.	President/CEO
Address of witness	Authority of officer
Neutral Bay, NSW, 2089
	Signing on behalf of NIGHTHAWK RADIOLOGY SERVICES, LLC (ARBN 098 194 640)

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EXHIBIT 1

PLAN

SHOWING NET LETTABLE AREA

PART LEVEL 11 - GROSVENOR PLACE

GEORGE STREET, SYDNEY

CITY OF SYDNEY

1:300

[FLOOR PLAN]

EX-10.16

EXHIBIT 10.16

Form: Licence: Licensee: 07SL 03-11-030 Blake Dawson Waldron SUBLEASE New South Wales Real Property Act 1900 Leave this space clear. Affix additional pages to the top left-hand corner.

	PRIVACY NOTE: Section 31B of the Real Property Act 1900 (RP Act) authorises the Registrar General to collect the information required by this form for the establishment and maintenance of the Real Property Act Register. Section 96B RP Act requires that the Register is made available to any person for search upon payment of a fee, if any.
	STAMP DUTY	Office of State Revenue use only
(A)	HEAD LEASE	X925185
(B)	TORRENS	Property leased: if appropriate, specify the part or premises
	TITLE	Part of Volume 8629 Folio 211 being premises known as Suite 1102 Grosvenor Place, 225 George Street, Sydney
(C)	LODGED BY	Delivery Box	Name, Address or DX and Telephone	CODE
		238N	Blake Dawson Waldron DX 355 Sydney Tel: 02 9258 6000	SL
			Reference (optional): LJK:KMQ
(D)	SUBLESSOR	COMMONWEALTH CUSTODIAL SERVICES LIMITED (ACN 000 485 487) COMMONWEALTH FUNDS MANAGEMENT LIMITED (ACN 052 289 442) INVESTA PROPERTIES LIMITED (ACN 084 407 241)
		The sublessor leases to the sublessee the property referred to above.
(E)		Encumbrances (if applicable): 1.                     2.                     3.
(F)	SUBLESSEE	NIGHTHAWK RADIOLOGY SERVICES, LLC ARBN 098 194 640
(G)		TENANCY:

(H)	1.	TERM 4 years and 1 month
	2.	COMMENCING DATE 1 October 2004
	3.	TERMINATING DATE 31 October 2008
	4.	With an OPTION TO RENEW for a period of N/A                                                                                           set out in N/A
	5.	Together with and reserving the RIGHTS set out in Annexures “A” and “B”
	6.	Incorporates the provisions or additional material set out in ANNEXURE(S) “A” and “B” hereto.
	7.	Incorporates the provisions set out in MEMORANDUM filed in the Department of Lands, Land and Property Information Division as No. N/A
	8.	The RENT is set out in item 9 of Annexure “A”

ALL HANDWRITING MUST BE IN BLOCK CAPITALS Page 1 of 2

	DATE 4 / 3 / 05
	dd mm yyyy
(I)	See the last page of annexure A for execution.
Note: where applicable, the sublessor must complete the statutory declaration below.
(J)	STATUTORY DECLARATION *
	I
	solemnly and sincerely declare that-
	1. The time for the exercise of option to renew in expired sublease No.		has ended;
	2. The sublessee under that sublease has not exercised the option.
	I make this solemn declaration conscientiously believing the same to be true and by virtue of the Oaths Act 1900.
	Made and subscribed at	in the State of
	on	in the presence of-
	Signature of witness:	Signature of sublessor:
	Name of witness:
	Address of witness:
	Qualification of witness:	[tick one]
		¨ Justice of the Peace
		¨ Practising Solicitor
		¨ Other [specify]

* As the Department of Lands may not be able to provide the services of a justice of the peace or other qualified witness, the statutory declaration should be signed and witnessed prior to lodgment of the form at Land and Property Information Division.

ALL HANDWRITING MUST BE IN BLOCK CAPITALS Page 2 of 2

This is annexure “A” referred to in the lease between Commonwealth Custodial Services Limited, Commonwealth Funds Management Limited and Investa Properties Limited and Nighthawk Radiology Services, LLC as lessee dated

CONTENTS

1.	DEFINITIONS AND INTERPRETATION		7
	1.1	Definitions	7
	1.2	Interpretation	12
	1.3	Exhibits	13
	1.4	Bodies and associations	13
	1.5	Measurement of areas	13
2.	GRANT OF LEASE, EXCLUSION OF IMPLIED COVENANTS AND POWERS AND LESSOR’S RESERVATIONS		13
	2.1	Grant of Lease	13
	2.2	Exclusion of implied covenants	13
	2.3	Lessor’s reservations	13
	2.4	Easements	14
	2.5	Building alterations	14
	2.6	Lessee’s rights	14
3.	RENT AND ABATEMENT		15
	3.1	Rent	15
	3.2	Termination on destruction or damage	15
	3.3	Abatement on destruction or damage	16
4.	RENT REVIEW		16
	4.1	Review	16
	4.2	Minimum amount	16
	4.3	Determination	16
	4.4	Factors to be considered	17
	4.5	Provision of adjustment	19
	4.6	Deferment of review	19
5.	LESSEE’S OUTGOINGS		19
	5.1	Building Outgoings	19
	5.2	Payments of account of Lessee’s Outgoings	20
	5.3	Outgoings Statement	20
	5.4	Adjustment of Building Outgoings	20
6.	USE OF PREMISES		21
	6.1	Permitted use	21
	6.2	Lessee’s business	21
	6.3	Smoking	21

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	6.4	Rules and Regulations	21
	6.5	Compliance with the Rules for Development Area	22
	6.6	Additions and Amendments to the Rules for Development Area	22
	6.7	24 hour access	23
	6.8	Nuisance	23
	6.9	Heavy equipment	24
	6.10	Electrical equipment	24
	6.11	Pest Control	24
	6.12	Heating and Cooling	25
	6.13	Signs and Advertising	25
	6.14	Radio, TV, etc	25
	6.15	Requirements of Governmental Agencies	25
	6.16	Notice of defects	26
	6.17	Fire regulations	26
	6.18	No inflammable substances	27
	6.19	Security	27
	6.20	Testing Lessee’s fire, security or alarm systems	28
	6.21	Appointment of fire wardens	28
	6.22	Compliance with emergency procedures	28
	6.23	Appointment of fire wardens	28
	6.24	No liability	29
	6.25	Re-entry	29
	6.26	Bomb and firearm threats	29
	6.27	Prospective tenants and purchasers	29
7.	MAINTENANCE REPAIR AND ALTERATIONS		29
	7.1	Repair and maintenance	29
	7.2	Painting	30
	7.3	Breakages	30
	7.4	Lighting	31
	7.5	Carpets, blinds, etc	31
	7.6	Doors, drains and toilets	31
	7.7	Lessor may inspect	31
	7.8	Lessor may repair	31
	7.9	Alterations and Lessee’s Fittings	32
	7.10	Furniture and fittings	33
	7.11	Rectification of damage in Common Areas	33
8.	SERVICES		33
	8.1	Air-conditioning and elevators	33
	8.2	After hours use	34
	8.3	Payment for services to the Premises	34
	8.4	Supply failure	34
9.	CLEANING		35
	9.1	Cleaning by Lessor	35
	9.2	Monthly Cleaning Amount	35
	9.3	Payment of Monthly Cleaning Amount	35

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10.	INSURANCE		35
	10.1	Public Risk	35
	10.2	Plate glass	36
	10.3	Policies	36
	10.4	Insurance not to be avoided	36
	10.5	Attorney of Lessee	37
	10.6	Continuation of liability	37
11.	INDEMNITIES AND RELEASE		38
	11.1	Release of Lessor	38
	11.2	Specific Indemnities	38
12.	QUIET ENJOYMENT, HOLDING OVER, REMOVAL OF LESSEE’S FIXTURES ETC.		39
	12.1	Quiet Enjoyment	39
	12.2	Common Areas	39
	12.3	Holding over	39
	12.4	Removal of Lessee’s fixtures	39
	12.5	Lessee’s fixtures not removed	40
	12.6	Yielding up	40
13.	RESTRICTIONS ON CHARGES, ASSIGNMENTS AND SUB-LEASES		41
	13.1	Restrictions	41
	13.2	Modification of restrictions	41
	13.3	Restriction on transfer of shares	42
	13.4	Lessee’s obligations not affected by approved assignment, transfer or sub-lease	43
	13.5	Restriction on mortgage or charge	43
14.	DEFAULT, TERMINATION, ETC		43
	14.1	Re-entry or surrender on default	43
	14.2	Acceptance of Rent	44
	14.3	Lessor may remedy Lessee’s defaults	44
	14.4	Interest on moneys due	45
	14.5	Damages claimable after re-entry	45
	14.6	Essential terms	46
	14.7	Opportunity to rectify	46
	14.8	Attorney of Lessee	47
	14.9	Vacation by Lessee	47
15.	HEADLEASE AND OTHER SUPERIOR INTERESTS		48
	15.1	Lessor’s and superior interest holder’s right to review	48
	15.2	Covenants To Benefit Lessor’s Successors	48
	15.3	Lessor to protect Lessee’s estate	49
	15.4	Lessee not to prejudice Lessor’s interest	49
16.	GENERAL		49
	16.1	Exclusion of warranties	49
	16.2	Waiver	49

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	16.3	Cost of Lease, etc	50
	16.4	Lessee not to cause rent reduction	50
	16.5	Notices	50
	16.6	Caveats	51
	16.7	Consents	51
	16.8	No merger	51
	16.9	Lessee’s obligations	51
	16.10	Condition of Lessor’s liability	51
	16.11	Moratorium	51
	16.12	Effect of Execution	52
	16.13	Manager	52
	16.14	Limitation of liability of Lessor	52
	16.15	Whole agreement	53
17.	STRATA TITLE		53
	17.1	Reservation of right to Strata Title	53
	17.2	Variation of Lease	53
18.	SECURITY		53
	18.1	Security deposit or bank guarantee	53
	18.2	Sale by Lessor	54
	18.3	Covenantor	54
	18.4	Guarantee	54
	18.5	Indemnity	54
	18.6	Covenants	54
	18.7	Joint and several liability	55
	18.8	Continuing effect	55
19.	OPTION OF RENEWAL		56
	19.1	Option of renewal	56
	19.2	Initial rent under renewed Lease	56
	19.3	Form of renewed lease	57
	19.4	Notice of exercise of option	57
	19.5	Existing Covenantor	57
20.	INDEPENDENT EXPERT		58
	20.1	Independent expert	58
21.	CCSL/CFML/IPL TRUST PROVISIONS		59
	21.1	Application of Clause	59
	21.2	Definitions	59
	21.3	CCSL and CFML’s Limitation Of Liability	59
	21.4	Exceptions	60
	21.5	IPL’s Limitation Of Liability	60
	21.6	Liability	61
22.	GOODS AND SERVICES TAX		61

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23.	LESSEE’S WORKS		71
	23.2	Definitions	71
	23.2	Licence	71
	23.3	Works	71
	23.4	Lessee’s drawings and specifications	72
	23.5	Authorisations	73
	23.6	Variation to Works	73
	23.7	Conditions regarding Works	73
	23.8	Contractor’s insurance	74
	23.9	Structural work or alterations to services	74
	23.10	Preservation of Lessor’s warranties	74
	23.11	Lessor’s costs	74
	24.1	Future leases	75
	24.2	Lessor’s offer	75
	24.3	Lessee’s acceptance	75
	24.4	End of Lessor’s offer	75
	24.5	New lease	75
	24.6	Lessee execution of New Lease	75
	25.7	Lessee’s acknowledgment	76
25.	RENT FREE PERIOD		76
29.	INTERDEPENDENCY CLAUSE		77
	29.1	Interdependent leases	77

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CONTINUATION OF REFERENCE SCHEDULE

ITEM 9:	Minimum Rent:	Year 1 - $820.00 per square metre per annum equal to an annual amount of $217,464.00 Year 2 – year 1 minimum rent increased by 4.5% Year 3 – year 2 minimum rent increased by 4.5% Year 4 – year 3 minimum rent increased by 4.5% Last month of term – year 4 rent increased by 4.5%
ITEM 10:	Permitted Use:	Commercial office premises
ITEM 11:	Public Risk	$20,000,000.00
ITEM 12:	Number of Years for Periodic Rent Review:	In accordance with Item 9
ITEM 13:	Deleted
ITEM 14:	Covenantor:	Not Applicable while Nighthawk Radiology Services, LLC (ARBN 098 194 640) is the Lessee
ITEM 15:	Area of Premises:	265.2m2
ITEM 16:	Lessee’s Proportion:	.31%
ITEM 17:	Security Deposit Amount:	$170,297.60 while the Lessee remains Nighthawk Radiology Services, LLC (ARBN 098 194 640), otherwise an amount equal to 6 months’ Minimum Rent (plus GST)

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1. DEFINITIONS AND INTERPRETATION

1.1 Definitions

“Accounting Year” means each year (or, where appropriate, part of a year) during the Term ending 30 June.

“Adjustment Event” means an Adjustment Event under the GST Law.

“Adjustment Note” means an Adjustment Note under the GST Law.

“Air Conditioning Plant” means the plant, machinery and equipment installed in the Building for heating, cooling or circulating air in the Premises and any alteration addition or replacement of this plant, machinery and equipment.

“Base Building Outgoings” means the amount of Building Outgoings paid or payable:

(a) at the Commencement Date – in respect of the year ending 30 June immediately before the Commencement Date; and

(b) if Minimum Rent is reviewed pursuant to clause 4 – in respect of the Accounting Year expiring immediately before the relevant Review Date.

“Building” means

(a) the building and improvements constructed on the Land;

(b) any alteration, addition or replacement in respect of the buildings and improvements; and

(c) any plant, machinery, equipment, fixtures, fittings and furnishings in the buildings and improvements owned by the Lessor.

“Building Outgoings” means all costs, charges, expenses, fees and other outgoings paid or payable by the Lessor in respect of the Land or Building including, but not limited to:

(a) rates and taxes (including but not limited to, land tax and any GST or value added or consumption tax or other tax to a similar effect (to the extent that the Lessor does not receive an input tax credit) but excluding any income or capital gains tax) and including charges, assessments, duties and fees charged by a Governmental Agency or otherwise;

(b) insurance payments, including premiums in respect of:

(i) insurance of the Building to the full insurable reinstatement value against all risks required by the Lessor;

(ii) plate glass insurance;

(iii) public liability insurance;

(iv) workers’ compensation insurance;

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(v) loss of rents insurance; and

(vi) any other insurance effected by the Lessor in respect of the Lessor’s interest in the Building;

(c) all costs in respect of:

(i) the Air Conditioning Plant;

(ii) providing electricity, gas and oil;

(iii) fire protection including:

(A) maintaining, testing and replacing fire prevention and fighting equipment;

(B) establishing and maintaining emergency evacuation procedures;

(C) supplying, maintaining, servicing and monitoring the fire alarm system by or on behalf of the Lessor or the Fire Brigades Board, Telecom Australia or any Governmental Agency; and

(D) certification of all essential services including but not limited to fire dampers, stair pressurisation, smoke spill systems and fire doors.

(iv) the Elevators and escalators;

(v) providing pest control services to the Common Areas;

(vi) emergency systems including emergency warning system costs, training of fire wardens and tenants and occupants of the Building in evacuation procedures and systems;

(vii) repair, maintenance and renovation of the Building, including providing, maintaining and replacing signs (including illuminated signs);

(viii) repair and maintenance of the car park, including the cost of public signage;

(ix) landscaping and maintaining indoor and outdoor plants (including the replacement of plants), gardens, grounds and paved areas;

(x) providing security including the cost of guards, visitors’ passes and communication; and

(xi) management and control, including:

(A) salaries, wages and consultancy fees;

(B) payroll taxes, superannuation and pension payments and workers’ compensation insurance premiums;

(C) other employee related payments and fees;

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(D) legal and administrative costs;

(E) telephone services; and

(F) providing background music and public address system,

paid or payable to or by the Manager;

(xii) servicing the Common Areas;

but excluding expenditure of a capital nature.

“Business Day” means a day on which trading banks are open for business in Sydney.

“Commencement Date” means the commencing date in Item 2 of the Reference Schedule.

“Common Areas” means:

(a) any part of the Land and the Building provided for common use of tenants and occupants of, and visitors to the Building; and

(b) includes the plazas, pedestrian ways, forecourts, landscaped areas, entrances, lobbies, galleries, corridors, toilets, stairways, elevators and common amenities other than those reserved to the Lessor.

“Core Land” has the meaning assigned to the term “core land” in the Sydney Harbour Foreshore Authority Act 1998.

“Covenantor” means the covenantor in item 14 of the Reference Schedule and:

(a) its successors and permitted assigns; or

(b) if the covenantor is a natural person, its executors, administrators and permitted assigns.

“Current Market Rent” means the current annual market rental value of the Premises agreed or determined in accordance with clause 4.

“Development Approval” means a present or future development approval, building approval, plan, specification or consent of a Governmental Agency in respect of the Premises.

“Electricity Supply System” means the cables, switchboards and sub-boards through which electricity is conveyed through the Building to the Premises.

“Elevators” means any lift or escalator in the Building.

“Facade Garden” means any open area bounded by the exterior facade of the Building to which there is direct physical access from the Premises.

“Governmental Agency” means any government or any governmental, semi-governmental, city, municipal, health, environmental, licensing, administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity.

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“GST” means a tax, levy, duty, charge or deduction, together with any related additional tax, interest, penalty, fine or other charge, imposed by or under a GST Law.

“GST Law” means the A New Tax System (Goods and Services Tax) Act 1999.

“GST Rate” means the rate of GST under the GST Law.

“GST Return” means a GST return under the GST Law.

“Increases in Building Outgoings” means the amount by which the Building Outgoings paid or payable in respect of an Accounting Year exceeds the Base Building Outgoings.

“Independent Expert” means the person agreed or appointed under Part 20.

“Invoice” means a tax invoice under the GST Law.

“Land” means the land the subject of the leasehold estate comprised in certificate of title Volume 8629 Folio 211.

“Lease” means the sub-lease or sub-tenancy that exists between the Lessor and the Lessee in relation to the Premises (of whatever nature and whether at law or in equity) as evidenced in whole or in part by this document including any exhibit, schedule or annexure to it.

“Lessee” means the sublessee in item (F) on the front page of the Lease and:

(a) its successors and permitted assigns;

(b) if the Lessee is a natural person, its executors, administrators and permitted assigns;

(c) its employees, agents, contractors and invitees; and

(d) where the context permits, a Covenantor.

“Lessee’s Covenants” means the obligations expressed or implied in the Lease to be observed and performed by the Lessee.

“Lessee’s Estimate” means the Lessee’s estimate of Current Market Rent in its notice under clause 4.3(a).

“Lessee’s Fittings” means any partitions, curtains, blinds or other fixtures or fittings which the Lessee installs in the Premises.

“Lessee’s Outgoings” means the Lessee’s Proportion of Increases in Building Outgoings.

“Lessee’s Proportion” means the proportion that the net lettable are of the Premises bears to the net lettable area of the Building, being the percentage in item 16 of the Reference Schedule (or any other corrected or recalculated percentage notified in writing by the Lessor to the Lessee from time to time).

“Lessor” means the Sub-Lessor in item (D) on the front page of the Lease and:

(a) its successors and assigns; and

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(b) and where not repugnant to the context its Manager, employees and agents.

“Lessor’s Estimate” means the Lessor’s estimate of Current Market Rent in a Review Notice.

“Manager” means:

(a) any manager appointed by the Lessor to manage the Land and the Building; and

(b) the employees and agents of that manager.

“Minimum Rent” means the amount in item 9 of the Reference Schedule as varied pursuant to clause 4.

“Monthly Cleaning Amount” means the monthly amount of cleaning costs payable by the Lessee calculated pursuant to clause 9.2.

“Normal Business Hours” means the hours so described in the Rules and Regulations.

“Outgoings Statement” means a statement given under clause 5.3(a).

“Permitted Use” means the use of the Premises described in item 10 of the Reference Schedule.

“Premises” means the premises described in item (B) on the front page of the Lease extending:

(a) between the upper face of the concrete slab below the raised floor and the underside of the concrete slab above the ceiling of those premises; and

(b) between the internal faces of all walls, glazing, doors and partitions which separate those premises from any other premises or Common Areas, and includes any Facade Garden incorporated in those premises,

and including the fixtures, fittings, furnishings, plant, machinery and equipment in the premises and owned by the Lessor.

“Prescribed Rights” means the voting, income or capital participation rights in the Lessee.

“Reference Schedule” means the reference schedule to the Lease.

“Rent” means all money required to be paid by the Lessee to the Lessor under the Lease.

“Review Date” means the day following the end of a Review Period.

“Review Notice” means a notice given by the Lessor under clause 4.1(a).

“Review Period” means each period of six (6) months immediately preceding:

(a) the expiration of each period of years in Item 12 of the Reference Schedule commencing on the Commencement Date;

(b) the date of any transfer of the Lease or any subletting; and

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(c) the date of commencement of any period of holding over pursuant to clause 12.3.

“Rules and Regulations” means the rules and regulations for the Land and the Building contained in Schedule 1 as amended from time to time under clause 6.4.

“Rules for Development Area” means the rules and regulations relating to the Core Land set out in Schedule 1 of the head lease between the Sydney Harbour Foreshore Authority and the Lessor dated 25 August 1988 (as amended) and every addition, amendment, variation, cancellation and/or suspension made in accordance with clause 6.6 of the Lease or incorporated in the Lease.

“Strata Titles Act” means the Strata Titles (Freehold Development) Act 1973 or similar legislation

“Supply and Supplied” means the same as in the GST Law.

“Term” means the term of the Lease in item 1 of the Reference Schedule.

1.2 Interpretation

In the Lease, unless the context otherwise requires:

(a) headings and underlinings are for convenience only and do not affect the interpretation of the Lease.

(b) words importing the singular include the plural and vice versa.

(c) words importing a gender include any gender.

(d) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate and any Governmental Agency;

(e) a reference to any thing includes a part of that thing;

(f) a reference to a part, clause, party, annexure, exhibit or schedule is a reference to a part and clause of, and a party, annexure, exhibit and schedule to, the Lease;

(g) a reference to any statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute;

(h) a reference to party to a document includes that party’s successors and permitted assigns;

(i) where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the preceding Business Day;

(j) no rule of construction applies to the disadvantage of a party because that party was responsible for the preparation of the Lease or any part of it; and

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(k) a covenant or agreement on the part of two or more persons binds them jointly and severally except that any covenants or agreements on the part of any of the Lessors shall bind them severally only.

1.3 Exhibits

Any exhibit has been shown to the parties to the Lease and executed or signed by them or on their behalf by way of identification.

1.4 Bodies and associations

Reference to any body (including, but not limited to, an institute, association or authority), whether or not it is a statutory body:

(a) which ceases to exist; or

(b) whose powers or functions are transferred to any other body,

refers to the body which replaces it or which substantially succeeds to its powers or functions.

1.5 Measurement of areas

When measuring areas, the relevant method most recently recommended by the Property Council of Australia Limited (ACN 008 474 422) is to be used.

2. GRANT OF LEASE, EXCLUSION OF IMPLIED COVENANTS AND POWERS AND LESSOR’S RESERVATIONS

2.1 Grant of Lease

The Lessor grants to the lessee and the Lessee takes a lease of the Premises for the Term upon and subject to the terms, covenants and provisions set out in the Lease.

2.2 Exclusion of implied covenants

Sections 84, 84A, 85 and 133A of the Conveyancing Act 1919 do not apply to, and are not implied in, the Lease.

2.3 Lessor’s reservations

(a) The Lessor reserves the right:

(i) to examine, test, install, maintain, use, repair, alter and replace; and

(ii) to pass drainage, water, sprinkler and fire alarm services, sewage, gas, oil, electricity, telephonic and electronic communication services and heated or cooled air through,

any drains, pipes, ducts, conduits or wires leading into or through the Premises or the Common Areas;

(iii) to use the exterior walls and the roof of the Building.

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(b) For the purposes of this clause the Lessor may enter the Premises but must:

(i) except in an emergency when no notice is required, give reasonable notice to the Lessee; and

(ii) cause the Lessee as little inconvenience as is reasonably practicable.

2.4 Easements

(a) The Lessor, as it thinks fit, may:

(i) grant easements; or

(ii) enter into any arrangement or agreement with:

(A) any owner, or occupier of nearby properties; or

(B) any Governmental Agency,

for the purpose of providing:

(iii) public or private access to and egress from the Building or the Premises;

(iv) support of existing or future structures erected on or from adjoining land; or

(v) services (including, but not limited to, water, drainage, gas electricity, and telephonic and electronic communication services).

(b) The Lessor, for the purposes of this clause, may:

(i) dedicate any part of the Land to any person; or

(ii) transfer or grant any privilege or right affecting the Land, the Building or the Premises, in favour of any person or land.

(c) The Lease is to be treated as subject to any agreement, dedication, arrangement, right, easement or privilege referred to in this clause.

2.5 Building alterations

(a) The Lessor may at any time improve, extend, or reduce the Building.

(b) The Lessor must use its reasonable endeavours to cause the Lessee as little inconvenience as is reasonably practicable in exercising its rights under this clause.

2.6 Lessee’s rights

The Lessor, in exercising its rights under this part must not:

(a) dedicate any land; or

(b) create any easement, privilege or other right,

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which derogates substantially and permanently from the enjoyment of any rights conferred on the Lessee by the Lease.

3. RENT AND ABATEMENT

3.1 Rent

The Lessee must, during each Accounting Year, pay to the Lessor the Rent:

(a) free of all deductions;

(b) without demand;

(c) at the place and in the manner last notified by the Lessor in writing or, in the absence of that notification, at the address of the Manager; and

(d) in the case of Minimum Rent:

(i) by consecutive monthly payments in advance;

(ii) on the Commencement Date and then on the first day of each month during the Term; and

(iii) each payment must equal one/twelfth of the Minimum Rent (excluding the first and last payments which may be proportionate).

3.2 Termination on destruction or damage

(a) The following provisions apply if all or part of the Building is destroyed or damaged by fire, flood, lightning, storm, tempest or other cause and as a result in the opinion of the Lessor:

(i) the Premises will be unfit for occupation by the Lessee for a period of at least six (6) months; or

(ii) the reinstatement of the Premises in their previous form will be impracticable or undesirable.

(b) Either the Lessor or the Lessee, by notice in writing to the other, may terminate the Lease without compensation.

(c) Termination under this clause is without prejudice to any rights of the Lessor and the Lessee in respect of any prior breach, matter or thing.

(d) Nothing express or implied in the Lease imposes any obligation on the Lessor to rebuild the Building, reinstate the Premises or otherwise make them fit for occupation.

(e) The rights of the Lessee under this clause do not apply if:

(i) the destruction or damage is caused or contributed to by the Lessee; or

(ii) the Lessor fails to receive the benefit of any insurance in respect of the destruction or damage due to any act or omission of the Lessee.

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3.3 Abatement on destruction or damage

(a) If all or part of the Building is destroyed or damaged by fire, flood, lightning, storm, tempest or other cause and as a result in the reasonable opinion of the Lessor all or part of the Premises are then unfit for occupation by the Lessee Minimum Rent and Lessee’s Outgoings (or a portion of them) abate according to the nature and extent of the damage or destruction until the Premises are reinstated or made fit for occupation by the Lessee.

(b) The rights of the Lessee under this clause do not apply if:

(i) the destruction or damage is caused or contributed to by the Lessee; or

(ii) the Lessor fails to receive the benefit of any insurance in respect of the destruction or damage due to any act or omission of the Lessee.

4. RENT REVIEW

4.1 Review

The procedure for reviewing Minimum Rent during the Term is that:

(a) the Lessor may give written notice to the Lessee during a Review Period:

(i) requiring Minimum Rent to be revised; and

(ii) stating the Lessor’s estimate of the Current Market Rent as at the Review Date; and

(b) at and from the Review Date, the Minimum Rent is the Current Market Rent agreed or determined pursuant to this part.

4.2 Minimum amount

The Current Market Rent may not be determined pursuant to this part as an amount less than the sum of the Minimum Rent and Lessee’s Outgoings payable immediately before the Review Date.

4.3 Determination

The following procedure applies if the Lessee disagrees with the Lessor’s Estimate of the Current Market Rent:

(a) The Lessee, within thirty (30) days after the Lessor gives notice under clause 4.1, must give written notice to the Lessor disputing the Lessor’s Estimate and stating the Lessee’s estimate of Current Market Rent.

(b) If the Lessee fails to give the notice under paragraph (a) within the thirty (30) days, the Lessor’s Estimate will be the Current Market Rent as and from the Review Date.

(c) The Lessor and Lessee, within fourteen (14) days of the Lessee giving the notice in accordance with paragraph (a), must agree on a valuer to be appointed by the Lessor to determine the Current Market Rent as at the Review Date.

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(d) A valuer appointed under this Part must:

(i) be a full member of not less than five (5) years’ standing of the Australian Property Institute Inc (NSW Division);

(ii) hold a licence to practise;

(iii) currently practise;

(iv) include in his practice the valuation of properties similar to the Land and the Building and the valuation of leases similar to the Lease; and

(v) not have been appointed as an expert to determine the Current Market Rent for other premises in the Building more than twice during the twelve (12) months before being nominated or appointed under this part.

(e) If the parties do not agree on a valuer in accordance with paragraph (c), the Lessor must request the President of the Australian Property Institute Inc (NSW Division) to nominate a valuer with the qualifications in paragraph (d) to be appointed by the Lessor to determine the Current Market Rent as at the Review Date.

(f) A valuer appointed under this part must make a determination within five (5) weeks of appointment or such longer period as the Lessor and Lessee allow. If the valuer does not do so, another valuer must be appointed under paragraph (c) or (e) of this clause.

(g) The valuer’s costs of determination of the Current Market Rent must be borne by the Lessor and the Lessee equally.

(h) In making a determination under this clause, a valuer is deemed to act as an expert and not as an arbitrator.

(i) Any determination under this clause:

(i) must be in writing;

(ii) must include the valuer’s reasons and calculations in arriving at the determination; and

(iii) is final and binding on the parties.

(j) Time is of the essence of this clause.

4.4 Factors to be considered

In determining the Current Market Rent of the Premises, any valuer appointed under this part must:

(a) exclude:

(i) the value of any goodwill attributable to the Lessee’s business;

(ii) the value of the Lessee’s Fittings; and

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(iii) any deleterious condition of the Premises arising out of a breach of any term of the Lease by the Lessee;

(iv) any thing done by the Lessee or any sub-lessee or licensee which has diminished the rental value of the Premises;

(b) have regard to:

(i) the terms and conditions of the Lease, in particular, but not limited to,

(A) the liability of the Lessee to contribute to Building Outgoings; and

(B) the period of time until the next Review Date;

(ii) the rentals for comparable premises in and in the vicinity of the Building;

(iii) any increase in rental value to the Lessee arising out of remaining in the Premises rather than moving to alternative premises;

(iv) the highest and best use to which the Premises may properly be put;

(v) the Premises on a floor by floor basis without a discount for bulk letting;

(vi) any written representation provided to the valuer by the Lessor or Lessee or their consultants, within fourteen (14) days after the valuer’s appointment, in respect of their estimates of Current Market Rent;

(c) not make a reduction in respect of any:

(i) payment or concession to secure or retain a lessee of comparable premises;

(ii) payment or concession to secure or retain the Lessee in the Premises;

(iii) period of rent abatement under a lease of premises referred to in sub-paragraph (c)(i) above; or

(iv) period of rent abatement under the Lease; and

(d) value the Premises on the basis that:

(i) they are available and ready for fitting out by the Lessee;

(ii) if destroyed or damaged they are fully restored;

(iii) they are available to be let whole, without a premium payable by a lessee, by a willing landlord to a willing lessee;

(iv) the consent of all Governmental Agencies has been obtained for the highest and best use to which they can be put, whether or not the Lessee uses them in that way;

(v) all the Lessee’s Covenants have been fully performed and observed; and

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(vi) if the Premises are sub-let, there is no reduction on rental value arising out of the sub-letting.

4.5 Provision of adjustment

(a) If the Current Market Rent is not agreed or determined before the end of a Review Period, the Lessee must pay to the Lessor:

(i) on account of Minimum Rent; and

(ii) on the due dates for payment of Minimum Rent,

an amount equal to the greater of one twelfth of:

(iii) the Minimum Rent payable immediately before the Review Date; and

(iv) the amount in (iii) plus eighty percent of the difference between that amount and the Lessor’s Estimate;

(b) When the Current Market Rent is agreed or determined, any necessary adjustment of Minimum Rent must be:

(i) calculated from the Review Date; and

(ii) paid by the Lessee, or refunded by the Lessor,

within fourteen (14) days of the agreement or determination.

4.6 Deferment of review

(a) If the Lessor does not give a Review Notice to the Lessee before a Review Date:

(i) the Lessor may give a Review Notice at any time before the next Review Date; and

(ii) the Lessor may, in the Review Notice, nominate the date it gives the Review Notice too the Lessee as the Review Date and, if so, then despite clause 1.1:

(A) the Review Date is the date that the Lessor gives the Review Notice to the Lessee; and

(B) the Review Period is the period of six (6) months expiring on the date that the Lessor gives the Review Notice to the Lessee.

(b) The operation of this clause does not vary the commencement of any succeeding Review Period.

5. LESSEE’S OUTGOINGS

5.1 Building Outgoings

The Lessee must pay to the Lessor the Lessee’s Outgoings, in addition to the Minimum Rent payable during the Term.

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5.2 Payments of account of Lessee’s Outgoings

(a) The Lessor must estimate the Lessee’s Outgoings in respect of each Accounting Year and notify the Lessee of the estimate.

(b) The Lessor may issue to the Lessee a substitute estimate at any time.

(c) The Lessee must pay to the Lessor the latest Lessor’s estimate of the Lessee’s Outgoings:

(i) by equal monthly installments;

(ii) in advance during each Accounting Year; and

(iii) on the days and in the manner fixed for payment of Minimum Rent.

5.3 Outgoings Statement

(a) The Lessor must give to the Lessee an audited statement as soon as practical after the end of the each Accounting Year specifying in respect of that year:

(i) the amount of Building Outgoings, including particulars considered reasonable by the Lessor; and

(ii) the amount of the Lessee’s Outgoings.

(b) Irrespective of the date on which any item of Building Outgoings is paid, Building Outgoings:

(i) Are deemed to accrue from day to day; and

(ii) must be apportioned accordingly.

(c) The Outgoings Statement is prima facie evidence of what it contains, unless there is a manifest error notified by the Lessor or Lessee to the other within fourteen (14) days of service of the statement on the Lessee.

5.4 Adjustment of Building Outgoings

(a) The Lessee must pay to the Lessor the Lessee’s Outgoings (less any amounts paid by the Lessee on account of Lessee’s Outgoings) within twenty-one (21) days of receipt by the Lessee of the Outgoings Statement.

(b) Subject to paragraph (c), termination of the Lease does not terminate or prejudice the liability of the Lessee to pay the Lessee’s Outgoings.

(c) If payments on account of the Lessee’s Outgoings exceed the Lessee’s Outgoings for an Accounting Year the excess must be:

(i) credited against:

(A) the next payment made by the Lessee on account of the Lessee’s Outgoings; or

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(B) if the Lease is terminated, any amount owing by the Lessee to the Lessor; or

(ii) paid to the Lessee if nothing is owed to the Lessor.

6. USE OF PREMISES

6.1 Permitted use

(a) The Lessee must not:

(i) use the Premises; nor

(ii) permit them to be used,

for any purpose other than the Permitted Use.

(b) Without limiting the generality of paragraph (a) the Lessee must not use, nor permit the use of:

(i) the Premises for any residential purpose whether temporary or permanent; or

(ii) any storage space forming part of the Premises for any use other than storage.

6.2 Lessee’s business

The Lessee must:

(a) keep the Premises open for business during usual business hours, having regard to the nature of the Lessee’s business; and

(b) conduct the business in a proper, efficient and reputable manner.

6.3 Smoking

The Lessee:

(a) Must not smoke or allow any person to smoke in the Premises; and

(b) Must not smoke or allow any person to smoke in the Building or the Common Areas.

6.4 Rules and Regulations

(a) The Lessee must:

(i) observe and comply with; and

(ii) not permit anything to be done contrary to,

the Rules and Regulations.

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(b) Default in compliance with the Rules and Regulations will be treated in all respects as a breach of the Lessee’s Covenants.

(c) If there is any inconsistency between the provisions of the Lease and the Rules and Regulations, the provisions of the Lease shall prevail.

(d) The Lessor may at any time:

(i) amend, add to, cancel or suspend any or all of the Rules and Regulations; or

(ii) make additional or substitute rules and regulations,

which, in the Lessor’s opinion are required for:

(iii) the management, use, safety, care, cleanliness or external appearance of the Premises, the Land or the Building; or

(iv) the convenience and health of occupiers and invitees.

(e) Without limiting paragraph (d), the Lessor may make Rules regarding environmentally desirable practices and the prohibition of smoking.

(f) Any amendment or addition to, or cancellation or suspension of, the Rules and Regulations:

(i) must be materially consistent with the rights of the Lessee under the Lease;

(ii) does not prevail over a provision of the Lease if materially inconsistent with the Lease; and

(iii) binds the Lessee when the Lessor gives written notice of it.

(g) The Lessor is not liable for any loss or damage, however caused, in respect of any non-enforcement of the Rules and Regulations.

6.5 Compliance with the Rules for Development Area

(a) The Lessee must comply with and cause to be complied with, the Rules for Development Area and will not do or permit anything contrary to the Rules for Development Area.

(b) Failure of the Lessee to comply with the Rules for Development Area constitutes a breach of the Lease as if the Rules for Development Area were contained in the Lease as a covenant by the Lessee with the Lessor and the Lessee was in breach of this covenant.

6.6 Additions and Amendments to the Rules for Development Area

(a) The Lessor and or the Sydney Harbour Foreshore Authority may at any time:

(i) amend, add to, cancel or suspend any or all of the Rules for Development Area; or

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(ii) make additional or substitute rules,

which, in their opinion, are necessary for:

(iii) regulating the use of the Core Land;

(iv) the safety, security, care, decoration, maintenance, cleanliness or other improvement; or

(v) the preservation of good order in and the convenience of persons using the Core Land.

(b) The Lessee is not required to comply with any Rules for Development Area which substantially and permanently derogate from the enjoyment of its rights under the Lease unless those Rules for Development Area are set out in Schedule 1 of the head lease (referred to as Rules and Regulations) between the Sydney Harbour Foreshore Authority and the Lessor dated 25 August 1988, as amended or are referred to in the Lease.

6.7 24 hour access

(a) The Lessor consents to the Lessee and persons authorised by the Lessee entering and using the Premises:

(i) inside and outside Normal Business Hours;

(ii) for any purpose necessary or ancillary to the Permitted Use.

(b) The consent in paragraph (a) is subject to the conditions that:

(i) the Lessee complies with any reasonable requirements of the Lessor for:

(A) control of the entrances to the Building; or

(B) identification of persons entering or leaving the Building,

outside Normal Business Hours; and

(ii) the Lessee acknowledges that:

(A) comprehensive Elevator services may not be available; and

(B) air conditioning is not normally available,

outside Normal Business Hours.

6.8 Nuisance

The Lessee must not do, nor permit anything that may cause damage or disturbance to:

(a) the Lessor or any occupier of the Building; or

(b) any owner or occupier of nearby properties.

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6.9 Heavy equipment

(a) The Lessee must:

(i) not bring into the Building any heavy equipment (including machinery, plant, furniture, or materials) unless reasonably necessary or appropriate in respect of the Permitted Use;

(ii) inform the Lessor, before bringing any heavy equipment into the Building, of:

(A) the intention to do so; and

(B) the weight, dimensions and nature of the heavy equipment; and

(iii) observe and comply with any directions given by the Lessor in respect of routing, installing or locating the heavy equipment.

(b) The heavy equipment must not cause or, in the reasonable opinion of the Lessor, be likely to cause any structural or other damage to the Building.

6.10 Electrical equipment

(a) The Lessee must:

(i) not install any electrical equipment in the Premises which may overload the Electricity Supply System; and

(ii) demonstrate in writing to, and obtain the agreement of the Lessor that, any proposed installation of electricity equipment will not overload the Electricity Supply System.

(b) If the Lessee installs any electrical equipment in the Premises in breach of this clause, the Lessee must:

(i) pay to the Lessor all costs incurred in repairing:

(A) the Electricity Supply System;

(B) any other damage to the Building;

(C) any damage to any occupier of the Building or their property; and

(ii) disconnect and remove from the Premises any electrical equipment which in the reasonable opinion of the Lessor is likely to overload the Electricity Supply System.

6.11 Pest Control

The Lessee must:

(a) take all reasonable precautions to keep the Premises free of rodents, vermin, insects, pests, birds and animals; and

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(b) without limiting the generality of paragraph (a) as required by the Lessor, employ pest exterminators approved by the Lessor.

6.12 Heating and Cooling

The Lessee must not use nor permit any method of heating or cooling in the Premises other than the Air Conditioning Plant.

6.13 Signs and Advertising

The Lessee must obtain the prior written consent of the Lessor and any necessary Governmental Agency to affix or exhibit any sign, light, embellishment, advertisement, name or notice on or to the Land or Building, unless it:

(a) is within the Premises;

(b) is not visible from outside the Premises; and

(c) does not contravene any other provision of the Lease.

6.14 Radio, TV, etc

(a) The Lessee, without the prior written consent of the Lessor, must not:

(i) install any radio or television aerial or antenna; nor

(ii) use or permit the use of:

(A) any radio, record player, tape recorder, loudspeaker or television screen; or

(B) other similar equipment or media,

which may be heard or seen from outside the Premises.

(b) The Lessor, in its absolute discretion and at any time, may withdraw any consent given under this clause having regard to the interests of:

(i) the Lessor;

(ii) other occupiers of the Building; or

(iii) the owners or occupiers of nearby properties.

6.15 Requirements of Governmental Agencies

(a) Subject to paragraph (b), the Lessee must comply promptly with any statutes, ordinances, proclamations, orders and regulations in respect of:

(i) the Premises or their use;

(ii) the health or safety of persons in their use of the Premises; or

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(iii) any machinery, plant, equipment, fixtures, fittings or furnishings in the Premises,

and any requirements, notices or orders of any Governmental Agency having jurisdiction or authority in respect of any machinery, plant, equipment, fixtures, fittings or furnishings of the Lessee in the Premises.

(b) The Lessee is not liable for any structural alteration required by any Governmental Agency unless required or made because of the Lessee’s particular use or occupation of the Premises.

(c) The Lessee must comply with the Occupational Health & Safety Act, 2000 and any other legislation relating to the health and safety of persons in their use of the Premises.

(d) The Lessee releases and indemnifies the Lessor for all damage, expense, loss or liability in respect of which the Lessor becomes or may become liable by reason of the Occupational Health and Safety Act, 2000, in respect of the Premises or its use.

6.16 Notice of defects

The Lessee must give prompt written notice to the Lessor of any:

(a) accident to, or defect or lack of repair in, any services, machinery, plant, equipment, fixtures, fittings or furnishings (other than Lessee’s Fittings) in the Premises or Common Areas; or

(b) circumstances causing or likely to cause any danger, risk or hazard to the Building or any person or property in the Building,

of which the Lessee becomes aware.

6.17 Fire regulations

The Lessee must:

(a) comply with insurance, sprinkler and fire alarm regulations in respect of the Premises; and

(b) pay to the Lessor all costs of any alterations to the sprinkler and fire alarm installation in respect of any:

(i) non-compliance by the Lessee with paragraph (a); or

(ii) requirements of:

(A) the Insurance Council of Australia;

(B) an insurer of the Building or any interest in it; or

(C) any Governmental Agency.

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6.18 No inflammable substances

The Lessee, without the prior written consent of the Lessor, must not:

(a) store in the Premises any substances of an inflammable, volatile or explosive nature;

(b) use in the Premises any of the substances in paragraph (a) for any purpose.

6.19 Security

(a) The Lessee must:

(i) use all reasonable endeavours to:

(A) protect and keep safe from theft or robbery, the Premises and any property in them; and

(B) close and securely fasten all doors, windows and other openings when the Lessee is not in the Premises;

(ii) ensure the security of all keys and cards issued to the Lessee which allow access to the Premises outside Normal Business Hours, including but not limited to:

(A) issuing access keys and cards only to responsible employees of the Lessee;

(B) maintaining a key register recording the full names residential addresses and telephone numbers of all employees to whom the Lessee issues an access key or card;

(C) make the key register available on request for inspection by the Lessor;

(iii) not, subject to paragraph (b):

(A) cut, manufacture or reproduce; nor

(B) suffer or permit any person to cut, manufacture or reproduce,

any access key or card for the Building;

(iv) on termination of the Lease, deliver to the Lessor all access keys or cards;

(A) issued to the Lessee; and

(B) which enable access to the Premises or the Building;

(v) notify the Lessor promptly of any access key or card for the Premises or the Building which is stolen, destroyed, lost or mislaid; and

(vi) indemnify the Lessor for any damage, expense, loss or liability suffered or incurred in respect of the loss of the keys or cards in subparagraph (a)(v) including, but not limited to, any necessary changes to the security system of the Premises or the Building.

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(b) The Lessor must arrange for the production of additional access keys or cards:

(i) when requested, and as required, by the Lessee; and

(ii) at the Lessee’s expense,

but subject to any limitation reasonably imposed by the Lessor for security reasons.

6.20 Testing Lessee’s fire, security or alarm systems

(a) The Lessee must not allow the testing or maintenance of any fire, security or alarm systems installed in the Premises (other than those which are part of the Building’s systems) to activate any of the fire, security or alarm systems which are part of the Building’s systems.

(b) The Lessee is responsible for and must pay any costs or expenses in respect of any failure to comply with paragraph (a):

(i) suffered or incurred by the Lessor or any occupier of the Building;

(ii) including, but not limited to, reacting to or complying with any emergency or evacuation procedures activated in respect of the breach.

(c) The Lessee must indemnify the Lessor in respect of any damage, expense, loss or liability suffered or incurred in respect of a breach of this clause.

6.21 Appointment of fire wardens

The Lessee must:

(a) at the request of the Lessor or Manager, appoint fire wardens; and

(b) use its best endeavours to ensure that those fire wardens comply with any emergency evacuation procedures issued by the Lessor or the Manager.

6.22 Compliance with emergency procedures

The Lessee must observe and comply with all fire, emergency or other drills whether or not they involve evacuation of the Premises or the Building.

6.23 Appointment of fire wardens

(a) The Lessor or the Manager may request the Lessee to immediately evacuate the Premises or the Building or both if they believe there may be a situation which exposes the Premises, the Building or occupants to danger or risk.

(b) The Lessee must comply immediately with any request under this clause.

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6.24 No liability

The Lessee has no right or claim against the Lessor or the Manager for any damage, loss, expense or liability (including, but not limited to, for loss of profits) suffered or incurred in respect of any drill or evacuation under this part.

6.25 Re-entry

The Lessee must not re-enter the Premises or the Building if prohibited by the police, fire brigade, other emergency authority, the Lessor or the Manager.

6.26 Bomb and firearm threats

The Lessee must notify the Lessor or the Manager immediately of any threat or demand (including, but not limited to, bomb and firearm threats) received by:

(a) the Lessee; or

(b) any invitee of the Lessee (if known to the Lessee),

which relates in any way to:

(c) the Building; or

(d) the safety of any person or property in the Building.

6.27 Prospective tenants and purchasers

The Lessee must:

(a) permit the Lessor to exhibit the Premises to prospective tenants or purchasers at all reasonable times;

(b) allow the Lessor, within the three (3) months immediately preceding termination of the Lease, to affix and exhibit the usual “For Sale” and “To Let” notices (containing the name and address of the Lessor or its agent) where the Lessor thinks fit; and

(c) not remove any of the notices in this clause without the written consent of the Lessor.

7. MAINTENANCE REPAIR AND ALTERATIONS

7.1 Repair and maintenance

(a) The Lessee, at all times, must:

(i) maintain, repair, paint, renew and replace the Premises; and

(ii) keep them clean and in good and substantial repair, order and condition,

having regard to the condition at the date on which the Lessee was first given access to the Premises or, in the case of any part of the Premises which has been replaced or renewed, to the condition it was in upon being replaced or renewed taking into account its age.

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(b) This clause does not apply to damage by:

(i) earthquake, fire, flood, lightning or storm; or

(ii) reasonable wear and tear,

unless any insurance payment is irrecoverable due to the neglect, default or misconduct of the Lessee.

(c) This clause does not apply in respect of any structural maintenance, repair or replacement unless it is due to:

(i) any act, neglect, default or omission by the Lessee; or

(ii) the Lessee’s particular use or occupancy of the Premises.

(d) The Lessee agrees that the Premises are in good and substantial repair, order and condition at the date on which the Lessee was first given access to the Premises.

(e) This clause does not prejudice any specific obligation in this part.

7.2 Painting

(a) The Lessee must paint, paper, clean or otherwise appropriately treat (with good quality, suitable materials approved by the Lessor in writing) in a proper and workmanlike manner each part of the Premises treated in that way at the date on which the Lessee was first given access to the Premises or subsequently;

(i) at intervals of not more than five (5) years; and

(ii) from time to time, if necessary or reasonably required by the Lessor.

(b) This clause is without prejudice to other provisions of the Lease.

7.3 Breakages

The Lessee must immediately make good any breakage, defect or damage to:

(a) the Premises;

(b) any adjoining premises; or

(c) any facility of the Premises or any adjoining premises,

arising out of

(d) want of care, misuse or abuse, or

(e) any breach of the Lessee’s Covenants,

by the Lessee.

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7.4 Lighting

The Lessee must promptly replace at its own expense any light globes or tubes which cease to function for any reason.

7.5 Carpets, blinds, etc

The Lessee must keep any carpets, floor coverings, blinds and curtains in the Premises in good and tenantable repair and condition.

7.6 Doors, drains and toilets

The Lessee must:

(a) keep and maintain the doors, locks, windows, and window fittings of the Premises in good and efficient working order and condition;

(b) immediately notify the Lessor of any blockages in water pipes or drains on the Premises or in the Common Areas;

(c) not use or allow the use of lavatories and other sanitary appliances for any purpose;

(i) other than that for which they are constructed; or

(ii) which might block or otherwise affect or damage them.

7.7 Lessor may inspect

The Lessor may, at any time on giving the Lessee reasonable notice (other than in an emergency, when no notice is required) may enter the Premises for the purpose of ascertaining whether the Lessee is complying with the Lessee’s Covenants.

7.8 Lessor may repair

(a) The Lessor, at any time, on giving the Lessee reasonable notice (other than in an emergency, when no notice is required) enter the Premises with any consultants, workmen, other persons or materials needed to:

(i) comply with any requirement, notification or order (for which the Lessee is not liable under the Lease) of any Governmental Agency; or

(ii) carry out repairs, maintenance, modifications, or extensions to the Premises or the Building considered necessary or desirable by the Lessor.

(b) The Lessor, must use its best endeavours to cause the Lessee as little inconvenience as is reasonably practicable in exercising its rights under this clause.

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7.9 Alterations and Lessee’s Fittings

The Lessee must:

(a) not install any Lessee’s Fittings in the Premises nor demolish or make any alterations or additions to the Premises, the Building or the Lessee’s Fittings without the Lessor’s written approval;

(b) make written application to the Lessor for approval to:

(i) the installation of any Lessee’s Fittings; or

(ii) any proposed alterations or additions to the Premises, the Building or the Lessee’s Fittings;

and submit drawings and specifications in support prepared by a qualified consultant approved by the Lessor;

(c) install only those Lessee’s Fittings which comply with:

(i) the Lessor’s requirements as to type, quality, colour and size; and

(ii) the master key system for the Building;

(d) use a builder, contractor or tradesman approved by the Lessor to install the Lessee’s Fittings:

(i) in a proper and workmanlike manner; and

(ii) if required by the Lessor, under the supervision and to the satisfaction of an architect approved by the Lessor;

(e) if required by the Lessor on completion of the installation of the Lessee’s Fittings, give the Lessor a certificate by a consultant approved by the Lessor that the work accords with:

(i) the drawings and specifications in respect of such work (or specifies any departure from the approved work); and

(ii) the requirements of all relevant Governmental Agency;

(f) pay all costs in respect of the installation of the Lessee’s Fittings and any alterations or additions to the Premises or the Building made necessary by the installation including, but not limited to, the cost of:

(i) any partitions, blinds or fixtures and fittings;

(ii) any doors, glass, vents, and other items incorporated into and forming part of the structure of any partitions;

(iii) any alterations or additions to:

(A) any power outlets and switches, or telephone outlets;

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(B) the Air Conditioning Plant; or

(C) any sprinklers, fire alarm or prevention installations,

required by law, the positions of the Lessee’s Fittings or any requirements of the Lessor or Lessee;

(g) without prejudice to the generality of this clause, obtain the written consent of the Lessor and comply with this clause before:

(i) driving nails or screws into; or

(ii) in any way damaging or defacing,

any part of the Premises or the Building; and

(h) at the Lessee’s expense, keep and maintain the Lessee’s Fittings in good repair and condition.

7.10 Furniture and fittings

The Lessee must use only high quality office furniture and fittings within the Premises.

7.11 Rectification of damage in Common Areas

The Lessee must immediately make good any breakage, defect or damage to:

(a) the Common Areas;

(b) any adjoining premises; or

(c) any facility or appurtenance of the Common Areas or any adjoining premises,

arising from:

(d) any want of care, misuse or abuse; or

(e) any breach of the Lease or the Rules and Regulations,

by the Lessee.

8. SERVICES

8.1 Air-conditioning and elevators

(a) The Lessee must at all times:

(i) comply with and observe the Lessor’s reasonable requirements in respect of; and

(ii) not do nor allow anything which might interfere with or impair the efficient operation of,

the Air-Conditioning Plant or Elevators.

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(b) The Lessee must allow the Lessor and the Lessor’s engineers or mechanics to enter the Premises at any time to:

(i) examine, maintain and repair; or

(ii) install or replace,

all or any of the Air Conditioning Plant or Elevators.

(c) The Lessee must not use the Elevators or permit them to be used for any purpose other than the conveyance of passengers (with or without their personal luggage) without the prior written consent of the Lessor.

8.2 After hours use

(a) The Lessor, if the Lessee uses the Premises outside Normal Business Hours, may apportion any expenses, charges and outgoings in respect of:

(i) Air Conditioning Plant, Elevators and maintenance;

(ii) overtime and additional staff required, in the Lessor’s opinion, for security of the Building or otherwise and cleaning the Common Areas; and

(iii) any other expense,

arising out of the Lessee’s access to the Building and use of the Premises outside Normal Business Hours.

(b) The Lessor may issue an account to the Lessee in respect of paragraph (a) which will be payable by the Lessee on demand and recoverable as overdue rent.

8.3 Payment for services to the Premises

(a) The Lessee must pay all accounts for the supply of gas, electricity, telephone and other services to or from the Premises as and when they become due and payable.

(b) The Lessee must permit the Lessor to arrange the installation of separate meters for any services capable of separate metering.

8.4 Supply failure

(a) The Lessor is not liable for any damage, expense, loss or liability suffered or incurred:

(i) by the Lessee or any other person; or

(ii) to any property or the effects or business of the Lessee or any other person;

in respect of the operation or failure of any services including, but not limited to, the Elevators, Air Conditioning Plant, public utility services or other machinery;

(iii) provided by the Lessor; or

(iv) enjoyed by the Lessee,

in conjunction with the Land, the Building or the Premises.

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(b) The Lessee may not terminate the Lease, and Rent will not abate, by reason of anything referred to in paragraph (a).

9. CLEANING

9.1 Cleaning by Lessor

(a) The Lessor must engage a cleaning contractor to clean the Premises and its windows.

(b) The Lessee must give the cleaning contractor:

(i) access to the Premises; and

(ii) permission to clean the Premises and its windows,

both during and outside Normal Business Hours.

(c) The Lessor, in respect of the cleaning arrangements in this clause, is not responsible for any loss or damage to the property or effects of the Lessee.

9.2 Monthly Cleaning Amount

The Lessee must, in addition to Minimum Rent and Lessee’s Outgoings, pay to the Lessor an amount equal to the Lessee’s Proportion of the total monthly cost of the cleaning of and the removal of garbage from the Building including, but not limited to:

(a) any areas in the Land occupied by the Lessor; and

(b) the Premises; and

(c) the Common Areas.

9.3 Payment of Monthly Cleaning Amount

(a) The Lessor must notify the Lessee from time to time of the Monthly Cleaning Amount.

(b) The Lessee must pay the Monthly Cleaning Amount to the Lessor on the days and in the manner fixed for payment of Minimum Rent.

10. INSURANCE

10.1 Public Risk

The Lessee must:

(a) effect and keep in force adequate public risk insurance in respect of the Premises for an amount required by the Lessor from time to time; and

(b) ensure that the insurance covers the indemnities in clause 11.

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10.2 Plate glass

The Lessee must insure and keep insured all plate glass which is part of the Premises for its full insurable value.

10.3 Policies

(a) The Lessee, in respect of all policies of insurance which the Lessee must effect under the Lease, must:

(i) place those policies with an insurer approved by the Lessor (such approval not to be unreasonably withheld);

(A) for the amounts;

(B) to cover the risks; and

(C) with only the conditions, endorsements and exclusions,

reasonably acceptable to or required by the Lessor from time to time;

(ii) not make or allow any exclusions, endorsements or alterations to the policies, without the prior written consent of the Lessor;

(iii) take out such policies in the names of the Lessor and the Lessee for their respective rights and interests;

(iv) cause the insurer to waive any claim against the Lessor;

(v) lodge with the Lessor:

(A) a duplicate or certified copy of the policies; and

(B) renewal certificates and endorsement slips,

immediately on receiving them;

(vi) punctually pay all premiums in respect of those policies and renewals of them; and

(vii) give the Lessor:

(A) a receipt for the payments in subparagraph (a)(vi); or

(B) other proof of payment satisfactory to the Lessor,

at least fourteen (14) days before the due date for the payment or renewal.

(b) This clause applies despite any other provision of the Lease.

10.4 Insurance not to be avoided

(a) The Lessee must not:

(i) do or omit to do; or

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(ii) permit or suffer to be done or omitted,

any:

(iii) act, matter or thing; or

(iv) bringing or keeping of anything,

on the Premises, as a result of which:

(v) any insurance in respect of the Building or the Premises may be rendered void or voidable; or

(vi) the rate of premium on insurance of the Building is liable to be increased.

(b) The Lessee must pay all additional insurance premiums in respect of the Building arising from any increased risk coverage;

(i) proposed by the Lessee; and

(ii) approved by the Lessor in writing.

10.5 Attorney of Lessee

(a) The Lessor:

(i) in its own name and as attorney of the Lessee;

(ii) in the name of the Lessee; or

(iii) otherwise,

may institute any proceedings against any office or company which issues a policy of insurance required by this part to recover any money payable under any indemnity in favour of the Lessor.

(b) The Lessee appoints the Lessor the attorney of the Lessee for the purposes of this clause.

(c) The Lessor may not exercise its power as attorney unless, in the reasonable opinion of the Lessor:

(i) the Lessee is not diligently pursuing its rights to recover the insurance money; or

(ii) there is a default under the Lessee’s Covenants.

10.6 Continuation of liability

Any obligations of the Lessee under this part in respect of any thing which happens before the expiration or termination of the Lease continue after its expiration or termination.

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11. INDEMNITIES AND RELEASE

11.1 Release of Lessor

(a) Subject to paragraph (b), the Lessee:

(i) agrees to occupy, use and keep the Premises at its own risk; and

(ii) releases, to the extent not excluded by law, the Lessor and its contractors from any:

(A) claims and demands of every kind;

(B) liability which may arise in respect of any incident or damage to property or death of or injury to any person, of any nature in or near the Premises or the Building; and

(C) loss of or damage to the Lessee’s Fittings or personal property of the Lessee,

unless the damage, death or injury is caused by the negligence of the Lessor or its contractors.

(b) The amount recoverable by the Lessee from the Lessor under this clause in relation to any single claim may not exceed the amount that the Lessor recovers, in relation to that same claim, from insurance effected by the Lessee or the Lessor.

11.2 Specific Indemnities

Without limiting clause 11.1, the Lessee must indemnify the Lessor for all damage, expense, loss or liability suffered or incurred in respect of:

(a) the negligent or careless use, misuse, waste or abuse by the Lessee of any services (including, but not limited to, water, drainage, gas, electricity, air conditioning, telephonic and electronic communication services) and facilities of the Premises;

(b) any faulty fitting or fixture of the Lessee;

(c) overflow or leakage of water (including, but not limited to, rain water);

(i) in or from the Premises and originating in the Premises; or

(ii) caused or contributed to by any act or omission on the part of the Lessee;

(d) any damage, expense, loss or liability to property or person suffered or incurred by any person arising out of the use of the Premises by the Lessee;

(e) any damage, expense, loss or liability:

(i) to the Premises or any other property; or

(ii) suffered or incurred by any person,

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whether in or out of the Premises, arising out of an act, omission, neglect or default of the Lessee.

12. QUIET ENJOYMENT, HOLDING OVER, REMOVAL OF LESSEE’S FIXTURES ETC.

12.1 Quiet Enjoyment

The Lessee:

(a) while paying the Rent; and

(b) duly and punctually observing the Lessee’s Covenants,

is entitled to peaceably possess and enjoy the Premises during the Term without any interruption or disturbance from:

(c) the Lessor; or

(d) any other person lawfully claiming by, from or under the Lessor,

except to the extent specifically provided for in the Lease.

12.2 Common Areas

The Lessee is entitled to use the Common Areas in common with:

(a) the Lessor; and

(b) other persons entitled to use the Common Areas,

subject to compliance with the Lessee’s Covenants.

12.3 Holding over

(a) The Lessee, with the consent of the Lessor, may hold over after the expiry or earlier termination of the Term.

(b) Subject to part 4, the Lessee holding over under this clause is a monthly tenant of the Lessor at a monthly rental equal to the sum of the Monthly Cleaning Amount and a monthly proportion of the Minimum Rent and Lessee’s Outgoings payable by the Lessee under the Lease at the expiry of earlier termination of the Term, and the applicable terms and conditions of the Lease apply including, but not limited to, clause 4.

12.4 Removal of Lessee’s fixtures

The Lessee:

(a) may, at or prior to the termination of the Lease; and

(b) must, if required by the Lessor at or immediately on the expiry or earlier termination of the Term,

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remove from the Premises and the Building:

(c) all fixtures, fittings, plant, equipment, or other articles upon the Premises in the nature of trade or tenant’s fixtures, whether:

(i) brought on the Premises by the Lessee; or

(ii) within the Premises at the commencement of the Term; and

(d) any items of the Lessee within or affixed to the Building with the approval of the Lessor; and

(e) any fixtures and fittings owned by the Lessor then in the Premises,

and must:

(f) do so without damaging the Premises or the Building; and

(g) immediately make good any damage which occurs.

12.5 Lessee’s fixtures not removed

(a) The Lessor, to the extent that the Lessee does not comply with clause 12.4, may remove and dispose of any items in clause 12.4 not removed by the Lessee, as if those items were the property of the Lessor.

(b) The Lessee must indemnify the Lessor for any damage, expense, loss or liability suffered or incurred by the Lessor in respect of paragraph (a).

12.6 Yielding up

The Lessee, on the expiry or termination of the Lease must:

(a) surrender peaceably and yield up the Premises to the Lessor:

(i) clean;

(ii) free from rubbish; and

(iii) in a state of repair, order and condition,

consistent with the full compliance with the Lessee’s Covenants in that regard;

(b) paint the internal walls of the Premises with two (2) coats of paint; and

(c) to the extent required by the Lessor, reinstate the Premises and services to the Premises which have been altered:

(i) prior to or during the Term;

(ii) by or on behalf of, or at the request of, the Lessee,

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so that:

(iii) the Premises are in the state and condition they were in at the date on which the Lessee was first given access to the Premises: and

(iv) the services conform to the standard for those services prevailing in the Building at the date on which the Lessee was first given access to the Premises; and

(d) repair any damage to the Building or the Premises resulting from the performance by the Lessee of its obligations under this clause.

13. RESTRICTIONS ON CHARGES, ASSIGNMENTS AND SUB-LEASES

13.1 Restrictions

The Lessee must not:

(a) assign, transfer, mortgage, charge, encumber, or otherwise deal with the Lessee’s interest in the Premises;

(b) demise, sublet or part with possession of or grant any licence affecting the Premises; nor

(c) by any act or deed procure any of those things.

13.2 Modification of restrictions

An assignment, transfer or subletting is deemed not to be in breach of the Lessee’s Covenants if, before it takes effect, the following conditions are satisfied:

(a) the Lessee is not in default under the Lessee’s Covenants;

(b) the Lessee satisfies the Lessor that the ingoing party is:

(i) a respectable, responsible and solvent person who satisfies the Lessor’s leasing programme for the Building; and

(ii) able to carry on the business which the Lease allows in the Premises;

(c) if so requested by the Lessor, the Lessee ensures that any person whom the Lessor requires to guarantee the obligations of the ingoing party:

(i) executes, and

(ii) delivers to the Lessor,

a deed of guarantee and indemnity;

(iii) in favour of the Lessor; and

(iv) in a form required or approved by the Lessor;

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(d) in respect of an assignment, transfer or subletting of part only of the Lessee’s interest in the Lease:

(i) the Lessee satisfies the Lessor that the ingoing party must pay a full market rental and that, in the case of a sublease, the terms of the sublease are substantially similar to those of the Lease; and

(ii) the Lessee:

(A) executes the sublease, transfer or assignment and procures its execution by the ingoing party; and

(B) delivers the sublease, transfer or assignment to the Lessor for execution; and

(iii) the ingoing party enters into a covenant with, and in the form required by, the Lessor that the ingoing party will observe the Lessee’s Covenants; and

(e) in respect of an assignment or transfer of the whole of the Lessee’s interest in the Lease, the Lessee enters into a deed in a form required by the Lessor releasing the Lessor from all claims against the Lessor in respect of the Lease.

13.3 Restriction on transfer of shares

(a) The Lessee, if it is a company whose shares are not listed on the Australian Stock Exchange:

(i) is in default under the Lease; and

(ii) there is deemed to be a breach of the Lessee’s Covenants,

if after:

(iii) the Commencement Date; or

(iv) the date of assignment or transfer of the Lease to the Lessee (if the Lease has been assigned or transferred to the Lessee),

any person, who at the date in subparagraphs (iii) or (iv) beneficially holds or controls more than fifty (50) per cent of:

(v) the Prescribed Rights; or

(vi) the voting, income or participation rights in any other company which, at that date, beneficially holds or controls more than fifty (50) per cent of the Prescribed Rights,

transfers (including, but not limited to, assigns, grants any option or other rights over, or otherwise disposes of) the whole or any part of the Prescribed Rights without the prior written consent of the Lessor.

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(b) The consent of the Lessor in paragraph (a) must not be withheld where the Lessee:

(i) reasonably satisfies the Lessor that:

(A) the proposed transferee is a respectable and responsible person; and

(B) the Lessee will be able after the transfer to meets its financial obligations under the Lease and comply with all the other obligations of the Lessee under the Lease;

(ii) delivers to the Lessor a deed of guarantee and indemnity:

(A) prepared by the Lessor’s solicitors in a form reasonably required by the Lessor; and

(B) executed by any person the Lessor requires to guarantee the obligations of the Lessee under the Lease; and

(iii) is not in breach of the Lessee’s Covenants.

(c) An approved transferee under paragraph (b) is deemed to hold the Prescribed Rights:

(i) from the Commencement Date; and

(ii) subject to the provisions of this clause.

13.4 Lessee’s obligations not affected by approved assignment, transfer or sub-lease

A dealing permitted by the Lessee under this part does not release the Lessee from the Lessee’s liability under the Lease.

13.5 Restriction on mortgage or charge

A mortgage or charge is deemed not to be in breach of the Lessee’s Covenants if, before it takes effect, the mortgagee or chargee enters into a deed with the Lessor in a form required by the Lessor providing that, if the mortgagee or chargee enforces its security, the mortgagee or chargee immediately becomes jointly with the Lessee and severally liable to the Lessor for the performance by the Lessee of the Lessee’s Covenants.

14. DEFAULT, TERMINATION, ETC

14.1 Re-entry or surrender on default

(a) If the Lessee:

(i) fails to pay any Rent within fourteen (14) days of the date for payment (whether or not any formal or legal demand is made);

(ii) otherwise fails to perform or observe any of the Lessee’s Covenants (unless waived or excused by the Lessor in writing);

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(iii) being a company, has an order made or a resolution is effectively passed for its winding up (other than for the purposes of amalgamation or reconstruction); or

(iv) ceases or threatens to cease to carry on business,

or an event occurs which entitles the holder or proprietor of any charge over any of the assets or undertaking of the Lessee to require immediate payment of any secured money, then the Lessor may at any time either:

(v) re-enter, repossess and enjoy the Premises as its former estate and by this means absolutely determine the Lease; or

(vi) call for the immediate surrender of the Lessee’s estate and interest under the Lease.

(b) Subparagraph (a)(v):

(i) is without prejudice to any claim the Lessor has against the Lessee in respect of any breach of the Lessee’s Covenants; and

(ii) applies despite any other provision of the Lease but subject to clause 14.7.

(c) The Lessor, on the termination of the Lease under this clause, is freed and discharged from any action, suit, claim or demand by, or obligation to the Lessee in respect of the Lease.

14.2 Acceptance of Rent

Demand or acceptance of Rent by the Lessor after default by the Lessee under the Lease is without prejudice to the exercise by the Lessor of:

(a) the powers conferred upon it by clause 14.1; and

(b) any other right, power or privilege of the Lessor under the Lease,

and is not an election by the Lessor to either exercise or not exercise any of those rights, powers or privileges.

14.3 Lessor may remedy Lessee’s defaults

(a) The Lessor, whenever the Lessee omits or neglects to:

(i) pay any money; or

(ii) do or effect any thing,

for seven (7) days beyond the date by which the Lessee has covenanted to pay, do or effect it, may:

(iii) pay the money, or do or effect the thing itself, or by the Lessor’s contractors, at the Lessee’s cost; and

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(iv) for that purpose, enter the Premises with the Lessor’s contractors and remain there for the purpose of doing or effecting the thing.

(b) The Lessee must indemnify the Lessor for any damage, expense, loss or liability suffered or incurred by the Lessor in respect of this clause.

(c) This clause is without prejudice to the Lessee’s obligations and the Lessor’s rights under any other provision of the Lease.

14.4 Interest on moneys due

(a) The Lessee must pay the Lessor on demand interest on any Rent due and payable to the Lessor under the Lease at the rate of two (2) per cent per annum above:

(i) the general commercial prime rate of interest charged by the Commonwealth Bank of Australia Head Office Sydney; or

(ii) if that rate is not available, the rate the Lessor reasonably determines is appropriate.

(b) The interest rate in this clause must be computed on a daily basis from the due date for payment until payment in full of the money in respect of which the interest is chargeable.

(c) The Lessor may produce a certificate indicating the amount due and payable by the Lessee under this clause and the Lessee must pay:

(i) that amount; or

(ii) the amount the Lessee proves is correct.

14.5 Damages claimable after re-entry

(a) The Lessor may, on re-entry of the Premises under clause 14.1, recover as damages from the Lessee the difference between:

(i) any money which is or would have been payable in respect of the unexpired part of the Term at the date of re-entry; and

(ii) any money the Lessor reasonably anticipates the Lessor will receive from any tenant of the Premises for the period of that unexpired part of the Term.

(b) Paragraph (a) is in addition to any other right of action or remedy of the Lessor under this part.

(c) If the amount recoverable under paragraph (a) constitutes an acceleration of an amount payable, it must discounted for early receipt:

(i) by applying the discount rate in paragraph (d);

(ii) from the date the discounted amount is received by the Lessor in full.

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(d) The discount rate in paragraph (c) is:

(i) the Australian Government ten (10) year bond rate at the date of re-entry by the Lessor; or

(ii) if that rate is not available, the rate the Lessor reasonably determines is appropriate.

(e) This clause:

(i) is without prejudice to any other right of the Lessor to recover damages; and

(ii) continues to operate if the Lease is terminated.

14.6 Essential terms

Without limiting the operation of this part, the Lessee agrees that:

(a) the Lessee’s obligation to pay Rent;

(b) the Lessee’s covenants in clauses 6.1, 6.15, 6.17, 7.1(a), 8.1, 10.1, 10.2; 11.1 and 11.2

(c) the Lessee’s covenants in clause 13,

are essential terms of the Lease.

14.7 Opportunity to rectify

(a) The Lessor must not:

(i) re-enter the Premises; or

(ii) determine, forfeit or require a surrender of the Lease,

unless it first gives the Lessee notice of the particular breach of the Lessee’s Covenants on which the Lessor relies.

(b) The Lessor:

(i) must not rely on the breach in the notice in paragraph (a) as a ground for re-entry, determination, forfeiture or requiring surrender; and

(ii) waives the breach so that the Lease continues in full force and effect as if no breach has occurred,

if the Lessee:

(iii) in respect of a breach remediable by payment of money, pays the Lessor all money necessary to remedy the breach within fourteen (14) days of service of that notice;

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(iv) in respect of a breach remediable other than by payment of money:

(A) gives the Lessor a written undertaking, within twenty eight (28) days of the service of that notice, to remedy the breach; and

(B) remedies it within a reasonable time having regard to the nature and extent of the breach (but in any event within three (3) months of giving the undertaking); or

(v) in respect of a breach which is not remediable:

(A) pays compensation (within twenty eight (28) days of service of that notice) to the reasonable satisfaction of the Lessor having regard to the nature and extent of the breach; or

(B) undertakes (within twenty eight (28) days of service of that notice) to pay that compensation and pays it to the Lessor within three (3) months of giving the undertaking (or any further extended period the Lessor decides in its absolute discretion).

(c) This clause applies despite any other provision of the Lease.

14.8 Attorney of Lessee

(a) The Lessee appoints the Lessor and its officers severally as the Lessee’s attorney to act at any time if the Lessee is in breach of the Lessee’s Covenants to:

(i) execute and sign a surrender of the Lease; and

(ii) procure the surrender to be registered,

using the name of the Lessee for those purposes, and

(iii) generally, do execute and perform any act, deed, matter or thing in respect of the Premises as fully and effectually as the Lessee could do, execute or perform it.

(b) A statutory declaration of the Lessor that the rights of the Lessor under paragraph (a) are exercisable will be treated as conclusive evidence of its contents in favour of any person who is not a party to the Lease.

(c) The Lessee must ratify and confirm anything lawfully done or caused to be done in respect of the Premises by the Lessee’s attorney.

14.9 Vacation by Lessee

(a) The following provisions apply on vacation of the Premises by the Lessee during the Term whether or not the Lessee ceases to pay the Rent.

(b) The Lessor does not (subject to paragraph (c));

(i) re-enter the Premises; or

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(ii) forfeit or waiver any rights to recover in full all Rent payable by the Lessee under the Lease,

by

(iii) accepting the keys;

(iv) itself or any person on its behalf entering the Premises to show them to prospective lessees or licensees; or

(v) advertising the Premises for re-letting.

(c) The Lease is deemed to continue in full force and effect until:

(i) the date of a new lessee or licensee actually occupies the Premises; or

(ii) the date of expiry of the Lease,

whichever occurs first, and until that date an entry by the Lessor is deemed to be an entry by the leave and licence of the Lessee.

(d) Paragraphs (b) and (c) do not apply if the Lessor:

(i) gives the Lessee written notice accepting the surrender of the Lessee’s interest under the Lease; or

(ii) serves a formal notice of forfeiture or re-entry on the Lessee.

15. HEADLEASE AND OTHER SUPERIOR INTERESTS

15.1 Lessor’s and superior interest holder’s right to review

The Lessee must at all times during the Term permit the Lessor, or any person having any estate or interest in the Premises superior to or concurrent with that of the Lessor, to:

(a) exercise the Lessor’s powers to enter and view the Premises;

(b) carry out repairs, renovations, maintenance and other work; and

(c) otherwise exercise or perform their respective lawful rights and obligations in respect of the Premises.

15.2 Covenants To Benefit Lessor’s Successors

The Lessee, if anyone other than the Lessor becomes entitled to receive the Rent (either by operation of law or otherwise):

(a) agrees that such person has the benefit of the Lessee’s Covenants; and

(b) must enter, at the Lessee’s cost, into any covenants with that person reasonably required by the Lessor or that person.

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15.3 Lessor to protect Lessee’s estate

The Lessor must not default under its headlease so as to permit the Lessee’s estate or interest under the Lease to determine by reason of the determination of any superior estate or interest.

15.4 Lessee not to prejudice Lessor’s interest

The Lessee must not do or permit anything which might:

(a) prejudice; or

(b) give ground for the determination of,

the estate or interest of the Lessor in the Premises.

16. GENERAL

16.1 Exclusion of warranties

The Lessee agrees that no representation or undertaking has been given by or on behalf of the Lessor in respect of:

(a) the suitability of the Premises for any business;

(b) the Building;

(c) the fittings, finishes, facilities and amenities of the Premises; or

(d) other businesses to be carried on in the Building.

16.2 Waiver

(a) Waiver of a breach of the Lessee’s Covenants or of any rights created by or arising upon default under the Lease, or upon an event of default, must be in writing and signed by the party granting the waiver,

(b) A breach of the Lessee’s Covenants is not waived by:

(i) a failure to exercise; or

(ii) a delay in exercising; or

(iii) a partial exercise of,

any remedy available under the Lease or in law or equity;

(c) Any right created by, or arising upon, default under the Lease, or upon an event of default, is not waived by:

(i) a failure to exercise; or

(ii) a delay in exercising; or

(iii) a partial exercise of,

that right.

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16.3 Cost of Lease, etc

The Lessee must pay:

(a) the Lessor’s legal costs and all duties, fees, charges and expenses in respect of:

(i) the preparation, completion, stamping, upstamping and registration of the Lease;

(ii) any renewal of the Lease or any other lease granted under an option of renewal;

(iii) any application for the consent or approval of the Lessor under the Lease;

(iv) any breach of the Lessee’s Covenants; and

(v) the exercise of any right, power, privilege, authority or remedy of the Lessor in respect of the Lease;

(b) all professional consultants’ fees properly incurred by the Lessor in respect of any of the matters in paragraph (a).

16.4 Lessee not to cause rent reduction

The Lessee, without the written consent of the Lessor, must not:

(a) do or omit to do; or

(b) permit to be done or omitted,

anything which might:

(c) impair, reduce or diminish (whether directly or indirectly) the Rent; or

(d) impose, cause or permit the imposition on the Lessor of, any liability of the Lessee in respect of the Lease,

even if entitled to do so for any reason (including, but not limited to, statute, ordinance, proclamation, order, regulation, or moratorium).

16.5 Notices

Any notice or other communication including, but not limited to, any request, demand, consent or approval, to or by a party to the Lease:

(a) must be in legible writing and in English addressed to a party at that party’s address as shown in the Lease (unless otherwise notified in writing by that party to each other party) or, in the case of a corporation, at the registered office of that party;

(b) if to the Lessor, may be served, given or delivered to the Lessor or the Manager at the address of the Manager;

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(c) if served, given or delivered by a corporation, must be signed by a director or secretary of that corporation; and

(d) can be relied upon by the addressee and the addressee is not liable to any other person for any consequences of that reliance if the addressee reasonably believes it to be genuine, correct and authorised by the sender.

16.6 Caveats

The Lessee must not lodge or cause to be lodged any caveat against the certificate of title to the Land to protect any of the Lessee’s interest under the Lease.

16.7 Consents

Any consent or approval of the Lessor which the Lessee requires under the Lease to do any act, matter or thing must be in writing and may be given (conditional or unconditionally) or withheld by the Lessor in its absolute discretion unless otherwise expressly provided.

16.8 No merger

Nothing in the Lease merges, extinguishes, postpones, lessens or otherwise prejudicially affects any right power authority discretion or remedy which the Lessor may have against the Lessee.

16.9 Lessee’s obligations

Unless the Lease otherwise provides, anything which must be done by the Lessee under the Lease, whether or not at the request of the Lessor, must be done at the cost of the Lessee.

16.10 Condition of Lessor’s liability

(a) The Lessor, in the case of a remediable breach, is neither in default, nor deemed to be in default, in the observance and performance of the Lessor’s obligations unless:

(i) the Lessee gives written notice of the default to the Lessor; and

(ii) the Lessor fails to take proper steps to rectify the default within a reasonable time.

(b) This clause applies despite any other provision of the Lease.

16.11 Moratorium

A provision of any legislation which at any time directly or indirectly:

(a) lessens or otherwise varies or affects in favour of the Lessee any of the Lessee’s Covenants; or

(b) stays, postpones or otherwise prevents or prejudicially affects the exercise by the Lessor of any of the Lessor’s rights under this Lease,

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is negatived and excluded from the Lease and all relief and protection conferred on the Lessee by or under the legislation is also negatived and excluded unless its application is mandatory by law.

16.12 Effect of Execution

(a) The Lease, on execution by the Lessor, is binding on any other person who has executed it despite:

(i) non-execution or defective execution of the Lease by any other person named as a party;

(ii) avoidance or unenforceability of:

(A) any part of the Lease; or

(B) the Lease or any part of it against any signatory or intended signatory.

(b) Paragraph (a) is without prejudice to the Lessor’s rights under the Lease or otherwise.

(c) Each party, in executing the Lease, express it to be:

(i) executed by that party as a deed;

(ii) sealed by that party; and

(iii) delivered on the later of:

(A) the date of acceptance by the Lessee; or

(B) the date of execution by the Lessor.

16.13 Manager

(a) The Manager represents the Lessor in all matters in respect of the Lease unless the Lessor directly notifies the Lessee otherwise in writing.

(b) Any communication from the Lessor to the Lessee supersedes any communication from the Manager to the Lessee to the extent of any inconsistency.

16.14 Limitation of liability of Lessor

The registered proprietor of the leasehold estate in the Land:

(a) is bound by the Lessor’s covenants under the Lease; and

(b) is liable in damages only for those breaches of the Lessor’s covenants which occur,

while it is the registered proprietor of the leasehold estate in the Land.

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16.15 Whole agreement

The Lease comprises the whole agreement between all parties to the Lease in respect of its subject matter.

17. STRATA TITLE

17.1 Reservation of right to Strata Title

The Lessor may subdivide the Land and the Building in accordance with the Strata Titles Act.

17.2 Variation of Lease

The parties to the Lease, if there is a subdivision under clause 17.1, must enter into a deed of agreement:

(a) varying the terms of the Lease; and

(b) containing any provision which is necessary or reasonably required,

to reflect those rights and obligations of the parties to the Lease:

(c) intended to continue during the Term; and

(d) modified to take into account the effect of the subdivision.

18. SECURITY

18.1 Security deposit or bank guarantee

(a) The Lessee, on signing the Lease, must pay to the Lessor (or as directed in writing by the Lessor) the amount in item 17 of the Reference Schedule as a security deposit to secure the payment of the Rent by the Lessee to the Lessor and the performance by the Lessee of any other covenant in the Lease..

(b) The Lessee will be regarded as having paid to the Lessor the security deposit required under paragraph (a) if it provides the Lessor with an unconditional and irrevocable bank guarantee or bank guarantees in a form approved by the Lessor and in an amount equal to item 17 of the Reference Schedule.

(c) The Lessor may, if the Lessee commits a breach of the Lease:

(i) appropriate any or all of the security deposit referred in paragraph (a), or draw down all or part of the bank guarantee referred to in paragraph (b), to reimburse or compensate (wholly or partly) the Lessor in respect of the breach; and

(ii) require the Lessee immediately to pay to it such further deposit or provide such further bank guarantee as is necessary to restore the security deposit to an amount equal to item 17 of the Reference Schedule.

(d) Paragraph (c) is without prejudice to any other right of the Lessor under the Lease.

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18.2 Sale by Lessor

(a) If the Lessor transfers its interest in the Premises and hands over the bank guarantee to the transferee, the transferor is released from all obligations to the Lessee in relation to the bank guarantee;

(b) If requested by the transferee, the Lessee must promptly give to the transferee a replacement bank guarantee in favour of the transferee; and

(c) If the Lessee does not provide the replacement bank guarantee, the transferor may make demand under the bank guarantee and hand over the proceeds to the transferee to hold as a security deposit instead of the bank guarantee until the Lessee provides a replacement bank guarantee to the transferee.

18.3 Covenantor

(a) Subject to paragraph (b), the Covenantor grants the guarantees and indemnities in this part in consideration of the Lessor entering into the Lease at the Covenantor’s request.

(b) If the Covenantor executes the Lease after the Lessor, the Covenantor warrants that it grants the guarantees and indemnities in this part as a result of valuable consideration provided to it by the Lessor.

(c) The covenants, guarantees and indemnities in this part are severable.

18.4 Guarantee

The Covenantor guarantees to the Lessor the prompt performance and observance of the Lessee’s obligations under the Lease.

18.5 Indemnity

The Covenantor indemnifies the Lessor against any claim, action, damage, loss, liability, cost, charge, expense, outgoing or payment with the Lessors pays, suffers, incurs, or is liable for, in respect of any unenforcability of the Lease against the Lessee.

18.6 Covenants

(a) The Covenantor is jointly and severally with the Lessee liable to the Lessor for:

(i) the Lessee’s observance of the Lease; and

(ii) any damage incurred by the Lessor as a result of:

(A) the Lessee’s failure to observe the Lease or its default under the Lease; or

(B) the termination of the Lease by the Lessor.

(b) Until the Lessor has received all money payable by the Lessee or the Covenantor under the Lease and until the due performance by the Lessee and the Covenantor of the Lease, neither the Lessee nor the Covenantor may:

(i) claim or receive the benefit of any:

(A) dividend or distribution;

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(B) payment out of the estate or assets; or

(C) payment in the liquidation, winding up or bankruptcy,

of any person liable jointly with the Lessee or the Covenantor to the Lessor or liable under any security for any money payable by the Lessee or the Covenantor; or

(ii) prove in any estate or in relation to any asset in any liquidation, winding up or bankruptcy in competition with the Lessor unless the amount the Lessor is entitled to will not be reduced as a result.

(c) The Covenantor must pay the Lessor on written demand by the Lessor any expense incurred by the Lessor in respect of the Lessor’s exercise or attempted exercise of any right of the Lessor under this part.

(d) A Covenantor’s obligations are not affected if:

(i) the Lessor releases or enters into a composition with the Lessee or another Covenantor;

(ii) a payment made to the Lessor is later avoided; or

(iii) the Lessor assigns or transfers its interest in the Lease.

(e) If the Lessor assigns or transfers its interests in the Lease, the assignee receives the benefit of the Covenantor’s covenants, agreements, guarantees and indemnities.

18.7 Joint and several liability

If there is more than one Covenantor, the Covenantors are jointly and severally bound even if a person named as Covenantor does not execute the Lease.

18.8 Continuing effect

The obligations of the Covenantor under this part are not released, discharged or otherwise affected by:

(a) the grant of any time, waiver, covenant not to sue or other indulgence;

(b) the release (including, but not limited to, a release as part of any novation) or discharge of any person;

(c) any arrangement, composition or compromise entered into by the Lessor, the Lessee, the Covenantor or any other person;

(d) any extinguishment, failure, loss, release, discharge, abandonment, impairment, compound, composition or compromise, in whole or in part of any document or agreement;

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(e) any variation of the Lease including, but not limited to, a variation in the date of expiry of the Lease;

(f) any moratorium or other suspension of any right, power, authority, discretion or remedy conferred on the Lessor by the Lease, any statute, any court or otherwise;

(g) any payment to the Lessor, including any payment which at or after the payment date is illegal, void, voidable, avoided or unenforceable; or

(h) the winding up of the Lessee.

19. OPTION OF RENEWAL

19.1 Option of renewal

(a) The Lessee, from the expiry of the Lease, is entitled to take a renewed lease of the Premises for the further term of years in item 4 of the Reference Schedule on the conditions of this part.

(b) The Lessor, if the Lessee:

(i) gives the Lessor six (6) months written notice substantially in the form in clause 19.4 of its intention to renew; and

(ii) is not in default under the Lessee’s Covenants,

must grant to the Lessee, at the Lessee’s own cost, a renewal of the Lease for that further term of years.

(c) The renewed lease in this clause is subject to the same covenants, agreements and provisions in the Lease except that:

(i) the term of the renewed lease is that in item 4 of the Reference Schedule;

(ii) the Minimum Rent payable from the commencement of that further term must be determined in accordance with clause 19.2; and

(iii) item 4 of the Reference Schedule and this part are omitted.

19.2 Initial rent under renewed Lease

(a) The Minimum Rent payable at the commencement of the renewed lease is the Current Market Rent as at that date.

(b) If the option of renewal is exercised, the Current Market Rent at the commencement of the renewed lease must be agreed or determined based on the procedures set out in Part 4 modified to the extent necessary to give effect to this clause.

(c) For the purposes of this clause:

(i) the Review Period means the period commencing on the date of exercise of the option of renewal and expiring on the last day of the Term; and

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(ii) Review Date means the last day of the Term.

(d) The Lessee, if the Current Market Rent has not been agreed or determined at the commencement of the renewed lease:

(i) must pay on account (pending agreement on or determination of the Current Market Rent) the Lessor’s Estimate of the Current Market Rent notified to the Lessee; and

(ii) when the Current Market Rent as at the commencement of the renewed lease is agreed or determined, an adjustment must be made,

in accordance with the procedure in clause 4.

19.3 Form of renewed lease

The Lessor may in its discretion require that the renewed lease be in the form of lease then current for the Building modified to the extent necessary:

(a) to give effect to the intentions of the parties as contained in this clause; and

(b) to ensure that the rights by the Lessee would have had (if the general provisions of the Lease had been adopted) are not adversely affected, either materially or substantially.

19.4 Notice of exercise of option

The Lessee, in order to exercise the option of renewal in clause 19.1, must give written notice to the Lessor substantially in the following form:

“Notice of Exercise of Option of Renewal

By this notice we exercise our option to renew our lease of the premises known as (insert description of Premises) in the Grosvenor Place building.

Dated:                                                                                       ”

(To be completed, dated and signed personally by the Lessee if the Lessee is a person or executed under seal if the Lessee is a company).

19.5 Existing Covenantor

(a) Subject to paragraph (b), the grant of a renewed lease under this part is conditional on the Covenantor executing the renewed lease within fourteen (14) days after provision to the Covenantor by the Lessor of execution copies of that lease.

(b) If the Lessee requests the substitution of the Covenantor with another person, the grant of the renewed lease is conditional upon the execution of that lease by any person approved by the Lessor as Covenantor within fourteen (14) days after provision to that person by the Lessor of execution copies of that lease.

(c) For the purposes of this clause, the Lessor agrees to accept as Covenantor any person whom the Lessee establishes to the reasonable satisfaction of the Lessor is and is unlikely to remain capable of meeting the financial obligations of Covenantor under the renewed lease.

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20. INDEPENDENT EXPERT

20.1 Independent expert

(a) If any dispute arises between:

(i) the Lessor and the Lessee; or

(ii) the Lessor and the Covenantor,

under the Lease other than in respect of review of Minimum Rent, any party may, by written notice to the others, demand that the dispute be determined by an Independent Expert.

(b) If the parties do not agree on an Independent Expert within seven (7) days or service of a notice under paragraph (a), any party may request:

(i) in the case of a dispute in respect of clause 3.2(e) – the President of the Australian Property Institute Inc (NSW Division); and

(ii) in any other case – the President of the New South Wales Law Society,

to appoint an Independent Expert.

(c) The Independent Expert need not be a valuer, solicitor or barrister but must have appropriate professional experience in matters of the nature of the dispute to be determined and may engage other consultants to advise him.

(d) The Independent Expert must determine:

(i) the dispute; and

(ii) which party will bear his costs and those of any consultant engaged by him having regard to:

(A) the substance of the dispute;

(B) the reasonableness of the parties in relation to the dispute; and

(C) the result of his determination.

(e) The Independent Expert acts as an expert and not as an arbitrator and his determination is final and binding upon the parties.

(f) A party may not commence or continue litigation in relation to a dispute in respect of which a notice has been served under paragraph (a) until it has been determined by the Independent Expert.

(g) The Lessor, the Lessee and the Covenantor release the Independent Expert and any consultant engaged by the Independent Expert from any claim in respect of a determination under this part.

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21. CCSL/CFML/IPL TRUST PROVISIONS

21.1 Application of Clause

All provisions of this Lease will have effect and be applied subject to this clause 21.

21.2 Definitions

In this clause 21:

“CCSL” means Commonwealth Custodial Services Limited (ACN 000 485 487).

“CFML” means Commonwealth Funds Management Limited (ACN052 289 442).

“IPL” means Investa Properties Limited (ACN 084 407 241).

“Relevant Trust” means:

(A) for CCSL, Grosvenor Place Holdings Trust; and

(B) for CFML, Commonwealth Property Fund.

“Scheme” means Delta Office Fund ARSN 092 874 087 which is registered as a managed investment scheme pursuant to section 601EB(2) of the Corporations Law.

“Trustee Party” means CCSL or CFML, as the case requires.

21.3 CCSL and CFML’s Limitation Of Liability

(a) A liability arising under or in connection with this Lease can be enforced against a Trustee Party only to the extent to which it can be satisfied out of the property of the Relevant Trust out of which the Trustee Party is actually indemnified for the liability.

(b) Except as expressly provided by this clause 21.3, this limitation of each Trustee Party’s liability applies despite any other provision of this Lease and extends to all liabilities and obligations of each Trustee Party in any way connected with any representation, warranty, conduct, omission, deed or transaction related to this Lease.

(c) A party may not take any action to seek recourse to any assets held by a Trustee Party in any capacity other than as trustee of the Relevant Trust, including to seek the appointment of a receiver or a receiver and manager (except in relation to the property of the Relevant Trust, a liquidator, an administrator or any similar person to the Trustee Party) or prove in any liquidation, administration or arrangement of or affecting the Trustee Party (except in relation to the property of the Relevant Trust).

(d) Each Trustee Party represents and warrants to other parties that it is actually entitled to be indemnified out of the assets of the Relevant Trust.

(e) A Trustee Party is not obliged to enter into any commitment or obligation under this Lease unless its liability is limited in accordance with this clause 21.3.

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21.4 Exceptions

(a) The provisions of clause 21.3 do not apply to any obligation or liability of a Trustee Party to the extent that it is not satisfied because:

(i) under the Constitution of the Relevant Trust or by operation of law there is a reduction in the extent of that Trustee Party’s indemnification out of the assets of the Relevant Trust as a result of that Trustee Party’s fraud, negligence or breach of trust; or

(ii) that Trustee Party failed to exercise any right of indemnity it has under the constitution of the Relevant Trust in respect of that obligation or liability.

(b) No act or omission of a Trustee Party (including any related failure to satisfy its obligations under this agreement) will be considered fraud, negligence or breach of trust of a Trustee Party for the purposes of clause 21.4(a) to the extent to which the act or omission was caused or contributed to by any failure of any other person to fulfil its obligations relating to the Relevant Trust or by any other act or omission of any other person.

(c) No attorney, agent, receiver or receiver and manager appointed in respect of a Trustee Party in accordance with this Lease has the authority to act on behalf of that Trustee Party in a way which exposes that Trustee Party to any personal liability and no act or omission of any such person will be considered fraud, negligence or breach of trust of that Trustee Party for the purposes of clause 21.4(a).

(d) The limitation of a Trustee Party’s liability under clause 21.3 will not apply if:

(i) that Trustee Party ceases to be the trustee of the Relevant Trust; or

(ii) that Trustee Party is no longer entitled to be indemnified out of the assets of the Relevant Trust.

21.5 IPL’s Limitation Of Liability

(a) Notwithstanding any other provision of this Lease, all provisions of this Lease will have effect and be applied subject to this clause 21.5.

(b) IPL enters into this Lease solely in its capacity as responsible entity and trustee of the Scheme and in no other capacity.

(c) A liability arising under or in connection with this Lease can be enforced against IPL only to the extent to which it can be satisfied out of the property of the Scheme out of which IPL is actually indemnified for the liability.

(d) The limitation of IPL’s liability contained in this clause 21.5 applies notwithstanding any other provisions of this Lease and extends to all liabilities and obligations of IPL in connection with this contract.

(e) The Lessee and Guarantor may not sue IPL in any capacity other than as responsible entity and trustee of the Scheme, including seeking the appointment to IPL of a receiver (except in relation to the property of the Scheme), a liquidator, administrator or any other similar person.

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(f) The provisions of this clause 21.5 will not apply to any liability or obligation of IPL to the extent there is a reduction in the extent of its indemnification out of the assets of the Scheme as a result of the operation of the law or the application of any provision of the Scheme’s constitution.

21.6 Liability

Any liability on the part of one of CFML, CCSL or IPL under or pursuant to this Lease shall be a liability which is several only in the shares in which they beneficially hold the Head Lease registered number X925185 which shall be notified in writing by CFML, CCSL and IPL to the Lessee and Guarantor from time to time and which at the date of this Lease is acknowledged to be:

(a) CFML: 20%;

(b) CCSL: 50% through CCSL’s 100% interest in the Concurrent Lease of CFML’s 50% interest in the Head Lease; and

(c) IPL: 30%.

In this clause “Concurrent Lease” means lease registered number .

22. GOODS AND SERVICES TAX

22.1 This clause applies if the Lessor is or may become liable to pay GST in relation to any Supply under the Lease (a “Taxable Supply”).

22.2 Unless otherwise stated, any amount, payment or consideration referred to in the Lease is exclusive of GST.

22.3 In addition to any other amounts payable by the Lessee to the Lessor under the Lease (the “GST Exclusive Consideration”), the Lessee must pay GST on any Taxable Supply to the Lessor of an amount equal to the GST Exclusive Consideration multiplied by the GST Rate within twenty one (21) days from the issue of an Invoice by the Lessor to the Lessee.

22.4 GST will be payable by the Lessee, without deduction or set-off of any other amount, at the same time as the GST Exclusive Consideration under this Lease is payable. In all other respects GST will be payable by the Lessee to the Lessor on the same basis as the GST Exclusive Consideration is payable by the Lessee under the Lease.

22.5 If requested by the Lessee, the Lessor will issue an Invoice or Invoices to the Lessee in respect of any Taxable Supply.

22.6 If the Lessee defaults in the payment on the due date of any amount payable pursuant to clauses 22.1 and 22.3 then, without prejudice to any other remedies of the Lessor, the Lessee must pay to the Lessor upon demand an amount equal to the amount of any penalties, damages or interest or additional GST that may become payable by the Lessor.

22.7 As between the Lessor and the Lessee, the Lessor is not be obliged to pay any GST on or to take any other steps to minimise the liability in respect of GST until the corresponding payment is received from the Lessee.

22.8 If GST payable in relation to a Taxable Supply made under the Lease varies from the additional amount paid by the Lessee under clause 22.3 then the Lessor will provide a

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corresponding refund or credit to, or will be entitled to receive the amount of the variation from the Lessee. Where the Lessor has paid the amounts of the variation to the Commissioner of Taxation, whether or not as part of a larger sum, no amount will be paid to the Lessee under this clause unless the Lessor is entitled to a refund or credit of such amount from the Commissioner of Taxation.

22.9 Where an Adjustment arises from an Adjustment Event in relation to any Taxable Supply the Lessor must provide an Adjustment Note to the Lessee within twenty eight (28) days after the Lessee requests an Adjustment Note.

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SCHEDULE 1

Rules and Regulations

1. The Lessee will not obstruct or permit the obstruction of the pavement, forecourt, entrance, arcade, vestibules, corridors, passages, stairways, landings, escalators, lifts, elevators, fire doors and escape doors or use them or any of them for any purpose other than ingress and egress.

2. The Lessee will not obstruct any skylights, glazed panel, ventilator or window that admits light or air into the Building or obstruct any light or other illumination in the Building or permit any goods, structure or fitting to be visible through the glass of any corridor or dividing partition without the prior written consent of the Lessor.

3. The Lessee will not display any sign, flag, notice, light, or object on the interior or exterior of the Premises or the Building except with the prior written consent of the Lessor and then only of the colour, size and style and in the place approved by the Lessor. The Lessor will not unreasonably withhold consent in respect of a sign or notice identifying the Lessee and conforming with standard signs in the Building. The cost of affixing the Lessee’s name and description on any Directory Board in the main foyer and on the Lessee’s floor will be borne by the Lessee.

4. No curtain will be erected on any external window.

5. No blind, screen, or awning will be erected on any window without the prior written consent of the Lessor.

6. No animal or bird will be kept at the Premises.

7. Except with the prior written consent of the Lessor no musical instrument will be played in or about the Premises, but this Rule 6 will not prohibit the Lessee from playing background music provided that the volume is kept at a level which does not cause a nuisance or annoyance to other occupiers of the Building.

8. The Lessee will not throw anything out of the windows or deposit rubbish anywhere except in proper receptacles or place any rubbish on any part of the Premises or the Common Areas.

9. The Lessee will not use any method of lighting, cooling, or heating other than as may be prescribed by the Lessor from time to time.

10. The Lessee will not smoke in the Common Areas.

11. The Lessee will only use and permit to be used for the delivery or other movement of any goods the part s of the Common Areas and at the times the Lessor permits and the Lessee will comply with all reasonable requirements of the Lessor in regard to these matters.

12. The Lessee will not leave any doors or windows unlocked when the Premises are unoccupied and the Lessor reserves the right for any person authorised by it to enter the Premises and lock the doors or windows.

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13. The Lessor will provide keys for locks on doors and of the Premises. The Lessee will return all keys on the determination of its lease and will not permit the keys to come into the possession of any person other than the Lessee.

14. No rubbish will be burned on the Land.

15. No auction, bankruptcy, winding-up, or fire sale will be conducted on the Premises.

16. The Common Areas and the car parking area will not be used for any business or commercial purpose or for the display or advertisement of any goods or services without the prior written consent of the Lessor.

17. No explosive power driven method of fixing articles to ceilings walls or floors will be used.

18. The Lessor may close the doors of the Building opening into any street and keep the doors closed outside Normal Business Hours. Normal Business Hours are:

Monday to Friday – 8 am to 6pm.

19. Except as provided in the relevant lease and/or with the consent of the Lessor or the Manager, the Lessee will not enter or remain in the Building outside Normal Business Hours and whenever entering the Building outside these hours the Lessee must produce to the Manager the security card supplied by the Lessor and will comply with the requirements of the Lessor or the Manager.

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ANNEXURE “B”

The Lessor, the Lessee and the Covenantor/s (if any) agree that this lease is varied as set out in this Annexure “B”.

1. Clause 1.1 is varied as follows:

(a) Definition of “Building Outgoings” is varied in the opening paragraph by inserting the words “and reasonably incurred” after the words “or payable by”.

(b) Definition of “Building Outgoings” is further varied at the end of the definition by inserting the following words after the words “capital nature”:

“and/or structural nature (except expenditure of a capital nature as part of routine and regular preventative maintenance and repair) and expenditure for which the Lessor is entitled to receive reimbursement from any other tenant or occupier.”

(c) The definition of “Base Building Outgoings” in clause 1.1 is amended by inserting the following words at the end of the definition:

“(c) if Minimum Rent is not reviewed pursuant to Part 4 – in respect of the Accounting Year expiring immediately before the expiration of each period of two (2) years during the Term commencing on 1 July 2004.”

2. Clause 2.3(b) is varied as follows:

(a) in the opening paragraph the words “where possible outside normal business hours” are inserted after the word “Premises”; and

(b) the following new sub-clause is added:

“(iii) make good any damaged caused to the Premises or the Lessee’s fixtures, fittings or other possessions kept at the Premises by reason of such entry without delay and at the Lessor’s cost, provided such damage was caused by the Lessor.”

3. Clause 2.5(b) is varied by inserting at the beginning of the clause the words “Without prejudice to the Lessee’s right of quiet enjoyment, the”.

4. Clause 3.2(a) is varied by inserting the words “or access to it” after the word “Building” in the first line and by deleting the words “in the opinion of the Lessor” at the end of the opening paragraph.

5. Clause 3.3(a) is varied by:

(a) inserting the words “or access to it” after the word “Building” in the first line;

(b) deleting the words “the reasonable opinion of the Lessor”; and

(b) inserting the words “based on the lack of amenity” after the word “them” in the fourth and fifth lines.

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6. Clause 3.3(b) is varied by inserting at the end of the first line the words “and to the extent”.

7. Clause 5.3(a) is varied by inserting the word “independently” before the word “audited” in the first line.

8. Clause 5.3(c) is varied by inserting at the end of the clause the words “In the event of dispute reasonable evidence of outgoings will be provided”.

9. The following clause is inserted:

“6.2 Lessee’s business

The Lessee must:

(a) keep the Premises open for business during usual business hours, having regard to the nature of the Lessee’s business; and

(b) conduct the business in a proper, efficient and reputable manner.

10. Clause 6.4(d) is varied by inserting at the beginning of the clause the words “Subject to paragraph (c)”.

11. Clause 6.7(a) is varied by inserting at the end of the clause the words “and the Lessor must make available Elevator access to the Premises”.

12. Clause 6.7 is varied by inserting the following new sub-clause:

“(c) Despite clause 6.7(b)(ii) the Lessor will make air conditioning available outside Normal Business Hours at the request and cost of the Lessee.”.

13. Clause 6.15(b) is varied by inserting the words “or capital” after the word “structural” in the first line and by deleting the words “or occupation” in the last line.

14. Clause 6.17 is varied by inserting the following new subclause:

“(c) The Lessee is not required to comply with and is not liable for any requirements of or costs of a structural or capital nature unless required because of the Lessee’s particular use of the Premises or the location or nature of the Lessee’s Fittings.”

15. Clause 6.27(b) is varied by inserting the words “following reasonable notice and at reasonable times” at the beginning of the clause.

16. Clause 7.1(b)(i) is varied by inserting at the end of the clause the words “, act of war or terrorism, the Lessor or any other extraneous event beyond the Lessee’s control”.

17. Clause 7.1(b)(ii) is varied by inserting the words “and to the extent that” after the word “unless”.

18. Clause 7.1(c)(ii) is varied by deleting the words “or occupancy”.

19. Clause 7.2(a) is varied by inserting the following new subclause:

“(i) at intervals of not more than five (5) years; and”

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20. Clause 7.5 is varied by adding the following sentence at the end of the clause:

“Despite any other clause to the contrary the Lessee will not be required to recarpet or replace or repair any carpet on the Premises during the term or on yielding up except for misuse or abuse arising otherwise than by fair wear and tear.”

21. Clause 7.6(a) is varied by:

(a) in the first line inserting the words “and any internal” after the word “locks”; and

(b) in the second line inserting the words “(but not any external windows and window fittings unless damaged by the Lessee)” after the word “Premises”.

22. Clause 7.7 is varied by:

(a) inserting the word “reasonable” before the word “time” in the first line; and

(b) deleting the word “may” after the word “required)” in the second line.

23. Clause 7.8(a) is varied by inserting the word “reasonable” before the word “time” in the first line.

24. Clause 7.8(b) is replaced with the following:

“(b) The Lessor must use its best endeavours to cause the Lessee as little inconvenience as is reasonably practicable in exercising its rights under clauses 7.7 and 7.8 and must make good any damage caused to the Premises or the Lessee’s fixtures and fittings or other possessions kept at the Premises by reason of such access without delay and at the Lessor’s cost.”

25. Clause 7.9(a) is varied by inserting at the end of the clause the words “not to be unreasonably withheld or delayed,”

26. Clause 7.9(b) is varied by inserting at the end of the clause the words “(such approval not to be unreasonably withheld or delayed)”

27. Clause 7.9(c)(i) is varied by inserting the word “reasonable” after the word “Lessor’s”.

28. Clause 7.9(d) is varied by inserting the words “(acting reasonably)” after the word “Lessor” in the first line.

29. Clause 7.9(d)(ii) is varied by inserting at the end of the clause the words “(acting reasonably)”.

30. Clause 7.9(e) is varied by inserting at the end of the opening paragraph the words “(acting reasonably)”.

31. Clause 7.9(f)(iii) is varied by inserting the word “reasonable” before the word “requirements” in the last line of the clause.

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32. Clause 7.9(g) is varied by inserting the words “(such consent not to be unreasonably withheld or delayed)” after the word “Lessor” in the second line.

33. Clause 8.1(a) is varied by inserting at the end of the clause the words “subject to the same conditions of access set out in clause 2.3(b)(i) to 2.3(b)(iii).”

34. Clause 8.1(b) is varied by inserting the words “following reasonable notice and at reasonable times (except in the case of an emergency)” after the word “must” in the first line.

35. Clause 8.1(b) is further varied by inserting at the end of the clause the words “, subject to the Lessor ensuring their compliance with the terms of clause 7.9”.

36. Clause 8.2(a) is varied by inserting the words “reasonably and properly incurred” before the word “expenses”.

37. The following sub-clause is added:

“(c) All amounts received by the Lessor on account of the provision of services including Airconditioning Plant and Elevators outside Normal Business Hours from the Lessee and any such sums receivable from any other tenant or occupier will be credited against Building Outgoings.”

38. Clause 8.4(b) is varied by deleting the words “, and Rent will not abate,”

39. The following new clause is added:

“8.5 Lessor’s Obligations

(a) The Lessor must use all reasonable endeavours to maintain the Building in a sound structural and watertight condition consistent with Buildings in Sydney comparable in age and standard to the Building.

(b) The Lessor must use all reasonable endeavours to provide the services and must carry out all necessary repairs, maintenance and replacements to all services in the Building including without limitation Air Conditioning Plant, Elevators and Electricity Supply System to ensure the Building services are functioning and are available during Normal Business Hours and where required outside Normal Business Hours (subject to reasonable interruptions required to carry out preventative repairs and maintenance).”

40. Clause 9.1(a) is varied by inserting the word “competent” before the word “cleaning”.

41. Clause 9.2 is varied by inserting the words “properly and reasonably incurred” after the word “cost” in line 2.

42. Clause 10.3(a)(iii) is varied to read as follows:

“take out such policies in the name of the Lessee and note the interest of the Lessor”.

43. Clause 10.3(a)(v)(A) is varied to read as follows:

“a duplicate or copy of the certificate of currency of policies; and”.

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44. Clause 10.3(a)(v)(B) is deleted.

45. Clause 10.3(a)(vii) is deleted.

46. Clause 10.4(a)(vi) is varied by inserting at the end of the clause the words “(unless approved in accordance with clause 10.4(b) below).”

47. Clause 10.5(c) is varied by adding the following words at the end of the clause:

“and the Lessor has provided the Lessee with 14 days prior written notice of the proposed exercise of its power of attorney and the Lessee has not within that 14 day period diligently pursued its rights to recover insurance money or rectified its default of a Lessee’s Covenant.”

48. Clause 12.4(c) is replaced with the following:

“(c) all fixtures, fittings, plant, equipment or other articles upon the Premises in the nature of trade or tenant’s fixtures brought on the Premises by or on behalf of the Lessee including any fixtures and fittings owned by the Lessor.”

49. Clause 12.4(e) is deleted.

50. Clause 12.6(c)(iii) is varied by inserting at the end of the clause the words “subject to the exclusions in clause 7.1(b) and 7.1(c).”

51. Clause 13.1 is varied by inserting at the end of the opening paragraph the words “without the Lessor’s consent which must not be unreasonably withheld or delayed having regard to clause 13.2.”

52. Clause 13.2(d) is varied by inserting the following new sub-clause:

“(i) in respect of an assignment or transfer (but not a subletting) the Lessee satisfies the Lessor that the ingoing party must pay a full market rental;”

53. Clause 13.2(d)(ii) is replaced with the following:

“(ii) in the case of a subletting, the terms of the sublease (except for rent) are substantially similar to those of the Lease and the sub-lease contains an acknowledgment by the parties if required by the Lessor at its absolute discretion that the rent is below market.”

54. Clause 13.3(a)(vi) is deleted.

55. The following clause 13.3(d) is added:

“(d) Clause 13.3(a) and (b) will not apply where a related body corporate (as defined in the Corporations Act) of the Lessee remains the ultimate holding or parent company of the Lessee.”

56. Clause 13.5 is varied by adding at the end of the clause the words “This clause 13 does not prohibit the Lessee from entering into fixed and floating charges in respect of its assets without the Lessor’s approval in the ordinary course of the Lessee’s business.”

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57. Clause 14.1(a)(iv) is deleted.

58. Clause 14.3(a) is varied by replacing “seven (7)” with “fourteen (14)”.

59. Clause 14.5(a) is varied by inserting at the beginning of the clause the words “Provided the Lessor takes steps to mitigate its losses, the”.

60. Clause 14.7(a) is varied by inserting at the beginning of the clause the words “Despite any other clause”.

61. Clause 14.7(a) is further varied by inserting the words “14 days prior written” before the word “notice”.

62. Clause 14.8(a) is varied by inserting at the end of the opening paragraph and before the word “to” the words “and as a result of this Lease has been validly terminated.”

63. Clause 14.8(a)(iii) is deleted.

64. Clause 15.2(b) is varied by replacing the word “Lessee’s” with the word “Lessor’s”.

65. Clause 15.4 becomes clause 15.4(a) and is varied by adding at the end of the clause the words “provided it has been reasonably notified of the terms of such estate or interest.”

66. The following clause 15.4(b) is inserted:

“(b) It is acknowledged without prejudice to clause 15.4(a) above, the Lessee’s occupation and use of the Premises in accordance with the terms of this Lease does not breach its obligations under clause 15.4(a).”

67. Clause 16.10 is deleted.

68. Clause 17.2 is varied by inserting at the beginning of the clause the words “Subject to clause 17.3” and by inserting at the end of the opening paragraph the words “at the Lessor’s cost”.

69. The following new clause is added:

“17.3 Requirements for Subdivision

The Lessor must ensure in respect of any subdivision that:

(a) the rights and benefits of the Lessee under this Lease are not prejudiced or derogated from; and

(b) the liability of the Lessee is not increased, as a result of any matter or thing arising from the subdivision.”

70. Clause 22.5 is varied by deleting the words “If requested by the Lessee” and by inserting after the words “Taxable Supply” the words “before the due date of payment of any amount on account of GST.”

71. Clause 22.6 is varied by deleting the words “may become” and by replacing them with the word “is”.

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72. The following clause is added:

23. LESSEE’S WORKS

23.2 Definitions

“Access Date” means the date the Lessor receives this Lease executed by the Lessee in registrable form together with:

(a) evidence of the Lessee’s insurance required under clause 10 and evidence of the Lessee’s contractor’s public liability insurance under clause 23.8; and

(b) cheques in payment of stamp duty and registration fees payable in connection with this Lease;

whichever is the latest to occur.

“Authorisation” means:

(a) an authorisation, consent, declaration, exemption, notarisation or waiver, however it is described; and

(b) in relation to anything that could be prohibited or restricted by law if a Governmental Agency acts in any way within a specified period, the expiry of that period without that action being taken,

including any renewal or amendment.

“Lessor’s Works” means the construction of an intertenancy wall in the position agreed between the Lessor and the Lessee.

“Works” means any of the following carried out by the Lessee:

(a) the installation of any fixtures or fittings in the Premises;

(b) any other alterations or improvements to the Premises, the Lessee’s Fittings or any services provided to the Premises or to the Building.

23.2 Licence

The Lessor grants the Lessee a non-exclusive licence for the period from the Access Date to the day before the Commencement Date to occupy the Premises for the purpose of carrying out the Works on the same terms and conditions as this Lease except that:

(a) the payment of Rent will not apply; and

(b) clause 12.1 will not apply.

23.3 Works

(a) The Lessee must not carry out any Works unless it first obtains the Lessor’s written approval to the proposed Works, (such approval not to be unreasonably withheld or delayed) and the Lessee otherwise complies with the rest of this clause 23.

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(b) The Lessor will carry out the Lessor’s Works in a good and workmanlike manner prior to the Access Date.

23.4 Lessee’s drawings and specifications

(a) The Lessee must, at its cost, prepare and give to the Lessor:

(i) 2 copies of detailed working drawings and specifications of the proposed Works; and

(ii) the names and other relevant details of the architect and the contractors that the Lessee intends to use.

(b) The Lessor must, as soon as practicable, notify the Lessee:

(i) whether or not the Lessor approves of, or requires alterations to, the drawings and specifications submitted by the Lessee;

(ii) whether or not it approves of the contractors that the Lessee intends to us; and

(iii) if it does not approve of the drawings or specifications, provide reasons why not.

(c) The Lessee acknowledges that the Lessor may refer the drawings and specifications to the Lessor’s architect and other consultants for their advice.

(d) If the Lessor does not approve of the drawings and specifications or the Lessee’s proposed architect or contractors the Lessee must alter and resubmit them.

(e) The Lessor must not unreasonably withhold or delay its approval under this clause.

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23.5 Authorisations

The Lessee must not start the Works until the Lessee gives the Lessor copies of all Authorisations required for the Works; and

(a) the Lessor approves of the drawings and specifications submitted by the Lessee; and

(b) the Lessor approves the contractors that the Lessee intends to use to carry out the Works.

23.6 Variation to Works

If the Lessee wishes to vary the Works approved under clause 23.4, the Lessee must follow the procedure contained in clause 23.4, in respect of the Works incorporating those variations.

23.7 Conditions regarding Works

The Lessee must, at its cost:

(a) (timing) start and complete the Works as soon as practicable after the Lessor approves of the drawings and specifications and the Lessee’s architect and contractors under clause 23.4;

(b) (Lessor’s approval) complete the Works in accordance with the plans and specifications approved by the Lessor under clause 23.4;

(c) (Lessor’s directions) comply with, and ensure that its contractors and employees comply with, all reasonable directions of the Lessor in relation to the carrying out of the Works;

(d) (no disturbance) cause as little disturbance as possible to the Lessor and any other occupier of, or invitee in, the Building;

(e) (compliance) comply with all relevant statutes, Authorisations and requirements of any Governmental Agency in relation to the Works;

(f) (quality) carry out the Works in a competent manner in accordance with the Lessor’s fit-out guidelines;

(h) (removal of rubbish) remove from the Building all rubbish or debris resulting from the Works;

(i) (repair damage) immediately repair to the Lessor’s satisfaction any damage directly or indirectly caused to the Building by the carrying out of the Works;

(j) (notice of completion) give the Lessor at least 5 Business Days notice of when the Works are likely to be completed; and

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(k) (heavy equipment) not bring any heavy equipment into the Building unless it is required to carry out the Works and it complies with the maximum floor loading weights for the Building.

23.8 Contractor’s insurance

The Lessee must ensure that the contractors it engages to carry out the Works have a current public liability insurance policy under which the maximum amount payable for a single claim is at least $20,000,000, or any other amount reasonably required by the Lessor.

23.9 Structural work or alterations to services

If any alteration is required to the services provided or to be provided to the Premises or to the Building, or to any plant or equipment in the Building:

(a) the Lessee must pay for the required alteration;

(b) the alteration must be carried out by contractors appointed by the Lessor.

23.10 Preservation of Lessor’s warranties

The Lessee must not carry out any Work or carry it out in any way which could prejudice the Lessor’s rights under any builder’s, contractor’s or other warranties in relation to the Building provided the Lessee has been made aware of the terms of such rights.

23.11 Lessor’s costs

The Lessee must pay all costs and expenses reasonably incurred by the Lessor in relation to any proposed Works, whether or not the Works proceed, including the cost of the Lessor’s architect, consultants and supervisor.

23.12 Lessor’s Works

The Lessor will carry out the Lessor’s Works:

(a) in a good and workmanlike manner;

(b) in accordance with any necessary approval or consent of any relevant authority;

(c) in a timely manner; and

(d) at the Lessor’s cost.

In carrying out the Lessor’s Works, the Lessor must not and must ensure that its contractors do not interfere with, disturb or otherwise do anything which would delay the commencement, execution or completion of the Works.

Page 74 of 79

73. The following clause is added:

24. FIRST RIGHT OF REFUSAL

24.1 Future leases

Subject to clause 24.7, the Lessor must not grant any future lease of any part of the space indicated as the “FRR Space” on the plan attached to this Lease as Exhibit 1 (the “Alternative Premises”) during the term of this Lease without first complying with this clause, provided the Lessee is not at the date of the Lessor’s offer in material breach of the Lease, having been given a period of 7 days to remedy such breach.

24.2 Lessor’s offer

If the Lessor proposes to grant a lease of the Alternative Premises then the Lessor must offer the Lessee a lease of the Alternative Premises on the terms required by the Lessor (which must be no less favourable than the terms offered to the third party) (the “Lessor’s Offer”).

24.3 Lessee’s acceptance

The Lessee may accept, by written notice, the Lessor’s Offer within 10 days of receiving it.

24.4 End of Lessor’s offer

If the Lessee:

(a) does not accept the Lessor’s Offer in accordance with clause 24.3;

(b) notifies the Lessor that the Lessee does not accept the Lessor’s Offer; or

(c) does not respond to the Lessor’s Offer,

the Lessor may then offer a lease of the Alternative Premises to any other person on the same terms as those offered to the Lessee and particularly at a commencing annual rental no less than the commencing annual rental in the Lessor’s Offer.

24.5 New lease

If the Lessee accepts the Lessor’s offer in accordance with clause 24.3 then the Lessor must within 14 days of receiving the Lessee’s notice submit to the Lessee a lease incorporating the terms of the Lessor’s Offer and otherwise on the same terms and conditions as this lease (the “New Lease”).

24.6 Lessee execution of New Lease

The Lessee must execute the New Lease and return it to the Lessor within 21 days of receiving it together with:

(a) a bank guarantee or security deposit, if applicable;

(b) payment of stamp duty (in the amount notified by the Lessor), registration fees and the Lessor’s legal costs; and

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(c) certificates of currency in respect of the insurances the Lessee is required to take out under the New Lease.

25.7 Lessee’s acknowledgment

(a) Subject to clause 25.7(b) the Lessor is obliged to make an offer to the Lessee under clause 24.1 at any time during the term of the Lease that it wishes to grant any lease of the Alternative Premises but this clause 24 will not be included in any New Lease granted under clause 24.5.

(b) For the avoidance of doubt the Lessee acknowledges and confirms that if a lease is granted to a third party in accordance with clause 24.4 the Lessor’s obligations under clause 25 end in respect of the space over which such a lease is granted.

74. The following clause is added:

25. RENT FREE PERIOD

Despite any other provision of this Lease, the Lessee is not required to pay Rent in respect of the period commencing on the Commencing Date and ending on the date which is 5 months later.

75. The following clause is added:

26. COSTS

Despite any other provision of this Lease each party must bear its own legal costs for the preparation, negotiation, execution and completion of this Lease.

76. The following clause is added:

27. CONDENSER WATER

While the Lessee remains Nighthawk Radiology Services, LLC (ARBN 098 194 640) under this Lease and the lease to the Lessee of Suite 1101, Level 11, Grosvenor Place (the “Other Premises”), a condenser water allowance of 6 litres per second will be permitted for the Premises and the Other Premises.

77. The following clause is added:

28. SECURITY

The Lessee acknowledges and agrees that despite clause 18.1 and while the Lessee remains Nighthawk Radiology Services, LLC (ARBN 098 194 640) under this Lease and the Lessee’s lease of the Other Premises(as defined in clause 27):

(a) the security deposit amount of $170,297.60 (the “Security”) represents the amount of a bank guarantee held by the Lessor to satisfy the Lessee’s obligations under its lease of the Other Premises;

(b) the Security will apply to the Lessee’s obligations under this Lease and the Lessee’s lease of the Other Premises;

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(c) if the Lessee commits a breach of the Lease the Lessor may drawn down all or part of the Security to reimburse or compensate (wholly or partly) the Lessor in respect of the breach; and

(d) the Lessor may require the Lessee immediately to provide such further bank guarantee as is necessary to restore the Security to an amount equal to Item 17 of the Reference Schedule.

78. The following clause is added:

29. INTERDEPENDENCY CLAUSE

29.1 Interdependent leases

The Lessee acknowledges and agrees with the Lessor that:

(a) this Lease is interdependent with lease registered number AA265323 between the Lessor and the Lessee over premises known as Suite 1101, Level 11, Grosvenor Place (the “Interdependent Lease”).

(b) any breach of the Interdependent Lease by the Lessee will be deemed to be a breach of this Lease and the Lessor will be entitled to terminate this Lease in accordance with clause 14.1; and

(c) if this Lease is terminated the Interdependent Lease automatically terminates and if the Interdependent Lease is terminated, this Lease automatically terminates.

29.2 Clause ceases to apply

This clause 29 will cease to apply if the Lessee under this Lease and the Interdependent Lease cease to be Nighthawk Radiology Services, LLC (ARBN 098 194 640).

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We certify this dealing to be correct for the purposes of the Real Property Act 1900 (NSW)

COMMONWEALTH CUSTODIAL SERVICES LIMITED (ACN 000 485 487)

/s/ Kenneth Rowen Griffin	/s/ Shari Appathurai
Signature of Attorney	Signature of Witness
	Shari Appathurai
	Name of Witness

COMMONWEALTH FUNDS MANAGEMENT LIMITED (ACN 052 289 442)

/s/ Kenneth Rowen Griffin	/s/ Shari Appathurai
Signature of Attorney	Signature of Witness
	/s/ Shari Appathurai
	Name of Witness

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Certified correct for the purposes of the Real Property Act 1900 by the corporation named below the common seal of which was affixed pursuant to the authority specified and in the presence of the authorised person(s) whose signature(s) appear(s) below.

Corporation:	INVESTA PROPERTIES LIMITED (ACN 084 407 241)
Authority:	Section 127 of the Corporations Act

/s/ Christopher John O’Donnell	/s/ William Brian Lang
Signature of authorised person	Signature of authorised person
Christopher John O’Donnell	William Brian Lang
Name of authorised person	Name of authorised person
[Director]	[Secretary]
Office held	Office held

I certify that the authorised officer signing opposite, with whom I am personally acquainted or as to whose identity I am otherwise satisfied, signed this Sublease in my presence.	Certified correct for the purposes of the Real Property Act 1900 by the authorised officer named below.
/s/ Pierre Nicholas	/s/ Paul E. Berger, MD
Signature of witness	Signature of authorised officer
Pierre Nicholas	Paul E. Berger, MD
Name of witness	Authorised officer’s name
[ILLEGIBLE]	President/CEO
Address of witness	Authority of officer
Hornsby NSW 2077	/s/ Christopher Huber, NRS
	Signing on behalf of NIGHTHAWK RADIOLOGY SERVICES, LLC (ARBN 098 194 640)

Page 79 of 79

EXHIBIT 1

PLAN

SHOWING NET LETTABLE AREA

PART LEVEL 11

GROSVENOR PLACE

225 GEORGE STREET, SYDNEY

1:300

[FLOOR PLAN]

EX-10.17

Exhibit 10.17

Business Lease

Main Tenancy: Office Space

Ref. Number: 6063.01.0600.04

Start of the lease: 09/01/2004

1    Lessor
PSP Real Estate		Tax ID #:
AG Feldeggstr. 5
8152 Glattbrugg
2    Represented by
PSP Management AG
Feldeggstr. 5
Postfach
8152 Glattbrugg
3    Lessee
Lessee 1	Tax ID #:	Tax ID #:
Nighthawk Radiology AG
(being established)
Limmatquai 4
8001 Zürich
4    Property
Limmatquai 4, 8001 Zürich

Visa:    /s/  Michael Vollmer, Peter Wuhrmann 1/13

5	Contents
1	Lessor	1
2	Represented by	1
3	Lessee	1
4	Property	1
5	Table of Contents	2
6	Leased Property / Additional Rooms / Purpose / Rent / Incidental Costs	3
6.1	Additional Space	3
6.2	Purpose / Additional Rooms	3
6.3	Rent Payments / Arrears	3
6.4	Rent Basis	3
6.5	Rent Adjustments	4
6.6	Sales Tax	4
6.7	Incidental Costs	4
6.8	Dues and Expenses	5
7	Start of the Lease / Leasing Term	5
8	Early Termination	5
9	Renewal Option	6
10	Security Deposit	6
11	Floor Plans	6
12	Upgrades / Structural Changes by the Lessee / Building Contractor Liens / Reversal	6
12.1	Upgrades by the Lessor	6
12.2	Structural Changes by the Lessee	7
12.3	Building Contractor Liens	7
12.4	Reversal to the Original Condition	8
13	Damage Risk	8
14	Cleaning	8
15	Transfer	8
16	Key Directory	9
17	Factory Inspectorate Permits / Statutory Provisions for Industrial Businesses and the
Fire and Health Department		9
18	Use of the Leased Property	9
18.1	Duty of Care and Consideration	9
18.2	Business Use/Business Hours	9
18.3	Shelters	9
19	Use of the Courtyard, Areaway, Premises and Facilities outside the Leased Property	9
19.1	General	9
19.2	Shipping and Receiving	10
19.3	Waste	10
20	Fire Escape / Emergency Stairs	10
21	Lessor’s Maintenance Duty	10
22	Lessee’s Maintenance Duty	10
23	Signs / Advertisements	11
24	Deposit /Offset	11
25	Sub-Lease	12
26	Rent Transfer	12
27	Right of Inspection	12
28	Return of the Leased Property	12
29	Additional Agreements	13
30	Applicable Law / Jurisdiction	13
31	Changes / Amendments	13
32	Attachments	13
33	Signatures	13

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 2/13

6 Leased Property / Additional Rooms / Purpose / Rent / Incidental Costs

Object Type	Floor	Object No.	Reference No.	Area app. m2	Price m2/yr.	SWF per Year	SWF per Quarter
Office Space	7th Floor		6063.01.0600.04	322	370	119,136.00	29,784.00
Total Rent (Net)						119,136.00	29,784.00
HK/BK on account						8,040.00	2,010.00
Total Rent (Gross)						127,176.00	31,794.00

6.1 Additional Space

The indicated total space for rent includes the following additional space:

None

6.2 Purpose / Additional Rooms

The rental space shall only be used as an office for Teleradiology.

The following additional rooms are available for exclusive use by the Lessee free of charge: None

The following areas and facilities may be used without extra leasing charges: stairway, elevator

Applicable operating costs for the jointly used areas and facilities are payable by the users.

6.3 Rent Payments / Arrears

The rent is due on the 1st day of every quarter (expiration date).

The Lessee has paid the rent on time if the funds are available to the Lessor on the expiration date.

The Lessor has the right to charge the Lessee interest in the amount of 5% (from the expiration date) as well as a reminder fee of at least SWF 20,00 and other associated expenses for payments that are received after the expiration date

In the event of potential legal proceedings the Lessee acknowledges the rent amount according to the last legally valid rent adjustment.

6.4 Rent Basis

Mortgage Interest Rate		Status
Country-wide Consumer Price Index:	Baseline Year 2000	Status	31.07.2004	Pts.	102.9
Included increase in cost:		To

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 3/13

6.5 Rent Adjustments

The rent is 100% indexed.

The net rent amount can once a year – with a 1-month notice—for the first time on 01.01.2006 be adjusted in accordance to the changes of the Swiss country-wide consumer price index. The rent adjustment is calculated according to the following formula:

Current Index - Index from last adjustment

                                                                      x 100

Index from last adjustment

The rent shall never be lower than the initial rent defined at the start of the lease.

Rent increases due to additional services provided by the Lessor can also be asserted during the fixed term of the lease. Such rent increases will be announced 1 month in advance of the first day of the next month, and the Lessee will be notified in the form required for such transactions.

If necessary, account payments for heating and operating costs and flat fees for incidental costs can also be adjusted during the fixed term of the lease in compliance with the one-month notice in the form required for such transactions for the first day of the next month, whereby the heating and operating costs will be adjusted based on the actual costs, and the incidental fees will be adjusted in accordance to the actual occurring costs and the changes in the country-wide consumer price index.

In the case of several Lessees (joint Lessees), the notice does not have to be delivered separately for each Lessee.

6.6 Sales Tax

The Lessee agrees to make rent payments (including incidental costs) increased by the amount of the sales tax (currently 7.6 %) in the event that the Lessor decides to exercise the option to make the leased property subject to sales tax.

A corresponding adjustment of the rent (including incidental costs) will be applied in the required form at least one month in advance, and can be asserted for the date, on which the sales tax liability becomes effective. Subsequent sales tax rate changes can be asserted in the same manner in the form of rent increases.

6.7 Incidental Costs

The term “incidental costs” stands for heating, hot water and operating costs.

If account payments have been previously agreed for the heating, hot water and operating costs, the Lessor will charge these costs once annually.

The due date for payment of the heating and operating charges is June 30.

The costs for heating and hot water include all cost types per Art. 5 VMWG plus the decalcification of any individual water heaters in the leased property (every 3 years), and an administrative fee of 3% of the sales tax. The operating cost, if applicable, include the following charges:

– Maintenance, including sales tax and social benefits and vacation substitute for the maintenance man, rent for the maintenance man’s room, small expenses

– Lease and service of maintenance equipment

– Cleaning of the generally accessible rooms and areas, including cleaning materials and lightbulb replacements

– Periodical container cleaning

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 4/13

– Cleaning of glass and metal storefronts or parts of storefronts

– General use of electricity, water / sewage / sewer system / waste removal, incl. the corresponding basic fees

– Lawn care, Grünabfuhr and Gartenabraum

– Snow and ice removal, including salt

– Radio and cable TV fees

– Ongoing service contracts for elevators, incl. operation of the elevator telephone, ventilation and A/C systems, incl. periodical cleaning of the distributor pipe, escalators, hoists, ramps, gates, alarm systems, fire alarm systems, sprinkler systems, fire extinguishers, pumps

– Salt, filters and service for water treatment equipment

– Preventive sewer and pipe flushings

– Charges for security services

– Charges for facility management services

– Administrative fee: 3.5 % + sales tax

The billing for the heating, hot water and operating costs is considered as agreed to provided the Lessee does not object in writing within a period of 30 days after having received the bill with the Lessor or the Lessor’s representative. The Lessee has the right to review the detailed bill and its associated receipts in their original form, or have them reviewed by an authorized representative.

Additional charges are payable within 30 days after receipt of the invoice. Refunds are payable within the same time period.

During heating season, the heat shall not be completely turned off in any rooms. Heaters set by the Lessee to a lowered output do not result in reduced heating charges.

6.8 Dues and Expenses

Dues and expenses exclusively caused by the business of the Lessee are payable by the Lessee, even if they are imposed by the Lessor.

If the business operations of the Lessee are associated with a disproportionate use of water, the Lessor may order the installation of a separate water meter at the Lessee’s expense. The water consumption is included in the charges for the operating costs.

Incidental costs, for which a utility provider or office (including cable networks) charges the Lessee directly, and which are not listed in the lease, are payable directly by the Lessee.

7 Start of the Lease / Leasing Term

The lease starts on             09/01/2004

Starting at this date the rent is due. In the event that the transfer takes place before this date – especially for upgrades performed by the Lessee – the risk is transferred to the Lessee.

The lease ends on             08/31/2009

The lease is time-limited, and ends without advance notice on 08/31/2009.

8 Early Termination

If the Lessee wishes to end the lease without compliance to the agreed time periods and dates, the Lessee is until the property is rented again, at a maximum until the next contractually available termination date liable for the rent, the incidental costs and the other duties of the Lessee. The advertising costs and additional administrative costs associated with the unscheduled re-leasing are payable by the Lessee, who is moving out of the property.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 5/13

The Lessee can be released from the lease agreement outside the scheduled time period only, if he/she is suggests a reasonable new Lessee, who is solvent and willing to assume the lease under the same conditions. The Lessor shall be given sufficient time – usually 30 days – for the necessary arrangements.

9 Renewal Option

The Lessee is being offered a renewal option for an additional 5 years, i.e. from 09/01/2009 to 08/21/2014. The Lessee is required to exercise this option until at the latest 08/31/2008 by registered letter, otherwise the renewal option becomes invalid, and the lease ends without advance notice on 08/31/2009.

If the Lessee decides to exercise the option, the Lessor has the right to adjust the rent to the start of the option period according to the then applicable market conditions. Rent charges below the rates applicable at this time are excluded.

The new rent and the new lease will be delivered to the Lessee for signature at the latest one month after the option has been exercised. If the Lessee does not return the signed new lease within 30 days after receipt, this is considered a withdrawal from the declaration to exercise the option, and the renewal option becomes definitely invalid.

If the option is exercised, the lease ends after the option period has expired without the requirement of advance notice.

If the Lessee transfers the lease as defined in Art. 263 OR to a third party, the option right shall be deemed as cancelled.

10 Security Deposit

In order to guarantee all of the Lessor’s claims from the lease in accordance to the terms of this lease, the Lessee submits a security deposit in terms of an interest-bearing savings account per OR Art. 257e in the amount of SWF 30,000.00.

The security deposit must be available at the time the key is being handed over.

11 Floor Plans

The attached floor plans at a scale of 1:200 dated on 08/04/2004 are an integral part of this lease and will be undersigned by both parties.

Any deviations in space do not entitle to changes in rent.

12 Upgrades / Structural Changes by the Lessee / Building Contractor Liens / Reversal

12.1 Upgrades by the Lessor

The agreed net rent applies to bare, i.e. unfinished rooms (Building Shell 2) as follows:

– Floor: Concrete floor, bare

– Walls: Enclosing walls, unfinished daub

– Ceiling: Concrete – wood ceiling, unfinished

– Electrical: From the mains, responsibility of the Lessee

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 6/13

– Sanitation: 1 Ladies’ and 1 Men’s room with one lavatory each

The costs for the upgrades by the Lessee and the maintenance and replacement of all fixtures and improvements as well as installations and equipment are expressly and exclusively payable by the Lessee.

Any already existing fixtures and improvements as well as installations that were made by the Lessor or a previous Lessee will be left for use by the Lessee in the current condition, and without additional charges to the rent without any guarantees. The maintenance and the replacement, additional fixtures and improvements and installations are from then on expressly and exclusively payable by the Lessee.

The Lessee is obligated to tolerate the routing of ducts, pipes, cables, etc. in the floors and ceilings without reimbursement.

12.2 Structural Changes made by the Lessee

The Lessee has the right to finish or alter the leased property in accordance to his/her needs, whereby the respective altering and finishing projects require advance written approval by the Lessor. I doing so, the Lessee is required to submit the according blueprints/floor plans at a scale of 1:50, cost estimates and detailed descriptions of the structural changes.

The Lessor can request a guarantee for the financing of the changes, which the Lessee must submit prior to the start of the construction work.

The Lessee is responsible for compliance with all applicable legal rules and regulations like the communal and cantonal building law, SIA standards and guidelines of the relevant trade associations, SUVA regulations, fire protection requirements, etc., including the obtainment of all necessary official permits. The building statics (floor load, supporting elements) shall be especially observed. The attached letter from the Volkert and Zimmermann engineering office in regard to load capacity is an integral part of the leasing agreement.

Finishing and alteration projects by the Lessee shall be performed under utmost consideration of the other lessees. In office buildings with residential space these types of work are only allowed on business days and during normal working hours only. The Lessee is responsible for all costs arising directly or indirectly from the construction work. This does also include costs from damage claims of third parties, rent reduction claims from lessees in the building due to building immissions, any legal proceedings opened against the Lessor, etc. hookup fees for water, electricity, sewer, etc. In the case of structural changes to the general parts of the building, the Lessor has the right to stipulate planners, companies, products and systems, especially regarding statics, installation and building shell.

The Lessee is liable for any material, personal and financial damages, which may occur in connection with the structural changes, improvements, installations and fixtures. The Lessee is therefore obliged to purchase a contractors’ liability insurance for each construction project.

12.3 Building Contractor Liens

The Lessee guarantees that the involved workmen, contractors, and suppliers will not file any contractor liens. Should this happen anyway, the Lessee is responsible that these liens will immediately and at his/her expense be deleted already at the time of the preliminary tentative entry in the real property register. In the event of non-compliance the Lessee is liable to the Lessor for any damages arising therefrom.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 7/13

In the case of larger investments the Lessor has the right to demand the projected costs to be made available in a blocked account or through a bank guaranty in order to avoid contractor liens.

12.4 Reversal of Structural Changes

Any structural changes and installations initiated and paid for by the Lessee can, after the lease has ended, be transferred to the Lessor at the current value (minus applicable Lessor participation). However, the Lessee has no recourse against the Lessor. Upon the Lessor’s request, the property must be restored to its original condition in accordance with Chapter „Structural Changes by the Lessee” (or to a condition accepted by the subsequent lessee) at the Lessee’s expense.

13 Risk for Damages

The Lessor insures the leased property without chattels and furnishings with the cantonal building insurance institute or, in cantons, where such insurance is not available, with a private insurance company against fire and weather damage.

Increases in building insurance premiums due to structural changes by the Lessee are charged to the Lessee once annually.

The Lessee assumes the risk for all damages to his/her furnishings, installations and goods brought into the building caused by fire, water, explosion, humidity, break-in, theft, etc. The Lessee purchases the necessary insurance at his /her own expense.

The Lessee furthermore assumes the risk for all glass panels in his/her leased office space. Cracked or broken glass panels must be replaced with glass of the same type and quality. The Lessee is released from the according replacement only if he/she can prove that the damage was caused by faulty installation or tensions in the frame.

The Lessor purchases liability insurance for damages against third parties only to the extent of his/her liability. Anything beyond that is the Lessee’s responsibility.

14 Cleaning

The regular, complete cleaning of the leased property and the windows and shutters associated with the leased property (inside and outside) as well as signs, illuminated advertising, and mail boxes is the Lessee’s responsibility, and shall be performed at the Lessee’s expense.

If parts of the building are soiled or infested with vermin because of the Lessee’s non-compliance with the cleaning duty, the Lessee is liable for any immediate and consequential damages.

If rooms for general use are being used by several lessees, they are required to arrange the cleaning and the replacement of the cleaning supplies (Unless otherwise provided by the Lessor, in which case the charges will be included in the charges for incidental expenses.)

15 Transfer

The Lessor transfers the leased property to the Lessee in usable and clean condition. This condition is defined in Chapter „Upgrades by the Lessor”. A claim to a new value of the accepted leased property and/or the leased facilities is excluded.

The transfer takes place according to a transfer protocol. The Lessee is required to report any deficiencies in the leased property not listed in the protocol within 10 days after the start of the lease by registered letter. Exceptions are hidden defects. They must be reported in writing immediately after having been discovered.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 8/13

If the Lessor doesn’t receive any reports of this type, it will be assumed that the leased property has been transferred in proper condition according to protocol.

16 Key Directory

The transfer protocol contains a listing of the transferred keys/badges. Any keys/badges lost during the term of the lease must be replaced by the Lessee until at the latest by the end of the lease at his/her own expense. The Lessor has in such cases the right to change or replace the locking system and keys/badges at the Lessee’s expense. Any additional keys/badges made by the Lessee shall be transferred to the Lessor at the time of the move free of charge.

17 Factory Inspectorate Permits / Statutory Provisions for Industrial Businesses and the Fire and Health Department

All permits required for the use of the leased property and the business must be obtained by the Lessee directly and at his/her own expense and complied with.

18 Use of the Leased property

18.1 Duty of Care and Consideration

The Lessee is required to treat the leased object with proper care and keep the property in good and clean condition. The leased property shall be used of the agreed purpose only. Any changes require the Lessor’s written approval. The Lessee is liable for damages caused by any use contrary to the terms of this agreement.

In using the leased property, the Lessee must be considerate of his/her fellow lessees and neighbors. The Lessee is not allowed to use machines, equipment or devices or operate a business, which generates noise, vibrations, irritating vapors or bad smells. The Lessee agrees to comply with the Lessor’s house rules.

Before the placement of heavy goods and objects like safes, machinery, etc. the Lessee is required to check the load capacity of the floors with the Lessor; expert advice of the construction engineer is payable by the Lessee. In order to protect the floors and to prevent sound and vibration, heavy objects must be placed on an appropriate support or padding.

18.2 Business Use / Business Hours

In order to conserve the value of the property or the leased property to the extent required, the Lessee establishes a duty of use applicable in any case to restaurants, retail stores as well as generally for premises, where the end of business hours is easily visible to passers-by. Especially in the case of restaurants and retail stores, the business hours should match the local and industry-wide opening hours.

18.3 Shelters

Shelters that are being used for purposes other than civil defense (storage, archives, etc.), must be accessible and usable for civil defense purposes at all times within 24 hours or within the time period determined by the responsible authorities. Changes to the installations in shelters are absolutely prohibited.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 9/13

19 Use of the Courtyard, Areaway, Premises and Furnishings outside the Leased property

19.1 General

Unless agreed otherwise in writing, the Lessee is not allowed to place or store objects outside the leased property. Especially the access to the building and the courtyard, throughway, house and basement or other free spaces and rooms shall never be blocked with objects of any kind.

Should the Lessor make an exception and give permission to do so, the Lessee is liable for any damages arising from such storage.

Vehicles of any kind belonging to the Lessee, his/her employees and his/her customers shall only be parked on the parking spaces indicated by the Lessor.

19.2 Shipping and Receiving

The shipping and receiving of goods must take place with the proper care, and shall be conducted at the locations permitted by the Lessor only. Contamination from the shipping and receiving of goods must immediately and without request be removed by Lessee. Damages must be immediately reported to the Lessor, who will initiate its elimination at the Lessee’s expense.

The use of the passenger and shipping elevators are subject to the attached rules and regulations. Users of the elevators must especially observe the load capacity regulations.

19.3 Waste

Waste of any kind shall be deposited at the locations indicated by the Lessor only, and in an appropriate manner. If necessary, the Lessee is obligated to obtain appropriate containers to be emptied periodically.

20 Fire Escape / Emergency Stairs

Fire escapes or emergency stairs shall be used only in the event of a fire or emergency, where the main stairway is not accessible. The door to the emergency stairs must kept clear at all times. Storage of any kind in the escape routes is prohibited.

21 Lessor’s Maintenance Duty

The Lessor is obligated to keep the leased property (except changes made by the Lessee) in usable condition. The Lessee is required to report any problems to the Lessor.

In the event of sudden problems, which constitute an immediate emergency, the Lessee is obliged to notify the maintenance man or the property management immediately, or – in case they are absent – to initiate and perform the necessary measures to prevent any consequential damages as far as possible and reasonable, or to have such measures taken. If the Lessee fails to do so, he/she is liable for consequential damages.

The Lessor has the right to freely carry out repairs, adjustments and renovations to the leased property and its associated furnishings and installations as well as on general parts of the building upon reasonable notice depending on the scope the work.

The Lessee shall tolerate any necessary, urgent operations for the conservation of the object at any time. Should the Lessee refuse the workmen access to the leased property, he/she can be made liable for any additional costs and consequential damages.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 10/13

22 Lessee’s Maintenance Duty

The Lessee is required to perform the small, for the daily use of the leased property necessary cleaning, repairs, and touch ups (so-called small maintenance). The Lessee shall perform such maintenance work in a professional manner or have them performed professionally. Small maintenance includes:

a) Maintenance of installations, fittings, and equipment (if included in the furnishings provided by the Lessor: replacement of defect griddles and grids, defect hobs, hot plates and Brennerpilze, refrigerator inserts, mirror, hose and showerhead of the shower, WC seat and cover, mouthwash glasses and soap dishes, run-off cover of the Lavabo, exhaust air filters), replacement of defect electrical connections, switches, outlets, covers as well as of defect heater valves, shutter and sun curtain chords, cranks, cords or tapes on blinds, etc.; lubrication and servicing of door and cabinet hinges and locks, removal of soot from individual stoves, clearing of waster water lines up to the water mains.

b) Periodical cleaning of windows and shop windows (inside and outside), shutters, curtains, balconies and terraces including run-offs, sanitary facilities, doors and mailbox as well as signs and advertising systems.

c) Proper care (regular cutting, watering and fertilizing) of the plants belonging to the leased property is the responsibility of the Lessee. The Lessee shall also prevent excessive plant growth and plant growth on the storefront (ivory, vines, etc.), and remove weeds.

d) All other small repairs and maintenance operations, which individually do not exceed the amount of SWF 500.00 (indexed).

The costs for the maintenance and the replacement of all furnishings and improvements, installations and facilities provided by the Lessee are expressly and exclusively payable by the Lessee. The Lessor can request the Lessee to perform the necessary work if the condition of such facilities threatens to damage the leased property or other parts of the property. Failure to do so gives the Lessor the right to order the work to be performed at the Lessee’s expense.

23 Signs / Advertisements

The Lessee is responsible for the costs associated with the production of uniform name signs at the marquee, mailbox, elevator, etc.

Storefront and stairway walls are not included in the lease.

Company signs, advertising signs, posters, display cases, placards and such can only be installed upon the Lessor’s previous written permission at the locations approved by the Lessor. The costs, including installation and operation, are payable by the Lessee. The Lessor also decides the type, size, color, form and material, including the arrangement and the sequence of signs. During the reversal to its original condition or when changing the storefront, the Lessee is required to remove and reinstall the signs and lettering at his/her own expense. The Lessee is obliged to obtain the necessary official permits and cover the arising therefrom. At the end of the lease, the Lessee is required to remove the signs and letterings at his/her own expense and to restore the space to its original condition, i.e. especially to properly close all holes, and to clean the underlying surface.

In the case of storefront advertisements, the Lessor has the right to charge the Lessee rent in a corresponding amount.

The charges for the electrical power necessary for illuminated advertisements are payable by the Lessee. The Lessee shall ensure that the power is checked via a separate meter, and billed to the Lessee directly. In the event of fire caused by illuminated advertisements, the Lessee is liable for all consequential damages arising therefrom.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 11/13

24 Deposits / Offset

The unilateral reduction of the rent by the Lessee is not admissible. In cases where the security deposit is applied and in regard to claims not related to the leasing agreement, offsets are excluded.

If the Lessor does not fulfill his/her maintenance duties in accordance with Chapter „Lessor’s Duty of Maintenance”, the Lessee must accordingly set in writing an appropriate time limit while advising the Lessor that he/she will deposit future rent payments or partial amounts thereof at a location determined by the canton, if the time limit expires without action from the Lessor.

The Lessor shall also be notified in writing of the transaction of the deposit.

Deposited rent payments go to the Lessor, if the Lessee has not asserted his/her claims against the Lessor within 30 days from the due date of the first deposited rent payment at the arbitration office.

The Lessor can issue a claim to the unjustly deposited rent payment at the arbitration office, after the Lessee has notified the Lessor of the deposit.

25 Subletting

The subletting of the entire leased property or of parts thereof (Art. 262 OR) requires the Lessor’s advance approval. Request and approval must be made in writing. The Lessee is liable towards the Lessor that the sub-lessee does not use the leased property for purposes other than permitted for the Lessee him/herself. The Lessor has the right to directly request the sub-lessee to do so.

The Lessee is obligated to notify the Lessor in advance about the intended sub-letting conditions and the personal data of the sub-lessee. After the sub-lease has been signed, a copy of the agreement shall be delivered to the Lessor.

26 Transfer of Rent Payments

The transfer of the lease requires the Lessor’s written permission. The Lessee informs the Lessor prior to the agreement regarding the transfer of the rent to a third party about the personal data and the business of such third party. He/she furthermore submits to the Lessor a detailed listing of the upgrades, furnishings, and equipment to be transferred to the third party, including the payable compensations. The request shall be supplemented with proof of solvency from a large Swiss bank or cantonal bank.

If the Lessor agrees, the third party assumes the lease in place of the Lessee. Afterwards, the Lessee is released from his/her obligations to the Lessor. He/she does, however, share joint liability with the third party until the point in time when the lease ends or can be terminated in accordance with the agreement or by law, at a maximum for two years.

27 Right of Inspection

In the course of sales or re-leasing negotiations and for the conservation of property rights, the Lessor or his/her representative has the right to enter the premises during normal business hours after a 48-hour notice. If the Lessee is absent, the keys must be available.

28 Return of the Leased Object

The premises made available by the Lessor in accordance to the above chapter „Lessor’s Premises” shall be returned at the end of the lease in good condition, under consideration of the wear and tear or changes resulting the from the contractually agreed use, and the condition at the start of the lease.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 12/13

The return of the completely emptied and cleaned leased property includes the return of all keys/badges by the last day of the lease at 12:00 pm. If the return date falls on a Saturday, Sunday or national holiday, the return must take place on the next following local business day until 12:00 pm at the latest. The reconditioning and cleaning steps to be required by the Lessee must be performed in a professional manner, and must be completed by the end of the lease.

Wall-to-wall carpeting and textile floor coverings belonging to the leased property shall be cleaned professionally or be removed.

After the expiration of the term of the lease the Lessee does not have the right to remain on or command the premises.

The Lessor prepares a transfer protocol for the return of the property. Any defect, for which the Lessee is accountable, will be listed in this protocol. For hidden defects, which despite a painstaking transfer are not detected until after the transfer, the Lessor has the right to prosecute the Lessee retroactively.

At the return of the leased property, the Lessor has the right to request the Lessee’s cooperation in the preparation of a joint return protocol. Should the Lessee refuse cooperation, the Lessor has the right to an official appraisal at the Lessee’s expense.

29 Additional Agreements

30 Applicable Law / Jurisdiction

If not agreed otherwise, the provisions of the Swiss Code of Obligations apply (Art. 253 ff. OR).

Jurisdiction for any disputes arising from this lease agreement if the location of the leased object.

31 Changes / Amendments

Changes and amendments to this lease agreement must be made in writing in order to become effective.

32 Attachments

The following attachments submitted to the Lessee and expressly acknowledged by the parties are integral parts of this lease agreement:

– Floor plan at a scale of 1:200, dated 08/04/2004

33 Signatures

The Lessee confirms with his/her following signature that he/she has read and understands the entire agreement including attachments.

Glattbrugg, 04.08.2004/CHQO432

Lessor represented by PSP  Management AG	Lessee
/s/     Philip Frei, Peter Wuhrmann	/s/     Michael Vollmer

This agreement becomes effective only after having been signed by all parties.

Visa:    /s/ Michael Vollmer, Peter Wuhrmann 13/13

EX-10.18

Exhibit 10.18

MULTI-TENANT BUILDING

LEASE

Between

LANDLORD: DEMCO WISCONSIN 5, LLC

and

TENANT: NIGHTHAWK RADIOLOGY SERVICES

Dated: February 25, 2004

TABLE OF CONTENTS

		Page
SECTION 1 SCHEDULE		1
SECTION 2 GRANT AND TERM		3
2.1	Demised Premises	3
2.2	Term	3
2.3	Option Term	3
SECTION 3 CONSTRUCTION OF DEMISED PREMISES		3
3.1	Construction	3
3.2	Delays	4
3.3	Substantial Completion Date	4
3.4	Changes and Additions	5
3.5	Settlement of Disputes	5
SECTION 4 POSSESSION AND COMMENCEMENT OF TERM		5
4.1	Possession and Commencement of Lease Term	5
4.2	Landlord Not Liable for Delays	6
4.3	Memorandum	6
SECTION 5 RENT		6
5.1	Base Rent	6
5.2	Rent Net of Expenses	6
5.3	Additional Rent	7
5.4	Lease Year	7
5.5	Delinquency Charge	7
5.6	Default Charge	7
SECTION 6 UTILITIES		8
SECTION 7 COMMON AREA MAINTENANCE		8
7.1	Common Areas	8
7.2	Maintenance of Common Areas	9
7.3	Tenant’s Pro Rata Share	9
7.4	Tenant’s Pro Rata Share of Expenses	9
7.5	Payment of Pro Rata Share	13
SECTION 8 TAXES AND ASSESSMENTS		13
8.1	Obligation	13
8.2	Definition	13
8.3	Payments	14
8.4	Tenant’s Taxes	14
SECTION 9 USE OF DEMISED PREMISES		14
9.1	Use of Demised Premises	14
9.2	Care of Demised Premises	15
9.3	Hazardous Substances	15
9.4	Affidavit And Questionnaire	16
9.5	Obligation of Tenant	16

SECTION 10 INDEMNITY		16
10.1	Indemnity	16
10.2	Liability Insurance	17
10.3	Tenant’s Contractor’s Insurance	17
10.4	Delivery of Policy and Special Endorsement	17
SECTION 11 MAINTENANCE AND REPAIRS		18
11.1	Maintenance and Repairs	18
11.2	Compliance with Laws	18
SECTION 12 TENANT’S ALTERATIONS		18
12.1	Alterations	18
12.2	Construction Liens	19
SECTION 13 PROPERTY INSURANCE, REBUILDING AND WAIVER OF SUBROGATION		20
13.1	Tenant’s Insurance	20
13.2	Insurance Policies	20
13.3	Increases in Insurance Coverage	21
13.4	Landlord’s Insurance	21
13.5	Release of Claims	22
13.6	Waiver of Subrogation	22
13.7	Rebuilding	22
13.8	Termination of Lease	23
13.9	Rental Proration or Abatement	23
SECTION 14 EMINENT DOMAIN		24
14.1	Total Condemnation	24
14.2	Partial Condemnation	24
14.3	Landlord’s and Tenant’s Damages	24
SECTION 15 ACCESS TO PREMISES		25
SECTION 16 FIXTURES AND EQUIPMENT		25
SECTION 17 BANKRUPTCY AND INSOLVENCY		25
SECTION 18 MORTGAGE OR SALE BY LANDLORD		26
18.1	Mortgage and Subordination	26
18.2	Sale or Transfer	27
18.3	Estoppel Certificates	27
18.4	Notice to Mortgagee	27
SECTION 19 ASSIGNMENT AND SUBLETTING		28
SECTION 20 EXPANSION SPACE		29
SECTION 21 DEFAULT, RE-ENTRY AND DAMAGES		30
21.1	Default	30
21.2	Re-Entry and Damages	30
21.3	Waiver of Landlord’s Liability	31
21.4	Rights Cumulative	31
21.5	Waiver of Jury Trial and Counterclaim	31
21.6	Non-Liability	31
21.7	Landlord’s Default	32

ii

SECTION 22 LANDLORD’S RIGHTS TO CURE DEFAULTS		32
SECTION 23 SECURITY INTEREST		32
23.1	Grant of Security Interest	32
23.2	Subordination	33
23.3	Remedies	33
SECTION 24 QUIET ENJOYMENT		33
SECTION 25 HOLDING OVER		34
SECTION 26 CUMULATIVE REMEDIES AND WAIVER		34
26.1	Cumulative Remedies	34
26.2	Waiver	34
SECTION 27 RELOCATION		34
SECTION 28 DEFINITION OF LANDLORD, LANDLORD’S LIABILITY		35
28.1	Definition of Landlord	35
28.2	No Abatement or Setoff	35
28.3	Limitation of Liability	35
SECTION 29 WASTE		36
SECTION 30 TENANT’S FINANCIAL INFORMATION		36
SECTION 31 SIGNS		36
SECTION 32 SECURITY DEPOSIT		36
SECTION 33 MISCELLANEOUS		37
33.1	Condition of Demised Premises	37
33.2	Independent Covenants	37
33.3	Authority	37
33.4	Entire Agreement	38
33.5	Modification	38
33.6	Joint Venture, Mortgage	38
33.7	Notices	38
33.8	Survival	38
33.9	Gender	38
33.10	Captions and Section Numbers	39
33.11	Broker’s Commission	39
33.12	Rules and Regulations	39
33.13	Recording	39
33.14	Execution of Lease	39
33.15	Construction	39
33.16	Binding Effect	39
33.17	Legal Fees	40
33.18	Joint Drafting	40
33.19	Counterparts	40

iii

LEASE

SECTION 1

SCHEDULE

LANDLORD:	NAME:	Demco Wisconsin 5, LLC
	ADDRESS:	45501 Helm Street, Plymouth, Michigan 48170
TENANT:	NAME:	Nighthawk Radiology Services
	ADDRESS:	250 Northwest Blvd., #202
		Coeur D’Alene, Idaho 83814
SITE:	Land described in Exhibit A attached hereto and incorporated herein.
BUILDING:	The building and improvements constructed on the Site at 223 North Water Street, Milwaukee, Wisconsin 53202 and any utility systems or signs serving the building and improvements but not situated on the Site.
DEMISED
PREMISES:	1,650 square feet of rentable floor area (Suite 200), Level 2 – East Half in the Building in accordance with Exhibit C attached hereto and incorporated herein.
LEASE TERM:	Three (3) years, with one 3-year option to extend.
COMMENCEMENT
DATE:	March 1, 2004, subject to adjustment pursuant to Section 4.1.
TERMINATION
DATE:	February 28, 2007, subject to adjustment pursuant to Section 4.1.

ANNUAL BASE RENT:	Lease Year	Annual Base Rent		Price Per Sq. Ft.
	1	$	23,512.50	$	14.25
	2	$	24,222.00	$	14.68
	3	$	24,948.00	$	15.12
OPTION YEARS ANNUAL BASE RENT:	Lease Year	Annual Base Rent		Price Per Sq. Ft.
	4	$	25,690.50	$	15.57
	5	$	26,466.50	$	16.04
	6	$	27,258.50	$	16.52

MONTHLY INSTALLMENT OF BASE RENT:	Month of Lease Term	Monthly Installment of Base Rent
	1-12	$1,959.38, first month paid on the date hereof
	13-24	$2,018.50
	25-36	$2,079.00
	37-48	$2,140.88
	49-60	$2,205.50
	61-72	$2,271.50

SECURITY
DEPOSIT:	$1,959.38, first paid on the date hereof.
USE OF DEMISED
PREMISES:	General Office
TENANT’S PRO
RATA SHARE:	9.70% (1,650 ÷ 17,000), subject to adjustment pursuant to Section 3.5.
BROKER:	The Polacheck Company
	777 East Wisconsin Avenue, Suite 3250, Milwaukee, WI
DATED:	February 25, 2004

EXHIBITS ATTACHED:	A	-	Legal Description of Demised Premises
	B	-	Site Plan
	C	-	Floor Plan of Demised Premises
	D	-	Landlord’s Improvements
	D-1		Scope of Work
	E	-	Building Rules and Regulations
	F	-	Subordination, Nondisturbance and Attornment Agreement
	G	-	Estoppel Certificate
	H		Unconditional Lease Guaranty

2

SECTION 2

GRANT AND TERM

2.1 Demised Premises

Landlord, in consideration of the rents to be paid and the covenants, promises and agreements to be performed by Tenant, does hereby lease to Tenant and Tenant hereby rents from Landlord, the Demised Premises described in Section 1 hereof, together with the nonexclusive right to use the common areas which may be designated by Landlord from time to time in connection with the Demised Premises with others entitled to use the same.

2.2 Term

The term of this Lease shall be for the Lease Term commencing on the Commencement Date stated in Section 1 (as adjusted pursuant to Section 4.1) and expiring on the Termination Date stated in Section 1 (as adjusted pursuant to Section 4.1), unless the Lease Term is extended or sooner terminated in accordance with the provisions of this Lease. For purposes of this Lease, references to Lease Term shall include any option to extend, if any, exercised in accordance with the terms of this Lease (“Lease Term”).

2.3 Option Term

2.3.1 Option to Extend Lease Term. So long as Tenant is not in default under this Lease and has not on more than one prior occasion been in default, which default has been cured, Tenant shall have an option to extend the Lease Term (“Option to Extend”) for a period of three (3) years for Lease Years 4 through 6 in accordance with the terms of this Section 2.3 (“Option Term”). The Option to Extend the Lease Term is personal to the Tenant and is not transferable or exercisable by any transferee.

2.3.2 Exercise of Option. If this Lease is in full force and effect, and Tenant complies with Section 2.3.1, Tenant may exercise the Option to Extend by providing Landlord with written notice of exercise not less than nine (9) months prior to the expiration of the Third Lease Year. For purposes of this Section, Lease Year shall mean the Lease Year as defined in Section 5.4 of this Lease.

2.3.3 Rent During Option Term. If the Option to Extend is properly exercised, then the Annual Base Rent shall be increased as set forth in the Section 1 Schedule. References in this Lease to Annual Base Rent shall include adjustments thereto pursuant to this Section 2.3.

SECTION 3

CONSTRUCTION OF DEMISED PREMISES

3.1 Construction

Landlord agrees prior to the Commencement Date, at Landlord’s sole cost and expense, to install in the Demised Premises the improvements shown on Exhibit D (“Landlord’s Improvements”) in accordance with the floor plan attached as Exhibit C, which improvements shall be substantially complete prior to the Commencement Date. The Landlord’s Improvements

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shall be constructed in a good and workmanlike manner, free of all liens, and in accordance with all laws, statutes, ordinances, building codes, rules and regulations of any federal, state or municipal body or other governmental agency having jurisdiction thereof then in effect. Landlord warrants that the Landlord’s Improvements will be free from defect in materials or workmanship for one (1) year after Substantial Completion. Any changes made to Landlord’s Improvements, at the request of Tenant, after the date of this Lease, which are acceptable to Landlord in cost, character, nature of scope (collectively “Change Orders”) shall be constructed by Landlord as a part of Landlord’s Improvements. Delays due to (a) Tenant’s request for Change Orders, (b) preparing, revising or obtaining Tenant’s approval of Change Orders and necessary changes to the Plans, and (c) implementing and constructing the work required by the Change Orders shall not delay or postpone the Commencement Date and Tenant’s obligation to commence paying rent. Landlord shall reasonably determine the date the Demised Premises would have been ready but for such delays associated with the Change Orders and such date shall be the Commencement Date even if the Demised Premises are not completed on such Commencement Date. The increased costs due pursuant to any Change Order shall be paid by Tenant; one-half (1/2) of such amount at the date each Change Order is approved by Landlord and Tenant and the balance to be paid on the Commencement Date. Minor changes to the Plans which may be necessary to accommodate construction of the Building or Demised Premises shall not affect or change this Lease or invalidate same. Landlord hereby warrants that, upon the Commencement Date, the Demised Premises and all systems (mechanical, electrical, life safety and plumbing) will be in good condition and repair, free from defects and in compliance with all laws, statutes, ordinances, building codes, rules and regulations.

3.2 Delays

Landlord’s obligations under this section shall not require Landlord to incur overtime costs and expenses. In the event Landlord shall be delayed or hindered in the construction of the Demised Premises, or prevented from completing such construction, or prevented from delivering possession of the Demised Premises because of any strike, lockout, labor dispute, fire, damage or destruction or casualty, unavailability of material, weather, power failures, unavailability of utilities, restrictive governmental laws or regulations, riots, insurrection, war, a previous tenant holding over, or any other reason beyond Landlord’s control, then Landlord shall be excused for the period of delay and the Commencement Date shall be postponed for such period of delay until such time as the Demised Premises are ready for occupancy and the Termination Date shall be appropriately extended.

3.3 Substantial Completion Date

Subject to Section 3.2, the Demised Premises shall be substantially completed on or before the Commencement Date. The date the Demised Premises is substantially completed (“Substantial Completion Date”) shall mean the date upon which Landlord delivers a Certificate of Occupancy (whether temporary or final) which permits Tenant to occupy the Demised Premises, or Tenant begins using or occupying any portion of the Demised Premises, whichever occurs first.

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3.4 Changes and Additions

Landlord reserves the right at any time and from time to time (a) to make or permit changes or revisions in its plan for the Building, including additions to, subtractions from, rearrangements of, alterations of, modifications of or supplements to the building areas, walkways, or other areas, (b) to construct other buildings or improvements in the Building and to make alterations thereof or additions thereto and to build additional stories on any such building or buildings and to build adjoining same, and (c) to make or permit changes or revisions in the Building, including additions thereto, and to convey portions of the Building to others. Landlord’s changes and additions described herein shall not interfere with Tenant’s access to or use of their computer and network systems.

3.5 Settlement of Disputes

Any disagreement or dispute which may arise between Landlord and Tenant with reference to the construction of Landlord’s Improvements shall be resolved by an independent third party architect selected by Landlord and Tenant, whose decision shall be final and binding on both Landlord and Tenant.

SECTION 4

POSSESSION AND COMMENCEMENT OF TERM

4.1 Possession and Commencement of Lease Term

Landlord shall deliver actual possession of the Demised Premises to Tenant on or before the Substantial Completion Date specified in Section 3.3, but if delivery is delayed by reason of Section 3.2 or by the Landlord for any reason whatsoever, the date upon which such possession is delivered shall constitute the “Commencement Date” in lieu of the date provided in Section 1 and the Termination Date provided in Section 1 shall be appropriately extended. If such delivery is delayed due to delays caused by or attributable to the acts or omissions of Tenant, its employees, agents, representatives, and contractors (“Tenant Delays”), then the Commencement Date and Tenant’s obligation to pay Rent shall be the date Landlord reasonably determines the Demised Premises would have been ready for delivery to Tenant but for such Tenant Delays. Landlord shall, when construction progress so permits, notify Tenant of the anticipated Substantial Completion Date specified in Section 3.3. By occupying the Demised Premises, Tenant will be deemed to have accepted the Demised Premises and acknowledged that they are in substantially the condition required under this Lease except for incidental items of uncompleted contract work of which Tenant shall notify Landlord in writing (“Punchlist”) within ten (10) days after the Commencement Date. Landlord shall diligently pursue completion of such items of uncompleted contract work set forth in the Punchlist. If Tenant fails to deliver the Punchlist to Landlord within such ten (10) day period, Landlord shall not be required to complete any such items of uncompleted contract work. The Rent, as hereinafter defined, due under this Lease and the term of this Lease shall commence on the Commencement Date. If permission is given to Tenant to occupy all or part of the Demised Premises prior to the Commencement Date, Tenant covenants and agrees that such occupancy shall be governed by all terms and conditions of this Lease. Such early occupancy shall not interfere with Landlord’s completion of the Project.

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4.2 Landlord Not Liable for Delays

Under no circumstances shall Landlord be liable for any delays in the delivery of possession to Tenant on the Commencement Date. Tenant’s sole and exclusive remedy shall be the abatement of Rent (as defined in Section 5.3) until the Demised Premises are ready for occupancy and possession is delivered to Tenant.

4.3 Memorandum

Within thirty (30) days after delivery of possession to Tenant, Tenant shall join with Landlord in the execution of a written memorandum confirming the Commencement Date and Termination Date of the Lease Term. Tenant’s failure to execute the memorandum shall be a Default by Tenant under this Lease and Landlord’s default under this Lease shall not relieve Tenant of the obligation to execute the memorandum within such thirty (30) day period.

SECTION 5

RENT

5.1 Base Rent

Tenant shall pay to Landlord the Annual Base Rent stated in Section 1 hereof for the Demised Premises during the Lease Term. The Annual Base Rent shall be payable in monthly installments equal to the Monthly Installment of Base Rent stated in Section 1 hereof, paid in advance, on the first day of each and every calendar month during the Lease Term, without any setoff, deduction or demand whatsoever, at the office of Landlord stated in Section 1 hereof, or at such other place as Landlord may designate from time to time in writing. The first Monthly Installment of Base Rent shall be due and payable at the time of execution of this Lease. If the Lease Term shall commence on a day other than the first day of a calendar month or shall end on other than the last day of a calendar month, then the Monthly Installment of Base Rent for such a partial month shall be prorated.

5.2 Rent Net of Expenses

Landlord and Tenant intend that the Annual Base Rent due hereunder, together with any adjustments during the Lease Term, shall be absolutely net of all costs, expenses, taxes (real and personal) and charges of every kind and nature whatsoever relating to the ownership, occupancy or use of the Demised Premises so that the Annual Base Rent, together with any adjustments, constitutes the minimum income realized by Landlord from the Lease of the Demised Premises. Tenant shall indemnify and hold Landlord harmless from and against any such costs, expenses, taxes (real or personal) and charges, for which Tenant is responsible under the Lease.

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5.3 Additional Rent

All amounts due from Tenant and payable to Landlord under this Lease other than Annual Base Rent, including, without limitation, Delinquency Charges pursuant to Section 5.5, Default Charges pursuant to Section 5.6, Metered Utilities and Common Utility Costs pursuant to Section 6 hereof, Expenses pursuant to Section 7 hereof, Taxes pursuant to Section 8 hereof, and insurance costs pursuant to Section 13, and amounts paid by Landlord pursuant to Section 22, shall be deemed to be additional rent (“Additional Rent”). Upon Tenant’s failure to pay any Additional Rent, Landlord, in addition to any other remedies, shall have the same remedies provided for Tenant’s failure to pay the Annual Base Rent (the Annual Base Rent, together with the Additional Rent, shall be collectively referred to as “Rent”). Tenant shall pay any and all sums of money or charges required to be paid by Tenant under this Lease promptly when the same are due, without any deductions or setoff whatsoever.

5.4 Lease Year

Lease Year shall mean a period of twelve (12) consecutive calendar months. The first Lease Year shall begin on the Commencement Date if the Commencement Date shall occur on the first day of the month; if not, then the first Lease Year shall commence on the first day of the month following the Commencement Date. Each succeeding Lease Year shall commence on the anniversary of the commencement of the first Lease Year. If the Commencement Date is other than the first day of a month, then the period between the Commencement Date and the first day of the month following the Commencement Date shall be added and be a part of the first Lease Year.

5.5 Delinquency Charge

If Tenant shall fail to pay all or any portion of a Monthly Installment of Base Rent as and when the same is due, then in addition to the Monthly Installment of Base Rent, Tenant shall pay a delinquency charge equal to five (5%) percent of the amount unpaid per month outstanding to reimburse Landlord for the costs incurred as the result of such late payment (“Delinquency Charge”). Such Delinquency Charge shall be paid with the next Monthly Installment of Base Rent.

5.6 Default Charge

If Tenant shall Default in any payment or expenditure, other than Annual Base Rent, required to be paid or expended by Tenant under the terms hereof, the Landlord may, at its option, make such payment or expenditure in accordance with Section 22. In such event, the amount thereof shall be due and payable as Additional Rent to Landlord by Tenant with the next Monthly Installment of Base Rent, together with interest thereon at a rate equal to the sum of the then prevailing “prime interest rate” (as hereinafter defined) plus five (5%) percent from the date of such payment or expenditure by Landlord until the date of payment by Tenant, to cover Landlord’s loss of the use of the funds and administrative costs resulting from Tenant’s failure (“Default Charge”). Upon Tenant’s failure to pay such Additional Rent together with the Default Charge, such Default Charge shall continue for each month or portion thereof

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outstanding until the date of payment The “prime interest rate” for purposes of this Lease shall mean the rate of interest announced by The Wall Street Journal from time to time as its “prime interest rate.” The “prime interest rate” shall be determined as of the date of Landlord’s payment or expenditure. If The Wall Street Journal ceases to publish its “prime interest rate,” the most comparable interest rate to that known as the “prime interest rate” shall be used.

SECTION 6

UTILITIES

Landlord has caused the necessary mains, conduits and other facilities to be made available to the Demised Premises, as of the Commencement Date and throughout the Term of this Lease, potable water (hot and cold) meeting local, state and federal requirements for water quality for drinking purposes, sprinkler, electricity, gas, sewer and telephone conduits. Tenant agrees to pay all charges made against the Demised Premises for gas, heat, water, electricity, sewage disposition, telephone and all other utilities during the Lease Term as the same shall become due. The quantity of electricity and telephone shall be separately metered at the Demised Premises (“Metered Utilities”), and Tenant shall make timely payment for all such Metered Utilities. Water, sewer and gas are not separately metered to the Demised Premises and, as a result, Tenant shall pay its appropriate share of such utilities as reasonably determined by Landlord. Landlord shall not be liable to Tenant for the quality or quantity of any utilities, or for any interruption in the supply of any utilities. Tenant acknowledges that the HVAC system for the Demised Premises also serves a small portion of the Common Areas on the second floor. Tenant shall also pay, as Additional Rent, Tenant’s Pro Rata Share of (a) the cost of water for toilet facilities and other water consumption, which water is centrally metered for the Building, (b) the cost of the electrical energy for any exterior illumination of the building(s), walks, and any exterior sign or signs on the Building, (c) the cost of any and all other utilities serving the Building not separately metered to the Demised Premises, (d) the cost of repair and maintenance of the plumbing system, the electrical energy supply system, and any other systems supplying utilities to the Building (“Common Utility Costs”) pursuant to Section 7.3.

SECTION 7

COMMON AREA MAINTENANCE

7.1 Common Areas

The term “Common Areas,” as used in this Lease, shall mean the; stairways, elevators, lobbies, atriums, pedestrian sidewalks; truck ways, loading docks, delivery areas; landscaped areas; drainage systems; common area lighting facilities; roof and four outer walls; utility lines, facilities and services serving the Building (other than Tenant Utilities), public bathrooms and comfort stations and all other areas or improvements which may be provided by the Landlord for the convenience and use of the lessees of the Building and their respective sublessees, agents, employees, customers, invitees, and any other licensees of Landlord. Landlord may include the parking areas, roadways and landscaped areas located on property adjacent and contiguous to the Building in the Common Areas provided for the convenience and use of the Lessees of the Building and their respective sublessees, agents, employees, customers, invitees and other

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licensees of Landlord. The use and occupancy by the Tenant of the Demised Premises shall include the use, in common with all others to whom Landlord has granted or may hereafter grant rights to use the same, of the Common Areas located within the Project, and of such other improvements and facilities as may be designated from time to time as Common Areas, subject, however, to rules and regulations for the use thereof as prescribed from time to time by Landlord. Landlord reserves the right in its sole discretion to change from time to time the size, dimensions, location and components of the Common Areas. Landlord may at any time temporarily close any Common Areas to make repairs or changes, to prevent the acquisition of public rights in such area or to discourage non-customer parking and may do such other acts in and to the Common Areas as in its judgment may be desirable to improve the convenience thereof. Landlord’s changes to the Common Areas shall not interfere with Tenant’s use of their network/internet systems.

7.2 Maintenance of Common Areas

Subject to Tenant paying its Pro Rata Share as provided in Section 7.6, Landlord shall cause to be operated, managed and maintained during the Lease Term all sidewalks, landscaping, drainage, common area lighting facilities, roof, outer walls, the Common Area plumbing system, the Common Area electrical system, the Common Area heating, ventilating and air conditioning system, the Common Area storm sewers, sanitary sewers and water main; provided, however, Landlord shall not maintain the plumbing system, electrical system, heating, ventilating and air conditioning system, sanitary sewer or water main located within the Demised Premises, which Tenant shall maintain at its sole cost and expense. The manner in which such common facilities shall be maintained and operated and the expenditures therefor shall be in a first-class condition and Landlord shall use its good faith efforts to minimize Common Area costs in a manner consistent with prudent office building management practices. The use of such common facilities shall be subject to such reasonable regulations as Landlord shall make from time to time.

7.3 Tenant’s Pro Rata Share

Tenant’s Pro Rata Share is a percentage resulting from a fraction, the numerator of which is the gross rentable square feet of the Demised Premises measured from the outside of all walls and the denominator of which is 17,000 square feet constituting the gross rentable floor area of the Building. Gross rentable floor area excludes utility and maintenance rooms, stairways, duct shafts, elevator shafts, building corridor areas, lobbies used in common by more than one lessee and toilet rooms available for use by more than one lessee, if any. Tenant’s Pro Rata Share shall be redetermined (increased or decreased as is appropriate) in the event the rentable square feet in either or both of the Demised Premises or the Building is increased or decreased in accordance with the terms of this Lease.

7.4 Tenant’s Pro Rata Share of Expenses

In addition to the Annual Base Rent payable under Section 5.1 hereof, Tenant agrees to pay monthly throughout the term of this Lease, as Additional Rent, Tenant’s Pro Rata Share of

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all reasonable costs of operation, maintenance, administration, repairs and replacements of the Common Areas, Building and Site including, but not limited to, Common Utility Costs, Expenses, Taxes and Insurance Costs. Expenses shall mean all costs of operation, maintenance, repair and replacement of the Common Areas, Building, building components, and improvements (including any future building and improvements) located on the Site, including, but not limited to, the roof and four outer walls, walks, landscaping, plumbing system, electrical system, heating, ventilating and air conditioning system, storm sewers, sanitary sewers and water main, and shall include the following costs by way of illustration, but not limitation: repairs to the building(s), walks, or any other improvements on the land; ; license, permit and inspection fees; grounds care costs, including snow removal, landscaping and lawn, tree and shrubbery care; labor; supplies; materials; equipment; tools; insurance premiums; and all costs of maintenance and redecoration of the exterior of the building(s), including repainting and glazing; trash and garbage collection services, if provided by Landlord (collectively “Expenses”); provided, however, such Expenses shall exclude the cost of repairs required to be made by Tenant. In addition, an amount equal to fifteen (15%) percent of the total of the Expenses, and the Tenant’s Pro Rata Share of Common Utility Costs under Section 6 hereof, Taxes under Section 8 hereof, and Insurance Costs under Section 13 hereof to cover Landlord’s administration costs shall be paid by Tenant in accordance with Section 7.3. In determining the foregoing costs, any such cost attributable to periods prior to the Commencement Date or subsequent to the Termination Date shall be prorated. Any capital improvements shall be amortized over the useful life of such capital improvements.

The following items shall also be specifically excluded from such Common Area costs:

(a) Leasing commissions, fees and costs, advertising and promotional expenses and other costs incurred in procuring tenants or in selling the Building;

(b) Legal fees except those incurred directly in connection with Landlord’s operation and maintenance of the Building;

(c) Costs of renovating or otherwise improving or decorating space for any tenant or other occupant of the Building, or relocating any tenant;

(d) Financing costs including interest and principal amortization of debts and the costs of providing the same;

(e) Depreciation;

(f) Rental on ground leases or other underlying leases and the costs of providing the same;

(g) Wages, bonuses and other compensation of employees above the grade of building manager, and fringe benefits other than insurance plans and tax-qualified benefit plans;

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(h) Any liabilities, costs or expenses associated with or incurred in connection with the removal, enclosure, encapsulation or other handling of asbestos or other hazardous or toxic materials or substances and the cost of defending against claims in regard to the existence or release of Hazardous Substances or materials at the Building (except with respect to those costs for which Tenant is otherwise responsible pursuant to the express terms of this Lease);

(i) Costs of any items for which Landlord is or is entitled to be paid or reimbursed by insurance;

(j) Increased insurance or Taxes assessed specifically to any other tenant of the Building for which Landlord is entitled to reimbursement from any other tenant;

(k) Charges for electricity, water, or other utilities, services or goods and applicable taxes for which Tenant or any other tenant, occupant, person or other party is obligated to reimburse Landlord or to pay to third parties;

(l) Cost of any HVAC, janitorial or other services provided to tenants on an extra cost basis after regular business hours;

(m) Cost of installing, operating and maintaining any specialty service, such as an observatory, broadcasting facilities, child or daycare, luncheon club or athletic or recreation club;

(n) Cost of correcting defects in the design, construction or latent defects in, Building;

(o) Cost of any work or service performed on an extra cost basis for any tenant in the Building to a materially greater extent or in a materially more favorable manner than furnished generally to the tenants and other occupants;

(p) Cost of any work or services performed for any facility other than the Building;

(q) Any cost representing an amount paid to a person, firm, corporation or other entity related to Landlord that is in excess of the amount which would have been paid in the absence of such relationship;

(r) Any cost of painting or decorating any interior parts of the Building other than Common Areas;

(s) Costs of revamping all light fixtures in non-public areas of the Building including, without limitation, labor and materials for light tubes, bulbs, starters, ballasts and their equivalents;

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(t) Any cost associated with operating an on-or off-site management office for the Building;

(u) Landlord’s general overhead and any other expense not directly attributable to operation and management of the Building (e.g., the activities of Landlord’s officers and executives or professional development expenditures);

(v) Cost of initial cleaning and rubbish removal from the Building to be performed before final completion of the base building or tenant space;

(w) Cost of initial landscaping of the Building;

(x) Costs of any mitigation fees, impact fees, subsidies, tap-in fees, connection fees or similar one time charges or costs (however characterized), imposed or incurred in connection with undertaking the initial development of the Building or any expansion thereof;

(y) Any fees, costs or expenditures incurred in connection with negotiations, disputes and claims of other tenants or occupants of the Building;

(z) Cost of the initial start-up stock of tools and equipment for operation, repair and maintenance of the Building;

(aa) Late fees or charges incurred by Landlord due to late payment of expenses;

(bb) Cost of acquiring, securing, cleaning or maintaining extraordinary sculptures, paintings and other excessive works of art;

(cc) Income, excess profits, franchise, capital stock, estate and inheritance Taxes on Landlord’s business;

(dd) Costs and expenses incurred in connection with any fines or settlements related to Landlord’s violation of laws (this shall not exclude fire or other compliance inspections and tests);

(ee) Direct costs or allocable costs (such as Taxes) associated with parking operations if there is a separate charge to Tenant, other tenants or the public for parking;

(ff) Charitable or political contributions;

(gg) Costs related to public transportation, transit or van pools;

(hh) All other items for which another party compensates or pays so that Landlord shall not recover any item of cost more than once; and

(ii) All fines for failure to comply with specific legal requirements.

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7.5 Payment of Pro Rata Share

Tenant’s Pro Rata Share of Common Utility Costs, Expenses and Insurance Costs for each Lease Year and partial Lease Year shall be paid in monthly installments on the first day of each calendar month, in advance, in an amount estimated by Landlord from time to time. Subsequent to the end of each calendar year, Landlord shall furnish Tenant with a statement of the actual amount of Tenant’s Pro Rata Share of such Common Utility Costs, Expenses and Insurance Costs for such calendar year (“Year End Statement”). If the total amount paid by Tenant under this Section 7.3 for any such calendar year shall be less than the actual amount due from Tenant for such calendar year as shown on such Year End Statement, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual amount due, such deficiency to be paid within fifteen (15) days after the furnishing of each Year End Statement. If the total amount paid by Tenant hereunder for any such calendar year shall exceed such actual amount due from Tenant for such calendar year, such excess shall be credited against the next installment due from Tenant to Landlord under this Section 7.3 or paid to Tenant in the event this Lease has terminated and Tenant has paid all Rent and other payments required under this Lease and performed all obligations of Tenant under this Lease. Tenant may audit such Common Area costs at Tenant’s expense, except that Landlord shall pay for such reasonable audit expenses (which shall not exceed $500) if Tenant proves a discrepancy in excess of five percent (5%).

SECTION 8

TAXES AND ASSESSMENTS

8.1 Obligation

Tenant agrees to pay to Landlord Tenant’s Pro Rata Share of all Taxes, as defined in Section 8.2 hereof, for each Lease Year or partial Lease Year during the Lease Term.

8.2 Definition

“Taxes” shall be defined as: (a) all taxes (either real or personal), assessments (general or specific), all water and sewer charges, and all other governmental impositions which may be levied during the Lease Term upon the land, building or improvements comprising the Building or any part thereof; (b) all other taxes and other charges imposed by the State of Wisconsin or any subdivision thereof which: (i) are in replacement of or in lieu of increases in all or any part of ad valorem taxes as sources of revenue, and (ii) are based in whole or in part upon the Demised Premises or any interest therein or the ownership thereof, or the rents, profits or other income therefrom, including, without limitation, income, single business, franchise, excise, license, privilege, sales, use, and occupancy taxes; and (c) all costs and expenses incurred by Landlord during negotiations for or contests of the amount of such taxes and assessments, without regard to the result, including, without limitation, actual attorneys’ fees. Taxes shall not include any tax on the net income of Landlord, except to the extent included in subparagraph (b) above.

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8.3 Payments

Tenant’s Pro Rata Share of Taxes levied or assessed for or during the Lease Term shall be paid in monthly installments on or before the first day of each calendar month, in advance, in an amount estimated by Landlord; provided, that in the event Landlord is required under any mortgage covering the Building to escrow Taxes, Landlord may, but shall not be obligated to, use the amount required to be so escrowed as a basis for its estimate of the monthly installments due from Tenant hereunder. Subsequent to the end of each calendar year, Landlord shall include in the Year End Statement the actual amount of Tenant’s Pro Rata Share of Taxes for such calendar year. In the event no tax bill is available, Landlord will compute the amount of such tax. If the total amount paid by Tenant under this Section 8.3 for any calendar year during the Lease Term shall be less than the actual amount due from Tenant for such calendar year, as shown on such Year End Statement, Tenant shall pay to Landlord the difference between the amount paid by Tenant and the actual amount due, such deficiency to be paid within fifteen (15) days after the furnishing of each Year End Statement. If the total amount paid by Tenant hereunder for any such calendar year shall exceed such actual amount due from Tenant for such calendar year, such excess shall be credited against the next installment of taxes and assessments due from Tenant to Landlord hereunder or paid to Tenant in the event this Lease has terminated and Tenant has paid all Rent and other payments required under this Lease and performed all obligations of Tenant under this Lease. In the event a refund of Taxes previously paid is obtained, Tenant’s Pro Rata Share thereof shall be credited to the next installment due under this Section or paid to Tenant in the event this Lease has terminated and Tenant has paid all Rent and all other payments under this Lease and performed all obligations of Tenant under this Lease. For the partial Lease Years in which this Lease commences and terminates, the provisions of this Section shall apply, and Tenant’s Pro Rata Share of any Taxes for such years shall be subject to a pro rata adjustment based on the number of days of said Lease Years during which the Lease Term is in effect. A copy of a tax bill or assessment bill submitted by Landlord to Tenant shall at all times be sufficient evidence of the amount of Taxes assessed or levied against the property to which such bill or return relates.

8.4 Tenant’s Taxes

Tenant shall pay all real and personal property taxes levied or assessed against Tenant’s property and improvements upon or affixed to the Demised Premises, including taxes attributable to all alterations, additions, or improvements made by Tenant.

SECTION 9

USE OF DEMISED PREMISES

9.1 Use of Demised Premises

Tenant shall use and occupy the Demised Premises during the Lease Term only for the purpose stated in Section 1 hereof and attendant office use and for no other purpose without the prior written consent of the Landlord. Tenant shall not use or permit any person to use the Demised Premises or any part thereof for any use or purpose other than the use stated in Section 1 or in violation of any law, statute, order, ordinance, code, rule or regulation of any

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federal, state or municipal body or other governmental agency having jurisdiction thereof, including, without limitation, zoning, land use and building ordinances, uses and requirements; occupational safety and health requirements, community right-to-know requirements; the Americans With Disabilities Act of 1990; and Environmental Laws (as defined in Section 9.3) (collectively “Laws”), or any building and use restrictions (“Restrictions”) affecting the Building or the Demised Premises, if any. Tenant shall comply with all such present and future Laws and Restrictions affecting the Building and Demised Premises and the cleanliness, safety, occupation and use of the same, at Tenant’s sole cost and expense. Tenant shall, at Tenant’s expense, obtain such approvals, permits or certificates, including, without limitation, a Certificate of Occupancy if Tenant is constructing any tenant improvements in the Demised Premises, that may be required in order for Tenant to occupy and use the Demised Premises. Tenant shall promptly notify Landlord of, and provide Landlord with copies of, all notices, requests, orders, complaints or other correspondence directed to Tenant from any federal, state or municipal body or governmental agency or authority pertaining to any actual or alleged violation of Laws or Restrictions.

9.2 Care of Demised Premises

Tenant, at its sole cost and expense, shall keep the Demised Premises orderly, neat, safe and clean and free from rubbish and dirt at all times and shall store all inventory, trash and supplies within the Demised Premises. Tenant shall not deposit trash or any other items in the Common Areas. Tenant shall use the dumpsters provided by Landlord for trash and garbage and Tenant shall pay Landlord all reasonable additional costs incurred by Landlord in the event Tenant’s trash and garbage exceeds the normal usage, specifically including that generated by Tenant’s move in and move out of the Demised Premises upon written demand. Tenant shall not burn any trash or garbage at any time in or about the Demised Premises. At the expiration of the Lease Term, or the sooner termination thereof, Tenant shall surrender the Demised Premises in as good condition and repair as existed at the time Tenant took possession, reasonable wear and tear excepted.

9.3 Hazardous Substances

Tenant shall not cause or permit the Demised Premises to be used to generate, manufacture, refine, transport, treat, store, handle, dispose, release, transfer, produce or process hazardous substances as defined in Section 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C. 9601(14), hazardous wastes as defined in Section 1004(5) of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6903(5) and implementing regulations, hazardous wastes as defined in the Wisconsin Hazardous Waste Management Act, as amended, Wis. Stats. Sec.291.01 et. seq., gasoline, petroleum, petroleum products and any substances defined as hazardous or toxic substances in any Environmental Laws, or extremely hazardous substances as defined in the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C. 1001 et. seq. (hereinafter collectively referred to as “Hazardous Substances”), except for Hazardous Substances necessary for Tenant’s permitted use, cleaning and maintenance of the Demised Premises, provided and so long as such use of Hazardous Substances (including storage of reasonable quantities) are in full

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compliance with all Environmental Laws. Environmental Laws mean any applicable federal, state, county or local statutes, laws, regulations, rules, directives, ordinances, or codes relating to environmental matters, including by way of illustration and not by way of limitation, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Resource, Conservation and Recovery Act of 1976, the Comprehensive Environmental, Response, Compensation and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Federal Hazardous Materials Transportation Act, the Toxic Substance Control Act, and Chapters 281 (Water and Sewage), 283 (Pollution Discharge Elimination) 285 (Air Pollution), 287 (Solid Waste) and 291 (Hazardous Waste Management) of the Wisconsin Statutes, and any amendments or extensions thereof, any replacement laws, statutes and ordinances and any rules, regulations, standards or guidelines issued pursuant to any of the aforesaid and all other applicable environmental standards or requirements.

9.4 Affidavit And Questionnaire

Tenant is not aware of, and intends that it will not bring, any Hazardous Substances to the Demised Premises. However, if Tenant does introduce any Hazardous Substances to its Demised Premises, Tenant shall, upon the reasonable request of Landlord or Landlord’s mortgagee, which shall not be more than annually, submit a sworn Affidavit signed by the duly authorized officer of Tenant, setting forth the identity, quantity and purpose of all Hazardous Substances and any similar substance used or present on the Demised Premises, if any.

9.5 Obligation of Tenant

The obligations and liabilities of Tenant under Sections 9.1 through 9.5 shall survive termination of this Lease.

SECTION 10

INDEMNITY

10.1 Indemnity

Tenant shall indemnify and hold harmless Landlord from claims, suits, actions, or liabilities for personal injury, death or for loss or damage to property that arises out of: (a) Tenant’s use of the Demised Premises; (b) the negligence or willful misconduct of Tenant, its employees, agents, or invitees; or (c) any breach or default by Tenant in the performance of any obligation on Tenant’s part to be performed under this Lease.

Landlord shall indemnify and hold harmless Tenant from claims, suits, actions, or liabilities for personal injury, death or for loss or damage to property that arises from: (a) any work or activity performed by Landlord in Demised Premises; (b) the gross negligence or willful misconduct of Landlord, its employees, agents or contractors; or (c) any breach or default by Landlord in the performance of any obligation on Landlord’s part to be performed under this Lease.

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10.2 Liability Insurance

Tenant shall from and after the Substantial Completion Date through the termination of the Lease Term procure and keep in effect, for the benefit of Landlord and any mortgagee of the Building or any portion thereof, commercial, general liability insurance on an occurrence basis, including personal and advertising injury liability, employers’ liability, non-owned automobile liability, owners’ and contractors’ protection insurance, operations and blanket contractual coverage, for personal injury or death or property damage occurring in, upon or about the Site or Demised Premises or any street, drive, sidewalk, curb or passageway adjacent thereto and caused by or attributable to the negligence, acts or omissions of Tenant, its employees, agents, representatives, invitees, licensees and contractors in the amount reasonably required by Landlord (but in no event less than Two Million ($2,000,000) Dollars combined single limit per occurrence, which may be based on a combination of primary coverage plus excess insurance or “umbrella” coverage. Any contractual liability coverage for indemnifications given by Tenant under this Lease shall not in any way limit such indemnifications. The insurance coverage shall include the activities and operations of Tenant and any person on the Demised Premises or performing work on behalf of Tenant and shall contain a severability of interest clause and a cross-liability clause. Tenant shall provide Landlord with an endorsement to such insurance naming Landlord and Landlord’s mortgagee as additional named insureds.

10.3 Tenant’s Contractor’s Insurance

Tenant shall require any contractor of Tenant performing work on the Demised Premises to take out and keep in force, at no expense to Landlord, (a) comprehensive general liability insurance, including contractor’s liability coverage, contractual liability coverage, completed operations coverage, broad form property damage endorsement and contractor’s protective liability coverage, to afford protection to the limit, for each occurrence, of not less than Two Million ($2,000,000) Dollars with respect to personal injury or death and Five Hundred Thousand ($500,000) Dollars with respect to property damage; and (b) worker’s compensation or similar insurance in form and amounts required by law. The liability insurance shall name Landlord and any mortgagee of the Building or any portion thereof as additional insureds and provide Landlord with thirty (30) days prior written notice of alteration, amendment, modification or cancellation of such insurance by specific endorsement.

10.4 Delivery of Policy and Special Endorsement

The insurance policies required by this Section 10 shall contain provisions satisfactory to Landlord prohibiting cancellation, alterations, changes, amendments, modifications, deletions or reductions in coverage either at the insistence of Tenant or the insurance company issuing the policy, without at least thirty (30) days prior written notice having been given to Landlord at the address stated in Section 1. Copies of such insurance policies and all renewals thereof, together with receipts evidencing payment in full of the premiums thereon, shall be delivered promptly to Landlord prior to Tenant taking possession under this Lease and at least thirty (30) days prior to expiration or renewal of such insurance.

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SECTION 11

MAINTENANCE AND REPAIRS

11.1 Maintenance and Repairs

Tenant shall, at its sole cost and expense, during the Lease Term, maintain and repair (including necessary replacements) and keep neat and in good appearance and condition the Demised Premises, including, but not limited to, the interior walls, interior ceiling, and the portion of electrical system, plumbing system, and HVAC system which is located in the Demised Premises. The plumbing system, including the sewage facility, serving the Demised Premises shall not be used for any purpose other than for which it was constructed and Tenant shall not introduce any matter therein which results in blocking such system. Tenant shall, at its sole cost and expense, also repair any damage to the outer walls or roof of the Demised Premises, or to the walkways, landscaping or land for the Building, caused by Tenant, its customers or invitees, including damage caused by trucks or trailers making pickups or deliveries to the Demised Premises. Tenant shall, at its sole cost and expense, contract with contractors acceptable to Landlord for the performance of all maintenance and repairs required of Tenant under this Lease. Tenant shall perform such maintenance and repairs so as to maintain the Demised Premises in a first-class condition. Such maintenance and repair obligations of Tenant shall include items deemed to be capital improvements for tax purposes. The maintenance and repair obligations of Tenant hereunder shall survive termination of this Lease.

11.2 Compliance with Laws

During the term of this Lease, Tenant shall comply with all Laws and Restrictions (as defined in Section 9.1) and make any repairs, additions, modifications or alterations to the Demised Premises, regardless of the nature thereof, which are required by any Laws or Restrictions or required by the insurance carrier to maintain the insurance required under this Lease. Tenant shall not be responsible for any items out of compliance as of the Commencement Date. Landlord shall be responsible for all items out of compliance prior to the Commencement Date.

SECTION 12

TENANT’S ALTERATIONS

12.1 Alterations

Tenant shall not make any alterations, additions, modifications or improvements (“Alterations”) to the Demised Premises without the prior written consent of Landlord. Landlord will not unreasonably withhold its consent with respect only to non-structural Alterations which do not modify the weight bearing capabilities of the Demised Premises or the building in which it is located, do not involve any demolition work or penetration of the exterior roof, walls or walls adjacent to common areas, do not change the architectural design or the character or use of the Demised Premises and do not adversely effect the plumbing, mechanical, electrical, or heating, ventilating and air conditioning systems of the Demised Premises or other improvements in or to the Building. Tenant shall notify Landlord in writing and obtain prior

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written consent of Landlord for any Alterations which involve asbestos-based fire retardants, ceiling tiles, pipes or other asbestos-containing materials. All Alterations made by either Landlord or Tenant to the Demised Premises shall become the property of Landlord, shall remain upon and be surrendered with the Demised Premises at the termination of this Lease, without molestation or injury; unless (a) Landlord either (i) has consented to such removal at the time such Alteration was made by Tenant, or (ii) consents in writing to Tenant’s removal of such Alterations, and (b) Tenant repairs any damage or injury caused thereby in a good and workmanlike manner. Notwithstanding anything to the contrary herein, Landlord, at its option, may at the expiration of the Lease Term require Tenant, at Tenant’s sole cost and expense, to remove any Alterations made by Tenant during the Lease Term unless Landlord has expressly waived such right in writing and to repair any damage or injury caused thereby in a good and workmanlike manner. All Alterations made by Tenant or the removal thereof shall be made in a first class workmanlike manner by properly bonded contractors in amounts approved by Landlord, free of all liens and encumbrances and in compliance with all Laws and Restrictions. Landlord shall have the right to stop any work not being performed in conformance with this Lease, and, at its option, may repair or remove non-conforming work at the expense of Tenant. Tenant hereby indemnifies and holds Landlord harmless from and against any such liens, encumbrances and violations of Laws and Restrictions. The filing of any lien or encumbrance, or the violation of Laws or Restrictions, shall constitute a Default hereunder. The repair and indemnity obligations of Tenant hereunder, including Tenant’s obligations to repay Landlord the cost of repairing or removing Alterations, shall survive the termination of this Lease.

12.2 Construction Liens

Tenant shall not suffer or permit any construction liens to be filed against the Demised Premises or any part thereof by reason of work, labor, services or materials supplied or claimed to have been supplied to Tenant or anyone holding the Demised Premises or any part thereof through or under Tenant. If any such construction lien shall at any time be filed against the Demised Premises, Tenant shall cause the same to be discharged of record within twenty (20) days after the date of filing the same. If Tenant shall fail to discharge such construction lien within such period, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit in court or by giving security or in such other manner as is, or may be, prescribed by law. Any amount paid by Landlord for any of the aforesaid purposes, and all actual legal and other expenses of Landlord, including actual counsel fees, in or about procuring the discharge of such lien, together with all necessary disbursements in connection therewith, and together with interest thereon at the rate equal to the prime interest rate (as defined in Section 5.6) plus five (5%) percent, but in no event higher than the legal limit, from the date of payment, shall be repaid by Tenant to Landlord on demand, and if unpaid may be treated as Additional Rent. Nothing herein contained shall imply any consent or agreement on the part of Landlord to subject Landlord’s estate to liability under any construction lien law. In connection with the construction of any Alteration, the performance of any maintenance, repairs or replacement pursuant to Section 11 by Tenant or any other construction performed by Tenant, Tenant shall prior to commencing construction post (and provide Landlord the opportunity to post) notices in the visible locations within the construction area advising all

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contractors, subcontractors, laborers and materialmen that Landlord has no responsibility for the construction of the Alterations, maintenance, repairs, replacements or other construction by Tenant and that Landlord’s interest in the Site, Building and Demised Premises shall not be subject to any construction lien. Tenant does hereby agree to indemnify, defend and hold Landlord and the Site, Building and Demised Premises (and any portion thereof) harmless from and against any and all losses, costs, damages, expenses, liabilities and obligations, including, without limitation, reasonable attorneys fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such construction lien or other lien.

SECTION 13

PROPERTY INSURANCE, REBUILDING AND WAIVER OF SUBROGATION

13.1 Tenant’s Insurance

Tenant shall from and after the Substantial Completion Date through the termination of the Lease Term procure and keep in effect, for the benefit of Landlord and any mortgagee of the Demised Premises, the following insurance:

13.1.1 Property coverage insurance including fire, vandalism, windstorm, explosion, smoke damage, malicious mischief, sprinkler leakage and such other perils as are included in a standard extended coverage endorsement, insuring all equipment, furniture, furnishings, fixtures and property owned or leased by Tenant, or for which Tenant is responsible and all Alterations and tenant improvements constructed by Landlord at Tenant’ expense (collectively “Tenant Property”) in an amount equal to the full replacement cost of such Tenant Property. Whether or not Tenant maintains such insurance, Tenant shall make no claims and releases Landlord from any liability for any damage, injury, loss, or loss of use of any and all Tenant Property and any other contents of Tenant located on or within the Demised Premises.

13.1.2 Business interruption insurance in such amount as will reimburse Tenant for all business interruption damages and losses, including without limitation, relocation expenses, rental costs and expenses and direct or indirect loss of earnings, for a period of at least one (1) year, attributable to all perils insured against under this Section 13 and other perils commonly insured against by prudent Tenants or attributable to prevention of access to the Demised Premises as a result of such perils. Whether or not such insurance is maintained, Tenant shall make no claims and releases Landlord from any liability for any such business interruption damages and losses.

13.2 Insurance Policies

Tenant’s insurance policies shall comply with the following requirements:

13.2.1 Name Landlord, Landlord’s employees, agents and representatives and Landlord’s mortgagee as additional insureds.

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13.2.2 Contain a waiver of any subrogation rights which Tenant’s insurers may have against Landlord or Landlord’s mortgagee and against those for whom the Landlord is legally responsible.

13.2.3 Be issued by insurers licensed to do business in the State of Wisconsin, with a general policy rating of A- or better from a financial class of VII or better by A.M. Best Company, Inc. in such form reasonably satisfactory to Landlord and Landlord’s mortgagee.

13.2.4 The policies shall be non-contributing and apply only as primary coverages and not as excess coverage to any other insurance available to Landlord.

13.2.5 Include provisions providing that insurance coverage shall not be invalidated with respect to the interests of the Landlord or the Landlord’s mortgagee by reason of any breach or violation by Tenant of any warranties, representations, declarations or conditions contained in the policies.

13.2.6 Contain provisions or include endorsements which provide that the policies shall not be cancelled, amended or materially altered without at least thirty (30) days prior written notice to Landlord and Landlord’s mortgagee.

13.2.7 Certificates of insurance and copies of all insurance policies required under this Section 13 and receipts evidencing payment of all premiums for such policies shall be provided to Landlord thirty (30) days prior to Tenant taking possession under this Lease and at least thirty (30) days prior to their termination or renewal.

13.3 Increases in Insurance Coverage

During the term of this Lease, or whenever Tenant materially improves or alters the Demised Premises, Landlord shall have the right to require reasonable changes to Tenant’s insurance coverages and increases in Tenant’s insurance policy limits for insurance to be carried by Tenant as set forth in this Section 13.

13.4 Landlord’s Insurance

Landlord shall provide and keep in full force and effect throughout the Lease Term the following insurance and Tenant shall pay, as Additional Rent, Tenant’s Prorata Share of the cost of such insurance pursuant to Section 7.3:

13.4.1 Commercial general liability insurance with respect to Landlord’s operation of the Building, for bodily injury or death, and for damage to property of others, with policy limits as reasonably determined by Landlord or as required by Landlord’s mortgagee.

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13.4.2 Fire and casualty insurance with extended coverage endorsements in such reasonable amounts and with such reasonable deductibles as reasonably determined by Landlord or as required by Landlord’s mortgagee.

13.4.3 Such other insurance on the Building or the Project as Landlord reasonably deems advisable.

No insurable interest is conferred upon Tenant under any policies of insurance carried by Landlord and Tenant shall not be entitled to share or receive any proceeds of any insurance policy carried by Landlord. Landlord is authorized to adjust and compromise any loss without the consent of Tenant, to collect, receive and receipt for any insurance proceeds on behalf of Landlord and all tenants in the Building and to endorse Tenant’s name upon any check in payment of such proceeds in the event Tenant’s name is listed thereon. Landlord’s obligations to carry the insurance provided for herein may be brought within the coverage of any so-called blanket policy or policies of insurance carried and maintained by Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policy of insurance. Landlord’s insurance shall not cover Tenant’s Property, tenant improvements constructed by Landlord at Tenant’s expense, or Alterations. Landlord, at its option, may carry rental interruption insurance in amounts equal to Tenant’s Rent for twelve (12) months under this Lease.

13.5 Release of Claims

Tenant waives and releases all claims against Landlord in respect of any liability or loss in connection with, damage to any property (including without limitation, documents, files or work products) or injury to or death of any person in, upon or around the Demised Premises and Building, arising at any time and from any cause, except for Landlord’s gross negligence or willful misconduct.

13.6 Waiver of Subrogation

Any property insurance policy carried by Landlord or Tenant or any policy covering both the interest of Landlord or Tenant under this Section 13 shall include a provision under which the insurance company waives all right of recovery by way of subrogation against Landlord or Tenant in connection with any loss or damage covered by any such policy. Landlord or Tenant hereby release and discharge each other from any liability whatsoever arising from any loss, damage or injury caused by fire or other casualty.

13.7 Rebuilding

If all or part of the Demised Premises are rendered untenantable by damage from fire or other casualty which in Landlord’s reasonable opinion can be substantially repaired (employing normal construction methods without overtime or other premium) under applicable Laws within one hundred eighty (180) days from the date on which Landlord receives the insurance proceeds, then only to the extent that insurance proceeds are available for repair or rebuilding, Landlord shall diligently and continuously repair the damage to the Building and Demised Premises

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(including Landlord’s Improvements), provided and so long as, Tenant repairs and restores all of Tenant’s fixtures, furniture, furnishings, equipment and personal property and pays Landlord the cost of any tenant improvements constructed by Landlord at Tenant’s expense. If Landlord is unable to complete the restoration within such one hundred eighty (180) day period, Tenant may terminate this Lease. Notwithstanding anything to the contrary contained herein, Landlord shall have no obligation to repair or rebuild the Demised Premises or the Building in the event the damage or destruction by fire or other casualty occurs during the last Lease Year of the original term of this Lease or any exercised option term, if any. Except for Landlord’s Improvements, Landlord shall have no obligation to repair, rebuild or restore Alterations (whether constructed or installed by Landlord or Tenant) nor shall Landlord have any obligation to replace Tenant’s fixtures, furniture, furnishings, equipment and personal property.

13.8 Termination of Lease

If all or any part of the Demised Premises are rendered untenantable by damage from fire or other casualty which in Landlord’s reasonable opinion cannot be substantially repaired (employing normal construction methods without overtime or other premium) under applicable Laws within one hundred eighty (180) days from the date on which Landlord receives the insurance proceeds relating to such casualty, then either Landlord or Tenant may elect to terminate this Lease as of the date of such casualty by written notice delivered to the other pursuant to the terms of this Lease not later than ten (10) days after such determination by Landlord. If neither party exercises its right to terminate, Landlord shall, but only to the extent that insurance proceeds are available, repair such damage to the Building and Demised Premises (including Landlord’s Improvements), provided and so long as, Tenant repairs and restores all of Tenant’s fixtures, furniture, furnishings, equipment and personal property and pays Landlord the cost of any tenant improvements constructed by Landlord at Tenant’s expense. If Landlord elects not to rebuild or reconstruct the Building, then Landlord shall have the right to terminate this Lease upon sixty (60) days prior written notice to Tenant notwithstanding the fact that the Demised Premises remains tenantable. Except for Landlord’s Improvements, Landlord shall have no obligation to repair, rebuild or restore Alterations (whether constructed or installed by Landlord or Tenant) nor shall Landlord have any obligation to replace Tenant’s fixtures, furniture, furnishings, equipment and personal property.

13.9 Rental Proration or Abatement

In the event the Lease is terminated pursuant to this Section 13, the Rent shall be prorated to the effective date of Termination and any other obligations of Tenant requiring adjustment shall be appropriately adjusted between Landlord and Tenant as of the date of termination. Except as specifically set forth in this Section 13, there shall be no reduction or abatement of Rent and Landlord shall have no liability to Tenant by reason of any injury to or interference with Tenant’s business or property arising from any fire or other casualty, regardless of cause, or from the making of any repairs resulting from such fire or other casualty in or to any portion of the Building or the Demised Premises. In the event the Lease is not terminated and Landlord elects to rebuild, then during the period the Demised Premises is untenantable, Tenant shall be entitled to an abatement of the Rent, provided and so long as the Tenant, its employees, agents, representatives, invitees, licensees and contracting parties did not cause the damage or destruction.

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SECTION 14

EMINENT DOMAIN

14.1 Total Condemnation

If the whole of the Demised Premises shall be taken by any condemning authority under the power of eminent domain, then the term of this Lease shall cease as of the date Tenant loses use or possession of the Demised Premises, and the Rent shall be paid up to that day with a proportionate refund by Landlord of such Rent as may have been paid in advance.

14.2 Partial Condemnation

If only a part of the Demised Premises shall be taken by any condemning authority under the power of eminent domain, then, except as otherwise provided in this Section, this Lease and the term shall continue in full force and effect and there shall be no reduction in the Rent, except as provided in this Section 14.2. From and after the date Tenant loses use or possession of a portion of the Demised Premises, the Rent and Tenant’s Pro Rata Share shall each be reduced in the proportion which the floor area of the part of the Demised Premises so acquired bears to the total floor area of the Demised Premises immediately prior to the date such physical possession is transferred. If (a) more than thirty-five (35%) percent of the Demised Premises or the building in which the Demised Premises are located shall be taken under eminent domain, or (b) more than thirty-five (35%) percent of the parking spaces on the Demised Premises shall be taken under eminent domain and Landlord is unable to provide parking spaces on land immediately contiguous to the Demised Premises equal to one-half of the number of parking spaces taken, the Landlord and Tenant shall each have the right to terminate this Lease and declare the same null and void, by written notice of termination to the other party within thirty (30) days after the date the order is entered in such eminent domain proceeding establishing the date upon which actual physical possession shall be transferred to the condemning authority. Termination of this Lease shall be effective as of the date Tenant loses use or possession of the Demised Premises. In the event neither party exercises said right of termination, the Lease Term shall cease only on the part of the Demised Premises so taken as of the date Tenant loses use or possession of the Demised Premises and Tenant shall pay Rent up to that day, with appropriate refund by Landlord of such Rent as may have been paid in advance, and thereafter all the terms herein provided shall continue in effect, except that the Annual Base Rent and Tenant’s Pro Rata Share shall be reduced in the proportion stated above and Landlord shall, at its own cost and expense, make all the necessary repairs or alterations to the remaining Building and the remaining Demised Premises so as to cause each to be a complete architectural unit.

14.3 Landlord’s and Tenant’s Damages

All damages awarded for such taking under the power of eminent domain, whether for the whole or a part of the Demised Premises, shall belong to and be the property of Landlord whether such damages shall be awarded as compensation for diminution in value to the leasehold

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or to the fee for the Building; provided, however, that Landlord shall not be entitled to the award made for depreciation to, and cost of removal of, Tenant’s stock and fixtures, business interruption losses and relocation expenses.

SECTION 15

ACCESS TO PREMISES

Landlord or Landlord’s agents shall have the right, upon twenty-four (24) hours advance written notice, except in the case of an emergency, to enter the Demised Premises at all reasonable times to examine the same, and to show them to prospective purchasers or mortgagees of the Building, and to make such repairs, alterations, improvements or additions as Landlord may deem necessary or desirable. Landlord shall be allowed to take all material into and upon the Demised Premises that may be required therefor without the same constituting an eviction of Tenant in whole or in part, and the Rent shall in no way abate while said repairs, alterations, improvements, or additions are being made, by reason of loss or interruption of the business of Tenant, or otherwise. Landlord may exhibit the Demised Premises to prospective lessees during the nine (9) months prior to expiration of the Lease Term and place upon the Demised Premises the usual notices “To Let” or “For Rent,” which notices Tenant shall permit to remain thereon without molestation. Landlord shall use its good faith efforts to minimize its disruption to Tenant in entering the Demised Premises.

SECTION 16

FIXTURES AND EQUIPMENT

All fixtures and equipment installed by Tenant during the term of this Lease which are incorporated into and/or affixed to the Building, Demised Premises, Alterations or any improvements therein and cannot be removed without substantial damage or injury to the Building, Demised Premises, Alterations or any improvements therein shall not be removed without Landlord’s prior written consent. All fixtures and equipment not removed shall remain the property of Landlord at the termination of the Lease Term. In the event Landlord consents to such removal, Tenant shall remove such fixtures in accordance with all applicable Laws and Restrictions and shall repair any such damage or injury in a good and workmanlike manner.

SECTION 17

BANKRUPTCY AND INSOLVENCY

If the estate created hereby shall be taken in execution, or by other process of law, or if Tenant shall be declared bankrupt or insolvent, according to law, or if any receiver be appointed for the business and property of Tenant, or if any assignment shall be made of Tenant’s property for the benefit of creditors (and as to such matters involuntarily taken against Tenant, Tenant has not within sixty (60) days thereof obtained a release or discharge therefrom), then this Lease may be canceled at the option of Landlord. If, as a matter of law, Landlord has no right upon the bankruptcy of Tenant to terminate this Lease then, the rights of Tenant, as debtor, or its trustee, shall be deemed abandoned or rejected unless Tenant, as debtor, or its trustee, (a) within sixty (60) days after the date of the order for relief under Chapter 7 of the Bankruptcy Code or sixty

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(60) days after the date the petition is filed under Chapter 11 of the Bankruptcy Code assumes in writing the obligations under this Lease, (b) cures or adequately assures the cure of all Defaults existing under this Lease on Tenant’s part within such sixty (60) days, and (c) furnishes adequate assurance of future performance of the obligations of Tenant under this Lease. Adequate assurance of curing Defaults means the posting with Landlord of a sum in cash sufficient to defray the costs of such cure. Adequate assurance of future performance of the Tenant’s obligations under this Lease means increasing the security deposit by an amount equal to six (6) Monthly Installments of Base Rent.

Tenant shall not be permitted to assume and assign this Lease in connection with any bankruptcy or insolvency proceedings without full and complete compliance with the following provisions: (a) Landlord is provided with the following information regarding the party desiring to assume the Lease (“Assumptor”) which Landlord in its sole and absolute discretion deems sufficient (1) organizational information regarding the Assumptor (2) audited financial statements for the three (3) most recent fiscal years, and (3) such other information as Landlord deems appropriate, (b) Landlord determines that the use of the Demised Premises by the intended Assignee is compatible with the character of the Building, (c) all existing Defaults under this Lease are cured at least ten (10) days prior to any hearings in connection with Tenant’s request to assume and assign the Lease, (d) the Assumptor at any such hearing provides adequate assurance of its future performance of the Lease as determined by Landlord in its sole and absolute discretion, which adequately assurance shall include at least the following: (1) posting of security deposit equal to six (6) Monthly Installments of Base Rent, if such was not already posted by Tenant, (2) paying in advance to Landlord the next six (6) Monthly Installments of Base Rent, or posting an irrevocable letter of credit for such amount, (3) establishing with Landlord an escrow in advance for the full cost of all real estate taxes, and insurance, as required under the Lease for the next twelve (12) months of the Lease and thereafter on an annual basis in advance, and (4) providing Landlord with an unconditional continuing guarantee of the Lease executed by the owners or officers of the Assumptor as determined by Landlord in its sole and absolute discretion, and (5) the Assumptor executes a written agreement assuming the Lease and such Lease amendments as are necessary, which agreements and amendments are satisfactory to Landlord in its sole and absolute discretion.

SECTION 18

MORTGAGE OR SALE BY LANDLORD

18.1 Mortgage and Subordination

Landlord reserves the absolute right to subject and subordinate this Lease, at all times and in all respects, to all existing and future mortgages now or hereafter placed upon the Demised Premises; provided Tenant’s right of possession will not be disturbed by the mortgagee of any mortgage upon the Demised Premises in connection with any mortgage foreclosure proceedings so long as Tenant is not in Default hereunder. The holder of any such mortgage may elect to subordinate such mortgage to this Lease. In the event Landlord exercises its right hereunder, Tenant hereby agrees to execute and deliver, or join in the execution and delivery of an agreement (“Subordination Agreement”) substantially in the form and substance attached as

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Exhibit F. In the event Tenant fails to provide the Subordination Agreement required by this Section 18.1 within twenty (20) days, Landlord may execute and deliver the Subordination Agreement in the name of Tenant and Tenant hereby irrevocably appoints Landlord as the attorney-in-fact for Tenant for such purposes and Landlord shall promptly provide Tenant with a copy of such executed Subordination Agreement. Any mortgagee of any mortgage upon the Demised Premises shall have no personal liability under this Lease and upon becoming a successor in interest to the Landlord, such liability as a successor landlord shall be limited to its ownership interest in the Project in the same manner as the Landlord pursuant to Section 28.3 of this Lease.

18.2 Sale or Transfer

Landlord shall have the right to sell, transfer or assign the Demised Premises (“Conveyance”). In the event of a Conveyance, Tenant shall attorn to the purchaser, transferee or assignee (“Transferee”) and recognize such Transferee as Landlord under this Lease and Landlord shall be relieved from all subsequent obligations and liabilities under this Lease, provided such obligations are assumed in writing by such Transferee and a copy thereof is provided to Tenant. Any Transferee shall have no personal liability under this Lease and upon becoming a successor in interest to the Landlord and incurring liability from and after such date as a successor landlord shall have liability limited to its ownership interest in the Project in the same manner as the Landlord pursuant to Section 28.3 of this Lease.

18.3 Estoppel Certificates

Prior to occupancy and thereafter within twenty (20) days after written request from Landlord, Tenant shall execute, acknowledge and deliver to Landlord a statement (“Estoppel Certificate”) in writing in the form and substance attached as Exhibit G, or such other form as reasonably requested by any mortgagee providing financing or refinancing for the Project or any purchaser of the Project. It is understood that such Estoppel Certificate may be relied upon by Landlord, a prospective purchaser, mortgagee or assignee of any mortgagee of Landlord’s interest in the Demised Premises for this Lease. In the event Tenant fails to provide the Estoppel Certificate required by this Section 18.3 within twenty (20) days, Landlord may execute and deliver the Estoppel Certificate in the name of Tenant and Tenant hereby irrevocably appoints Landlord as the attorney-in-fact for Tenant for such purposes and Landlord shall promptly provide Tenant with a copy of such executed Estoppel Certificate.

18.4 Notice to Mortgagee

If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord’s part to be performed, Tenant shall, prior to exercising any rights or remedies it may have hereunder or as a matter of law as a result of such default, notify any mortgagee of any mortgage upon the Building (“Mortgagee”), in writing, of such default. Such Mortgagee shall have forty (40) days after the date of such notice to cure such default; provided, however, if such default cannot, with reasonable diligence, be fully cured within such forty (40) day period and Mortgagee commences such performance and is proceeding diligently, then such forty (40) day period shall be extended to the time that, with reasonable diligence, such default can be cured.

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SECTION 19

ASSIGNMENT AND SUBLETTING

Tenant shall not sell, assign, sublet, hypothecate, encumber, mortgage or in any manner transfer (including transfers by operation of law or otherwise) this Lease or any estate or interest therein (including any transfer by operation of law or otherwise), the Demised Premises or any part thereof or permit the use of the Demised Premises by any third party (collectively “Transfer”) without the prior written consent of Landlord, which consent shall not be unreasonably withheld. In determining reasonableness, Landlord will consider all relevant factors surrounding the proposed subletting or assignment, including, and without limitation: the business reputation of the proposed subtenant or assignee and its officers, directors, and stockholders; the type of business of the proposed subtenant or assignee and its affect on the other tenants of the building; the financial condition of the proposed subtenant or assignee; the proposed subtenant or assignee will not involve any medical or dental use or similar or related use and the subtenant or assignee is not any governmental or quasi-governmental agency; the use of the proposed subtenant or assignee will not violate or conflict with any restrictions contained in previously executed leases or other agreements affecting the Building.

For purposes of this Section 19, Transfer shall include the following events: (a) the sale or liquidation of any assets not in the ordinary course of business, (b) the merger, acquisition or consolidation by Tenant by or with any other person, corporation, partnership or other entity, (c) the merger, acquisition or consolidation by Tenant of any other person, corporation, partnership or other entity, (d) any sale, exchange, transfer, pledge or redemption of any stock of Tenant of the issuance of any stock, stock options, preference, warrants or other change in the capitalization or ownership of Tenant which results in a change in the control of Tenant, or (e) any other transaction resulting in a change of control or other material change in the structure of Tenant. In the event of a Transfer with Landlord’s consent, Tenant shall remain and continue fully liable to perform all of Tenant’s obligations under this Lease, unless Landlord releases Tenant in writing from such obligations. In the event of a Transfer by Tenant without Landlord’s prior written consent, Landlord shall have the right, without further notice to Tenant or any right of Tenant to cure such default, to exercise the following remedies, either individually or cumulatively without such constituting an election of remedies: (1) accelerate payment of all Rent payable during the balance of the unexpired Lease Term and receive immediate payment thereof, (2) terminate this Lease, re-enter and repossess the Demised Premises, and (3) enforce all other remedies available under this Lease or permitted by law. Consent by Landlord to one or more Transfers shall not operate to exhaust Landlord’s rights hereunder. The acceptance of Annual Base Rent or Additional Rent from an assignee, subtenant or occupant shall not constitute a release of Tenant from the obligations and covenants in this Lease. Tenant shall remain liable under this Lease until Landlord executes and delivers a written release of such liability. Landlord’s consent hereunder shall not be unreasonably withheld only in the event of the Transfer of all or any part of the Demised Premises to any parent corporation of Tenant, or wholly owned subsidiary of Tenant. In the event of a Transfer by Tenant, with or without Landlord’s consent, all Annual Base Rent, Additional Rent, sums of money or other economic considerations received by Tenant from any such subtenant, assignee, transferee or occupant,

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which exceed, in the aggregate, the total sums of Annual Base Rent, Additional Rent or other amounts which Tenant is obligated to pay Landlord under this Lease shall be payable to Landlord as Additional Rent under this Lease without affecting or reducing any obligations of Tenant hereunder.

SECTION 20

EXPANSION SPACE

20.1 Expansion Offer Subject to those rights of the current tenant existing on the date hereof, if space on the second floor of the Building adjacent to the Demised Premises becomes vacant and available for lease during the Lease term (“Available Expansion Space”) Landlord, prior to offering or leasing such space to any third party, shall provide Tenant with a written notice identifying the size and location of the Available Expansion Space and the date the space is available for occupancy (“Expansion Notice”). The Available Expansion Space shall be offered by Landlord in its then “as is” condition and broom clean. Landlord shall have no obligation to make any repairs or improvements to the Expansion Space. If Tenant notifies Landlord within twenty (20) days of receipt of the Expansion Notice that Tenant desires to lease such space, Tenant and Landlord shall amend the Lease to include the Expansion Space under the same terms and conditions as the Lease. Tenant acknowledges that the remaining space on the second floor of the Building (Suite 250) is currently being leased by an affiliate of Landlord and that any transfer of the Lease of Suite 250 to another entity of which Landlord or DeMattia Development II, LLC, is a member, shall not constitute a vacancy or new lease and Landlord shall not be required to provide Tenant with an Expansion Notice.

20.2 Tenant’s Acceptance Notice So long as Tenant is not in default under this Lease and has not on more than one prior occasion been in default, which default has been cured, Tenant shall have the right to lease the Available Expansion Space by providing Landlord with written notice of acceptance of the terms and conditions contained in the Expansion Notice within five (5) business days of the Expansion Notice (“Tenant’s Acceptance Notice”) and taking possession of the Available Expansion Space on the date specified in the Expansion Notice. Prior to Tenant taking occupancy of the Available Expansion Space, Landlord and Tenant shall execute an amendment to this Lease adding the Available Expansion Space to the Demised Premises and otherwise setting forth the lease terms and conditions for the Available Expansion Space. In the event Tenant fails to provide the Tenant Acceptance Notice, Tenant’s right to such Available Expansion Space or any Expansion Space on the second floor subsequently becoming available shall be deemed waived and any rights under this Section 20 shall terminate. The rights of Tenant under this Section 20 are personal to Tenant and are not transferable or exercisable by any Transferee.

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SECTION 21

DEFAULT, RE-ENTRY AND DAMAGES

21.1 Default

The following shall constitute a default (“Default”) by Tenant under this Lease: (a) failure to pay any Rent within five (5) days of written notice that it is past due, except that Landlord shall not be required to give written notice more than two (2) times in a twelve (12) month period, and, after two (2) such written notices, written notice shall no longer be required; (b) failure to maintain the insurance coverage required hereunder; (c) failure to perform any of the terms and conditions under this Lease, other than the payment of Rent or maintenance of insurance coverage, and such failure remains uncured for thirty (30) days following written notice; (d) Landlord has elected to cure Tenant’s default under Section 22 and Tenant has failed to pay Landlord the cost and expenses incurred to cure such default within fifteen (15) days after demand; (e) Tenant has attempted to Transfer (as defined in Section 19) the Demised Premises or taken other actions requiring Landlord’s consent, without receiving such consent; (f) an event of bankruptcy or insolvency in violation of Section 17 has occurred; or (g) Tenant has committed waste, which shall include the failure to pay taxes, hazard insurance premiums and failure to maintain and repair the Demised Premises or any other obligations hereunder. Notwithstanding anything else contained herein to the contrary, for non-monetary defaults, it shall not be deemed a default if Tenant is diligently proceeding to cure such default, but has not been able to cure within the thirty (30) day time period; however, this shall not exceed ninety (90) days.

21.2 Re-Entry and Damages

In the event of Tenant’s Default, Landlord shall, in addition to all of its other remedies under this Lease, or permitted in law or equity, have the right to re-enter the Demised Premises, in accordance with applicable law, to remove all persons and property therefrom. Upon such default, Landlord, at its option, may either terminate this Lease, or without terminating this Lease, relet the Demised Premises or any part thereof on such terms and conditions as Landlord deems advisable in its reasonable discretion. The proceeds of such reletting shall be applied: (a) first, to the payment of any indebtedness due from Tenant to Landlord other than Rent hereunder, together with the Default Charge as provided for in Section 5.6; (b) second, to the payment of any costs of such reletting (or attempts to relet), including, without limitation, the cost of any reasonable alterations and repairs to the Demised Premises; brokerage fees and expenses; advertising expenses; inspection fees; free rent and rental concessions; tenant improvement allowances; tenant relocation costs, expenses and allowances; tenant equipment allowances and other tenant concessions; and attorney’s fees; (c) third, to the payment of Rent due and unpaid hereunder, together with the Delinquency Charge as provided for in Section 5.5; (d) fourth, to any other damages, costs and expenses incurred by Landlord as a result of Tenant’s breach; and (e) the remaining balance of such proceeds, if any (“Net Reletting Proceeds”), shall be held by Landlord and applied in payment of future Rent as the same may become due and payable hereunder. Should the Net Reletting Proceeds during any month be less than the Monthly Installment of Base Rent or Additional Rent required hereunder, then Tenant shall during such month pay such deficiency to Landlord upon demand. No re-entry or taking

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possession of the Demised Premises by Landlord shall be construed as an election on its part to terminate this Lease. In the event Landlord elects to terminate this Lease, then Tenant shall remain liable to Landlord for all Rent and other obligations of Tenant under this Lease and damages incurred by Landlord as a result of Tenant’s default. Landlord shall be required to mitigate damages in accordance with Wisconsin law.

21.3 Waiver of Landlord’s Liability

Whether or not Landlord terminates the Lease because of Tenant’s default, provided Landlord has attempted in good faith to relet, Landlord shall have no liability or responsibility in any way whatsoever for its failure to relet the Demised Premises or, in the event of reletting, for failure to collect rent or other payments under such reletting. Tenant acknowledges and agrees that Landlord shall have no obligation to lease or attempt to lease the Demised Premises (a) prior to the leasing of any other vacant space or premises within the Building (whether offered for lease by Landlord or any tenant within the Building), (b) to a potential tenant which does not satisfy Landlord’s criteria for a creditworthy tenant, (c) to a potential tenant whose business or business related activities may violate or conflict with any restricted uses contained in leases with other tenants in the Building, (d) to a potential tenant whose business or business related activities are not compatible or consistent with the nature and character of the other tenants in the Building as solely determined by Landlord, or (e) to a potential tenant which may have an adverse impact upon the first-class, high-grade manner in which the Building is operated or with the high reputation of the Building as solely determined by Landlord. The failure of Landlord to relet the Demised Premises or any part thereof shall not release or affect Tenant’s liability for rent or damages.

21.4 Rights Cumulative

All the rights and remedies of Landlord or Tenant hereunder shall be cumulative and in addition to all other rights and remedies allowed by law or equity and may be exercised separately or jointly without constituting an election of remedies.

21.5 Waiver of Jury Trial and Counterclaim

In the event Landlord commences any proceedings for nonpayment of Rent or any other amount payable to Landlord by Tenant, Tenant shall not interpose any counterclaim of whatever nature or description in any such proceeding. This shall not, however, be construed as a waiver of Tenant’s right to assert such a claim in any separate action brought by Tenant. Landlord and Tenant waive trial by jury in any action or proceeding brought by either party on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of lessor and lessee, Tenant’s use or occupancy of the Demised Premises, or any claim of injury or damage.

21.6 Non-Liability

Landlord shall not be responsible or liable to Tenant for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connected with the Demised Premises or any part of the Building or for any loss or damage resulting to Tenant or its property from burst, stopped or

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leaking water, gas, sewer or steam pipes, or for any damage or loss of property within the Demised Premises from any cause whatsoever, and no such occurrence shall be deemed to be an actual or constructive eviction from the Demised Premises or result in an abatement of rental.

21.7 Landlord’s Default

If Landlord shall default in any of its obligations hereunder, Tenant shall give Landlord written notice of such default and Landlord shall have thirty (30) days to cure such default, unless Landlord is diligently proceeding, then Landlord shall have the appropriate amount of time to cure such default as necessary, not to exceed ninety (90) days. If Landlord fails to cure such default within such period, Tenant may, upon additional written notice to Landlord, perform Landlord’s obligation and Landlord shall have the obligation to reimburse Tenant for Tenant’s out-of-pocket costs in performing such work.

SECTION 22

LANDLORD’S RIGHTS TO CURE DEFAULTS

If Tenant defaults in the performance of any provision of this Lease, Landlord shall have the right (but not the obligation) in addition to any and other rights and remedies in the event of default, to cure such default for the account of Tenant, without prior notice to or demand upon Tenant and without waiving or releasing Tenant from any obligations of Tenant under the Lease, and Tenant shall, upon receipt of notice thereof and demand for payment from Landlord, pay any payment or expenditure made by Landlord with the next Monthly Installment of Base Rent, together with the Default Charge as defined in Section 5.6.

SECTION 23

SECURITY INTEREST

23.1 Grant of Security Interest

Tenant, for the purpose of securing payment of all sums for which Tenant may now be or may at any time hereafter become indebted to Landlord under this Lease and for the purpose of securing performance of Tenant’s obligations to Landlord under this Lease, grants to Landlord a security interest in the following property attached to, located within or used for the Demised Premises (“Collateral”): (a) all fixtures and goods, including all machinery, equipment, tools, dies, jigs, appliances, trucks, motor vehicles and office, store, and factory furniture and leasehold improvements to the Demised Premises now owned or held or hereafter acquired by Tenant and, without permitting a sale by Tenant, the proceeds thereof; and (b) all goods hereafter added to, or affixed to, or acquired in replacement of, or used in connection with, said above described goods and without permitting a sale by Tenant, the proceeds thereof; and (c) all inventory of goods held for sale or lease or to be furnished under contracts of service, including raw materials, work in process and finished products, now owned or held or hereafter acquired by Tenant, and the proceeds thereof; and (e) all policies of insurance pertaining to the Collateral now or hereafter owned or held by Tenant, the proceeds thereof and the unearned premiums pertaining to such policies. At the request of Landlord, Tenant shall join with Landlord in executing one or more financing statements, pursuant to the applicable Uniform Commercial Code, in a form

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satisfactory to Landlord, and shall pay the cost of filing the same or filing or recording this Lease in all public offices wherever filing or recording is deemed by Landlord to be necessary or desirable.

23.2 Subordination

The security interest granted pursuant to Section 23.1 hereof shall be subordinate and inferior to all security interests in the Collateral or any portion thereof granted by Tenant to any bank, savings and loan association or finance company prior to the date of this Lease, which security interests are duly perfected prior to the date hereof. Landlord shall execute such agreement confirming this subordination which is mutually acceptable to Landlord and the secured party.

23.3 Remedies

In the event of default by Tenant under this Lease or at any time thereafter (such default not having previously been cured) Landlord shall have the remedies of a secured party under the Uniform Commercial Code, including, without limitation, the right to take possession of the Collateral by any lawful means, without notice, and for that purpose Landlord may enter upon any premises on which the Collateral or any part thereof may be situated and hold the Collateral upon said premises (without charge to Landlord), or remove the same to such other place or places as Landlord shall determine. Upon demand by Landlord, Tenant shall assemble the Collateral and make it available to Landlord at a place to be designated by Landlord which is reasonably convenient to both parties. Any requirement of notice under the Uniform Commercial Code shall be met if such notice is mailed, postage prepaid, to the address of Tenant shown at the beginning of this Lease at least five (5) days before the event with respect to which notice is required. Landlord shall be entitled to recover its reasonable attorneys’ fees and expenses incurred in protecting and enforcing its rights and remedies with respect to the Collateral. Tenant recognizes that in the event of default no remedy at law will provide adequate relief to Landlord; therefore, Tenant agrees that Landlord shall be entitled to temporary and permanent injunctive relief in any such case without proving actual damages. Landlord shall have no duty to protect, insure or realize upon the Collateral. In the event of any default by Tenant, Landlord, in addition to the exercise of all rights and remedies available to Landlord by law, shall be entitled to enforce its rights hereunder and to avail itself of other security interests granted by Tenant to Landlord and assets of Tenant, simultaneously or successively, in such order as Landlord shall determine, and all such security interests, rights and remedies shall continue in full force and effect until all indebtedness of Tenant to Landlord is paid in full.

SECTION 24

QUIET ENJOYMENT

Landlord covenants that so long as Tenant is not in default in the terms and conditions of this Lease, Tenant may peacefully and quietly hold and enjoy the Demised Premises for the Lease Term without interference by Landlord or any person claiming by, through or under Landlord.

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SECTION 25

HOLDING OVER

In the event of Tenant holding over after the expiration of the Term of this Lease, then the tenancy shall continue from month to month in the absence of a written agreement to the contrary, subject to all the terms and provisions hereof, except the Monthly Installment of Base Rent shall be equal to one hundred fifty (150%) percent of the Monthly Installment of Base Rent due in the last full month of the Lease Term and Landlord shall be entitled to damages for all such illegal occupancy, together with all other rights and remedies permitted under this Lease or available at law. No holding over by Tenant shall establish any right or option of extension or renewal of this Lease.

SECTION 26

CUMULATIVE REMEDIES AND WAIVER

26.1 Cumulative Remedies

Each and every right, remedy and benefit provided by this Lease to Landlord shall be cumulative and shall not be exclusive of any other right, remedy or benefit allowed by law. These remedies may be exercised jointly or severally without constituting an election of remedies.

26.2 Waiver

One or more waivers by Landlord or Tenant of any term and condition hereunder or default hereunder shall not be construed as a waiver of such term and condition or default in the future or any subsequent default for the same cause. Any consent or approval given by Landlord or Tenant requiring such consent or approval shall not constitute consent or approval to any subsequent similar act. The prevailing party shall pay all attorneys’ fees and expenses in enforcing any of the obligations under this Lease.

No payment by Tenant or receipt by Landlord of a lesser amount than the Monthly Installment of Base Rent shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord shall accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy in this Lease provided.

SECTION 27

RELOCATION

Landlord may, at its election, relocate Tenant to other comparable space in the Building upon not less than thirty (30) days prior written notice to Tenant. Landlord shall pay the reasonable costs of moving Tenant to the new space, including all physical relocation expenses, the removal and installation of all computer systems, network systems, office furniture, supplies and artwork, and the reasonable and necessary production of new letterhead, business cards,

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envelopes, and other material necessitated by the move. If Tenant does not wish to accept such relocation, Tenant may object thereto by written notice to Landlord within ten (10) days after the notice from Landlord. In the event Tenant so objects, Landlord may rescind the notice of intention to relocate Tenant, or may reaffirm such intention, in which latter event Tenant may terminate this Lease by notice to Landlord within ten (10) days after notice of Landlord’s reaffirmation and, in that event, Tenant shall vacate within thirty (30) days thereafter.

SECTION 28

DEFINITION OF LANDLORD, LANDLORD’S LIABILITY

28.1 Definition of Landlord

The term “Landlord” as used in this Lease so far as covenants or obligations of Landlord are concerned shall be limited to mean and include only the owner or owners at the time in question of the fee of the Demised Premises. In the event of any transfer or transfers of the title to such fee, Landlord herein named (and in case of any subsequent transfers or conveyances, the successor landlord) shall be automatically released from all personal liability for the performance of any covenants or obligations of Landlord contained in this Lease after the date of such transfer or conveyance. Any Security Deposit or other Tenant funds held by such Landlord at the time of such transfer or conveyance shall be turned over to the transferee and any amount then due and payable to Tenant by Landlord under this Lease shall be paid to Tenant. It is the intent of this Section that Landlord’s covenants and obligations under this Lease shall be binding on Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership.

28.2 No Abatement or Setoff

Tenant acknowledges that the obligations of Landlord and Tenant, respectively, under this Lease are independent covenants. If Landlord fails to perform any obligation of Landlord under this Lease, Tenant shall have no right to: (a) abate or withhold any Rent or any other charges or sums payable by Tenant under this Lease, (b) any right of setoff, (c) terminate this Lease, except as may be allowed pursuant to Wisconsin law or (d) avail itself of self-help, except as specifically provided in Section 21.7 of this Lease.

28.3 Limitation of Liability

If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord’s part to be performed, and if as a consequence of such default Tenant shall recover a money judgment against Landlord, such judgment shall be satisfied only out of Landlord’s interest in the Building and real estate of which the Building is a part, and Landlord, its owners, partners, members, officers, employees, agents, representatives, successors and assigns, shall not be liable for any deficiency.

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SECTION 29

WASTE

Tenant shall not commit or suffer to be committed any waste upon the Demised Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant in the Building. Tenant shall not use or permit to be used, any medium that might constitute a nuisance, such as loud speakers, sound amplifiers, phonographs, radios, televisions, or any other sound producing device which will carry sound outside the Demised Premises.

SECTION 30

TENANT’S FINANCIAL INFORMATION

Tenant warrants and represents to the Landlord that any and all financial statements or other financial information delivered to the Landlord are true and correct in all material respects as of the date of such statements or information and to the extent that such statements or information are not correct, the Tenant represents that there has been no material adverse change in the financial condition of the Tenant since the date of such statements or information to the date of this Lease. Tenant acknowledges that in executing this Lease, the Landlord has relied upon such financial statements and information. During the Lease Term, Tenant shall provide Landlord financial reports or statements prepared consistent with generally accepted accounting principles, audited by a nationally recognized accounting firm and verified as true, complete, accurate and by the chief financial officer of Tenant (“Audited Financial Statements”). Tenant shall provide Landlord with its Audited Financial Statements annually or at such other times as requested by Landlord. Landlord shall keep such information confidential, except it may provide such information to potential mortgagees or purchasers.

SECTION 31

SIGNS

Tenant will not place or cause to be placed or maintained any sign or advertising matter of any kind anywhere within the Building, except in the interior of the Demised Premises, without Landlord’s prior written approval. No illuminated signs located in the interior of the Demised Premises and which are visible from the outside shall advertise any product. All signs located in the interior of the Demised Premises shall be in good taste so as not to detract from the general appearance of the Demised Premises and the Building. Tenant further agrees to maintain in good condition and repair at all times any such sign or advertising matter of any kind which has been approved by Landlord for use by Tenant.

SECTION 32

SECURITY DEPOSIT

The Landlord herewith acknowledges receipt of the Security Deposit in the amount stated in Section 1 hereof, which it is to retain as security for the faithful performance of all covenants, conditions and agreements of this Lease. Landlord shall have the right (but not the obligation) to apply the Security Deposit upon Rent or other obligations in arrears or upon damages for the Tenant’s failure to perform the said covenants, conditions and agreements. Any such application by Landlord shall be credited to such obligations of Tenant, but shall not constitute a cure of Tenant’s Default barring Landlord from pursuing any other remedies available under this Lease

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or at law. Upon such application of the Security Deposit, Tenant shall be obligated to replace such amounts so applied within ten (10) days after demand therefor by Landlord and, upon Landlord’s request, increase the amount of such Security Deposit to an amount not greater than two hundred fifty (250%) percent of the original amount of the Security Deposit. Landlord’s right to the possession of the Demised Premises for non-payment of Rent or for any other reason shall not in any event be affected by reason of the fact that the Landlord holds or applies this Security Deposit. Upon the expiration of the Lease Term, surrender of possession of the Demised Premises by Tenant and Tenant’s full and complete performance of all the terms and conditions of this Lease, the Security Deposit shall be returned to the Tenant without interest. Landlord shall have the right to apply such Security Deposit to any liquidated damages calculated pursuant to Section 21.2 and any undisbursed portion of the Security Deposit may be retained by Landlord and applied to any obligations of Tenant or damages incurred by reason of Tenant’s subsequent Default or breach. The Landlord shall not be obliged to keep the Security Deposit as a separate fund or pay interest thereon but may commingle the Security Deposit with its own funds.

SECTION 33

MISCELLANEOUS

33.1 Condition of Demised Premises

Tenant is fully familiar with the physical conditions of the Demised Premises and Landlord has made no representations of whatever nature in connection with the condition of the Demised Premises, except for Landlord’s Improvements to be constructed pursuant to Section 3 of this Lease.

33.2 Independent Covenants

The obligations of Landlord and Tenant, respectively, under this Lease are expressly agreed by the parties to be independent covenants. If Landlord fails to perform any obligation under this Lease required to be performed by Landlord, Tenant shall have no right to: (i) terminate this Lease, except as may be allowed pursuant to Wisconsin law; (ii) avail itself of self-help or to perform any obligation of Landlord, except as specifically provided in Section 21.7 of this Lease; (iii) abate or withhold rent or any other charges or sums payable by Tenant under this Lease; or (iv) exercise any right of setoff.

33.3 Authority

Tenant represents and warrants that Tenant has the full power and authority to execute this Lease, Subordination Agreement, Estoppel Certificates and perform its obligations under this Lease and each person executing this Lease, Subordination Agreement, Estoppel Certificate and any other documents or agreements delivered in connection with this Lease has due power and authority to so act and bind Tenant. Landlord represents and warrants that Landlord has the full power and authority to execute this Lease and perform its obligations under this Lease and each person executing this Lease and any other documents or agreements delivered in connection with this Lease has due power and authority to so act and bind Landlord.

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33.4 Entire Agreement

This Lease and exhibits attached hereto and forming a part hereof, set forth all of the covenants, agreements, stipulations, promises, conditions, understandings and representations, hereinafter collectively “Representations” between Landlord and Tenant concerning the Demised Premises and the buildings and improvements to be constructed thereon. Landlord and Tenant agree that there are no Representations other than set forth herein and agree to make no claims against each other based upon Representations not set forth herein.

33.5 Modification

This Lease shall not be modified or amended unless by a writing signed by Landlord and Tenant.

33.6 Joint Venture, Mortgage

Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of mortgagor and mortgagee, principal and agent or of partnership or of joint venture between the parties hereto, it being understood and agreed that neither the method of computation of Rent, nor any other provision contained herein, nor any acts of the parties herein, shall be deemed to create any relationship between the parties hereto other than the relationship of lessor and lessee.

33.7 Notices

Except as specifically provided otherwise in this Lease, any notices or demands required under this Lease shall be in writing addressed to the party at the address set forth herein or such changed address provided in writing by such party and served as follows: (a) by personal service with service being effective upon delivery, or (b) by certified mail, return receipt requested, with service being effective two (2) days after mailing, or (c) by telecopy, facsimile or other form of telecommunication, with service being effective upon the date of transmission with reasonable evidence that the transmission was received, or (d) by recognized overnight courier service, with service being effective one (1) day after delivery to such courier service.

33.8 Survival

Any obligation of Tenant or Landlord under this Lease which is not performed in full prior to the termination of this Lease shall survive the termination of this Lease and continue in full force and effect until performed in full.

33.9 Gender

Whenever the singular is used herein, the same shall include the plural and the masculine, feminine and neuter genders.

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33.10 Captions and Section Numbers

The captions, section numbers, article numbers, and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles of this Lease nor in any way affect this Lease.

33.11 Broker’s Commission

Except for the Broker identified in Section 1, Tenant represents and warrants unto the Landlord that there are no claims for brokerage commissions or finder’s fees in connection with this Lease, and Tenant agrees to indemnify, defend and hold Landlord harmless from all liabilities arising from any such claim arising from an alleged agreement or act by Tenant, including, without limitation, the cost of counsel fees in connection therewith. Except for the Broker identified in Section 1 whose commission shall be paid by Landlord, Landlord represents and warrants to Tenant that there are no claims for brokerage commissions or finders fees in connection with this Lease, and Landlord agrees to indemnify, defend and hold Tenant harmless from any and all liabilities and claims arising from our asserted in connection with any alleged agreement or act by Landlord, including, without limitation, the cost of attorneys fees in connection therewith.

33.12 Rules and Regulations

Tenant agrees to comply with and observe all reasonable rules and regulations established by Landlord from time to time. Tenant’s failure to keep and observe said rules and regulations shall constitute a breach of this Lease in the manner as if the same were contained herein as covenants.

33.13 Recording

Tenant shall not record this Lease or any memorandum thereof without the prior written consent of Landlord.

33.14 Execution of Lease

The submission of this Lease for examination does not constitute a reservation of, or option for, the Demised Premises, and this Lease shall become effective as a lease only upon execution and delivery thereof by Landlord and Tenant.

33.15 Construction

This Lease shall be construed and enforced in accordance with the laws of the State of Wisconsin. If any provision of this Lease, or the application thereof to any person or circumstances, shall, to any extent be invalid or unenforceable, the remaining provisions of this Lease shall not be affected thereby and shall be valid and enforceable.

33.16 Binding Effect

This Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, assigns and permitted transferees.

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33.17 Legal Fees

In the event any party commences litigation, arbitration or other action to enforce such party’s rights or the other party’s obligations under this Lease, the Prevailing Party shall be entitled to recover reasonable attorneys fees, witness fees, expert fees, paralegal expenses, litigation costs and other costs and expenses in connection therewith. Prevailing Party shall mean the party who obtains an order of enforcement, similar remedy or a judgment or award against the other party or dismissal or similar relief against the other party’s claim or, in the event of a counterclaim or crossclaim, a judgment which exceeds any claim, counterclaim, judgment or award of the other party.

33.18 Joint Drafting

Landlord and Tenant acknowledge and agree that each has joined in and contributed to the drafting of this Lease and as a result there shall be no presumption in construing the provisions of this Lease favoring or burdening either Landlord or Tenant based upon draftsmanship or similar rule of construction.

33.19 Counterparts

This Lease may be executed in any number of separate counterparts, each of which, when executed and delivered, shall be an original, but such counterparts shall together constitute one and the same document.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and year first above written.

IN THE PRESENCE OF:		LANDLORD:
		Demco Wisconsin 5, LLC, a Michigan limited liability company
		By:	DeMattia Group Wisconsin, LLC a Michigan limited liability company
		Its:	Managing Member
/s/ LAITH M. HERMIZ	By:	/s/ GARY D. ROBERTS
Laith M. Hermiz		Gary D. Roberts
		Its: Executive Vice President
		TENANT:
		Nighthawk Radiology Services, a ___________________________________________
/s/ JULIE ADAMCZEWSKI
Julie Adamczewski		By:	/s/ CHRISTOPHER HUBER
			Christopher Huber
			Its: Vice President

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EXHIBIT A

Legal Description of Demised Premises

The southerly 1/2 of Lot 5, in Block 32, in Plat of the Town of Milwaukee on the East Side of the River in the Southeast 1/4 of Section 29, Township 7 North, Range 22 East, in the City of Milwaukee, Milwaukee County, Wisconsin, being so much of Lot 5 as lies South of a line drawn through and parallel with and equi-distant from the North and South lines thereof.

ALSO the Southerly 6 feet and 8 inches of the Northerly 1/2 of Lot 5, in Block 32, in Plat of the Town of Milwaukee on the East Side of the River in the Southeast 1/4 of Section 29, Township 7 North, Range 22 East, in the City of Milwaukee, Milwaukee County, Wisconsin, bounded and described as follows:

Commencing in the East line of said Lot equi-distant from the Northeast and Southeast corner of same; thence West on a line parallel with the North line of said Lot to the intersection with its West line; thence North along said West line, 6 feet, 8 inches to a point; thence East on a line parallel with said North line to the intersection with the East line of said Lot; thence South on said East line, 6 feet, 8 inches to the place of beginning.

Tax Key No. 392-0952-5

ADDRESS: 223 N. Water Street

EXHIBIT B

Site Plan

EXHIBIT C

Floor Plan of Demised Premises

EXHIBIT D

Landlord’s Improvements

Tenant shall accept the Demised Premises in its “as is” condition, except Landlord shall, at Landlord’s sole cost and expense:

1) Remove the wall between the kitchen and the adjacent office and refinish and restore walls affected by such removal;

2) Apply new paint to walls where required pursuant to Exhibit D-1;

3) Provide suite in clean condition;

4) Install one (1) refrigerator and one (1) microwave.

EXHIBIT E

Building Rules and Regulations

1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors, or halls, shall not be obstructed or encumbered by any Tenant or used for any purpose other than ingress or egress to and from the Demised Premises.

2. No sign, picture, lettering, notice or advertisement of any kind shall be painted or displayed on or from the windows, doors, roof, or outside walls of the structure in which the Demised Premises are located. In the event of the violation of the foregoing by any Tenant, Landlord may remove same without any liability and may charge the expense incurred for such removal to the Tenant.

3. Landlord shall, upon 24 hours’ advance notice, have the right to enter upon the Demised Premises during Tenant’s normal business hours for the purpose of inspecting the same.

4. Landlord shall, upon 24 hours’ advance notice, have the right to enter the Demised Premises at hours convenient to Tenant for the purpose of exhibiting the same to prospective tenants.

5. No curtains, blinds, shades, screens, awnings, or other projections shall be attached to or hung in, or used in connection with any window or door of the Demised Premises or outside wall of the building, other than the building standard window blinds, unless consented to by Landlord in writing.

6. Any carpeting cemented down shall be installed with a releasable adhesive.

7. The water and wash closets and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Tenant who, or whose servants, employees, agents, visitors, licensees or invitees, shall have caused the same. No person shall waste water by interfering or tampering with the faucets or otherwise.

8. No electric current shall be used by Tenant except that furnished or approved by Landlord. No electric or other wires for any purpose shall be brought into the Demised Premises without Landlord’s written permission specifying the manner in which same may be done.

9. Except with the prior written consent of Landlord, no Tenant shall paint, drill into, or in any way deface any part of the Demised Premises or the structure of which they form a part. No boring, cutting or stringing of wires shall be permitted.

10. No hazardous articles shall be brought into or kept in the building at any time.

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11. No bicycle or other vehicle, no dog, bird or other animal shall be brought in offices, halls, corridors, or elsewhere in the building by Tenant, its servants, employees, agents, visitors, licensees or invitees.

12. Tenant shall not cause or permit unusual or objectionable odors to be produced upon or permeate from the Demised Premises, including duplicating or printing equipment or data processing equipment emitting noxious fumes. Tenant shall not disturb any occupants of this or neighboring structures or premises by the use of any musical instruments, radio, television, loudspeaker, or by any unseemly or disturbing noise.

13. No Tenant shall throw anything out of the doors, windows, or down any passageways or elevator shafts. No area outside of the Demised Premises shall be used for storage at any time.

14. All loading, unloading, receiving or delivery of goods, supplies or disposal of garbage or refuse shall be made only through entryways provided for such purposes and indicated by Landlord.

15. Tenant is not permitted to use any part of the structures in, including but not limited to, common areas for any manufacturing, storage or sale or merchandise, or property of any kind, or for lodging or sleeping, gambling or for any immoral or illegal purpose. No intoxicating beverages shall be sold in the Demised Premises or the structure of which the Demised Premises are a part.

16. All safes, office furniture, equipment or other heavy articles shall be carried in or out of the Demised Premises only at such times and in such manner as shall be prescribed in writing by Landlord. Landlord shall in all cases have the right to specify the proper location of any such safe, equipment or other heavy article within the Demised Premises and which shall only be used by Tenant in a manner which will not interfere with or cause damage to the Demised Premises or the structure in which the Demised Premises are located, or to the other tenants or occupants of said structure. Tenant shall be responsible for any damage to the Demised Premises or the building in which the Demised Premises are contained or the property of its tenants or others and injuries sustained by any person whomsoever resulting from the use or moving of articles, in or out of the Demised Premises, and Tenant shall pay for and make all repairs in connection with the use or moving of such articles. If approved by Landlord, all repairs or improvements by Tenant shall be made only at such times and in such manner as shall be prescribed by Landlord.

17. Tenant shall not install or operate any steam or gas engine or boiler or carry on any mechanical business in the Demised Premises, or use oil, burning fluids, camphene or gasoline for heating or lighting, or for any other purpose. No article deemed hazardous on account of fire or any other dangerous properties, or any explosive, shall be brought into the Demised Premises.

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18. Landlord will furnish Tenant with two keys for each lock on the doors of the Demised Premises. No additional locks or bolts of any kind shall be placed upon any of the doors by Tenant, nor shall any changes be made in existing locks or the mechanism thereof, without the prior written consent of Landlord. Each Tenant must, upon the termination of its tenancy, restore to the Landlord all keys.

19. Landlord shall have the right to prohibit any advertising by Tenant, which in Landlord’s opinion tends to impair the reputation of the building or its desirability as a building for offices, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising.

20. The Landlord reserves the right to exclude from the building between the hours of 7 p.m. and 8 a.m., Monday through Friday, after 1 p.m. on Saturday, and at all hours on Sundays and legal holidays all persons who do not present a security access card or demonstrate other appropriate reason to be in the building. The Landlord will furnish security codes to persons for whom Tenant requests such pass and Tenant shall be liable to the Landlord for all acts of such persons. Security cards will be re-issued as needed, at Tenant’s sole cost and expense.

21. Canvassing, soliciting, or peddling in or about the Demised Premises or the building in which the Demised Premises are contained is prohibited and each Tenant shall cooperate to prevent the same.

22. Vending machines will not be permitted to be installed by anyone but the Landlord. If Landlord permits the installation of other vending machines, they will be installed by the same company that the Landlord has under contract and under the same terms and conditions of said contract between the Landlord and the vending machine company.

23. Wherever the word “Tenant” occurs, it is understood and agreed that it shall mean Tenant’s associates, agents, clerks, servants, invitees and visitors. Wherever the word “Landlord” occurs, it is understood and agreed that is shall mean Landlord’s assigns, agents, clerks, servants, invitees and visitors.

24. Tenant shall not waste electricity or air conditioning.

25. Landlord reserves the right at any time, and from time to time, to rescind, alter or waive, in whole or in part, any of these Rules and Regulations when it is deemed necessary, desirable, or proper, in Landlord’s judgment, for its best interest or the best interests of the tenants in the Building.

26. No Tenant shall place or permit to be placed, on any part of the floor or floors of the space demised to such Tenant a load exceeding the floor load per square foot which such floor was designed to carry and which is allowed by law.

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27. Additional security or janitorial service required by a Tenant will be contracted through the Landlord using the same company that Landlord has under contract to provide the service. Tenant shall not employ or contract with any person to do cleaning or perform janitorial services in the Demised Premises without prior written consent from Landlord.

28. Tenant assumes responsibility for protecting the Demised Premises from theft, robbery and pilferage. Tenant shall be responsible for locking all doors.

29. Tenant shall not place objects against glass partitions or doors or windows which would be unsightly from the Demised Premises’ corridor, or from the exterior of the Demised Premises, and will promptly remove same upon notice from Landlord.

30. No Tenant shall place on the outside of its Demised Premises or in the hall, corridor, window or any other common area, any sign except a sign that has had the prior written approval by the Landlord. Only signs that set forth the name of the company or business operating in the Demised Premises and the suite number, consistent with the building standard signage which presently exists and placed in the building and lobby by the landlord shall be approved.

31. Smoking is prohibited in the Demised Premises and the Building, including all elevator(s), hallways, corridors, stairs, lobbies and other common areas of the building.

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EXHIBIT F

SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT

This Subordination, Nondisturbance and Attornment Agreement (the “Agreement”) is made and entered into as of the      day of                     , 20    , by and among Nighthawk Radiology Services, a                                  (hereafter referred to as “Tenant”) whose address is 250 Northwest Boulevard, Suite 202, Coeur D’Alene, Idaho 83814, Demco Wisconsin 5, L.L.C., a Michigan limited liability company (hereafter referred to as “Landlord” or “Borrower”) whose address is 45501 Helm Street, Plymouth, Michigan 48170, and                                     *, a                                  (hereafter referred to as “Lender”) whose address is                                                      

WHEREAS, Lender has made a loan (the “Loan”) to Borrower evidenced by a note (the “Note”) secured by a Mortgage, Security Agreement and Fixture Filing (the “Mortgage”), dated                      which will be recorded in the records of the Register of Deeds of                     County, Wisconsin, constituting a first lien upon the land described in Exhibit A attached hereto and made a part hereof and the improvements thereon, as well as all of Landlord’s right, title interest, estate and claim now owned or hereafter acquired in, to or relating to the items described in (i) through (xii) in the recitals of the Mortgage (collectively the “Property”); and

WHEREAS, Landlord and Tenant have entered into a certain lease dated                     , which lease provides for the direct payment of rents from Tenant to Landlord for the use and occupancy of the building located on the Property in the City/Township of                     ,                      County, Wisconsin (the “Premises”) by Tenant, as more fully set forth in the lease (hereafter the lease and all present and future amendments and modifications thereto, and extensions thereof, shall be referred to as the “Lease”); and

WHEREAS, Lender wishes to obtain from Tenant certain assurances that Tenant will attorn to the Purchaser at a foreclosure sale in the event of a foreclosure or to the holder of the Note and Mortgage in the event of such holder’s exercise of its rights under the Note and Mortgage; and

WHEREAS, Tenant wishes to obtain from Lender certain assurances that so long as Tenant is not in Default of Tenant’s obligations to Landlord under the Lease, that Tenant shall

not be disturbed in its peaceful possession of the Premises as a result of actions taken by Lender pursuant to its rights under the Mortgage; and

WHEREAS, Tenant and Lender are both willing to provide such assurances to each other upon and subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the above, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto mutually agree as follows:

1. Subordination and Attornment. The Lease and all of the rights of Tenant thereunder shall be and are hereby declared to be and at all times hereafter shall be and remain subject and subordinate in all respects to the lien of the Mortgage and to all renewals, modifications, consolidations, replacements and extensions thereof and all of the rights of the Lender thereunder and all other documents securing the Note. Notwithstanding such subordination, Tenant hereby agrees that the Lease shall not terminate in the event of a foreclosure of the Mortgage, whether judicial or nonjudicial or any other proceedings brought to enforce the Mortgage or by deed in lieu of foreclosure and Tenant further agrees to attorn to and to recognize Lender (as mortgagee in possession or otherwise), or the purchaser at such foreclosure sale, as Tenant’s landlord for the balance of the term of the Lease, in accordance with the terms and provisions thereof, but subject, nevertheless, to the provisions of this Agreement, which Agreement shall be controlling in the event of any conflict.

2. Estoppel. Landlord and Tenant hereby agree that the Lease is valid, enforceable and in full force and effect, that as of the date hereof there are no Defaults by Landlord or Tenant, that there are no set offs or counterclaims by Tenant to the payment of rent due under the Lease, that all conditions to the effectiveness or continuing effectiveness of the Lease required to be satisfied as of the date hereof have been satisfied, that the Lease has not been modified or amended, except as set forth below:

and that the Lease is a complete statement of the agreement of Tenant and Landlord with respect to the Premises.

3. Tenant’s Representations and Warranties. Tenant hereby represents and warrants to Lender that it has not subordinated the Lease or any of its rights thereunder to any lien or mortgage other than the Mortgage and that it will not subordinate the Lease or its rights thereunder to any lien or mortgage without the prior written consent of Lender.

4. Lender’s Notice and Cure Rights. Tenant agrees with Lender that, from and after the date hereof until payment in full of the indebtedness under the Note, Tenant will not terminate the Lease nor discontinue or abate the rent as a result of a default by Landlord under the Lease, without first giving the Lender written notice and an opportunity, at Lender’s option, to cure such default for a period of forty (40) days from such written notice; provided, however, if the default is of such a nature that it cannot be cured with due diligence within such forty (40) day period, Lender shall have such reasonable time as is necessary to cure such default provided

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Lender diligently commences to cure within such forty (40) day period and thereafter diligently pursues such cure (“Lender’s Cure Period”). In the event such default by Landlord under the Lease is not cured by the Lender within Lender’s Cure Period, Tenant may, at its option, exercise all its rights under the Lease (including, without limitation, the right to terminate the Lease or discontinue or abate rent). Notwithstanding the foregoing the Tenant shall not terminate the Lease nor discontinue or abate rent as a result of default by Landlord under the Lease if (a) the Lender is diligently in the process of foreclosing on the Property and (b) the continuation of such default by Landlord under the Lease during the time period required for foreclosure does not (i) unreasonably interfere with the Tenant’s use and enjoyment of the Premises under the terms of the Lease nor (ii) impose any additional obligations on the Tenant not contained in the Lease. Tenant and Landlord also agree that, at the request of Lender the rent payments due under the Lease shall be paid directly to Lender and any such payments to the Lender shall be credited against the rent due under the Lease as if made to the Landlord. Tenant agrees that prior to exercising any rights of offset, defense or self help provisions contained in the Lease or available at law, Tenant shall give written notice to Lender of the occurrence of default by Landlord and Landlord’s failure to cure such default pursuant to the terms of the Lease, specifying, with reasonable clarity, the events constituting such default, and shall give Lender forty (40) calendar days after the date of receipt of such notice to undertake to cure such default, provided however, such forty (40) day period shall be extended provided that Lender is proceeding diligently to cure such default.

5. Nondisturbance. So long as Tenant is not in Default under the Lease beyond any notice and cure period provided in the Lease, then Lender agrees with Tenant that in the event the interest of Landlord is acquired by Lender or Lender acquires title to the Property or comes into possession of said Property by reason of foreclosure or enforcement of the Mortgage or the Note, or by a conveyance in lieu thereof, or by any other means, Tenant’s possession of the Premises and Tenant’s rights, privileges and obligations under the Lease shall not be disturbed, diminished or interfered with by Lender or any party claiming through Lender during the term of the Lease, including any extensions thereof permitted to Tenant, and the Lease shall continue in full force and effect and shall not be terminated except in accordance with the terms of the Lease. In the event Tenant Defaults under the Lease or this Agreement beyond any applicable notice and cure period, the obligations of Lender hereunder shall, at Lender’s election, become null and void and Lender may proceed to extinguish the Lease and all of Tenant’s rights and interests in and to the Premises through foreclosure of the Mortgage.

Immediately upon the acquisition by Lender of possession or title to the Property by reason of foreclosure or enforcement of the Mortgage or the Note, or by a conveyance in lieu thereof, or as a result of any other means, Tenant agrees to be bound to Lender under all of the terms, covenants, and conditions of the Lease for the balance of the term thereof, including any extensions thereof permitted to Tenant, with the same force and effect as if Lender were the landlord under the Lease, and Tenant does hereby attorn to Lender as its landlord, said attornment to be effective and self-operative without the exercise of any other instruments on the part of either party hereto.

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Lender further agrees that if it obtains possession and title to the Property during the Lease Term, Lender shall be bound to Tenant under all of the terms, covenants and conditions of the Lease and Tenant shall, from and after the occurrence of the events set forth above, have the same remedies that Tenant might have had under the Lease against Landlord; provided, however, that Lender shall not be:

(a) liable to Tenant for damages for any act or omission of Landlord or any prior landlord occurring prior to Lender obtaining possession or title to the Property; or

(b) subject to any offsets, claims or defenses which Tenant might have against Landlord or against any prior landlord which arise prior to the date Lender obtains possession or title to the Property (except that any transferee shall have the obligation to cure any continuing default of which it had prior written notice); or

(c) bound by any rent or additional rent or deposit, rental security or any other sums which Tenant may have paid to Landlord or any other landlord; or

(d) bound by any amendment or modification of the Lease made without Lender’s prior written consent; or

(e) bound to the Tenant after the date upon which the Lender transfers its interest in the Property to any third party; or

(f) obligated or liable to Tenant with respect to the construction and completion of the initial improvements in the Premises for Tenant’s use, enjoyment or occupancy; or

(g) obligated or liable to Tenant for any moving, relocation or refurbishment allowance or any payment or allowance for improvements to the Premises or any part thereof; or

(h) liable for any payment of any leasing commissions or other expenses for which Landlord or any prior landlord incurred the obligation to pay; or

(i) bound or liable to Tenant under any oral or written notice given by Tenant to Landlord or any prior landlord; or

(j) obligated or liable to Tenant with respect to a breach of the representations and warranties set forth in the Lease and such provisions shall be null and void as between Tenant and Lender.

6. Obligations of Succeeding Owner. Tenant hereby agrees that any entity or person which at any time hereafter becomes the Landlord under the Lease, including, without

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limitation, Lender, in all cases as a result of Lender’s exercise of its rights under the Mortgage, or a purchaser from Lender, shall be liable only for the performance of the obligations of the Landlord under the Lease which arise and accrue during the period of such entity’s or person’s ownership of the Property.

7. Notices. All notices or other written communications required or permitted to be given pursuant to this Agreement shall be in writing, and shall be deemed to have been properly given (i) upon delivery, if delivery in person or by facsimile transmission with receipt acknowledged, (ii) one business day after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three business days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, addressed as follows:

If to Borrower:	Demco Wisconsin 5, L.L.C.
	45501 Helm Street
	Plymouth, Michigan 48170
	Attn: ________________
If to Tenant:	NightHawk Radiology Services
	250 Northwest Boulevard #202
	Coeur d’Alene, Idaho 83814
	Attn: Kristine Gray
If to Lender:	____________________________
	____________________________
	____________________________
	Attn: _____________

or addressed as such party may from time to time designate in writing to the other parties hereto and delivered in accordance with the provisions of this Section 7.

8. Miscellaneous. This Agreement may not be amended or modified in any manner other than by an agreement in writing, signed by the parties hereto or their respective successors in interest, and this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The words “foreclosure” and “foreclosure sale” as used herein shall be deemed to include the acquisition of Landlord’s estate in the Property by any power of sale contained in the Mortgage, or by voluntary deed, assignment or other conveyance or transfer in lieu of foreclosure; and the word “Lender” shall include the Lender herein specifically named and any of its successors and assigns, including anyone who shall have succeeded to Landlord’s interest in the Property or acquired possession thereof by, through, under or as a result of foreclosure of the Mortgage, or by any other manner of enforcement of the Mortgage, or the Note or other obligations secured thereby.

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9. Conflicts with Lease. This Agreement shall supersede, as between Tenant and Lender, all of the terms and provisions of the Lease which are inconsistent with this Agreement, but shall not affect any obligations or liabilities of Borrower, as landlord, under the Lease.

10. Proceeds of Casualty or Condemnation. The interest of Tenant and Landlord under the Lease in and to any proceeds of insurance arising from any casualty to the Premises or the Property and all interest of Tenant and Landlord in and to any award for the taking of the Property or the Premises under the power of eminent domain or any payment in lieu of such taking shall be subordinate to the interest of the Lender therein. Tenant shall not seek or accept any such proceeds or awards unless and until all amounts secured by the Mortgage are paid in full. Landlord shall not seek or accept any such proceeds or awards unless specifically permitted by the Mortgage.

11. Governing Law; Venue. This Agreement shall be construed in accordance with the laws of the State of Wisconsin and any litigation arising out of this Agreement shall be brought in the courts of the State of Wisconsin or in the courts of the United States for the Eastern District of the State of Wisconsin and all parties hereto consent to the venue of such courts.

12. Effect of Agreement. Landlord joins in the execution and delivery of this Agreement for the purpose of evidencing its consent to the terms and provisions hereof, and as between Landlord and Tenant, nothing herein contained shall be deemed to alter or modify the Lease. As between Lender and Landlord, nothing contained herein shall be deemed to alter or modify the terms and conditions of the Note, the Mortgage or any other document or agreement regarding the mortgage loan made by Lender to Borrower.

13. Construction. All capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Mortgage.

14. WAIVER OF TRIAL BY JURY: ALL PARTIES HERETO HEREBY WAIVER, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT, OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

15. Memorandum of Lease. Tenant and Landlord shall deliver the written memorandum described in Section 4.3 of the Lease to Lender within five (5) business days of its execution by Tenant and Landlord.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be properly executed and sealed by their duly authorized representatives as of the date first above written.

TENANT:
Nighthawk Radiology Services,
a *
By:	/s/ CHRISTOPHER HUBER
Its:	Vice President
LANDLORD:
Demco Wisconsin 5, LLC
a Michigan limited liability company
By:	DeMattia Group Wisconsin, LLC
	a Michigan limited liability company
Its:	Managing Member
	By:
		Gary D. Roberts
	Its:	Executive Vice President
LENDER:
*,
a *
By:
Its:

STATE OF IDAHO	)
	) SS.
COUNTY OF KOOTENAI	)

Personally came before me this 23rd day of February, 2004, the above named Chris Huber, to me known to be the person who executed the foregoing document and acknowledged the same.

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/s/ KRISTINE GRAY

Notary Public, State of___________________

My Commission:_______________________

STATE OF MICHIGAN	)
	) SS.
COUNTY OF WAYNE	)

Personally came before me this      day of                     , 200  , the above named Gary D. Roberts, to me known to be the person who executed the foregoing document and acknowledged the same.

Notary Public, State of___________________

My Commission:_______________________

STATE OF	)
	) SS.
COUNTY OF	)

Personally came before me this      day of                     , 200  , the above named                             , to me known to be the person who executed the foregoing document and acknowledged the same.

Notary Public, State of___________________

My Commission:_______________________

Drafted By and When Recorded Return To:

Robert R. Nix II, Esq.

Kerr, Russell and Weber, PLC

500 Woodward Ave., Suite 2500

Detroit, Michigan 48226

(313) 961-0200

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EXHIBIT G

Estoppel Certificate

[date]

Re: Lease between __________ L.L.C. (“Landlord”) and _______________ (“Tenant”), dated ____________________ (the “Lease”)

Gentlemen:

Tenant understands that the Lease is being assigned to [                                 (“Lender”) in connection with a loan being made to Landlord or                          (“Purchaser”) in connection with the purchase of the                                          Building from Landlord]. Tenant hereby certifies to and agrees with [Lender/Purchaser] and its successors and assigns and Landlord as follows:

1. Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord approximately          square feet of space in the premises commonly known as Suite         , located in                                                           (the “Demised Premises”).1

2. The Lease constitutes the only agreement between Landlord and Tenant with respect to the Demised Premises, and a true copy of the Lease and all amendments and modifications (including letter agreements) are attached hereto as Exhibit A.

3. The Lease is in full force and effect and binding on Tenant. There have been no amendments or other agreements respecting the Lease, except as follows:                                                                                                                   . Tenant agrees that no future amendment of the Lease is enforceable against [Lender/Purchaser] or its successors and assigns unless such amendment has been consented to in writing by [Lender/Purchaser] or its successors and assigns. Tenant has no setoffs, claims or defenses to the enforcement of the Lease

4. Landlord has completed construction of the Demised Premises, including all Tenant Improvements and Additional Tenant Improvements, if any. Tenant has accepted the Demised Premises, presently occupies the Demised Premises and has no claims against Landlord in connection with the construction of the Demised Premises, Tenant Improvements and Additional Tenant Improvements, if any.

5. Tenant commenced occupancy of the Demised Premises on                     , and began paying Rent on                     .

6. The Lease term commenced on                     , and the term terminates (excluding renewal periods) on                     .

7. The Lease contains                      renewal periods of                      years each.

8. Tenant is paying Rent on a current basis with no Rent being paid more than one month in advance and Tenant has paid a security deposit in the amount of $                    . Tenant acknowledges that the current Annual Base Rent is $                    , the current Monthly Base Rent is $                    , the Expense Base Year is             , the Tax Base Year is             , and Tenant’s proportionate share of Operating Expenses and Taxes is                     .

9. Tenant has no right of offset, deduction or credit against the payment of Rent in the event of a default by Landlord under the Lease.

10. As of the date hereof there is no dispute between Tenant and Landlord regarding the interpretation, application or enforcement of any provision of the Lease.

11. The tenant has no notice of any prior assignment, hypothecation or pledge of the Rents under this Lease.

12. There are no concessions, allowances, rebates or refunds or rent-free occupancies to which the Tenant is entitled.

13. As of the date hereof, Tenant is not obligated to pay Landlord any Rent, parking fees, costs of Tenant Improvements or Additional Tenant Improvements, if any, or any other cost and expenses pursuant to the terms of the Lease, other than Rent.

14. As of the date hereof, Tenant is not in Default in the performance of the Lease, and has not committed any breach of the Lease, and no notice of Default has been given to Tenant.

15. As of the date hereof, Tenant has not subleased or assigned all or any portion of the Demised Premises.

16. Tenant does not have a right to purchase the Demised Premises or the Project by option, right of first refusal, right of first offer or otherwise.

17. Tenant has no early termination or cancellation rights under the Lease.

18. The obligations and liabilities of Tenant under the Lease have been guaranteed by                                  and such guaranty remains in full force and effect.

2

19. As of the date hereof, Tenant has no knowledge of any default in the performance of the Lease by Landlord, has sent no notice of default to Landlord and has no knowledge of any circumstances or events, with or without the giving of notice, which would constitute a default by Landlord under the Lease.

20. Tenant makes this Estoppel Certificate with the understanding that [Lender is contemplating making a mortgage loan on the Demised Premises or Purchaser is contemplating purchasing the                                  Building] and [Lender/Purchaser] will do so in material reliance on this Estoppel Certificate.

21. The person executing this Estoppel Certificate is duly authorized and empowered in all respects to execute and deliver the same on behalf of Tenant.

*,
a *
By:	/s/ CHRISTOPHER HUBER
Its:	Vice President

GUARANTOR’S ACKNOWLEDGMENT

The undersigned,                          (the “Guarantor”), acknowledges and agrees that the documents attached as Exhibit H constitute a complete and accurate copy of the Guarantor’s guaranty of the Lease (the “Guaranty”) and that the Guaranty is in full force and effect as is enforceable in accordance with its terms.

CORPORATE GUARANTOR:		INDIVIDUAL GUARANTOR:
________________________, a		________________________________________
___________ corporation
By:	________________________
Its:	________________________

3

EX-10.19

Exhibit 10.19

Execution Copy

AGREEMENT AND PLAN OF

MERGER AND REORGANIZATION

among

NightHawk Radiology Holdings, Inc.,

as Parent

ATN Merger Sub, Inc.,

as Merger Sub

and

American Teleradiology Nighthawks, Inc.,

as Company

dated as of

September 30, 2005

TABLE OF CONTENTS

		Page
ARTICLE I THE MERGER		1
1.1	The Merger	1
1.2	Closing; Effective Time	1
1.3	Effect of the Merger	2
1.4	Certificate of Incorporation; Bylaws.	2
ARTICLE II [INTENTIONALLY OMITTED]		2
ARTICLE III MERGER CONSIDERATION; EFFECT OF MERGER ON COMPANY CAPITAL STOCK		3
3.1	Merger Consideration; Earnout Consideration; Exchange of Capital Stock	3
3.2	Stock Options/Equity Interests	4
3.3	Cancellation of Company-Held Capital Stock	4
3.4	Merger Sub	4
3.5	Dissenters’ Rights	4
3.6	Mechanics of Exchange	5
3.7	No Further Rights in Shares	6
3.8	No Fractional Shares	6
3.9	Taking of Necessary Action; Further Action	6
3.10	Distributions	7
3.11	Reorganization, Reclassification, Merger, Consolidation, Etc. of Parent	7
3.12	Withholding Taxes	8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY		8
4.1	Organization, Good Standing, Qualification	8
4.2	Certificate of Incorporation and Bylaws; Records	9
4.3	Capitalization	9
4.4	Authority; Binding Nature of Agreements	10
4.5	Non-Contravention; Consents	10
4.6	Proceedings; Orders	12
4.7	Disputes Among Stockholders	12
4.8	Compliance with Legal Requirements	12
4.9	Governmental Approvals	14
4.10	Financial Statements	14
4.11	Absence of Undisclosed Liabilities	15
4.12	Accounts Receivable	15
4.13	Cash Equivalents/Bank Accounts	15
4.14	Title to, Condition of and Sufficiency of Assets; Tangible Assets	16
4.15	Intellectual Property	17
4.16	Real Property	20
4.17	Employees, Consultants and Physicians	20
4.18	Benefit Plans; ERISA	22

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TABLE OF CONTENTS

(Continued)

		Page
4.19	Tax Matters	24
4.20	Environmental Compliance	26
4.21	Material Contracts	26
4.22	Government Contracts	30
4.23	Medical Liability	31
4.24	Customers and Contractors	31
4.25	Restrictive Covenants	31
4.26	Competing Business	31
4.27	Insurance	31
4.28	Affiliate Transactions	33
4.29	Interim Operations	33
4.30	Finders and Brokers; Fees	35
4.31	Full Disclosure	35
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB		35
5.1	Organization, Standing and Power	35
5.2	Certificate of Incorporation and Bylaws; Records	36
5.3	Authority; Binding Nature of Agreements	36
5.4	Capitalization	37
5.5	Non-Contravention; Consents	37
5.6	Financial Statements	37
5.7	Absence of Undisclosed Liabilities	38
5.8	Proceedings; Orders	38
5.9	Compliance with Legal Requirements	39
5.10	Governmental Approvals	39
5.11	Environmental Compliance	39
5.12	Medical Liability	40
5.13	Finders and Brokers; Fees	40
5.14	Operations of Merger Sub	40
ARTICLE VI ADDITIONAL AGREEMENTS		40
6.1	Company’s Conduct of the Business Prior to Closing	40
6.2	Interim Operations	41
6.3	Confidentiality; Acquisition Proposals	41
6.4	Certain Notifications	41
6.5	Access to Information	41
6.6	All Commercially Reasonable Efforts	42
6.7	Consents	42
6.8	Further Assurances	42
6.9	Confidentiality	42
6.10	Public Announcements	43
6.11	Key Personnel	44
6.12	Additional Financial Statements	44
6.13	Stockholder Approval	44
6.14	Employee Plans	44

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TABLE OF CONTENTS

(Continued)

		Page
6.15	Business Plan and Budget	44
6.16	Hospital Business Committee	45
6.17	Company Closing Deliverables	46
6.18	Parent Deliveries at Closing	46
ARTICLE VII CONDITIONS TO THE MERGER		46
7.1	Conditions to Parent’s and Merger Sub’s Obligations to Close	46
7.2	Conditions to Company’s Obligation to Close	48
ARTICLE VIII TERMINATION		49
8.1	Termination	49
8.2	Effect of Termination	49
ARTICLE IX INDEMNIFICATION		50
9.1	Survival of Representations, Warranties and Covenants	50
9.2	Indemnification	50
9.3	Limitations on Indemnification	52
9.4	Procedures for Indemnification for Third Party Claims	52
9.5	Stockholder Representative	52
9.6	Limitation of Liability	53
ARTICLE X GENERAL PROVISIONS		53
10.1	Notices	53
10.2	Interpretation and Construction of Transaction Agreements	54
10.3	Specific Performance	55
10.4	Counterparts; Facsimile Delivery	55
10.5	Entire Agreement	55
10.6	Amendment; Waiver; Requirement of Writing	56
10.7	Expenses	56
10.8	No Third-Party Beneficiaries	56
10.9	Disclaimer of Agency	56
10.10	Relationship of the Parties	56
10.11	Assignment	56
10.12	Severability	57
10.13	Remedies Cumulative	57
10.14	Governing Law/Dispute Resolution Procedures	57

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INDEX OF EXHIBITS, SCHEDULES AND APPENDICES

Exhibits
Exhibit A	Defined Terms
Exhibit B	Form of Certificate of Merger
Exhibit C	Merger Consideration
Exhibit D	Form of Opinion from Special Counsel
Exhibit E	Form of Opinion from Corporate Counsel
Schedules
Schedule 4	Company Disclosure Schedule
Schedule 6.2(b)	Prohibited Pre-Closing Company Actions
Appendices
Appendix 1	Company Customer Contracts for Purposes of Qualified Off-Hours Revenue
Appendix 2	List of Hospital Contracts

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this “Agreement”) is made as of September 28, 2005 (the “Execution Date”) by and among NightHawk Radiology Holdings, Inc., a corporation organized under the laws of Delaware (“Parent”), ATN Merger Sub, Inc., a corporation organized under the laws of Delaware (“Merger Sub”) and American Teleradiology Nighthawks, Inc., a corporation organized under the laws of Delaware (“Company”). As used in this Agreement, certain terms shall have the meanings set forth in Exhibit A.

RECITALS

WHEREAS, the boards of directors of Parent, Merger Sub and Company each have determined that the acquisition of Company by Parent through the merger of Merger Sub with and into Company pursuant to the terms and subject to the conditions set forth herein (the “Merger”) is in the best interests of their respective companies and stockholders and have approved the Merger and the related transactions set forth herein;

WHEREAS, Merger Sub is a wholly-owned subsidiary of Parent;

WHEREAS, pursuant to the Merger, each outstanding share of capital stock of Company shall be cancelled and converted into the right to receive the consideration set forth herein.

WHEREAS, the parties intend that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. By executing this Agreement, the parties adopt a “plan of reorganization” within the meaning of Treasury Regulations Section 1.368-2(g).

NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration, the adequacy of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger. Subject to and in accordance with the terms and conditions set forth in this Agreement, at the Effective Time, Merger Sub shall be merged with and into Company, which shall be the surviving corporation (the “Surviving Corporation”) in the Merger, and the separate existence of Merger Sub shall thereupon cease. The name of the Surviving Corporation shall be American Teleradiology Nighthawks, Inc. The Merger shall have the effects set forth in the Delaware General Corporation Law (“Delaware Corporate Law”) as further described in Section 1.3.

1.2 Closing; Effective Time. The closing of the transactions contemplated hereby (the “Closing”) shall take place as soon as practicable, but not later than the second Business Day after the satisfaction or waiver of each of the conditions set forth in ARTICLE VII hereof or

at such other time as the parties hereto agree in writing (the “Closing Date”). The Closing shall take place at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 701 Fifth Avenue, Suite 5100, Seattle, Washington, or at such other location as the parties hereto agree. In connection with the Closing, the parties hereto shall cause the Merger to be consummated by filing at the Closing a certificate of merger, substantially in the form to be attached hereto as Exhibit B and as acceptable for filing (the “Certificate of Merger”), together with any required certificates or other documents, with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Corporate Law (the time of such filing with the Secretary of State of the State of Delaware is the “Effective Time”).

1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware Corporate Law; provided that in the event of any conflict between this Agreement or the Certificate of Merger and Delaware Corporate Law, Delaware Corporate Law shall prevail. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of Company and the Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of Company and the Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

1.4 Certificate of Incorporation; Bylaws.

(a) At and from the Effective Time, the certificate of incorporation of Company, as in effect immediately prior to the Effective Time, shall be amended to be identical to the certificate of incorporation of Merger Sub, as in effect immediately prior to the Effective Time, except that the name of the Surviving Corporation shall be identical to the name of Company in effect immediately prior to the Effective Time, until such certificate of incorporation is thereafter amended as provided by Delaware Corporate Law and such certificate of incorporation.

(b) At and from the Effective Time, the bylaws of Company, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation and as of the Effective Time shall be amended to be identical to the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, except that the name of the Surviving Corporation as set forth therein shall be identical to the name of Company in effect immediately prior to the Effective Time, until such bylaws are amended as provided therein, by Delaware Corporate Law and as may be provided in the Surviving Corporation’s certificate of incorporation.

(c) At and from the Effective Time, the directors of Merger Sub, as in office immediately prior to the Effective Time, shall be the directors of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. At and from the Effective Time, the officers of Merger Sub, as in office immediately prior to the Effective Time, shall be the officers of the Surviving Corporation until their respective successors are duly elected or appointed and qualified.

ARTICLE II

[INTENTIONALLY OMITTED]

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ARTICLE III

MERGER CONSIDERATION; EFFECT OF MERGER ON COMPANY CAPITAL STOCK

3.1 Merger Consideration; Earnout Consideration; Exchange of Capital Stock.

(a) By virtue of the Merger and without any action on the part of Parent, Company, Merger Sub or the holders of any of Company’s securities, at the Effective Time, each and every share of capital stock of the Company issued and outstanding immediately prior to the Effective Time shall be cancelled and extinguished and automatically converted into the right to receive, at such times and upon such conditions as set forth herein, a number of shares of Parent Common Stock equal to the Common Stock Exchange Ratio (the “Merger Shares”). Certificates representing the Merger Shares shall be delivered to the holders of Company Common Stock in such amounts as are set forth opposite such holder’s name on Exhibit C hereto.

(b) In addition to the Parent Common Stock issuable upon conversion of Company Common Stock pursuant to Section 3.1(a) above, if, when and to the extent payable in accordance with the provisions of this Section 3.1(b), on the Off-Hours Payment Date and each Hospital Payment Date, as the case may be, each stockholder of the Company as of immediately prior to the Effective Time (“Company Stockholder”) shall be entitled to receive for each share of capital stock of the Company issued and outstanding immediately prior to the Effective Time held by such Company Stockholder (i) in the case of the Off-Hours Payment Date, that number of shares of Parent Common Stock equal to the Off-Hours Exchange Ratio and (ii) in the case of a Hospital Payment Date, that number of shares of Parent Common Stock that becomes distributable pursuant to Section 3.1(d) below equal to the Hospital Exchange Ratio.

(c) Subject to the provisions of ARTICLE IX, Parent shall issue, in accordance with Section 3.1(b) hereof, the Off-Hours Earnout Payment, if any, not later than the sixtieth (60^th) day following the first anniversary of the Closing Date (the “Off-Hours Payment Date”).

(d) Subject to the provisions of ARTICLE IX, Parent shall issue, in accordance with Section 3.1(b) hereof, the Hospital Earnout Payment, if any, as follows:

(i) on the date that is twenty-four (24) months after the Closing Date, one-third (1/3) of the Hospital Earnout Payment;

(ii) on the date that is thirty (30) months after the Closing Date, one third (1/3) of the Hospital Earnout Payment; and

(iii) on the date that is thirty-six (36) months after the Closing Date, one third (1/3) of the Hospital Earnout Payment.

Each of the foregoing dates on which Hospital Earnout Payment is to be issued is a “Hospital Payment Date”.

(e) Not later than fifteen (15) days prior to each of the Off-Hours Payment Date and the initial Hospital Payment Date, Parent shall deliver to the Stockholder Representative a memorandum (an “Earnout Notice”) (a) stating the Qualified Off-Hours

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Revenue and EBITDA Amount, as the case may be, together with supporting documentation, (b) stating the number of shares of Parent Common Stock to be paid as the Off-Hours Earnout Payment and the Hospital Earnout Payment, as the case may be, (c) specifying in reasonable detail the calculation of the Off-Hours Exchange Ratio and the Hospital Exchange Ratio, as applicable, and (d) if applicable, stating any proposed set off for Damages.

(f) The Stockholder Representative(s) shall have ten (10) days to make, and deliver to Parent, any objection (in writing) to any item in an Earnout Notice.

To the extent not specifically and expressly disputed in a timely manner, Parent’s calculation of the Off-Hours Earnout Payment (and Off-Hours Exchange Ratio), Hospital Earnout Payment (and Hospital Earnout Exchange Ratio) and any proposed set off for Damages shall be conclusive and binding on the Company Stockholders. If the Stockholder Representative objects in writing to any calculation of the Off-Hours Earnout Payment (or Off-Hours Exchange Ratio), Hospital Earnout Payment (or Hospital Earnout Exchange Ratio) or any proposed set off for Damages prior to the expiration of the ten (10) day period, Parent and the Stockholder Representative shall resolve such conflict in accordance with the procedures set forth in Section 10.14.

(g) No Company Stockholder may sell, exchange, transfer or otherwise dispose of his or her right to receive the Off-Hours Earnout Payment or the Hospital Earnout Payment, other than by the laws of descent and distribution or succession, and any transfer in violation of this Section 3.1(g) shall be null and void and shall not be recognized by Parent or the Company.

3.2 Stock Options/Equity Interests. Neither Parent nor any of its Affiliates will assume any outstanding options, warrants, or other rights to acquire capital stock of the Company nor will Parent or any of its Affiliates (including the Surviving Corporation) have any Liability or other obligation with respect thereto.

3.3 Cancellation of Company-Held Capital Stock. Notwithstanding Section 3.1(a), at the Effective Time, any shares of Company’s capital stock that are owned by Company as treasury stock immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof.

3.4 Merger Sub. At the Effective Time, by virtue of the Merger and without any action on the part of Parent as the holder thereof, each share of the common stock, $0.001 par value per share, of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of the common stock of the Surviving Corporation. This common stock shall be the only outstanding capital stock of the Surviving Corporation immediately following the Effective Time.

3.5 Dissenters’ Rights. Any Dissenting Shares shall not be converted into the right to receive Merger Consideration, if any, as set forth in Section 3.1 but shall instead be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to Delaware Corporate Law. The Company shall give Parent (a) prompt notice of any written demand for appraisal received by the Company pursuant to

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Delaware Corporate Law, (b) the opportunity to control all negotiations and proceedings with respect to such demands and (c) the opportunity to review and comment on all dissenters’ rights notices and other communications to the stockholders of the Company with respect to dissenters’ rights. Company agrees that, except with the prior written consent of Parent, or as required under Delaware Corporate Law, it will not voluntarily make any payment with respect to, or settle or offer to settle, any such demand. Each holder of Dissenting Shares (each a “Dissenting Shareholder”) who, pursuant to the provisions of Delaware Corporate Law, becomes entitled to payment of the fair value of such shares of Company’s capital stock shall receive payment therefor (but only after the value thereof shall have been agreed upon or finally determined pursuant to the provisions of Delaware Corporate Law), with interest paid thereon only to the extent required by Delaware Corporate Law. If, after the Effective Time, any Dissenting Shares shall lose their status as Dissenting Shares, Parent shall issue and deliver on such conditions and at such times as shall be required herein, upon surrender by such shareholder of the certificate or certificates representing such shares of Company capital stock as set forth in Section 3.7, the consideration, if any, to which such shareholder would otherwise be entitled pursuant to Section 3.1 with respect to such shares.

3.6 Mechanics of Exchange.

(a) Following the Effective Time, each holder of Company capital stock shall be entitled to surrender certificates formerly representing shares of Company capital stock (the “Company Stock Certificates”) to Parent for cancellation in exchange for such holder’s right to receive, subject to the terms and conditions hereof, the Merger Consideration and the Earnout Consideration, if any, pursuant to Section 3.1. It shall be a condition of any holder’s receipt of its portion of the Merger Consideration and the Earnout Consideration, if any, that the Company Stock Certificates representing such holder’s capital stock be surrendered to Parent, properly endorsed or otherwise in proper form for transfer, or that such holder comply with Section 3.6(d).

(b) At the Effective Time, Company shall deliver a certified copy of a list of its stockholders to Parent (the “Certified Stockholder List”). After the Effective Time, there shall be no further transfer of Company Stock Certificates on the records of the Company and, if such Company Stock Certificates are presented to Company for transfer, they shall be cancelled at the time of such presentation. Parent shall be entitled to rely upon the Certified Stockholder List to establish the identity of those persons entitled to receive the Merger Consideration and the Earnout Consideration, if any, specified in this Agreement, which Certified Stockholder List shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Company Stock Certificates, Parent shall be entitled to deposit the Merger Consideration and the Earnout Consideration, if any, in respect thereof in escrow with an independent third party and thereafter be relieved with respect to any claims thereto.

(c) Following the Effective Time and upon receipt of any Company Stock Certificate(s) pursuant to this ARTICLE III, Parent shall deliver or cause to be delivered to such holder presenting such Company Stock Certificate(s) its portion of the Merger Consideration and the Earnout Consideration, if any, at such times and as calculated pursuant to Section 3.1.

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(d) In the event that any Company Stock Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the holder claiming such Company Stock Certificate to be lost, stolen or destroyed, Parent will deliver or cause to be delivered, in accordance with and subject to this Section 3.6 and the other terms and conditions hereof, in exchange for such lost, stolen or destroyed Company Stock Certificate, the applicable portion of such holder’s Merger Consideration and the Earnout Consideration, if any, for which the capital stock represented by such certificate has been cancelled and exchanged pursuant to Section 3.1. When authorizing such payment in exchange therefor, Parent may in its discretion require the owner of such lost, stolen or destroyed Company Stock Certificate to give Parent a bond in such sum as it may reasonably direct as indemnity, or such other form of indemnity, as Parent shall reasonably direct, against any claim that may be made against Parent with respect to the Company Stock Certificate alleged to have been lost, stolen or destroyed.

(e) Parent may, at its option, meet its obligations under this Section 3.6 through a bank, trust company or other third party reasonably selected by Parent to act as exchange agent in connection with the Merger.

(f) Notwithstanding anything in this Agreement to the contrary, neither Parent nor any other party hereto shall be liable to a holder of Company capital stock for any portion of the Merger Consideration or the Earnout Consideration, if any, delivered to a public official pursuant to applicable escheat laws following the passage of time specified therein.

3.7 No Further Rights in Shares. After the Effective Time, holders of Company Stock Certificates shall cease to have rights with respect to the Company capital stock previously represented by such certificates, and their sole rights (other than such rights as they may have as Dissenting Stockholders under the applicable provisions of Delaware Corporate Law) shall be to exchange such certificates for the Merger Consideration and the Earnout Consideration, if any, as set forth in Section 3.1.

3.8 No Fractional Shares. Notwithstanding any other provision of this Agreement, neither certificates nor scrip for fractional shares of Parent Common Stock shall be issued in the Merger. Each holder who otherwise would have been entitled to a fraction of a share of Parent Common Stock (after taking into account all certificates of such holder) shall receive in lieu thereof (a) one full share of Parent Common Stock if such fraction of a share is equal to or greater than one half (1/2) and (b) zero (0) shares of Parent Common Stock in lieu of such fraction of a share if such fraction of a share is less than one half (1/2).

3.9 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any further action is necessary or reasonably desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right to, title to and possession of all assets, property, rights, privileges, powers and franchises of Company, the officers and directors of the Surviving Corporation are fully authorized in the name and on the behalf of Company or the Surviving Corporation or otherwise to take, and shall take, all such lawful and necessary action, so long as such action is not inconsistent with this Agreement.

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3.10 Distributions. Dividends or other distributions declared or made after the date of this Agreement with respect to Parent Common Stock with a record date after the Effective Time will only be paid to the Company Stockholders as follows:

(a) with respect to Parent Common Stock representing the Off-Hours Earnout Payment no dividends or other distributions (other than dividends or other distributions payable, in whole or in part, in additional shares of Parent Common Stock) will be paid to Company Stockholders until shares representing the Off-Hours Earnout Payment shall have been issued and delivered to Company Stockholders pursuant to Section 3.1 hereof,

(b) with respect to Parent Common Stock representing the Hospital Earnout Payment, no dividends or other distributions (other than dividends or other distributions payable, in whole or in part, in additional shares of Parent Common Stock) will be paid to Company Stockholders until the first Hospital Payment Date, it being agreed and understood that from and after the first Hospital Payment Date, all dividends and other distributions declared or made after such first Hospital Payment Date will be paid to the Company Stockholders entitled to receive the Hospital Earnout Payment, if any, as provided in Section 3.1 hereof, and

(c) in the event the Parent declares a dividend or other distribution payable, in whole or in part, in additional shares of Parent Common Stock with a record date after the Effective Date, then, Parent shall issue, upon of the issuance to the Company Stockholders of the shares of Parent Common Stock representing Earnout Consideration, such number of additional shares of Parent Common Stock as the Company Stockholders would have received if such shares of Parent Common Stock representing Earnout Consideration had been issued and outstanding as of the record date for such dividend or distribution.

3.11 Reorganization, Reclassification, Merger, Consolidation, Etc. of Parent. If any capital reorganization or reclassification of the capital stock of Parent, or a merger or consolidation of Parent with or into another company or the sale of all or substantially all of Parent’s properties and assets to any other Person, shall be effected at any time after the Effective Date in such a way that holders of Parent Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Parent Common Stock, then lawful and adequate provisions shall be made so that on the Off- Hours Payment Date or the relevant Hospital Payment Date, as the case may be, instead of, or in addition to, the shares of Parent Common Stock that a Company Stockholder would have received had such reorganization, reclassification, merger, consolidation or sale not taken place, such Company Stockholder shall receive such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Parent Common Stock equal to the number of shares of such Parent Common Stock that such Company Stockholder would have held if the Off-Hours Payment Date or the relevant Hospital Payment Date, as the case may be, had occurred immediately prior to the effective date of such reorganization, reclassification, merger, consolidation or sale, and in any such case appropriate provisions shall be made with respect to the rights and interests of such Company Stockholder to the end that the provisions this Section 3.11 shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the payment of such Off Hours Earnout Consideration or Hospital Earnout Consideration.

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3.12 Withholding Taxes. To the extent required by applicable law, Parent shall have the right to deduct and withhold Taxes from any payments to be made hereunder, and to request any necessary Tax forms, including Form W-9 or the appropriate series of Form W-8, as applicable, or any similar information, from the recipients of payments hereunder. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to the recipient of the payment in respect of which such deduction and withholding was made.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF COMPANY

Company represents and warrants, as of the date hereof and the Closing, to and for the benefit of Parent (except, with respect to any particular section or subsection of this ARTICLE IV, to the extent specifically described in the corresponding section or subsection of the Company disclosure schedule attached hereto as Schedule 4, (the “Company Disclosure Schedule”)):

4.1 Organization, Good Standing, Qualification.

(a) The Company is a corporation duly organized and validly existing, and is in good standing, under the laws of the State of Delaware, and is duly qualified to conduct business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would or could reasonably be expected to have a Material Adverse Effect. Section 4.1(a) of the Company Disclosure Schedule identifies all jurisdictions in which the Company owns real property, conducts business or is qualified as a foreign entity to conduct business. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement and the other Transaction Agreements contemplated to be executed and delivered by it, to carry out the provisions hereof and thereof, and to carry on its business as currently conducted and as presently proposed to be conducted.

(b) Section 4.1(b) of the Company Disclosure Schedule accurately sets forth (i) the names of the members of the Company’s board of directors, (ii) the names of the members of each committee of the Company’s board of directors and (iii) the names and titles of the Company’s officers.

(c) Neither the Company nor the stockholders of the Company have ever approved, or commenced any proceeding, or made any election contemplating, the dissolution or liquidation of the Company or the winding up or cessation of the Company’s business or affairs.

(d) The Company has no Subsidiaries and has never owned, beneficially or otherwise, any shares or other securities of, or any other direct or any other indirect interest of any nature in, any Entity (other than de minimis holdings in publicly traded companies in connection with investment accounts, if any).

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4.2 Certificate of Incorporation and Bylaws; Records.

(a) The Company has delivered or otherwise made available to Parent accurate and complete copies of:

(i) the Company’s Certificate of Incorporation and bylaws, including all amendments thereto, as presently in effect;

(ii) the stock records of the Company; and

(iii) the minutes and other records of the meetings and other actions (including any actions taken by written consent or otherwise without a meeting) of the stockholders of the Company, the Company’s board of directors and all committees of the Company’s board of directors.

(b) The Company has never conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than its corporate name “American Teleradiology Nighthawks, Inc.”

(c) There has not been any uncured violation of (i) any of the provisions of the Company’s Certificate of Incorporation or bylaws or (ii) any resolutions adopted by the Company’s stockholders, the Company’s board of directors, or any committee of the board of directors within the last five (5) years, and no event has occurred, and no condition or circumstance exists, that (with or without notice or lapse of time) constitutes or is reasonably likely to result directly or indirectly in such a violation.

(d) The books of account, stock records, minute books and other records of the Company are accurate, up to date and complete in all material respects. All of the records of the Company are in the actual possession or control of the Company. The Company has been administered and the Company’s corporate records maintained as required by Legal Requirements to maintain the separate corporate existence of the Company.

4.3 Capitalization.

(a) As of the date of the Agreement, the authorized capital stock of the Company consists of 1,000,000 shares of capital stock, comprising zero shares of Preferred Stock, and 1,000,000 shares of Common Stock, $0.01 par value (“Company Common Stock”). 55,420 shares of Company Common Stock are issued and outstanding. No other shares of capital stock are authorized or issued and outstanding. Section 4.3(a) of the Company Disclosure Schedule sets forth a true and complete list of the capital stockholders of the Company listing the type and amount of Company capital stock held by each holder of such capital stock. All issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued, are fully paid and nonassessable, and have been issued in compliance with all applicable securities laws and other applicable Legal Requirements.

(b) The Company has not granted any purchaser or other recipient of its securities the right to require the Company to register any securities under the Securities Act or to qualify for any exemption thereunder.

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(c) Section 4.3(c) of the Company Disclosure Schedule sets forth a true and complete list of all other equity interests in or related to Company describing in reasonable detail such other equity interests.

(d) Except as set forth on Section 4.3(d) of the Company Disclosure Schedule, there is no:

(i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of capital stock or other securities of the Company;

(ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of capital stock or other securities of the Company;

(iii) Contract under which the Company is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities;

(iv) condition or circumstance that will directly or indirectly give rise to or provide a reasonable basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive from the Company any shares of capital stock or other securities of the Company; or

(v) other Equity Interest existing with respect to the Company.

(e) The Company has never repurchased, redeemed or otherwise reacquired (or agreed, committed or offered (in writing or otherwise) to repurchase, redeem or otherwise reacquire) any shares of capital stock or other securities.

4.4 Authority; Binding Nature of Agreements. The execution, delivery and performance by the Company of this Agreement and such Transaction Agreements to which it is contemplated to be a party have been duly authorized by all necessary corporate action on the part of the Company, its board of directors and stockholders. This Agreement and the other Transaction Agreements constitute (assuming such agreements constitute legal, valid and binding obligations of Parent and Merger Sub to the extent they are executing such agreements), or upon execution and delivery will constitute (assuming such agreements constitute legal, valid and binding obligations of Parent and Merger Sub to the extent they are executing such agreements and to the extent such execution affects the relevant obligations), the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization and similar Legal Requirements.

4.5 Non-Contravention; Consents.

(a) The execution, delivery and performance of this Agreement and the other Transaction Agreements and the consummation of the Merger by the Company will not, directly or indirectly (with or without notice or lapse of time):

(i) contravene or result in a violation of (A) any provisions of the Company’s Certificate of Incorporation or bylaws, or (B) any resolution adopted by the Company’s board of directors or any committee thereof or by the stockholders of the Company;

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(ii) contravene, conflict with or result in a violation of, or give any Governmental Authority or other Person the right to challenge the Merger or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company or any assets owned by the Company are subject;

(iii) cause the Company to become subject to, or to become liable for the payment of, any Tax (except pursuant to any election by Parent under Section 338 of the Code);

(iv) cause any assets owned or used by the Company to be reassessed or revalued by any taxing authority or other Governmental Authority (except pursuant to any election by Parent under Section 338 of the Code);

(v) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate, modify or charge any material fee with respect to, any Governmental Approval that is held by the Company or that otherwise relates to the Company’s business or to any of the assets owned or used by the Company;

(vi) contravene, conflict with or result in a violation or breach of, or default under, any provision of any Material Contract;

(vii) give any Person the right to (A) declare a default or exercise any remedy under any Material Contract, (B) accelerate the maturity or performance of any Material Contract in any material respect, or (C) cancel, terminate or modify any Material Contract;

(viii) give any Person the right to any payment by the Company or give rise to any acceleration or change in the award, grant, vesting or determination of options, warrants, rights, severance payments or other contingent obligations of any nature whatsoever of the Company in favor of any Person, in any such case as a result of the change in control of the Company or otherwise resulting from the Merger; or

(ix) result in the imposition or creation of any Encumbrance upon or with respect to any material asset owned or used by the Company.

(b) Except as set forth in Section 4.5(b) of the Company Disclosure Schedule and for the filing of the Certificate of Merger pursuant to Section 1.2, the Company is not required to make any filing with or give any notice to, or obtain any Consent from, any Governmental Authority, party to a Material Contract or any other Person in connection with the execution and delivery of this Agreement and the other Transaction Agreements or the consummation or performance of the Merger. As of the Closing Date, all filings, notices and Consents to, with or with respect to Governmental Authorities set forth on such schedule have been duly made, given or obtained and are in full force and effect.

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4.6 Proceedings; Orders.

(a) There is no pending Proceeding, and, to the Company’s Knowledge, no Person has threatened to commence any Proceeding:

(i) to which Company is a party or, to Company’s Knowledge, that otherwise directly relates to or might directly affect the Company’s business or any of the assets owned or used by the Company (whether or not the Company is named as a party thereto); or

(ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or the Company’s ability to comply with or perform its obligations and covenants under this Agreement or any of the other Transaction Agreements; and to the Company’s Knowledge, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would be reasonably expected to give rise to, or serve as a reasonable basis for, the commencement of any such Proceeding.

(b) Within the last five years, no material Proceeding has ever been commenced by or against the Company, and to the Company’s Knowledge, no such Proceeding has been threatened.

(c) There is no Order to which the Company, or any of the assets owned by the Company, is subject.

(d) To the Company’s Knowledge, no officer, employee, or contractor of the Company, is subject to any Order that prohibits such officer, employee or contractor from engaging in or continuing any conduct, activity or practice relating to the Company’s business.

(e) To the Company’s Knowledge, there is no proposed Order that, if issued or otherwise put into effect, (i) would or could reasonably be expected to have a Material Adverse Effect or (ii) would otherwise have the effect of preventing, delaying, making illegal or otherwise interfering with the Merger.

4.7 Disputes Among Stockholders. There is no actual, or to the Company’s Knowledge, threatened Proceeding by a holder of Company capital stock against another holder of Company capital stock in respect of the Company or such holder’s capital stock interests in the Company (a “Stockholder Proceeding”) and, to Company’s Knowledge, no event has occurred and no condition or circumstance exists that is reasonably likely to result in a Stockholder Proceeding.

4.8 Compliance with Legal Requirements.

(a) To the Company’s Knowledge, the Company and ATNPC are each in full compliance with all Legal Requirements that are respectively applicable to it or to the conduct of their respective businesses or the ownership or use of any of their respective assets.

(b) To the Knowledge of the Company, no event has occurred, and no condition or circumstance exists, that (with or without notice or lapse of time) constitutes or is reasonably likely to result directly or indirectly in a material violation by the Company or ATNPC of, or a failure on the part of the Company to materially comply with, any Legal Requirement.

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(c) The Company has not received, at any time, any written notice from any Governmental Authority or any other Person, and has no Knowledge, regarding (i) any actual or alleged violation of, or failure to comply with, any Legal Requirement by the Company or ATNPC or (ii) any actual or alleged obligation on the part of the Company or ATNPC to undertake, or to bear all or any portion of the cost of, any cleanup or any remedial, corrective or responsive action of any nature.

(d) To the Knowledge of the Company, no Governmental Authority is considering any Legal Requirement that, if adopted or otherwise put into effect, would prevent, delay, make illegal or otherwise interfere with the Merger.

(e) Neither the Company nor ATNPC is a “covered entity” as that term is defined by 45 C.F.R. § 160.103 nor are either the Company or ATNPC subject as a “covered entity” to the Standards for Privacy of Individually Identifiable Health Information promulgated by the U.S. Department of Health and Human Services in accordance with the Administration Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). Each of the Company and ATNPC is either not subject to or is in compliance in all respects with any similar privacy laws in existence in any state or foreign jurisdiction.

(f) The Company (and each of the physicians that provides teleradiology or other services on behalf of the Company or ATNPC) holds all permits, licenses, certificates, accreditations (including, without limitation, accreditation by the Joint Commission on Accreditation of Health Organizations (“JCAHO”) as an ambulatory care organization) and other authorizations of foreign, federal, state and local governmental agencies required for the conduct of the business of the Company or ATNPC, as the case may be, and the attached Compliance Schedule sets forth a list of all such permits, licenses, certificates, accreditations, and other authorizations, and the Company (and each of the physicians that provides teleradiology or other services on behalf of the Company or ATNPC) are in compliance with all terms and conditions of any such required permits, licenses, certificates, accreditations and authorizations.

(g) Each of the Company’s and ATNPC’s services meet or exceed the standards for radiology established by the American College of Radiology, including but not limited to the Technical Standard for Teleradiology, the Technical Standard for Digital Image Data Management and the Practice Guideline for Communication: Diagnostic Radiology.

(h) Each of the physicians who provide reading services on behalf of the Company or ATNPC (a) meets all qualifications for readers under any agreement for services pursuant to which such physician provides services on behalf of the Company, (b) is licensed to practice medicine in each of the states in which the patients are located for which such physician provides teleradiology interpretations, (c) has obtained medical staff privileges at the hospitals for which such physician provides teleradiology interpretations, (d) provides only “preliminary” readings for the Company’s customers and does not provide “final” reads for these customers, (e) is an independent contractor or an independent licensed practitioner for all purposes including, without limitation, all Tax purposes and for the JCAHO standards set forth in the 2004 JCAHO Comprehensive Accreditation Manual for Hospitals and (f) does not review mammograms or participate in interventional radiology.

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(i) Neither the Company nor any physician who provides readings on behalf of the Company or ATNPC submits any claims for reimbursement for such readings to any third-party payor, including, without limitation, Medicare, Medicaid or any private insurance plan.

4.9 Governmental Approvals.

(a) Section 4.9(a) of the Company Disclosure Schedule identifies each Governmental Approval held by the Company the failure of which to hold would or could reasonably be expected to have a Material Adverse Effect.

(b) The Company has delivered or made available to Parent accurate and complete copies of all such Governmental Approvals, including all renewals thereof and all amendments thereto. Each Governmental Approval identified or required to be identified in Section 4.9(a) of the Company Disclosure Schedule is valid and in full force and effect, Company is in material compliance with such Governmental Approvals, and no fines or penalties are owed by Company in respect of such Governmental Approvals or the failure to obtain or maintain any such Governmental Approvals. Company has received no written notice of any, and there is no pending, or to Company’s Knowledge threatened, Proceeding which could result in the suspension, termination, revocation, cancellation, limitation or impairment of any such Governmental Approval. To the Knowledge of Company, (i) no event or circumstance exists that would cause Company to be deemed to be out of compliance with, or would cause the suspension, termination, revocation, cancellation, limitation or impairment of, any such Governmental Approval and (ii) Company has not received any notice of any of the foregoing.

(c) The Governmental Approvals identified in Section 4.9(a) of the Company Disclosure Schedule constitute all the Governmental Approvals necessary (i) to enable the Company to conduct its business in the manner in which its business is currently being conducted and as has been conducted in the past year, and (ii) to permit the Company to own and use its assets in the manner in which they are currently owned and used.

4.10 Financial Statements.

(a) The Company has delivered to Parent the following financial statements (collectively, the “Financial Statements”) which are attached hereto as Section 4.10(a) of the Company Disclosure Schedule:

(i) the audited balance sheets of the Company as of December 31, 2003 and 2004 and the audited related statements of operations, cash flows and changes in stockholders equity as of December 31, 2003 and 2004, in each case together with the notes thereto and the report and certification of the auditor thereto and prepared in accordance with GAAP on a basis consistent with past practice

(ii) the unaudited balance sheets of the Company as of (i) June 30, 2004 and 2005 and the unaudited related statements of operations, cash flows and changes in stockholders equity as of June 30, 2004 and 2005, prepared in accordance with GAAP on a basis consistent with past practice (the “Interim Financial Statements”);

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(b) All the Financial Statements, (including the Interim Financial Statements) are accurate and complete in all material respects, in accordance with the books and records of the Company and present fairly the financial position of the Company as of the respective dates thereof and the results of operations of the Company, changes in stockholder’s equity, cash flows and income for the periods covered thereby. The Financial Statements and the Interim Financial Statements have been prepared in accordance with GAAP, applied on a consistent basis with past periods and practice (except that the Interim Financial Statements will not have notes thereto and will be subject to normal year-end adjustments in accordance with GAAP and past practice). All reserves set forth or reflected in the Interim Balance Sheet were established in accordance with GAAP.

4.11 Absence of Undisclosed Liabilities. The Company has no Liabilities except (i) as set forth on the Interim Balance Sheet in accordance with GAAP and (ii) Liabilities (matured or unmatured, fixed or contingent) arising after the date of such balance sheet in the Ordinary Course of Business.

4.12 Accounts Receivable.

(a) Section 4.12(a) of the Company Disclosure Schedule sets forth an accurate and complete breakdown and aging of all accounts receivable, notes receivable and other receivables of the Company (collectively, “Accounts Receivable”) as of the date of the Interim Balance Sheet.

(b) All Accounts Receivable of the Company (including those Accounts Receivable reflected on the Interim Balance Sheet that have not yet been collected and those Accounts Receivable that have arisen since the date of the Interim Balance Sheet and have not yet been collected):

(i) represent valid and enforceable obligations of customers of the Company arising from bona fide transactions entered into in the Ordinary Course of Business; and

(ii) are free and clear of all Encumbrances.

4.13 Cash Equivalents/Bank Accounts.

(a) Section 4.13 of the Company Disclosure Schedule accurately sets forth, with respect to each account maintained by or for the benefit of the Company at any bank or other financial institution:

(i) the name and location of the institution at which such account is maintained;

(ii) the name in which such account is maintained and the account number of such account; and

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(iii) the names of all individuals authorized to draw on or make withdrawals from such account.

The Company has full legal and beneficial interest in all cash, cash equivalents and other financial assets deposited in such accounts, free and clear of any Encumbrances, other than Permitted Encumbrances.

(b) The bank accounts listed on Section 4.13 of the Company Disclosure Schedule have been reconciled as of August 31, 2005.

4.14 Title to, Condition of and Sufficiency of Assets; Tangible Assets.

(a) Except for leased property set forth on Section 4.14(e) of the Company Disclosure Schedule, the leases for the Leased Premises set forth on Section 4.16 of the Company Disclosure Schedule and any Intellectual Property Rights licensed to the Company pursuant to the licenses set forth on Section 4.15(e) of the Company Disclosure Schedule, the Company owns, and has good, valid and marketable title to, all assets purported to be owned by it or used in its business, free and clear of any Encumbrances, except for Permitted Encumbrances, including:

(i) all assets reflected on the Interim Balance Sheet (except for Accounts Receivable collected in the Ordinary Course of Business);

(ii) all assets acquired by the Company since the date of the Interim Balance Sheet;

(iii) all other assets reflected in the Company’s books and records as being owned by the Company; and

(iv) all supplies used in the Ordinary Course of Business (“Supplies”).

(b) Section 4.14(b) of the Company Disclosure Schedule identifies all equipment, furniture, fixtures, improvements and other tangible assets owned or leased (indicating those items which are leased) by the Company, in each case having a value in excess of $5,000.

(c) Except as otherwise indicated, each asset identified in Section 4.14(b) of the Company Disclosure Schedule:

(i) is in good condition and repair, consistent with its intended use (ordinary wear and tear excepted); and

(ii) is adequate for the uses to which it is being put.

(d) The assets identified in Section 4.14(b) of the Company Disclosure Schedule and the Supplies constitute all of the material tangible assets the Company used for the conduct of its business.

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(e) Section 4.14(e) of the Company Disclosure Schedule identifies all equipment and other material tangible or other personal property that is being leased or licensed to the Company. Except as otherwise indicated, all leases pursuant to which the Company leases such property are in good standing and are valid and effective in accordance with their respective terms, and there exists no material default thereunder or occurrence or condition that is reasonably likely to result in a material default thereunder or termination thereof. There are no Encumbrances, other than Permitted Encumbrances, on such property other than as set forth in the respective leases for such property.

(f) Section 4.14(f) of the Company Disclosure Schedule sets forth a list of all premises currently leased by the Company (“Current Leased Premises”) and all premises for which the Company terminated its lease during the past two (2) years (“Prior Leased Premises”). The Current Leased Premises are in good operating condition, ordinary wear and tear excepted, and are useable in the Ordinary Course of Business. The Company has no liability to the lessor of the Prior Leased Premises for damages to such Prior Leased Premises or as a result of any obligation of the Company arising on its vacation of the Prior Leased Premises, in each case in excess of any deposit or other reserve specifically established with respect to such liability reflected on the Interim Balance Sheet. The Company has not caused any damage to the Current Leased Premises and would have no liability to the lessor thereof on its vacation of such Current Leased Premises, in each case in excess of any deposit or other reserve specifically established with respect to such liability and reflected on the Interim Balance Sheet.

(g) The Company owns, or has valid leasehold interests in, all material (individually or in the aggregate) assets necessary for the conduct of its business as currently conducted.

(h) Notwithstanding anything to the contrary herein, the representations and warranties of the Company set forth in this Section 4.14 do not extend to Intellectual Property Rights owned or used by Company, or any Encumbrances arising out of or relating to any such Intellectual Property Rights, which Intellectual Property Rights and related Encumbrances shall instead be governed by the representations and warranties of Company set forth in Section 4.15 below.

4.15 Intellectual Property.

(a) Section 4.15(a) of the Company Disclosure Schedule lists all Company Intellectual Property, specifying in each case whether such Company Intellectual Property is owned or controlled by or for, licensed to, or otherwise held by or for the benefit of Company, including all Registered Intellectual Property Rights owned by, filed in the name of or applied for by Company and used in its business (the “Company Registered Intellectual Property Rights”).

(b) Each item of Company Intellectual Property owned by the Company (i) is valid, subsisting and in full force and effect, (ii) has not been abandoned or passed into the public domain and (iii) is free and clear of any Encumbrances.

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(c) The Company Intellectual Property constitutes all the Intellectual Property Rights used in and/or necessary to the conduct of its business as it is currently conducted, and as it is currently planned to be conducted by Company prior to the Closing.

(d) Each item of Company Intellectual Property either (i) is exclusively owned by Company and was written and created solely by employees of Company acting within the scope of their employment or by third parties, all of which employees and third parties have validly and irrevocably assigned all of their rights, including Intellectual Property Rights therein, to Company, and no third party owns or has any rights to any such Company Intellectual Property, or (ii) is duly and validly licensed to Company for use in the manner currently used by Company in the conduct of its business and as it is currently planned to be conducted by Company prior to the Closing.

(e) Except as set forth in Section 4.15(e) of the Company Disclosure Schedule, in each case in which Company has acquired ownership to any Intellectual Property Rights from any Person, to the Company’s knowledge the Company has obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such Intellectual Property Rights (including the right to seek past and future damages with respect thereto) to Company. No Person who has licensed Intellectual Property Rights to Company has ownership rights or license rights to improvements made by Company in such Intellectual Property Rights. Company has not transferred ownership of, or granted any exclusive license of or right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Intellectual Property Rights that is or was Company Intellectual Property to any Person.

(f) Company has no Knowledge of any facts, circumstances or information that (i) would render any Company Intellectual Property invalid or unenforceable, (ii) would adversely affect any pending application for any Company Registered Intellectual Property Right, or (iii) would adversely affect or impede the ability of Company to use any Company Intellectual Property in the conduct of its business as it is currently conducted or as it is currently planned to be conducted by Company prior to Closing. Company has not misrepresented, or failed to disclose, and has no Knowledge of any misrepresentation or failure to disclose, any fact or circumstances in any application for any Company Registered Intellectual Property Right that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any Company Registered Intellectual Property Right.

(g) All necessary registration, maintenance and renewal fees in connection with each item of Company Registered Intellectual Property Rights have been paid and all necessary documents and certificates in connection with such Company Registered Intellectual Property Rights have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property Rights. There are no actions that must be taken by Company within sixty (60) days following the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting, preserving or renewing any Company Registered Intellectual Property Rights. To the maximum extent provided for by, and in accordance with, applicable laws and regulations,

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Company has recorded in a timely manner each such assignment of a Registered Intellectual Property Right assigned to Company with the relevant governmental authority, including the United States Patent and Trademark Office (the “PTO”), the U.S. Copyright Office or their respective counterparts in any relevant foreign jurisdiction, as the case may be.

(h) Company has taken all necessary action to maintain and protect (i) Company’s Intellectual Property, and (ii) the secrecy, confidentiality, value and Company’s rights in the Confidential Information and Trade Secrets of Company and those provided by any Person to Company, including by having and enforcing a policy requiring all current and former employees, consultants and contractors of Company to execute appropriate confidentiality and assignment agreements. All copies thereof shall be delivered to Parent at or prior to Closing. Company has no Knowledge of any violation or unauthorized disclosure of any Trade Secret or Confidential Information related to its business or obligations of confidentiality with respect to its business.

(i) To the Knowledge of the Company, the operation of the Company’s business as it is currently conducted, or as it is currently planned to be conducted by Company prior to Closing, does not and will not, and will not when operated by Parent substantially in the same manner following the Closing, violate, infringe or misappropriate any Intellectual Property Rights of any Person.

(j) To the Knowledge of Company, no Person is violating, infringing or misappropriating any Company Intellectual Property Right.

(k) To the Knowledge of the Company, there are no Proceedings before any Governmental Authority (including before the PTO) anywhere in the world related to any of the Company Intellectual Property, including any Company Registered Intellectual Property Rights.

(l) No Company Intellectual Property is subject to any Proceeding or any outstanding decree, order, judgment, office action or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by Company or, to the Knowledge of the Company, that may affect the validity, use or enforceability of such Company Intellectual Property.

(m) Section 4.15(m) of the Company Disclosure Schedule lists all Contracts affecting any Intellectual Property Rights. Company is not in breach of, nor has Company failed to perform under, any such Contracts and, to Company’s Knowledge, no other party to any such Contracts, is in breach thereof or has failed to perform thereunder.

(n) To the extent not listed in Section 4.15(m) of the Company Disclosure Schedule, Section 4.15(n) of the Company Disclosure Schedule lists all Contracts under which Company has agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability, or provide a right of rescission, with respect to the infringement or misappropriation by Company or such other person of the Intellectual Property Rights of any Person other than Company.

(o) To the Knowledge of Company, there is no Contract affecting any Company Intellectual Property under which there is any dispute regarding the scope of such Contract, or performance under such Contract, including with respect to any payments to be made or received by Company thereunder.

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(p) All Company Intellectual Property owned by the Company will be fully transferable, alienable or licensable by Parent or Surviving Corporation without restriction (other than restrictions on sublicensing that exist as of the Closing) and without payment of any kind to any third party. The consummation of the transaction as contemplated hereby will not result in any loss of any Company Intellectual Property or the right to use any Company Intellectual Property.

(q) Neither this Agreement nor the transactions contemplated herein, including the assignment to Parent, by operation of law or otherwise, of any Contracts will result in (i) Parent granting to any third party any right to, or with respect to, any Intellectual Property Right owned by, or licensed to, Parent; (ii) Parent being bound by, or subject to, any non-compete or other restriction on the operation or scope of its businesses; or (iii) Parent being obligated to pay any royalties or other amounts to any third party.

4.16 Real Property. The Company does not own any Real Property or any interest in Real Property except for the leaseholds created under the Real Property leases identified in Section 4.16 of the Company Disclosure Schedule (the “Leased Premises”) pursuant to which the Company is the lessee. The Company enjoys peaceful and undisturbed possession of such premises. The Company has delivered or made available to Parent complete copies of all such leases. All leases pursuant to which the Company leases such property are valid and effective in accordance with their respective terms, and there exists no material default thereunder by Company, or to the Knowledge of Company, any occurrence or condition that is reasonably likely to result in a default thereunder or termination thereof. Surviving Corporation will obtain a valid leasehold interest in such leases, in each case free and clear of all Encumbrances, except Permitted Encumbrances.

4.17 Employees, Consultants and Physicians.

(a) Section 4.17(a) of the Company Disclosure Schedule contains a list of all employees of the Company (including any employee on a leave of absence or layoff status), showing for each employee, the employee’s hire date, title and current annualized compensation.

(b) Section 4.17(b) of the Company Disclosure Schedule contains a list of individuals who are currently performing services for the Company business and are classified as “consultants” or “independent contractors,” and the respective compensation, including any compensation that may become due as a result of the achievement of certain milestones reached by the Company or other event agreed to by the parties, of each such “consultant” or “independent contractor.”

(c) Section 4.17(c) of the Company Disclosure Schedule contains a list of (i) physicians who are currently providing radiological interpretations to or on behalf of the Company, (ii) annual agreed compensation paid to each such physician by ATNPC, including any compensation that may become due as a result of the achievement of certain milestones reached by the Company or ATNPC or other event agreed to by the parties, (ii) the states in which each such physician is licensed to practice medicine, by physician and (iv) the hospitals at which each such physician has staff privileges, by physician.

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(d) The Company has no collective bargaining agreements, union Contracts or similar Contracts with any of its employees. There is no labor union organizing activity pending or, to the Company’s Knowledge, threatened with respect to the Company.

(e) Except as set forth in Section 4.17(e) of the Company Disclosure Schedule, the employment of each of the Company’s employees is terminable by the Company at will; and no employee has any agreement or contract, written or verbal, regarding his or her employment other than the employment offer letter delivered by the Company to such employee, in the Company’s standard form, a copy of which form has been made available to Parent. The Company has delivered or made available to Parent accurate and complete copies of all employee manuals and handbooks, disclosure materials, policy statements, employment agreements and other materials relating to the employment of its current employees, and to the extent that the Company has outstanding payment obligations or Liabilities thereunder, relating to the employment of former employees.

(f) To the Company’s Knowledge, (i) no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company, and (ii) the continued employment by the Company of its present employees, and the performance of the Company’s Contracts with its independent contractors, will not result in any such violation. The Company has not received any written notice alleging that any such violation has occurred. No employee of the Company has been granted the right to any continued employment with Company or to any material compensation following termination of employment with the Company. To the Knowledge of the Company, no officer or key employee, or any group of employees, or any independent contractor or consultant, intends to terminate his, her or their employment with the Company. The Company does not have a present intention to terminate the employment of any officer, key employee, key contractor or group of employees or contractors.

(g) The Company is not engaged, and has never been engaged, in any unfair labor practice of any nature. There has never been any slowdown, work stoppage, labor dispute or union organizing activity, or any similar activity or dispute, materially affecting the Company or any of its employees. There is not now pending, and to the Knowledge of the Company no Person has threatened to commence, any such slowdown, work stoppage, labor dispute or union organizing activity or any similar activity or dispute, nor has any event occurred.

(h) There are no Proceedings pending with respect the employees or consultants of the Company in connection with their service with the Company, and to the Knowledge of Company, no such Proceedings are threatened.

(i) Except as set forth in Section 4.17(i) of the Company Disclosure Schedule, the Company has no obligation to pay, and has not paid or agreed to pay, any bonus or similar amount to any employee or consultant of Company in connection with the Merger or this Agreement.

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4.18 Benefit Plans; ERISA.

(a) Section 4.18 of the Company Disclosure Schedule lists (i) all Employee Benefit Plans, (ii) all employment agreements, including any individual benefit arrangement, policy or practice with respect to any current or former employee or director of the Company or ERISA Affiliate, and (iii) all other employee benefit, bonus or other incentive compensation, stock option, stock purchase, stock appreciation, severance pay, lay-off or reduction in force, change in control, sick pay, vacation pay, salary continuation, retainer, leave of absence, educational assistance, service award, employee discount, and fringe benefit plans, arrangements, policies or practices, whether legally binding or not, which the Company or any ERISA Affiliate maintains, contributes to or has any obligation to or Liability for (collectively, the “Plans”).

(b) None of the Plans is or was a Pension Plan, and neither the Company nor any ERISA Affiliate has ever sponsored, maintained or contributed to, or ever been obligated to contribute to, a Pension Plan.

(c) None of the Plans is or was a Multiemployer Plan, and neither the Company nor any ERISA Affiliate has ever contributed to, or ever been obligated to contribute to, a Multiemployer Plan.

(d) The Company does not maintain or contribute to any welfare benefit plan which provides health benefits to an employee after the employee’s termination of employment or retirement except as required under Section 4980B of the Code and Sections 601 through 608 of ERISA.

(e) Each Employee Benefit Plan materially complies by its terms and in operation with the requirements provided by any and all statutes, orders or governmental rules or regulations currently in effect and applicable to the Employee Benefit Plan, including but not limited to ERISA and the Code.

(f) All reports, forms and other documents required to be filed with any government entity or furnished to employees, former employees or beneficiaries with respect to any Employee Benefit Plan or benefit arrangement (including without limitation, summary plan descriptions, Forms 5500 and summary annual reports) have been timely filed and furnished and are accurate.

(g) Each of the Employee Benefit Plans that is intended to qualify under Section 401(a) of the Code is the subject of a favorable determination letter issued by the Internal Revenue Service after January 1, 1997 approving such Employee Benefit Plans as so amended (or (i) the Company has time remaining in which to apply for a favorable determination letter, or (ii) if reliance is permitted under IRS Announcement 2001-77, the Company relies on the favorable opinion letter or advisory letter of the master and prototype or volume submitter plan sponsor of such Employee Benefit Plan). Each trust maintained pursuant to any such Employee Benefit Plan has been determined by the Internal Revenue Service to be exempt from taxation

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under Section 501 of the Code. To the Knowledge of Company, nothing has occurred since the date of the Internal Revenue Service’s favorable determination letter that could adversely affect the qualification of the Employee Benefit Plan and its related trust. The Company and each ERISA Affiliate have timely amended and operated each of the applicable Employee Benefit Plans in material compliance with the Economic Growth and Tax Relief Reconciliation Act of 2001 and subsequent legislation enacted through the date hereof, and Section 501 of the Code.

(h) All contributions for each Employee Benefit Plan for all periods ending prior to the Closing Date (including periods from the first day of the current plan year to the Closing Date) have been made prior to the Closing Date by the Company in accordance with applicable Legal Requirements and the recommended contribution in any applicable actuarial report.

(i) All required insurance premiums have been paid, subject only to normal retrospective adjustments in the ordinary course, with regard to the Employee Benefit Plans for plan years ending on or before the Closing Date.

(j) With respect to each Employee Benefit Plan:

(i) no prohibited transactions (as defined in Section 406 or 407 of ERISA or Section 4975 of the Code) have occurred for which a statutory exemption is not available;

(ii) no actions or claims (other than routine claims for benefits made in the ordinary course of the Employee Benefit Plan administration for which Employee Benefit Plan administrative review procedures have not been exhausted) are pending, or, to the Knowledge of the Company, threatened against or with respect to the Employee Benefit Plan, any employer who is participating (or who has participated) in any Employee Benefit Plan or any fiduciary (as defined in Section 3(21) of ERISA) of the Employee Benefit Plan;

(iii) the Company has no Knowledge of any facts which could give rise to any such action or claim; and

(iv) the plan document provides that it may be amended or terminated at any time and, except for benefits protected under Section 411(d) of the Code, all benefits payable to current or terminated employees or any beneficiary may be amended or terminated by the Company at any time without Liability.

(k) Neither the Company nor any ERISA Affiliate has any Liability or is threatened with any Liability (whether joint or several) (i) for any excise tax imposed by Section 4971, 4975, 4976, 4977 or 4979 of the Code, or (ii) to a fine under Section 502 of ERISA.

(l) All of the Plans, to the extent applicable, are in material compliance with the continuation of group health coverage provisions contained in Section 4980B of the Code and Sections 601 through 608 of ERISA, the requirements of the Family Medical Leave Act of 1993, as amended, the requirements of the Health Insurance Portability and Accountability Act of 1996 (including the regulations set forth in Parts 160, 162, and 164 of Title 45 of the Code of

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Federal Regulations), the requirements of the Women’s Health and Cancer Rights Act of 1998, the requirements of the Newborns’ and Mothers’ Health Protection Act of 1996, and any amendment to each such act, or any similar state law requirements.

(m) The Company has delivered or made available to Parent true, correct and complete copies of: (i) all documents creating or evidencing any Plan; (ii) all reports, forms and other documents required to be filed with any governmental entity or furnished to employees, former employees or beneficiaries (including, without limitation, summary plan descriptions, Forms 5500 and summary annual reports for all plans subject to ERISA, but excluding individual account statements and tax forms) for the preceding plan year; (iii) all IRS determination, opinion, notification and advisory letters and rulings relating to any Employee Benefit Plan; (iv) all applications and correspondence to or from the IRS, Department of Labor or any other governmental agency with respect to any Employee Benefit Plan; and (v) all material written agreements and contracts relating to each Plan or its related trust (if any), including, but not limited to, administrative service agreements, group annuity contracts and group insurance contracts. There are no negotiations, demands, proposals, or commitments which are, to the Knowledge of the Company, pending or have been made to increase or enhance the compensation or benefits made available through the Plans except as otherwise provided in Section 4.18 of the Company Disclosure Schedule.

4.19 Tax Matters.

(a) Except as otherwise provided in Section 4.19 of the Company Disclosure Schedule, each material Tax required to have been paid by the Company (whether pursuant to any Tax Return or otherwise) has been duly paid in full on a timely basis, other than Taxes which are adequately reserved for on the Company’s Interim Balance Sheet.

(b) The Company has filed all material Tax Returns required to be filed on or before the date hereof. All Company material Tax Returns (i) have been, or will be, filed when due, and (ii) were correct and complete in all material respects. All amounts shown on the Company Tax Returns to be due on or before the Closing Date, and all material amounts otherwise required to be paid in connection with the Company Tax Returns on or before the Closing Date, have been or will be paid on or before the Closing Date. The Company has delivered to Parent accurate and complete copies of all Company Tax Returns pertaining to state and federal income taxes and payroll taxes filed for the fiscal periods ended December 31, 2004, 2003 and 2002.

(c) The Company’s Liability for unpaid Taxes for all periods ending on or before the date of the Interim Balance Sheet, including any Liability for Taxes assumed under contract, does not, in the aggregate, exceed the amount of the current Liability accruals for Taxes (excluding reserves for deferred taxes established to reflect timing differences between book and Tax treatment) reported on the Interim Balance Sheet. The Company has incurred no liability for Taxes since the date of the Interim Balance Sheet other than in the Ordinary Course of Business. The Company will establish, in the Ordinary Course of Business, reserves adequate for the payment of all Taxes for the period from the date of the Interim Balance Sheet through the Closing Date, and the Company will disclose the dollar amount of such reserves to Parent on or prior to the Closing Date.

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(d) The Company has delivered to Parent accurate and complete copies of all audit reports and similar documents relating to material Company Tax Returns. No extension or waiver of the limitation period applicable to any of the Company Tax Returns has been granted (by the Company or any other Person), and no such extension or waiver has been requested from the Company.

(e) No claim or other Proceeding is pending or, to the Company’s Knowledge, has been threatened in writing against or with respect to the Company in respect of any material Tax. There are no unsatisfied Liabilities for Taxes (including liabilities for interest, additions to tax and penalties thereon and related expenses) with respect to any notice of deficiency or similar document received by the Company. The Company has not been, and will not be, required to include any material adjustment in taxable income for any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions or events occurring, or accounting methods employed, prior to the Closing. No claim has ever been made by an authority in a jurisdiction where Company does not file Returns that it is or may be subject to taxation by that jurisdiction.

(f) The Company has never been in a “consolidated group” within the meaning of Treasury Regulations Section 1.1502-1(h), and is not liable for Taxes incurred by any individual, trust, corporation, partnership or other Entity whether as a transferee, pursuant to Treasury Regulations Section 1.1502-6, or pursuant to any other provision of federal, territorial, state, local or foreign law or regulations. The Company is not a party to any joint venture, partnership or other arrangement or contract that to the Company’s Knowledge could be treated as a partnership for United States Federal income tax purposes. The Company is not, and has never been, a party to or bound by any Tax indemnity agreement, Tax sharing agreement, Tax allocation agreement or similar Contract, and has not otherwise assumed the Tax Liability of any other Person under contract.

(g) There is no agreement, plan, arrangement or other Contract covering any employee or independent contractor or former employee or independent contractor of the Company that, individually or collectively, could give rise directly or indirectly to the payment of any amount that would not be deductible pursuant to Section 280G of the Code. The Company has withheld and paid over all material Taxes required to have been paid and/or withheld and paid over, and complied with all material information reporting and back-up withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor or third party.

(h) The Company is not a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code and has not been a United States real property holding corporation within the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

(i) The Company has not been a “distributing corporation” or a “controlled corporation” in a transaction intended to qualify under Section 355 of the Code.

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(j) The Company has disclosed on its federal income Tax Returns, in accordance with applicable disclosure procedures under Sections 6662 and 6664 of the Code, all positions taken thereon that could give rise to a substantial understatement penalty within the meaning of Section 6662 of the Code. Company has not filed, and is not required to file, a disclosure statement under Treasury Regulation Section 1.6011-4, Treasury Regulation Section 1.6011-4T, or under any similar provision of state law, with respect to participation in a reportable transaction (as defined in such regulation or similar provision of state law).

(k) There are (and immediately following the Effective Time there will be) no liens, pledges, charges, claims, restrictions on transfer, mortgages, security interests or other encumbrances of any sort (collectively, “Liens”) on the assets of the Company relating to or attributable to Taxes other than Liens for Taxes not yet due and payable. There is no basis for the assertion of any claim relating or attributable to Taxes which, if adversely determined, would result in any Lien for Taxes on the assets of the Company.

(l) The Company is not subject to Tax in any jurisdiction other than its country of incorporation or formation by virtue of having a permanent establishment or other place of business or by virtue of having a source of income in that jurisdiction.

4.20 Environmental Compliance.

(a) The Company is and has been at all times in compliance in all material respects with all Environmental Laws. The Company has now and at all times has had all the necessary permits and other Governmental Approvals required under Environmental Laws for the operation of its business, and is not and has not been in violation in any material respect of any of the terms and conditions of any of such permits or such other Governmental Approvals. The Company has not received any written notice or other written communication that alleges that the Company is not in compliance with any Environmental Law.

(b) The Company has not generated, manufactured, produced, transported, imported, used, treated, refined, processed, handled, stored, discharged, released, or disposed of any Hazardous Materials (whether lawfully or unlawfully) at any premises occupied or controlled by the Company on or at any time prior to the Closing Date. There: (i) are not and have not been any releases or threatened releases of any Hazardous Materials by Company, or in connection with the business of Company, or to Company’s Knowledge in any other respect, in any quantity at, on or from any such premises, (ii) are no circumstances that may prevent or interfere with the Company’s material compliance with any Environmental Law, and (iii) to the Knowledge of Company, is no former owner or user of any such premises who was engaged in any type of manufacturing or commercial activity which would be reasonably expected to generate, manufacture, produce, transport, import, use, treat, refine, process, handle, store, discharge, release or dispose of any Hazardous Materials (whether lawfully or unlawfully) on such premises.

4.21 Material Contracts.

(a) Section 4.21(a) of the Company Disclosure Schedule lists each material Contract to which Company is a party, to which any other Person has entered into on behalf of or

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for the benefit of Company, pursuant to which, to the Knowledge of the Company, the Company otherwise benefits, or pursuant to which Company’s assets or liabilities are otherwise bound or affected, and in each case that falls within one of the following categories (collectively, the “Material Contracts”):

(i) Shareholder agreements, voting trusts, proxies or other binding arrangements or understandings among all or any of the stockholders or other Equity Interest holders of the Company relating to the voting of their respective capital stock of the Company or other Equity Interest in the Company;

(ii) Investor rights agreements, registration rights agreements and other Contracts granting rights of any nature to any holder of Company capital stock or other securities of, or other equity interest in, the Company, or to persons having rights to acquire such capital stock, securities or equity interest;

(iii) Contracts related to the issuance or transfer of the securities of, or any other Equity Interest in, the Company, including stock purchase agreements, warrants, convertible notes, and other notes;

(iv) Personal property leases and conditional sales and title retention agreements for personal property, in each case involving payments of more than $5,000 individually or $25,000 in the aggregate for related leases;

(v) Real Property leases and subleases and any other Contracts relating to any right, title or interest in or to Real Property;

(vi) any Customer Contract;

(vii) any in-bound licenses and related Contracts, other than licenses for commercial off the shelf software licensed by the Company in the Ordinary Course of Business not required to be scheduled on Schedule 4.15(c);

(viii) any out-bound licenses and related Contracts, other than Customer Contracts entered into in the Ordinary Course of Business;

(ix) any Contract relating to any sales, agency, distribution, marketing, service/product tie-in, barter or in-kind agreement;

(x) any Contract for the manufacture, service or maintenance of any equipment or other personal property of Company involving payments of more than $5,000;

(xi) any other Contract for capital expenditures or for the purchase of goods or services in excess of $5,000 for individual items or more than $25,000 for a category or type of goods or services, other than the purchase of supplies in the Ordinary Course of Business;

(xii) any mortgage or other Contract involving financing or borrowing of money for the Company, or evidencing indebtedness or any Liability for borrowed money or any obligation for the deferred purchase price of property in each case for or of the Company (excluding normal trade payables);

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(xiii) any Contract to indemnify any Person, to share in or contribute to the Liability of any Person or to guarantee any Liability of any Person, other than Customer Contracts entered into in the Ordinary Course of Business;

(xiv) any joint venture, partnership, cooperative arrangement or similar Contract and any other Contract involving a sharing of profits;

(xv) any Contract related to the acquisition of a business or the equity of any other Person;

(xvi) any Contract for the purchase or sale of any assets or for the option or rights to purchase or sell any assets in excess of $5,000 per purchase order and in any case other than in the Ordinary Course of Business;

(xvii) any Contract with or with respect to any consultant, independent contractor or employee of the Company, including with respect to bonus, stock option or other incentive equity, termination payments or other compensation, and further including any Contract with any labor union, other than employment offer letters in the Company’s standard form;

(xviii) any Contract with any Governmental Authority;

(xix) any insurance policy or other Contract pertaining to insurance;

(xx) any Contract containing covenants not to compete applicable to the Company, with any Person in any geographical area;

(xxi) any power of attorney, proxy or similar instrument, except for the power of attorney granted to Company’s counsel or foreign patent agents or similar persons for the prosecution of matters related to the Company’s Registered Intellectual Property Rights;

(xxii) any Contract for the purchase or sale of foreign currency or otherwise involving foreign exchange transactions;

(xxiii) any Contract containing a “most-favored nation” or other provision requiring adjustment of cost, pricing, priority or other terms or conditions of the Contract, or performance obligations under such Contract;

(xxiv) any Contract requiring Company to “pass through” or otherwise provide any party to such Contract the full or partial benefit of reduced royalty rates, production or other costs;

(xxv) any Contract which by its terms requires the consent of the other party to the transfer or assignment of such Contract, including in the in the event the Company shall sell all or substantially all of its assets or business or otherwise be subject to a merger, reorganization, consolidation or change in control;

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(xxvi) any Contract between Company and an Affiliate, other than employment offer letters in the Company’s standard form;

(xxvii) any confidentiality, non-disclosure or similar Contract between Company and any third party; and

(xxviii) (1) Any other Contract which provides for payment or performance by any party thereto having an aggregate value of $5,000 or more, including future payments, performance of services or delivery of goods or materials to or by Company of an aggregate amount or value in excess of $25,000 on an annual basis, (2) any other Contract outside the Ordinary Course of Business of Company and (3) any Contract the terms of which are not arm’s-length.

(b) Section 4.21(b) of the Company Disclosure Schedule sets forth any proposed Contract under negotiation or discussion that would fall under any of the categories in subsection (a) above if it is executed or otherwise becomes legally binding at any time in the future.

(c) The Material Contracts constitute all of the material contracts used in or, to the Company’s Knowledge, necessary for the conduct of the business of the Company as currently conducted in a manner consistent with the conduct of the business in the previous year.

(d) Company has provided to Parent true, accurate and complete copies of all of the Material Contracts, and there are no oral or written amendments, modifications, side letters, supplements or other arrangements or agreements in existence with respect to the Material Contracts which have not been provided to Parent.

(e) Each Material Contract is in full force and effect and is valid and legally binding on Company and, to Company’s Knowledge, the other parties thereto, and each Material Contract is enforceable in accordance with its terms with respect to Company and, to the Knowledge of Company, with respect to each other party to such Material Contract. Company has no Knowledge of any pending or threatened bankruptcy, insolvency or similar Proceeding with respect to any party to any Material Contract.

(f) To the Knowledge of Company, no audit or similar review or investigation has been or is being conducted by any party to a Material Contract. Company has no Knowledge of, and has not received any written notice or written request with respect to, any such audit, review or investigation, and Company has no Knowledge of any facts that are reasonably likely to lead to the commencement of any such audit, review or investigation.

(g) Company is not in material violation or material breach of or material default under any Material Contract. To the Knowledge of Company, no third party to any Material Contract is in material violation or breach of or material default under any Material Contract. No action by Company has been taken, and to Company’s Knowledge, no action has been taken by another Person, which would, with or without notice or lapse of time, (i) result in a

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violation or breach of any of the provisions of any Material Contract other than immaterial violations or breaches, (ii) give any Person the right to declare a material default under or exercise any remedy under any Material Contract, (iii) give any Person the right to accelerate the maturity or performance of any Material Contract, or (iv) give any Person the right to cancel, terminate or modify any Material Contract or assert a counterclaim, defense or offsetting claim under a Material Contract. Company has no Knowledge of, and has received no written notice of, any of the foregoing, and Company has no Knowledge of facts that are reasonably likely to result in any of the foregoing.

(h) No Person (i) is renegotiating, or (ii) has requested a renegotiation of, any amount paid or payable to Company under any Material Contract or any other term or provision of any Material Contract. Company has not waived any of its material rights under any Material Contract. Performance of the Material Contracts by Company as of the Closing Date will not result in any violation of or failure to comply with any Legal Requirement. Company has not guaranteed or otherwise agreed to insure or become liable for in any way any Contract or Liability of another Person, or pledged any of Company’s assets to secure the performance or payment of any Material Contract. Neither Company nor any of its Affiliates or officers, nor, to the Knowledge of Company, any employee or agent of Company or any other Person acting on Company’s behalf, has directly or indirectly within the last five (5) years provided, or agreed to provide, any tangible or intangible benefit to any customer, supplier, Governmental Authority, employee or other Person that would result in any violation of any Legal Requirement.

4.22 Government Contracts.

(a) The Company has not been suspended or debarred from bidding on contracts or subcontracts for any Government Authority, nor, to the Company’s Knowledge, has any suspension or debarment action been commenced. There is no valid basis for the Company’s suspension or debarment from bidding on contracts or subcontracts for any Government Authority.

(b) The Company has not within the preceding three (3) years been, nor is it now being, audited or, to Company’s Knowledge, investigated by any Government Authority, including without limitation the Government Accountability Office, the Defense Contract Audit Agency, the Defense Contract Administrative Service, the Department of Labor, the Department of Health and Human Services, the Environmental Protection Agency, the General Services Administration, or the inspector general or auditor general or similar functionary of any agency or instrumentality, nor, to the best of Company’s Knowledge, is any such audit or investigation threatened.

(c) No material cost incurred by the Company pertaining to any contracts or subcontracts for any Government Authority has been questioned or challenged by representatives of a Government Authority, or is, to the Knowledge of Company, the subject of any investigation, or has been disallowed by the United States Government, and no amount of money due to the Company pertaining to any contracts or subcontracts for any Government Authority has been withheld or set off nor has any claim been made to withhold or set off money and the Company is entitled to all progress payments received with respect thereto; and all amounts previously charged or at present carried as chargeable by the Company to any contracts or subcontracts for any Government Authority have been or will be reasonable, allowable and allocable to each such contracts or subcontracts for any Government Authority.

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(d) The operation of its business by the Company, as it relates to the contracts or subcontracts for any Government Authority, has been conducted in all material respects in accordance with all applicable laws, regulations, and other requirements of all Government Authorities.

4.23 Medical Liability. Company is not subject to any Liability arising from any injury to Person or property or as a result of any claim of medical malpractice or similar circumstance. There are no pending claims, and within the last five (5) years there have not been any material claims involving any of the Company’s physician contractors or physician employees.

4.24 Customers and Contractors. The Company has not received any written notice of, and Company has no Knowledge of, facts or circumstances indicating that any current customer or contractor including in connection with the consummation of the Merger or otherwise (i) intends to cease dealing with Company, (ii) intends to otherwise materially reduce the volume of business transacted by such Person with Company, (iii) is otherwise materially dissatisfied with the services the Company provides such person or otherwise with its relationship with Company, or (iv) is threatened with bankruptcy or insolvency.

4.25 Restrictive Covenants. There is no Contract to which the Company is a party or any Order or Legal Requirement binding upon or applicable to the Company which has or would reasonably be expected to have the effect of (a) prohibiting or materially impairing any business practice material to the Company, (b) prohibiting or materially impairing any acquisition of property by the Company or (c) restricting or prohibiting, through a non-competition or similar obligation or otherwise, the Company from conducting business or competing in any line of business with any Person or in any geographic area.

4.26 Competing Business. Neither Company nor, to the Knowledge of Company, any officer, director (or any family member thereof) or controlled Affiliate of Company directly or indirectly holds any interest in (excepting not more than five-percent (5%) stockholdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, or otherwise receives remuneration from, any Person that is, or is engaged in business as, a competitor, lessor, lessee, customer or supplier of Company or is party to any Contract with the Company.

4.27 Insurance.

(a) Section 4.27 of the Company Disclosure Schedule sets forth, with respect to each insurance policy maintained by or at the expense of, or for the direct or indirect benefit of, the Company as of the Execution Date:

(i) the name of the insurance carrier that issued such policy and the policy number of such policy;

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(ii) whether such policy is a “claims made” or an “occurrences” policy;

(iii) a description of the coverage provided by such policy;

(iv) the annual premium payable with respect to such policy; and

(v) a description of any claims pending, and any claims that have been asserted in the past, with respect to such policy.

(b) The Company has delivered or made available to Parent accurate and complete copies of each of the insurance policies identified in Section 4.27 of the Company Disclosure Schedule (including all renewals thereof and endorsements thereto) and binders relating thereto indicating that such policies are in full force and effect as of the date hereof, and all of the pending applications identified in Section 4.27 of the Company Disclosure Schedule. The Company does not have any self-insurance or risk sharing arrangement affecting the Company or any of its assets.

(c) Each of the policies identified in Section 4.27 of the Company Disclosure Schedule is valid, enforceable and in full force and effect, and has been issued by an insurance carrier that, to the Knowledge of the Company, is solvent and financially sound. All of the information contained in the applications submitted in connection with said policies was (at the times said applications were submitted) accurate and complete in all material respects, and all premiums and other amounts owing with respect to said policies have been paid in full. The Company maintains policies of insurance of the type and in amounts reasonably and customarily carried by persons conducting businesses or owning assets similar in type and size and in similar industries to those of the Company, including all legally required workers’ compensation insurance and errors and omissions, casualty, fire and general liability insurance. Each of the policies identified in Section 4.27 of the Company Disclosure Schedule will continue in full force and effect following the Closing, and the Company has paid all premiums due, and has otherwise performed in all material respects all of its obligations, under each policy to which it is a party or that provides coverage to it or any of its directors, officers or contractors in connection with their performance of services to the Company.

(d) There is no pending claim under or based upon any of the policies identified in Section 4.27 of the Company Disclosure Schedule, and, to the Knowledge of the Company, no event has occurred, and to the Company’s Knowledge, no condition or circumstance exists, that would (with or without notice or lapse of time) directly or indirectly give rise to or serve as a reasonable basis for any such claim.

(e) The Company has not received:

(i) any notice regarding the actual or possible cancellation or invalidation of any of the policies identified in Section 4.27 of the Company Disclosure Schedule or regarding any actual or possible adjustment in the amount of the premiums payable with respect to any of said policies; or

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(ii) any notice regarding any actual or possible refusal of coverage under, or any actual or possible rejection of any claim under, any of the policies identified in Section 4.27 of the Company Disclosure Schedule.

4.28 Affiliate Transactions.

(a) Except as provided in Section 4.28 of the Company Disclosure Schedule, no Affiliate of the Company has, and no such Affiliate of the Company has at any time had, any direct or indirect interest of any nature in any asset used in or otherwise relating to the business of the Company.

(b) No Affiliate of the Company is indebted to the Company for an amount, individually or in the aggregate, in excess of $1,000.

(c) No Affiliate of the Company has entered into, or has had any direct or indirect financial interest in, any Contract, transaction or business dealing of any nature involving the Company other than with respect to the grant or purchase of Equity Interests in the Company or except in connection with employment with Company.

(d) To the Knowledge of Company, no Affiliate of the Company has any claim or right against the Company, except for salary, vacation pay, expense reimbursement or similar claims arising from such Affiliate’s employment with the Company.

4.29 Interim Operations. Since December 31, 2004:

(a) Company has operated in the Ordinary Course of Business, and there has not been any occurrence, event, incident, action, failure to act or transaction outside the Ordinary Course of Business;

(b) The Company has not (i) declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock, or (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities, or split, combined or reclassified any of its capital stock or issued or authorized the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or repurchased or otherwise acquired, directly or indirectly, any shares of its capital stock;

(c) The Company has not sold or otherwise issued (or granted any warrants, options or other rights to purchase) any shares of capital stock or any other Equity Interest in the Company;

(d) The Company has not amended its Certificate of Incorporation or bylaws and has not effected or been a party to any acquisition transaction, recapitalization, reorganization, reclassification of shares, stock split, reverse stock split or similar transaction (other than the acquisition transaction with Parent and Merger Sub set forth herein);

(e) There has not been any material damage, destruction or other casualty loss with respect to any of the Company’s assets;

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(f) Company has not materially violated any Legal Requirement applicable to Company;

(g) Company has not entered into any Contract (other than with Parent and its Affiliates) regarding any sale or acquisition of the Company (whether by merger, stock acquisition or otherwise) or all or a significant portion of its assets, or any license to its Intellectual Property Rights outside the Ordinary Course of Business or any exclusive license to its Intellectual Property Rights, nor has Company entered into any Contract with respect to any acquisition by Company of any Person or assets that would materially affect or relate to the Company’s business;

(h) There has not been, except as required by any change in GAAP, any material change by Company in its accounting principles, practices or methods, in its Tax practices or principles or in the practices or standards used to maintain Company’s books, accounts or business records;

(i) Company has not violated, entered into, terminated or materially modified any of its Material Contracts or Governmental Approvals, and no Governmental Authority or other Person has amended, accelerated, terminated or modified any such Material Contracts or Governmental Approvals;

(j) To Company’s Knowledge, no Proceeding has been commenced against Company, and Company has not commenced any Proceeding against any other Person other than for the routine collection of Accounts Receivable in the Ordinary Course of Business;

(k) Company has not (i) failed to maintain its assets in good repair, order and condition, reasonable wear and tear excepted, (ii) accelerated the collection of any Accounts Receivable, or (iii) made any sale of any such Accounts Receivable or any accrual of liabilities, written off any Accounts Receivable which are individually or in the aggregate material or portions thereof as uncollectible or established an extraordinary reserve with respect thereto;

(l) Company has not sold, leased, transferred or assigned any material asset, other than in the Ordinary Course of Business;

(m) Company has not assigned, nor granted any license or sublicense of any rights under or with respect to, any of its Intellectual Property Rights or granted any license with respect to any such right (other than non-exclusive licenses to customers of the Company in the Ordinary Course of Business);

(n) Company has not made any material gifts or sold, transferred or exchanged any material property on a non-arm’s length basis;

(o) Company has not mortgaged, pledged or subjected any of its assets to any Encumbrance;

(p) Company has not forgiven any material debt or otherwise released or waived any material right or claim nor discharged any material lien nor paid any obligation or Liability other than in the Ordinary Course of Business;

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(q) To the Knowledge of Company, Company has not suffered any material loss of or harm to any relationship with, any customer or other third Person material to the Company’s business;

(r) The Company has not otherwise become subject to any Liability in an individual or aggregate amount greater than $1,000 not otherwise reflected on the most recent Interim Balance Sheet;

(s) Company has not taken, or failed to take, any other action that would or could reasonably be expected to have a Material Adverse Effect; and

(t) Company has not entered into any Contract or otherwise agreed, in writing or otherwise, to take any of the actions that are described above or that would be reasonably likely to lead to the occurrence of any of the events or conditions described above.

4.30 Finders and Brokers; Fees. Except as set forth on Section 4.30 of the Company Disclosure Schedule, neither the Company nor any person acting on behalf of the Company has negotiated with any finder, broker or any similar person in connection with the Merger. Except as set forth on Section 4.30 of the Company Disclosure Schedule, the Company has not entered into a Contract that provides that a fee shall be paid to any Person if the Merger is consummated and has not otherwise incurred any Liability for any brokerage fees, commissions or finder’s fees with respect to this Agreement or the Merger.

4.31 Full Disclosure. Neither this Agreement (including all schedules and exhibits hereto) nor the other Transaction Agreements (including all schedules and exhibits thereto) contain any untrue statement of material fact or omits to state any fact necessary to make any of the representations, warranties or statements contained herein or therein not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub jointly and severally represent and warrant to the Company as follows, as of the date hereof and the Closing, to and for the benefit of the Company and the holders of Company capital stock entitled to receive Merger Consideration pursuant to Section 3.1:

5.1 Organization, Standing and Power. Parent and Merger Sub are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization. Each of Parent and Merger Sub has the corporate power to enter into and perform this Agreement and the other Transaction Agreements to which it is a party, and each of Parent and Merger Sub is duly qualified to do business and is in corporate and tax good standing in each jurisdiction in which the failure to be so qualified and in good standing would or could reasonably be expected to have a Material Adverse Effect on Parent’s or Merger Sub’s ability to enter into this Agreement and the other Transaction Documents and consummate the transactions contemplated hereby and thereby. Neither Parent nor Merger Sub is in violation of any of the provisions of its articles of incorporation, bylaws or equivalent organizational documents in a manner which would or could reasonably be expected to have a material adverse effect on Parent’s or Merger Sub’s ability to enter into this Agreement and the other Transaction Documents and consummate the transactions contemplated hereby and thereby.

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5.2 Certificate of Incorporation and Bylaws; Records.

(a) Parent has delivered or otherwise made available to Company accurate and complete copies of:

(i) Parent’s Certificate of Incorporation and bylaws, including all amendments thereto, as presently in effect;

(ii) the stock records of Parent; and

(iii) the minutes and other records of the meetings and other actions (including any actions taken by written consent or otherwise without a meeting) of the stockholders of Parent, Parent’s board of directors and all committees thereof;

There have been no meetings or other Proceedings of the stockholders of Parent, Parent’s board of directors or any committee of Parent’s board of directors that are not fully reflected in such minutes or other records.

(b) There has not been any uncured violation of (i) any of the provisions of Parent’s Certificate of Incorporation or bylaws or (ii) any resolutions adopted by Parent’s stockholder, Parent’s board of directors, or any committee thereof within the last one (1) year, and no event has occurred, and no condition or circumstance exists, that (with or without notice or lapse of time) constitutes or is reasonably likely to result directly or indirectly in such a violation.

(c) The books of account, stock records, minute books and other records of Parent are accurate, up to date and complete in all material respects. All of the records of Parent are in the actual possession or control of the Parent. Parent has been administered and Parent’s corporate records maintained as required by Legal Requirements to maintain the separate corporate existence of Parent.

5.3 Authority; Binding Nature of Agreements. The execution, delivery and performance by each of Parent and Merger Sub of this Agreement and such Transaction Agreements to which it is a party have been duly authorized by all necessary corporate action on the part of each of Parent and Merger Sub. This Agreement and such other Transaction Agreements constitute (assuming such agreements constitute legal, valid and binding obligations of Company), or upon execution and delivery will constitute (assuming such agreements constitute legal, valid and binding obligations of Company to the extent they are executing such agreements and to the extent such execution affects the relevant obligations), the legal, valid and binding obligations of each of Parent and Merger Sub, enforceable against Parent and Merger Sub in accordance with their respective terms, subject only to bankruptcy, insolvency, reorganization and similar Legal Requirements.

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5.4 Capitalization.

(a) Immediately prior to Closing, the authorized capital stock of Parent will consist of 48,125,000 shares of capital stock, comprised of 8,125,000 shares of Series A Preferred Stock (“Preferred Stock”) and 40,000,000 shares of Common Stock, of which 8,125,000 shares of Preferred Stock and 21,492,857 shares of Common Stock will be outstanding. In addition, as of immediately prior to Closing, an aggregate of 2,077,256 shares of Parent Common Stock are reserved for issuance under Parent’s stock option plan. All issued and outstanding shares of Parent’s capital stock have been duly authorized and validly issued, are fully paid and nonassessable, and have been issued in compliance with all applicable securities laws and other applicable Legal Requirements. The shares of Parent Common Stock representing the Merger Consideration and the Earnout Consideration, when issued in accordance with the terms of this Agreement, will be duly authorized and validly issued, fully paid and nonassessable and not subject to any preemptive or similar right.

5.5 Non-Contravention; Consents.

(a) The execution, delivery and performance of this Agreement and the other Transaction Agreements to which each of Parent and Merger Sub is a party, and the consummation of the Merger by each of Parent and Merger Sub will not, directly or indirectly (with or without notice or lapse of time):

(i) contravene, conflict with or result in a violation of (A) any provisions of its certificate of incorporation or bylaws or (B) any resolution adopted by its board of directors or any committee thereof or by its stockholders;

(ii) contravene, conflict with or result in a violation of, or give any Governmental Authority or other Person the right to challenge the Merger or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which it is subject or any of its assets owned or used by it are subject (except in each case with respect to any Legal Requirements, or Orders of or applicable to the Company);

(iii) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate, modify or charge any fee with respect to, any Governmental Approval that is held by it or any of its employees or that otherwise relates to its business or to any of the assets owned or used by it (except in each case with respect to any Governmental Approvals held by the Company); or

(iv) otherwise create a Material Adverse Effect on its ability to enter into and perform its obligations under this Agreement or the Transaction Agreements to which it is a party.

5.6 Financial Statements.

(a) Parent has delivered or otherwise made available to the Company the following financial statements and notes (collectively, the “Parent Financial Statements”):

(i) the unaudited balance sheets of the Parent as of June 30, 2005 and the unaudited related statements of operations, income, cash flows and changes in stockholders’

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equity for the period then ended, prepared in accordance with GAAP on a basis consistent with past practice (except that such financial statements will not have notes thereto and shall be subject to normal year-end adjustments in accordance with GAAP and past practice); and

(ii) the audited balance sheets of Parent as of December 31, 2004, 2003 and 2002 and the related audited statements of operations, income, cash flows and changes in stockholders’ equity for the fiscal years then ended, in each case together with the notes thereto and the report and certification of the auditor relating thereto and in each case prepared in accordance with GAAP on a basis consistent with past practice.

(b) All the Parent Financial Statements are accurate and complete, in accordance with the books and records of Parent and present fairly the financial position of Parent as of the respective dates thereof and the results of operations of Parent, changes in shareholder’s equity, cash flows and income for the periods covered thereby. The Parent Financial Statements have been prepared in accordance with GAAP, applied on a consistent basis with past periods and practice.

5.7 Absence of Undisclosed Liabilities. Other than as may be incurred under the Loan and Security Agreement, Parent has no Liabilities except (i) as set forth in the Parent Financial Statements and (ii) Liabilities (matured or unmatured, fixed or contingent) arising after June 30, 2005 in the Ordinary Course of Business.

5.8 Proceedings; Orders.

(a) There is no pending Proceeding, and, to the Parent’s Knowledge, no Person has threatened to commence any Proceeding:

(i) to which Parent is a party or, to Parent’s Knowledge, that otherwise directly relates to or might directly affect the Parent’s business or any of the assets owned or used by the Parent (whether or not the Parent is named as a party thereto); or

(ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Merger or the Parent’s ability to comply with or perform its obligations and covenants under this Agreement or any of the other Transaction Agreements; and to the Parent’s Knowledge, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would be reasonably expected to give rise to, or serve as a reasonable basis for, the commencement of any such Proceeding.

(b) Within the last five years, no material Proceeding has ever been commenced by or against the Parent, and to the Parent’s Knowledge, no such Proceeding has been threatened.

(c) There is no Order to which the Parent, or any of the assets owned by the Parent, is subject.

(d) To the Parent’s Knowledge, no officer or employee of the Parent, is subject to any Order that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the Parent’s business.

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(e) To the Parent’s Knowledge, there is no proposed Order that, if issued or otherwise put into effect, (i) would or could reasonably be expected to have a Material Adverse Effect or (ii) would otherwise have the effect of preventing, delaying, making illegal or otherwise interfering with the Merger.

5.9 Compliance with Legal Requirements.

(a) To the Parent’s Knowledge, the Parent is in full compliance with each Legal Requirement that is applicable to it or to the conduct of its business or the ownership or use of any of its assets.

(b) To the Knowledge of the Parent, no event has occurred, and no condition or circumstance exists, that (with or without notice or lapse of time) constitutes or is reasonably likely to result directly or indirectly in a material violation by the Parent of, or a failure on the part of the Parent to materially comply with, any Legal Requirement.

(c) The Parent has not received, at any time, any written notice from any Governmental Authority or any other Person, and has no Knowledge, regarding (i) any actual or alleged violation of, or failure to comply with, any Legal Requirement by the Parent or (ii) any actual or alleged obligation on the part of the Parent to undertake, or to bear all or any portion of the cost of, any cleanup or any remedial, corrective or responsive action of any nature.

(d) To the Knowledge of the Parent, no Governmental Authority is considering any Legal Requirement that, if adopted or otherwise put into effect, would prevent, delay, make illegal or otherwise interfere with the Merger.

5.10 Governmental Approvals. Parent has received no written notice of any, and there is no pending, or to Parent’s Knowledge threatened, Proceeding which could result in the suspension, termination, revocation, cancellation, limitation or impairment of any Governmental Approval which would or could reasonably be expected to have a Material Adverse Effect. To the Knowledge of Parent, (i) no event or circumstance exists that would cause Parent to be deemed to be out of compliance with, or would cause the suspension, termination, revocation, cancellation, limitation or impairment of, any such Governmental Approval and (ii) Parent has not received any notice of any of the foregoing.

5.11 Environmental Compliance.

(a) The Parent is and has been at all times in compliance in all material respects with all Environmental Laws. The Parent has now and at all times has had all the necessary permits and other Governmental Approvals required under Environmental Laws for the operation of its business, and is not and has not been in violation in any material respect of any of the terms and conditions of any of such permits or such other Governmental Approvals. The Parent has not received any written notice or other written communication that alleges that the Parent is not in compliance with any Environmental Law.

(b) The Parent has not generated, manufactured, produced, transported, imported, used, treated, refined, processed, handled, stored, discharged, released, or disposed of any Hazardous Materials (whether lawfully or unlawfully) at any premises occupied or

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controlled by the Parent on or at any time prior to the Closing Date. There: (i) are not and have not been any releases or threatened releases of any Hazardous Materials by Parent, or in connection with the business of Parent, or to Parent’s Knowledge in any other respect, in any quantity at, on or from any such premises, (ii) are no circumstances that may prevent or interfere with the Parent’s material compliance with any Environmental Law, and (iii) to the Knowledge of Parent, is no former owner or user of any such premises who was engaged in any type of manufacturing or commercial activity which would be reasonably expected to generate, manufacture, produce, transport, import, use, treat, refine, process, handle, store, discharge, release or dispose of any Hazardous Materials (whether lawfully or unlawfully) on such premises.

5.12 Medical Liability. Parent is not subject to any Proceedings arising from any injury to a Person or property or as a result of any claim of medical malpractice or similar circumstance that is not covered by its current medical liability insurance policy.

5.13 Finders and Brokers; Fees. Except for its agreement with Cascadia Capital, LLC, dated April 5, 2005, Parent has not entered into a Contract that provides that a fee shall be paid to any Person if the Merger is consummated and has not otherwise incurred any Liability for any brokerage fees, commissions or finder’s fees with respect to this Agreement or the Merger.

5.14 Operations of Merger Sub. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated hereby and has engaged in no other business activities.

ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 Company’s Conduct of the Business Prior to Closing. From the Execution Date until the earlier of the Effective Time or the termination of this Agreement pursuant to ARTICLE VIII, Company shall:

(a) Except as necessary to comply with its covenants and obligations hereunder or as the Parent shall otherwise agree in writing, conduct its business in the Ordinary Course of Business, including but not limited to maintaining all Contracts in full force and effect;

(b) Use commercially reasonable efforts to collect all of its Accounts Receivable in the Ordinary Course of Business;

(c) Maintain insurance coverage consistent with past practice;

(d) Use all commercially reasonable efforts to (i) preserve intact its assets, associated interests, and business and employees and (ii) otherwise maintain good relationships with employees, sales representatives, licensors, licensees, suppliers, contractors, distributors, customers, and others having relations with the Company, in each case substantially in the manner as it has prior to the Execution Date; and

(e) Retain and not dispose of any material asset of the Company without the prior consent of Parent.

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6.2 Interim Operations. From the Execution Date until the earlier of Effective Time or the termination of this Agreement pursuant to ARTICLE VIII, Company shall not, and shall cause its officers, directors, employees, consultants, contractors and advisors to not (in each case without the written consent of Parent), (a) take any action that would constitute a breach of its representations and warranties, (b) take any action set forth on Schedule 6.2(b), (c) take any action that would prevent it from performing or cause it not to perform its covenants or closing conditions hereunder, (d) enter into any Contract to or otherwise agree to, in writing or otherwise, take any of the actions described above or (e) enter into any transaction other than in the Ordinary Course of Business.

6.3 Confidentiality; Acquisition Proposals. The parties acknowledge that they have entered into a certain letter agreement dated June 14, 2005 (“Letter Agreement”) regarding the obligations of the Parties with respect to confidentiality and third party acquisition proposals and that such letter agreement and the obligations set forth therein remain in full force and effect.

6.4 Certain Notifications. From the Execution Date until the earlier of the Effective Time or the termination of this Agreement pursuant to ARTICLE VIII, Company shall promptly notify Parent in writing regarding any:

(a) action taken by Company with respect to its business not in the Ordinary Course of Business and any circumstance or event that could reasonably be expected to have a Material Adverse Effect;

(b) fact, circumstance or event, or action by Company (i) which, if known on the date of this Agreement, would have been required to be disclosed in or pursuant to this Agreement or (ii) the existence, occurrence, or taking of which would result in any of the representations and warranties of Company contained in this Agreement not being true and correct in all material respects when made or at Closing;

(c) material breach of any covenant or obligation of Company hereunder; or

(d) circumstance or event that results in, or could reasonably be expected to result in, the failure of Company to timely satisfy any of the closing conditions in ARTICLE VII of this Agreement, to the extent Company has Knowledge of any of the foregoing.

6.5 Access to Information. From the Execution Date until the earlier of the Effective Time and the termination of this Agreement pursuant to ARTICLE VIII, Company shall (a) provide Parent and its Representatives with prompt and reasonable access during regular business hours upon reasonable advance notice, and in a manner so as not to interfere with the normal business operations of Company, to all premises, properties, key personnel, Persons having business relationships with Company (including suppliers, licensors, licensees, customers and distributors, to the extent permitted by such third parties), books and records (including Tax records), (b) furnish Parent with any regularly prepared financial, operating and other data and information related to the Company’s business (including copies thereof), as Parent may reasonably request and (c) otherwise cooperate and assist, to the extent reasonably requested by Parent, with Parent’s investigation of the Company and its business. No information or knowledge obtained in any investigation pursuant to this Section 6.5 or otherwise shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger in ARTICLE VII.

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6.6 All Commercially Reasonable Efforts. From the Execution Date until the earlier of the Effective Time or termination of this Agreement pursuant to ARTICLE VIII, each of Company, on one hand, and Parent and Merger Sub, on the other, shall use all commercially reasonable efforts to cause to be fulfilled and satisfied all of the other party’s conditions to Closing set forth in ARTICLE VII.

6.7 Consents. From the Execution Date until the earlier of the Effective Time or the termination of this Agreement pursuant to ARTICLE VIII, Company shall use all commercially reasonable efforts to obtain all Consents necessary to consummate the Merger on the terms and conditions hereof with respect to Company and the Company’s business, and Parent shall use all commercially reasonable efforts to obtain any Consents and make and deliver all filings and notices to consummate the transaction on the terms and conditions hereof that apply to Parent (including any Consents pertaining to Contracts of the Company or Governmental Approvals held by or required to be obtained by the Company). Parent shall not be required to, as a condition to Company’s obtaining any Consent (a) agree to any material changes in, or the imposition of any material condition to the transfer in connection with the Merger of, any Contract, Governmental Approval or other asset or liability of the Company, (b) dispose of or make any changes to its business or (c) expend any funds or incur any Liability.

6.8 Further Assurances. From the Execution Date until the earlier of the Effective Time or the termination of this Agreement pursuant to ARTICLE VIII, the parties hereto shall execute such documents and other papers and take such further actions as may be reasonably requested by Company, on one hand, and Parent, on the other hand, to facilitate the Closing as set forth herein.

6.9 Confidentiality.

(a) The provisions of this Section 6.9 shall be effective from the Execution Date until the earlier of (x) the Effective Time or (y) in the event of termination of this Agreement pursuant to ARTICLE VIII, five years from the Execution Date. Without the prior written consent of Company, in the case of Parent and Merger Sub, and Parent, in the case of Company, (1) Company shall not disclose or use any Confidential Information of Parent or Merger Sub, and (2) Parent and Merger Sub shall not disclose or use the Confidential Information of Company, in each case except as reasonably required in connection with this Agreement and the Merger. Each of Company, on the one hand, and Parent, on the other, shall use no less than reasonable care in protecting any such Confidential Information received. Information shall not be deemed Confidential Information under this Section 6.9(a) if it: (i) is or becomes publicly known through no wrongful act or omission of the receiving party; (ii) was rightfully known by the recipient before receipt from the disclosing party; (iii) becomes rightfully known to the receiving party without confidential or proprietary restriction from a source other than the disclosing party that does not owe a duty of confidentiality to the disclosing party with respect to such Confidential Information; or (iv) is independently developed by the receiving party without the use of or reference to the Confidential Information of the disclosing party.

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(b) Notwithstanding subsection (a) above, in the event a party is required to disclose the Confidential Information of another party (in such event, such party is a “Nondisclosing Party,” and the party required to disclose is the “Disclosing Party”) pursuant to Legal Requirements or an Order, and otherwise would be prohibited from doing so under this Section 6.9, the Disclosing Party shall: (i) promptly notify the Nondisclosing Party of the existence, terms and circumstances surrounding such requirement; (ii) consult with the Nondisclosing Party on the advisability of taking legally available steps to resist or narrow such request; and (iii) if disclosure of such Confidential Information is required, furnish only that portion of the Confidential Information which the Disclosing Party is legally compelled to disclose and advise the Nondisclosing Party reasonably in advance of such disclosure so that the Nondisclosing Party may seek an appropriate protective order or other reliable assurance that confidential treatment will be accorded such Confidential Information, provided, however, notwithstanding the foregoing, in the event the Disclosing Party is making any such disclosure in connection with a Registration Statement filed under the Securities Act, the Disclosing Party may make such disclosures as it shall be advised by counsel are necessary to comply with the rules and regulations promulgated thereunder. The Disclosing Party shall not oppose actions by the Nondisclosing Party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded such Confidential Information.

(c) Notwithstanding anything to the contrary herein, Parent, Merger Sub and Company shall be entitled to seek equitable relief to protect their interest in any of their Confidential Information, including injunctive relief.

(d) In the event of termination of this Agreement pursuant to ARTICLE VIII, upon written request therefor by a party hereto which has provided Confidential Information to the party receiving such Confidential Information, the Nondisclosing Party shall return to the Disclosing Party within ten (10) days of such request by commercially reasonable, secure delivery means reasonably requested by the Disclosing Party all Confidential Information of the Disclosing Party, without retaining any copies thereof (except as deemed reasonably necessary by the Nondisclosing Party in connection with any dispute hereto, in which case, any such retained information shall remain subject to this Section 6.9 and shall be used or disclosed only as reasonable necessary in connection with such dispute).

6.10 Public Announcements. Parent and Company shall jointly prepare all press releases and public announcements pertaining to this Agreement or the Merger, and neither party nor their respective Affiliates, shall issue or otherwise make any public announcement or communication pertaining to this Agreement or the Merger without the prior consent of the other party Parent except as required by Legal Requirements. If prior to the Effective Time the Company determines, with the advice of counsel, that it is required by any Legal Requirement to make this Agreement, the other Transaction Agreements or any terms hereof or thereof public or otherwise issue a press release or make a similar public disclosure with respect thereto, the Company shall, at a reasonable time before making any public disclosure, consult with Parent regarding such disclosure, seek such confidential treatment for such terms or portions of this Agreement or the other Transaction Agreements as may be reasonably requested by Parent and disclose only such information as is legally compelled to be disclosed. For the avoidance of doubt, the restrictions set forth in this section shall not apply to communications by any party to customers, potential customers or other third parties of the Company’s business in connection with performance of this Agreement and the Transaction Agreements and which are not generally made to the public.

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6.11 Key Personnel. Chirinjeev Kathuria, Naiyer Imam and Douglas Karr shall each be considered a key personnel member of the Company (the “Key Personnel”) and it is a condition precedent to executing this Agreement that each of such Key Personnel enter into three-year service and non-competition agreement (the “Non-Competition Agreements”) satisfactory to Parent, pursuant to which the Key Personnel will manage the Hospital Business on the terms and subject to the conditions set forth in the Non-Competition Agreements. The Non-Competition Agreements will be signed simultaneously with this Agreement, and will become effective as of the Closing.

6.12 Additional Financial Statements. Within fifteen (15) days after the end of each month between the Execution Date and the Effective Time, Company shall provide to Parent, certified by an executive officer of Company, an unaudited balance sheet of the Company as of the end of such month, and the related unaudited statements of operations, income, cash flows and changes in stockholders’ equity of the Company for the month then ended, in each case prepared in accordance with GAAP on a basis consistent with past practice (except that such financial statements will not have notes thereto and shall be subject to normal year-end adjustments in accordance with GAAP and past practice).

6.13 Stockholder Approval

(a) Promptly after the date hereof, the Company will take all action necessary in accordance with Delaware Corporate Law and its Certificate of Incorporation and bylaws to either (A) convene a special meeting of the holders of the capital stock of the Company to be held as promptly as practicable, or (B) solicit the written consent of the holders of the capital stock of the Company, in either case for the purpose of obtaining the approval and adoption of this Agreement and the Merger. The board of directors of the Company shall recommend that the holders of capital stock of the Company approve and adopt this Agreement and approve and adopt the Merger.

(b) Company shall prior to Closing provide dissenters’ rights notices within ten (10) days of such stockholder approval of the Merger in accordance with Delaware Corporate Law, the Certificate of Incorporation and bylaws of the Company and Delaware Corporate Law with respect to dissenters’ rights. Company shall promptly inform Parent of any claims for dissenters’ rights or similar communications received by the Company prior to Closing.

6.14 Employee Plans. If requested by Parent, Company shall, immediately prior to the Closing, terminate any one or more of the Plans. In the event Parent requests that any of the Plans be terminated, Company shall adopt resolutions and shall take all other actions necessary to effect the termination of any such Plans, to be effective no later than the Closing, and shall provide to Parent executed resolutions by the board of directors of Company authorizing the termination of any such plans.

6.15 Business Plan and Budget. Promptly (but in no event later than 30 days) following the Closing Date, the Key Personnel will prepare and submit to the Board of Directors

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of Parent for review a business plan and budget for the Hospital Business for from the Closing Date to the end of fiscal year 2005, and for the 2006 fiscal year. Parent agrees to work together and cooperate with the Key Personnel in connection with the preparation of the business plan and in connection with the preparation of budgets for the Hospital Business for subsequent fiscal years.

6.16 Hospital Business Committee.

(a) Promptly following the Closing Date there shall be established a committee (the “Hospital Business Committee”) to review and coordinate the exchange of information and materials related to efforts taken and to be taken by the Key Personnel to develop the Hospital Business and in connection therewith to determine, based on the information and materials presented to the committee, whether a written agreement constitutes a Hospital Contract and whether an identified entity constitutes an Agreed Hospital, it being understood and agreed that any written agreement pursuant to which the Surviving Corporation (or such other subsidiary or division of Parent, as the case may be) provides Hospital Business services to a hospital or to any entity identified in clause (i) of the definition of Agreed Hospital shall constitute a Hospital Contract without any determination by the Hospital Business Committee. Any such determination shall take into account the scope, magnitude and duration of any such agreement and all such other information as may be relevant to any such determination.

(b) The Hospital Business Committee shall be comprised of the Stockholder Representative, the Chief Executive Officer of the Parent (“CEO”), Naiyer Imam, M.D. and the Vice President and General Counsel of the Parent (collectively, the “Members”). With the consent of the Members, the CEO and the Stockholder Representative may invite others to attend Hospital Business Committee meetings as non-voting observers.

(c) Decisions of the Hospital Business Committee shall require three of the four Members to be in agreement (a “Majority Decision”). In the event that a Majority Decision cannot be reached, the Members shall submit the matter for resolution in good faith through mediation, with the mediator being selected from the American Arbitration Association’s (“AAA”) Roster of Mediators. The mediation shall be governed by the AAA’s Commercial Mediation Procedures and held in Couer d’Alene, Idaho, with all Members present either in person or telephonically.

(d) The Hospital Business Committee shall meet in person, or as otherwise agreed, at least once each calendar quarter through the 18^th month anniversary of the Closing Date or such other number of times as may be agreed by Majority Decision of the Members. The meetings shall be held in Couer d’Alene, Idaho. The secretary of the Hospital Business Committee shall record any actions taken by the Hospital Business Committee that result in an amendment or addition to Appendix 2 and shall report such actions to the Chief Financial Officer and Chief Accounting Officer of Parent for use in calculating the amounts, if any, payable pursuant to 3.1(d). A representative of the Parent shall serve as secretary of the Hospital Business Committee.

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6.17 Company Closing Deliverables. Company shall deliver at Closing to Parent, in form and substance reasonably acceptable to Parent, the following items:

(a) A duly executed opinion of Company’s special counsel, substantially in the form attached hereto as Exhibit C which shall contain customary opinions given by the target’s special counsel in acquisitions of this type;

(b) A duly executed opinion of Company’s outside corporate counsel, substantially in the form attached hereto as Exhibit D which shall contain customary opinions given by the target’s outside corporate counsel in acquisitions of this type;

(c) To the extent requested by Parent in advance, the signed written resignations of the officers and directors of Company in office immediately prior to the Effective Time, effective contingent upon the consummation of the Merger;

(d) A certificate from the Secretary of State of the State of Delaware as to Company’s good standing, dated at a date which is as close as reasonably practicable in advance of the Closing Date, but in no event more than five (5) days prior to the Closing Date;

(e) The Financial Statements described in Section 6.12;

(f) The Certificate of Merger duly executed by Company, including the duly executed related officers certificate;

(g) Signature cards for the bank accounts of Company listed on Section 4.13(a) of the Company Disclosure Schedule that Parent may use to transfer authority of those accounts to designees of Parent’s choosing;

(h) A properly executed statement, in a form and substance reasonably acceptable to Parent, for purposes of satisfying Parent’s obligations under Treas. Reg. §1.1445-2(c)(3), and a notice to the Internal Revenue Service that complies with the requirements of Treas. Reg. § 1.897-2(h)(2); and

(i) Such other items as may be provided for herein.

6.18 Parent Deliveries at Closing. Parent shall deliver to Company at Closing, in form and substance reasonably acceptable to Company, the following items:

(a) The Merger Consideration; and

(b) Such other items as may be provided for herein.

ARTICLE VII

CONDITIONS TO THE MERGER

7.1 Conditions to Parent’s and Merger Sub’s Obligations to Close. The obligations of Parent and Merger Sub to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by Parent and Merger Sub:

(a) Accuracy of Representations and Warranties. The representations and warranties of Company set forth in this Agreement shall be true and accurate in all respects, at and as of the Closing with the same force and effect as if made at Closing (other than such representations and warranties as are made as of another date, which shall be true and accurate in all respects as of such date).

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(b) Performance of Covenants. Each and all of the covenants and agreements of Company to be performed or complied with prior to or on the Closing Date shall have been performed or complied with in all material respects by Company.

(c) No Material Adverse Effect. There shall not have occurred after the date of this Agreement any event or condition of any character (including any bankruptcy or similar legal or equitable proceeding) that has had or is reasonably likely to have a Material Adverse Effect.

(d) [Intentionally Omitted].

(e) No Pending Litigation; Laws. There shall not be pending any Order or Proceeding against Company and there shall not be pending any Order or Proceeding against any party hereto brought by any Governmental Authority which seeks to materially restrain, materially modify or invalidate the transactions contemplated by this Agreement. No Governmental Authority shall have issued, promulgated, enforced or enacted any Legal Requirement or Order that is then in effect or pending and has, or would have, the effect of making the Merger or other material transactions contemplated by this Agreement illegal or otherwise prohibiting consummation of the Merger or such other material transactions, would materially modify or restrain the Merger or such material transactions, or otherwise materially adversely affects the right or ability of the Surviving Corporation to operate Company’s business, or for Parent to own or control the Surviving Corporation.

(f) [Intentionally Omitted].

(g) Required Company Vote/Other Corporate Approvals. Company shall have obtained the approval of its stockholders and its board of directors, and such approvals shall not have been superseded and shall be fully effective at Closing.

(h) Liens. There shall be no liens on any of the assets of Company except for Permitted Encumbrances.

(i) Governmental Consents. There shall have been obtained at or prior to the Closing Date such permits or authorizations, and there shall have been taken all such other actions by any Governmental Authority or other regulatory authority having jurisdiction over the parties and the actions herein proposed to be taken, as may be legally required to consummate the Merger.

(j) Non-Competition Agreements. Each of the Key Personnel shall have delivered to Parent the Non-Competition Agreements.

(k) [Intentionally Omitted].

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(l) Affiliate and Stockholder Liabilities. All outstanding obligations owed to the Company by any of its Affiliates, stockholders, employees or directors of the Company, including outstanding receivables from, and loans to, any Affiliate or any stockholder, employee or director of the Company, and all outstanding liabilities of the Company with respect to any Affiliate, or any stockholder, employee or director of the Company, including, but not limited to, unpaid accrued salaries, bonuses and other employee or director compensation, shall have been extinguished, and the Company shall have provided Parent evidence of such extinguishment satisfactory in all respects to Parent.

7.2 Conditions to Company’s Obligation to Close. The obligations of Company to consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by Company:

(a) Accuracy of Representations and Warranties. The representations and warranties of Parent and Merger Sub set forth in this Agreement and qualified as to materiality shall be true and accurate, and those not so qualified shall be true and accurate in all material respects, at and as of the Closing, with the same force and effect as if made at Closing (other than such representations and warranties as are made as of another date, which, if qualified as to materiality, shall be true and accurate as of such date, and, if not so qualified, shall be true and accurate in all material respects as of such date).

(b) Performance of Covenants. Each and all of the covenants and agreements of Parent and Merger Sub herein to be performed or complied with prior to or on the Closing Date shall have been performed or complied with in all material respects by Parent and Merger Sub, respectively.

(c) [Intentionally Omitted].

(d) No Pending Litigation; Laws. There shall not be pending any Order or Proceeding against any party hereto brought by any Governmental Authority which seeks to materially restrain, materially modify or invalidate the transactions contemplated by this Agreement. No Governmental Authority shall have issued, promulgated, enforced or enacted any Legal Requirement or Order that is then in effect or pending and has, or would have, the effect of making the Merger or other material transactions contemplated by this Agreement illegal or otherwise prohibiting consummation of the Merger or such other material transactions, would materially modify or restrain the Merger or such material transactions, or otherwise materially adversely affects the right or ability of the Surviving Corporation to operate Company’s business, or for Parent to own or control the Surviving Corporation.

(e) Governmental Consents. There shall have been obtained at or prior to the Closing Date such material permits or authorizations, and there shall have been taken all such other material actions by any Governmental Authority or other regulatory authority having jurisdiction over the parties and the actions herein proposed to be taken, as may be legally required to consummate the Merger.

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ARTICLE VIII

TERMINATION

8.1 Termination. This Agreement may be terminated prior to Closing as follows:

(a) Agreement. By mutual written agreement of Company and Parent.

(b) Parent’s Breach. At the election of Company, if Parent or Merger Sub has (i) breached any representation or warranty herein qualified as to materiality, (ii) breached any representation or warranty herein not qualified as to materiality in any material respect, or (iii) breached any covenant or agreement contained in this Agreement in any material respect; provided, however, Company shall have no termination right hereunder unless the breach of such representation, warranty, covenant or agreement shall not have been cured by Parent or Merger Sub (unless such breach is incapable of cure) within fifteen (15) days after Parent and Merger Sub shall have received notice from Company that Company intends to exercise its right to terminate under this Section 8.1(b).

(c) Company’s Breach. At the election of Parent, if Company has (i) breached any representation or warranty herein qualified as to materiality, (ii) breached any representation or warranty herein not qualified as to materiality in any material respect, or (iii) breached any covenant or agreement contained in this Agreement in any material respect; provided, however, Parent shall have no termination right hereunder unless the breach of such representation, warranty, covenant or agreement shall not have been cured by Company (unless such breach is incapable of cure) within fifteen (15) days after Company shall have received notice from Parent that Parent intends to exercise its right to terminate under this Section 8.1(c).

(d) Orders. At the election of Company or Parent, if any court of competent jurisdiction or other Governmental Authority shall have issued an Order enjoining or otherwise prohibiting the transactions contemplated under this Agreement and such Order shall have become final and nonappealable.

(e) Deadline. At the election of either Company or Parent, if the Closing has not occurred on or before October 31, 2005, provided that the party seeking to terminate pursuant to this section has performed all its obligations hereunder in all material respects and diligently cooperated as required to fulfill all applicable conditions to Closing.

(f) Breaching Party. The right to terminate this Agreement under this Section 8.1 shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the transactions contemplated herein to occur or of the transactions being delayed.

8.2 Effect of Termination. In the event of termination of this Agreement in accordance with Section 8.1 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any Liability to the other party hereto or its Affiliates, directors, officers or employees, except for the obligations of the parties hereto contained in Section 6.9 (Confidentiality), Section 6.10 (Public Announcements), this ARTICLE VIII (Termination), and ARTICLE X (General Provisions) and except that nothing herein will relieve any party of Liability for any willful breach of this Agreement or for any Liability related to fraud or intentional misrepresentation.

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ARTICLE IX

INDEMNIFICATION

9.1 Survival of Representations, Warranties and Covenants.

(a) All representations and warranties of Company, Parent and Merger Sub contained in this Agreement or any other Transaction Agreement (i) shall survive the Closing, any investigation at any time made and the consummation of the Merger and (ii) shall terminate and expire at the end of three (3) years following Closing except for any claims as to which written notice identifying such claim and the basis thereof with reasonable specificity shall have been delivered pursuant to the applicable provisions of this Agreement on or prior to such date. Notwithstanding the foregoing, (i) the representations and warranties in Sections 4.1, 4.3, 4.4, 4.19, 4.30, 5.1, 5.3, 5.4 and 5.12 shall terminate on the date of expiration of the applicable statute of limitations and (ii) in the case of any liability for fraud, the representations and warranties that are the subject of such fraud shall not terminate until the date of expiration of the applicable statute of limitations. The representations and warranties of Company, Parent and Merger Sub contained in this Agreement (and any right to indemnification for breach thereof or other right to indemnification hereunder) shall not be affected by any investigation, verification or examination by any other party or by any Representative or employee of any other party or by the knowledge of any other party or the knowledge of any such Representative or employee of any facts with respect to the accuracy or inaccuracy of any such representation or warranty.

(b) Covenants. The covenants and agreements of the parties shall survive the Closing and any investigation at any time made and the consummation of the Merger until fully performed, unless limited by their terms or purposes.

(c) Effect of Expiration. On expiration or termination, the representations, warranties and covenants described in subsections (a) and (b) above shall be of no further force or effect, except with respect to any claim for indemnification hereunder as to which written notice identifying such claim and the basis thereof with reasonable specificity shall have been delivered pursuant to the applicable provisions of this Agreement on or prior to such expiration or termination.

9.2 Indemnification.

(a) From and after the Effective Time and until the expiration of the period set forth in Section 9.1(a) or (b) (the “Indemnification Expiration”), the stockholders of Company entitled to receive Merger Consideration pursuant to Section 3.1 (the “Company Indemnifying Parties”) shall jointly and severally indemnify, defend and hold harmless Parent, the Surviving Corporation and their respective Representatives and employees (the “Parent Indemnified Parties”) from and against any and all Damages incurred by Parent or its Representatives, whether or not involving a third party claim, including reasonable attorneys’ fees, arising out of, relating to or resulting from (a) any breach of a representation or warranty of Company contained in this Agreement or in any other Transaction Agreement, and (b) any breach of a

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covenant of Company contained in this Agreement or in any other Transaction Agreement. On expiration or termination of the underlying representations, warranties and covenants, the obligations of Company Indemnifying Parties in this Section 9.2(a) shall be of no further force or effect with respect to any such expired or terminated representation, warranty or covenant, except with respect to any claim for indemnification hereunder as to which written notice identifying such claim and the basis thereof with reasonable specificity shall have been delivered pursuant to the applicable provisions of this Agreement on or prior to such expiration or termination.

(b) From and after the Effective Time and until the Indemnification Expiration, the Company Indemnifying Parties shall jointly and severally indemnify, defend and hold harmless the Parent Indemnified Parties from and against any and all Damages arising from or related to the exercise or attempted or purported exercise of dissenters’ rights by any Equity Interest holder in Company and any Liabilities of Company, the Surviving Corporation or Parent related to dissenters’ rights in connection with the Merger (“Dissenters’ Rights Damages”).

(c) From and after the Effective Time and until the Indemnification Expiration, the Company Indemnifying Parties shall jointly and severally indemnify, defend and hold harmless the Parent Indemnified Parties from and against any and all Damages arising from any claim asserted by any Person relating to such Person’s employment or engagement by Company or ATNPC as an employee or consultant prior to Closing (“Employee Damages”).

(d) Parent and Surviving Corporation shall make any claims for Damages by delivering an Officer’s Certificate to the Stockholder Representative. For purposes hereof, “Officer’s Certificate” shall mean in the case of a claim of Damages, a certificate signed by any officer of Parent; and such certificate shall (A) state that the party has paid, incurred or properly accrued or reasonably anticipates that it will have to pay, incur or accrue Damages; (B) specifying in reasonable detail the individual items of Damages included in the amount so stated, the date each such item was paid, incurred or properly accrued, or the basis for such anticipated liability, and the nature of the misrepresentation, breach of warranty or covenant to which such item is related; (C) specify the method of payment thereof.

(e) If the Stockholder Representative objects to any claim or claims made in any Officer’s Certificate to recover Damages, the Stockholder Representative must deliver to Parent a writing to that effect within ten (10) days after delivery of the Officer’s Certificate to the Stockholder Representative. If the Stockholder Representative has delivered such an objection, the Stockholder Representative and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Stockholder Representative and the Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by the Stockholder Representative and Parent and such memorandum shall state whether the Damages are to be paid by the Company Indemnifying Parties by (i) transferring to the Parent Indemnified Parties shares of Merger Consideration (for purposes of the foregoing having a price per share equal to the Agreed Share Value), (ii) transferring to the Parent Indemnified Parties shares of any Earnout Consideration (for purposes of the foregoing having a price per share equal to the lower of (A) the Agreed Share Value or (B) the fair market value of such shares if traded on a securities exchange or through the Nasdaq National Market determined by the average of the closing prices on such exchange or system over the twenty (20) trading-day

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period ending on the day prior to delivery of such Officer’s Certificate or, if not traded on a securities exchange or through the Nasdaq National Market, the fair market value of Parent’s Common Stock as of such date as shall be determined in good faith by Parent’s Board of Directors), (iii) set off of any Earnout Consideration or (iv) a combination of clause (i), clause (ii) and clause (iii) above. If the Stockholder Representative does not object in writing within the ten (10) day period after delivery by the Parent of the Officer’s Certificate, such failure to so object shall be an irrevocable acknowledgment by the Stockholder Representative that the Parent Indemnified Parties are entitled to the full amount of the claim for Damages (and method of payment thereof) set forth in such Officer’s Certificate. If no agreement can be reached after good faith negotiation, either the Parent or the Stockholder Representative may, by written notice to the other, demand arbitration of the matter in accordance with Section 10.14.

9.3 Limitations on Indemnification. In seeking indemnification for Damages under this ARTICLE IX, the Parent Indemnified Parties shall make no claim against the Company Indemnifying Parties for Damages for any single claim less than $5,000 (“De Minimis Claim”) individually up to an aggregate of $25,000, it being understood that if the aggregate amount of De Minimis Claims asserted against the Company Indemnifying Parties exceeds $25,000, the Parent Indemnified Parties shall be entitled to seek indemnification without regard to the amount of any single claim. The foregoing limitations shall not apply to claims for indemnification relating to Taxes.

9.4 Procedures for Indemnification for Third Party Claims. In the event Parent becomes aware of a third-party claim which Parent reasonably believes may result in a demand for recovery of Damages, Parent shall notify the Stockholder Representative of such claim, and the Stockholder Representative shall be entitled on behalf of the Company Stockholders, at its expense, to participate in, but not to determine or conduct, the defense of such claim. Parent shall have the right in its sole discretion to conduct the defense of and settle any such claim; provided, however, that except with the consent of the Stockholder Representative, no settlement of any such claim with third-party claimants shall be determinative of the amount of Damages relating to such matter. In the event that the Stockholder Representative has consented to any such settlement, the Company Stockholders shall have no power or authority to object under any provision of this Article 9 to the amount of any claim by Parent with respect to such settlement.

9.5 Stockholder Representative.

(a) Each of the Company Stockholders hereby appoints Dr. Chirinjeev Kathuria, his or her agent and attorney-in-fact, as the Stockholder Representative for and on behalf of the Company Stockholders, to give and receive notices and communications, to authorize the payment of Damages from the Merger Consideration and/or any Earnout Consideration, to object to any claim set forth in an Officers Certificate, to agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to such claims, and to take all other actions that are either (i) necessary or appropriate in the judgment of the Stockholder Representative for the accomplishment of the foregoing or (ii) specifically mandated by the terms of this Agreement. Such agency may be changed by the Company Stockholders from time to time upon not less than thirty (30) days prior written notice to the Stockholder Representative and the Company; provided, however, that the Stockholder Representative may not be removed unless holders of a two-thirds of the shares of capital stock

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of the Company issued and outstanding immediately prior to the Effective Time agree to such removal and to the identity of the substituted agent. Upon any change in the Stockholder Representative, such successor Stockholder Representative shall promptly provide the Parent with a signature specimen. Any vacancy in the position of Stockholder Representative may be filled by the holders of a majority in interest of the capital stock of the Company issued and outstanding immediately prior to the Effective Time. No bond shall be required of the Stockholder Representative, and the Stockholder Representative shall not receive compensation for its services. Notices or communications to or from the Stockholder Representative shall constitute notice to or from the Company Stockholders.

(b) The Stockholder Representative shall not be liable for any act done or omitted hereunder as the Stockholder Representative while acting in good faith and in the exercise of reasonable judgment. The Company Stockholders shall indemnify the Stockholder Representative and hold the Stockholder Representative harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Stockholder Representative and arising out of or in connection with the acceptance or administration of the Stockholder Representative’s duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Stockholder Representative.

(c) A decision, act, consent or instruction of the Stockholder Representative pursuant to this Agreement shall constitute a decision of the Company Stockholders and shall be final, binding and conclusive upon the Company Stockholders, and Parent Indemnified Parties may rely upon any such decision, act, consent or instruction of the Stockholder Representative as being the decision, act, consent or instruction of the Company Stockholders. In addition, the Stockholder Representative may agree to the amendment, extension or waiver of this Agreement pursuant to Section 10.6 hereof. The Parent Indemnified Parties are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent or instruction of the Stockholder Representative.

9.6 Limitation of Liability. In no event shall the maximum liability of the Company Indemnifying Parties under this Article 9 (exclusive of any liability for indemnification for fraud) exceed, in the aggregate, the number of shares of Parent Common Stock included in the Merger Consideration and the Earnout Consideration.

ARTICLE X

GENERAL PROVISIONS

10.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested; provided that in the case of delivery by registered or certified mail, such notices shall be deemed given three (3) days after they are so mailed) or sent via facsimile (with confirmation of receipt) to the parties at the following address (or at such other address for a party as shall be specified by like notice) (notice to the Stockholder Representative shall be deemed to be notice to all Company Indemnifying Parties for all purposes):

(a) if to Parent, Merger Sub or, following Closing, the Surviving Corporation, to:

NightHawk Radiology Holdings, Inc.

250 Northwest Blvd #202

Coeur d’Alene, ID

Phone: 208-676-8321

Fax: 208-292-2825

Attention: Vice President and General Counsel

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with a copy to:

Wilson Sonsini Goodrich & Rosati, P.C.

701 Fifth Avenue, Suite 5100

Seattle, Washington 98104-7036

Attention: Mark J. Handfelt

Facsimile No.: (206) 883-2699

Telephone No.: (206) 883-2547

(b) if to Stockholder Representative, to:

Dr. Chirinjeev Kathuria

American Teleradiology Nighthawks, Inc.

3800 Electric Road, Suite 202

Roanoke, VA 24018

Facsimile No.: (540) 767-1908

Telephone No.: (540) 767-1907

with a copy to:

Swidler Berlin LLP

The Chrysler Building

405 Lexington Avenue

New York, NY 10174

Attention: David A. Boillot, Esq.

Facsimile No.: (212) 891-9598

Telephone No.: (212) 891-9565

10.2 Interpretation and Construction of Transaction Agreements.

(a) Unless the context shall otherwise require, any pronoun herein or in another Transaction Agreement shall include the corresponding masculine, feminine, and neuter forms, and words using the singular or plural number also shall include the plural or singular number, respectively. The words “include,” “includes” and “including” herein or in another Transaction Agreement shall be deemed to be followed by the phrase “without limitation” and the word “or” shall include the meaning “either or both.” All references herein or in another Transaction Agreement to sections, exhibits, and schedules shall be deemed to be references to sections of, and exhibits and schedules to, the agreement in which such references are made

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unless the context shall otherwise require. The table of contents and the headings of the sections herein and in the other Transaction Agreements are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement or such other Transaction Agreement, as the case may be. Unless the context shall otherwise require, any reference herein or in another Transaction Agreement to any agreement or other instrument or statute or regulation is to such agreement, instrument, statute or regulation as amended and supplemented from time to time (and, in the case of a statute or regulation, to any successor provision).

(b) The parties acknowledge that each party has participated in the drafting of this Agreement and the other Transaction Agreements, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement or any of the other Transaction Agreements.

(c) Any reference in a Transaction Agreement to a “day” or a number of “days” (without the explicit qualification of “business”) shall be interpreted as a reference to a calendar day or number of calendar days. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action or notice shall be deferred until, or may be taken or given on, the next Business Day.

(d) The phrases “the date of this Agreement”, “the date hereof”, and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the Execution Date.

10.3 Specific Performance. Each party agrees that irreparable harm, for which there may be no adequate remedy at law and for which the ascertainment of Damages would be difficult, would occur in the event any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Each party accordingly agrees that the other parties shall be entitled to specifically enforce this Agreement and to obtain an injunction or injunctions to prevent breaches of the provisions of this Agreement or any other Transaction Agreement and to enforce specifically the terms and provisions hereof or thereof, in each instance without being required to post bond or other security and in addition to, and without having to prove the adequacy of, other remedies at law.

10.4 Counterparts; Facsimile Delivery. This Agreement may be executed in one or more counterparts and delivered by facsimile, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

10.5 Entire Agreement. This Agreement, the other Transaction Agreements, and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the exhibits and the schedules hereto and thereto, (a) constitute the entire agreement among the parties with respect to the subject matter hereof and (b) supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

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10.6 Amendment; Waiver; Requirement of Writing. This Agreement and each of the other Transaction Agreements cannot be amended or changed nor any performance, term, or condition waived in whole or in part except by a writing signed by the party against whom enforcement of the amendment, change or waiver is sought; provided, however, that Appendix 2 may be amended by the Hospital Business Committee from time to time in accordance with the provisions of Section 6.16 hereof. Any term or condition of this Agreement and each of the other Transaction Agreements may be waived at any time by the party hereto entitled to the benefit thereof, and any such term or condition may be modified at any time by an agreement in writing executed by each of the parties hereto entitled to the benefit thereof. No delay or failure on the part of any party in exercising any rights hereunder, and no partial or single exercise thereof, will constitute a waiver of such rights or of any other rights hereunder.

10.7 Expenses. The Company’s transactions expenses will be subject to a cap of $75,000 which will be paid by the Company prior to Closing. Any amounts paid by the Company in excess of $75,000, including, without limitation, fees and disbursements of counsel, investment bankers, accountants and any other advisors or consultants incurred in connection with the Merger, will constitute Excess Transaction Expenses.

10.8 No Third-Party Beneficiaries. Except with respect to the consideration to be provided hereunder nothing in this Agreement or the other Transaction Agreements will be construed as giving any person, other than the parties and their successors and permitted assigns, any right, remedy, or claim under or in respect of this Agreement or the other Transaction Agreements or any provision hereof or thereof.

10.9 Disclaimer of Agency. Except for any provisions herein or in the Transaction Agreements expressly authorizing one party to act for another, neither this Agreement nor any Transaction Agreement shall constitute any party as a legal representative or agent of the other party, nor shall a party have the right or authority to assume, create, or incur any Liability of any kind, expressed or implied, against or in the name or on behalf of the other party or any of its Affiliates.

10.10 Relationship of the Parties. Nothing contained in this Agreement or the Transaction Agreements is intended to, or shall be deemed to, create a partnership or joint venture relationship among the parties hereto or thereto or any of their Affiliates for any purpose, including tax purposes.

10.11 Assignment. Unless otherwise set forth in another Transaction Agreement (with respect to such agreement only), this Agreement and the other Transaction Agreements and the rights and obligations of each party hereunder or thereunder shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns; provided that prior to Closing, no party hereto shall assign this Agreement or another Transaction Agreement (except that Parent and Merger Sub may assign this Agreement and the other Transaction Agreements without the consent of Company to Affiliates of Parent; provided that Parent and Merger Sub shall not be so released from their obligations hereunder without the consent of Company).

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10.12 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect, and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.

10.13 Remedies Cumulative. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity, upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.

10.14 Governing Law/Dispute Resolution Procedures.

(a) This Agreement and the other Transaction Agreements will be construed and interpreted in accordance with and governed by the law of the State of Delaware without regard to the choice-of-law provisions thereof.

(b) The parties hereto intend that all disputes between the parties arising out of or related to this Agreement or the other Transaction Agreements or the transactions contemplated hereby or thereby shall be settled by the parties amicably through good-faith discussions upon the written request of any party.

(c) In the event that any such dispute cannot be resolved thereby within a period of thirty (30) days after such notice has been given, such dispute shall be finally settled by binding arbitration, which shall take place in Seattle, Washington in accordance with the rules then in effect of the American Arbitration Association. Such arbitration will be conducted in the English language and with an arbitration panel of three (3) arbitrators. Any party may demand arbitration by filing a written demand with the other applicable party(ies). Each party shall select one (1) arbitrator, and the two (2) arbitrators selected by the parties shall jointly select the third arbitrator. Any award shall be rendered by a majority of the arbitrators. Judgment upon the award so rendered may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be.

(d) After the appointment of the arbitrators, the parties shall have the right to take reasonable discovery including depositions, ask interrogatories, obtain documentation, and obtain other discovery regarding the subject matter of the arbitration, and, to that end, to use and exercise all the same rights, remedies, and procedures, and be subject to all of the same duties, liabilities, and obligations in the arbitration with respect to the subject matter thereof, as provided under the law of the State of Delaware. Before any discovery is initiated, the parties shall reach agreement with the arbitrators on a streamlined and expedited discovery program in order to save costs and avoid unnecessary delay in completing any arbitration and may present to the arbitrators for a ruling any reasons for limiting such discovery in order to save costs and avoid delay.

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(e) The arbitrators shall issue to the parties a written explanation of the reasons for the award and a full statement of the facts as found and the rules of law applied in reaching their decision. Any provisional remedy which would be available to a court of law in the State of Delaware shall be available from the arbitrators pending arbitration of the dispute. Any party may make an application to the arbitrators seeking injunctive or other interim relief, and the arbitrators may take whatever interim measures they deem necessary in respect of the subject matter of the dispute, including measures to maintain the status quo until such time as the arbitration award is rendered or the dispute is otherwise resolved. The arbitrators shall have the authority to award any remedy or relief (except ex parte relief) that a court of the State of Delaware could order or grant, including specific performance of any obligation created under this Agreement, the issuance of an injunction, or the imposition of sanctions for abuse or frustration of the arbitration process.

(f) An award rendered in connection with an arbitration pursuant to this Section 10.14 shall be final and binding upon the parties, and the parties agree and consent that the arbitral award shall be conclusive proof of the validity of the determinations of the arbitrations set forth in the award, and any judgment upon such an award may be entered and enforced in any court of competent jurisdiction.

(g) Notwithstanding the foregoing, either party shall have the right to institute a legal action in a court of proper jurisdiction for injunctive relief or a decree for specific performance pending final settlement by arbitration.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by it or by an officer or representative thereunto duly authorized, all as of the date first written above.

PARENT
NIGHTHAWK RADIOLOGY HOLDINGS, INC.
By:	/s/ PAUL E. BERGER, M.D.
Name:	Paul E. Berger, M.D.
Title:	President and Chief Executive Officer
MERGER SUB
ATN MERGER SUB, INC.
By:	/s/ PAUL E. CARTEE
Name:	Paul E. Cartee
Title:	Secretary
COMPANY
AMERICAN TELERADIOLOGY NIGHTHAWKS, INC.
By:	/s/ CHIRINJEEV KATHURIA
Name:	Dr. Chirinjeev Kathuria
Title:	President

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EXHIBIT A

DEFINED TERMS

“Accounts Receivable” shall have the meaning set forth in Section 4.12.

“Affiliate” shall mean, with respect to (a) any Person (including the Company), (i) any member of the immediate family (including spouse, brother, sister, descendant, ancestor or in-law) of such Person, (ii) any officer, director or stockholder of such Person, (iii) any corporation, partnership, trust or other Entity in which any such Person or any such family member of such Person has a five percent (5%) or greater interest or is a director, officer, partner or trustee or (iv) any Person that controls, or is controlled by, or is under common control with, such Person and (b) the Company, ATNPC.

“Agreed Hospital” means (i) those entities identified on Appendix 2 to this Agreement at Closing, (ii) those hospitals to which the Surviving Corporation (or such other subsidiary or division of Parent, as the case may be) provides Hospital Business services and (iii) such other entities as may be determined from time to time by the Hospital Business Committee to be Agreed Hospitals.

“Agreed Share Value” means, for purposes of this Agreement, $10.15 per share.

“Agreement” shall have the meaning set forth in the preamble hereto.

“ATNPC” shall mean American Teleradiology Nighthawks, P.C., a professional corporation organized under the laws of the State of Delaware.

“Business Day” shall mean any day other than (i) a Saturday or a Sunday or (ii) a day on which banking and savings and loan institutions are authorized or required by law to be closed in the United States.

“Certificate of Incorporation” shall mean the Company’s Amended and Restated Certificate of Incorporation to be filed by the Company prior to the Closing.

“Certified Shareholder List” shall have the meaning set forth in Section 3.6.

“Closing” shall have the meaning set forth in Section 1.2.

“Closing Date” shall have the meaning set forth in Section 1.2.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Stock Exchange Ratio” means the quotient obtained by dividing (i) the Merger Consideration by (ii) the Common Share Number.

“Company” shall have the meaning set forth in the preamble hereto.

“Company Common Stock” shall have the meaning set forth in Section 4.3(a).

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“Company Disclosure Schedule” shall have the meaning set forth in the introductory paragraph to ARTICLE IV.

“Company Intellectual Property” shall mean (i) all Company Registered Intellectual Property Rights; and (ii) any other Intellectual Property Rights owned, used, controlled, authorized for use or held by Company.

“Company Registered Intellectual Property Rights” shall mean all Registered Intellectual Property Rights at any time owned by, filed in the name of or applied for by Company.

“Common Share Number” means 55,420.

“Company Stock Certificates” shall have the meaning set forth in Section 3.6(a).

“Company Technology” shall mean all electronic data processing, information, record keeping, communications, telecommunications and other computing systems and Technology owned, used, controlled, authorized for use or held by Company.

“Confidential Information” shall mean all Trade Secrets and other confidential or proprietary information of a Person that such Person desires remain secret or confidential, including information derived from reports, investigations, research, work in progress, codes, marketing and sales programs, financial projections, cost summaries, pricing formulas, contract analyses, financial information, projections, confidential filings with any state or federal agency, and all other confidential concepts, methods of doing business, ideas, materials or information prepared or performed for, by or on behalf of such Person by its employees, officers, directors, agents, representatives, or consultants.

“Consent” shall mean any (i) approval, authorization, certificate, concession, consent, declaration, grant, exemption, license, permit, variance, vote or waiver, (ii) registration or filing or (iii) report or notice, including all renewals, amendments and extensions of any of the foregoing and any similar matters.

“Contract” shall mean any binding agreement, contract, promise, understanding, arrangement, commitment or undertaking of any nature (whether written or oral and whether express or implied), that is currently in effect, and including any binding amendment, modification, side letter, supplement or other agreement or change with respect to the foregoing that is currently in effect, whether written or oral.

“Copyrights” shall mean all copyrights, including rights in and to Software, works of authorship and all other rights corresponding thereto throughout the world, whether published or unpublished, including rights to prepare, reproduce, perform, display and distribute copyrighted works and copies, compilations and derivative works thereof.

“Current Leased Premises” shall have the meaning set forth in Section 4.14(f).

“Customer Contracts” means any and all Contracts with customers of the Company, including professional services agreements, supply agreements, service agreements, license agreements, maintenance and development agreements and consulting agreements.

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“Damages” shall mean and include any loss, Liability, damage, Dissenters’ Rights Damages, Employee Damages, injury, decline in value, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including any legal fee, accounting fee, expert fee or advisory fee), charge, cost (including any cost of investigation) or expense of any nature.

“Damages” shall have the meaning set forth in Section 9.2.

“De Minimis Claim” shall have the meaning set forth in Section 9.3.

“Disclosing Party” shall have the meaning set forth in Section 6.9(b).

“Dissenters’ Rights Damages” shall have the meaning set forth in Section 9.2(b).

“Dissenting Stockholder” shall have the meaning set forth in Section 3.5.

“Dissenting Shares” shall mean any shares of Company capital stock held by a holder who has exercised such holder’s dissenters’ rights in accordance with Delaware Corporate Law and who has not effectively withdrawn or lost such dissenters’ rights.

“Earnout Consideration” means, collectively, the Off-Hours Earnout Payment and the Hospital Earnout Payment.

“EBITDA Amount” means for the period beginning on the 6th month anniversary of the Closing Date to but excluding the 18th month anniversary of the Closing Date, the product of (i) Hospital Revenue for such period, and (ii) the EBITDA Margin.

“EBITDA Margin” means for the period beginning on the 12th month anniversary of the Closing Date to but excluding the 18th month anniversary of the Closing Date, the ratio of (i) Hospital Income, if any, plus (a) interest expense for such period, (b) liabilities for federal, state and local income taxes paid or accrued with respect to such period and (c) depreciation and amortization for such period to (ii) Hospital Revenue.

“Effective Time” shall have the meaning set forth in Section 1.2.

“Employee Benefit Plan” shall have the meaning specified in Section 3(3) of ERISA.

“Employee Damages” shall have the meaning set forth in Section 9.2(c).

“Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, trust, equitable interest, claim, preference, right of possession, lease, tenancy, license, encroachment, covenant, Order, proxy, option, right of first refusal, preemptive right, community property interest, limitation, material impairment, imperfection of title, condition or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

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“Entity” shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust company (including any limited liability company or joint stock company) or other legal entity.

“Environmental Law” shall mean any Legal Requirement or Governmental Approval relating to the protection of the environment (including air, water, soil and natural resources) or health and safety aspects associated with environmental protection, including with respect to the release of any Hazardous Materials.

“Equity Interest” means (i) the capital stock of or other equity or ownership interest in an Entity (including partnership interests and limited liability company membership interests and similar interests and any similar or equivalent rights) and any document evidencing any of the foregoing, (ii) any securities, shares or rights convertible into or exercisable for, and any preemptive, subscription, acquisition or other outstanding right, option, warrant, conversion right, exercise right, stock appreciation right, redemption right, repurchase right, phantom security, or Contract of any nature related to the capital stock or other interest described in clause (i) above and (iii) any beneficial interest related to the capital stock or other interest described in clause (i) above.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” shall mean each trade or business, whether or not incorporated, that would be treated as a single employer with Company under Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.

“Excess Transaction Expenses” shall have the meaning set forth in Section 10.7

“Execution Date” shall have the meaning set forth in the preamble hereto.

“Financial Statements” shall have the meaning set forth in Section 4.10(a).

“GAAP” shall mean U.S. generally accepted accounting principles in effect on the date on which they are to be applied pursuant to this Agreement, applied consistently throughout the relevant periods.

“Governmental Approval” shall mean any: (i) permit, license, certificate, concession, approval, consent, ratification, permission, clearance, confirmation, exemption, waiver, franchise, certification, designation, rating, registration, variance, qualification, accreditation or authorization issued, granted, given, required by or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Legal Requirement; or (ii) pending application or request for any of the foregoing in (i) above.

“Governmental Authority” shall mean any: (i) nation, principality, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or other government; (iii) federal, state, local, municipal, foreign or other court, arbitrator, or judicial or governmental or quasi-judicial or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official,

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representative, organization, unit, body or entity and any court or other tribunal); (iv) multinational organization or body, (v) individual, entity or body entitled to exercise any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature, or (vi) arbitrator or arbitral panel.

“Hazardous Material” shall mean any material, substance or waste listed, defined, designated or classified by or pursuant to Environmental Law as hazardous, toxic, pollutant, contaminant or words of similar meaning or effect, including petroleum or petroleum products (including crude oil) and any derivative or by-products thereof, natural gas, synthetic gas and any mixtures thereof, radioactive material or any substance that is or contains polychlorinated biphenyls (PCBs), radon gas, urea formaldehyde, asbestos-containing materials (ACMs) or lead.

“Hospital Business” shall mean the provision by the Surviving Corporation (or such other subsidiary or division of Parent, as the case may be) of such radiology and other medical, technical and administrative services as are customarily associated with the management by radiology groups of hospital radiology departments. Such medical, technical and administrative services shall include, but not be limited to, (i) the placement of, or affiliation with, a radiologist located at the hospital to serve as the representative of the Surviving Corporation (or such other subsidiary or division of Parent, as the case may be), (ii) the administration or outsourcing of the billing and collections from patients and third party payors and (iii) the management of the administrative and technical personnel and services in such hospital’s radiology department.

“Hospital Business Committee” shall have the meaning set forth in Section 6.16.

“Hospital Contract” shall mean a written agreement between the Surviving Corporation (or such other subsidiary or division of Parent, as the case may be) conducting the Hospital Business and an Agreed Hospital setting forth the terms and conditions regarding the provision of radiology and other medical, technical and administrative services as are included within the definition of Hospital Business.

“Hospital Earnout Payment” shall mean that number of unregistered shares of Parent Common Stock equal to the sum of (a) the quotient obtained by dividing (i) the EBITDA Amount by (ii) the Agreed Share Value rounded to the nearest whole share, plus (b) the quotient obtained by dividing (i) three times (3x) the EBITDA Amount by (ii) the price per share of the Parent Common Stock (if traded on a securities exchange or through the Nasdaq National Market, determined by the average of the closing prices on such exchange or system over the twenty (20) trading-day period ending on the day prior to such 18th month anniversary date or, if not traded on a securities exchange or through the Nasdaq National Market, the fair market value of Parent’s Common Stock as of the day prior to the 18th month anniversary of the Closing Date as shall be determined in good faith by Parent’s Board of Directors and the Stockholder Representative).

“Hospital Exchange Ratio” means the quotient obtained by dividing (i) the Hospital Earnout Payment by (ii) the Common Share Number.

“Hospital Income” means for any period an amount equal to Hospital Revenue and other items of income for the Hospital Business, less all expenses incurred and accrued in connection with

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operation of the Hospital Business for such period, including, without limitation, professional services, sales, general and administrative expenses, depreciation and amortization allocable to operation of the Hospital Business for such period or such other expenses as may be incurred in such period in connection with the provision by the Parent or a subsidiary or division of Parent of Hospital Business services, but excluding any capital expenditures approved in accordance with Parent’s budgetary procedures, incurred in connection with the Hospital Business during such period or any other period.

“Hospital Revenue” means for any period an amount equal to the gross sales generated pursuant to the Hospital Contracts.

“Indemnification Expiration” shall have the meaning set forth in Section 9.2.

“Intellectual Property Rights” shall mean any intellectual property rights, including, without limitation, Patents, Copyrights, mask works, moral rights, Trade Secrets, Trademarks, designs, and Technology, together with (i) all registrations and applications for registrations therefor and (ii) all rights to any of the foregoing (including: (A) all rights received under any license or other arrangement with respect to the foregoing, (B) all rights or causes of action for infringement or misappropriation (past, present or future) of any of the foregoing and (C) all rights to apply for or register any of the foregoing).

“Interim Financial Statements” shall have the meaning set forth in Section 4.10.

“Key Personnel” shall have the meaning set forth in Section 6.11.

“Knowledge” shall mean any fact or matter known by the officers or directors of Company or Parent, as the case may be, and any person identified as a Key Personnel, which any of the foregoing persons could reasonably be expected to have discovered or become have become aware of in the course of performing their duties.

“Leased Premises” shall have the meaning set forth in Section 4.16.

“Legal Requirement” shall mean any federal, state, local, municipal, foreign or other law, statute, legislation, constitution, ordinance, code, Order, edict, decree, proclamation, treaty, convention, rule, regulation, permit, ruling, directive, requirement (licensing or otherwise), specification, determination, decision, opinion or interpretation that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Authority.

“Liability” shall mean any debt, obligation, duty or liability of any nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint, several or secondary liability, debt, obligation, or duty), regardless of whether such debt, obligation, duty, or liability would be required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles and regardless of whether such debt, obligation, duty or liability is immediately due and payable.

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“Loan and Security Agreement” means that certain Loan and Security Agreement dated April 20, 2005 among Parent, NightHawk Radiology Services, LLC, NRS Corporation and Comerica Bank, as amended on August 25, 2005.

“Material Adverse Effect” shall mean an event, circumstance, fact or condition which has had or which could reasonably be expected to have a material adverse effect on (i) the Company’s business, condition, assets, liabilities, operations, financial performance, or prospects for continuing the operation of its business as historically conducted, as conducted at Closing, (ii) the ability of the Company to enter into this Agreement or the other Transaction Agreements to which it is a party, to consummate the Merger, or to perform its obligations hereunder or under such other Transaction Agreements or (iii) the ability of the Surviving Corporation to conduct business following the Merger in substantially the same manner as conducted by Company prior to the Merger.

“Material Contracts” shall have the meaning set forth in Section 4.21.

“Merger” shall have the meaning set forth in the recitals hereto.

“Merger Consideration” means 394,089 unregistered shares of Parent Common Stock.

“Merger Sub” shall have the meaning set forth in the preamble hereto.

“Multiemployer Plan” shall mean a pension benefit plan described in Section 3(37) of ERISA.

“Net Liabilities” means an amount equal to (A) all liabilities of the Company that are or should be reflected, as of the Closing, in the Company’s financial statements minus (B) current assets of the Company that are, or should be reflected, as of the Closing, in the Company’s financial statements.

“Nondisclosing Party” shall have the meaning set forth in Section 6.9(b).

“Off-Hours Earnout Payment” shall mean that number of unregistered shares of Parent Common Stock equal to (a) the quotient obtained by dividing (i) Qualified Off-Hours Revenue and (ii) the Agreed Share Value, rounded to the nearest whole share, minus (b) the Merger Consideration.

“Off-Hours Exchange Ratio” means the quotient obtained by dividing (a) the Off-Hours Earnout Payment by (b) the Common Share Number.

“Officer’s Certificate” shall have the meaning set forth in Section 9.2(d).

“Order” shall mean any temporary, preliminary or permanent order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, verdict, sentence, stipulation, subpoena, writ, award or similar action that is or has been issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other Governmental Authority or any arbitrator or arbitration panel.

“Ordinary Course of Business” shall describe any action taken by a party if (i) such action is consistent with such party’s past practices and is taken in the ordinary course of such party’s

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normal day-to-day operations and (ii) such action is not required to be authorized by such party’s stockholders, board of directors or any committee thereof and does not require any other separate or special authorization of any nature.

“Other Equity Interest” shall have the meaning set forth in Section 0.

“Parent” shall have the meaning set forth in the preamble hereto.

“Parent Disclosure Schedule” shall have the meaning set forth in ARTICLE V.

“Parent Financial Statements” shall have the meaning set forth in Section 5.6.

“Parent Indemnified Parties” shall have the meaning set forth in Section 9.2(a).

“Patents” shall mean all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries.

“Pension Plan” shall mean an employee benefit plan, fund, program, contract or arrangement that is subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.

“Permitted Encumbrances” shall mean (a) Encumbrances for taxes, assessments and other governmental charges not yet due and payable, (b) Encumbrances for taxes, assessments and other governmental charges that are being contested in good faith by appropriate Proceedings promptly instituted and diligently conducted and for which reasonable reserves have been established, or (c) statutory, mechanics’, laborers’ and material men’s liens arising in the Ordinary Course of Business for sums not yet due.

“Permitted Indebtedness” shall mean accounts payable incurred in the Ordinary Course of Business.

“Person” shall mean any individual, Entity or Government Authority.

“Plans” shall have the meaning as set forth in Section 4.18.

“Prior Leased Premises” shall have the meaning set forth in Section 4.14(f).

“Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), prosecution, contest, hearing, inquiry, inquest, audit, examination or investigation that is, has been or may in the future be commenced, brought, conducted or heard at law or in equity or before any Governmental Authority.

“PTO” shall have the meaning set forth in Section 4.15(g).

“Qualified Off-Hours Revenue” means for the period beginning on the Closing Date to but excluding the one-year anniversary of the Closing Date, an amount equal to (A) the total dollar

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amount, if any, paid to or otherwise properly accrued by Parent or a subsidiary or division of Parent (subject to allowances for doubtful accounts) in connection with the performance by Parent or a subsidiary or division of Parent of (i) the Professional Services Agreements identified on Appendix 1 to this Agreement and (ii) Professional Services Agreements executed by both parties thereto within 120 days following (but only to the extent any such Professional Services Agreement contains terms and conditions generally consistent with the terms and conditions of the Professional Services Agreements identified in Appendix 1 to this Agreement), minus (B) Net Liabilities, minus (C) Excess Transaction Expenses.

“Real Property” shall mean all real property and all structures, buildings, building systems (including roof, HVAC, electrical, plumbing, sprinkler and fire safety systems), irrigation systems, fixtures and other improvements, together with the systems and facilities servicing such structures, located thereon.

“Registered Intellectual Property Rights” shall mean all United States, international and foreign: (i) Patents, including applications therefor; (ii) registered Trademarks, applications to register Trademarks, including intent-to-use applications, or other registrations or applications related to Trademarks; (iii) Copyright registrations and applications to register Copyrights; (iv) mask work registrations and applications to register mask works; and (v) any other Intellectual Property Rights that are the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public legal authority at any time on or before Closing.

“Representatives” shall mean officers, directors, attorneys, accountants, advisors, stockholders, subsidiaries, parent entities and similar Persons.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Stockholder Proceeding” shall have the meaning set forth in Section 4.7.

“Subsidiary” shall mean, with respect to any Entity, another Entity (i) of which more than fifty percent (50%) of the securities or other ownership interests having by their terms ordinary voting power to elect a majority of the board of directors, or other body performing similar functions, of such other Entity is directly or indirectly owned or controlled by such Entity, (ii) which such Entity otherwise directly or indirectly owns or controls or (iii) which is consolidated in the financial statements of such Entity.

“Supplies” shall have the meaning set forth in Section 4.14(a).

“Surviving Corporation” shall have the meaning set forth in Section 1.1.

“Tax” (and, with correlative meaning, “Taxes” and “Taxable”) shall mean (i) all taxes, however denominated, including any interest, penalties or additions to tax that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including but not limited to federal income taxes and state income and franchise taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, sales and use taxes, ad valorem taxes,

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excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers’ compensation, Pension Benefit Guaranty Corporation premiums and other governmental charges, customs fees, duties and similar obligations, and other obligations of the same or of a similar nature to any of the foregoing, which Company or any of its subsidiaries is required to pay, withhold or collect, (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period, and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor or transferor entity.

“Tax Return” shall mean all reports, estimates, declarations of estimated tax, information statements and returns (whether original or amended) relating to, or required to be filed in connection with, any Tax, including information returns or reports with respect to backup withholding and other payments to third parties.

“Technology” shall mean any know-how, confidential or proprietary information, name, data, discovery, formula, idea, method, process, procedure, other invention, record of invention, model, research, software, technique, technology, test information, market survey, website, or information or material of a like nature, whether patentable or unpatentable and whether or not reduced to practice.

“Trade Secrets” shall mean all trade secrets under applicable law and other rights in know-how and confidential or proprietary information, processing, manufacturing or marketing information, including new developments, inventions, processes, procedures, techniques, ideas or other proprietary information that provides advantages over competitors who do not know or use it and documentation thereof (including related papers, blueprints, drawings, chemical compositions, formulae, diaries, notebooks, specifications, designs, methods of manufacture and data processing software and compilations of information) and all claims and rights related thereto.

“Trademarks” shall mean any and all U.S. and foreign trademarks, service marks, logos, trade names, corporate names, and Internet domain names and addresses, and all goodwill associated therewith throughout the world.

“Transaction Agreements” shall mean the Letter Agreement, Noncompete Agreements and this Agreement.

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Schedule 6.2(b) Prohibited Pre-Closing Company Actions

1. Except for Permitted Indebtedness, enter into, create, incur or assume (i) any borrowings under capital leases or (ii) any obligations which would or could reasonably be expected to have a Material Adverse Effect on Company or Parent’s ability to conduct the business as currently conducted or as conducted in the previous year in substantially the same manner and condition as currently conducted by Company;

2. acquire by merging or consolidating with, or by purchasing any equity securities or assets (which are material, individually or in the aggregate, to Company) of, or by any other manner, any other business or any Entity;

3. Except in connection with Permitted Indebtedness, sell, transfer, lease, license or otherwise encumber any of its assets, except as in the Ordinary Course of Business;

4. take any material action with regard to adjustment or price or terms not announced prior to the date of this Agreement related to the customers or suppliers of Company, including providing promotions, coupons, discounts or price increases;

5. enter into any agreements or commitments with another Person, except on commercially reasonable terms in the Ordinary Course of Business, except as specifically contemplated by this Agreement;

6. materially violate any Legal Requirement applicable to Company;

7. change or announce any material change to the Company’s services;

8. violate, terminate or amend any Material Contract or Governmental Approval, except as specifically contemplated by this Agreement or in the Ordinary Course of Business;

9. commence a Proceeding other than for (i) the routine collection of Accounts Receivable or (ii) injunctive relief on the grounds that Company has suffered immediate and irreparable harm not compensable in money damages or (iii) for the enforcement of this Agreement;

10. declare, authorize or pay any dividends on, make any other distributions with respect to, or redeem, repurchase or otherwise acquire any of its capital stock, except as specifically contemplated by this Agreement;

11. purchase, lease, license or otherwise acquire any material assets with a cost individually or in the aggregate greater than $1,000, except for supplies acquired by Company in the Ordinary Course of Business and except for any capital expenditures contemplated by item 12 below;

12. make any capital expenditure in excess of $1,000 individually or in the aggregate;

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13. write off as uncollectible, or establish any extraordinary reserve with respect to, any Accounts Receivable or other indebtedness in excess of $1,000, individually or in the aggregate;

14. provide any credit, loan, advance, guaranty, endorsement, indemnity, warranty or mortgage to any Person, including any of the customers, stockholders, officers, employees or directors of Company, other than those made in the Ordinary Course of Business;

15. borrow from any Person by way of a loan, advance, guaranty, endorsement, indemnity or warranty, other than Permitted Indebtedness;

16. discharge any Encumbrance, indebtedness or other Liability in excess of $1,000, individually or in the aggregate, except for Liabilities reflected or reserved against in the Financial Statements and accounts payable in the Ordinary Course of Business and except as otherwise specifically contemplated in this Agreement; provided, however, that the Company is permitted to file all necessary documents, forms or certificates with the appropriate Governmental Authority in connection with the cancellation of the security interests on the Company’s assets that are currently held by certain of the Company’s stockholders;

17. change its credit practices, accounting methods or practices or standards used to maintain its books, accounts or business records;

18. change the material terms of its accounts or other payables or Accounts Receivable or take any action directly or indirectly to cause or encourage any material acceleration or material delay in the payment, collection or generation of its accounts payables or Accounts Receivable (except for paying accounts payables in the Ordinary Course of Business in a manner consistent with past practice);

19. incur or become subject to any Liability, contingent or otherwise, except current Liabilities in the Ordinary Course of Business, other than Permitted Indebtedness;

20. split, combine or reclassify any of its capital stock or issue (except for the conversion or exercise of Equity Interests shown on the Company Disclosure Schedule) or authorize the issuance of any other securities in lieu of, or in substitution for, shares of its capital stock;

21. accelerate, amend or change the period of exercisability or vesting of stock option or other equity interests, except as specifically contemplated in this Agreement;

22. hire any new employee, terminate any officer or key employee of Company, increase the annual level of compensation of any existing employee, establish or adopt any Plan, or grant any bonuses, benefits or other forms of direct or indirect compensation to any employee, officer, director or consultant;

23. make any severance payments to any employee, officer or director, except payments made pursuant to written agreements outstanding as of the date of this Agreement;

-2-

24. make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material amendment to a Tax return, enter into any closing agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; or

25. fail to maintain the Company’s assets in good repair, order and condition, reasonable wear and tear excepted.

-3-

EX-21.1

Exhibit 21.1

List of Subsidiaries

Nighthawk Radiology Services, LLC—an Idaho limited liability company

DayHawk Radiology Services, LLC—a Delaware limited liability company

American Teleradiology Nighthawks, Inc.—a Delaware corporation

NightHawk Services GmbH—a wholly owned subsidiary of NightHawk Radiology Services, LLC located in Zurich, Switzerland

NRS Corporation—an Idaho corporation

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of NightHawk Radiology Holdings, Inc. and Subsidiaries

Coeur d’Alene, Idaho

We consent to the use in this Registration Statement on Form S-1 of our report dated September 16, 2005 (September 30, 2005 as to Note 13) (which report expresses an unqualified opinion on the financial statements and includes an explanatory paragraph that describes the recapitalization of the Company) relating to the consolidated financial statements of NightHawk Radiology Holdings, Inc. and subsidiaries as of December 31, 2004 and 2003 and for the years then ended, appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to us under the heading “Experts” in such Prospectus.

/s/ Deloitte & Touche LLP

Boise, ID

October 4, 2005

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Magnuson, McHugh & Co., P.A.

P.O. Box 1379

Coeur d’Alene, ID 83816

We consent to the reference of our firm under the caption “Experts” and to the use of our report dated June 19, 2003 (except for changes in equity balances related to fair value of outstanding warrants, and certain operating expenses related to the year ended December 31, 2002, as to which the date is July 21, 2005), in the Registration Statement (Form S-1) and the related Prospectus of NightHawk Radiology Holdings, Inc. for the registration of shares of its common stock.

Yours truly,

/s/ Magnuson, McHugh & Company, P.A.

Magnuson, McHugh & Company, P.A.

Coeur d’Alene, Idaho

September 29, 2005

EX-23.3

Exhibit 23.3

Consent of Wright, Moore, DeHart, Dupuis & Hutchinson, L.L.C.

Certified Public Accountants

We hereby consent to the use in the S-1 Registration Statement of NightHawk Radiology Holdings, Inc. of our report dated July 7, 2005 relating to the financial statements of DayHawk Radiology Services, L.L.C. as of November 11, 2004 and for the period January 1, 2004 to November 11, 2004.

We also consent to the reference to us under the caption “Experts” in the Registration Statement.

/s/    WRIGHT, MOORE, DEHART, DUPUIS & HUTCHINSON, L.L.C.

Wright, Moore, DeHart, Dupuis & Hutchinson, L.L.C.

Lafayette, Louisiana

October 3, 2005

EX-23.4

Exhibit 23.4

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Registration Statement of NightHawk Radiology Holdings, Inc. on Form S-1 of our report dated August 16, 2005 related to the financial statements of American Teleradiology NightHawks, Inc. as of and for the years ended December 31, 2004 and 2003, appearing in the prospectus, which is part of this Registration Statement and to the reference to us under the heading “Experts” in such prospectus.

/s/    DELOITTE & TOUCHE LLP

Chicago, IL

October 4, 2005

COVER

	Wilson Sonsini Goodrich & Rosati
	PROFESSIONAL CORPORATION

October 4, 2005

VIA EDGAR TRANSMISSION

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington DC 20549

Re: Registration Statement on Form S-1 for NightHawk Radiology Holdings, Inc.

Ladies and Gentlemen:

Transmitted herewith is the Registration Statement on Form S-1 (the “Registration Statement”), together with certain exhibits thereto, filed pursuant to the Securities Act of 1933, as amended (the “Act”), by NightHawk Radiology Holdings, Inc., a Delaware corporation (“NightHawk”). The Registration Statement registers shares of NightHawk’s Common Stock to be offered in an initial public offering. Manually executed signature pages and consents have been executed prior to the time of this electronic filing and will be retained by NightHawk for five years. Please be advised that the $10,151.63 registration fee for the Registration Statement was previously transferred to the Commission’s account by federal wire transfer as required pursuant to Rule 13(c) of Regulation S-T.

We respectfully request that you provide us with a letter of comments (if any) regarding the Registration Statement at your earliest convenience.

Pursuant to Rule 461(a) of the Act, NightHawk hereby notifies you that it intends to request acceleration of effectiveness of the Form S-1 orally and that NightHawk and the underwriters are aware of their obligations pursuant to the Act.

Please note that, concurrently with this filing, NightHawk has submitted a request for confidential treatment pursuant to Rule 406 relating to an exhibit to the Registration Statement.

If you should have any questions regarding the above or the Registration Statement, please do not hesitate to call the undersigned, Mark J. Handfelt or Mark A. Callon of this office at (206) 883-2500. We look forward to hearing from you soon.

Very truly yours,

WILSON SONSINI GOODRICH & ROSATI,

Professional Corporation

/s/    PATRICK J. SCHULTHEIS

Patrick J. Schultheis, Esq.

cc: Paul E. Berger, M.D.

Paul E. Cartee, Esq.

NightHawk Radiology Holdings, Inc.

Mark J. Handfelt, Esq.

Mark A. Callon, Esq.

Wilson Sonsini Goodrich & Rosati, Professional Corporation

Bruce K. Dallas

Davis Polk & Wardwell

701 Fifth Avenue, Suite 5100, Seattle, WA 98104-7036    ·    206.883.2500 Tel    ·    206.883.2699 Fax    ·    www.wsgr.com

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