<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OMEGA HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in governing instrument)
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<C> <C> <C>
DELAWARE 8099 13-3220466
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
5100 POPLAR AVENUE, SUITE 2100
MEMPHIS, TENNESSEE 38137
(901) 683-7868
(Address of principal executive office)
THOMAS P. LEWIS
RONALD L. EDMONDS
5100 POPLAR AVENUE, SUITE 2100
MEMPHIS, TENNESSEE 38137
(901) 683-7868
(Name and address of agent for service)
COPIES TO:
<TABLE>
<C> <C>
ROBERT WALKER, ESQ. STEVEN L. POTTLE, ESQ.
DEBRA E. MCPIPKIN, ESQ. CHRISTOPHER S. MORTER, ESQ.
BAKER, DONELSON, BEARMAN & CALDWELL ALSTON & BIRD LLP
165 MADISON AVE., 20TH FLOOR 1201 WEST PEACHTREE STREET
MEMPHIS, TENNESSEE 38103 ATLANTA, GEORGIA 30309-3424
TELEPHONE (901)526-2000 TELEPHONE (404) 881-7000
FACSIMILE (901) 577-2303 FACSIMILE (404) 881-7777
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 of
1933 (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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.06 par value...... 4,025,000 shares $8.875 $35,721,875 $10,825
==================================================================================================================
</TABLE>
(1) Includes 525,000 shares which may be purchased by the Underwriters to cover
all over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low prices of the Company's Common Stock on
The Nasdaq Small-Cap Market on October 23, 1997, in accordance with Rule
457(c) under the Securities Act.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 28, 1997
3,500,000 SHARES
[LOGO] OMEGA HEALTH SYSTEMS, INC.
COMMON STOCK
Of the shares of common stock, par value $0.06 per share (the "Common
Stock"), offered hereby (the "Offering"), 3,000,000 shares are being offered by
Omega Health Systems, Inc., a Delaware corporation ("Omega" or the "Company"),
and 500,000 shares are being offered by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders. The Common Stock is quoted on The Nasdaq Small-Cap Market under
the symbol "OHSI." The closing price for the Common Stock on October 23, 1997,
as reported on The Nasdaq Small-Cap Market, was $8.875 per share.
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================
PRICE UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
TO PUBLIC DISCOUNTS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)................. $ $ $ $
==================================================================================================================
</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to an additional 525,000 shares of Common Stock on the same
terms and conditions as set forth above, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------------------
The Common Stock is offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to reject orders in whole or in part and to
withdraw, to cancel, or to modify the offer without notice. It is expected that
delivery of certificates representing the Common Stock will be made on or about
, 1997.
EQUITABLE SECURITIES CORPORATION
DAIN BOSWORTH INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
The date of this Prospectus is , 1997
<PAGE> 3
[INSIDE FRONT COVER WILL DISPLAY A SCHEMATIC ILLUSTRATING THE RELATIONSHIPS
BETWEEN THE COMPANY'S AFFILIATED PRACTICES, CENTERS, LOCAL REFERRING
OPTOMETRISTS AND THE COMPANY'S MANAGED CARE, SUPPLY PURCHASING, MOBILE SURGERY
AND OTHER BUSINESS LINES.]
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET TO COVER
SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALL-CAP MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto, and other financial
information, appearing elsewhere in this Prospectus. Unless otherwise indicated,
all information in this Prospectus assumes: (i) no exercise of Underwriters'
over-allotment option, (ii) conversion of all shares of preferred stock, and
(iii) no exercise of outstanding options, convertible debt or warrants to
purchase Common Stock. See "Risk Factors" for a discussion of certain factors
that should be considered in connection with an investment in the Common Stock
offered hereby.
THE COMPANY
Omega is a multi-faceted eye care company that provides a broad range of
practice management and other services to ophthalmologists and optometrists to
assist in the integration of primary, medical and surgical eye care. The Company
emphasizes cooperative professional relationships between ophthalmologists and
optometrists in the formation of integrated eye care networks and co-management
of patient care. The Company's services allow eye care professionals to devote
their time to the delivery of quality primary, medical and surgical eye care and
enable them to expand and position their practices effectively in an
increasingly competitive eye care environment. Omega manages 18 affiliated
ophthalmology practices (the "Affiliated Practices") through which 44 affiliated
ophthalmologists provide medical and surgical eye care at the Company's
co-management eye care centers (the "Centers"), which include 86 service
locations and five ambulatory surgery centers ("ASCs"). In order to assist
ophthalmologists and optometrists in accessing managed care patient volume, the
Company organizes and manages eye care provider panels, consisting of 8,000 eye
care professionals in all 50 states. The Company has related contracts with
managed care and other third-party payors covering approximately 2.3 million
lives, 1.2 million of which are on a capitated basis. Omega also provides supply
and equipment purchasing, mobile surgical equipment and support services,
excimer laser support services, and certain administrative services to
associated optometrists, ophthalmologists and other eye care providers.
The Company believes its Affiliated Practices are attractive referral
options for optometrists with patients requiring medical or surgical eye care.
Each Center is operated through the joint efforts of affiliated ophthalmologists
and an optometrist who serves as a Center Director. Rather than maintaining
active primary eye care practices, Omega's Affiliated Practices focus
principally on medical and surgical eye care. The Company develops broad
cross-referral networks of 50 to 150 optometrists in Center markets who work
with affiliated ophthalmologists to co-manage the delivery of quality eye care.
To enhance patient and referring optometrist satisfaction, the Centers maintain
databases on the referral patterns and treatment preferences of optometrists in
such networks, sponsor monthly continuing education presentations and solicit
clinical and operating input from advisory boards of local optometrists. Center
Directors and affiliated ophthalmologists routinely interact with optometrists
in the referral network to improve coordination and quality of patient care.
Through this cooperative program, the Company believes that it reduces
professional overlap and maximizes the clinical strengths of its affiliated
ophthalmologists by allowing them to concentrate on medical and surgical
procedures.
According to industry sources, total United States expenditures on eye care
were $31.2 billion in 1995. Expenditures for medical and surgical eye care
services in 1995 were approximately $11.6 billion, while approximately $19.6
billion was spent on primary eye care. Eye care expenditures are expected to
grow as the population continues to age and as technological advances make
complex ophthalmic procedures more accessible and affordable. There are
approximately 15,600 ophthalmologists in the United States, who performed
approximately 2.4 million major surgical procedures in 1994, and approximately
28,200 optometrists who are actively involved in patient care. Several factors,
such as professional tension between ophthalmologists and optometrists, the
competitive pressures from discount optical retailers and the influence of
managed care, are motivating eye care providers to re-position their practices
to be competitive. The Company believes these trends are influencing independent
ophthalmologists and optometrists to affiliate with larger eye care
organizations which have the capability to provide services such as financial
management,
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<PAGE> 5
information systems, managed care contracting, volume purchasing, and access to
capital based on practice-specific needs.
Omega's objective is to develop and provide management and other services
to comprehensive eye care networks that deliver quality, cost-effective care in
convenient locations through the cooperative efforts of optometrists and
ophthalmologists. The Company seeks to achieve this objective by implementing
the following strategy: (i) expanding its base of affiliated ophthalmologists in
targeted markets; (ii) developing and managing primary care optometric networks;
(iii) providing value-added purchasing and related administrative services to
enhance the productivity of affiliated ophthalmologists and network
optometrists; and (iv) leveraging managed care contracting expertise. The
Company believes its strategy of organizing ophthalmologists, optometrists, and
related ancillary services into cooperative, integrated eye care networks
enhances its ability to manage the delivery of quality eye care services
cost-effectively.
RECENT DEVELOPMENTS
The Company has completed five affiliation transactions in 1997 with a
total of nine ophthalmologists generating annualized revenues at the time of the
affiliations of approximately $8.4 million. The cash portion of the
consideration in the affiliations was funded from the Company's $15.0 million
credit facility established in February 1997 with NationsCredit Corporation (the
"Credit Facility"). The following summarizes these affiliation transactions:
- In March 1997, the Company affiliated with the ophthalmology practice of
Sarah J. Hays, M.D., in Birmingham, Alabama ("Hays"). The practice
includes one affiliated ophthalmologist and expands Omega's presence in
Birmingham with two existing ophthalmology practices.
- In May 1997, the Company affiliated with the ophthalmology practice of
Joseph F. Faust, M.D. in Marion, Indiana, a suburb of Indianapolis, and
acquired a 50% interest in an associated ASC ("Faust"). The practice
includes one full-time and one part-time affiliated ophthalmologist.
- In June 1997, the Company affiliated with the ophthalmology practice of
Nathan L. Lipton, M.D. in Richardson, Texas, a suburb of Dallas, Texas.
The practice includes one affiliated ophthalmologist and was integrated
with Omega's existing three-ophthalmologist practice in Dallas.
- In August 1997, the Company affiliated with the ophthalmology practice of
David M. Dillman, M.D. in Danville, Illinois ("Dillman"). The practice
includes two affiliated ophthalmologists.
- In September 1997, the Company affiliated with the ophthalmology practice
of Bruce Golden, M.D. in Janesville, Wisconsin ("Golden"). The practice
includes four affiliated ophthalmologists and represents Omega's entry
into the southern Wisconsin and Chicago, Illinois markets.
In addition, to expand its services offered to optometrists, in May 1997,
the Company acquired the Primary Eye Care Network in San Ramon, California, a
provider of volume purchasing services for optometric supplies ("PEN"). PEN
currently provides discount purchasing and certain management services for
approximately 700 member optometrists, primarily in California. Omega intends to
cross-sell these purchasing services to network optometrists and to optometric
members of its provider panels.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the Company..... 3,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 500,000 shares
Common Stock to be outstanding after the
Offering................................ 10,712,789 shares(1)
Use of proceeds......................... To repay debt, to fund potential
affiliations and acquisitions, and
for general corporate purposes.
See "Use of Proceeds."
Nasdaq Small-Cap Market symbol.......... OHSI
- ---------------
(1) Excludes (i) 515,668 shares of Common Stock issuable upon the exercise of
outstanding options with a weighted average exercise price of $4.50 per
share, (ii) 1,093,629 shares of Common Stock issuable upon the exercise of
outstanding warrants with a weighted average exercise price of $5.88 per
share and (iii) 225,049 shares of Common Stock issuable upon the conversion
of outstanding convertible notes. See Note 7 of Notes to Consolidated
Financial Statements of the Company.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues................. $21,761 $27,636 $32,934 $42,737 $90,366 $19,360 $32,773 $48,189
Earnings (loss) from
operations................... (29) 270 763 1,753 3,917 602 1,790 2,195
Net earnings................... 359 112 481 1,303 3,559(2) 419 1,287 1,942(2)
Net earnings (loss) to common
stockholders................. 359 112 481 (171) 2,085 (940) 1,269 $ 1,925
Net earnings (loss) per
share........................ $ 0.09 $ 0.02 $ 0.10 $ (0.03)(3) $ 0.21(2)(3) $ (0.19)(3) $ 0.17 $ 0.18(2)
Weighted average shares
outstanding.................. 3,693 4,591 4,805 5,599 9,744 4,872 7,322 10,761
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 6,324 $ 6,432 $19,185
Total assets................................. 42,022 44,925 57,566
Total debt................................... 13,477 15,500 3,262
Stockholders' equity......................... 19,210 20,090 44,970
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- ---------------
1993 1994 1995 1996 1996 1997
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Patient visits........................... 84,964 88,548 88,006 104,195 49,235 57,386
Surgical eyecare procedures.............. 7,921 8,693 10,142 13,702 6,121 7,992
Total eyecare procedures................. 12,692 13,774 15,275 20,733 9,169 12,706
Capitated lives at end of period
(000's)................................ 356 512 523 925 869 1,049
Covered lives at end of period (000's)... 377 1,163 1,325 1,950 1,894 2,128
</TABLE>
- ---------------
(1) Pro forma to give effect, as applicable, to the Company's affiliations with
Capital Eye Center ("Capital") in March 1996, EyeCare and Surgery Center of
North Texas, P.A., ECSC Retina, P.A. and SurgEye Care, Inc. (collectively,
"EyeCare") in September 1996, Hays, Faust, Dillman and Golden, and the
acquisition of PEN, as well as completion of the Offering at an assumed
public offering price of $9.00 per share and the application of the net
proceeds as stated in "Use of Proceeds," as if all had occurred on January
1, 1996. See "Pro Forma Unaudited Consolidated Financial Data."
(2) No federal tax provision has been reflected due to assumed utilization of
federal net operating loss carryforwards. If such carryforwards were not
available, pro forma net earnings per share would have been $0.07 for the
year ended December 31, 1996 ($0.22 per share absent the impact of the
announcement discussed in footnote 3 below), and $0.10 for the six months
ended June 30, 1997. The Company expects to establish substantial deferred
tax assets in the third quarter of 1997, principally related to net
operating loss carryforwards. Such assets were fully reserved through
related valuation allowances prior to fiscal 1997. No related deferred tax
benefit is reflected in the pro forma Summary Consolidated Financial
Statements.
(3) After adjustment to the second quarter 1996 financial information for
imputed dividends on Series A Preferred Stock as required by a Securities
and Exchange Commission announcement on March 28, 1997. Absent the impact of
this adjustment, the Company would have reported earnings per share of $0.20
for the year ended December 31, 1996, $0.38 on a pro forma basis, for the
year ended December 31, 1996, and $0.09 for the six months ended June 30,
1996. See Note 1 to the Consolidated Financial Statements.
(4) Pro forma to give effect to the Company's affiliations with Dillman and
Golden as if both had occurred on June 30, 1997.
(5) Adjusted to give effect to the sale of the Common Stock offered hereby at an
assumed public offering price of $9.00 per share and the application of the
net proceeds as stated in "Use of Proceeds."
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RISK FACTORS
The following risk factors, as well as the other information contained in
this Prospectus, should be considered carefully before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements that
address, among other things, the Company's expansion strategy, industry trends,
use of proceeds, projected capital expenditures, liquidity, possible third-party
payor arrangements, cost reduction strategies, possible effects of changes in
government regulation and availability of insurance. These statements may be
found under "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as in the Prospectus generally. Actual events
or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including difficulties in executing
acquisitions or affiliations, inability to integrate and manage successfully
assets and personnel related to acquisitions or affiliations, changes in
reimbursement practices of third-party payors, changes in mix of patients served
by the Company, insufficient capital resources, competition and other factors
discussed below and set forth in the Prospectus generally.
RISKS ASSOCIATED WITH EXPANSION STRATEGY
Principal elements of the Company's strategy involve affiliating with
additional ophthalmology practices in targeted markets and assisting existing
Affiliated Practices in recruiting ophthalmologists. Identifying appropriate
affiliation candidates and proposing, negotiating and implementing economically
attractive affiliations with such eye care professionals can be a lengthy,
complex, costly and uncertain process, and is a substantial diversion of
management's attention. Failure by the Company to identify and effect additional
affiliations could have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the
Company's personnel, systems and infrastructure will be sufficient to permit
effective and profitable management of the Affiliated Practices. Moreover, there
can be no assurance that future affiliations, if any, will not result in loss of
patients by the Affiliated Practices, will contribute to the Company's
profitability, or will otherwise facilitate successful implementation of the
Company's overall strategy. Finally, the Company may be forced to curtail its
plans for growth due to changes in health care regulations or economic
conditions generally. Any of these events could have a material adverse effect
on the Company's financial condition or results of operations. See
"Business -- Strategy."
DEPENDENCE ON AFFILIATED PRACTICES AND OPTOMETRY NETWORKS
The Company's operations are dependent upon remaining affiliated with its
Affiliated Practices, on the success of Affiliated Practices and maintenance of
the networks of referring optometrists. Success of the Affiliated Practices is
dependent on, among other things, retaining affiliated ophthalmologists,
attracting sufficient referrals from network optometrists and the Company's
ability to effectively provide the Affiliated Practices with management and
other services.
The Affiliated Practices are highly dependent upon the success, competence,
professionalism, and community reputation of the affiliated ophthalmologists and
each optometrist serving as a Center Director. Although the Company has
management agreements with the affiliated ophthalmologists that include non-
compete covenants, there can be no assurance that these agreements will not be
rendered unenforceable under applicable laws, that the affiliated
ophthalmologists will continue to practice with the Affiliated Practices or that
any affiliated ophthalmologists will not leave and compete with the Affiliated
Practices. Further, the Company's agreements with its Center Directors have a
limited term, with limited or no mandatory renewal provisions. Accordingly,
there can be no assurance that the agreements will, at their expiration, be
renewed under favorable terms, or at all.
Neither the Company nor its Affiliated Practices have any contract or
agreement with any of its network optometrists requiring referrals to affiliated
ophthalmologists. The Affiliated Practices compete with independent eye care
professionals as well as those associated with private and other public practice
management companies for referrals from the network optometrists. There can be
no assurance that existing referral patterns will continue, that the Affiliated
Practices will be able to retain affiliated ophthalmologists, that the Company
will be successful in providing its management services to Affiliated Practices
or that the Affiliated
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Practices will maintain successful practices. Loss of revenue by the Affiliated
Practices, by reason of changes in referral patterns, loss of affiliated
ophthalmologists or Center Directors, or for other reasons noted above or
otherwise could have a material adverse effect on the Company's financial
condition or results of operations.
REIMBURSEMENT TRENDS; COST CONTAINMENT
A significant portion of the Company's revenues are derived from service
fees paid to the Company by the Affiliated Practices. Since the amount of
service fees payable to the Company generally is determined with reference to
the revenues or earnings of the Affiliated Practices, any reduction in these
revenues or earnings could adversely affect the financial condition and results
of operations of the Company. For the six months ended June 30, 1997,
approximately 44%, 6% and 34% of the Company's total revenues were reimbursed
directly by Medicare, Medicaid and private insurers, respectively. The health
care industry is experiencing a trend toward cost containment as government and
private third-party payors seek to impose lower reimbursement and utilization
rates and negotiate reduced payment schedules with service providers. The
Company believes that these trends will continue to result in a reduction from
historical levels in per-patient revenue. Further reductions in payments to
ophthalmologists or other changes in reimbursement for eye care services could
have an adverse effect on the Company's financial condition or results of
operations.
The federal government has implemented, through the Medicare program, a
resource-based relative value scale ("RBRVS") payment methodology for
ophthalmologist services. This methodology went into effect in 1992 and was
implemented during a transition period in annual increments through December 31,
1996. RBRVS is a fee schedule that pays similarly situated eye care providers
the same amount for the same services, except for certain geographical and other
adjustments. The RBRVS is adjusted each year and is subject to increases or
decreases. To date, the implementation of RBRVS has reduced payment rates for
certain of the procedures historically provided by the Affiliated Practices.
Effective January 1, 1997, RBRVS payments for surgery and procedures generally
performed by ophthalmologists were reduced an average of 5.5%. Effective January
1, 1998, RBRVS payments are scheduled to be reduced on average an additional 16%
for cataract surgery and 7.6% overall for surgery and other procedures performed
by ophthalmologists.
Rates paid by private third-party payors are based on established
ophthalmologist, ASC and hospital charges and are generally higher than Medicare
reimbursement rates. Any decrease in the relative number of patients covered by
private insurance could have a material adverse effect on the Company's
financial condition and results of operations. Further, RBRVS-type of payment
systems have also been adopted by certain private third-party payors and may
become a predominant payment methodology. Wider-spread implementation of such
programs would reduce payments by private third-party payors and could reduce
the Company's operating margins. There can be no assurance that any or all of
these reduced revenues and operating margins could be offset by the Company
through cost reductions, increased volume, introduction of new procedures or
otherwise.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE ARRANGEMENTS
The Company, through its EHN division, contracts with managed care and
other third-party payors to arrange panels of eye care providers who provide
services to payors' members. The Company receives administrative and other fees
from payors and providers with which it contracts. Furthermore, a substantial
portion of its managed health care revenues are derived from capitated fee
arrangements with payors, in which the Company receives a pre-determined amount
per patient per month in exchange for organizing and managing panels of eye care
providers to provide all necessary covered services to the patients covered
under the arrangement. Under its arrangements with providers, the Company
reimburses the members of its panels for services rendered on a modified
fee-for-service basis and generally retains the balance of capitation payments
received under its contracts with payors. Such contracts pass much of the
financial risk of providing care, such as over-utilization, from the payor to
the Company, which in turn, through its provider agreements, passes much of that
risk to the provider. Capitated fee arrangements, in general, result in greater
predictability of revenues, but greater unpredictability of expenses. The
profitability of capitated fee contracts to the Company is dependent in part
upon the ability of providers with which it contracts to effectively manage the
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per-patient costs of providing services and the level of utilization of such
services, and the Company's ability to appropriately modify its reimbursement
rates to panel providers in response to utilization and cost trends.
There can be no assurance that the Company will be able to negotiate, on
behalf of its Affiliated Practices or provider panels, satisfactory arrangements
on a risk-sharing or capitated basis. In addition, to the extent that patients
or enrollees covered by these contracts require, in the aggregate, more frequent
or extensive care than is anticipated, operating margins may be reduced or the
revenue derived from these contracts may be insufficient to cover the costs of
the services provided. Any such developments could have a material adverse
effect on the Company's results of operations or financial condition.
GOVERNMENT REGULATIONS
General. The delivery of health care, including the relationships among
health care providers such as ophthalmologists and other clinicians, is subject
to extensive federal and state regulation. Although the Company believes that
its operations are conducted in material compliance with applicable laws, it has
not received or applied for a legal opinion from counsel or from any federal or
state judicial or regulatory authority to that effect, many of such laws are
broad and subject to varying interpretations, and many aspects of the Company's
business operations have not been the subject of state or federal regulatory
interpretation. There can be no assurance that a review of the Company's
operations by federal or state judicial or regulatory authorities will not
result in a determination that the Company or one of its Affiliated Practices
has violated one or more provisions of federal or state law. Any such
determination could have a material adverse effect on the Company's financial
condition or results of operations.
Anti-Referral Laws. The fraud and abuse provisions of the Social Security
Act and anti-kickback laws and regulations adopted by many states, including
states in which several of the Affiliated Practices are located, prohibit the
solicitation, payment, receipt or offering of any direct or indirect
remuneration in return for, or as an inducement to, certain referrals of
patients, items or services. Provisions of the Social Security Act also impose
significant penalties for false or improper billings. In addition, the Stark
Self-Referral Law imposes restrictions on health care providers' referrals for
certain designated health services reimbursable by Medicare or Medicaid to
entities with which the health care providers have financial relationships. Many
states, including the states in which the Affiliated Practices are located, have
adopted similar self-referral laws which are not limited to Medicare or Medicaid
reimbursed services. Accordingly, the Company is prohibited from owning
facilities for the provision of, or otherwise providing, certain ancillary
services for patients of its Affiliated Practices. Violations of any of these
laws may result in substantial civil or criminal penalties, including large
civil monetary penalties, and, in the case of violations of federal laws,
exclusion from participation in the Medicare and Medicaid programs. Such
exclusion and penalties, if applied to the Company or its Affiliated Practices,
would have a material adverse effect on the Company's financial condition or
results of operations.
Corporate Practice of Medicine; Fee-Splitting. The laws of many states,
including the states in which the Affiliated Practices are located, prohibit
business corporations such as the Company from practicing medicine or exercising
control over the medical judgments or decisions of physicians and from engaging
in certain financial arrangements, such as splitting fees with physicians and
certain states have similar laws regarding the corporate practice of optometry.
These laws and their interpretations vary from state to state and are enforced
by both the courts and regulatory authorities, each with broad discretion.
Violations of these laws could result in censure or delicensing of health care
providers, civil or criminal penalties, including large civil monetary
penalties, or other sanctions. In addition, a determination in any state that
the Company is engaged in the corporate practice of medicine or any unlawful
fee-splitting arrangement could render any management agreement between the
Company and an Affiliated Practice located in such state unenforceable or
subject to modification, which could have a material adverse effect on the
Company's financial condition or results of operations. The Company is aware of
a challenge by the Florida Medical Board that practice management arrangements
similar to those of the Company violate Florida's anti fee-splitting laws.
Although the Company cannot predict the outcome of such challenge at this time,
any adverse determination by the Florida Medical Board, if judicially upheld,
could render the Company's management agreement in Florida not enforceable, and
if such agreement could not be reformed with the same economic benefit to the
Company, the Company
9
<PAGE> 11
could experience a material adverse effect on its financial condition or results
of operations. See "Business -- Government Regulation and
Supervision -- Fee-Splitting Laws."
Expansion of the operations of the Company to certain jurisdictions may
require modification of the Company's form of relationship with its Affiliated
Practices, which could have a material adverse effect on the Company.
Furthermore, the Company's ability to expand into, or to continue to operate
within certain jurisdictions may depend on the Company's ability to modify its
operational structure to conform to such jurisdictions' regulatory framework or
to obtain necessary approvals, licenses and permits. Any limitation on the
Company's ability to expand could have a material adverse effect on the Company.
See "Business -- Government Regulation and Supervision."
Managed Care Regulation. The National Association of Insurance
Commissioners has expressed concerns about organizations accepting risk on a
prepaid basis and believes that provider networks which accept such risk should
be licensed as either a health maintenance organization or an insurance company.
There is no assurance that the Company will not be required to qualify as either
an insurance company or as a health maintenance organization in order for the
Company to accept risk on a prepaid basis. If the Company is required to qualify
as either an insurance company or as a health maintenance organization, then the
Company may need to raise significant additional capital which may not be
available.
Health Care Reform Initiatives. In addition to extensive existing
government health care regulation, there are numerous initiatives on the federal
and state levels for comprehensive reforms affecting the payment for and
availability of health care services. These initiatives include reductions in
Medicare and Medicaid payments, trends in adopting managed care for Medicare and
Medicaid patients, regulation of entities that provide managed care and
additional prohibitions on ownership by health care providers, directly or
indirectly, of facilities to which they refer patients. Aspects of certain of
these health care proposals, if adopted, could have a material adverse effect on
the Company. See "-- Risks Associated with Affiliation and Expansion Strategy,"
"-- Risk of Changes in Payment for Medical Services" and "Business -- Government
Regulation and Supervision."
NEED FOR ADDITIONAL FUNDS; DILUTION
The Company's expansion strategy will require substantial capital, and the
Company anticipates that it will, in the future, seek to raise additional funds
through debt financing or the issuance of equity or debt securities. There can
be no assurance that sufficient funds will be available on terms acceptable to
the Company, if at all. If equity securities are issued, either to raise funds
or in connection with future affiliations or acquisitions, dilution to the
Company's stockholders may result, and if additional funds are raised through
the incurrence of debt, the Company may become subject to restrictions on its
operation and finances. Such restrictions may have an adverse effect on, among
other things, the Company's ability to pursue its expansion strategy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."
DEPENDENCE UPON KEY PERSONNEL
The Company depends upon the services of its current senior management to
manage its operations and implement its business strategy. In addition, the
Company's success is also dependent upon its ability to attract and retain
additional qualified operating management personnel to support the Company's
growth. The loss of the services of any or all such individuals or the Company's
inability to attract additional management personnel in the future could have a
material adverse effect on the Company's financial condition or results of
operations. See "Management -- Employment Contracts."
The Company's Centers are dependent upon the success, competence,
professionalism, and community reputation of its affiliated ophthalmologists and
each optometrist serving as a Center Director. The Company's agreements with its
Center Directors have a limited term, with limited or no mandatory renewal
provisions. Accordingly, there can be no assurance that the agreements will, at
their expiration, be renewed under favorable terms, or at all. Certain of the
Center Director agreements do not contain restrictions on competition
10
<PAGE> 12
after the expiration of their term and, therefore, the failure of a Center
Director to renew his agreement could have a material adverse effect upon the
continued operation of the Center if such person were to leave the Center and
establish a competing operation. See "Business -- Eye Care Center Operations"
and " -- Management Agreements."
COMPETITION
The Company competes with other private and publicly-traded physician
practice management companies which seek to affiliate with eye care
professionals and operate eye care facilities such as ambulatory surgery
centers, some of which have substantially greater financial resources than the
Company. Additionally, certain hospitals, clinics, health care companies, HMOs,
insurance companies and retail eye centers engage in similar activities, some of
which may have financial and other resources greater than those of the Company
and may become competitors in providing management to providers of eye care
services or operating such eye care facilities. Increased competition could have
a material adverse effect on the Company's financial condition and results of
operations. There can be no assurance that the Company will be able to compete
effectively with such competitors for affiliation with eye care practices, that
additional competitors will not enter the market or that competitive pressures
will not otherwise adversely affect the Company. Further, the Company, through
its Eye Health Network division, also competes with other providers of eye care
services for managed care contracts, some of which have larger provider networks
and greater financial and other resources than the Company. There can be no
assurance that the Company will be able to successfully enter into sufficient
managed care contracts to compete effectively in the markets its serves, which
inability to compete could adversely affect the Company. Additionally, the
Affiliated Practices compete with existing practices of both ophthalmologists
and optometrists, as well as with formal and informal organizations of eye care
professionals for eye care patients. The development of new treatments or
procedures available to eye care professionals may constitute an additional form
of competition, including the association of various eye care professionals
through licensing, franchising, or other forms of relationships. See
"Business -- Competition."
RISK ASSOCIATED WITH LIABILITIES OF AFFILIATED PRACTICES
The Company has affiliated with practices and with prior operating
histories. The Company may have successor liability for its Affiliated
Practices' unknown or contingent liabilities, including liabilities for failure
to comply with health care laws and regulations, such as billing and
reimbursement, fraud and abuse and similar anti-referral laws. If the Company
were held liable for such prior activities of an Affiliated Practice, there can
be no assurance that it would not have a material adverse effect on the
Company's financial condition or results of operations. Although the Company
generally seeks to obtain indemnification from prospective practices covering
such matters, there can be no assurance that any such matter will be covered by
indemnification or, if covered, that liability sustained will not exceed
contractual limits or the financial capacity of the indemnifying party.
RISKS RELATED TO AMORTIZATION OF INTANGIBLE ASSETS
The Company's pro forma combined total assets reflect substantial
intangible assets in the form of management agreements with Affiliated
Practices. At June 30, 1997, on a pro forma basis, intangible assets represented
approximately 32% of total assets. The intangible asset value represents the
excess of cost over the fair value of the assets or rights acquired. There can
be no assurance that the value of such assets will ever be realized by the
Company. These intangible assets are expected to be amortized on a straight-line
method over the term of the related agreements which range from 25 to 40 years.
The Company evaluates on a regular basis whether events and circumstances have
occurred which indicate that all or a portion of the carrying amount of the
assets may no longer be recoverable, in which case an additional charge to
earnings would become necessary. The failure of an Affiliated Practice or
termination of a management agreement with an Affiliated Practice would result
in the write-off of the related intangible asset. Any determination requiring
the write-off of a significant portion of unamortized intangible assets could
adversely affect the Company's results of operations. See "Pro Forma Financial
Data."
11
<PAGE> 13
RISKS ASSOCIATED WITH LIABILITY FOR EYE CARE SERVICES
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. Although the Company does not control or
direct the practice of medicine and does not assume responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups, there can be no assurance that claims, suits or
complaints relating to services and products provided by Affiliated Practices
will not be asserted against the Company. However, in connection with the
affiliation with certain practices, the Company may succeed to some or all of
the liabilities of such practice for contingent claims in respect of
professional services prior to the affiliation. A significant source of
potential liability could be claims of negligence on the part of health care
professionals in connection with surgeries performed at a Company ASC. The
Company could also be held liable for negligence if the Company were deemed
negligent in operating the ASC. There can be no assurance that successful
malpractice or other claims will not be asserted against a Center or the Company
that exceed applicable insurance policy limits, which could have a material
adverse effect on the Company's financial condition or results of operations.
The availability and cost of professional liability insurance has been
affected by various factors, many of which are beyond the control of the
Company. There can be no assurance that liability insurance will be available to
the Company in the future at acceptable costs or that the future cost of such
insurance to the Company will not have an adverse effect on the Company's
financial condition or results of operations.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-laws, as well as Delaware law could, together or separately, inhibit or
discourage potential acquisition proposals, delay or prevent the removal of
incumbent directors and could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of the Company. In addition, shares of preferred stock may be issued by the
Board of Directors without stockholder approval on such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine, the issuance of which may occur without stockholder approval and
inhibit or discourage a change in control of the Company. The Company's Amended
Articles of Incorporation provide for a "staggered" Board of Directors, which
may inhibit or discourage a change in control of the Company. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock. See "Description of Capital Stock."
FACTORS AFFECTING OPERATING RESULTS
The Company's revenues may vary according to seasonability, the results of
the Affiliated Practices, maintenance of the optometric networks, utilization
levels on managed care contracts, regulatory changes, and other factors.
Accordingly, results of operations are subject to fluctuation, and results in
any period should not be considered indicative of results to be expected for any
future period. Fluctuations in operating results may also result in fluctuations
in the price of the Company's Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including, but not
limited to, the liquidity of the market for the Common Stock, variations in the
Company's quarterly and annual results of operations, revisions to earnings
estimates by research analysts, and new statutes or regulations or changes in
the interpretation of existing statutes or regulations affecting the health care
industry generally or eye care services in particular, some of which are
unrelated to the Company's operating performance. In addition, the stock market
in recent years has generally experienced significant price and volume
fluctuations which also may adversely affect the market price of the Common
Stock. See "Price Range of Common Stock."
12
<PAGE> 14
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market or the
availability of such shares for sale following the Offering could adversely
affect the prevailing market price for the Common Stock. After completion of the
Offering, the Company will have 10,712,789 shares of Common Stock outstanding
(11,237,789 if the Underwriters' over-allotment option is exercised in full). Of
those shares, approximately 9,297,000 shares, including the 3,000,000 shares
offered by the Company hereby (9,822,000 and 3,525,000 shares, respectively, if
the Underwriters' over-allotment option is exercised in full), will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act. In
addition, up to 515,668 shares of Common Stock are issuable upon the exercise of
options. The remaining approximately 1,416,000 shares outstanding, plus up to
1,094,000 shares of Common Stock which may be issued upon exercise of warrants
or conversion of convertible securities, will become eligible for future sale in
the public market in accordance with Rule 144 under the Securities Act, as
currently in effect, from time-to-time. The Company has granted certain
registration rights with respect to shares of Common Stock to the holders of a
total of approximately 1,576,000 shares of Common Stock and 1,094,000 shares
issuable upon the conversion of warrants. The Company's officers and directors,
and certain stockholders of the Company, who upon completion of the Offering
will own an aggregate of approximately 829,000 shares of Common Stock, have
agreed not to, directly or indirectly, offer, sell, contract to sell, grant any
option to purchase or otherwise sell or dispose of any shares of Common Stock or
other capital stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock for a period
of 180 days after the Offering, without the prior written consent of Equitable
Securities Corporation. See "Shares Eligible for Future Sale."
13
<PAGE> 15
THE COMPANY
The Company was incorporated in Delaware in 1984 to support co-management
of patient care between optometrists and ophthalmologists. In 1988 the Company
merged with Omega Health Services, Inc. and changed its name to Omega Health
Systems, Inc. The Company's initial business strategy was to establish, in
selected markets, primary care networks of optometrists to support eye care
co-management centers where ophthalmologist practices provided medical and
surgical eye care. Although nine of the Company's current Centers were
established prior to 1991 based on this initial concept, these early Centers
have been expanded and modified as the Omega Center concept has evolved. See
"Business -- Omega Services" and "-- Eye Care Center Operations." In 1992, the
Company purchased assets and acquired management service agreements relating to
three ophthalmology practices. The Company has developed optometry networks in
these markets, and these locations now operate as Omega Centers.
Effective March 1994 the Company acquired all of the stock of Eye Health
Network, Inc. ("EHN") of Denver, Colorado, which organizes and manages eye care
provider panels in order to assist eye care professionals in accessing managed
care patient volume. The Company acquired this managed care capability to
provide an additional line of services to network optometrists and affiliated
ophthalmologists and to provide a platform to help Centers established in new
markets. In 1996, the Company began to affiliate with ophthalmic practices in
selected markets through acquisition of practice assets and entry into long-term
management agreements with such practices. In 1996 the Company affiliated with
five ophthalmologists in establishing two new Centers and adding an
ophthalmologist to an existing Center. In 1997 the Company has affiliated with
nine ophthalmologists in establishing three new Centers and adding an
ophthalmologist to two existing Centers. In May 1997 the Company acquired The
Primary Eye Care Network, Inc. of San Ramon, California, which provides products
and services to 700 independent member optometrists, including purchasing,
management, education, training, and publications. The Company acquired PEN to
provide an additional line of services to network optometrists and to optometric
members of its provider panels.
The Company's principal offices are located at 5100 Poplar Avenue, Suite
2100, Memphis, Tennessee 38137, and its telephone number is (901) 683-7868.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered by it, at the assumed public offering price of $9.00 per share,
are estimated to be approximately $24.9 million after deducting estimated
underwriting discounts and offering expenses payable by the Company (or
approximately $29.3 million if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any proceeds from the sale of
shares of Common Stock offered by the Selling Stockholders. The Company intends
to use a portion of the estimated net proceeds to repay the entire amount of its
outstanding indebtedness under the Credit Facility. As of September 30, 1997,
$11,618,000 aggregate principal was outstanding on the Credit Facility with a
current interest rate of 9.85%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity."
The Company will use the remaining net proceeds for working capital and
general corporate purposes, which may include future practice affiliations and
other acquisitions. The Company continually reviews and evaluates affiliation
and acquisition candidates as part of its growth strategy and is at various
stages of evaluation, discussion or negotiation with a number of such
candidates. The Company has not reached any definitive agreements with respect
to any material transactions. Pending application of the net proceeds as
described above, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
14
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on The Nasdaq Small-Cap Market under the symbol
"OHSI." The following table sets forth, for the periods indicated, the high and
low bid quotations for the Common Stock as reported on The Nasdaq Small-Cap
Market. Such prices represent prices between dealers and do not include retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Year Ended December 31, 1995
First Quarter............................................. $5.50 $4.50
Second Quarter............................................ 5.50 4.75
Third Quarter............................................. 6.00 4.63
Fourth Quarter............................................ 6.00 5.25
Year Ended December 31, 1996
First Quarter............................................. 6.00 5.00
Second Quarter............................................ 6.63 5.25
Third Quarter............................................. 6.83 5.75
Fourth Quarter............................................ 7.00 6.00
Year Ending December 31, 1997
First Quarter............................................. 6.75 6.38
Second Quarter............................................ 7.38 6.50
Third Quarter............................................. 8.88 6.88
Fourth Quarter, through October 23, 1997.................. 8.75 8.00
</TABLE>
On October 23, 1997 the closing price of the Common Stock on The Nasdaq
Small-Cap Market was $8.875 per share. On September 30, 1997 there were
approximately 381 holders of record of Common Stock.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock. The Company
currently intends to retain its earnings to finance the growth and development
of its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
Company's financial condition, capital requirements, earnings, and other factors
the Board of Directors may deem relevant. Under its Credit Facility, the Company
is prohibited from paying cash dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity," and
Note 11 of Notes to Consolidated Financial Statements.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company on June
30, 1997: (i) on an actual basis; (ii) to give pro forma effect to the Golden
and Dillman affiliations; and (iii) as adjusted to give effect to the sale of
the 3,000,000 shares of Common Stock offered by the Company at an assumed public
offering price of $9.00 per share and the application of the net proceeds as
described in "Use of Proceeds." The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and notes, and
the Unaudited Pro Forma Consolidated Financial Statements included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt and capitalized leases.... $ 1,029 $ 1,096 $ 984
======= ======= =======
Long-term debt and capitalized leases, net of current
portion................................................... $12,448 $14,404 $ 2,278
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares
authorized, 24 shares outstanding and as adjusted...... 184 184 184
Common stock, $0.06 par value, 25,000,000 shares
authorized, 6,865,787 shares outstanding, 7,637,609
shares outstanding pro forma and 10,637,609 shares
outstanding, as adjusted............................... 449 458 638
Additional paid-in capital................................ 25,848 26,718 51,418
Accumulated deficit....................................... (7,270) (7,270) (7,270)
------- ------- -------
Total stockholders' equity........................ 19,210 20,090 44,970
------- ------- -------
Total capitalization.............................. $32,687 $35,590 $48,232
======= ======= =======
</TABLE>
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the audited
consolidated financial statements of the Company. The financial data for the six
months ended June 30, 1996 and 1997 are derived from the unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring items, which the Company considers necessary for
a fair presentation of the financial position and the results of operations for
these periods. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and notes, and other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------- ------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Center net revenues.......... $17,203 $17,187 $17,599 $19,753 $25,577 $36,803 $11,103 $16,743 $19,265
Managed care revenues........ -- 3,153 8,061 10,546 14,643 14,643 6,921 8,688 8,688
Optometric practice
services................... -- -- -- -- -- 35,745 -- 6,389 18,943
Mobile surgical and other.... 1,907 1,421 1,976 2,636 2,517 3,175 1,336 953 1,293
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 19,110 21,761 27,636 32,935 42,737 90,366 19,360 32,773 48,189
Center operating expenses...... 17,823 15,792 15,993 17,815 21,676 33,027 9,646 13,790 16,789
Eye care claims................ -- 2,657 5,977 7,589 11,932 11,932 5,400 6,780 6,780
Cost of sales.................. -- -- 905 1,488 1,416 35,530 778 6,574 3,464
Selling, general, and
administrative expenses...... 2,805 2,690 3,986 4,836 5,593 5,593 2,756 3,464 18,586
Provision for doubtful
accounts..................... 531 651 505 446 367 367 178 375 375
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations................... -- (29) 270 763 1,753 3,917 602 1,790 2,195
Interest expense, net.......... (340) (282) (205) (232) (569) (284) (296) (442) (148)
Gain (loss) on sales........... -- 642 (51) (209) -- -- -- -- --
Other (expense) income......... 90 28 98 160 119 (74) 113 (61) (105)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss)............ (5,398) 359 112 481 1,303 3,559(2) 419 1,287 1,942(2)
Preferred dividends............ -- -- -- -- (1,474) (1,474) (1,359) (17) (17)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) to common
stockholders................. $(5,398) $ 359 $ 112 $ 481 $ (171) $ 2,085 $ (940) $ 1,269 $ 1,925
======= ======= ======= ======= ======= ======= ======= ======= =======
Net earnings (loss) per
share........................ $ (1.38) $ 0.09 $ 0.02 $ 0.10 $ (0.03) $ 0.21(2)(3) $ (0.19) $ 0.17 $ 0.18(2)
======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding.................. 3,987 4,199 4,591 4,805 5,599 9,744 4,872 7,322 10,761
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 177 $ 287 $1,371 $ 1,226 $ 4,773 $ 6,324
Total assets................................ 8,097 7,935 9,352 11,740 27,440 42,022
Total debt.................................. 1,456 2,548 2,203 3,152 8,410 13,477
Stockholders' equity........................ 1,446 2,534 3,401 3,961 15,043 19,210
</TABLE>
- ---------------
(1) Pro forma to give effect to the Company's affiliations with Capital,
EyeCare, Hays, Faust, Dillman and Golden, and the acquisition of PEN as well
as completion of the Offering at an assumed public offering price of $9.00
per share and the application of the net proceeds as stated in "Use of
Proceeds," as if all had occurred on January 1, 1996. See "Unaudited Pro
Forma Consolidated Financial Data."
(2) No federal tax provision has been reflected due to assumed utilization of
federal net operating loss carryforwards. If those carryforwards were not
available, pro forma net earnings per share would have
17
<PAGE> 19
been $0.07 for the year ended December 31, 1996 ($0.22 per share absent the
impact of the announcement discussed in Note 3 below), and $0.10 for the six
months ended June 30, 1997. The Company expects to establish substantial
deferred tax assets in the third quarter of 1997, principally related to net
operating loss carry forwards. Such assets were fully reserved through
related valuation allowances prior to fiscal 1997. No related deferred tax
benefit is reflected in the pro forma Selected Consolidated Financial Data.
(3) After adjustment to the second quarter 1996 financial information for
imputed dividends on Series A Convertible Preferred Stock as required by a
Securities and Exchange Commission announcement on March 28, 1997. Absent
the impact of this adjustment, the Company would have reported earnings per
share of $0.20 for the year ended December 31, 1996, $0.38 on a pro forma
basis, for the year ended December 31, 1996, and $0.09 for the six months
ended June 30, 1996. See Note 1 to the Consolidated Financial Statements.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and notes, and other financial information
appearing elsewhere in this Prospectus.
OVERVIEW
Omega is a multi-faceted eye care company that provides a broad range of
practice management and other services to ophthalmologists and optometrists to
assist in the integration of primary, medical and surgical eye care. Omega
manages 18 Affiliated Practices at which 44 affiliated ophthalmologists provide
medical and surgical eye care at the Company's Centers, which include 86 service
locations and 5 ASCs. In order to assist ophthalmologists and optometrists in
accessing managed care patient volume, the Company organizes and manages eye
care provider panels, consisting of 8,000 eye care professionals. The Company
has related contracts with managed care and third-party payors covering
approximately 2.3 million lives, 1.2 million of which are on a capitated basis.
The Company generates revenues from (i) professional fees from Affiliated
Practices and facility fees for services provided at the Company's ASCs, (ii)
managed care contracts entered into by the Company for the provision of eye care
services through provider panels organized and managed by the Company, (iii) the
sale of supplies and equipment and the provision of related administrative
services to optometrists, and (iv) the provision of mobile surgical and other
supplies and services to eye care providers.
Omega provides comprehensive management and other services for its
Affiliated Practices. The Company has individual management agreements with each
affiliated ophthalmologist or, in some cases, with a professional corporation
employing more than one ophthalmologist. These management agreements are
generally long-term and provide for the participation of the affiliated
ophthalmologist in a comprehensive patient co-management program developed with
the Company and implemented at the Center. Center net revenues represent gross
charges for patient services rendered and ASC facility charges, net of estimated
contractual adjustments. The Company is responsible for the payment of
materially all Center clinical and operating expenses and is entitled to retain
a fee that varies with the operating results of the Affiliated Practice. The
amounts remitted to the Affiliated Practices under the management agreements are
included in Center operating expenses. See "Business -- Management Agreements."
Managed care revenues consist principally of capitated amounts received
from health maintenance organizations and other third-party payors for the
provision of services by the eye care provider panels organized and managed by
the Company, as well as certain administrative fees charged to panel providers
and to payors. Under capitated agreements, the Company reimburses the members of
its eye care provider panels for services rendered on a modified fee-for-service
basis and generally retains the balance of capitation payments, subject to
certain discretionary distributions to provider panel members. Under these
agreements, the Company has the ability to adjust its fee schedule from time to
time based on utilization experience. Under fee-for-service managed care
contracts, panel eye care providers submit claims to and are reimbursed directly
from third-party payors.
Optometric practice service revenues include sales of optometric supplies
and equipment through a group purchasing program and fees generated from
administrative, educational and other optometric practice support services.
Mobile surgical and other revenue are comprised primarily of rental and sales of
ophthalmic equipment and supplies to hospitals, ASCs and eye care providers. The
Company operates a mobile surgical service which provides ophthalmic surgical
equipment and supplies to surgical facilities and is reimbursed by such
facilities on a per-case basis.
Center operating expenses include all direct expenses of Center operations,
including the amounts received by affiliated ophthalmologists under their
management agreements. Eye care claims represent amounts paid or due to
participating providers in the Company's managed eye care provider panels for
services rendered. Cost of sales includes the cost of goods sold through the
Company's optometric practice services, mobile surgical and other divisions.
Selling, general and administrative expenses represent the cost of corporate
support functions and the general and administrative expenses of the Company's
managed eye care, optometric practice services, mobile surgical and other
divisions.
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<PAGE> 21
The Company intends to expand its business through affiliations with
additional ophthalmologists in connection with additional Centers and expansion
of existing Centers. The Company anticipates that it will pay consideration to
ophthalmologists in the form of cash, Common Stock and assumed indebtedness of
the practices in conjunction with future affiliations. The amounts of such
consideration will vary and will depend on the anticipated amount of Center
operating income retained by affiliated ophthalmologists. In addition, the
Company intends to increase managed care revenue by expanding existing eye care
provider panels, by forming panels in new markets and by entering into
additional provider contracts with third-party payors. The Company plans to
expand the revenues of its Centers by increasing optometric referrals, expanding
the scope of the practice by adding additional ophthalmology sub-specialists,
expanding the territory by developing satellite locations, utilizing the
Company's mobile surgical services program and positioning the Centers to
negotiate effectively for managed care contracts.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Center net revenues...................................... 63.7% 60.0% 59.8% 57.4% 51.1%
Managed care revenues.................................... 29.2 32.0 34.3 35.7 26.5
Optometric practice services............................. -- -- -- -- 19.5
Mobile surgical and other................................ 7.1 8.0 5.9 6.9 2.9
----- ----- ----- ----- -----
Total revenues........................................... 100.0 100.0 100.0 100.0 100.0
Center operating expenses.................................. 57.9 54.1 50.7 49.9 42.1
Eye care claims............................................ 21.6 23.0 27.9 27.9 20.6
Selling, general and administrative expenses............... 14.4 14.7 13.1 14.2 10.6
Cost of sales.............................................. 3.3 4.5 3.3 4.0 20.1
Provision for doubtful accounts............................ 1.8 1.4 0.9 0.9 1.1
----- ----- ----- ----- -----
Earnings from operations................................... 1.0% 2.3% 4.1% 3.1% 5.5%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total Revenues. Total revenues increased from $19,360,000 for the six
months ended June 30, 1996 to $32,773,000 for the six months ended June 30,
1997, an increase of $13,413,000, or 69.3%.
Center net revenues increased from $11,103,000 for the 1996 period to
$16,743,000 for the 1997 period, an increase of $5,640,000, or 50.8%. The
increase resulted primarily from the additions of Centers in Tallahassee,
Florida; Dallas, Texas; Birmingham, Alabama; and Marion, Indiana during the
1997 period as well as the addition of an ASC in the Dallas Center. In
addition, same-center revenue increased 10% for the 1997 period.
Managed care revenues increased from $6,921,000 for the 1996 period to
$8,688,000 for the 1997 period, an increase of $1,767,000, or 25.5%. The
increase reflected the continued growth experienced by the Company's
managed care operations.
Optometric practice service revenues were $6,389,000 for the six
months ended June 30, 1997. Optometric practice services provides products
and services to independent optometrists, including purchasing, education,
training, management, and publications and is related to the acquisition of
PEN in May 1997.
Mobile surgical and other revenues decreased from $1,336,000 for the
1996 period to $953,000 for the 1997 period, a decrease of $383,000 or
28.7%. The decrease reflected the reduction in equipment sales, which have
lower margins, and was partially offset by an increase in higher margin
mobile surgical revenues.
20
<PAGE> 22
Center Operating Expenses. Center operating expenses increased from
$9,646,000 for the six months ended June 30, 1996 to $13,790,000 for the six
months ended June 30, 1997, an increase of $4,144,000 or 43.0%. The increase
reflected the additions of the practices in Tallahassee, Dallas, Birmingham and
Marion as well as 9.0% same-center operating expense increase during the 1997
period. As a percentage of center net revenues, center operating expenses
decreased from 86.9% in the 1996 period to 82.4% in the 1997 period, reflecting
improved performance in certain Centers and the impact of the added Centers.
Eye Care Claims. Eye care claims increased from $5,400,000 for the six
months ended June 30, 1996 to $6,780,000 for the six months ended June 30, 1997,
an increase of $1,380,000, or 25.6%. The increase reflected the continued growth
experienced by the Company's managed care operations and is directly correlated
with the increase in managed care revenues. As a percentage of managed care
revenues, eye care claims remained the same at 78.0% for both the 1996 and 1997
period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $2,756,000 for the six months ended June
30, 1996 to $3,464,000 for the six months ended June 30, 1997, an increase of
$708,000, or 25.7%. The increase primarily reflected (i) the expansion of
operations at the EHN, (ii) development costs associated with expansion of the
Company's practice affiliation program and (iii) expenses related to the
acquisition of the PEN during the 1997 period. As a percentage of total
revenues, selling, general and administrative expenses decreased from 14.2% in
the 1996 period to 10.6% in the 1997 period.
Cost of Sales. Cost of sales increased from $778,000 for the six months
ended June 30, 1996 to $6,574,000 for the six months ended June 30, 1997, an
increase of $5,796,000, or 745.0%. This increase primarily reflected the
acquisition of PEN in May 1997 and the increase in higher margin mobile surgical
sales partially offset by the reduction in equipment sales which have lower
margins. As a percentage of total revenues, cost of sales increased from 4.0% in
the 1996 period to 20.1% in the 1997 period, primarily as a result of the
acquisition.
Provision for Doubtful Accounts. Provision for doubtful accounts increased
from $178,000 for the six months ended June 30, 1996 to $375,000 for the six
months ended June 30, 1997, an increase of $197,000, or 110.6%. This increase
reflected the additions of the practices in Tallahassee, Dallas, Birmingham and
Marion. As a percentage of total revenues, provision for doubtful accounts
marginally increased from 0.9% in the 1996 period to 1.1% in the 1997 period.
Interest Income (Expense), Net. Interest expense increased from $182,000
for the six months ended 1996 to $320,000 for the six months ended June 30,
1997, an increase of $138,000, or 75.8%. This increase related to the increase
in bank borrowings in late 1996 and the 1997 period used to finance
acquisitions.
Preferred Dividends. Preferred dividends decreased from $1,359,000 for the
six months ended June 30, 1996 to $17,000 for the six months ended June 30,
1997, a decrease of $1,342,000, or 98.7%. This decrease resulted from the
conversion of Series A Convertible Preferred Stock into Common Stock by
preferred stockholders subsequent to June 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total Revenues. Total revenues increased from $32,935,000 for the year
ended December 31, 1995 to $42,737,000 for the year ended December 31, 1996, an
increase of $9,802,000, or 29.8%.
Center net revenues increased from $19,753,000 in 1995 to $25,577,000
in 1996, an increase of $5,824,000, or 29.5%. This increase resulted
primarily from the additions of Centers in Nashville, Tennessee;
Tallahassee, Florida; and Dallas, Texas, as well as the addition of an ASC
in the Tallahassee Center, and a 75% interest in an ASC in the Dallas
Center. In addition, approximately 60.1% of the increase resulted from
significant volume growth in existing centers. This increase in revenue
from existing Centers was achieved despite a reduction in Medicare
reimbursement, effective January 1, 1996, estimated to be approximately
8.0% of Center net revenues.
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<PAGE> 23
Managed care revenues increased from $10,547,000 in 1995 to
$14,643,000 in 1996, an increase of $4,096,000, or 38.8%. This increase
reflected the significant increase in covered members, as covered members
reached approximately 2,000,000 at December 31, 1996.
Mobile surgical and other revenues decreased from $2,636,000 in 1995
to $2,518,000 in 1996, a decrease of $118,000, or 4.5%. This decrease
primarily resulted from (i) a reduction in fees earned by the Company's
excimer laser support services, (ii) a reduction in management fees from
managed centers in which the Company did not have an ownership interest as
the Company focused on Centers in which it had an equity interest, and
(iii) a decrease in lower margin equipment sales. This decrease was
partially offset by the continued expansion of the Company's mobile
surgical service.
Center Operating Expenses. Center operating expenses increased from
$17,815,000 in 1995 to $21,676,000 in 1996, an increase of $3,861,000, or 21.7%.
This increase reflected the additions of the practices in Nashville, Tennessee;
Tallahassee, Florida; as well as the addition of an ASC in the Tallahassee
Center, and a 75% interest in an ASC in the Dallas Center. As a percentage of
center net revenues, center operating expenses decreased from 90.2% in 1995 to
84.7% in 1996.
Eye Care Claims. Eye care claims increased from $7,589,000 in 1995 to
$11,932,000 in 1996, an increase of $4,343,000, or 57.2%. This increase
reflected the continued growth in the Company's managed care operations. As a
percentage of managed care revenues, eye care claims increased from 72.0% in
1995 to 81.5% in 1996. The increase was a result of higher than expected
utilization, especially late in the year, and a decreased level of fees from
participating providers and networks.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $4,836,000 in 1995 to $5,593,000 in 1996,
an increase of $757,000, or 15.7%. This increase resulted from costs associated
with the growth in managed care operations, mobile surgical operations and
corporate support services. As a percentage of total revenues, selling, general
and administrative expenses decreased from 14.7% in 1995 to 13.1% in 1996.
Cost of Sales. Cost of sales decreased from $1,488,000 in 1995 to
$1,416,000 in 1996, a decrease of $72,000, or 4.8%. This decrease was a result
of the decrease in lower margin capital equipment sales as the Company focused
on the expansion of its mobile surgical service. As a percentage of total
revenues, cost of sales decreased from 4.5% in 1995 to 3.3% in 1996.
Provision for Doubtful Accounts. Provision for doubtful accounts decreased
from $445,000 in 1995 to $367,000 in 1996, a decrease of $78,000, or 17.5%. This
decrease resulted from improved collection experience. As a percentage of total
revenues, provision for doubtful accounts decreased from 1.4% in the 1995 period
to 0.9% in the 1996 period.
Interest Income (Expense), Net. Interest expense increased from $232,000
in 1995 to $569,000 in 1996, an increase of $337,000, or 145.3%. This increase
resulted form higher debt levels, primarily incurred in connection with the
Tallahassee and Dallas acquisitions.
Preferred Dividends. Preferred Dividends resulted from the sale of Series
A Convertible Preferred Stock in 1996. On March 28, 1997, a formal announcement
from the staff of the United States Securities and Exchange Commission was
issued which generally required that the Company impute and recognize a
preferred dividend for the difference between the conversion price to preferred
shareholders at issuance and the value of the related Common Stock as measured
in the public market at that date.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total Revenues. Total revenues increased from $27,636,000 for the year
ended December 31, 1994 to $32,935,000 for the year ended December 31, 1995, an
increase of $5,299,000, or 19.2%.
Center net revenues increased from $17,599,000 in 1994 to $19,753,000
in 1995, an increase of $2,154,000, or 12.2%. The increase resulted from
significant growth in two Center locations and modest revenue growth in
most other Centers, partially offset by problems experienced in two Center
locations.
22
<PAGE> 24
Managed care revenues increased from $8,061,000 in 1994 to $10,547,000
in 1995, an increase of $2,486,000, or 30.8%. This increase reflected the
significant increase in covered members, as covered members reached
approximately 1,500,000 at December 31, 1995.
Mobile surgical and other revenues increased from $1,976,000 in 1994
to $2,636,000 in 1995, an increase of $660,000, or 33.4%. The increase
resulted from development of the Company's mobile surgical program,
expansion of marketing to optometrists affiliated with various Omega
networks and the development fees generated by the Company's excimer laser
services, partially offset by a reduction in management fees earned from
managed practices in which the Company did not have an ownership position.
Center Operating Expenses. Center operating expenses increased from
$15,993,000 in 1994 to $17,815,000 in 1995, an increase of $1,822,000, or 11.4%.
This increase reflected the significant growth in two Center locations and
modest revenue growth in most other Centers. As a percentage of center net
revenues, center operating expense decreased from 90.9% in 1994 to 90.2% in
1995.
Eye Care Claims. Eye care claims increased from $5,977,000 in 1994 to
$7,589,000 in 1995, an increase of $1,612,000, or 27.0%. This increase reflected
the continued growth experienced by the Company's managed care operations and is
directly correlated with the increase in managed care revenues. As a percentage
of managed care revenues, eye care claims decreased from 74.1% in 1994 to 72.0%
in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $3,986,000 in 1994 to $4,836,000 in 1995,
an increase of $850,000, or 21.3%. This increase resulted from increased costs
associated with the Company's managed eye care operations. As a percentage of
total revenues, selling, general and administrative expenses increased from
14.4% in 1994 to 14.7% in 1995.
Cost of Sales. Cost of sales increased from $905,000 in 1994 to $1,488,000
in 1995, an increase of $583,000, or 64.4%. This increase resulted from the
expansion of marketing to optometrists affiliated with various Omega networks.
As a percentage of total revenues, cost of sales increased from 3.3% in 1994 to
4.5% in 1995.
Provision for Doubtful Accounts. Provision for doubtful accounts decreased
from $505,000 in 1994 to $445,000 in 1995, a decrease of $60,000, or 11.9%. This
decrease resulted from improved collection experience. As a percentage of total
revenues, provision for doubtful accounts decreased form 1.8% in the 1994 period
to 1.4% in the 1995 period.
Interest Income (Expense), Net. Interest expenses increased from $205,000
in 1994 to $232,000 in 1995, an increase of $27,000, or 13.2%. This increase
resulted from higher debt levels as total debt and capital lease obligations
increased as a result of capital expenditures and capital lease obligations
incurred in 1995 related largely to relocating and enlarging the Nashville
Center and relocating and adding an ambulatory surgery center to the Omaha
Center.
LIQUIDITY
The Company requires capital primarily to fund the cash portion of
consideration paid in affiliation transactions, to fund the purchase of clinical
equipment and for working capital purposes. As of June 30, 1997, the Company had
working capital of $6,324,000 compared to $4,773,000 at December 31, 1996. As of
June 30, 1997, the Company had cash totaling at $4,780,000, compared to
$2,944,000 at December 31, 1996. Long-term debt and capital lease obligations
increased to $8,410,000 in 1996, primarily reflecting borrowings associated with
practice affiliations. As of June 30, 1997, the long-term debt and capital lease
obligations were $12,448,455, primarily reflecting borrowings associated with
acquisitions and practice affiliations.
For the six months ended June 30, 1997, the operating activities of the
Company generated $2,322,000. The Company used $611,000 in investing activities
and generated $125,000 in financing activities. Cash flows from operations
included significant adjustments for depreciation and amortization ($897,000) as
well as provision for doubtful accounts ($376,000). Investing activities during
the period included $645,000 in capital expenditures for equipment as well as
acquisitions of the assets of ophthalmic and optometric practices in
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<PAGE> 25
Alabama, Texas, Indiana, and Tennessee, net of cash acquired in the acquisition
of PEN. Financing activities included an increase in borrowings, distributions
to minority interest and proceeds from the issuance of Common Stock.
For the year ended December 31, 1996, the Company used $50,000 in cash in
operating activities and used $8,430,000 in investing activities. Financing
activities generated cash of $8,688,000. The decrease in cash flow generated by
operations was the result of the working capital requirements associated with
the Company's acquisitions. Cash flows from operations included significant
adjustments for depreciation and amortization ($1,232,000) and the provision for
doubtful accounts ($367,000). The investing cash flows represented the
acquisition program and capital expenditures of $721,000. Financing activities
included the sale of $7,290,000 in Series A Convertible Preferred Stock and
borrowings used to finance the acquisition program.
For the year ended December 31, 1995, the Company generated cash of
$1,871,000 in operating activities and used $1,000,000 in investing activities.
Financing activities used $374,000. Cash flows from operations included
significant adjustments for depreciation and amortization ($1,130,000) and the
provision for doubtful accounts ($445,000). Cash flows from investing activities
consisted principally of capital expenditures. Significant financing activities
included $946,000 in principal payments on debt and capital leases, and $572,000
in proceeds of new debt.
For the year ended December 31, 1994, the Company generated cash of
$1,425,000 in operating activities and used $794,000 in investing activities.
Financing activities generated $427,000. Cash flows from operations included
significant adjustments for depreciation and amortization ($1,213,000) and the
provision for doubtful accounts ($505,000). Cash flows from investing activities
consisted principally of capital expenditures. Significant financing activities
included $941,000 in principal payments on debt and leases, $628,000 in proceeds
of new debt and $740,000 in net proceeds from the sale of Common Stock.
On May 17, 1996, the Company completed the sale of 729 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), for total gross
proceeds of $7,290,000. In addition, the investors received warrants to purchase
approximately 634,000 additional shares of Common Stock at an exercise price of
$5.75. All of the 729 shares of Series A Preferred Stock have been converted
into 1,483,750 shares of Common Stock. The net proceeds to the Company were
approximately $6,490,000 million and were used to repay the bridge financing
incurred in the Tallahassee practice affiliation, to finance a portion of the
cost of the Dallas affiliation and for working capital.
The Company used $720,000 for capital expenditures in 1996, compared to
$914,000 in 1995 and $779,000 in 1994. In addition, the Company incurred capital
lease obligations of $981,000 in 1996, $1,275,000 in 1995 and $76,000 in 1994.
These capital expenditures consisted primarily of purchases of ophthalmic
equipment for use in the Company's Centers and satellite locations. The higher
levels in 1995 reflected the relocation and expansion of the Nashville and Omaha
Centers. Capital expenditures in 1997 are estimated at approximately $1,200,000,
exclusive of the purchase of assets of practice locations in additional
affiliations.
In February 1997, the Company entered into the $15,000,000 Credit Facility
for the purpose of refinancing certain existing debt, providing working capital
and financing acquisitions. The Credit Facility is a $15 million committed
facility, comprised of a $13 million acquisition facility (the "Acquisition
Facility") and a $2 million working capital facility (the "Working Capital
Facility"). The Credit Facility is fully revolving for the first two years and
matures in equal installments over the next four years. The Credit Facility
bears interest at a variable rate equal to the 30-day commercial paper rate
quoted in The Wall Street Journal plus 4.25%.
As of June 30, 1997, the Company had approximately $4,780,000 of cash and
cash equivalents and $4,963,000 of additional borrowing availability under the
Credit Facility. Management believes the combination of these sources, together
with the net proceeds of this Offering and funds generated from operations, will
be sufficient to satisfy the Company's capital requirements for future
affiliations as well as its capital expenditure, working capital and debt
repayment requirements for the next twelve months. In order to provide funds to
continue its growth strategy, the Company will incur, from time to time,
additional bank indebtedness and may issue, in public or private transactions,
equity or debt securities, the availability and terms of which
24
<PAGE> 26
will depend on market and other conditions. There can be no assurance that any
such additional financing will be available on terms acceptable to the Company.
IMPACT OF INFLATION AND CHANGING PRICES
Approximately 44%, 6% and 34% of the Company's total revenues for the six
months ended June 30, 1997 were reimbursed directly by Medicare, Medicaid and
private insurers, respectively. Revenues from these sources may be subject to
reduction or other changes not related to the actual costs of eye care
procedures performed.
Effective January 1, 1996 and again in January 1997, Medicare reimbursement
rates for certain procedures performed by affiliated ophthalmologists were
decreased in various amounts. If the Company is not able to offset these
reductions by a combination of increases in volume and decreases in operating
costs, these reductions will have a negative impact on the results of Center
operations.
25
<PAGE> 27
BUSINESS
Omega is a multi-faceted eye care company that provides a broad range of
practice management and other services to ophthalmologists and optometrists to
assist in the integration of primary, medical and surgical eye care. The Company
emphasizes cooperative professional relationships between ophthalmologists and
optometrists in the formation of integrated eye care networks and co-management
of patient care. The Company's services allow eye care professionals to devote
their time to the delivery of quality primary, medical and surgical eye care and
enable them to expand and position their practices effectively in an
increasingly competitive eye care environment. Omega manages 18 affiliated
ophthalmology practices through which 44 affiliated ophthalmologists provide
medical and surgical eye care at the Company's Centers, which include 86 service
locations and five ASCs. In order to assist ophthalmologists and optometrists in
accessing managed care patient volume, the Company organizes and manages eye
care provider panels, consisting of 8,000 eye care professionals in all 50
states. The Company has related contracts with managed care and other
third-party payors covering approximately 2.3 million lives, 1.2 million of
which are on a capitated basis. Omega also provides supply and equipment
purchasing, mobile surgical equipment and support services, excimer laser
support services, and certain administrative services to networks of associated
optometrists, ophthalmologists and other eye care providers.
EYE CARE INDUSTRY
According to industry sources, total United States expenditures on eye care
were $31.2 billion in 1995. Expenditures for medical and surgical ophthalmology
care in 1995 were approximately $11.6 billion, including approximately $6.9
billion of professional charges and approximately $4.7 billion of related
hospital and ASC facility charges. Approximately $19.6 billion was spent on
primary eye care such as eye exams, treatment of vision disorders and
prescriptions for eye glasses and contact lenses. Eye care expenditures are
expected to increase as the population continues to age and as technological
advances make complex ophthalmic procedures more accessible and affordable.
Ophthalmologists generally specialize in medical and surgical eye care
procedures, including cataract surgery, glaucoma surgery, laser procedures for
retinal conditions, eyelid surgery, corneal surgery and strabismus surgery.
Ophthalmologists are medical doctors who have completed four years of medical
school training, a one year internship and at least three additional years of
ophthalmic training. In 1994, there were approximately 15,600 ophthalmologists
in the United States who performed approximately 2.4 million major surgical
procedures. Optometrists specialize in primary eye care and have completed a
four-year training program following college to earn a doctor of optometry
degree. In 1994 approximately 28,200 optometrists were actively involved in
patient care in the United States.
The number of people covered by managed care and indemnity eye care
insurance plans has grown significantly in recent years and is expected to
continue to increase. Health insurers are seeking to increase revenue and market
share by offering insurance packages that include primary eye care coverage for
both commercial and Medicare patients. According to industry sources, HMO
enrollment overall has increased from 41.0 million members in 1992 to 58.0
million members in 1995, while HMO Medicare membership was approximately 3.6
million members in 1995 and is expected to reach 7.2 million by 1999. It is
estimated that in 1995, 65.0% of commercial HMO plans and 86.0% of Medicare
plans offered primary eye care benefits. As more HMO enrollees utilize primary
eye care benefits, the Company believes that there will be increased demand for
more specialized and complex medical and surgical eye care services. Health
insurance companies, including HMOs and other managed care companies, seek
capitated contracts with provider networks that deliver and manage all levels of
eye care in order to secure access to credentialed provider panels with
significant geographic coverage and to reduce the variances in their costs of
eye care services.
Unlike the majority of medical specialities, eye care professionals do not
depend on traditional primary care physicians for patient referrals. Patients
develop primary eye care relationships directly with either an ophthalmologist
or, more typically, an optometrist. Professional tension between
ophthalmologists and optometrists, due to this overlap in the provision of
primary eye care, is a significant factor that the Company believes leads to
inefficient patient management in the eye care industry. For example,
optometrists have
26
<PAGE> 28
attempted to expand their practice revenue by securing regulatory approval to
perform more complex medical procedures that traditionally have been performed
by ophthalmologists, and ophthalmologists have attempted to retain exclusive
authority to perform existing specialty services while expanding their primary
care patient relationship base. Traditional ophthalmologists who maintain
primary care practices tend to perform fewer medical and surgical procedures and
on average perform approximately one surgery for every 100 patient visits.
Large retail optical centers are emerging as a significant point of initial
patient contact for eye care. Patients increasingly are seeking convenient and
accessible primary eye care through discount optical centers that typically
feature convenient locations, walk-in service, extended hours of operation, name
brand eyeglass frames and contact lenses at low prices and an optometrist on the
premises. Such retailers generate the patient volume to support purchases of
expensive clinical equipment, allowing affiliated optometrists to further expand
their practices. Because of lower patient volumes, independent office-based
optometrists typically must expend a greater portion of practice revenue to
support the practice's administrative, billing and collections, capital and
other overhead costs. The Company believes that the emerging prominence of
volume retailers and their affiliated optometric practices is creating
significant competitive pressure on independent office-based optometrists to
reduce their prices and increase their marketing efforts in order to maintain
adequate patient volume.
Competitive pressures within the eye care industry and between
ophthalmologists and optometrists, the increasing influence of managed care, the
capital costs associated with provision of innovative laser-based surgical
procedures and the administrative demands of operating a profitable practice are
influencing individual ophthalmologists and optometrists to affiliate with
larger eye care organizations. These organizations provide services and
resources to ophthalmologists and optometrists based on their practice-specific
needs. Much of the consolidation is occurring through affiliations with
physician practice management companies which offer eye care professionals
access to administrative, accounting, and information services, managed care
contracting, volume purchasing, equipment and capital resources. Certain other
programs provide only the service or services that meet the specific needs of an
ophthalmic or optometric practice. The Company believes that consolidation
remains in the early stages, with less than 2.0% of ophthalmologists and
optometrists affiliated with a practice management company.
STRATEGY
Omega's objective is to develop and provide management and other services
to comprehensive eye care networks that deliver quality, cost-effective eye care
in convenient locations through the cooperative efforts of optometrists and
ophthalmologists. The Company seeks to achieve this objective by implementing
the following strategy: (i) expanding its base of affiliated ophthalmologists in
targeted markets; (ii) developing and managing primary care optometric networks;
(iii) providing value-added management, purchasing and related administrative
services to enhance productivity of affiliated ophthalmologists and network
optometrists; and (iv) leveraging managed care contracting expertise. The
Company believes its strategy of organizing ophthalmologists, optometrists, and
related ancillary services into cooperative, integrated eye care networks
enhances its ability to manage the delivery of quality eye care services
cost-effectively. The following is a discussion of the primary components of the
Company's strategy.
Expand Base of Affiliated Ophthalmologists
Omega intends to expand its network of affiliated ophthalmologists in
targeted markets throughout the United States. The Company evaluates potential
affiliation candidates based on a variety of factors, including (i) commitment
to cooperate with optometrists in the effective co-management of patient care;
(ii) medical credentials and reputation; (iii) competitive market position; and
(iv) recognition of the need for outside managerial, financial and systems
expertise to maximize practice opportunities in a managed care environment.
Omega believes that its experience in the eye care industry, its reputation in
the optometric community, the depth of its management team and its affiliation
and cooperative operating model make it an attractive partner for
ophthalmologists.
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Develop and Manage Optometric Networks
Omega believes that optometrists are best positioned to provide the primary
care component of an integrated eye care delivery system, freeing
ophthalmologists to focus on complex medical and surgical procedures. To
facilitate the optometrist's role as a primary care provider, Omega develops and
manages optometric networks that position member eye care providers to work
cooperatively with affiliated ophthalmologists in delivering a full range of
services through Omega's eye care Centers. These primary care oriented networks
result in medically appropriate referrals from network optometrists to
affiliated ophthalmologists for medical and surgical procedures. This
cooperative approach to patient management enhances the optometrist-
to-ophthalmologist referral pattern and increases ophthalmologist productivity.
Omega's affiliated ophthalmologists on average perform one surgery for every
seven patient visits compared to a national average of one surgery per 100
patient visits. The Company believes that coordination of patient care between
optometrists and ophthalmologists is essential to the delivery of quality eye
care services on a cost-effective basis, particularly considering recent trends
in managed care and cost containment in the health care industry.
Provide Value-Added Management, Purchasing and Ancillary Services
In an effort to enhance the productivity and efficiency of eye care network
professionals, Omega provides a variety of value-added services to optometrists
and ophthalmologists. The Company's PEN division operates a nationwide volume
purchasing cooperative that affords its participants access to discounted rates
on eye care supplies and clinical equipment. The Omega Medical Services division
provides mobile ophthalmic surgical equipment and supplies on a per-case basis
to surgical facilities, primarily in rural areas, including hospitals and ASCs.
Omega negotiates on behalf of its affiliated ophthalmologists for periodic
access to hospital- or center-based excimer lasers in order to perform
photorefractive keratectomy procedures ("PRK") and laser in-situ keratomileusis
procedures ("LASIK"), and sponsors related clinical education programs. PEN
offers administrative and back-office assistance on a contracted basis to its
700 member optometrists. Services are designed to meet optometrists' needs in
several areas such as accounting and financial reporting, billing and
collections and staff management. These complementary offerings expand Omega's
line of services and allow the Company to meet the different needs of eye care
providers even if not affiliated with the Company. By adding clinical and
operational value to these providers, Omega enhances its relationship with
existing, as well as potential future members of its eye care networks.
Leverage Managed Care Contracting Expertise
Omega intends to leverage its managed care contracting expertise to
position the Company for increasing participation in various types of
risk-sharing agreements for the provision of eye care services. The Company's
EHN division develops and administers managed eye care provider panels in
markets nationwide. EHN organizes ophthalmologists, optometrists and ASCs to
form a full-service medical and surgical eye care panel with the leverage to
negotiate effectively with third-party payors and to secure access to their
associated patient volume. The Company has managed care arrangements covering
2.3 million lives, 1.2 million of which are on a capitated basis, and maintains
panels with an aggregate of over 8,000 ophthalmologists and optometrists
providing eye care in all 50 states. Omega believes it has the potential for
incremental growth in its network of affiliated ophthalmologists in markets
where new co-management Centers can be established through relationships
developed by the EHN division.
OMEGA SERVICES
In order to meet the strategic needs of ophthalmologists and optometrists
associated with its eye care networks and other health care providers, Omega
provides a wide range of practice management and other services. The Company's
services not only allow eye care professionals to devote more of their time to
delivery of quality primary, medical and surgical eye care, they are intended to
enable the providers to expand and
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position their practices effectively in an increasingly competitive health care
services environment. The following services are provided by Omega:
Ophthalmologist Practice Management Services
Omega provides a wide range of practice management services in an effort to
increase the revenues and manage the expenses of its Affiliated Practices. Omega
seeks to increase Affiliated Practices' revenues primarily by building
optometric networks to increase patient referrals, by adding medical and
surgical eye care services and by expanding a practice's geographic coverage
through satellite offices.
- Building Optometric Networks. Before affiliating with an
ophthalmologist, Omega surveys the local eye care community to identify
those optometrists who share an interest in co-management of patient care
by ophthalmologists and optometrists. The Company enters into a new
ophthalmology affiliation only after organizing a network of optometrists
who concur in the reputation and quality of eye care provided by such
ophthalmologists. In an effort to ensure patient and referring provider
satisfaction, the Centers maintain data bases on the referral patterns and
treatment preferences of optometrists in such networks, sponsor monthly
continuing education presentations and solicit clinical and operating
input from advisory boards of local optometrists. Because affiliated
ophthalmologists focus their limited time and resources on medical and
surgical procedures, Omega Centers frequently refer primary care patients,
as well as certain pre- or postoperative patients, to local optometrists.
Since Omega's affiliated ophthalmologists generally do not provide primary
eye care, they concentrate on surgical procedures and have the opportunity
to refine and improve their surgical skills, which enhances the quality of
patient care and potential optometric referrals.
- Adding Medical and Surgical Services. The majority of an
ophthalmologist's practice typically is devoted to cataract and refractive
surgeries. Omega seeks to expand the range of procedures performed by
Affiliated Practices by adding new eye care sub-specialty surgeons in
areas such as glaucoma, retinal surgery, pediatric eye care and cosmetic
eye surgery. The Company recruits new sub-specialists to join the
Affiliated Practices and, in some instances, contracts with
sub-specialists to visit satellite locations on a part-time basis.
- Expanding Patient Territory. The Company responds to untapped patient
demand in suburban or rural areas by leasing space for satellite
ophthalmologist offices on a part-time basis. Affiliated ophthalmologists
travel to these locations periodically to perform medical and some
surgical eye care using primarily leased equipment. The Affiliated
Practices' broader geographic coverage increases their appeal to managed
care payors.
In addition to efforts to increase the revenues of Affiliated Practices,
the Company assists in managing their practices more effectively. Omega recruits
a local optometrist to serve as Center Director at each Affiliated Practice and
employs all non-physician personnel. The Company is responsible for billing and
collections, accounting and financial management, assisting in credentialing
affiliated ophthalmologists, negotiating managed care contracts, marketing,
supply and equipment purchasing, outcomes assessment, human resources and other
administrative services. These services are coordinated through its corporate
offices in Memphis, Tennessee, its four regional offices and on-site at each
Center.
Omega implements sound financial management procedures and resources at its
Centers. The Company's employees provide billing and collections, cash
management, financial reporting and capital budgeting services and typically
arrange for the provision of equipment financing, auditing, legal and tax
services, as well as appropriate insurance coverage. The Company identifies the
information requirements of each Affiliated Practice and implements the
appropriate systems resources. The Centers are linked by virtual private network
utilizing the internet. The Company is in the process of interfacing its eye
care practice management system with the systems at each Center and is
developing a corporate data repository. The EHN division also maintains a
managed care information system designed to meet the utilization review and
medical management needs of its panels of eye care providers.
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<PAGE> 31
Omega coordinates purchasing of ophthalmic supplies and equipment at all
Centers. In an effort to minimize such costs, the Company leverages its vendor
relationships, evaluates and plans equipment requirements, and compares bids on
specific items. The Company provides facilities planning assistance including
market surveys, lease negotiation and construction oversight for leasehold
improvements at Centers, satellites and ASCs.
To facilitate communications with patients and referring optometrists, the
Company supplies Affiliated Practices with standardized clinical and promotional
brochures, newsletters and other materials. The Company retains public relations
and advertising agencies to develop such materials and to coordinate broader
campaigns. The Company maintains a site on the world wide web at
www.omegahealth.com which provides information to patients, doctors and the
public about the Company's services. The Company leverages its medical
management resources at EHN to provide assistance in seeking and negotiating
managed care contracts. The Company also provides human resource services for
its Centers, including payroll, employee benefits and related administrative
services.
Managed Care Contracting Services
Omega organizes and manages panels of eye care providers, including
ophthalmologists, and optometrists, and facility based providers, in markets
nationwide. The Company, through its EHN division, negotiates managed care
contracts with HMOs, health insurance companies and other third-party payors and
arranges for members of its provider panels to deliver eye care services to
enrollees. Under its capitated contracts, the Company receives payment from
payors on a per-member-per-month basis and reimburses panel providers for
services delivered based on a modified fee-for-service basis. Under such
arrangements, the Company accepts the risk that the utilization or cost of eye
care services may exceed expectations. In an effort to profitably manage the
appropriate delivery of quality care under capitated arrangements, the Company
provides its panels with information and operating systems, actuarial and
financial analysis and medical management services, and retains the right to
adjust its fee schedules with panel members from time to time based on
utilization levels. As of June 30, 1997, the EHN division managed eye care
provider panels included approximately 8,000 ophthalmologists and optometrists
and had managed care contracts with approximately 2.3 million covered lines,
approximately 1.2 million of which are on a capitated basis.
Mobile Surgical Services
Through the Omega Medical Services division, the Company operates a mobile
surgical program that provides ophthalmic surgical equipment, related supplies
and technical support personnel to surgical facilities, including hospitals and
ASCs, on a per-case basis. This service provides network ophthalmologists in
suburban or rural areas access to equipment to meet the local demand for complex
eye care procedures, and allows the associated facilities to avoid the otherwise
substantial capital costs associated with such equipment. Omega's mobile
surgical equipment was used in approximately 1,100 and 700 medical and surgical
eye care procedures in the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively. The Company also provides certain equipment and
supply purchasing services to ophthalmologists, hospitals and ASCs.
Optometric Purchasing and Administrative Services
Omega operates a discount purchasing program for the products and services
used in the day-to-day practices of optometrists. These products include eye
glass frames and lenses, contact lenses, clinical equipment, and other supplies.
This purchasing program leverages the purchasing strength of approximately 700
participating optometrists and buys from a national panel of approximately 50
vendors, as of June 30, 1997. Omega also provides administrative services on a
contracted basis to meet the optometrists' needs in several areas such as
accounting and financial reporting, billing and collections and staff
management.
Excimer Laser Support Services
Omega assists network ophthalmologists in negotiating access to excimer
laser technology through contracts with third-party facility partners, such as
hospitals, ASCs and laser center companies. The excimer
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laser is used to perform PRK, a refractive surgical procedure that can reduce or
eliminate the need for glasses or contact lenses among patients with refractive
errors. However, the cost of an excimer laser is largely prohibitive for
individual ophthalmologists without the cooperation of facilities or other
providers that have access to greater patient volume. Through its VisionAmerica
division, the Company negotiates per-case rates with the facility owners of
excimer lasers, arranges case schedules for affiliated ophthalmologists and
their patients, provides the required technical personnel and supplies, and
sponsors co-management education programs for PRK.
EYE CARE CENTER OPERATIONS
The Company operates Centers in which affiliated ophthalmologists conduct
their practice under management agreements with the Company. Each Center is
operated through the joint efforts of one or more affiliated ophthalmologists
and an optometrist employed by the Company who serves as a Center Director. The
affiliated ophthalmologists examine patients and perform medical and surgical
eye care in the Center and are responsible for all medical decisions affecting
patient care. The affiliated ophthalmologists, in coordination with the Center
Director, establish ongoing continuing education programs, patient support and
other programs for the benefit of the participating optometrists and other
health care professionals. Although the Centers do not focus on primary eye care
and typically do not dispense eyeglasses and contact lenses, the Center Director
provides limited primary eye care services for the affiliated ophthalmologist as
necessary. In general, patients receive primary care including eye exams,
prescriptions, and the preparation of corrective lenses and contact lenses from
network optometrists.
Typically, the Company's Centers are in 3,000 to 10,000 square feet of
leased space, containing approximately four examination rooms, specialty areas
for lasers and fundus photography and administrative offices. In addition to the
affiliated ophthalmologists and Center Director, the Center's staff typically
includes a business office manager and both administrative and medical support
personnel. Depending upon the medical procedure required, most surgeries are
conducted at nearby hospitals and ASCs. Common surgical procedures include
cataract surgery, glaucoma surgery, laser procedures for retinal conditions, eye
lid surgery, cosmetic surgery, corneal surgery, strabismus surgery, retina
surgery and refractive surgery.
Five Centers maintain ASCs. These surgical facilities generally are located
within or adjacent to the Centers' physical facilities. The Company plans to
develop additional ASCs to support Centers where permitted by state law and
where, in management's judgment, the characteristics of the surgical component
of the practice provide potential for increased return on investment.
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The table below lists the name and primary location of each Center, the
date the Center was opened or acquired, the number of affiliated
ophthalmologists, and the number of locations.
<TABLE>
<CAPTION>
DATE NUMBER OF
PRIMARY OPENED OR AFFILIATED SERVICE
NAME OF CENTER LOCATION ACQUIRED OPHTHALMOLOGISTS LOCATIONS
- -------------- --------------- --------- ---------------- ---------
<S> <C> <C> <C> <C>
Omega Eye Associates of Birmingham........ Birmingham, AL 3/97 1 2
Omega Eye Care Center..................... Birmingham, AL 6/89 2 13
Capital Eye Center(1)..................... Tallahassee, FL 3/96 3 1
Omega Eye Associates(1)................... Clearwater, FL 1/92 1 2
Dillman Eye Care.......................... Danville, IL 8/97 2 1
Eye Consultants & Surgeons................ Janesville, WI 9/97 4 8
Chicago, IL
Faust-Gelvin Eye Center(1)................ Marion, IN 5/97 2 3
Missouri Eye Institute.................... Springfield, MO 1/92 3 6
Missouri Eye Institute.................... St. Louis, MO 1/92 2 2
Omaha Eye Institute(1).................... Omaha, NE 4/88 2 10
Omega Eye Care Center..................... Albuquerque, NM 11/87 2 4
Omega Eye Center.......................... Jackson, TN 5/88 4 6
Southern Eye Associates................... Memphis, TN 1/90 1 2
VisionAmerica............................. Nashville, TN 9/90 4 13
Omega Eye Center of Houston............... Houston, TX 7/86 3 3
EyeCare and Surgery Center of North
Texas(1)................................ Dallas, TX 9/96 4 6
Omega Eye Center.......................... El Paso, TX 8/89 2 3
Capital Eye Consultants................... Fairfax, VA 4/88 2 1
-- --
Total........................... 44 86
== ==
</TABLE>
- ---------------
(1) This Center maintains an ambulatory surgical unit.
QUALITY ASSURANCE
The Company's National Medical Director and National Optometric Director
are responsible for the Company's quality assurance activities under the
direction of the quality assurance committee of the Board of Directors. They are
responsible for all quality improvement activities, including establishing and
monitoring quality standards for all operations. Each Center has a quality
assurance committee consisting of its affiliated ophthalmologists and its Center
Director. The Eye Health Network has a quality assurance group responsible for
ensuring that managed care programs administered by EHN comply with guidelines
promulgated by the National Committee on Quality Assurance.
MANAGEMENT AGREEMENTS
The Company has entered into Management Agreements with each of the
Affiliated Practices, and intends to enter into long-term service agreements
with each additional practice with which it affiliates in the future, to provide
management, administrative and development services. Under the Management
Agreements, the Affiliated Practices are solely responsible for all aspects of
the practice of medicine, and the Company has the primary responsibility for the
business and administrative aspects of the Affiliated Practices. The Company
employs optometrist Center Directors and all other non-physician personnel at
each Center. Pursuant to the Management Agreements, the Company provides or
arranges for various management, administrative and development services for the
Affiliated Practices relating to the day-to-day non-medical operations of the
Affiliated Practices.
The following summary of the Management Agreements is intended to be a
general summary of the form of Management Agreement. The Company expects to
enter into similar agreements with other Affiliated Practices in the future. The
actual terms of the individual Management Agreements, and other service
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agreements into which the Company may enter in the future, may vary in certain
respects from the description below as a result of negotiations with the
individual practices and the requirements of local regulations. The Omega
Centers established prior to 1991 (the "Founded Centers") were formed by
establishing a network of optometrists to support co-management centers at which
ophthalmologist practices provided medical and surgical eye care pursuant to an
independent management contract (the "Independent Contracts"). The Founded
Centers generally did not involve the purchase of equipment or other assets from
the ophthalmologists or other initial payments from Omega to the
ophthalmologists. The term "Management Agreements" includes the Independent
Contracts, unless specifically noted. The term "Affiliated Practice" includes
ophthalmologists practicing at the Founded Centers, unless specifically noted.
The Independent Contracts have certain differing provisions from the current
form of Management Agreement, as noted below. For a discussion of circumstances
under which Management Agreements may be rendered unenforceable, see "Risk
Factors -- Government Regulation."
Pursuant to the Management Agreements, the Company, among other things, (i)
acts as the exclusive manager and administrator of non-medical services relating
to the operation of the Affiliated Practices, subject to matters for which the
Affiliated Practices maintain responsibility or which are subject to the
approval of both parties, (ii) bills patients, insurance companies and other
third party payors and collects, on behalf of the Affiliated Practices, the fees
for professional medical and other services rendered, including goods and
supplies sold by the Affiliated Practices, (iii) provides or arranges for, as
necessary, clerical, accounting, purchasing, payroll, legal, bookkeeping and
computer services and personnel, information management, preparation of certain
tax returns, printing, postage and duplication services and medical transcribing
services, (iv) supervises and maintains custody of substantially all files and
records (medical records of the Affiliated Practices remain the property of the
Affiliated Practices), (v) provides facilities for the Affiliated Practices,
(vi) prepares, in consultation with the Affiliated Practices, all annual and
capital operating budgets, (vii) orders and purchases equipment, inventory and
supplies as reasonably requested by the Affiliated Practices, (viii) implements,
in consultation with the Affiliated Practices, local public relations or
marketing programs, (ix) provides financial and business assistance in the
negotiation, establishment, supervision and maintenance of contracts and
relationships with managed care and other similar providers and payors, and (x)
coordinates with the optometric network to arrange for continuing education
programs and to provide other information and services requested by the
optometric network.
Under the Management Agreements, the Affiliated Practices retain the
responsibility for, among other things, (i) hiring and compensating
ophthalmologists, subject to the reasonable approval of Omega, (ii) ensuring
that ophthalmologists have the required licenses, credentials, approvals and
other certifications needed to perform their duties and (iii) complying with
certain federal and state laws and regulations applicable to the practice of
medicine. The Affiliated Practices maintain exclusive control of the practice of
medicine and the delivery of medical services. The Company assists the
Affiliated Practices in obtaining professional liability and worker's
compensation insurance for the physicians and other medical employees of the
Affiliated Practices, as well as general liability umbrella coverage. The
Company is responsible for obtaining professional liability and worker's
compensation insurance for employees of the Company and general liability and
property insurance for the Affiliated Practices.
Generally under the Management Agreements (excluding the Independent
Contracts), the Company may only take the following actions with the consent of
the Affiliated Practice, which consent shall not be unreasonably withheld: (i)
hiring or firing Center employees; (ii) relocating the Center's principal office
or opening or closing additional Center locations; (iii) any public marketing of
the Center; and (iv) any purchase of Center equipment or other non-recurring
expenditure exceeding certain levels.
Under the Management Agreements (excluding the Independent Contracts) the
Company receives a set monthly fee for managing the Affiliated Practices, plus
an additional fee in the event the revenues or earnings of the Affiliated
Practice exceed certain levels, and such management fees may be reduced in the
event of significant reductions in the revenues of the Affiliated Practices. The
management fees paid to the Company typically range from 40% to 50% of the funds
available after payment of all operating expenses of the Affiliated Practice.
Under the Independent Contracts the Company typically is paid 60% to 70% of the
revenues of the
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Affiliated Practice, and from this amount the Company pays all of the operating
expenses of the Founded Center and retains a management fee.
The Management Agreements (excluding the Independent Contracts) have
initial terms of 40 years, with automatic extensions (unless specified notice is
given) of additional five-year terms. The Independent Contracts have terms
ranging from one to five years, automatically renewing for successive one year
periods, unless a four month notice is given. The Management Agreement may be
terminated by either party if the other party (i) files a petition in bankruptcy
or other similar events occur or (ii) defaults on the performance of a material
duty or obligation, which default continues for a specified term after notice.
In addition, the Company, may terminate the agreement if the Affiliated
Practice's participation in the Medicare or Medicaid program is terminated or
suspended, or an ophthalmologist's license is terminated or suspended, or the
Affiliated Practice is unable to obtain professional liability insurance, as a
result of some act or omission of the Affiliated Practice or the
ophthalmologists. The Affiliated Practice may terminate the agreement if the
Company, after notice, fails to remit funds due to the Affiliated Practice.
Under the Independent Contracts the parties may more terminate the agreements,
generally with notice of 180 days or less. Generally upon termination of a
Management Agreement (excluding the Independent Contracts) by the Company during
the first five years of the term, the Company is required to sell and the
Affiliated Practice is required to purchase and assume the assets and
liabilities related to the Affiliated Practice at the purchase price paid by the
Company for such assets, less certain annual reductions.
Generally under the Management Agreements (excluding the Independent
Contracts), each physician owner must give the Company 24 months notice of an
intent to retire from the Affiliated Practice, which notice may not be given
during the first three years of the term.
The Affiliated Practices and the physician owners of the Affiliated
Practices generally agree not to compete with the Company in providing services
similar to those provided by the Company under the Management Agreements, and
the physician owners also generally agree with the Company not to compete with
an Affiliated Practice, within a specified geographic area. Non-competition
restrictions generally apply to physician owners during their affiliation with
the Affiliated Practices and for three to five years thereafter. In addition,
the Management Agreement requires the Affiliated Practice to enter into
non-competition agreements with all ophthalmologists in the Affiliated Practice,
of which agreements the Company is a third-party beneficiary. The Management
Agreements generally require the Affiliated Practices to pursue enforcement of
the non-competition agreement with ophthalmologists or assign to the Company the
right to pursue enforcement.
The Management Agreements contain indemnification provisions, pursuant to
which the Company indemnifies the Affiliated Practices for damages resulting
from negligent acts or omissions by the Company or its agents, employees or
shareholders. In addition, the Affiliated Practices indemnify the Company for
any damages resulting from any negligent act or omissions by any affiliated
ophthalmologists, agents or employees of the Affiliated Practice. The parties to
the Management Agreements have agreed that in the event disputes arise between
the parties, or new issues arise, and such issues are not resolved, then such
issues will be submitted to binding arbitration.
COMPETITION
The Company competes with other private and publicly-traded physician
practice management companies which seek to affiliate with eye care
professionals. Additionally, certain hospitals, clinics, health care companies,
HMOs and retail eye centers engage in similar activities and are, or may become,
competitors in providing management to providers of eye care services. Some of
these competitors have substantially greater financial resources than the
Company. The Company believes that it competes for affiliation candidates
primarily on the basis of its management experience in the eye care industry,
its reputation in the optometric community, the depth of its management team and
its affiliation and cooperative operating model. The Company's Centers compete
with the practices of local ophthalmologists as well as with formal and informal
organizations of eye care professionals for eye care patients. The Company
believes that it competes for eye care patients primarily on the basis of the
quality of its medical and surgical eye care services, patient
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satisfaction with the staff and service at the Centers and the strength of its
networks of referring optometrists. The Company's EHN division competes with
other eye provider panels for managed care contracts primarily on the basis of
price, credentials of panel eye care providers, and geographic coverage.
GOVERNMENT REGULATION AND SUPERVISION
The delivery of health care services has become one of the most highly
regulated of professional and business endeavors in the United States. Both the
federal government and the individual state governments are responsible for
overseeing the activities of individuals and businesses engaged in the delivery
of health care services. Federal law and regulations are based primarily upon
the Medicare program and the Medicaid program, each of which is financed, at
least in part, with federal funds. State jurisdiction is based upon the state's
interest in regulating the quality of health care in the state, regardless of
the source of payment.
Although the Company believes its operations are in material compliance
with applicable laws, it has not received or applied for a legal opinion from
counsel or from any federal or state judicial or regulatory authority to that
effect, many of such laws are broad and subject to varying interpretations, and
many aspects of the Company's business operations have not been the subject of
state or federal regulatory interpretation. The laws applicable to the Company
are subject to evolving interpretations, and therefore, there can be no
assurance that a review of the Company or the Affiliated Practices by a court or
law enforcement or regulatory authority will not result in a determination that
could have a material adverse effect on the Company or the Affiliated Practices.
Furthermore, there can be no assurance that the laws applicable to the Company
will not be amended in a manner that could have a material adverse effect on the
Company.
Federal Law
The federal health care laws apply in any case in which an Affiliated
Practice is providing an item or service that is reimbursable under Medicare or
Medicaid or in which the Company is claiming reimbursement from Medicare or
Medicaid on behalf of physicians with whom the Company has a management
agreement. The principal federal laws include those that prohibit the filing of
false or improper claims with the Medicare or Medicaid programs, those that
prohibit unlawful inducements for the referral of business reimbursable under
Medicare or Medicaid and those that prohibit the provision of certain services
by a provider to a patient if the patient was referred by a physician with which
the provider has certain types of financial relationships.
False and Other Improper Claims. The federal government is authorized to
impose criminal, civil and administrative penalties on any health care provider
that files a false claim for reimbursement from Medicare or Medicaid. Criminal
penalties are also available in the case of claims filed with private insurers
if the government can show that the claims constitute mail fraud or wire fraud.
While the criminal statutes are generally reserved for instances evincing an
obviously fraudulent intent, the criminal and administrative penalty statutes
are being applied by the government in an increasingly broad range of
circumstances. The government has taken the position, for example, that a
pattern of claiming reimbursement for unnecessary services violates these
statutes if the claimant should have known that the services were unnecessary.
The government has also taken the position that claiming reimbursement for
services that are substandard is a violation of these statutes if the claimant
should have known that the care was substandard.
The Company believes that its billing activities on behalf of the
Affiliated Practices are in material compliance with such laws, but there can be
no assurance that the Company's activities will not be challenged or scrutinized
by governmental authorities. A determination that the Company had violated such
laws could have a material adverse impact on the Company.
Anti-Kickback Law. A federal law commonly known as the "Anti-kickback
Amendments" prohibits the offer, solicitation, payment or receipt of anything of
value (direct or indirect, overt or covert, in cash or in kind) which is
intended to induce the referral of Medicare or Medicaid patients, or the
ordering of items or services reimbursable under those programs. The law also
prohibits remuneration that is intended to induce the recommendation of, or the
arranging for, the provision of items or services reimbursable under Medicare
and Medicaid. The law has been broadly interpreted by a number of courts to
prohibit remuneration that is offered or paid for otherwise legitimate purposes
if the circumstances show that one purpose of the
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arrangement is to induce referrals. Even bona fide investment interests in a
health care provider may be questioned under the Anti-kickback Amendments if the
government concludes that the opportunity to invest was offered as an inducement
for referrals. The penalties for violations of this law include criminal
sanctions and exclusion from the federal health care program.
In part to address concerns regarding the implementation of the
Anti-kickback Amendments, the federal government in 1991 published regulations
that provide exceptions or "safe harbors," for certain transactions that will
not be deemed to violate the Anti-kickback Amendments. Among the safe harbors
included in the regulations were provisions relating to the sale of physician
practices, management and personal services agreements and employee
relationships. Subsequently, regulations were published offering safe harbor
protection to additional activities, including referrals within group practices
consisting of active investors. Proposed amendments clarifying the existing safe
harbor regulations were published in 1994. If any of the proposed regulations
are ultimately adopted, they would result in substantive changes to existing
regulations. The failure of an activity to qualify under a safe harbor
provision, while potentially leading to greater regulatory scrutiny, does not
render the activity illegal.
There are several aspects of the Company's relationships with physicians to
which the anti-kickback law may be relevant. In some instances, for example, the
government may construe some of the marketing and managed care contracting
activities of the Company as arranging for the referral of patients to the
physicians with whom the Company has a Management Agreement. Although neither
the investments in the Company by physicians nor the Management Agreements
between the Company and the Affiliated Practices qualify for protection under
the safe harbor regulations, the Company does not believe that these activities
fall within the type of activities the Anti-kickback Amendments were intended to
prohibit. A determination that the Company had violated the Anti-kickback
Amendments would have a material adverse effect on the Company.
The Stark Self-Referral Law. The Stark Self-Referral Law (the "Stark Law")
prohibits a physician from referring a patient to a health care provider for
certain designated health services reimbursable by Medicare or Medicaid if the
physician has a financial relationship with that provider, including an
investment interest, a loan or debt relationship or a compensation relationship.
In addition to the conduct directly prohibited by the law, the statute also
prohibits schemes that are designed to obtain referrals indirectly that cannot
be made directly. The penalties for violating the law include (i) a refund of
any Medicare or Medicaid payments for services that resulted from an unlawful
referral, (ii) civil fines and (iii) exclusion from the Medicare and Medicaid
programs.
The Company does not currently provide any designated health service under
the Stark Law. However, because the Company will provide management services
related to those designated health services provided by physicians affiliated
with the Affiliated Practices, there can be no assurance that the Company will
not be deemed the provider for those services for purposes of the Stark Law and,
accordingly, the recipient of referrals from physicians affiliated with the
Affiliated Practices. In that event, such referrals will be permissible only if
(i) the financial arrangements under the management agreements with the
Affiliated Practices meet certain exceptions in the Stark Law and (ii) the
ownership of stock in the Company by the referring physicians meets certain
investment exceptions under the Stark Law. The Company believes that the
financial arrangements under the Management Agreements qualify for applicable
exceptions under the Stark Law; however, there can be no assurance that a review
by courts or regulatory authorities would not result in a contrary
determination. In addition, the Company will not meet the Stark Law exception
related to investment interest until the Company's stockholders' equity exceeds
$75 million.
Antitrust Risks. The federal and state antitrust laws prohibit activities
which constitute unfair competition, price-fixing, restraints on trade or the
creation of a monopoly. Potential violations of the federal antitrust laws may
be challenged by the United States Department of Justice, the Federal Trade
Commission or private plaintiffs. If a violation of the federal or state
antitrust laws is found by the courts to have occurred, courts may impose treble
damages, injunctions, civil penalties, criminal sanctions, substantial fines and
other assessments of court costs and attorney's fees. If a violation of the
federal or state antitrust laws is found by the courts to have occurred, then
the Company could be subjected to criminal and/or civil liability. The
Department of Justice and the Federal Trade Commission have stated that managed
care networks will be closely scrutinized
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<PAGE> 38
for potential violations of the federal antitrust laws. The Company has adopted
certain antitrust compliance guidelines which must be strictly followed by the
Company.
State Law
State Anti-Kickback Laws. Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Based on court and administrative
interpretation of federal anti-kickback laws, the Company believes that these
laws prohibit payments to referral sources where a purpose for payment is for
the referral. However, the laws in most states regarding kickbacks have been
subjected to limited judicial and regulatory interpretation and therefore, no
assurances can be given that the Company's activities will be found to be in
compliance. Noncompliance with such laws could have an adverse effect upon the
Company and subject it and physicians affiliated with the Affiliated Practices
to penalties and sanctions.
State Self-Referral Laws. A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law but which impose different
restrictions. Some states, for example, only prohibit referrals when the
physician's financial relationship with a health care provider is based upon an
investment interest. Other state laws apply only to a limited number of
designated health services. Some states do not prohibit referrals, but require
only that a patient be informed of the financial relationship before the
referral is made. The Company believes that its operations are in material
compliance with the self-referral law of the states in which the Affiliated
Practices are located.
Fee-Splitting Laws. Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any splitting of a physician's fees, regardless of
whether the other party is a referral source. In most states, it is not
considered to be fee-splitting when the payment made by the physician is
reasonable reimbursement for services rendered on the physician's behalf.
The Florida Board of Medicine (the "Florida Medical Board") in October
1997, based on the facts of a specific case, ruled that physicians would violate
the fee-splitting prohibitions in the state's Medical Practices Act if they pay
a percentage of revenues to a physician practice management company charged with
practice expansion duties. These arrangements could also violate the state's
patient brokering laws, which carry criminal penalties. While the Florida
Medical Board does not enforce those laws, it does control physician licensing
and has also coordinated its position on fee-splitting with the Florida Attorney
General's Office. The Company is monitoring the situation until clarification or
modification of this ruling by the Florida Medical Board or until a ruling by a
court or the Florida Attorney General's office. The Company cannot predict
whether the courts ultimately will uphold the Florida Medical Board's position
or whether the Florida Medical Board's actions will trigger criminal
prosecutions of physician practice management companies and/or physicians under
the patient brokering ban. Although the Company cannot predict the outcome of
such challenge at this time, any adverse determination by the Florida Medical
Board, if judicially upheld, could render the Company's management agreements in
Florida not enforceable, and if such agreements could not be reformed with the
same economic benefit to the Company, the Company could experience a material
adverse effect on its financial condition or results of operations.
The Company will be reimbursed by physicians on whose behalf the Company
provides management services. The compensation provisions of the Management
Agreements have been designed to comply with applicable state laws relating to
fee-splitting. There can be no certainty, however, that, if challenged, the
Company and its Affiliated Practices will be found to be in compliance with each
state's fee-splitting laws. A determination in any state that the Company is
engaged in any unlawful fee-splitting arrangement could render any management
agreement between the Company and an Affiliated Practice located in such state
unenforceable or subject to modification in a manner adverse to the Company.
Corporate Practice of Medicine. Most states prohibit corporations from
engaging in the practice of medicine. Many of these state doctrines prohibit a
business corporation from employing a physician. States differ, however, with
respect to the extent to which a licensed physician can affiliate with corporate
entities for
37
<PAGE> 39
the delivery of medical services. Some states interpret the "practice of
medicine" broadly to include activities of corporations such as the Company that
have an indirect impact on the practice of medicine, even where the physician
rendering the medical services is not an employee of the corporation and the
corporation exercises no discretion with respect to the diagnosis or treatment
of a particular patient.
The Company intends that, pursuant to its management agreements, it will
not exercise any responsibility on behalf of affiliated physicians that could be
construed as affecting the practice of medicine. Accordingly, the Company
believes that its operations do not violate applicable state laws relating to
the corporate practice of medicine. Such laws and legal doctrines have been
subjected to only limited judicial and regulatory interpretation and there can
be no assurance that, if challenged, the Company would be considered to be in
compliance with all such laws and doctrines. A determination in any state that
the Company is engaged in the corporate practice of medicine could render any
management agreement between the Company and an Affiliated Practice located in
such state unenforceable or subject to modification in a manner adverse to the
Company.
Insurance Laws. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply to
companies that provide management services to networks of physicians, there can
be no assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that its proposed operations are in compliance with these laws in the
states in which it currently does business, but there can be no assurance that
future interpretations of insurance and health care network laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations. See "Risk Factors -- Government Regulation."
Any Willing Provider Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
provider who is willing to abide by the terms of the network's contracts and/or
prohibit termination of providers without cause. Such laws would limit the
ability of the Company to develop effective managed care networks in such
states.
The National Association of Insurance Commissioners ("NAIC") in 1995
endorsed a policy proposing the state regulation of risk assumption by
physicians. The policy proposes prohibiting physicians from entering into
capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
Affiliated Practices will be precluded from entering into capitated contracts
directly with employers, individuals and benefit plans unless they qualify to do
business as HMOs or insurance companies. Currently, the Company does not intend,
on its own behalf, or on behalf of the Affiliated Practices, to enter into
capitated payment or other risk-sharing arrangements other than with HMOs or
insurance companies. In addition, in December 1996, the NAIC issued a white
paper entitled "Regulation of Health Risk Bearing Entities," which sets forth
issues to be considered by state insurance regulators when considering new
regulations and encourages that a uniform body of regulation be adopted by the
states. The Company believes that additional regulation at the state level will
be forthcoming in response to the NAIC initiatives. Other states have enacted
statutes or adopted regulations affecting risk assumption in the health care
industry, including statutes and regulations that subject any physician or
physician network engaged in risk-based contracting to applicable insurance laws
and regulations, which may include, among other things, laws and regulations
providing for minimum capital requirements and other safety and soundness
requirements.
PROPERTIES
The Company does not own any real estate. The Company leases 5,600 square
feet of space at 5100 Poplar Avenue in Memphis, Tennessee, where the Company's
headquarters are located. The lease expires in May 1998. Additionally, the
Company leases approximately 7,020 square feet used for EHN in Denver,
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<PAGE> 40
Colorado, approximately 2,270 square feet used for PEN in San Ramon, California
and leases an aggregate of approximately 119,900 square feet used for Centers
and ASCs managed by the Company. Monthly lease payments for these facilities
aggregate approximately $108,158.
INSURANCE
Health care companies, such as the Company, are subject to medical
malpractice, personal injury and other liability claims which are customary
risks inherent in the operation of health care facilities and provision of
health care services. The Company maintains customary property insurance and
maintains liability and professional malpractice insurance policies in the
amount of $3 million (annual aggregate) and with such coverages and deductibles
which are deemed appropriate by management, based upon historical claims,
industry standard and the nature and risks of its business. The Company requires
that affiliated ophthalmologists practicing at its facilities carry medical
malpractice insurance to cover their respective individual professional
liabilities. There can be no assurance that a future claim will not exceed
available insurance coverages or that such coverages will continue to be
available for the same scope of coverages at reasonable premium rates. Any
substantial increase in the cost of such insurance or the unavailability of any
such coverages could have a material adverse effect on the Company's business or
results of operations.
EMPLOYEES
As of September 30, 1997, the Company employed 487 persons, 399 of whom
were full-time employees. Under the terms of the management agreements with the
Affiliated Practices, the Company employs the non-physician personnel of the
Centers, primarily clerical, administrative, and technical, that support such
Affiliated Practices. No employee of the Company or of any affiliated
ophthalmologist is a member of a labor union or subject to a collective
bargaining agreement. The Company believes that its employee relations are good.
LEGAL PROCEEDINGS
The Company is not aware of any litigation which is currently pending
against the Company or any outstanding claims against any affiliated
ophthalmologist, that would have a material adverse effect on the Company's
financial condition or results of operations. The Company expects its affiliated
ophthalmologists to be involved in legal proceedings incident to their business,
most of which are expected to involve claims related to the alleged medical
malpractice of its affiliated ophthalmologists.
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<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---- --- ---------------------
<S> <C> <C>
Andrew W. Miller................ 53 Chairman of the Board of Directors
Thomas P. Lewis................. 42 President, Chief Executive Officer and Director
Ronald L. Edmonds............... 42 Executive Vice President, Chief Financial Officer and Director
Donald A. Hood, O.D............. 52 Senior Vice President -- Managed Care and Director
Allen D. Leck................... 56 Senior Vice President -- Optometric Practice Services
Randall N. Reichle, O.D......... 44 National Optometric Director and Vice President
Cassandra T. Speier............. 38 Senior Vice President
Herman L. Tacker, O.D........... 58 Director
David M. Dillman, M.D........... 46 National Medical Director and Director
</TABLE>
Set forth below is biographical information concerning the Company's
directors and executive officers of the Company:
Andrew W. Miller has served as the Company's Chairman of the Board of
Directors since September 30, 1990 and has been a principal stockholder of
the Company since 1986. Mr. Miller served as the Company's Chief Executive
Officer from September 30, 1990 until March 1, 1991. Since June 1996, Mr.
Miller has served as chairman and chief executive officer of Women's Health
Partners, Inc., a physician practice management company specializing in
obstetrics and gynecology. Since 1989 Mr. Miller has served as Chairman of
American Healthmark, Inc., a hospital ownership and management corporation.
Formerly Mr. Miller was affiliated with Surgical Care Affiliates, Inc.
("SCA"), an owner and operator of outpatient health care facilities,
Hospital Corporation of America ("HCA") and HCA Management Company ("HMC"),
a division of HCA. Mr. Miller is a certified public accountant and prior to
his association with HCA was employed by a national accounting firm.
Thomas P. Lewis has been with the Company since its start-up and has
been a principal architect in the structure and growth of the Company. Mr.
Lewis has been a director since June 1986 when he was first promoted to
President and Chief Executive Officer. As part of a merger agreement, Mr.
Lewis served as Executive Vice President and Chief Operating Officer from
1988 to 1990 and resumed his position as President and Chief Executive
Officer in March 1990. Mr. Lewis received his Bachelor's degree from Rice
University and a Master's degree in Health Care Administration from Trinity
University.
Ronald L. Edmonds has served as the Company's Executive Vice President
since January 1997 and its Chief Financial Officer since September 1992.
From September 1992 until December 1996, he served as Senior Vice
President. He was elected a director in February 1993 and Secretary in
October 1994. From 1978 until 1992, he served in various positions with
KPMG Peat Marwick in Memphis, Tennessee, Oklahoma City, Oklahoma and New
York City, New York. Mr. Edmonds is a certified public accountant and holds
B.S. and M.S. degrees in accounting from Oklahoma State University.
Donald A. Hood, O.D. has served as the Chairman of The Eye Health
Network, Inc. since 1988. He was elected to the Company's Board of
Directors in April 1994. Dr. Hood has maintained a private optometry
practice in the Denver, Colorado area since 1972. Dr. Hood graduated from
the Pacific University College of Optometry.
Allen D. Leck has served as President of Primary Eyecare Network since
1990. Prior to 1990, Mr. Leck held senior marketing positions with Cooper
Vision, Inc., UCO Optics and Bausch and Lomb.
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<PAGE> 42
Mr. Leck earned a B.A. degree from the University of South Dakota and
attended the Graduate School of Sales Management and Marketing at Syracuse
University.
Randall N. Reichle, O.D., F.A.A.O., is National Optometric Director of
the Company and has served as a Company Vice President since July 1986. Dr.
Reichle has maintained a private optometric practice in Houston, Texas
since July 1976. He has also served as Center Director for the Company's
Eye Center in Houston, Texas since July 1986. Dr. Reichle is a graduate of
the University of Houston College of Optometry.
Cassandra T. Speier has served as Senior Vice President of the Company
since July 1994 with responsibilities in operations and development. From
1990 to 1994, Ms. Speier served in various management positions with
MedCath, Inc., of Charlotte, North Carolina. She was previously employed as
a regional director of Medivision, Inc. Ms. Speier has a Bachelor's Degree
from the University of Colorado and a Master's Degree from Loma Linda
University.
Herman L. Tacker, O.D. has served as a director of the Company since
October 1985. Since 1972, Dr. Tacker has conducted a private optometric
practice in Memphis, Tennessee, and has served as a Professor at the
Southern College of Optometry. He graduated from the Southern College of
Optometry and earned a M.S. Degree in Education from Indiana University.
David M. Dillman, M.D. has served as a director of the Company since
August 1997, and at that date became the Company's National Medical
Director. Dr. Dillman has been in private ophthalmic practice since 1981
and is currently the Medical Director of Dillman Eye Care, an Omega
Affiliated Practice, in Danville, Illinois. He serves on the Scientific
Advisory Board for the American Society of Cataract and Refractive Surgery
and on the board of directors for the American College of Eye Surgeons. Dr.
Dillman is a graduate of the University of Notre Dame, received his medical
degree from Indiana University and completed his ophthalmology residency at
the Mayo Clinic in Rochester, Minnesota.
BOARD OF DIRECTORS
The Board is composed of seven director positions which are divided among
three classes. Directors serve three year terms which are staggered among the
classes. The terms of Class I Directors expire in 1998. The terms of Class II
Directors expire in 1999. The terms of Class III Directors expire in 2000.
Current membership within these classes is as follows: Ronald L. Edmonds and
Thomas P. Lewis (Class I); Donald A. Hood, O.D. and David M. Dillman, M.D.
(Class II); Andrew W. Miller and Herman L. Tacker, O.D. (Class III). The Board
is seeking an appropriate candidate to fill the seventh board position that is
currently vacant.
Executive Committee. The Executive Committee of the Board, composed of Mr.
Lewis, Mr. Miller, and Dr. Tacker may take any action, as individually approved
by the Board, which may be taken by the Board of Directors as a whole, except
the power to alter or amend the Bylaws; submit to shareholders any action that
needs shareholder authorization; fill vacancies on the Board of Directors or any
Board Committee; or declare dividends and make distributions.
Compensation Committee. The Compensation Committee of the Board is
composed of Mr. Miller and Dr. Tacker. This committee reviews compensation of
the Company's executive officers and makes recommendations on such matters to
the full Board of Directors. The Compensation Committee has sole discretion to
select participants, grant awards, and otherwise administer the Company's 1995
Stock Option Plan. See "Stock Option Plan."
Audit and Compliance Committee. The Audit and Compliance Committee of the
Board, composed of Mr. Miller, Dr. Dillman and Dr. Tacker, makes recommendations
to the Board of Directors concerning the selection of outside auditors, reviews
the Company's financial statements, reviews and discusses audit plans, audit
work, internal controls, and the report and recommendations of the Company's
independent auditors, considers such other matters in relation to the external
audit of the financial affairs of the Company as may be necessary or appropriate
in order to facilitate accurate and timely financial reporting, and monitors the
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<PAGE> 43
Company's regulatory compliance review program. This committee also approves all
related party transactions of the Company.
Quality Assurance Committee. The Quality Assurance Committee, composed of
Mr. Lewis, Mr. Miller and Dr. Tacker, establishes and monitors risk management
policies.
Directors' Compensation. Directors who are not employees of the Company
receive $1,000 per meeting of the Board of Directors or a committee thereof
attended by the director (if such committee meeting is held other than on the
day of a Board meeting), plus reimbursement of expenses incurred in attending
such Board or committee meetings.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The employment agreement with Thomas P. Lewis has a term ending December
31, 1997, automatically renews for successive one year periods, and provides for
a base salary of $200,000 per year. The agreement also provides for the grant of
options to purchase 100,000 shares of Common Stock at fair market value at such
time as the Company achieves net earnings on a fully-diluted basis of $.80 per
share in any twelve month period. In the event that Mr. Lewis' employment
agreement is not renewed by the Company, Mr. Lewis is entitled to receive a
payment equal to six months' base salary. In the event that Mr. Lewis resigns
from the Company due to "good reason" or within two years following a "change in
control," as defined in the employment agreement, Mr. Lewis is entitled to
receive as severance a payment equal to his annual base salary and all employee
benefits, except pension and other similar compensation-based plans, for a
period of up to two years. Mr. Lewis is not entitled to any severance payments
in the event that he is terminated for cause or resigns other than for "good
reason." The employment agreement contains a non-competition provision whereby
Mr. Lewis is prohibited from competing with the Company for a period of two
years following the date of termination.
The employment agreement with Ronald L. Edmonds has a term ending on
December 31, 1997, automatically renews for four successive one year periods
ending December 31, 2001, and provides for an annual base salary of $115,000
which increases by $15,000 in 1998 and thereafter at the discretion of the
Compensation Committee. In the event that Mr. Edmonds' employment agreement is
not renewed by the Company, Mr. Edmonds is entitled to receive as severance a
payment equal to four months' base salary. In the event that Mr. Edmonds resigns
from the Company due to "good reason" as defined in such employment agreement or
within two years following a "change in control," then Mr. Edmonds is entitled
to receive as severance a payment equal to his annual base salary and he shall
continue to receive all employee benefits, except pension and other similar
compensation-based plans, for a period of up to one year. Mr. Edmonds is not
entitled to any severance payments in the event that he is terminated for cause.
The employment agreement contains a non-competition provision whereby Mr.
Edmonds is prohibited from competing with the Company for a period of one year
following the date of termination.
The employment agreement with Donald A. Hood, O.D. has a term ending
December 31, 1997, automatically renews for successive one year periods through
2001, subject to a four month termination notice by either party, and provides
for an annual base salary of $80,000 and an annual bonus based upon pre-tax net
earnings of EHN beginning in 1997 equal to 10% and decreasing to 2% in 2001. In
the event that Dr. Hood's employment agreement is not renewed by the Company
then Dr. Hood is entitled to receive as severance a payment equal to six months'
base salary. In the event that Dr. Hood resigns from the Company due to "good
reason" as defined in such employment agreement or within two years following a
"change in control," then Dr. Hood is entitled to receive payment equal to his
base salary and shall continue to receive all employee benefits, except pension
and other similar compensation-based plans, for a period of up to two years. Dr.
Hood is not entitled to receive any severance payments in the event that he is
terminated for cause. The employment agreement contains a non-competition
provision whereby Dr. Hood is prohibited from competing with the Company for a
period of three years following the date of termination unless Dr. Hood is
terminated without cause, under which circumstances the period shall be reduced
to one year. If Dr. Hood breaches his non-
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<PAGE> 44
competition agreement within one year of his termination then he shall pay to
the Company as liquidated damages a payment equal to $100,000.
Allen Leck is party to an employment agreement effective May 1, 1997 for an
initial term of five years, with automatic annual renewals after the initial
term. Mr. Leck's employment agreement provides that he will be paid an annual
base salary of $165,000 and an annual bonus of 15% of the first $300,000 of
PEN's annual net earnings plus an additional 5% of any earnings in excess of
$300,000. In addition, Mr. Leck was granted options to purchase 15,000 shares of
Company Common Stock at an exercise price of $6.50 per share. These options vest
one third annually commencing April 30, 2000 and expire on May 1, 2003. If Mr.
Leck is still employed by PEN at May 1, 2000, the Company will grant Mr. Leck
additional options to purchase 10,000 shares of Company Common Stock at an
exercise price equivalent to the fair market value of the stock on May 1, 2000.
These additional options, if granted, will vest one third annually commencing
May 1, 2003 and expire on May 1, 2006. Mr. Leck also receives other customary
benefit, such as insurance, paid vacation, and an automobile. After May 1, 2000,
the employment agreement with Mr. Leck may be terminated by either party upon
five months prior written notice. If Mr. Leck's employment is terminated (i) by
Mr. Leck for good reason, (ii) by Mr. Leck within one year of a change in
control of PEN, or (iii) by PEN without cause prior to May 1, 2000, then Mr.
Leck is entitled to a lump sum severance payment equal to Mr. Leck's annual base
salary for his final year of employment, and the stock options previously
granted will immediately vest in full. If Mr. Leck's employment is terminated by
PEN for cause, Mr. Leck will not be entitled to any severance payment or
immediate vesting of his options.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation awarded to, earned
by, or paid to the Company's chief executive officer and the four other most
highly compensated executive officers for services rendered in all capacities
during the fiscal years ended December 31, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------------
AWARDS
ANNUAL COMPENSATION -------------------- PAYOUTS
---------------------------------------- RESTRICTED OPTION/ -------
OTHER ANNUAL STOCK SAR LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) (#) PAYOUTS COMPENSATION
- --------------------------- ---- -------- ------- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas P. Lewis................... 1996 $123,167 $14,426 -0- -0- 100,000 -0- -0-
President and Chief Executive 1995 104,000 6,000 $8,335(1) -0- -0- -0- -0-
Officer 1994 96,000 8,500 8,335(1) -0- -0- -0- -0-
Ronald L. Edmonds................. 1996 $ 92,000 $ 9,617 -0- -0- 25,000 -0- -0-
Executive Vice President, Chief 1995 92,000 4,000 -0- -0- -0- -0- -0-
Financial Officer, and Secretary 1994 85,000 7,000 -0- -0- -0- -0- -0-
Cassandra T. Speier............... 1996 $ 89,000 $ -0- -0- -0- 25,000 -0- -0-
Senior Vice President 1995 86,833 1,250 -0- -0- -0- -0- -0-
1994 38,958 -0- -0- -0- 15,000 -0- -0-
Donald A. Hood, O.D............... 1996 $ 85,000 $54,959 -0- -0- -0- -0- -0-
Chairman of EHN 1995 85,000 25,000 -0- -0- -0- -0- -0-
1994 85,000 39,654 -0- -0- -0- 50,000 -0-
Randall N. Reichle, O.D........... 1996 $ 84,000 $52,115 -0- -0- -0- 5,000 -0-
National Optometric Director 1995 84,000 46,333 -0- -0- -0- -0- -0-
and Vice President 1994 84,000 37,765 -0- -0- -0- -0- -0-
</TABLE>
- ---------------
(1) In January 1990, the Company entered into a stock bonus arrangement with Mr.
Lewis, pursuant to which Mr. Lewis was issued 1,667 shares on each January
1, for five years, commencing January 1, 1991, provided Mr. Lewis was an
employee of the Company on such dates. The stock bonus arrangement was
partial compensation for Mr. Lewis' relocation to Memphis, Tennessee.
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<PAGE> 45
STOCK OPTIONS
OPTION GRANTS IN 1996(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED RATES
% OF TOTAL OPTIONS OF STOCK APPRECIATION
GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED 1996 ($/SH) DATE 5%($) 10%($)
- ---- ------- ------------------ -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Lewis(3).......... 100,000 44% $5.75 August 2002 195,556 443,648
Ronald L. Edmonds........... 25,000 11 5.75 August 2002 48,889 110,912
Cassandra T. Speier......... 25,000 11 5.75 August 2002 48,889 110,912
Randall N. Reichle.......... 5,000 7 5.75 August 2002 9,778 22,182
</TABLE>
- ---------------
(1) During 1996, no options were exercised by any executive officer.
(2) Based on the $6.63 closing price of the Company's Common Stock on December
31, 1996.
(3) Mr. Lewis' employment agreement provides for the grant of options to
purchase an additional 100,000 shares of Common Stock at fair market value
at such time as the Company achieves net earnings on a fully-diluted basis
of $.80 per share in any twelve month period.
AGGREGATED OPTION EXERCISES AND HOLDINGS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
VALUE OF OPTIONS AT
NUMBER OF OPTIONS AT 12/31/96 12/31/96(2)
NAME SHARES VALUE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------- ------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Thomas P. Lewis............. -- -- 21,667/18,333 $78,650/$66,550
Ronald L. Edmonds........... -- -- 12,667/35,333 45,980/59,510
Randall N. Reichle, O.D..... -- -- 3,667/12,333 13,310/31,020
Donald A. Hood, O.D......... -- -- 0/50,000 0/140,000
Cassandra T. Speier......... -- -- 0/40,000 0/53,950
</TABLE>
- ---------------
(1) During 1996, no options were exercised by any executive officer.
(2) Based on the $6.63 closing price of the Company's Common Stock on December
31, 1996.
The Company does not have a long-term incentive plan or actuarial plan and
has never issued any stock appreciation rights.
401(K) PROFIT SHARING PLAN
Since 1996 the Company has maintained a defined contribution plan (the
"401(k) Plan") for its employees, which is intended to satisfy the tax
qualification requirements of certain sections of the Internal Revenue Code of
1986, as amended (the "Code"). All Company personnel age 21 or older are
eligible to participate in the 401(k) Plan after one year of service with the
Company. The 401(k) Plan permits participants to contribute up to 15% of their
annual compensation from the Company, subject to the limit imposed by the Code.
All amounts contributed under the 401(k) Plan by a participant fully vest
immediately. The 401(k) Plan also permits discretionary contributions by the
Company, as determined by the Company's Board of Directors. No contributions
were made by the Company in 1996. Amounts contributed by the Company vest 20%
each year from the second through the sixth year after contributions.
EMPLOYEE STOCK PURCHASE PLAN
Since 1991 the Company has maintained an Employee Stock Purchase Plan (the
"Purchase Plan") which provides for the implementation of stock purchases by
employees of shares of the Company's Common Stock either on the open market or
from available authorized but unissued shares. The Company has reserved 50,000
shares for issuance under the Purchase Plan. Each eligible employee is granted
on the grant date of each Purchase Plan year options to purchase 1,250 shares of
the Company's stock during the Purchase Plan year. The issue price of the stock
is equal to the lesser of (i) 85% of the market price on the exercise date of
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<PAGE> 46
each Purchase Plan year or (ii) 85% of the market price on each grant date of
each Purchase Plan year. As of December 31, 1996, 27,119 shares have been
purchased by the Purchase Plan, and 12,494 shares were issued in 1997 for
contributions made through December 31, 1996.
STOCK OPTION PLAN
From 1985 through 1994, the Company has maintained a stock option plan for
selected employees, including officers of the Company, directors, key advisors
and selected eye care professionals practicing at Centers (the "1985 Plan"). The
1985 Plan allowed options to be granted for up to 450,000 shares. At December
31, 1996, the range of exercise prices and weighted-average remaining
contractual life of outstanding options was $3.00-$6.50 and 2.67 years,
respectively. The Company adopted its current stock option plan in 1995 which
was made available to selected employees, including officers of the Company,
directors, key advisors and selected eye care professionals practicing at
Centers (the "1995 Plan"). The 1995 Plan allows options to be granted for up to
300,000 shares. At December 31, 1995 and 1996, the number of options exercisable
was 26,710, and 111,167, respectively, and the weighted average exercise price
of those options was $3.56 and $5.14, respectively. To date, there have been
214,500 options granted under the 1995 Plan. The Compensation Committee
administers the awards of stock options pursuant to the Company's 1995 Plan. The
Plan was designed to comply with Section 16 of the Securities Exchange Act of
1934 and Section 162m of the Internal Revenue Code of 1986, as amended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Mr. Miller and Dr.
Tacker, neither of whom has been an officer or employee of the Company, except
that Mr. Miller did serve as the Company's chief executive officer, not as an
employee, from September 30, 1990 until March 1, 1991. No executive officer of
the Company served during 1996 as a member of a compensation committee or as a
director of any entity of which any of the Company's directors serves as an
executive officer. During 1996, an affiliate of Mr. Miller provided bridge
financing in connection with an acquisition. See "Certain Transactions" for
additional disclosure of transactions between the Company and its directors and
executive officers.
CERTAIN TRANSACTIONS
In January 1990, the Company entered into a stock bonus arrangement with
Mr. Lewis, pursuant to which Mr. Lewis was issued 1,667 shares of Company Common
Stock on each January 1 for five years commencing January 1, 1991, provided Mr.
Lewis was an employee of the Company on such dates. The stock bonus arrangement
was partial compensation for Mr. Lewis' relocation to Memphis, Tennessee.
The Company has entered into separate employment agreements with each of
Messrs. Lewis, Edmonds, Leck, and Dr. Hood. See "Management -- Employment
Contracts and Termination of Employment and Change in Control Arrangements."
On March 13, 1996, the Company affiliated with an ophthalmology practice
known as Capital Eye Center located in Tallahassee, Florida. In addition, the
Company acquired 100% of the stock of an ambulatory surgery center associated
with the practice known as Capital Eye Surgery Center. In connection with this
transaction, the Company obtained bridge financing in the form of a 12% $2.5
million subordinated note from an affiliate of the Company's Chairman, Andrew W.
Miller. The note was repaid in full on June 12, 1996, with the proceeds of the
sale of the Series A Preferred Stock.
The Company has an agreement to perform management services for Cathleen M.
Schanzer, M.D., the Medical Director for the Company's Memphis Center, and Dr.
Schanzer is the wife of the Company's President, Thomas P. Lewis. The management
agreement includes payments to Dr. Schanzer equal to 35% of the cash receipts of
the Memphis Center, but with minimum payments to her totaling $200,400 per year.
Dr. Schanzer received approximately $389,000 in 1996 pursuant to the management
agreement.
On August 29, 1997, the Company purchased from Dr. Dillman substantially
all of the assets, including intangibles, related to Dr. Dillman's ophthalmology
practice for a total of $1,500,000, paid (i) $725,000 in
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<PAGE> 47
cash, (ii) in Company Common Stock valued at $500,000, and (iii) $375,000
represented by Omega's 7% subordinated promissory note. In connection with this
transaction, Omega and Dr. Dillman's professional corporation entered into a 40
year management agreement providing for Omega to manage such practice for a base
management fee of $25,000 per month, subject to adjustment based on changes in
the size of the business and other factors. In addition, in connection with this
transaction Omega entered into a ten year real estate lease with a partnership
controlled by Dr. Dillman that provides for monthly rental payments of $13,500.
In August 1997 Dr. Dillman and the Company entered into a Consulting
Services Agreement designating Dr. Dillman as the Company's National Medical
Director at an annual salary of $50,000. The agreement is for an initial term of
one year, with automatic annual renewals, subject to the right of either party
to terminate the agreement on four months' notice.
In connection with the Company's acquisition of The Primary Eyecare Network
on April 30, 1997, Mr. Allen Leck received a cash payment of $481,482, and a
$500,000 promissory note from Omega payable in three annual installments
beginning in March 1998.
The Company maintains a policy that any transactions with affiliated
persons or entities would be on terms no less favorable to the Company than
those that could have been obtained on an arms-length basis from unaffiliated
third parties and that any such transactions must be approved by a majority of
the disinterested directors.
For additional information concerning certain transactions involving the
Company's officers and directors, see "Management -- Compensation Committee
Interlocks and Insider Participation."
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by each person
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock; each Selling Stockholder; each of the Company's directors; each
of the executive officers identified in the Summary Compensation Table; and all
directors and executive officers of the Company as a group. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares beneficially owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING NUMBER OF SHARES AFTER THE OFFERING
--------------------- TO BE SOLD IN -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT(1) THE OFFERING SHARES PERCENT(1)
- ------------------------ ------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
The Dreyfus Corporation(2)......... 650,000 7.36% 650,000 7.36%
Andrew W. Miller................... 324,992(3) 3.68 324,992(3) 3.68
Herman L. Tacker, O.D.............. 135,219(4) 1.53 135,219(4) 1.53
David M. Dillman, M.D.............. 66,667 * 66,667 *
Thomas P. Lewis.................... 167,691(5) 1.90 167,691(5) 1.90
Ronald L. Edmonds.................. 18,183(6) * 18,183(6) *
Donald A. Hood, O.D................ 96,704 1.10 96,704 1.10
Randall N. Reichle, O.D............ 17,829(7) * 17,829(7) *
Cassandra T. Speier................ 5,000(8) * 5,000(8) *
All directors and executive
officers as a group (9
persons)......................... 832,285(9) 10.8 832,285(9) 10.8
</TABLE>
- ---------------
(1) Unless otherwise indicated, beneficial ownership consists of sole voting and
investing power based on 7,712,789 shares of Common Stock outstanding on
September 30, 1997, plus options and warrants to purchase 1,049,623 shares
which are exercisable or become exercisable within 60 days. An asterisk "*"
indicates less than one percent(1%) ownership of Common Stock.
(2) The Dreyfus Corporation's address is One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258.
(3) Included in Mr. Miller's shares are options to purchase 10,000 shares.
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<PAGE> 48
(4) Of the total of 135,219 shares shown, 16,875 are held jointly by Dr. Tacker
and his wife, Wilma R. Tacker. Included in Dr. Tacker's shares are options
to purchase 13,333 shares.
(5) Included in Mr. Lewis' shares are options to purchase 36,669 shares, 10,000
of these options held by Cathleen Schanzer, Mr. Lewis' wife.
(6) Included in Mr. Edmond's shares are options to purchase 15,334 shares.
(7) Included in Mr. Reichle's shares are options to purchase 7,334 shares.
(8) Included in Ms. Speier's shares are options to purchase 5,000 shares.
(9) Included in the ownership of directors and executive officers as a group are
options to purchase 59,667 shares, which are exercisable or become
exercisable within 60 days.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
par value six cents ($0.06) per share and 1,000,000 shares of preferred stock,
no par value per share. At September 30, 1997, 7,712,789 shares of Common Stock
and no shares of preferred stock were issued and outstanding. As of September
30, 1997 the Common Stock was held by 381 stockholders of record. All of the
outstanding Common Stock is, and the shares of Common Stock offered by the
Company hereby when issued and paid for will be, fully paid and non-assessable.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by the Company's stockholders. Holders of the Company's Common
Stock are not entitled to cumulative voting in the election of directors.
Holders of Common Stock are entitled to receive dividends payable in cash or
property other than Common Stock on an equal basis, if and when such dividends
are declared by the Board of Directors from funds legally available, subject to
any preference in favor of outstanding shares of preferred stock, if any. In the
case of any dividend payable in Common Stock, all holders of Common Stock shall
receive the same percentage dividend, as determined by the Board of Directors
when declaring such dividend. In the event of liquidation, holders of Common
Stock participate with each other on a ratable basis as a single class in the
net assets of the Company available for distribution after payment or provision
for liabilities of the Company and payment of the liquidation preference, if
any, on any outstanding shares of preferred stock. The rights, preferences, and
privileges of holders of Common Stock may be subject to, and may be adversely
affected by, the rights of the holders of shares and of any series of preferred
stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized to issue, from time to time, without
approval of the stockholders, up to 1,000,000 shares of preferred stock in one
or more series. The Board of Directors may fix for each series: the distinctive
serial designation and number of shares of the series; the voting powers and the
right, if any, to elect a director or directors (and the terms of office of any
such directors); the dividend rights, if any; the terms of redemption, and the
amount of and provisions regarding any sinking fund for the purchase or
redemption thereof; the liquidation preferences and the amounts payable on
dissolution or liquidation; the terms and conditions under which shares of the
series may or shall be converted into any other series or class of stock or debt
of the corporation; and any other terms or provisions which the Board of
Directors is legally authorized to fix or alter.
It is not possible to state the actual effect of the authorization of the
preferred stock upon the rights of holders of the Common Stock until the Board
determines the specific rights of the holders of any series of preferred stock.
Depending upon the rights granted to any series of preferred stock, issuance
thereof could adversely affect the voting power, liquidation preference, or
other rights of the holders of Common Stock or other preferred stock. The
Board's authority to issue shares of preferred stock provides a potential
vehicle for use in possible acquisitions and other corporate purposes, but its
issuance, for example in connection with a stockholder rights plan, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company, which may
adversely affect the market price of the Common Stock. The Company has no
present plans to issue any additional shares of preferred stock.
On May 17, 1996, the Company completed the sale of 729 shares of its Series
A Preferred Stock. The placement agent for the issue was Swartz Investments, LLC
of Atlanta, Georgia. The Series A Preferred Stock was issued to qualified
foreign investors pursuant to Regulation S under the Securities Act. The
aggregate offering proceeds were $7,290,000 and the placement agent fee was
$729,000. Each share of Series A Preferred Stock was issued at a purchase price
of $10,000 and is convertible into common stock at an
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<PAGE> 50
exercise price equal to the lesser of $5.75 or 85% of the average bid price of
the common stock at the time of conversion. Until conversion, the Series A
Preferred Stock had a 8% dividend, payable in kind. In connection with the
placement, the purchasers of the Series A Preferred Stock were granted options
to acquire 633,913 additional shares of the Company's Common Stock at an
exercise price of $5.75, which options are exercisable until May 17, 2001. The
placement agent was issued warrants to purchase an additional 126,782 shares of
Common Stock with the same exercise price and term. As of September 30, 1997,
all of the 729 shares of Series A Preferred Stock had been converted.
CERTAIN PROVISIONS OF ARTICLES AND BYLAWS
Provisions with Anti-Takeover Implications. Certain provisions of the
Company's Articles of Incorporation ("Articles") and Bylaws deal with matters of
corporate governance and the rights of stockholders. Under the Company's
Articles, the Board of Directors may issue shares of preferred stock and set the
voting rights, preferences, and other terms thereof. The Company's Bylaws
provide that a special meeting of stockholders may be called only by the
Chairman of the Board, the President, or a majority of the directors. Such
provisions, together with certain provisions of the Delaware General Corporation
Law (the "DGCL") (see "Description of Capital Stock -- Statutory Anti-Takeover
Provisions"), could be deemed to have an anti-takeover effect and discourage
takeover attempts not first approved by the Board of Directors (including
takeovers which certain stockholders may deem to be in their best interest). Any
such discouraging effect upon takeover attempts could potentially depress the
market price of the Common Stock or inhibit temporary fluctuations in the market
price of the Common Stock that otherwise could result from actual or rumored
takeover attempts. The Articles of Incorporation provide for the Board of
Directors to be divided into three classes of directors serving staggered year
terms. The classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders.
Indemnification and Limitation of Liability. Under its Articles and
Bylaws, the Company will indemnify its officers, directors, and agents against
all liabilities and expenses reasonably incurred in connection with service for
or on behalf of the Company to the full extent permitted by Delaware law. The
Company also is authorized to advance expenses, purchase insurance, enter into
indemnification agreements, and otherwise grant broader indemnification rights.
The Articles also eliminate the liability of directors and officers to the
Company or its stockholders for monetary damages for breach of fiduciary duty
except to the extent such exemption from liability or limitation thereof is not
permitted under the DGCL. This provision does not eliminate the duty of care
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director continues to be subject to liability for monetary
damages for acts or omissions involving intentional misconduct, fraud, knowing
violations of law, and unlawful distributions. The Company believes that these
provisions of its Articles and Bylaws are necessary to attract and retain
qualified persons as directors and officers. Insofar as indemnification for
liabilities arising under the Securities Act, as amended, may be permitted to
directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
STATUTORY ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interest stockholder. Subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior to the proposed
business combination has owned, 15% or more of the corporation's voting stock.
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<PAGE> 51
The Bylaws of the Company provide that stockholders must follow an advance
notification procedure for certain stockholder nominations of candidates for the
Board of Directors and for certain other stockholder business to be conducted at
an annual meeting. These provisions could, under certain circumstances, operate
to delay, defer or prevent a change in control of the Company.
TRANSFER AGENT
The transfer agent for the Common Stock is Union Planters National Bank,
Memphis, Tennessee.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
10,712,789 shares of Common Stock. Of these shares, all of the 3,000,000 shares
(3,525,000 shares if the Underwriters' over-allotment option is exercised in
full) sold in the Offering will be freely transferable by persons other than
"affiliates" of the Company, without further restriction under the Securities
Act. Of the remaining 7,712,789 shares, 6,297,100 were freely tradeable without
restriction or registration prior to the Offering and 1,415,689 are restricted
shares within the meaning of Rule 144 and may not be sold without registration
or an exemption from registration. In connection with the Offering, the Selling
Stockholders, along with the Company and its executive officers, directors and
certain other persons, who will beneficially own approximately 829,000 or 7.7%
of the Company's outstanding Common Stock after the Offering, have agreed not to
sell or otherwise dispose of any of their shares, directly or indirectly, for
180 days from the date of this Prospectus without the prior written consent of
Equitable Securities Corporation. After the 180 day period all such shares will
be eligible for sale, subject to compliance with Rule 144. See "Principal and
Selling Stockholders" and "Risk Factors -- Shares Eligible for Future Sale."
In general, Rule 144 provides that, subject to its provisions and other
applicable federal and state securities law requirements, any person (or persons
whose shares are aggregated), including any person who may be deemed an
"affiliate" as defined under the Securities Act, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of (i) the average weekly
trading volume of the same class of securities during the four calendar weeks
preceding the filing of notice of the sale with the Securities and Exchange
Commission; or (ii) 1% of the same class of securities then outstanding, subject
in each case to certain manner-of-sale provisions, notice requirements, and the
availability of current information concerning the Company. A person who is not
deemed an "affiliate" of the Company and who has beneficially owned shares for
at least two years is entitled to sell shares under Rule 144 without regard to
the volume limitations and current public information, manner of sale, and
notice requirements described above. Restricted shares will also be eligible for
sale to "qualified institutional buyers" pursuant to Rule 144A under the
Securities Act, without regard to the volume limitations contained in Rule 144.
Currently there are 515,668 shares of Common Stock which are issuable upon
the exercise of outstanding options, with a weighted average exercise price of
$4.50 per share, as well as 1,093,629 shares of Common Stock which are issuable
upon the exercise of outstanding warrants, with a weighted average exercise
price of $5.88 per share. The Company has outstanding convertible notes,
pursuant to which 225,049 shares of Common Stock are issuable upon conversion.
The Company has granted certain registration rights with respect to shares of
Common Stock to the holders of a total of approximately 1,576,000 shares of
Common Stock and 1,094,000 shares issuable upon the conversion of warrants.
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<PAGE> 52
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Equitable
Securities Corporation, Dain Bosworth Incorporated and Morgan Keegan & Company,
Inc. are acting as representatives (the "Representatives"), have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company and the Selling Stockholders the number of shares of
Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Equitable Securities Corporation............................
Dain Bosworth Incorporated..................................
Morgan Keegan & Company, Inc................................
---------
Total............................................. 3,500,000
=========
</TABLE>
The Company is obligated to sell and the Underwriters are obligated to
purchase all of the shares offered hereby, if any are purchased. The Company
Stock is offered subject to receipt and acceptance by the Underwriters and to
certain other conditions, including the right to reject orders in whole or in
part. The Representatives have informed the Company and the Selling Stockholders
that they do not expect to confirm sales to accounts over which they exercise
discretionary authority.
The Underwriters, through the Representatives, have advised the Company and
the Selling Stockholders that the Underwriters propose to offer the shares of
Common Stock to the public initially at the public offering price set forth on
the cover page of this Prospectus and to selected dealers at such public
offering price less a concession not to exceed $ per share. The
selected dealers may reallow a concession to certain other dealers not to exceed
$ per share. After the initial offering to the public, the public
offering price, the concession to selected dealers and the reallowance to other
dealers may be changed by the Representatives.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase at the public offering price less
the underwriting discount as set forth on the cover page of this Prospectus, up
to 525,000 additional shares of Common Stock. If the Underwriters exercise their
option to purchase any of the additional shares of Common Stock, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by each of them as shown in the above table bears
to the Underwriters' initial commitment. The Underwriters may exercise such
option solely to cover over-allotments, if any, in connection with the sale of
the Common Stock offered hereby. The Underwriters, should they exercise their
over-allotment option, will exercise such option on a pro rata basis.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company and the Selling Stockholders. The Underwriters may elect to cover
any such short position by purchasing shares of Common Stock in the open market
or by exercising the over-allotment option granted to the Underwriters. In
addition, the Underwriters may stabilize or maintain the price of the Common
Stock by bidding for or purchasing shares of Common Stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the Offering are reclaimed if
shares of Common Stock previously distributed in the Offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the Common Stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
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<PAGE> 53
transactions may be effected on The Nasdaq Small-Cap Market or otherwise and, if
commenced, may be discontinued at any time.
In connection with the Offering, certain Underwriters (and selling group
members) may also engage in passive market making transactions in the Common
Stock on The Nasdaq Small-Cap Market limited by the prices of independent market
makers and effecting purchases limited by such prices and in response to order
flow. Rule 103 of Regulation M promulgated by the SEC limits the amount of net
purchases that each passive market maker may make and the displayed size of each
bid. Passive market making may stabilize the market price of the Common Stock at
a level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.
In connection with the Offering, the Company and stockholders of the
Company holding in the aggregate shares of Common Stock upon
consummation of the Offering, including each of the Company's officers and
directors, the Selling Stockholders and certain other stockholders, have agreed,
subject to certain limited exceptions, that they will not directly or
indirectly, offer, pledge, sell, offer to sell, contract to sell or grant any
option to purchase or otherwise sell or dispose (or announce any offer, pledge,
offer of sale, contract of sale, grant of any option or other sale or
disposition), of any shares of Common Stock or other capital stock or securities
exchangeable or exercisable for, or convertible into, shares of Common Stock or
other capital stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Equitable Securities Corporation.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments which the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Baker, Donelson,
Bearman & Caldwell, Memphis, Tennessee. Certain legal matters related to the
Offering will be passed upon for the Underwriters by Alston & Bird LLP, Atlanta,
Georgia.
EXPERTS
The consolidated financial statements of Omega Health Systems, Inc. as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996, the financial statements of Primary Eyecare Network as
of and for the years ended April 30, 1996 and 1997, and the combined financial
statements of Faust-Gelvin Eye Center, P.C. and the Outpatient Surgery Center of
Indiana, Inc. as of and for the years ended December 31, 1995 and 1996 have been
included herein and in the registration statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Copies of such reports, proxy statements and
other information can be obtained, upon payment of the prescribed fees, from the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
In addition, such reports, proxy statements and other information can be
inspected at the Commission's facilities referred to above and at the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Also, registration statements and certain other filings made
with the SEC through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the SEC's site on the World Wide
Web, located at http://www.sec.gov. The Company's Common Stock is included for
quotation on The Nasdaq Stock Market's
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<PAGE> 54
Small-Cap Market and such reports, proxy statements and other information
concerning the Company should be available for inspection and copying at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
This Prospectus is part of a Registration Statement on Form S-1 filed and
effective under the Securities Act with respect to the shares of Common Stock to
be issued. This Prospectus, which is a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement and
exhibits and schedules thereto. Such additional information may be obtained from
the Commission's principal office in Washington, D.C. and Regional Offices at
the addresses set forth above. Statements contained in this Prospectus or in any
document incorporated by reference in this Prospectus as to the contents of any
contract, agreement or document referred to herein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement for a more complete
description of the matter involved, and each such statement may be deemed
qualified in its entirety by such reference.
53
<PAGE> 55
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
OMEGA HEALTH SYSTEMS, INC................................. F-2
Unaudited Pro Forma Consolidated Balance Sheet as of June
30, 1997.................................................. F-3
Unaudited Pro Forma Consolidated Statement of Operations for
the six months ended June 30, 1997........................ F-4
Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1996.......................... F-5
OMEGA HEALTH SYSTEMS, INC.
Independent Auditors' Report................................ F-7
Consolidated Balance Sheets as of December 31, 1995 and
1996, and June 30, 1997 (unaudited)....................... F-8
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)........................ F-9
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1995 and 1996, and the six
months ended June 30, 1997 (unaudited).................... F-10
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and the six months ended
June 30, 1996 and 1997 (unaudited)........................ F-11
Notes to Consolidated Financial Statements.................. F-12
PRIMARY EYECARE NETWORK
Independent Auditors' Report................................ F-24
Balance Sheets as of April 30, 1996 and 1997................ F-25
Statements of Operations for the years ended April 30, 1996
and 1997.................................................. F-26
Statements of Stockholders' Equity for the years ended April
30, 1996 and 1997......................................... F-27
Statements of Cash Flows for the years ended April 30, 1996
and 1997.................................................. F-28
Notes to Financial Statements............................... F-29
FAUST-GELVIN EYE CENTER, P.C. AND THE OUTPATIENT SURGERY
CENTER OF INDIANA, INC.
Independent Auditors' Report................................ F-31
Combined Balance Sheets as of December 31, 1995 and 1996.... F-32
Combined Statements of Operations for the years ended
December 31, 1995 and 1996................................ F-33
Combined Statements of Stockholders' Equity for the years
ended December 31, 1995 and 1996.......................... F-34
Combined Statements of Cash Flows for the years ended
December 31, 1995 and 1996................................ F-35
Notes to Combined Financial Statements...................... F-36
</TABLE>
F-1
<PAGE> 56
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
OF OMEGA HEALTH SYSTEMS, INC.
The following unaudited pro forma consolidated financial statements give
effect to the following affiliation and acquisition transactions (collectively,
the "Transactions"), on the dates indicated, of Omega Health Systems, Inc. as if
each had occurred at the beginning of the applicable periods presented in the
accompanying pro forma consolidated statements of operations and on June 30,
1997 for purposes of the accompanying pro forma consolidated balance sheet:
- Paul E. Garland, M.D., P.A. and Capital Eye Surgery Center, Inc.
("Capital") on March 13, 1996
- EyeCare and Surgery Center of North Texas, P.A., ECSC Retina, P.A., and
SurgEyeCare, Inc. ("EyeCare") on September 10, 1996
- Sarah Jablecki Hays M.D., P.C. and Refractive Surgery Center of
Birmingham ("Hays") on March 1, 1997
- Faust-Gelvin Eye Center P.C. and The Outpatient Surgery Center of
Indiana, Inc. ("Faust") on May 1, 1997
- Primary Eyecare Network ("PEN") on April 30, 1997
- Dillman Eye Care Associates, Inc. and Dillman Eye Care Optical
Department, Inc. ("Dillman") on August 29, 1997
- Eye Surgeons and Consultants, Inc. and Golden Eye Surgeons and
Consultants, Ltd. ("Golden") on September 30, 1997
Additionally, the unaudited pro forma consolidated financial statements
give effect to the use of the Offering proceeds as set forth under "Use of
Proceeds" as if the Offering had also occurred at the beginning of each
applicable period presented for purposes of the pro forma consolidated
statements of operations and on June 30, 1997 for purposes of the pro forma
consolidated balance sheet.
The unaudited pro forma consolidated financial statements have been
prepared by the Company based on the historical financial statements of the
Company, Faust and PEN included elsewhere in this Prospectus, the historical
financial statements of Capital, EyeCare, Hays, Dillman and Golden which are not
included herein, as well as certain preliminary estimates and assumptions deemed
appropriate by management of the Company. The pro forma consolidated financial
statements may not be indicative of actual results as if the transactions had
occurred on the dates indicated or which may be realized in the future.
F-2
<PAGE> 57
OMEGA HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------------------------
THE
ACTUAL TRANSACTIONS(1) ADJUSTMENTS(2) PRO FORMA
------------ --------------- -------------- -----------
<S> <C> <C> <C> <C>
Cash..................................... $ 4,779,810 $ -- $ 12,641,653 $17,421,463
Accounts receivable, net of allowances... 10,875,707 175,000 -- 11,050,707
Prepaid expenses and other current
assets................................. 920,323 -- -- 920,323
------------ ---------- ------------ -----------
Total current assets........... 16,575,840 175,000 12,641,653 29,392,493
------------ ---------- ------------ -----------
Equipment, furniture and fixtures........ 13,560,685 803,625 -- 14,364,310
Accumulated depreciation................. (6,292,565) -- -- (6,292,565)
------------ ---------- ------------ -----------
Net equipment, furniture and
fixtures..................... 7,268,120 803,625 -- 8,071,745
------------ ---------- ------------ -----------
Management service agreements............ 16,450,249 1,923,600 -- 18,373,849
Other assets............................. 1,728,234 -- -- 1,728,234
------------ ---------- ------------ -----------
Total assets................... $ 42,022,443 $2,902,225 $ 12,641,653 $57,566,321
============ ========== ============ ===========
Accounts payable and accrued expenses.... $ 7,018,741 $ -- $ -- $ 7,018,741
Eye care claims payable.................. 2,204,319 -- -- 2,204,319
Current installments of long-term debt
and capital lease obligations.......... 1,028,945 66,710 (111,483) 984,172
------------ ---------- ------------ -----------
Total current liabilities...... 10,252,005 66,710 (111,483) 10,207,232
Long-term debt and capital lease
obligations, excluding current
installments........................... 12,448,455 1,955,990 (12,126,864) 2,277,581
------------ ---------- ------------ -----------
Total liabilities.............. 22,700,460 2,022,700 (12,238,347) 12,484,813
------------ ---------- ------------ -----------
Minority interest........................ 111,551 -- -- 111,551
------------ ---------- ------------ -----------
Stockholders' equity:
Preferred stock........................ 184,012 -- -- 184,012
Common stock........................... 448,873 9,382 180,000 638,255
Additional paid-in capital............. 25,847,801 870,143 24,700,000 51,417,944
Accumulated deficit.................... (7,270,254) -- -- (7,270,254)
------------ ---------- ------------ -----------
Total stockholders' equity..... 19,210,432 879,525 24,880,000 44,969,957
------------ ---------- ------------ -----------
Total liabilities and
stockholders' equity......... $ 42,022,443 $2,902,225 $ 12,641,653 $57,566,321
============ ========== ============ ===========
</TABLE>
- ---------------
(1) Reflects Dillman and Golden as if each had occurred at June 30, 1997.
(2) Reflects the receipt of the net Offering proceeds at an assumed Offering
price of $9.00 per share (less 6% underwriting discount and estimated
Offering expenses of $500,000) and the use of portions thereof to repay
various debt obligations.
F-3
<PAGE> 58
OMEGA HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------
THE
ACTUAL(1) TRANSACTIONS(2) ADJUSTMENTS PRO FORMA
--------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Center net revenues...................... $16,743 2,522 -- 19,265
Managed care revenues.................... 8,688 -- -- 8,688
Optometric practice service revenues..... 6,389 12,554 -- 18,943
Mobile surgical and other revenues....... 953 340 -- 1,293
------- ------ ---------- -------
Total revenues................... 32,773 15,416 -- 48,189
Center operating expenses.................. 13,790 3,513 (514)(3) 16,789
Eye care claims............................ 6,780 -- -- 6,780
Selling, general and administrative
expenses................................. 3,464 -- -- 3,464
Cost of sales.............................. 6,574 12,012 -- 18,586
Provision for doubtful accounts............ 375 -- -- 375
------- ------ ---------- -------
Earnings from operations................. 1,790 (109) 514 2,195
Interest expense........................... 442 40 (334)(4) 148
Other, net................................. (122) -- -- (122)
Minority interest.......................... 183 -- 44(5) 227
------- ------ ---------- -------
Net earnings..................... 1,287 (149) 804 1,942(6)
Preferred dividends........................ (17) -- -- (17)
------- ------ ---------- -------
$ 1,270 (149) 804 1,925
======= ====== ========== =======
Pro forma net earnings per share........... $ 0.18(6)
=======
Pro forma weighted average number of shares
outstanding.............................. 10,761,495(7)
==========
</TABLE>
- ---------------
(1) Reflects the Company's actual results of operations for the six months ended
June 30, 1997.
(2) Reflects the Transactions as if they had been completed on January 1, 1997.
(3) Reflects the net effect of (i) reduced operating expenses that would have
been duplicative or unnecessary under the Company's management, (ii) the
elimination of physicians' compensation recognized in the historical
financial statements of the practices with which the Company affiliated in
the Transactions, (iii) the Company's obligation for physician compensation
under related Management Agreements, (iv) six months' amortization of cost
in excess of acquired net assets' fair value attributable to the Company's
Management Agreements, and (v) additional depreciation expense for acquired
equipment, furniture and fixtures.
(4) Reflects the net effect of (i) an increase in interest expense due to
long-term debt related to the Transactions and (ii) reduction in interest
expense due to the repayment of long-term debt from the proceeds of the
Offering.
(5) Reflects the recognition of minority interest related to components of Faust
as if it had been completed on January 1, 1997.
(6) No federal tax provision has been reflected due to assumed utilization of
federal net operating loss carryforwards. If those carryforwards were not
available, pro forma net earnings per share would have been $0.10 for the
six months ended June 30, 1997. The Company expects to establish substantial
deferred tax assets in the third quarter of 1997, principally related to net
operating loss carryforwards. Such assets were fully reserved through
related valuation allowances prior to fiscal 1997. No related deferred tax
benefit is reflected in the accompanying unaudited pro forma consolidated
statements of operations.
(7) Reflects the actual weighted average number of shares outstanding (exclusive
of the Transactions) for the six months ended June 30, 1997 plus (i) 108,081
shares issued in conjunction with Hays, (ii) 169,000 shares issued in
conjunction with Faust, (iii) 195,000 shares issued in conjunction with PEN,
(iv) 66,667 shares issued in conjunction with Dillman, (v) 89,694 shares
issued in conjunction with Golden, and (vi) shares outstanding as a result
of the Offering.
F-4
<PAGE> 59
OMEGA HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
THE
ACTUAL(1) TRANSACTIONS(2) ADJUSTMENTS PRO FORMA
--------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Center net revenues.................. $25,577 $11,226 $ -- $36,803
Managed care revenues................ 14,643 -- -- 14,643
Optometric practice service
revenues.......................... -- 35,745 -- 35,745
Mobile surgical and other revenues... 2,517 658 -- 3,175
------- ------- ---------- -------
Total revenues............... 42,737 47,629 -- 90,366
Center operating expenses.............. 21,676 12,509 (1,158)(3) 33,027
Eye care claims........................ 11,932 -- -- 11,932
Selling, general and administrative
expenses............................. 5,593 -- -- 5,593
Cost of sales.......................... 1,416 34,114 -- 35,530
Provision for doubtful accounts........ 367 -- -- 367
------- ------- ---------- -------
Earnings from operations..... 1,753 1,006 1,158 3,917
Interest expense....................... 569 147 (432)(4) 284
Other, net............................. (168) 10 -- (158)
Minority interest...................... 49 -- 183(5) 232
------- ------- ---------- -------
Net earnings................. 1,303 849 1,407 3,559(6)
Preferred dividends.................... (1,474) -- -- (1,474)
------- ------- ---------- -------
$ (171) $ 849 $ 1,407 $ 2,085
======= ======= ========== =======
Pro forma net earnings per share....... $ 0.21(6)(7)
======
Pro forma weighted average number of
shares outstanding................... 9,743,614(8)
==========
</TABLE>
- ---------------
(1) Reflects the Company's actual results of operations for the year ended
December 31, 1996.
(2) Reflects the Transactions as if they had been completed on January 1, 1996.
(3) Reflects the net effect of (i) reduced operating expenses that would have
been duplicative or unnecessary under the Company's management, (ii) the
elimination of physicians' compensation recognized in the historical
financial statements of the practices with which the Company affiliated in
the Transactions, (iii) the Company's obligation for physician compensation
under related management service agreements, (iv) full year's amortization
of cost in excess of acquired net assets' fair value attributable to the
Company's management service agreements, and (v) additional depreciation
expense for acquired equipment, furniture and fixtures.
(4) Reflects the net effect of (i) an increase in interest expense due to
long-term debt related to the Transactions and (ii) reduction in interest
expense due to the repayment of long-term debt from the proceeds of the
Offering.
(5) Reflects the recognition of minority interest related to components of Faust
and Capital as if they had been completed on January 1, 1996.
(6) No federal tax provision has been reflected due to assumed utilization of
federal net operating loss carryforwards. If those carryforwards were not
available, pro forma net earnings per share would have been $0.07 for the
year ended December 31, 1996 ($0.20 per share absent the impact of the
Announcement described in Note 1(l) of the Notes to Consolidated financial
statements). The Company expects to establish substantial deferred tax
assets in the third quarter of 1997, principally related to net operating
loss carryforwards. Such assets were fully reserved through related
valuation allowances prior to fiscal 1997. No related deferred tax benefit
is reflected in the accompanying unaudited pro forma consolidated statement
of operations.
F-5
<PAGE> 60
(7) See footnote (3) of Selected Consolidated Financial Data. Absent the impact
of the Announcement, pro forma net earnings per share is $0.34 for the year
ended December 31, 1996.
(8) Reflects the actual weighted average number of shares outstanding for the
year ended December 31, 1996 plus (i) 108,081 shares issued in conjunction
with Hays, (ii) 169,000 shares issued in conjunction with Faust, (iii)
195,000 shares issued in conjunction with PEN, (iv) 66,667 shares issued in
conjunction with Dillman, (v) 89,694 shares issued in conjunction with
Golden, and (vi) shares outstanding as a result of the Offering.
F-6
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Omega Health Systems, Inc.
We have audited the accompanying consolidated balance sheets of Omega
Health Systems, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Omega Health
Systems, Inc. and subsidiaries at December 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
March 13, 1997, except for the third, fourth,
fifth and sixth paragraphs of note 11, as to
which the date is September 30, 1997
F-7
<PAGE> 62
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996, AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,735,556 $ 2,943,617 $ 4,779,810
Accounts receivable, net of allowance for contractual
adjustments and doubtful accounts of $1,674,000 and
$1,760,000 at December 31, 1995 and 1996, respectively,
and $2,237,000 at June 30, 1997......................... 4,402,648 6,475,183 10,875,707
Prepaid expenses and other current assets................. 268,964 534,661 920,323
----------- ----------- -----------
Total current assets............................... 7,407,168 9,953,461 16,575,840
----------- ----------- -----------
Equipment, furniture and fixtures (notes 3 and 4):
Owned..................................................... 7,211,780 9,254,482 10,884,404
Held under capital lease.................................. 1,542,439 2,542,029 2,626,281
----------- ----------- -----------
8,754,219 11,796,511 13,510,685
Less accumulated depreciation............................. (5,145,756) (5,965,932) (6,242,565)
----------- ----------- -----------
Net equipment, furniture and fixtures.............. 3,608,463 5,830,579 7,268,120
----------- ----------- -----------
Management service agreements, net of accumulated
amortization of $114,709 and $411,536 at December 31, 1995
and 1996, respectively, and $714,142 at June 30, 1997
(note 2).................................................. 452,532 10,513,937 16,450,249
Other assets (note 5)....................................... 272,232 1,141,580 1,728,234
----------- ----------- -----------
$11,740,395 $27,439,557 $42,022,443
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,884,968 $ 1,407,647 $ 5,587,209
Accrued expenses.......................................... 1,421,235 1,391,549 --
Eye care claims payable................................... 1,319,635 1,176,068 1,431,532
Current installments of obligations under capital leases
and long-term debt (notes 3 and 4)...................... 1,555,406 1,205,060 1,028,945
----------- ----------- -----------
Total current liabilities.......................... 6,181,244 5,180,324 10,252,005
Obligations under capital leases, excluding current
installments (note 3)..................................... 1,136,413 1,367,718 1,158,934
Long-term debt, excluding current installments (note 4)..... 461,491 5,837,456 11,289,521
----------- ----------- -----------
Total liabilities.................................. 7,779,148 12,385,498 22,700,460
----------- ----------- -----------
Minority interest in partnerships........................... -- 10,896 111,551
Stockholders' equity (notes 2 and 7):
Preferred stock; no par value, 1,000,000 shares authorized;
issued 59 shares at December 31, 1996 and 24 shares at
June 30, 1997............................................. -- 485,049 198,282
Common stock, par value of $0.06; authorized 25,000,000
shares; issued 4,706,175 and 6,865,787 shares at December
31, 1995 and 1996, respectively, and 7,481,248 shares at
June 30, 1997............................................. 282,369 411,946 448,873
Additional paid-in capital.................................. 12,047,891 22,685,778 25,833,531
Accumulated deficit......................................... (8,369,013) (8,539,610) (7,270,254)
----------- ----------- -----------
Total stockholders' equity......................... 3,961,247 15,043,163 19,210,432
----------- ----------- -----------
Commitments and contingencies (notes 3 and 9)
$11,740,395 $27,439,557 $42,022,443
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 63
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996, AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Center net revenues............. $17,598,777 $19,752,926 $25,576,743 $11,103,161 $16,742,896
Managed care revenues........... 8,060,841 10,546,467 14,642,992 6,920,540 8,688,147
Optometric practice services.... -- -- -- -- 6,388,790
Mobile surgical and other....... 1,976,449 2,636,078 2,517,458 1,336,521 953,431
----------- ----------- ----------- ----------- -----------
Total revenues........ 27,636,067 32,935,471 42,737,193 19,360,222 32,773,264
Center operating expenses....... 15,992,923 17,814,960 21,675,900 9,646,255 13,789,704
Eye care claims................. 5,977,117 7,589,390 11,932,085 5,399,637 6,779,845
Selling, general, and
administrative expenses....... 3,986,001 4,835,891 5,593,414 2,756,057 3,464,232
Cost of sales................... 904,795 1,487,879 1,415,800 778,432 6,573,787
Provision for doubtful
accounts...................... 505,421 444,810 367,037 178,308 376,014
----------- ----------- ----------- ----------- -----------
Earnings from
operations.......... 269,810 762,541 1,752,957 601,533 1,789,682
Non-operating revenue (expense):
Interest income............... $ 29,402 $ 59,045 $ 60,010 $ 7,689 $ 12,142
Interest expense.............. (234,365) (290,978) (628,730) (294,853) (442,021)
Loss on disposal of eye
centers.................... (50,840) (209,290) -- -- --
Other......................... 98,400 159,556 168,197 105,090 109,827
----------- ----------- ----------- ----------- -----------
Earnings before
minority interest... 112,407 480,874 1,352,434 419,459 1,469,630
Minority interest in income of
partnerships.................. -- -- (49,308) -- (183,126)
----------- ----------- ----------- ----------- -----------
Net earnings.......... 112,407 480,874 1,303,126 419,459 1,286,504
Preferred dividends, principally
those imputed as described in
note 1........................ -- -- (1,473,723) (1,359,371) (17,149)
----------- ----------- ----------- ----------- -----------
Earnings (loss) available to
common shareholders........... $ 112,407 $ 480,874 $ (170,597) $ (939,912) $ 1,269,355
=========== =========== =========== =========== ===========
Earnings (loss) per common
share......................... $ 0.02 $ 0.10 $ (0.03) $ (0.19) $ 0.17
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 64
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996,
AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNAMORTIZED TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED FINANCING STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT COST EQUITY
----------- -------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993... $ -- $268,811 $11,305,830 $(8,962,294) $(77,863) $ 2,534,484
Issuance of 197,461 shares of
common stock.................. -- 11,848 664,122 -- -- 675,970
Net earnings.................... -- -- -- 112,407 -- 112,407
Amortization of financing
costs......................... -- -- -- -- 77,863 77,863
----------- -------- ----------- ----------- -------- -----------
Balances at December 31, 1994... -- 280,659 11,969,952 (8,849,887) -- 3,400,724
Issuance of 28,496 shares of
common stock.................. -- 1,710 77,939 -- -- 79,649
Net earnings.................... -- -- -- 480,874 -- 480,874
----------- -------- ----------- ----------- -------- -----------
Balances at December 31, 1995... -- 282,369 12,047,891 (8,369,013) -- 3,961,247
Issuance of 729 shares of
preferred stock............... 6,494,292 -- -- -- -- 6,494,292
Issuance of 1,370,097 shares of
common stock with conversion
of 670 shares of preferred
stock......................... (6,009,243) 82,206 5,927,037 -- -- --
Issuance of 789,515 shares of
common stock.................. -- 47,371 3,237,127 -- -- 3,284,498
In-kind dividends on preferred
stock......................... -- -- 187,252 (187,252) -- --
Imputed dividends on preferred
stock......................... -- -- 1,286,471 (1,286,471) -- --
Net earnings.................... -- -- -- 1,303,126 -- 1,303,126
----------- -------- ----------- ----------- -------- -----------
Balances at December 31, 1996... 485,049 411,946 22,685,778 (8,539,610) -- 15,043,163
Issuance of 67,632 shares of
common stock with conversion
of 35 shares of preferred
stock......................... (286,767) 4,058 282,709 -- -- --
Issuance of 547,829 shares of
common stock.................. -- 32,869 2,847,896 -- -- 2,880,765
In-kind dividends on preferred
stock......................... -- -- 17,148 (17,148) -- --
Net earnings.................... -- -- -- 1,286,504 -- 1,286,504
----------- -------- ----------- ----------- -------- -----------
Balances at June 30, 1997
(unaudited)................... $ 198,282 $448,873 $25,833,531 $(7,270,254) $ -- $19,210,432
=========== ======== =========== =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 65
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................ $ 112,407 $ 480,874 $ 1,303,126 $ 419,459 $ 1,286,504
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 1,212,674 1,129,606 1,232,204 548,755 896,806
Provision for doubtful accounts....... 505,421 444,810 367,037 178,308 376,014
Minority interest in partnership...... -- -- 49,308 -- 183,126
Loss on disposal of eye care
centers............................. 50,840 -- -- -- --
Decrease (increase), net of
acquisition effects, in:
Accounts receivable................. (1,183,448) (900,173) (1,734,405) (453,083) (1,355,251)
Other receivables................... (38,259) (197,356) 133,125 -- --
Prepaid expenses and other current
assets........................... 145,789 8,199 (683,631) (401,685) (908,629)
Increase (decrease), net of
acquisition effects, in:
Accounts payable and accrued
expenses......................... 157,014 582,308 (572,920) (971,912) 815,282
Eye care claims payable............. 462,534 322,236 (143,567) (290,210) 1,028,251
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities........... 1,424,972 1,870,504 (49,723) (970,368) 2,322,103
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.................... (779,345) (914,287) (720,790) (471,245) (645,361)
Acquisition of assets of physician
practices (note 2).................... -- -- (7,128,466) (2,126,716) (484,131)
Investment in Clearvision, Inc.......... -- -- (500,000) -- --
Acquisition of Primary Care Network..... -- -- -- -- 518,462
Other................................... (14,445) (85,525) (81,180) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (793,790) (999,812) (8,430,436) (2,597,961) (611,030)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Financing costs incurred................ -- -- (50,400) -- --
Principal payments on long-term debt.... (708,342) (718,200) (5,212,585) -- (5,727,520)
Principal payments on obligations under
capital leases........................ (232,504) (228,158) (497,889) -- 335,909
Proceeds from issuance of debt.......... 627,619 572,440 10,986,705 (224,048) 6,006,396
Proceeds from issuance of common
stock................................. 740,136 -- 6,499 6,546,237 201,001
Proceeds from issuance of preferred
stock................................. -- -- 6,494,292 -- (82,471)
Distributions to minority interest...... -- -- (38,412) -- (20,628)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... 426,909 (373,918) 8,688,220 6,322,189 40,870
----------- ----------- ----------- ----------- -----------
Net increase in cash............. 1,058,091 496,774 208,061 2,753,860 1,836,193
Cash at beginning of period............... 1,180,691 2,238,782 2,735,556 2,735,556 2,943,617
----------- ----------- ----------- ----------- -----------
Cash at end of period..................... $ 2,238,782 $ 2,735,556 $ 2,943,617 $ 5,489,416 $ 4,779,810
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 66
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF OPERATIONS
The Company's significant operations involve the development of regional
eye care delivery systems, which may include (1) developing and managing
ophthalmological centers owned by the Company, (2) developing networks of
ophthalmologists and optometrists, (3) enhancing and managing pre-existing
practices of ophthalmologists, and (4) negotiating and administering managed
care contracts.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
(C) RESTRICTED CASH BALANCES
Under certain managed care agreements, the Company is required to maintain
cash reserves of approximately $1.3 million. However, such reserves are not
limited as to use by the related agreements.
(D) EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture, and fixtures are stated at cost. Equipment, furniture
and fixtures under capital leases are stated at the lower of the present value
of minimum lease payments at the beginning of the lease term or fair value at
the inception of the lease.
Depreciation on equipment, furniture and fixtures is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
five to ten years. Leasehold improvements are amortized on the straight-line
method over the respective lease term.
(E) BUSINESS AND CREDIT CONCENTRATIONS
Affiliated ophthalmologists provide health care services through the
Company's eye care centers. Affiliated ophthalmologists grant credit to
patients, substantially all of whom are residents local to each center.
Affiliated ophthalmologists generally do not require collateral or other
security in extending credit to patients; however, they routinely obtain
assignment of (or are otherwise entitled to receive) patients' benefits payable
under their health insurance programs, plans or policies (e.g. Medicare,
Medicaid, Blue Cross and commercial insurance policies).
The mix of receivables from patients and third-party payors as of December
31, 1995 and 1996 follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Medicare.................................................... 50% 46%
Medicaid.................................................... 9 8
Other third-party payors.................................... 32 38
Patients.................................................... 9 8
--- ---
100% 100%
=== ===
</TABLE>
Contracts with two managed care organizations comprised 72%, 69% and 61% of
managed care revenues in the years ended December 31, 1994, 1995 and 1996,
respectively. No other single managed care contract comprised more than 9% of
such revenues during any of the respective years.
F-12
<PAGE> 67
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(F) CENTER NET REVENUES
Center net revenues are gross charges for patient services rendered
recorded net of estimated third-party payor contractual adjustments. The
physicians associated with the Company have agreements with governmental and
other third-party payors that provide for payments at amounts different from
their established rates. Contractual adjustments under third-party reimbursement
programs represent the difference between the billings at established rates for
services and amounts reimbursed by third-party payors. Services rendered under
the Medicare program, the largest third-party payor, are reimbursed based upon a
predetermined fee schedule for the procedures performed.
(G) MANAGED CARE REVENUES
Managed care revenues consist principally of capitated amounts received
from health maintenance organizations and other third-party payors for the
provision of services by the eye care provider panels organized and managed by
the Company, as well as certain administrative fees charged to panel providers
and to payors. Under capitated agreements, the Company reimburses the members of
its eye care provider panels for services rendered on a modified fee-for-service
basis and generally retains the balance of capitation payments, subject to
certain discretionary distributions to provider panel members. Under these
agreements, the Company has the ability to adjust its fee schedule from time to
time based on utilization experience. Under fee-for-service managed care
contract, panel eye care providers submit claims to and are reimbursed directly
from third-party payors.
(H) SUPPLY AND EQUIPMENT SALES
Supply and equipment sales are comprised primarily of sales of ophthalmic
supplies and equipment to hospitals, ambulatory surgical centers and eye care
providers. The Company also operates a mobile surgical service which provides
ophthalmic surgical equipment and supplies to surgical facilities, including
hospitals and ambulatory surgery centers on a per-case basis. The costs related
to these sales are included in cost of sales.
(I) MANAGEMENT AND OTHER REVENUES
Management and other revenues are comprised primarily of fees earned for
management of ophthalmologists' practices. The management fees are monthly
charges fixed by contractual arrangements with the respective ophthalmologists.
Receivables related to management fees are included in other receivables.
(J) MANAGEMENT SERVICE AGREEMENTS
Assets related to management service agreements arise from business
acquisitions made by the Company. The excess of cost of purchased assets over
the fair value of net assets acquired (including other identifiable intangible
assets) is allocated to management service agreements and amortized
straight-line over terms ranging from ten to forty years, generally the term of
the related management agreement. The recoverability of such assets is
reevaluated when warranted by business events and circumstances. The Company
believes that no impairment of such assets has occurred and that no revisions of
estimated useful lives are currently necessary.
(K) INCOME TAXES
The asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
F-13
<PAGE> 68
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(L) EARNINGS (LOSS) PER SHARE
The earnings (loss) per common share for 1994, 1995 and 1996 were computed
by dividing earnings, after giving effect to in-kind and imputed preferred
dividends, by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year (4,590,991, 4,804,858 and
5,598,926 shares, respectively).
On March 28, 1997, a formal announcement (the "Announcement") from the
staff of the United States Securities and Exchange Commission was made available
which impacted the Company's calculation of earnings per share with respect to
the May 1996 issuance of convertible preferred stock described in note 7. This
Announcement generally required that the Company impute and recognize a
preferred dividend for the difference between the conversion price to preferred
shareholders at issuance and the value of the related common stock solely as
measured in the public market at that date.
The Company has followed the guidance in the Announcement in the
calculation of earnings (loss) per share in the accompanying consolidated
financial statements. Absent the impact of the Announcement, the Company would
have reported earnings per share for 1996 of $0.20.
(M) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the reporting
period. Actual results could differ from these estimates. In particular, the
liability for eye care claims payable is necessarily based on such estimates
and, accordingly, amounts ultimately paid will be more or less than such
estimates.
(N) FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments (as defined). The Company's
financial instruments principally consist of cash, net receivables, accounts
payable and various debt instruments. Due to their short-term nature, the fair
values of net receivables and accounts payable approximate their carrying value.
The fair value of the various debt instruments has been estimated using interest
rates currently offered to the Company for borrowings having similar character,
collateral and duration. The fair value of such instruments approximates the
Company's carrying amounts.
(O) ACCOUNTING CHANGES
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This statement requires that the majority of long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. Implementation of this
statement did not have a material impact on the Company's consolidated financial
statements.
Also effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock Based Compensation", which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternately, SFAS 123 allows entities to continue to apply
the provisions of APB 25 and provide pro forma net earnings and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in
F-14
<PAGE> 69
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 123 has been applied. The Company has elected to continue to apply the
provisions of APB 25 and provide the pro forma disclosure provisions of SFAS
123.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
per Share," SFAS No. 129, "Disclosure of Information about Capital Structure,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 128 establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock. SFAS
129 establishes standards for disclosing information about an entity's capital
structure and applies to all entities. SFAS 131 establishes standards for the
way that entities report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim reports issued to shareholders.
Management believes that the Company's adoption of these standards, when
effective, will not have a significant impact on the Company's consolidated
financial statements.
(P) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1996
presentation.
(Q) UNAUDITED FINANCIAL INFORMATION
The unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies in effect as of December 31,
1996, as set forth in the annual consolidated financial statements of Omega
Health Systems, Inc. In the opinion of management, all adjustments necessary for
a fair presentation of the consolidated financial statements have been included.
The results of operations for the six month period ended June 30, 1997, are not
necessarily indicative of the results to be expected for the full year.
(2) MERGERS, ACQUISITIONS AND DIVESTITURES
In March 1994, the Company acquired all of the outstanding stock of The Eye
Health Network, Inc., a Denver based eye health and vision care provider
organization. The Company issued 787,500 shares of its common stock to the
former shareholders of The Eye Health Network to effect the acquisition, which
has been accounted for as a pooling-of-interests. All previously reported
financial information has been restated to give effect to the pooling.
Details of revenue and earnings of the Company and The Eye Health Network
for the three months prior to consummation of the combination included in the
1994 combined net earnings are presented below.
<TABLE>
<CAPTION>
TOTAL NET
REVENUES EARNINGS (LOSS)
---------- ---------------
<S> <C> <C>
Omega Health Systems, Inc.................................. $4,486,357 $(107,082)
The Eye Health Network, Inc................................ 1,675,200 129,759
---------- ---------
Combined................................................... $6,161,557 $ 22,677
========== =========
</TABLE>
In January 1996, the Company completed the acquisition of the stock of
Warren R. Berrie, M.D., P.C., of Nashville, Tennessee. This acquisition included
substantially all of the assets of the medical practice of Warren R. Berrie,
M.D. Simultaneously with the acquisition, the Company entered into a five year
management agreement with Dr. Berrie. The total consideration for the
acquisition of the assets of the Berrie practice was $650,000, of which $50,000
was paid in cash, with the balance in the form of a five year subordinated note.
The note is due in monthly installments, bears interest at 7% and is convertible
into common stock at a conversion price of $5.89 per share.
In March 1996, the Company completed the acquisition of the assets of the
ophthalmology practice of Paul R. Garland, M.D., of Tallahassee, Florida. In
addition, the Company acquired all of the capital stock of the surgery center
associated with Dr. Garland's practice, Capital Eye Surgery Center, Inc.
Simultaneously
F-15
<PAGE> 70
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the acquisition, the Company entered into a twenty-five year management
agreement with Dr. Garland's professional corporation. The total consideration
for the Garland transactions was $3.4 million, of which $2 million was paid in
cash, with the balance in the form of a five year subordinated note. The note is
due in monthly installments, bears interest at 7% and is convertible into Omega
common stock at a conversion price of $6.50 per share. In connection with the
Garland acquisition, the Company obtained bridge financing in the form of a 12%
$2.5 million subordinated note. The financing was obtained from an affiliate of
the Company's chairman of the board. The note was repaid in June 1996 with the
proceeds of the sale of preferred stock.
In September 1996, the Company completed the acquisition of substantially
all of the net assets of EyeCare and SurgeryCenter of North Texas, P.A. and ECSC
Retina, P.A., two Dallas, Texas professional associations which practice
ophthalmology, in exchange for 771,429 shares of the common stock. A subsidiary
of the Company manages the practices pursuant to long-term management
agreements.
Also in September 1996, a subsidiary of the Company and SurgEyeCare, Inc.
entered into a partnership agreement to form SurgEyeCare General Partnership
(the "Partnership"). Under the terms of the partnership agreement, the Company
contributed $4,550,000 cash to the Partnership and SurgEyeCare, Inc. contributed
assets with an agreed value of $6,100,000. After the initial capital
contributions, the Partnership distributed $4,476,438 in cash to SurgEyeCare,
Inc. After these transactions, the Company owns a 75% interest in the
Partnership and SurgEyeCare, Inc. owns a 25% interest. Under the terms of the
partnership agreement, the subsidiary of the Company is designated as managing
partner. The Company financed the contribution to the Partnership, in part, with
the proceeds of a $3,280,000 acquisition term loan from a commercial bank. The
loan bears interest at the bank's prime rate plus 50 basis points and is due in
48 monthly installments of principal and interest. This loan was refinanced in
February 1997.
The following sets forth certain pro forma financial information for the
twelve months ended December 31, 1995 and 1996 as if the Tallahassee and Dallas
transactions, which were accounted for as purchases, had been completed as of
January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenues.................................................... $30,651,000 $46,653,440
Net earnings................................................ 1,094,000 1,776,670
Net earnings per common share............................... .20 .29
Weighted average common shares.............................. 5,465,781 6,114,621
</TABLE>
(3) LEASES
The Company and its wholly owned subsidiaries are obligated under capital
leases for equipment and furniture and fixtures that expire within the next five
years. The Company and its wholly owned subsidiaries also have several
noncancellable operating leases for equipment and office space that expire
within the next ten years.
F-16
<PAGE> 71
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancellable operating leases and the
present value of future minimum capital lease payments as of December 31, 1996
are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
Years ending December 31:
1997...................................................... $ 847,699 $1,446,523
1998...................................................... 643,981 1,099,197
1999...................................................... 443,422 933,032
2000...................................................... 454,127 675,852
2001...................................................... 77,512 338,691
2002 and thereafter....................................... -- 569,526
---------- ----------
2,466,741 $5,062,791
==========
Less amount representing interest at an average rate of
11%....................................................... $ 456,559
----------
2,010,182
Less current installments of obligations under capital
leases.................................................... 642,464
----------
Obligations under capital leases, excluding current
installments.............................................. $1,367,718
==========
</TABLE>
Total rental expense under operating leases for the years ended December
31, 1994, 1995 and 1996 was approximately $1,226,000, $1,418,000 and $1,811,000,
respectively.
(4) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable for physician practice payable in monthly
installments of $81,417 including interest at prime plus
1% through September 2000, secured by assets of several
centers, repaid in February 1997.......................... $ -- $3,099,902
Subordinated note payable for physician practice payable in
monthly installments of $27,504 including interest at 7%
through February 2001, and convertible into common stock
at $6.50 per share........................................ -- 1,187,881
Note payable under revolving credit agreement, bearing
interest at prime plus 1%, interest due monthly, principal
due August 1997, secured by accounts receivable at several
centers. No unused amount is available under the agreement
at December 31, 1996, repaid in February 1997............. 650,000 750,000
Subordinated note payable for physician practice, payable in
monthly installments of $11,881 including interest at 7%
through January 2001, convertible into common stock at
$5.89 per share........................................... -- 505,076
Borrowings under revolving line of credit, with interest at
prime plus 3%, secured by receivables at two centers,
repaid in February 1997................................... -- 218,345
Non-interest bearing note payable for physician practice,
payable in monthly installments of $16,500 through
December 1997, secured by assets of the St. Louis center,
repaid in February 1997................................... 306,704 205,500
Unsecured note payable for physician practice, due in
monthly installments of $8,670 including interest at 15%,
payable through May 1997, repaid in February 1997......... 132,099 41,775
</TABLE>
F-17
<PAGE> 72
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Unsecured note payable, interest at 10% payable annually and
principal due January 1996................................ $ 10,000 $ --
Various notes payable, with interest rates varying from 6%
to 9.95%, due in monthly installments including interest,
through June 2004, secured by equipment with a total
depreciated cost of $385,699.............................. 437,329 332,221
Other....................................................... 89,790 59,352
---------- ----------
Total long-term debt.............................. 1,625,922 6,400,052
Less current installments................................... 1,164,431 562,596
---------- ----------
Long-term debt, excluding current installments.... $ 461,491 $5,837,456
========== ==========
</TABLE>
At December 31, 1996, the Company classified $1,965,531 of borrowing due
within one year as long-term debt. The Company refinanced these amounts on a
long-term basis through its revolving credit agreement on February 25, 1997 as
described in note 10.
Maturities of long-term debt subsequent to December 31, 1996 are as
follows: 1997, $562,596; 1998, $483,867; 1999, $1,272,260; 2000, $1,342,277; and
2001, $2,739,052.
(5) OTHER ASSETS
In December 1996, the Company acquired $500,000 face amount of convertible
preferred stock of Clearvision Laser Centers, Inc. ("Clearvision"). The
preferred stock is convertible into common stock of Clearvision using a formula
based on actual sales of Clearvision common stock during the six month period
ending June 30, 1997. In exchange for the preferred stock, the Company paid
$250,000 in cash and contributed certain marketing and educational materials
with an agreed value of $250,000. In addition, Omega received warrants to
purchase an additional $250,000 in Clearvision common stock at a price based on
the same formula. The preferred stock is convertible at any time after June 30,
1997. The warrant is exercisable for a one year period ending June 30, 1998.
Upon conversion of the preferred stock, the Company's investment is expected to
represent less than 5% of Clearvision's outstanding common stock and would
therefore be accounted for using the cost method.
(6) INCOME TAXES
No provision for current and deferred Federal and State income taxes was
required for the years ended December 31, 1994, 1995 and 1996. Income tax
expense differs from the amount computed by applying a Federal income tax rate
of 34% to net earnings due to the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax expense at statutory rate....................... $ 38,000 $ 164,000 $ 443,000
Increase (reduction) in taxes resulting from:
Non-deductible expenses........................... 65,000 44,000 33,000
Change in the valuation allowance for deferred
assets......................................... (103,000) (208,000) (476,000)
--------- --------- ---------
Total..................................... $ -- $ -- $ --
========= ========= =========
</TABLE>
F-18
<PAGE> 73
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Equipment, furniture and fixtures, principally
due to differences in depreciation......... $ 309,000 $ 172,000 $ 266,000
Intangible assets, principally recognition of
amortization............................... 238,000 153,000 291,000
Receivables, principally due to allowance for
doubtful accounts.......................... 254,000 141,000 171,000
Accrued expense................................. 73,000 69,000 30,000
----------- ----------- -----------
Net operating loss carryforwards................ 3,409,000 3,541,000 2,842,000
Total gross deferred tax assets....... 4,283,000 4,076,000 3,600,000
Valuation allowance............................. (4,283,000) (4,076,000) (3,600,000)
----------- ----------- -----------
Net deferred tax assets............... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based on expectations for
future taxable income over the periods in which the deferred tax assets are
deductible, management believes the Company has established a reasonable
valuation allowance. As of December 31, 1996, the Company had available net
operating loss carryforwards, subject to Internal Revenue Code Section 382
limitations, of approximately $8,000,000 expiring from the year 2000 to 2007.
(7) STOCKHOLDERS' EQUITY
The Company accounts for stock options in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations (APB 25). As such, compensation expense
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price.
F-19
<PAGE> 74
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company maintained the 1985 Stock Option Plan (the "1985 Plan") which
was made available to selected employees, including officers of the Company,
directors, key advisors and selected physicians practicing at Company
facilities. The 1985 Plan allowed options to be granted for up to 450,000
shares. The following table summarizes information about options under the 1985
Plan:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- -------------------
<S> <C> <C>
Balance at December 31, 1993............................... 314,335 $3.27
Granted.................................................. 145,500 4.02
Exercised................................................ 4,167 3.00
Forfeited................................................ 3,332 3.00
Expired.................................................. 22,500 3.11
------- ------
Balance at December 31, 1994............................... 429,836 3.54
Granted.................................................. -- --
Exercised................................................ 20,460 2.78
Forfeited................................................ 20,000 3.00
Expired.................................................. -- --
------- ------
Balance at December 31, 1995............................... 389,376 3.60
Granted.................................................. -- --
Exercised................................................ 4,999 3.00
Forfeited................................................ 26,000 3.67
Expired.................................................. 2,376 4.80
------- ------
Balance at December 31, 1996............................... 356,001 $3.60
======= ======
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options under the 1985 Plan was
$3.00-$6.50 and 2.67 years, respectively. At December 31, 1995 and 1996, the
number of options exercisable was 26,710 and 111,167, respectively, and the
weighted average exercise price of those options was $5.14 and $3.56,
respectively.
In 1995 the Company adopted its 1995 Stock Option Plan (the "1995 Plan")
which was made available to selected employees, including officers of the
Company, directors, key advisors and selected physicians practicing at Company
facilities. The 1995 Plan allows options to be granted for up to 300,000 shares.
The following table summarizes information about options under the 1995 Plan:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- -------------------
<S> <C> <C>
Balance at December 31, 1994............................... -- $ --
Granted.................................................. 2,500 5.00
Exercised................................................ -- --
Forfeited................................................ -- --
Expired.................................................. -- --
------- ------
Balance at December 31, 1995............................... 2,500 5.00
Granted.................................................. 125,000 5.73
Exercised................................................ -- --
Forfeited................................................ -- --
Expired.................................................. -- --
------- ------
Balance at December 31, 1996............................... 127,500 $5.72
======= ======
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options under the 1995 Plan was
$5.00-$5.75 and 5.47 years, respectively. At December 31, 1995 and 1996 no
options were exercisable.
F-20
<PAGE> 75
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The per share weighted-average fair value of stock options granted during
1995 and 1996 was $3.83 and $4.63 on the date of grant using the Black Sholes
option-pricing model with the following weighted-average assumptions: 1995 and
1996 -- expected dividend yield of 0%, risk-free interest rate of 6%, and an
expected life of 6 years.
Since the Company applies APB 25 in accounting for its plans, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company recorded compensation cost based on the
fair value at the grant date for its stock options under SFAS 123, the Company's
net earnings and earnings per share would have been reduced by approximately
$1,000 or $0.00 per share in 1995 and approximately $53,000 or $0.01 per share
in 1996.
Pro forma net earnings reflect only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net earnings amounts presented
above because compensation costs are reflected over the option's vesting period
of three years and compensation cost for options granted prior to January 1,
1995 is not considered.
In November and December 1989, in connection with refinancing debt
obligations of the Company, the Company agreed to issue shares of common stock
to certain shareholders in return for loans and loan guarantees made by such
shareholders to the Company. The primary debt obligation resulting from this
refinancing was a $450,000 loan from a bank, with five shareholders as direct
obligors thereunder. Such shareholders received approximately 120,000 shares of
common stock for their participation in the refinancing. The shares of common
stock were recorded at their estimated fair market value of approximately $3.00
per share with the offsetting amount, considered to be unamortized financing
costs, as a deduction from stockholders' equity. The unamortized financing cost
was amortized using a method that approximated the interest method over the
contractual term of the above loan, which matured in December 1994.
In January 1990, the Company entered into a stock bonus arrangement with
one of its officers, whereby that officer was issued 1,667 shares of common
stock on each January 1 from 1991 through 1995, provided that he was an employee
of the Company each of those dates.
The Company's 1991 Employee Stock Purchase Plan (the "Purchase Plan")
provides for the implementation of stock purchases by employees of shares of
common stock either on the open market or from such available authorized but
unissued shares. The Company has reserved 50,000 shares for issuance under the
Purchase Plan. Each eligible employee is granted on the grant date of each
Purchase Plan year options to purchase 1,250 shares of the Company's common
stock during that Purchase Plan year. The issue price of the common stock is
equal to the lesser of (1) 85% of the market price on the exercise date of that
Purchase Plan year or (2) 85% of the market price on the grant date of that
Purchase Plan year. As of December 31, 1996, 27,119 shares have been purchased
by the Purchase Plan; and 12,494 shares were issued in 1997 for contributions
made through December 31, 1996.
In December 1994, the Company issued 172,643 shares of its common stock to
a group of ophthalmologists for $725,100. In addition, the Company also issued
to such group warrants to purchase 145,020 shares of the Company's common stock
at $7 per share and warrants to purchase an additional 159,523 shares of the
Company's common stock at $5 per share. The warrants expire December 29, 1997.
In May 1996, the Company completed the sale of $7,290,000 in convertible
preferred stock to qualified foreign investors pursuant to Regulation S. Subject
to certain limitations, the preferred stock is convertible into common stock at
an exercise price equal to the lesser of $5.75 or 85% of the average bid price
of the common stock at the time of conversion. The preferred stock automatically
converts at the end of three years if not already converted. In addition, the
investors received warrants to purchase approximately 634,000 additional shares
at an exercise price of $5.75. The net proceeds were approximately $6.49 million
and were used to repay the bridge financing incurred in the Tallahassee practice
affiliation, to finance a portion of the
F-21
<PAGE> 76
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cost of the Dallas practice affiliation and for working capital. Of the 729
shares of preferred stock issued, 670 shares had been converted into 1,370,097
shares of common stock at December 31, 1996.
In September 1996, the Company completed the acquisition of substantially
all of the net assets of EyeCare and SurgeryCenter of North Texas, P.A. and ECSC
Retina, P.A., two Dallas, Texas, professional associations which practice
ophthalmology in exchange for 771,429 shares of common stock.
(8) BENEFIT PLAN
In 1996, the Company established a 401(k) Profit Sharing Plan (the "Plan")
which allows qualifying employees electing participation to defer a portion of
their income on a pretax basis through contributions to the Plan. The Plan
permits discretionary contributions to be made by the Company, as determined by
the Company's Board of Directors. No contributions to the Plan were made by the
Company during 1996.
(9) CONTINGENCIES
The Company maintains professional liability coverage on a claims-made
basis for its centers, employees, and independent contractors, including center
directors, with minimum requirements of $3,000,000 per occurrence and $3,000,000
annually. The Company also maintains general liability coverage. Additionally,
the ophthalmologists affiliated with the Company maintain professional liability
coverage. Providing support associated with health care services may give rise
to claims from patients or others for damages. The Company has been named in
certain professional liability claims. The Company believes that the ultimate
resolution of these matters will not have a material effect on the Company's
financial position or results of operations. To the extent that any claims-made
coverage is not renewed or replaced with equivalent insurance, claims based on
occurrences during the term of such coverage, but reported subsequently, would
be uninsured. Management anticipates that the claims-made coverage currently in
place will be renewed or replaced with equivalent insurance as the term of such
coverage expires.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
Capital lease obligations of approximately $76,000, $1,275,000 and $981,000
were incurred in 1994, 1995, and 1996, respectively. See note 3.
Common stock was issued for other than cash consideration during 1994, 1995
and 1996. See notes 2 and 6.
Interest paid totaled $238,141, $301,573 and $673,727 in 1994, 1995 and
1996, respectively.
(11) SUBSEQUENT EVENTS
In February 1997, the Company entered into a $15,000,000 revolving credit
agreement (the "Credit Agreement") with NationsCredit Commercial Corporation, an
affiliate of NationsBank Corporation. Borrowings under the Credit Agreement will
be used to finance acquisitions, repay existing indebtedness and provide working
capital. The Credit Agreement has a six-year term and is fully revolving for the
first two years.
In March 1997 the Company completed the acquisition of the assets of the
ophthalmology practice of Sarah J. Hays, M.D. of Birmingham, Alabama.
Simultaneously with the acquisition, the Company entered into a long-term
management agreement with Dr. Hays' professional corporation. The assets were
acquired in exchange for 108,081 shares of the Company's common stock and
$859,500 in cash. The cash portion of the transaction was financed under the
Company's Credit Agreement.
In May 1997, the Company completed the acquisition of the assets of the
ophthalmology practice of Joseph F. Faust, M.D. of Marion, IN and a 50% interest
in the ambulatory surgery center associated with such practice. Simultaneously
with the acquisitions, the Company entered into long-term management agreements
F-22
<PAGE> 77
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to manage both the practice and the surgery center. The assets were acquired in
exchange for 169,000 shares of the Company's common stock and $1.7 million in
cash. The cash portion of the transaction was financed under the Company's
Credit Agreement.
In May 1997, the Company completed a merger with Primary Eyecare Network,
based in San Ramon, California. Primary Eyecare Network provides products and
services to independent optometrists, including management, purchasing,
education, training, and publications. In connection with the merger, the
Company issued 195,000 shares of its common stock to the shareholders of Primary
Eyecare Network and paid $1.9 million in cash. The cash portion of the
transaction was financed under the Company's Credit Agreement.
In August 1997, the Company completed the acquisition of substantially all
of the net assets of Dillman Eye Care Associates, an ophthalmology practice, and
Dillman Eye Care Optical Department, Inc. in exchange for 66,667 shares of
common stock and $725,000 in cash. Simultaneously with the acquisitions, the
Company entered into a long-term management agreement to manage the practices.
The cash portion of the transaction was financed under the Credit Agreement.
In September 1997, the Company completed the acquisition of substantially
all of the net assets of Eye Surgeons and Consultants and Golden Eye Surgeons,
two affiliated ophthalmology practices, in exchange for 89,694 shares of common
stock and $672,700 in cash. Simultaneously with the acquisitions, the Company
entered into a long-term management agreement to manage the practices. The cash
portion of the transaction was financed under the Credit Agreement.
(12) SUPPLEMENTARY INFORMATION
The following sets forth supplementary information regarding the allowances
for contractual adjustments and doubtful accounts:
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHANGE IN BALANCE AT
YEAR ENDED BEGINNING OF CHARGED TO CONTRACTUAL END OF
DECEMBER 31, YEAR EXPENSE CHARGE-OFFS ADJUSTMENTS YEAR
- ------------ ------------ ---------- ----------- ----------- ----------
<C> <C> <C> <C> <C> <C>
1994 $1,615,182 $505,421 $573,672 $ 49,493 $1,596,423
1995 1,596,423 444,810 498,296 131,063 1,674,000
1996 1,674,000 367,037 135,302 (145,735) 1,760,000
</TABLE>
F-23
<PAGE> 78
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Primary Eyecare Network:
We have audited the accompanying balance sheets of Primary Eyecare Network
as of April 30, 1996 and 1997, and the related statements of operations,
stockholder's equity, 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 generally accepted auditing
standards. 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 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 audits provide 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 Primary Eyecare Network as
of April 30, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
July 11, 1997
F-24
<PAGE> 79
PRIMARY EYECARE NETWORK
BALANCE SHEETS
APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 101,354 $ 506,978
Certificates of deposit................................... 347,000 50,000
Accounts receivable from members, less allowance for
doubtful accounts of $159,000 at April 30, 1996 and
$140,000 at April 30, 1997 (note 5).................... 3,040,454 3,374,697
Prepaid expenses.......................................... 23,349 4,557
---------- ----------
Total current assets.............................. 3,512,157 3,936,232
Equipment, net of accumulated depreciation of $59,000 at
April 30, 1996 and $83,000 at April 30, 1997.............. 58,904 43,176
---------- ----------
$3,571,061 $3,979,408
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable to stockholder (note 2)...................... $ 50,000 $ --
Accounts payable to vendors............................... 2,774,637 3,165,154
Accrued payroll costs..................................... 37,538 66,705
Member rebates............................................ 87,834 95,340
Income taxes payable...................................... -- 53,396
---------- ----------
Total current liabilities......................... 2,950,009 3,380,595
---------- ----------
Stockholder's equity:
Common stock, $1 par value. Authorized 1,000,000 shares;
issued and outstanding 1,000 shares.................... 1,000 1,000
Retained earnings......................................... 620,052 597,813
---------- ----------
Total stockholder's equity........................ 621,052 598,813
---------- ----------
Commitments (notes 3 and 6)
$3,571,061 $3,979,408
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 80
PRIMARY EYECARE NETWORK
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net sales................................................... $34,778,730 $36,385,361
Cost of sales............................................... 32,970,750 34,393,995
----------- -----------
Gross profit...................................... 1,807,980 1,991,366
----------- -----------
Expenses:
Salaries, wages and benefits.............................. 1,146,449 1,270,621
Administrative and general................................ 539,662 653,089
Depreciation.............................................. 24,949 24,257
Provision for (recoveries of) doubtful accounts, net...... 38,549 (18,545)
Interest.................................................. 7,308 3,300
Other..................................................... 5,177 14,883
----------- -----------
Total expenses.................................... 1,762,094 1,947,605
----------- -----------
Income before income taxes........................ 45,886 43,761
Income taxes (note 4)....................................... 13,000 66,000
----------- -----------
Net income (loss)...................................... $ 32,886 $ (22,239)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 81
PRIMARY EYECARE NETWORK
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDER'S
STOCK EARNINGS EQUITY
------ -------- -------------
<S> <C> <C> <C>
Balances at April 30, 1995.................................. $1,000 $587,166 $588,166
Net income.................................................. -- 32,886 32,886
------ -------- --------
Balances at April 30, 1996.................................. 1,000 620,052 621,052
Net loss.................................................... -- (22,239) (22,239)
------ -------- --------
Balances at April 30, 1997.................................. $1,000 $597,813 $598,813
====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 82
PRIMARY EYECARE NETWORK
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 32,886 $ (22,239)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation........................................... 24,949 24,257
Changes in operating assets and liabilities:
Trade accounts receivable, net....................... (604,889) (334,243)
Accounts payable and accrued expenses................ 472,306 490,484
Other current assets................................. (11,588) 8,894
--------- ---------
Net cash provided by (used in) operating
activities...................................... (86,336) 167,153
--------- ---------
Cash flows from investing activities:
Maturities (purchases) of certificates of deposit......... (99,000) 297,000
Capital expenditures...................................... (33,708) (8,529)
--------- ---------
Net cash provided by (used in) investing
activities...................................... (132,708) 288,471
--------- ---------
Cash flows from financing activities:
Payment of note payable to stockholder.................... (30,000) (50,000)
--------- ---------
Net cash used in financing activities............. (30,000) (50,000)
--------- ---------
Net increase (decrease) in cash............................. (249,044) 405,624
Cash at beginning of year................................... 350,398 101,354
--------- ---------
Cash at end of year......................................... $ 101,354 $ 506,978
========= =========
Supplemental cash flow information:
Income taxes paid......................................... $ 20,979 $ 884
========= =========
Interest paid............................................. $ 7,308 $ 3,245
========= =========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 83
PRIMARY EYECARE NETWORK
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Primary Eyecare Network (the Company) is a purchasing cooperative that
supports the optometry profession through its education, training, publication
and vendor programs. The Company primarily serves its members by creating
favorable purchasing arrangements between members and approved vendors. The
Company's negotiated arrangements with its vendors require the Company to act as
an intermediary between its members and related vendors. Consistent with such
arrangements, the Company records the gross amounts due from members for
purchases with a corresponding accrual for accounts payable to related vendors.
The significant accounting policies used by the Company in preparing and
presenting its financial statements follow:
(a) Equipment
Equipment is stated at cost less accumulated depreciation. Depreciation is
calculated using the double declining balance method over the estimated useful
lives of the assets.
(b) Income Taxes
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities, when consequential, are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(c) Estimates
Management of the Company has made a number of estimates and assumptions in
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(2) RELATED PARTY TRANSACTIONS
The Company subleases office space to PEN Resources, Inc., a corporation
owned by the stockholder of the Company. Rental income from this lease for the
years ended April 30, 1996 and 1997 was approximately $19,000 and $8,000,
respectively.
Note payable to stockholder consists of a variable rate demand note payable
which was repaid during fiscal 1997.
(3) LEASES
The Company has a noncancelable operating lease for office space expiring
on June 30, 1998. Rental expense was approximately $24,000 and $30,000 for the
years ended April 30, 1996 and 1997, respectively.
Future minimum lease payments under the noncancelable operating lease as of
April 30, 1997 follow:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
- ---------------------
<S> <C>
1998........................................................ $30,720
1999........................................................ 5,120
-------
Total minimum lease payments...................... $35,840
=======
</TABLE>
F-29
<PAGE> 84
PRIMARY EYECARE NETWORK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) INCOME TAXES
Actual tax expense for the years ended April 30, 1996 and 1997 differs from
the "expected" tax expense (computed by applying the U. S. federal corporate tax
rate of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Computed "expected" tax expense........................... $15,601 $14,879
State income taxes (net of federal income tax benefit).... 3,300 11,220
Graduated rate structure.................................. (8,718) (14,250)
Provision in excess of that currently required............ -- 47,612
Other..................................................... 2,817 6,539
------- -------
Actual income tax expense......................... $13,000 $66,000
======= =======
</TABLE>
Components of income tax expense, which are all current, follow:
<TABLE>
<S> <C> <C>
Federal................................................... $ 8,000 49,000
State..................................................... 5,000 17,000
------- -------
$13,000 $66,000
======= =======
</TABLE>
There were no material temporary differences giving rise to deferred tax
assets or liabilities at either April 30, 1996 or 1997.
(5) BUSINESS AND CREDIT CONCENTRATIONS
Most of the Company's members are located in the states of California and
Nevada. No single member accounted for more than five percent of the Company's
net sales during the years ended April 30, 1996 or 1997, and no account
receivable from any member exceeded $50,000. The Company estimates an allowance
for doubtful accounts based on the credit worthiness of its members as well as
general economic conditions. Consequently, an adverse change in those factors
could affect the Company's estimate of its doubtful accounts.
(6) RETIREMENT PLAN
The Company sponsors a defined contribution retirement plan covering most
employees aged 21 and older who have completed six months of service as defined
in the plan. Eligible employees may contribute up to the maximum amount of
compensation allowed by the Internal Revenue Code. The Company may make annual
discretionary contributions. The Company contributed approximately $24,000 and
$30,000 to the plan during the years ended April 30, 1996 and 1997,
respectively.
(7) SUBSEQUENT EVENT
On May 2, 1997, the Company's sole stockholder agreed to sell all assets of
the Company to Omega Health Systems, Inc., an eye care company which provides
management services to a network of eye care professionals and a variety of
managed eye care products.
F-30
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Faust-Gelvin Eye Center, P.C. and The
Outpatient Surgery Center of Indiana, Inc.:
We have audited the accompanying combined balance sheets of Faust-Gelvin
Eye Center, P.C. and The Outpatient Surgery Center of Indiana, Inc., as of
December 31, 1995 and 1996, and the related combined statements of operations,
stockholder's equity and cash flows for the years then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Faust-Gelvin Eye
Center, P.C. and The Outpatient Surgery Center of Indiana, Inc. as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
September 10, 1997
F-31
<PAGE> 86
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 40,498 $ 148,166
Accounts receivable, less allowances for contractual
adjustments and uncollectible accounts of $496,000 and
$574,000 in 1995 and 1996, respectively (note 2)....... 493,989 419,054
Prepaid expenses and other current assets................. 2,932 10,467
---------- ----------
Total current assets.............................. 537,419 577,687
Furniture, fixtures and equipment, net (note 3)............. 1,155,103 981,694
Other assets................................................ 64,488 55,212
---------- ----------
$1,757,010 $1,614,593
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 133,782 $ 170,030
Accrued payroll, payroll taxes and benefits............... 50,080 34,012
Notes payable (note 4).................................... 300,965 79,972
Line of credit (note 5)................................... 472,615 100,000
Current portion of long term debt (note 6)................ 240,209 290,465
Capital lease obligations................................. 90,024 --
---------- ----------
Total current liabilities......................... 1,287,675 674,479
---------- ----------
Long term debt, less current portion (note 6)............... 120,230 475,216
---------- ----------
Total liabilities................................. 1,407,905 1,149,695
---------- ----------
Stockholder's equity:
Common stock, Faust-Gelvin Eye Center, P.C., no par value,
1,000 shares authorized, 100 shares issued and
outstanding............................................ -- --
Common stock, The Outpatient Surgery Center of Indiana,
Inc., no par value, 1,000 shares authorized, 780 shares
issued and outstanding................................. 5,100 5,100
Additional paid-in capital................................ 1,000 1,000
Retained earnings......................................... 343,005 458,798
---------- ----------
Total stockholder's equity........................ 349,105 464,898
---------- ----------
Commitments and contingencies (notes 7 and 9)............... $1,757,010 $1,614,593
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 87
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net patient service revenue (note 7)........................ $3,296,493 $2,678,032
Expenses:
Salaries, wages and benefits.............................. 1,826,867 1,257,122
General and administrative................................ 1,115,300 915,196
Depreciation and amortization............................. 186,655 183,406
Interest.................................................. 143,348 100,341
---------- ----------
Total expenses.................................... 3,272,170 2,456,065
---------- ----------
Income from operations............................ 24,323 221,967
Nonoperating income, net.................................... 21,759 14,194
---------- ----------
Net income........................................ $ 46,082 $ 236,161
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-33
<PAGE> 88
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
EYE CENTER SURGERY
------------------------ CENTER
ADDITIONAL ------- TOTAL
COMMON PAID-IN COMMON RETAINED STOCKHOLDER'S
STOCK CAPITAL STOCK EARNINGS EQUITY
------ --------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994............. $ -- $1,000 $5,100 $ 386,923 $ 393,023
Distributions to stockholder.............. -- -- -- (90,000) (90,000)
Net income................................ -- -- -- 46,082 46,082
------ ------ ------ --------- ---------
Balances at December 31, 1995............. -- 1,000 5,100 343,005 349,105
Distributions to stockholder.............. -- -- -- (120,368) (120,368)
Net income................................ -- -- -- 236,161 236,161
------ ------ ------ --------- ---------
Balances at December 31, 1996............. $ -- $1,000 $5,100 $ 458,798 $ 464,898
====== ====== ====== ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-34
<PAGE> 89
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 46,082 $ 236,161
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 186,655 183,406
Changes in operating assets and liabilities:
Accounts receivable.................................. 183,795 74,935
Prepaid expenses and other assets.................... 21,489 1,741
Accounts payable and accrued expenses................ 80,953 36,248
Accrued payroll, payroll taxes and benefits.......... 4,361 (16,068)
--------- ---------
Net cash provided by operating activities......... 523,335 516,423
--------- ---------
Cash flows from investing activities -- capital
expenditures.............................................. (10,368) (10,297)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit.............................. -- 100,000
Proceeds from notes payable............................... 227,713 426,667
Principal payments on notes payable....................... (480,795) (647,328)
Principal payments on capital lease obligations........... (83,947) (90,024)
Distributions to stockholder.............................. (90,000) (120,368)
Proceeds from issuance of long-term debt.................. 188,624 87,901
Principal payments on long-term debt...................... (259,001) (155,306)
--------- ---------
Net cash used in financing activities............. (497,406) (398,458)
--------- ---------
Net change in cash.......................................... 15,561 107,668
Cash at beginning of year................................... 24,937 40,498
--------- ---------
Cash at end of year......................................... $ 40,498 $ 148,166
========= =========
Supplemental disclosure:
Interest paid............................................. $ 143,348 $ 100,341
========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-35
<PAGE> 90
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Faust-Gelvin Eye Center, P. C. (Eye Center), is the ophthalmology practice
of Joseph F. Faust, M.D., located in Marion, Indiana. Dr. Faust is also the sole
shareholder of The Outpatient Surgery Center of Indiana Inc. (Surgery Center),
an affiliated ambulatory surgery center located adjacent to the Eye Center in
Marion. In combination, these two entities are collectively referred to herein
as "the Company."
On May 1, 1997, Omega Health Systems, Inc. (Omega) acquired certain assets
and assumed certain liabilities of the Eye Center and acquired a 50% interest in
the Surgery Center. Simultaneously with the acquisitions, Omega entered into
long-term management agreements with the Eye Center and the Surgery Center.
(B) STATEMENT OF OPERATIONS
For purposes of presentation, transactions deemed by management to be
ongoing, major or central to the provision of health care services are reported
as revenue and expenses. Peripheral or incidental transactions are reported as
gains and losses.
(C) NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors and others for services rendered.
(D) CHARITY CARE
The Company provides care to patients who meet certain criteria under its
charity care policy without charge or at amounts less than its established
rates. Because the Company does not pursue collection of amounts determined to
qualify as charity care, such amounts are not reported as revenue. Charity care
provided by the Company in 1995 and 1996 was not significant.
(E) FURNITURE, FIXTURES AND EQUIPMENT
Owned furniture, fixtures and equipment are stated at cost. Furniture,
fixtures and equipment under capital leases are stated at the lower of the
present value of minimum lease payments at the beginning of the lease term or
fair value at the inception of the lease.
Depreciation for owned furniture, fixtures and equipment is calculated
using the straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIVES
----------------------
<S> <C>
Vehicles.................................................... 5 years
Leasehold improvements...................................... 5-10 years
Furniture, fixtures and equipment........................... 5-10 years
</TABLE>
(F) INCOME TAXES
The Company has elected for its earnings to be taxed directly to its
stockholder under the S Corporation provisions of the Internal Revenue Code and
similar provisions of Indiana laws and regulations. Accordingly, the
accompanying combined financial statements contain no provision for income taxes
related to the Company's earnings.
F-36
<PAGE> 91
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(G) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
(2) BUSINESS AND CREDIT CONCENTRATIONS
The Company grants credit to patients, substantially all of whom reside in
the Company's service areas in and around Marion and Fort Wayne, Indiana. The
Company generally does not require collateral or other security in extending
credit to patients; however, it routinely obtains assignment of (or is otherwise
entitled to receive) patients' benefits under their health insurance programs,
plans or policies (e.g., Medicare, Medicaid, Blue Cross, preferred provider
arrangements and commercial insurance policies).
The mix of receivables from patients and third-party payors at December 31,
1996 follows:
<TABLE>
<S> <C>
Medicare.................................................... 44%
Commercial insurance........................................ 28
Patient..................................................... 17
Medicaid.................................................... 10
Other third-party payors.................................... 1
----
100%
====
</TABLE>
(3) FURNITURE, FIXTURES AND EQUIPMENT
A summary of furniture, fixtures and equipment follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Vehicles.................................................... $ 25,580 $ 25,580
Leasehold improvements...................................... 800,270 800,270
Furniture, fixtures and equipment........................... 1,241,570 1,251,568
---------- ----------
2,067,420 2,077,418
Less accumulated depreciation and amortization.............. 912,317 1,095,724
---------- ----------
$1,155,103 $ 981,694
========== ==========
</TABLE>
(4) NOTES PAYABLE
A summary of notes payable follows:
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Unsecured note payable, with interest at 7.5%, payable in
monthly installments of $13,631, including interest, final
payment due February 1997................................. $127,274 $40,894
Unsecured note payable, with interest at 7.5%, payable in
monthly installments of $1,593, including interest, final
payment due October 1996.................................. 18,358 --
Unsecured demand note payable to Dr. Faust, with interest at
11%....................................................... 155,333 39,078
-------- -------
$300,965 $79,972
======== =======
</TABLE>
F-37
<PAGE> 92
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LINE OF CREDIT
The Eye Center has a $100,000 bank line of credit which is payable on
demand with monthly interest payments at prime plus .75%. The line of credit is
secured by trade accounts receivable, furniture, fixtures and equipment, and
certain life insurance policies of Dr. Faust.
The Company converted $472,615 in bank lines of credit into long-term debt
in 1996.
(6) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Notes payable to banks, with interest ranging from 6.4% to
10%, payable in monthly installments of $4,515, including
interest, secured by furniture, fixtures and equipment and
accounts receivable, final payments due March 1999........ $173,225 $118,466
Notes payable to a bank, with interest at 9.25%, payable in
monthly installments of $10,937, including interest,
secured by furniture, fixtures and equipment, accounts
receivable and inventory, final payments due November
2000...................................................... -- 512,191
Note payable to Dr. Faust, with interest at 11.5%, payable
in quarterly installments of $7,500, including interest,
final payment due June 1998............................... 49,020 17,520
Unsecured notes payable, with interest at 11.5%, payable in
quarterly installments of $17,069, including interest,
final payments due June 1998.............................. 138,194 117,504
-------- --------
Total long-term debt.............................. 360,439 765,681
Less current portion........................................ 240,209 290,465
-------- --------
Long-term debt, less current portion.............. $120,230 $475,216
======== ========
</TABLE>
Maturities of long-term debt, by year and in the aggregate, follow:
<TABLE>
<S> <C>
1997........................................................ $290,465
1998........................................................ 222,192
1999........................................................ 143,450
2000........................................................ 109,574
--------
$765,681
========
</TABLE>
(7) LEASES
The Company is obligated under certain noncancelable operating leases.
Total lease expense for all operating leases was approximately $188,000 and
$182,000 for the years ended December 31, 1995 and 1996, respectively. The
Company's most significant operating lease is for clinic and surgery center
facilities owned by the Company's stockholder (also see note 11). Expense under
this lease totaled approximately $136,000 in 1995 and 1996.
F-38
<PAGE> 93
FAUST-GELVIN EYE CENTER, P.C. AND
THE OUTPATIENT SURGERY CENTER OF INDIANA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating leases follow:
<TABLE>
<S> <C>
1997........................................................ $ 136,200
1998........................................................ 136,200
1999........................................................ 136,200
2000........................................................ 136,200
2001........................................................ 136,200
Thereafter.................................................. 976,100
----------
$1,657,100
==========
</TABLE>
(8) NET PATIENT SERVICE REVENUE
The Company has agreements with governmental and other third-party payors
that provide for reimbursement to the Company at amounts different from its
established rates. Contractual adjustments under third-party reimbursement
programs represent the difference between the Company's billings at established
rates for services and amounts reimbursed by third-party payors. Third-party
payor activity for the Company principally involves the Medicare and Medicaid
programs. Services rendered to beneficiaries under these programs are generally
paid at prospectively determined procedural rates.
The Company has historically not maintained records to segregate write-offs
of uncollectible accounts from contractual and other adjustments, and therefore
any separate provision for uncollectible accounts is not determinable.
(9) PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains professional and general liability coverage under the
provisions of certain claims-made policies. To the extent that any claims-made
coverage is not renewed or replaced with equivalent insurance, claims based on
occurrences during the term of such coverage, but reported subsequently, would
be uninsured. Management believes, based on incidents identified through the
Company's incident reporting system, that any such claims would not have a
material effect on the Company's operations or financial position. In any event,
management anticipates that the claims-made coverage currently in place will be
renewed or replaced with equivalent insurance as the term of such coverage
expires.
(10) RELATED PARTY TRANSACTIONS
The Company leases facilities from various entities owned or otherwise
controlled by the Company's stockholder as described in note 7. Management
believes that these transactions reflect appropriate market rates and terms for
similar transactions between unaffiliated parties.
F-39
<PAGE> 94
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
The Company............................. 14
Use of Proceeds......................... 14
Price Range of Common Stock............. 15
Dividend Policy......................... 15
Capitalization.......................... 16
Selected Consolidated Financial Data.... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
Business................................ 26
Management.............................. 40
Certain Transactions.................... 45
Principal and Selling Stockholders...... 46
Description of Capital Stock............ 48
Shares Eligible for Future Sale......... 50
Underwriting............................ 51
Legal Matters........................... 52
Experts................................. 52
Additional Information.................. 52
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
======================================================
======================================================
3,500,000 SHARES
OMEGA
HEALTH SYSTEMS, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
EQUITABLE SECURITIES CORPORATION
DAIN BOSWORTH
INCORPORATED
MORGAN KEEGAN
& COMPANY, INC.
, 1997
======================================================
<PAGE> 95
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses shall be borne by the Company in connection
with this offering. All fees and expenses other than the SEC, NASD and Nasdaq
Stock Market fees are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $
NASD Filing Fee.............................................
Nasdaq Stock Market Filing Fee..............................
Blue Sky fees and expenses, including legal fees............
Transfer Agent's Fee........................................
Printing and Engraving......................................
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Miscellaneous...............................................
------
Total............................................. $
======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following summary is qualified in its entirety by reference to the
complete text of any statute, Charter or Bylaws as referred to below.
Under Sections 10 and 11 of the Company's amended Charter, a 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,
except for liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts of omission not in good faith or
which involve intentional misconduct or a knowing violation of the law, (c)
under Section 174 of the General Corporation Law of the State of Delaware or (d)
for any transaction from which the director derived an improper personal
benefit.
Furthermore, every person who was, is, or is threatened to be made a party
to, or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he, or a person of
whom he is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise (including, without limitation, any
employee benefit plan), whether the basis of such action, suit or proceeding is
alleged action in an official capacity as a director, officer or representative,
or in any other capacity while serving as a director, officer, or
representative, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the General Corporation Law of the State of
Delaware as amended. Such right is a contract right and includes the right to be
paid by the corporation expenses incurred in defending any action suit or
proceeding in advance of its final disposition upon delivery to the corporation
of an undertaking, if required by law, by or on behalf of such person to repay
all amounts advanced unless it should be determined ultimately that such person
is entitled to be by the corporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On May 17, 1996, the Registrant completed the sale of 729 shares of its
Series A convertible preferred stock. The placement agent for the issue was
Swartz Investments, LLC. The preferred stock was issued to qualified foreign
investors pursuant to Regulation S under the Securities Act . The aggregate
offering price was $7,290,000. The placement agent fee was $729,000. Each share
of preferred stock was issued at a purchase price of $10,000 and is convertible
into common stock at an exercise price equal to the lesser of $5.75 or 85% of
the average bid price of the common stock at the time of conversion. The
preferred stock automatically converts at the end of three years if not already
converted. Until conversion, the preferred stock
II-1
<PAGE> 96
has a 8% dividend, payable in kind. In connection with the placement, the
purchasers of the preferred stock were granted options to acquire 633,913
additional shares of the Registrant's common stock at an exercise price of
$5.75, which options are exercisable until May 17, 2001. The placement agent was
issued warrants to purchase an additional 126,782 shares of common stock with
the same exercise price and term. As of December 31, 1996, 670 of the 729 shares
of convertible preferred stock have been converted.
In connection with the purchase on March 12, 1996, by the Company from Paul
E. Garland, M.D., of the Capital Eye Surgery Center, Inc., the Company issued to
Dr. Garland its 7% Convertible Subordinated Note in the principal amount of
$1,400,000, which note is convertible into Omega Common Stock, at the option of
the holder of the note, at a conversion price of $6.50 per share. No portion of
the Note has been converted at this date.
In connection with the purchase on August 31, 1996, by the Company from
Wesley K. Herman, M.D. and his wife, Joellen Herman, and Bradford B. Panzandak,
M.D. and his wife, Joyce Pazandak, of the assets of Eyecare and Surgery Center
of North Texas, P.A. and ECSC Retina, P.A., the Company issued to Drs. Herman
and Pazandak and their respective wives 771,429 shares of Omega Common Stock,
values at $4,540,000.
In connection with the acquisition by merger as of March 1, 1997, of
Refractive Surgery Center of Birmingham, a professional corporation, the Company
issued to Sarah J. Hayes, M.D., 108,081 shares of Omega Common Stock, valued at
$714,414.
In connection with the purchase as of March 31, 1997, by the Company from
Nathan L. Lipton, M.D., P.A. of substantially all of its assets, the Company
issued to Dr. Lipton 15,267 shares of Omega Common Stock, valued at $100,000.
In connection with the acquisition as of April 30, 1997, by merger of
Primary Eyecare Network and P.E.N. Resources, Inc., the Company issued to
Leonard Osias, O.D. and his wife, Irene Osias, 195,365 shares of Omega Common
Stock, valued at $1,275,928.
In connection with the acquisition by merger as of May 1, 1997, of Faust
Eye Center, P.C., the Company issued to Joseph Faust, M.D. 169,186 shares of
Omega Common Stock, valued at $1,112,400.
In connection with the acquisition by merger as of August 29, 1997, of
Dillman Eye Care Optical Department, Inc., the Company issued to David M.
Dillman, M.D., 76,925 shares of Omega Common Stock, valued at $500,000.
In connection with the acquisition by merger as of September 30, 1997, of
Golden Eye Surgeons and Consultants, Ltd., the Company issued to Bruce Golden,
M.D. 89,694 shares of Omega Common Stock, valued at $672,700. In addition, the
Company granted to Dr. Golden the option to purchase 10,000 shares of Omega
Common Stock at $8.25 share, exercisable at various dates on or before September
26, 2003.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1(a) -- Form of Underwriting Agreement*
3(a) -- Articles of Incorporation(1)(3.1)
3(b) -- Amendment to Articles of Incorporation(1)(3.2)
3(c) -- Bylaws,(1)(3.3)
4(a) -- Form of Common Stock Certificate(1)
4(b) -- Certificate of Designation of Series A Preferred
Stock(1)(4.2)
5(a) -- Opinion and Consent of Baker, Donelson, Bearman & Caldwell*
10(a) -- Management Agreement between Omega Heath Systems Inc. and
Cathleen Schanzer dated December 18, 1989
</TABLE>
II-2
<PAGE> 97
10(b) -- Asset Purchase Agreement dated March 12, 1996(2)
10(c) -- Stock Purchase Agreement dated March 12, 1996(2)
10(d) -- 7% Convertible Subordinated Note dated March 12, 1996
between Registrant and Garland(2)
10(e) -- 12% Subordinated Promissory Note dated March 12, 1996
between Registrant and HealthMark Partners, LLC(2)
10(f) -- Class C Warrants to purchase shares of Common Stock issued
to HealthMark Partners, LLC(2)
10(g) -- Pledge and Security Agreement between Registrant and
HealthMark Partners, LLC(2)
10(h) -- Asset Exchange Agreement dated as of August 31, 1996 by and
between EyeCare and Surgery Center of North Texas, P.A. and
Omega Health Systems of North Texas, Inc.(3)
10(i) -- Asset Exchange Agreement dated as of August 31, 1996 by and
between ECSC Retina, P.A. and Omega Health Systems of North
Texas, Inc.(2)
10(j) -- Partnership Agreement of SurgEyeCare General Partnership(3)
10(k) -- Credit Agreement among Omega Heath Systems, Inc. and Nations
Credit Commercial Corporation dated February 25, 1997
10(l) -- Merger Agreement by and among Omega Health Systems Inc. and
Dr. S.J. Hays dated March 1, 1997
10(m) -- Merger Agreement by and among Omega Health Systems, Inc. and
Leonard Osias, O.D., Irene Osias, both as Trustee of the
Osias Family Trust dated August 18, 1988, Primary Eyecare
Network, P.E.N. Resources, Inc., Omega Health System, Inc.,
and Omega Acquisition Subsidiary, Inc. dated April 30,
1997(4)
10(n) -- Merger Agreement by and among Omega Health Systems, Omega
Health Systems of Indiana, Inc., Faust Eye Care Center,
P.C., and Dr. Joseph Faust dated May 1, 1997(4)
10(o) -- Partnership Agreement by and among Omega Health Systems of
Indiana, Inc. and Outpatient Surgery Center of Indiana, LLP
dated May 1, 1997(4)
10(p) -- Merger Agreement by and among Omega Health Systems of
Illinois, Omega Health Systems, Inc., Dillman Eyecare
Optical Department, Inc., and Dr. David M. Dillman dated
August 29, 1997
10(q) -- Stock Purchase Agreement by and among Omega Health Systems
of Illinois, Inc. and Dr. David M. Dillman dated August 29,
1997
10(r) -- Lease Agreement dated August 29, 1997 between Watson Real
Estate Holdings, L.P. and Omega Health Systems of Illinois,
Inc.
10(s) -- Merger Agreement by and among Omega Health Systems of the
Great Lakes, Inc., Omega Health Systems, Inc., Golden Eye
Surgeons and Consultants, LTD., and Dr. Bruce Golden dated
September 26, 1997
10(t) -- Company Pension Plan*
10(u) -- 1985 Stock Option Plan*
10(v) -- 1991 Employee Stock Purchase Plan*
10(w) -- 1995 Stock Option Plan*
10(x) -- Employment Agreement dated August 1, 1996 between Omega
Health Systems, Inc. and Thomas P. Lewis
10(y) -- Employment Agreement dated January 1, 1997 between Omega
Health Systems, Inc. and Ronald L. Edmonds
10(z) -- Employment Agreement dated January 1, 1997 between The Eye
Health Network, Inc. and Donald A. Hood, O.D.
II-3
<PAGE> 98
10(aa) -- Employment Agreement dated May 1, 1997 between Primary
Eyecare Network, Inc. and Allen Leck
10(ab) -- Consulting Services Agreement dated August 8, 1997 between
Omega Health Systems, Inc. and David Dillman, M.D.
13(a) -- Annual Report to Stockholders for the year ended December
31, 1996(1)
22(a) -- Subsidiaries of the Registrant*
24(a) -- Consent of KPMG Peat Marwick LLP
25(a) -- Power of Attorney (included in the signature page hereto)
- ---------------
* To be filed by Amendment
(1) Incorporated by Reference from Exhibits to Annual Report on Form 10-K for
the year ended December 31, 1996 (Exhibit number, if different in 1996 10-K,
is set forth in italics).
(2) Incorporated by reference to the Current Report on Form 8-K dated March 25,
1996.
(3) Incorporated by reference to the Current Report on Form 8-K dated May 16,
1997.
(4) Incorporated by reference to the Current Report on Form 8-K dated May 16,
1997.
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, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions set forth in response to
Item 15 hereof, 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 of 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 Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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
<PAGE> 99
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Memphis,
State of Tennessee, on October 27, 1997.
OMEGA HEALTH SYSTEMS, INC.
By: /s/ THOMAS P. LEWIS
------------------------------------
Thomas P. Lewis
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Thomas P. Lewis or Ronald L. Edmonds, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, 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 as fully to 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 or
substitutes, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREW MILLER Chairman of the Board October 27, 1997
- -----------------------------------------------------
Andrew Miller
/s/ THOMAS P. LEWIS President and Chief Executive October 27, 1997
- ----------------------------------------------------- Officer (Principal Executive
Thomas P. Lewis Officer)
/s/ RONALD L. EDMONDS Executive Vice President and October 27, 1997
- ----------------------------------------------------- Chief Financial Officer
Ronald L. Edmonds (Principal Financial
Officer)
/s/ MARY ELIZABETH PORTER Vice President and Controller October 27, 1997
- ----------------------------------------------------- (Principal Accounting
Mary Elizabeth Porter Officer)
/s/ DAVID M. DILLMAN Director October 27, 1997
- -----------------------------------------------------
David M. Dillman, M.D.
/s/ HERMAN TACKER Director October 27, 1997
- -----------------------------------------------------
Herman Tacker, O.D.
/s/ DONALD A. HOOD Director October 27, 1997
- -----------------------------------------------------
Donald A. Hood, O.D.
</TABLE>
II-5
<PAGE> 100
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
1(a) -- Form of Underwriting Agreement*.............................
3(a) -- Articles of Incorporation(1)(3.1)...........................
3(b) -- Amendment to Articles of Incorporation(1)(3.2)..............
3(c) -- Bylaws,(1)(3.3).............................................
4(a) -- Form of Common Stock Certificate(1).........................
4(b) -- Certificate of Designation of Series A Preferred
Stock(1)(4.2)...............................................
5(a) -- Opinion and Consent of Baker, Donelson, Bearman &
Caldwell*...................................................
10(a) -- Management Agreement between Omega Heath Systems Inc. and
Cathleen Schanzer dated December 18, 1989...................
10(b) -- Asset Purchase Agreement dated March 12, 1996(2)............
10(c) -- Stock Purchase Agreement dated March 12, 1996(2)............
10(d) -- 7% Convertible Subordinated Note dated March 12, 1996
between Registrant and Garland(2)...........................
10(e) -- 12% Subordinated Promissory Note dated March 12, 1996
between Registrant and HealthMark Partners, LLC(2)..........
10(f) -- Class C Warrants to purchase shares of Common Stock issued
to HealthMark Partners, LLC(2)..............................
10(g) -- Pledge and Security Agreement between Registrant and
HealthMark Partners, LLC(2).................................
10(h) -- Asset Exchange Agreement dated as of August 31, 1996 by and
between EyeCare and Surgery Center of North Texas, P.A. and
Omega Health Systems of North Texas, Inc.(3)................
10(i) -- Asset Exchange Agreement dated as of August 31, 1996 by and
between ECSC Retina, P.A. and Omega Health Systems of North
Texas, Inc.(2)..............................................
10(j) -- Partnership Agreement of SurgEyeCare General
Partnership(3)..............................................
10(k) -- Credit Agreement among Omega Heath Systems, Inc. and Nations
Credit Commercial Corporation dated February 25, 1997.......
10(l) -- Merger Agreement by and among Omega Health Systems Inc. and
Dr. S.J. Hays dated March 1, 1997...........................
10(m) -- Merger Agreement by and among Omega Health Systems, Inc. and
Leonard Osias, O.D., Irene Osias, both as Trustee of the
Osias Family Trust dated August 18, 1988, Primary Eyecare
Network, P.E.N. Resources, Inc., Omega Health System, Inc.,
and Omega Acquisition Subsidiary, Inc. dated April 30,
1997(4).....................................................
10(n) -- Merger Agreement by and among Omega Health Systems, Omega
Health Systems of Indiana, Inc., Faust Eye Care Center,
P.C., and Dr. Joseph Faust dated May 1, 1997(4).............
10(o) -- Partnership Agreement by and among Omega Health Systems of
Indiana, Inc. and Outpatient Surgery Center of Indiana, LLP
dated May 1, 1997(4)........................................
10(p) -- Merger Agreement by and among Omega Health Systems of
Illinois, Omega Health Systems, Inc., Dillman Eyecare
Optical Department, Inc., and Dr. David M. Dillman dated
August 29, 1997.............................................
10(q) -- Stock Purchase Agreement by and among Omega Health Systems
of Illinois, Inc. and Dr. David M. Dillman dated August 29,
1997........................................................
10(r) -- Lease Agreement dated August 29, 1997 between Watson Real
Estate Holdings, L.P. and Omega Health Systems of Illinois,
Inc.........................................................
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
10(s) -- Merger Agreement by and among Omega Health Systems of the
Great Lakes, Inc., Omega Health Systems, Inc., Golden Eye
Surgeons and Consultants, LTD., and Dr. Bruce Golden dated
September 26, 1997..........................................
10(t) -- Company Pension Plan*.......................................
10(u) -- 1985 Stock Option Plan*.....................................
10(v) -- 1991 Employee Stock Purchase Plan*..........................
10(w) -- 1995 Stock Option Plan*.....................................
10(x) -- Employment Agreement dated August 1, 1996 between Omega
Health Systems, Inc. and Thomas P. Lewis....................
10(y) -- Employment Agreement dated January 1, 1997 between Omega
Health Systems, Inc. and Ronald L. Edmonds..................
10(z) -- Employment Agreement dated January 1, 1997 between The Eye
Health Network, Inc. and Donald A. Hood, O.D. ..............
10(aa) -- Employment Agreement dated May 1, 1997 between Primary
Eyecare Network, Inc. and Allen Leck........................
10(ab) -- Consulting Services Agreement dated August 8, 1997 between
Omega Health Systems, Inc. and David Dillman, M.D. .........
13(a) -- Annual Report to Stockholders for the year ended December
31, 1996(1).................................................
22(a) -- Subsidiaries of the Registrant*.............................
24(a) -- Consent of KPMG Peat Marwick LLP............................
25(a) -- Power of Attorney (included in the signature page hereto)...
</TABLE>
- ---------------
* To be filed by Amendment
(1) Incorporated by Reference from Exhibits to Annual Report on Form 10-K for
the year ended December 31, 1996 (Exhibit number, if different in 1996 10-K,
is set forth in italics).
(2) Incorporated by reference to the Current Report on Form 8-K dated March 25,
1996.
(3) Incorporated by reference to the Current Report on Form 8-K dated May 16,
1997.
(4) Incorporated by reference to the Current Report on Form 8-K dated May 16,
1997.
<PAGE> 1
Exhibit 10(a)
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement"), is entered into as of the
18th day of December, 1989, by and between M. Cathleen Schanzer, M.D.
("Ophthalmologist"), whose address is 544 Fairchild Cove, Memphis, Tennessee
38119, and Omega health Systems of Memphis, Inc., a Tennessee corporation, with
offices at 1932 Exeter road, Germantown, Tennessee, 38138 ("Omega").
W I T N E S S E T H:
WHEREAS, Ophthalmologist is engaged in rendering ophthalmological
medical care and performing related surgical procedures under the name of
Southern Eye Associates at the following location (herein referred to as the
"Center"): 5101 Wheelis Drive, Suite 304, Memphis, Tennessee 38117; and
WHEREAS, in order to enable the ophthalmologist and the Center to
benefit from the experience and expertise of Omega in connection with similar
operations, Ophthalmologist desires to employ Omega to operate the Center and
Omega is willing to be engaged in such capacity.
NOW THEREFORE, in consideration of the premises, and the mutual
covenants and promises hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby contract and agree as follows:
SECTION 1. SERVICES.
1.1 Ophthalmologist hereby engages Omega for the purpose of rendering
management, administration, purchasing services, support, financial assistance
and all other management, support and administrative services needed for the
operation of the Center on the basis hereinafter set forth; Omega hereby accepts
such engagement.
1.2 Omega shall provide management services for the Center in a manner
consistent with good business practices in the community served by the Center
and within the health care industry and consistent with and subject to the
responsibilities of the Ophthalmologist.
1.3 In the performance of its duties under the terms of this Agreement,
Omega will render, at its sole cost and expenses unless otherwise provided
herein, all services, direction, advice, supervision and assistance as shall be
deemed reasonably necessary to operate the Center including, but not by way of
limitation, the following:
<PAGE> 2
(a) Providing all normal and customary facilities, supplies
and equipment necessary to enable Ophthalmologist to conduct an
ophthalmological practice.
(b) Maintaining the accreditation of the Center with the
proper agencies and insurance companies.
(c) Hiring, training, supervising, directing and discharging
all non-ophthalmic personnel and office staff, including an optometrist
who will serve as the "Center Director". It is agreed that the Center
Director will be responsible for the day-to-day operations of the
Center, including supervision of office personnel, patient scheduling
business office administration, performance of diagnosis and treatment
of patients as allowed under Ophthalmologist's license, coordination of
all continuing education programs and responsibility for communications
required to keep third parties informed of patient data and Center
activities.
(d) Providing and maintaining in force, during the term of
this Agreement, a liability policy in an amount of not less than
$1,000,000 insuring the Center and its operations for such coverage as
agreed upon by the parties but specifically excluding the coverage to
be provided pursuant to Section 3.09 below.
(e) Administering all billings and collections for all
services rendered at the Center.
(f) Preparing all reports, supporting data and other material
and information required in connection with reimbursement under
Medicare, Medicaid, Blue Cross and other third-party payment contracts
and programs, including any national health insurance, if enacted,
involved.
(g) Preparing one or more monthly reports setting forth, in
such detail as Ophthalmologist shall reasonably request, the following
information: profit and loss statements, bank reconciliations, patient
billings, cash receipts, expenses, other expenditures, and such other
matters related to the operation of the Center as reasonably requested
by Ophthalmologist. Such reports shall be made in writing for each
calendar month during the term of this Agreement and shall be submitted
to Ophthalmologist by the 15th of the following month.
(h) Causing to be prepared, on an annual basis, and delivered
to Ophthalmologist, in a timely manner, financial statements of the
Center audited by a firm of independent certified public accountants.
-2-
<PAGE> 3
(i) Establishing staffing schedules, wage structures and
personnel policies for employees of the Center, including a provision
of ten 910) days for recognition of national holidays and personal
leave and also including a health insurance program with such coverage,
deductible, etc. as shall be reasonably acceptable to Ophthalmologist.
It is agreed that Ophthalmologist and her family will be covered by
such health insurance at no charge to them.
(j) Providing such other services as the parties shall agree
to in writing at any time or times during the term of this Agreement.
SECTION 2. MANAGEMENT SERVICE FEES.
2.1 As compensation for services rendered under the terms of this
Agreement, Omega shall be entitled to receive a fee based upon the annual cash
receipts of the Center as set forth on Exhibit "A" attached hereto.
Notwithstanding the foregoing, it is agreed that (i) the management fee of Omega
will be paid from annual cash receipts of the Center in excess of $200,400.00
per annum, (ii) Ophthalmologist is entitled to retain as her own personal
compensation the first $16,700.00 of cash received by the Center each month,
(iii) if the Center does not have cash receipts of at least $16,700.00 in any
one month, Omega is obligated to pay to Ophthalmologist, within five (5) days
from the last day of the month involved, the difference between $16,700.00 and
the amount of cash receipts during such month, and (iv) to the extent that Omega
pays anything to Ophthalmologist, due to any shortfalls in cash receipts of the
Center, Omega is thereafter entitled to recoup such amount from 100% of the
first cash receipts in excess of the minimum amount payable ($16,700.00) each
month to Ophthalmologist.
2.2 In connection with calculating the monthly management fee payable
to Omega, the calculation of such fee shall begin at the highest percentage
provided in Section 2.1 of this Agreement. That rate shall be adjusted to the
next lower percentage as of the end of the calendar month in which the
cumulative cash receipts of the Center for the year exceed $1,250,000,
$1,750,000 or $2,250,000, as the case may be.
SECTION 3. RESPONSIBILITIES
3.1 The parties acknowledge and agree that the rights, powers, duties
and responsibilities of the Ophthalmologist and Omega may be limited by
applicable federal, state and local laws and regulations affecting the operation
of the Center and the services provided at the Center. Ophthalmologist and Omega
agree to comply fully with all applicable laws and regulations in the
performance of their respective responsibilities.
3.2 Ophthalmologist is ultimately responsible for the quality of care
rendered in her practice and, therefore, retains ultimate authority concerning
medical and professional matters that
-3-
<PAGE> 4
arise within and in relation to the practice. Omega and Ophthalmologist shall
perform their obligations under this Agreement in a manner consistent with the
Ophthalmologist's responsibility for quality of care.
3.3 If one or more additional ophthalmologists are required to serve
the needs of the patients of the Center, and if Ophthalmologist and Omega
mutually agree upon the terms and conditions of employment of such person(s)_,
Ophthalmologist shall be responsible for each additional ophthalmologist.
3.4 Ophthalmologist shall work closely with the Center Director to
provide the best patient care possible.
3.5 Ophthalmologist shall assist the Center to secure any licenses
that are needed to operate the Center.
3.6 Ophthalmologist shall acquire and maintain, at all times during
the term of this Agreement, professional liability insurance coverage to cover
all patient care provided by Ophthalmologist pursuant to the terms of this
Agreement. Such insurance coverage shall (a) be paid for as normal and customary
expense of the Center, (b) have limits of $1,000,000 per person or $1,000,000
per occurrence, and (c) be provided through insurers acceptable to
Ophthalmologist; evidence of Ophthalmologist's coverage shall be supplied to the
Omega at any time upon request.
3.7 Ophthalmologist shall review and consult with Omega as to the
location of additional facilities, selection of equipment and other key
activities relating to the establishment of the Center.
3.8 Ophthalmologist agrees that she will be available on a full time
basis, exclusive of continuing education, a minimum of 49 weeks per year.
Provided, however, such time commitment may be modified from time-to-time if (i)
Omega consents thereto, or (ii) such modification does not adversely impact the
Center and its operating results, or (iii) such modification is due to factors
beyond the control of Ophthalmologist such as illness of Ophthalmologist,
destruction or condemnation of the Center, force majeure, etc.
3.9 During the term of this Agreement, Omega agrees to reimburse
Ophthalmologist for the cost of a $250,000 term life insurance policy on the
life of Ophthalmologist. The premium for such policy shall be a normal and
customary expense of the Center and Omega.
3.10 During the term of this Agreement, Omega agrees to reimburse
Ophthalmologist for the cost of a disability insurance policy providing for
disability benefits up to $4,000 per year. The premium for this disability
policy will be a normal and customary expense of the Center and Omega.
-4-
<PAGE> 5
3.11 During the term of this Agreement, Omega agrees to reimburse
Ophthalmologist up to $2,500 per annum for the cost of professional dues,
subscriptions, memberships in professional societies and for actual travel
expenses and tuition to continuing education programs which shall not take
Ophthalmologist away from Center more than one week per year.
3.12 At the time of execution of this Agreement, Omega shall pay to
Ophthalmologist the sum of $15,000 as a bonus for entering into this Agreement
and will advance to Ophthalmologist the amount of $10,000 which shall be
repayable solely from the annual cash receipts of the Center in excess of the
minimum amount payable to the Ophthalmologist each year ($200,400).
3.13 Ophthalmologist shall guarantee a total amount of $50,000 of the
Center's building lease and secure leases for ophthalmic equipment, with such
leases and the related guarantee(s) to be on terms and conditions reasonably
acceptable to both parties. Otherwise, Omega shall be responsible for any and
all liability with respect to all such leases.
SECTION 4. GENERAL COVENANTS.
4.1 Ophthalmologist and Omega recognize that this Agreement does not
constitute a joint venture, a partnership or any relationship other than a
management contract between independent contractors.
4.2 Subject to the provisions of the Agreement, all the costs and
expenses of providing, maintaining, repairing and operating the center shall be
solely borne by Omega.
SECTION 5. TERM.
The term of the Agreement shall commence January 1, 1990 and shall
continue for a period of three (3) years through December 31, 1992 and shall
automatically renew thereafter for one (1) year terms, unless previously
terminated pursuant to Section 6 of this Agreement.
SECTION 6. DEFAULTS OR TERMINATION.
6.1 In the event that any of the events of default or other
occurrences set forth below do happen, the non-defaulting party may immediately
terminate this Agreement by written notice to the defaulting party. Such events
or occurrences are as follows:
(a) The failure of either party to pay the other any
undisputed amount due pursuant to the Agreement for a period of fifteen
(15) days after such undisputed amount is payable. Declaration of
default and termination shall not excuse the defaulting party of any
obligation for payments due hereunder to the date of termination.
-5-
<PAGE> 6
(b) The failure of either party to perform, keep or fulfill
any of the other covenants, undertakings, obligations or conditions set
forth in this Agreement and the continuance of any such default for a
period of thirty 930) days after written notice of default.
(c) Any act or omission, by either party, which jeopardizes
the quality of patient care and the continuance of such act or omission
for a period of thirty (30) days after written notice of such act or
omission.
(d) Conviction of a criminal act or determination or verdict
of a court of competent jurisdiction or gross negligence on the part of
Ophthalmologist such that the conviction, determination or verdict
results in Ophthalmologist losing her license to practice medicine in
the State of Tennessee or Ophthalmologist losing her surgical
privileges at all approved surgical facilities in the Memphis,
Tennessee area.
6.2 This Agreement may be terminated by Ophthalmologist without cause
upon giving Omega 180 days' notice in writing. If this Agreement is terminated
by Ophthalmologist without cause, then Omega shall be obligated to pay
Ophthalmologist full salary for her full time services during same period. In
addition, Omega will be required to continue all applicable insurance during
notification period and to pay any and all accrued, but yet unpaid benefits set
forth in this Agreement.
6.3 This Agreement may be terminated upon thirty (30) days notice by
either party in writing upon destruction or condemnation of all or a significant
portion of the Center.
6.4 This Agreement may be immediately terminated by Ophthalmologist by
written notice to Omega if, during the term of this Agreement, (a) there shall
be filed by or against or on behalf of Omega in any court, either of the Untied
States or of any state, a petition of bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or a
portion of the property of Omega, or if Omega makes an assignment for the
benefit of creditors or similar type of arrangement, or (b) Omega ceases to be
the General Partner of Omega Eye Group of Memphis, a limited partnership, or if
the ownership of Omega changes.
6.5 This Agreement may be terminated by Omega if, during the term of
this Agreement, Ophthalmologist is unable to obtain malpractice insurance
required pursuant to the terms of this Agreement.
6.6 If this Agreement is terminated for any reason whatsoever, Omega
agrees that it is not the owner of and shall not be entitled to remove any
medical records of patients treated at the Center and that said patient records
will remain the property of Ophthalmologist. However, Omega shall have the right
to copy any and all patient records at its expense.
-6-
<PAGE> 7
6.7 If Ophthalmologist elects to terminate this Agreement for any of
the reasons specified in Sections 6.01(a), 6.01(b), 6.01(c), 6.03 or 6.04,
Ophthalmologist shall have the option to purchase from Omega all of the assets
and property rights of and related to the Center (the "Center Assets"), subject
to the following:
(a) Ophthalmologist must give Omega written notice of her
election to purchase the Center Assets rights on or before the
effective date that this Agreement shall terminate pursuant to such
election by Ophthalmologist.
(b) Ophthalmologist must agree to pay to Omega an amount equal
the net book value of the Center Assets as of the date that
Ophthalmologist advises Omega of her election to purchase the Center
Assets. The net book value of the Center Assets shall basically mean
the book value of all of the Center Assets less the actual liabilities
related thereto; in the event of any dispute as to the net book value
of the Center Assets, generally accepted accounting principles
consistently applied shall be followed in resolving such dispute.
(c) Once the net book value of the Center Assets has been determined,
Ophthalmologist must pay such amount to Omega by (i) assuming the leases and
other obligations of the Center, and (ii) issuing to Omega a promissory note for
the balance owed with such promissory note to be payable e at the end of two (2)
years from the date the Center Assets are assigned to Ophthalmologist and to
bear interest at the rate of twelve percent (12%) per annum.
SECTION 7. PATIENT REFERRAL/UTILIZATION.
7.1 There shall be no referral policy established between Omega or
Ophthalmologist and any optometrist or other health care practitioner, and no
compensation or other remuneration, direct or indirect, shall be paid or
received by Omega or Ophthalmologist, or any employee of Omega or
Ophthalmologist, to induce a referral of any patient to the Ophthalmologist for
treatment or medical services.
7.2 Omega and Ophthalmologist shall attempt, to the best of their
abilities, to make certain that all services ordered form and all referrals, if
any, made to the Center shall be medically necessary.
7.3 Ophthalmologist shall participate in and cooperate with utilization
review procedures prepared by Omega and approved by the Ophthalmologist.
SECTION 8. FURNITURE, FIXTURES AND EQUIPMENT.
Subject to the terms of this Agreement, all furniture, fixtures,
equipment and property, provided by Omega to the Center shall be and remain the
property of Omega.
-7-
<PAGE> 8
SECTION 9. ASSIGNMENT.
Neither party shall have the right to assign any of its rights,
obligations or performance of professional services hereunder to any third
parties without the prior written consent of the party except that (a) Omega
shall have the right to assign its rights and obligations under this Agreement
to the Omega Eye Group of Memphis, a limited partnership, and (b)
Ophthalmologist shall have the right to assign her rights and obligations under
this Agreement to a professional corporation she may establish in the future.
SECTION 10. NOTICES.
All notices or other communications given pursuant to this Agreement
shall be deemed validly given and received upon hand delivery or by certified
mail, return receipt request, addressed as follows or as such addresses may have
been changed with written notice of such change delivered or mailed as herein
provided to the other party:
To Omega: Omega Health Systems of Memphis, Inc.
Attention: Mr. Robert Qualls
1932 Exeter
Germantown, TN 38138
To Ophthalmologist: M. Cathleen Schanzer, M.D.
Southern Eye Associates
5101 Wheelis Drive, Suite 304
Memphis, TN 38117
SECTION 11. AMENDMENTS.
11.1 No waiver, alteration, amendment or modification of provisions
contained in this Agreement shall be binding unless made in writing and signed
by both parties.
11.2 Omega and Ophthalmologist acknowledge that the structure, terms
and requirements of management agreements for medical professionals are
currently being established by the Office of Inspector General (OIG) and that
once a final regulations are published by the OIG, changes in this Agreement may
be required to bring it into conformance with these new regulations. Both
-8-
<PAGE> 9
parties agree to negotiate in good faith to implement any necessary changes with
the goal of not altering the basic rights or financial advantages accruing to
either party.
SECTION 12. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement,
or its breach, shall be settled by arbitration in accordance with the commercial
Arbitration Rules of the American Arbitration Association (the "Arbitration
Rules"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction. Within thirty 930) days after submission of
Demand for Arbitration under the Arbitration Rules, Omega and Ophthalmologist
shall each appoint an arbitrator qualified to act relative to the dispute. The
arbitrators so chosen shall appoint a third arbitrator with thirty (30) days
thereafter. Should any party fail to select an arbitrator within the specified
time limit or should the two selected arbitrators fail to select a third
arbitrator within the specified time limit, the American Arbitration Association
may proceed to select the panel in accordance with the Arbitration Rules.
In the event either party resorts to legal action against the other
party to enforce the terms and provisions of the Agreement, the prevailing party
of such action will be entitled to recover the costs of such action, including,
without limitation, the reasonable legal fees and related costs so incurred.
SECTION 13. CHOICE OF LAW
The parties agree that the laws of the State of Tennessee shall apply
to any controversy arising out of or relating to this Agreement or its breach.
-9-
<PAGE> 10
SECTION 14. ENTIRE AGREEMENT
The parties intend that this Agreement constitutes the final and
complete agreement between them and supersedes all previous and collateral
agreements of understandings relating thereto. This Agreement shall be binding
upon and inure to the benefit of each of the parties and their respective heirs,
representatives, successors and assigns.
SECTION 15. SEVERABILITY.
It is agreed that if any clause or provision of this Agreement is held
by any court to be illegal or void, the validity of the remaining portions of
this Agreement shall not be affected, and the rights and obligations of the
parties shall be enforced as if the Agreement did not contain such illegal or
void clauses.
IN WITNESS WHEREOF, the parties have executed duplicate originals of
this Agreement, this ______day of _______________, 199__.
OMEGA:
OMEGA HEALTH SYSTEMS OF
MEMPHIS, INC.
WITNESS:
By:
- -------------------------------- --------------------------------
Robert Qualls, President
OPHTHALMOLOGIST:
WITNESS:
- -------------------------------- -----------------------------------
M. Cathleen Schanzer, M.D.
-10-
<PAGE> 1
EXHIBIT 10(k)
===============================================================================
CREDIT AGREEMENT
DATED AS OF FEBRUARY 25, 1997
AMONG
OMEGA HEALTH SYSTEMS, INC.,
THE LENDERS REFERRED TO HEREIN
AND
NATIONSCREDIT COMMERCIAL CORPORATION,
AS AGENT
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I - DEFINITIONS...........................................................................................1
SECTION 1.01. CERTAIN DEFINED TERMS.......................................................................1
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS........................................................20
SECTION 1.03. OTHER DEFINITIONAL PROVISIONS..............................................................20
ARTICLE II - REVOLVING CREDIT LOANS..............................................................................21
SECTION 2.01. REVOLVING CREDIT LOANS AND COMMITMENTS.....................................................21
SECTION 2.02. REVOLVING CREDIT NOTES.....................................................................22
SECTION 2.03. INTEREST ON THE REVOLVING CREDIT LOANS.....................................................22
SECTION 2.04. ADVANCING REVOLVING CREDIT LOANS...........................................................23
SECTION 2.05. MANDATORY REPAYMENTS AND PREPAYMENTS.......................................................24
SECTION 2.06. OPTIONAL PREPAYMENTS.......................................................................24
SECTION 2.07. APPLICATION OF PAYMENTS....................................................................25
SECTION 2.08. REDUCTION OF COMMITMENTS...................................................................25
SECTION 2.09. WARRANTS...................................................................................26
ARTICLE III - CONDITIONS.........................................................................................26
SECTION 3.01. CONDITIONS TO CLOSING......................................................................26
SECTION 3.02. CONDITIONS TO ACQUISITION LOANS............................................................28
SECTION 3.03. CONDITIONS TO EACH LOAN....................................................................29
ARTICLE IV - REPRESENTATIONS AND WARRANTIES......................................................................30
SECTION 4.01. CORPORATE EXISTENCE AND POWER..............................................................30
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION.................................30
SECTION 4.03. BINDING EFFECT; LIENS OF SECURITY DOCUMENTS................................................31
SECTION 4.04. FINANCIAL INFORMATION......................................................................31
SECTION 4.05. LITIGATION.................................................................................32
SECTION 4.06. OWNERSHIP OF PROPERTY, LIENS...............................................................33
SECTION 4.07. NO DEFAULT.................................................................................33
SECTION 4.08. NO BURDENSOME RESTRICTIONS.................................................................33
SECTION 4.09. LABOR MATTERS..............................................................................34
SECTION 4.10. SUBSIDIARIES; OTHER EQUITY INVESTMENTS.....................................................34
SECTION 4.11. INVESTMENT COMPANY ACT.....................................................................34
SECTION 4.12. MARGIN REGULATIONS.........................................................................34
SECTION 4.13. TAXES......................................................................................35
SECTION 4.14. COMPLIANCE WITH ERISA......................................................................35
SECTION 4.15. BROKERS....................................................................................35
SECTION 4.16. EMPLOYMENT, SHAREHOLDERS AND SUBSCRIPTION AGREEMENTS.......................................35
SECTION 4.17. FULL DISCLOSURE............................................................................36
SECTION 4.18. PRIVATE OFFERING...........................................................................36
SECTION 4.19. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS; NO HAZARDOUS MATERIALS.........................36
SECTION 4.20. REAL PROPERTY INTERESTS....................................................................37
SECTION 4.21. THIRD PARTY REIMBURSEMENT..................................................................37
SECTION 4.22. ADDITIONAL REPRESENTATIONS; SCHEDULES......................................................38
ARTICLE V - AFFIRMATIVE COVENANTS................................................................................38
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER REPORTS.....................................................38
SECTION 5.02. PAYMENT OF OBLIGATIONS.....................................................................42
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE...........................................42
SECTION 5.04. MAINTENANCE OF PROPERTY; INSURANCE.........................................................43
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.05. COMPLIANCE WITH LAWS.......................................................................44
SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS..................................................44
SECTION 5.07. USE OF PROCEEDS............................................................................44
SECTION 5.08. FURTHER ASSURANCES.........................................................................44
SECTION 5.09. BOARD MEETINGS.............................................................................45
SECTION 5.10. LENDERS' MEETINGS..........................................................................45
SECTION 5.11. HEDGING FACILITIES.........................................................................45
SECTION 5.12. HAZARDOUS MATERIALS; REMEDIATION...........................................................45
SECTION 5.13. COLLATERAL REPORTS.........................................................................46
SECTION 5.14. COLLECTIONS; RIGHT TO NOTIFY ACCOUNT DEBTORS...............................................46
SECTION 5.15. EMPLOYMENT CONTRACTS; ENFORCEMENT OF COVENANTS NOT TO COMPETE..............................46
SECTION 5.16. LANDLORD AND WAREHOUSEMAN WAIVERS..........................................................47
SECTION 5.17. ADDITIONAL SUBSIDIARIES....................................................................47
SECTION 5.18. ACCREDITATION AND LICENSING................................................................47
SECTION 5.19. CASH MANAGEMENT; UNDERTAKING RESPECTING POST-CLOSING MATTERS...............................47
ARTICLE VI - NEGATIVE COVENANTS..................................................................................51
SECTION 6.01. DEBT.......................................................................................51
SECTION 6.02. NEGATIVE PLEDGE............................................................................52
SECTION 6.03. CAPITAL STOCK..............................................................................52
SECTION 6.04. RESTRICTED PAYMENTS........................................................................53
SECTION 6.05. ERISA......................................................................................53
SECTION 6.06. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS................................................53
SECTION 6.07. PURCHASE OF ASSETS, INVESTMENTS............................................................54
SECTION 6.08. TRANSACTIONS WITH AFFILIATES...............................................................54
SECTION 6.09. AMENDMENTS OR WAIVERS......................................................................54
SECTION 6.10. FISCAL YEAR................................................................................54
SECTION 6.11. MANAGEMENT COMPENSATION....................................................................55
SECTION 6.12. INTEREST COVERAGE..........................................................................55
SECTION 6.13. CAPITAL EXPENDITURES.......................................................................55
SECTION 6.14. TOTAL DEBT SERVICE COVERAGE RATIO..........................................................55
SECTION 6.15. DEBT TO CAPITALIZATION.....................................................................55
SECTION 6.16. TOTAL DEBT TO EBITDA.......................................................................56
SECTION 6.17. MINIMUM NET WORTH..........................................................................56
SECTION 6.18. TRANSITION RULES...........................................................................56
ARTICLE VII -EVENTS OF DEFAULT...................................................................................56
SECTION 7.01. EVENTS OF DEFAULT..........................................................................56
ARTICLE VIII - FEES, EXPENSES AND INDEMNITIES; GENERAL PROVISIONS RELATING TO PAYMENTS...........................60
SECTION 8.01. FEES.......................................................................................60
SECTION 8.02. COMPUTATION OF INTEREST AND FEES...........................................................60
SECTION 8.03. GENERAL PROVISIONS REGARDING PAYMENTS......................................................60
SECTION 8.04. EXPENSES...................................................................................61
SECTION 8.05. INDEMNITY..................................................................................61
SECTION 8.06. TAXES......................................................................................62
SECTION 8.07. FUNDING LOSSES.............................................................................62
SECTION 8.08. MAXIMUM INTEREST...........................................................................62
ARTICLE IX - THE AGENT...........................................................................................64
SECTION 9.01. APPOINTMENT AND AUTHORIZATION..............................................................64
SECTION 9.02. AGENT AND AFFILIATES.......................................................................64
SECTION 9.03. ACTION BY AGENT............................................................................64
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9.04. CONSULTATION WITH EXPERTS..................................................................64
SECTION 9.05. LIABILITY OF AGENT.........................................................................64
SECTION 9.06. INDEMNIFICATION............................................................................65
SECTION 9.07. CREDIT DECISION............................................................................65
SECTION 9.08. SUCCESSOR AGENT............................................................................65
ARTICLE X - MISCELLANEOUS........................................................................................65
SECTION 10.01. SURVIVAL...................................................................................65
SECTION 10.02. NO WAIVERS.................................................................................66
SECTION 10.03. NOTICES....................................................................................66
SECTION 10.04. SEVERABILITY...............................................................................66
SECTION 10.05. AMENDMENTS AND WAIVERS.....................................................................66
SECTION 10.06. SUCCESSORS AND ASSIGNS; REGISTRATION.......................................................66
SECTION 10.07. COLLATERAL.................................................................................68
SECTION 10.08. HEADINGS...................................................................................68
SECTION 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION..................................................68
SECTION 10.10. NOTICE OF BREACH BY AGENT OR LENDER........................................................69
SECTION 10.11. WAIVER OF JURY TRIAL.......................................................................69
SECTION 10.12. COUNTERPARTS; ENTIRE AGREEMENT; EFFECTIVENESS..............................................69
EXHIBIT A - Revolving Credit Note
EXHIBIT B - Notice of Borrowing
EXHIBIT C - Company Security Agreement
EXHIBIT D - Pledge Agreement
EXHIBIT E - Subsidiary Guaranty Agreement
EXHIBIT F - Subsidiary Security Agreement
EXHIBIT G - Professional Service Provider Security Agreement
EXHIBIT H - Borrowing Base Certificate
EXHIBIT I - Opinions of Counsel to the Company
EXHIBIT J - Warrants
EXHIBIT K - Warrantholders Rights Agreement
EXHIBIT L - Managed Practice Security Agreement
EXHIBIT M - Payment Direction
EXHIBIT N - Bank Acknowledgment
SCHEDULE 3.01(o) - Senior Management
SCHEDULE 4.05 - Pending Litigation
SCHEDULE 4.10 - Subsidiaries and Credit Parties
SCHEDULE 4.16 - Employment, Shareholders' and Subscription Agreements
SCHEDULE 4.19 - Environmental Matters
SCHEDULE 4.20 - Real Property Interests
SCHEDULE 6.01 - Outstanding Debt
</TABLE>
<PAGE> 5
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of February 25, 1997, among OMEGA
HEALTH SYSTEMS, INC., the LENDERS listed on the signature pages hereof and
NATIONSCREDIT COMMERCIAL CORPORATION, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. The following terms have
the following meanings:
"Account Debtor" shall mean any Person who may become
obligated to the Company or any Subsidiary or any Managed Practice under, with
respect to, or on account of a Receivable of the Borrower or such Subsidiary or
Managed Practice (including without limitation any guarantor of the payment or
performance of a Receivable or any Third Party Payor).
"Acquisition" means the purchase by the Company or any of its
Subsidiaries of any optometry or ophthalmology practice or practice group or
substantially all of the assets of an optometry or ophthalmology practice or
practice group or of any other business, or the assets thereof, the purchase of
which the Required Lenders shall consent to in their sole and absolute
discretion, with the proceeds of an Acquisition Loan provided pursuant to
Section 2.01(c).
"Acquisition Availability" has the meaning specified in
Section 2.01(c).
"Acquisition Loans" means, collectively, the Revolving Credit
Loans of the Lenders to be made to the Company pursuant to Section 2.01(c).
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the Company (a "CONTROLLING
PERSON") or (ii) any Person (other than the Company or any of its Subsidiaries)
which is controlled by or is under common control with a Controlling Person. As
used herein, the term "control" of a Person means the possession, directly or
indirectly, of the power to vote 10% or more of any class of voting securities
of such Person or to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
<PAGE> 6
"Agent" means NationsCredit in its capacity as agent for the
Lenders hereunder, and its successors in such capacity.
"Agreement" means this Credit Agreement.
"Agreement Date" means the date as of which this Agreement is
dated.
"Amortization Commencement Date" shall have the meaning
assigned to it in Section 2.05(c).
"Authorized Signatory" means a Person designated as such by
the Company to the Agent in writing.
"Availability Termination Date" means February 25, 1999, or
any anniversary thereof (not to occur later than the Commitment Termination
Date) to which the Lenders (in the exercise of their sole discretion) and the
Company may mutually agree to extend the Company's ability to incur Revolving
Loans.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Blue Cross/Blue Shield" means any and all contracts or
agreements in force between any Credit Party and any Blue Cross/Blue Shield
plan.
"Borrowing Base" means, on any date, a dollar amount equal to
the sum of (i) the Clinic Component, plus (ii) 80% of Eligible Non-Clinic
Receivables, plus (iii) 80% of all Eligible Clinic Receivables of any Clinic
Subsidiary, in each case determined as of such date.
"Borrowing Base Certificate" means a certificate, duly
executed by the chief financial officer or treasurer of the Company,
appropriately completed and substantially in the form of EXHIBIT H.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Atlanta or New York City are authorized
by law to close.
"Capital Lease" of any Person means any lease of any property
(whether real, personal or mixed) by such Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of such Person.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as
amended from time to time, and regulations promulgated thereunder.
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<PAGE> 7
"CHAMPUS Receivable" means a Receivable payable pursuant to
CHAMPUS.
"CHAMPUS" means, collectively, the Civilian Health and
Medical Program of the Uniformed Service, a program of medical benefits
covering former and active members of the uniformed services and certain of
their dependents, financed and administered by the United States Departments of
Defense, Health and Human Services and Transportation, and all laws, rules,
regulations, manuals, orders, guidelines or requirements pertaining to such
program including (a) all federal statutes (whether set forth in 10 U.S.C.
ss.ss.1071-1106 or elsewhere) affecting such program; and (b) all rules,
regulations (including 32 C.F.R. ss.199), manuals, orders and administrative,
reimbursement and other guidelines of all governmental authorities promulgated
in connection with such program (whether or not having the force of law), in
each case as the same may be amended, supplemented or otherwise modified from
time to time.
"CHAMPVA Receivable" means a Receivable payable pursuant to
CHAMPVA.
"CHAMPVA" means, collectively, the Civilian Health and
Medical Program of the Department of Veteran Affairs, a program of medical
benefits covering retirees and dependents of former members of the armed
services administered by the United States Department of Veteran Affairs, and
all laws, rules, regulations, manuals, orders, guidelines or requirements
pertaining to such program including (a) all federal statutes (whether set
forth in 38 U.S.C. ss.1713 or elsewhere) affecting such program or, to the
extent applicable to CHAMPVA, CHAMPUS; and (b) all rules, regulations
(including 38 C.F.R. ss.17.54), manuals, orders and administrative,
reimbursement and other guidelines of all governmental authorities promulgated
in connection with such program (whether or not having the force of law), in
each case as the same may be amended, supplemented or otherwise modified from
time to time.
"Clinic Component" means (i) for each Managed Practice the
lesser of: (x) 80% of such Managed Practice's Eligible Clinic Receivables and
(y) the Clinic Obligations owed by such Managed Practice, and (ii) for all
Managed Practices, the sum of the Clinic Components of each Managed Practice.
To the extent that any Managed Practice has entered into a Professional Service
Provider Security Agreement and taken steps satisfactory to the Agent to grant
the Agent a perfected security interest, free of other Liens, in such Managed
Practice's Receivables as security for the Obligations, the Clinic Component
with respect to such Managed Practice shall be the amount determined pursuant
to clause (i)(x) of this definition.
"Clinic Obligations" means, at any date, the aggregate amount
due to the Company and its Subsidiaries from any Managed Practice for (i)
management fees and (ii) clinic or practice expenses, that are earned, due and
payable in accordance with the related Management Agreement and recognized as
revenue on the books of the Company, net of any credits, debits, rebates or
commissions owed or payable in respect thereof.
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<PAGE> 8
"Clinic Subsidiary" means a Subsidiary that owns and operates
an ophthalmology or optometry practice or clinic and is responsible for the
delivery of all professional services by such practice or clinic.
"Closing Date" means the date of the initial funding of the
Loans which funding shall not in any event occur later than February 28, 1997.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" means all property mortgaged, pledged or
otherwise purported to be subjected to a Lien pursuant to the Security
Documents.
"Commitment" means the Revolving Credit Commitment.
"Commitment Termination Date" shall have the meaning assigned
to it in Section 2.05.
"Common Stock" means the common stock of the Company, $.06
par value per share.
"Company" means Omega Health Systems, Inc., a Delaware
corporation.
"Company Account" means the account specified on the
signature pages hereof into which the proceeds of all Loans to the Company
shall be deposited, or such other account as the Company shall from time to
time specify by notice to the Lenders.
"Company Security Agreement" means the Security Agreement
dated as of the date hereof between the Company and the Agent, substantially in
the form of EXHIBIT C.
"Compliance Date" has the meaning assigned to such term in
Section 5.19.
"Consolidated Capital Expenditures" means, for any period,
the aggregate amount of expenditures by the Company and its Consolidated
Subsidiaries for plant, property and equipment during such period but excluding
any such expenditures made for the replacement or restoration of assets to the
extent financed by condemnation awards or proceeds of insurance received with
respect to the loss or taking of or damage to the asset or assets being
replaced or restored and excluding any such expenditures made as part of an
acquisition permitted pursuant to Section 6.07.
"Consolidated Capitalization" means at any time of
determination, the sum of (a) the Consolidated Total Debt at such time, and (b)
the Consolidated Net Worth at such time.
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<PAGE> 9
"Consolidated Current Assets" means, at any date, the
consolidated current assets (excluding cash and cash equivalents) of the
Company and its Consolidated Subsidiaries determined as of such date.
"Consolidated Current Liabilities" means, at any date, (i)
the consolidated current liabilities (excluding Debt) of the Company and its
Consolidated Subsidiaries plus (ii) the current liabilities of any Person
(other than the Company or a Consolidated Subsidiary) which are Guaranteed by
the Company or a Consolidated Subsidiary, all determined as of such date.
"Consolidated Free Cash Flow" means, for any period, EBITDA
for such period minus the following amounts:
(a) all cash payments of income taxes by the Company and
its Consolidated Subsidiaries during such period;
(b) Consolidated Capital Expenditures for such period,
to the extent that such Consolidated Capital Expenditures are not
financed during such period (and are not anticipated to be financed in
any future period) with the proceeds of Debt of the Company or such
Consolidated Subsidiary; and
(c) any net gain in respect of asset sales during such
period.
"Consolidated Net Income" means, for any period, net income
of the Company and its Consolidated Subsidiaries for such period as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means as of the date of any
determination thereof, the amount of the shareholder's equity of the Company
and its Consolidated Subsidiaries as would be shown on the consolidated balance
sheet of the Company and its Consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of the
Company in its consolidated financial statements if such statements were
prepared as of such date.
"Consolidated Total Debt" means at any date the Debt of the
Company and its Consolidated Subsidiaries.
"Credit Party" means any of the Company, any Subsidiary or
any Managed Practice.
"Debt" of a Person means at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the
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<PAGE> 10
deferred purchase price of property or services, except trade accounts payable
arising and paid in the ordinary course of business, (iv) all Capital Leases of
such Person, (v) all obligations of such Person to purchase securities (or
other property) which arise out of or in connection with the issuance or sale
of the same or substantially similar securities (or property), (vi) all
non-contingent obligations of such Person to reimburse any bank or other Person
in respect of amounts paid under a letter of credit or similar instrument,
(vii) all equity securities of such Person (other than the Warrants) subject to
repurchase or redemption otherwise than at the sole option of such Person,
(viii) all Debt secured by a Lien on any asset of such Person, whether or not
such Debt is otherwise an obligation of such Person, and (ix) all Debt of
others Guaranteed by such Person.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.03(d).
"EBITDA" means, for any period, the consolidated net income
of the Company and its Consolidated Subsidiaries for such period, after all
expenses and other proper charges except depreciation, interest, amortization
and income taxes, determined in accordance with GAAP eliminating without
duplication: (i) all intercompany items, (ii) all earnings attributable to
equity interests in Persons that are not Subsidiaries or attributable to
earnings of any entity in which the Company or any Subsidiary has an investment
and the transfer of the income of such entity to the Company or such Subsidiary
is subject to any restriction, in each case unless actually received by the
Company or a Consolidated Subsidiary free of any such restriction, (iii) all
income arising from the forgiveness, adjustment, or negotiated settlement of
any indebtedness, (iv) any extraordinary items of income or expense, (v) any
increase or decrease in income arising from any change in the Company's method
of accounting, subject to Section 1.02, and (vi) any interest income.
"Eligible Clinic Receivables" means, at any date of
determination thereof, for any Managed Practice or Clinic Subsidiary, the
aggregate amount of all Receivables at such date due to the Managed Practice or
Clinic Subsidiary for the provision of medical services or the sale of
Inventory other than the following (determined without duplication):
(a) any Receivable due from an Account Debtor that is
not both domiciled in the United States of America and (if not a
natural person) organized under the laws of the United States of
America or any political subdivision thereof and any Receivable that
is not denominated and payable in U.S. dollars;
(b) any Receivable that does not comply with all
applicable legal requirements, including, without limitation, all
laws, rules, regulations and orders of any governmental or judicial
authority (including any Receivable due from an account debtor located
in the States of Indiana, New Jersey or Minnesota, unless the Managed
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<PAGE> 11
Practice or the applicable Clinic Subsidiary (at the time the
Receivable was created and at all times thereafter) (i) had filed and
has maintained effective a current notice of business activities
report with the appropriate office or agency of the State of Indiana,
New Jersey or Minnesota, as applicable, or (ii) was and has continued
to be exempt from filing such report and has provided Agent with
satisfactory evidence thereof);
(c) any Receivable in respect of which there is any
unresolved dispute with the Account Debtor, but only to the extent of
such dispute;
(d) any Receivable payable more than 30 days after the
date of the issuance of the original invoice therefor;
(e) any Receivable that remains unpaid for more than 120
days from the date of the original issuance of the invoice therefor;
(f) any unbilled Receivable;
(g) any Receivable arising outside the ordinary course
of business of the Managed Practice or Clinic Subsidiary whose
activities gave rise thereto;
(h) (i) that portion of any Receivable in respect of
which there has been, or should have been, established by the Managed
Practice or Clinic Subsidiary a contra account whether in respect of
contractual allowances, audit adjustments, anticipated discounts or
otherwise, or (ii) which is a Private Receivable and is due from an
Account Debtor to whom the applicable Managed Practice or Clinic
Subsidiary owes a trade payable, but only to the extent of such
Receivable or trade payable or (iii) which Receivable is subject to
any right of rescission, set-off, recoupment, counterclaim or defense,
whether arising out of transactions concerning the provision of
medical services or otherwise, provided that this clause (iii) shall
not apply to adjustments in the ordinary course with respect to
Government Receivables;
(i) any Receivable that is not subject to a first
priority perfected Lien under appropriate Security Documents and any
Receivable evidenced by an "instrument" (as defined in the UCC) not in
the possession of the Agent or a Subsidiary, as applicable;
(j) any Receivable due to any Person from any Third
Party Payor (i) as to which on such date Receivables representing more
than 25% of aggregate amount of all Receivables of such Third Party
Payor to such Person have remained unpaid for more than 120 days from
the original due date specified at the time of the original issuance
of the original invoice therefor, (ii) in respect of which a credit
loss has been recognized or reserved by the Company, any Subsidiary or
any Managed Practice, (iii) in respect of which the Agent shall have
notified the Company that such Third Party Payor does not have a
satisfactory credit standing as determined in good faith by the Agent,
(iv) that is a Subsidiary or Affiliate of the Company, (v) that,
except in the case
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<PAGE> 12
of a Government Receivable, is the United States of America or any
state government or any department, agency or instrumentality thereof,
unless such Person has complied in all respects with the Federal
Assignment of Claims Act of 1940 or the corresponding provision of any
applicable state law, or (vi) that is the subject of a case or
proceeding of the type described in clauses (g) and (h) of Section
7.01 or that is not Solvent;
(k) any Receivables other than Government Receivables
due from a Third Party Payor at any time, to the extent that the
aggregate outstanding amount of Receivables due from such Third Party
Payor and its affiliates at such time exceeds 10% of the aggregate
amount of all Receivables due to the Company, the Subsidiaries and the
Managed Practices at such time, but only to the extent of such excess;
(l) if such Receivable is a Private Receivable, the
Third Party Payor thereon has not received such notice of the
assignment thereof to the Agent as the Agent shall reasonably require;
and
(m) any Receivable with respect to which the Managed
Practice owning such Receivable has not executed a Professional
Service Provider Security Agreement or such other documents as the
Agent shall require assigning its rights to such Receivables to the
Agent as security for the Obligations, or in the case of a Receivable
owned by a Managed Practice that is not required to be pledged to the
Agent, the Managed Practice owning such Receivable has not executed a
Managed Practice Security Agreement or such other documents as the
Agent shall require assigning its rights in such receivable to the
Company or a Subsidiary.
"Eligible Non-Clinic Receivables" means, at any date of determination
thereof, the aggregate amount of all Receivables at such date due to the
Company and each of its Subsidiaries other than Receivables for the provision
of medical services or the sale by a Clinic Subsidiary of Inventory and other
than the following (determined without duplication):
(a) any Receivable due from an Account Debtor that is
not both domiciled in the United States of America and (if not a
natural person) organized under the laws of the United States of
America or any political subdivision thereof and any Receivable that
is not denominated and payable in U.S. dollars;
(b) any Receivable that does not comply with all
applicable legal requirements, including, without limitation, all
laws, rules, regulations and orders of any governmental or judicial
authority (including any Receivable due from an account debtor located
in the States of Indiana, New Jersey or Minnesota, unless the Company
or the applicable Subsidiary (at the time the Receivable was created
and at all times thereafter) (i) had filed and has maintained
effective a current notice of business activities report with the
appropriate office or agency of the State of Indiana, New Jersey or
Minnesota, as applicable, or (ii) was and has continued to be exempt
from filing such report and has provided Agent with satisfactory
evidence thereof);
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<PAGE> 13
(c) any Receivable in respect of which there is any
unresolved dispute with the Account Debtor, but only to the extent of
such dispute;
(d) any Receivable payable more than 30 days after the
date of the issuance of the original invoice therefor;
(e) any Receivable that remains unpaid for more than 90
days from the date of the original issuance of the invoice therefor;
(f) any unbilled Receivable;
(g) any Receivable arising outside the ordinary course
of business of the Company or Subsidiary whose activities gave rise
thereto;
(h) (i) that portion of any Receivable in respect of
which there has been, or should have been, established by the Company
or the applicable Subsidiary a contra account whether in respect of
contractual allowances, audit adjustments, anticipated discounts or
otherwise, or (ii) which is due from an Account Debtor to whom the
Company or the applicable Subsidiary owes a trade payable, but only to
the extent of such account or trade payable or (iii) which Receivable
is subject to any right of rescission, set-off, recoupment,
counterclaim or defense, whether arising out of transactions; giving
rise to such Receivable or otherwise;
(i) any Receivable that is not subject to a first
priority perfected Lien under the Security Documents and any
Receivable evidenced by an "instrument" (as defined in the UCC) not in
the possession of the Agent;
(j) any Receivable due from any Account Debtor (i) as to
which on such date Receivables representing more than 25% of aggregate
amount of all Receivables of such Account Debtor have remained unpaid
for more than 90 days from the original due date specified at the time
of the original issuance of the original invoice therefor, (ii) in
respect of which a credit loss has been recognized or reserved by the
Company or any Subsidiary, (iii) in respect of which the Agent shall
have notified the Company that such Account Debtor does not have a
satisfactory credit standing as determined in good faith by the Agent,
(iv) that is a Subsidiary or Affiliate of the Company or a Managed
Practice, (v) that is the United States of America or any state
government or any department, agency or instrumentality thereof,
unless the Company or such Subsidiary has complied in all respects
with the Federal Assignment of Claims Act of 1940 or the corresponding
provision of any applicable state law, or (vi) that is the subject of
a case or proceeding of the type described in clauses (g) and (h) of
Section or that is not Solvent; and
(k) any Receivables due from any Account Debtor at any
time, to the extent that the aggregate outstanding amount of
Receivables
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<PAGE> 14
due from such Account Debtor and its affiliates at such time exceeds
10% of the aggregate amount of all Receivables that would, but for
this clause (k) be included in determining Eligible Receivables and
Eligible Clinic Receivables at such time, but only to the extent of
such excess;
"Employment Contracts" means the employment contracts
delivered by the Company to NationsCredit on the Closing Date pursuant to
Section 3.01(o), and listed on SCHEDULE 4.16 from time to time.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and governmental restrictions, whether
now or hereafter in effect, relating to human health, the environment or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Materials or wastes into the environment, including ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Materials or wastes or the clean-up or
other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
"ERISA Group" means the Company, any Subsidiary and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Company or any Subsidiary, are treated as a single employer under Section 414
of the Code.
"Event of Default" has the meaning set forth in Section 7.01.
"Excess Cash Flow" means, for any period, an amount equal to
(i) Consolidated Free Cash Flow for such period plus (or minus) (ii) any net
cash extraordinary gains (or extraordinary cash losses) for such period of the
Company and its Consolidated Subsidiaries (except any such gains or losses in
respect of asset sales) plus (or minus) (iii) any decrease (or increase) in the
average of the Net Working Investment at the end of each fiscal month ended
during such period, when compared with the average of the Net Working
Investment at the end of each fiscal month ended during the corresponding
period in the prior Fiscal Year, plus (iv) any interest income of the Company
and its Consolidated Subsidiaries for such period, minus (v) the sum for such
period of (x) Total Debt Service (exclusive of amortization of debt discount or
premium) for such period, and (y) all optional payments of the Loans which
permanently reduced the Revolving Credit Commitment during such period.
"Existing Managed Practice" has the meaning assigned to such
term in Section 5.19.
"Financing Documents" means this Agreement, the Notes, the
Subsidiary Guaranty Agreement, the Warrants, the Warrantholders Rights
Agreement and the Security Documents.
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"Fiscal Year" means a fiscal year of the Company.
"GAAP" has the meaning set forth in Section 1.02.
"Government Receivables" means, collectively, any and all
Receivables which are (a) Medicare Receivables, (b) Medicaid Receivables, (c)
CHAMPUS Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable
payable by a governmental authority approved by the Agent.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"HCFA" shall mean the Health Care Financing Administration,
an agency of HHS, and any successor thereto.
"HHS" means the United States Department of Health and Human
Services or any successor thereto.
"Hazardous Materials" means (i) any "hazardous substance" as
defined in CERCLA; (ii) asbestos; (iii) polychlorinated biphenyls; (iv)
petroleum, its derivatives, by-products and other hydrocarbons; and (v) any
other toxic, radioactive, caustic or otherwise hazardous substance regulated
under Environmental Laws.
"Hazardous Materials Contamination" means contamination
(whether now existing or hereafter occurring) of the improvements, buildings,
facilities, personalty, soil, groundwater, air or other elements on or of the
relevant property by Hazardous Materials, or any derivatives thereof, or on or
of any other property as a result of Hazardous Materials, or any derivatives
thereof, generated on, emanating from or disposed of in connection with the
relevant property.
"Healthcare Law" means, collectively, any and all federal,
state or local laws, rules, regulations, manuals, orders, guidelines and
requirements pertaining to Government
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Receivables, including without limitation all laws, rules, regulations,
manuals, orders, guidelines and requirements pertaining to CHAMPUS, CHAMPVA,
Medicaid or Medicare
"Indemnitees" has the meaning set forth in Section 8.05.
"Index Rate" means for any day in any calendar month, the
rate of interest equivalent to the money market yield for the Interest
Determination Date falling in such month on the one month commercial paper rate
for dealer-placed commercial paper of issuers whose corporate bonds are rated
"AA" or its equivalent by a nationally recognized rating agency, as such rate
is made available on a discount basis or otherwise by the Federal Reserve Bank
of New York and published weekly by the Board of Governors of the Federal
Reserve System in its H.15 report, or any successor publication published by
the Board of Governors of the Federal Reserve System or, if such rate for such
date is not yet published in such statistical release, the rate for that date
will be the rate set forth in the weekly statistical release designated as
such, or any successor publication, published by the Board of Governors of the
Federal Reserve System.
"Interest Determination Date" means February 3, 1997 and the
first Business Day of each calendar month thereafter.
"Inventory" means inventory as defined in Article 9 of the
UCC.
"Investment" means any investment in any Person, whether by
means of share purchase, capital contribution, loan, time deposit or otherwise.
"Key-Person Life Insurance Policy" has the meaning assigned
to it in Section 5.04(d).
"Lender" means NationsCredit and each other Person that
becomes a holder of a Note pursuant to Section 10.06, and their respective
successors, and "Lenders" means all of the foregoing.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the purposes of this Agreement
and the other Financing Documents, the Company or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement relating to such
asset.
"Loans" means the Revolving Credit Loans.
"Lockbox Accounts" has the meaning set forth in the Security
Agreements.
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"Lockbox Agreement" means, collectively, the Lockbox
Agreements each in form and substance satisfactory to Lender, entered into
among the Agent, the Company and its Subsidiaries and the Lockbox Banks
pursuant to the Security Agreements.
"Lockbox Bank" means, collectively, the banks or other
depository institutions at which lockbox accounts are established and
maintained.
"Managed Practice" means any ophthalmologist, optometrist,
professional corporation, professional association, partnership or similar
Person that provides professional medical services at a medical office, clinic
or other facility owned and operated by the Company or any Subsidiary pursuant
to a Management Agreement.
"Management Agreement" means an agreement between the Company
and/or one or more of its Subsidiaries and one or more Managed Practices
pursuant to which the Company and/or its Subsidiaries agrees to provide certain
management services to such Managed Practice(s).
"Managed Practice Receivables" has the meaning assigned to
such term in Section 5.19.
"Managed Practice Security Agreement" means a security
agreement between a Managed Practice and the Company or a related Subsidiary
Manager in substantially the form of EXHIBIT L, pursuant to which such Managed
Practice grants such Subsidiary or the Company a first priority perfected
security interest in all of its accounts as security for the Clinic Obligations
of such Managed Practice to such Subsidiary or the Company.
"Margin Stock" has the meaning assigned thereto in Regulation
G, T, U or X of the Federal Reserve Board, as the same may be amended,
supplemented or modified from time to time.
"Material Adverse Effect" means, with respect to any event,
act, condition or occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), whether singly or in conjunction with any other event or events,
act or acts, condition or conditions, occurrence or occurrences, whether or not
related, a material adverse change in, or a material adverse effect upon, any
of (a) the financial condition, operations, business, properties or prospects
of the Company and its Subsidiaries, taken as a whole, (b) the rights and
remedies of the Agent or the Lenders under the Financing Documents, or the
ability of the Company or any Subsidiary to perform its obligations under the
Financing Documents to which it is a party, as applicable, (c) the legality,
validity or enforceability of any Financing Document, or (d) the existence,
perfection or priority of any security interest granted in the Financing
Documents or the value of the Collateral (including its value to the Agent and
the Lenders as security for the Obligations).
"Material Debt" has the meaning set forth in Section 7.01(e).
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"Material Plan" means at any time a Plan having Unfunded
Liabilities.
"Maximum Lawful Rate" has the meaning set forth in Section
8.08.
"Medicaid" means, collectively, the healthcare assistance
program established by Title XIX of the Social Security Act (42 U.S.C.
ss.ss.1396 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders, guidelines or requirements pertaining to such
program including (a) all federal statutes (whether set forth in Title XIX of
the Social Security Act or elsewhere) affecting such program; (b) all state
statutes and plans for medical assistance enacted in connection with such
program and federal rules and regulations promulgated in connection with such
program; and (c) all applicable provisions of all rules, regulations, manuals,
orders and administrative, reimbursement, guidelines and requirements of all
government authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Medicaid Certification" means certification of a facility by
HCFA or a state agency or entity under contract with HCFA that such healthcare
facility fully complies with all the conditions of Medicaid.
"Medicaid Receivable" means a Receivable payable pursuant to
a Medicaid Provider Agreement.
"Medicaid Provider Agreement" means an agreement entered into
between a state agency or other entity administering Medicaid in such state and
a health care facility or physician under which the health care facility or
physician agrees to provide services or merchandise for Medicaid patients.
"Medicare" means, collectively, the health insurance program
for the aged and disabled established by Title XVIII of the Social Security Act
(42 U.S.C. ss.ss.1395 et seq.) and any statutes succeeding thereto, and all
laws, rules, regulations, manuals, orders or guidelines pertaining to such
program including (a) all federal statutes (whether set forth in Title XVIII of
the Social Security Act or elsewhere) affecting such program; and (b) all
applicable provisions of all rules, regulations, manuals, orders and
administrative, reimbursement, guidelines and requirements of all governmental
authorities promulgated in connected with such program (whether or not having
the force of law), in each case as the same may be amended, supplemented or
otherwise modified from time to time.
"Medicare Certification" mean certification of a facility by
HCFA or a state agency or entity under contract with HCFA that such healthcare
facility fully complies with all conditions for such facility's participation
in Medicare.
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"Medicare Receivable" means a Receivable payable pursuant to
a Medicare Provider Agreement.
"Medicare Provider Agreement" means an agreement entered into
between a state agency or other entity administering Medicare in such state and
a health care facility or physician under which the health care facility or
physician agrees to provide services or merchandise for Medicare patients.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
ERISA Group during such five year period.
"NationsCredit" means NationsCredit Commercial Corporation, a
Delaware corporation, and its successors.
"Net Proceeds of Capital Stock" means any consideration
received by the Company or any of its Consolidated Subsidiaries in respect of
the issuance of capital stock (including, without limitation, by way of
conversion of debt into such capital stock), after deducting therefrom all
reasonable and customary costs and expenses incurred by such person directly in
connection with the issuance of such capital stock.
"Net Working Investment" means, at any date, Consolidated
Current Assets minus Consolidated Current Liabilities, all determined at such
date.
"Note" means a Revolving Credit Note.
"Notice of Borrowing" has the meaning set forth in Section
2.04.
"Obligations" means all unpaid principal of and accrued and
unpaid interest on the Loans, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Company or any
Subsidiary to the Lenders or to any Lender, the Agent or any indemnified party
hereunder arising under the Financing Documents.
"Officers' Certificate" means a certificate executed on
behalf of a Person by its chairman of the board (if an officer), chief
executive officer or president or one of its vice presidents and by its chief
financial officer, senior vice president-finance or treasurer.
"Payment Account" means, with respect to each Lender, the
account specified on the signature pages hereof into which all payments by or
on behalf of the Company to such Lender under the Financing Documents shall be
made, or such other account as such Lender shall from time to time specify by
notice to the Company.
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"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Contest" means a contest maintained in good faith
by appropriate proceedings promptly instituted and diligently conducted and
with respect to which such reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; provided that
compliance with the obligation that is the subject of such contest is
effectively stayed during such challenge.
"Permitted Liens" means Liens permitted pursuant to Section
6.02.
"Person" means any natural person, corporation, limited
partnership, limited liability company, professional association, general
partnership, joint stock company, joint venture, association, company, trust,
bank, trust company, land trust, business trust or other organization, whether
or not a legal entity, and any government agency or political subdivision
thereof.
"Physician Unwind Agreement" means any agreement or
arrangement pursuant to which the Company or any Subsidiary thereof is or may
be required, at the option of one or more optometrists, ophthalmologists or
optometry or ophthalmology physician practice groups or similar entities, to
sell or return all or any substantial portion of the assets, or the stock or
other equity interests of any Subsidiary or other entity holding the assets
utilized by such optometrists, ophthalmologists or optometry or ophthalmology
practice group or similar entity to such physician, practice group or similar
entity.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for employees of any Person
which was at such time a member of the ERISA Group.
"Pledge Agreement" means the Pledge Agreement dated as of the
date hereof between the Company and the Agent, substantially in the form of
EXHIBIT D.
"Private Receivables" mean, collectively, any and all
Receivables that are not Government Receivables.
"Professional Employee" has the meaning assigned to such term
in Section 5.19.
"Professional Service Provider Security Agreement" means a
Security Agreement between the Agent and any Managed Practice with whom the
Company or any of
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its Subsidiaries has entered into a Management Agreement pursuant to which the
Managed Practice shall have pledged its accounts to the Agent as security for
the Obligations, which agreement shall be in substantially the form of EXHIBIT
G hereto.
"Quarterly Date" means the first Business Day of each
January, April, July and October occurring after the Agreement Date.
"Receivable" means, as at any date of determination thereof,
the unpaid amount of the obligation, as stated in the respective invoice, of
(i) in the case of the Company or any Subsidiary (other than a Clinic
Subsidiary), of a Person to pay money for goods sold or leased or services
rendered, which amount has been earned by performance under the terms of the
related contract and recognized as revenue on the books of the Company or such
Subsidiary, net of any credits, rebates or offsets owed to the Account Debtor
in respect thereof and net of any commissions payable to persons other than the
Company or such Subsidiary or any employee thereof and further excluding any
amounts owed to any Subsidiary by a Managed Practice and (ii) in the case of
any Managed Practice or Clinic Subsidiary, of a patient of such Managed
Practice or Clinic Subsidiary or of any Third Party Payor in respect of
Inventory or medical services rendered in the ordinary course of business,
which amount has been earned by performance under the terms of the related
contract and recognized as revenue on the books of the Managed Practice or
Clinic Subsidiary, net of any credits, rebates or offsets owed to any patient
or any Third Party Payor in respect thereof and also net of any commissions
payable to Persons other than the Company, any Subsidiary or the Managed
Practice or any employee thereof.
"Receivables Report" has the meaning given such term in
Section 5.01(m).
"Required Lenders" means at any time Lenders holding Notes
evidencing at least 51% of the aggregate unpaid principal amount of the Loans
or, if no Loans are outstanding, having at least 51% of the aggregate amount of
the Commitments.
"Restricted Payment" means (i) any dividend or other
distribution on any shares of the Company's capital stock (except dividends
payable solely in shares of its capital stock of the same class) or (ii) any
payment on account of the purchase, redemption, retirement or acquisition of
(a) any shares of the Company's capital stock or (b) any option, warrant or
other right to acquire shares of the Company's capital stock.
"Revolving Credit Commitment" means (i) for NationsCredit as
Lender, initially $15,000,000, less any amount assigned to another Person that
becomes a Lender after the date hereof (a "SUBSEQUENT LENDER"), (ii) for any
Subsequent Lender, the amount of Revolving Credit Commitment assigned to such
Lender, and (iii) as the context may require the aggregate amount of all the
Lenders' Revolving Credit Commitments, in each case as such amount may be
reduced from time to time in accordance with this Agreement.
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"Revolving Credit Loan" shall have the meaning assigned to it
in Section 2.01(a).
"Revolving Credit Note" shall have the meaning assigned to it
in Section 2.02 and each Revolving Credit Note shall be substantially in the
form of EXHIBIT A hereto.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations promulgated thereunder.
"Security Agreements" means, collectively, the Company
Security Agreement, the Subsidiary Security Agreement, the Managed Practice
Security Agreements and the Professional Service Provider Security Agreements.
"Security Documents" means the Security Agreements, the
Pledge Agreement and any other agreement pursuant to which the Company or any
of its Subsidiaries or Affiliates or any Managed Practice provides a Lien on
its assets in favor of the Agent for the benefit of the Lenders, and all
supplementary assignments, security agreements, pledge agreements,
acknowledgments or other documents delivered or to be delivered pursuant to the
terms hereof or of any other Security Document.
"Senior Management" means, collectively, each of the officers
and managers of the Company listed on SCHEDULE 3.01(O) and each Person from
time to time designated as such by the Agent in its sole good faith discretion.
"Solvent" shall mean, with respect to any Person, such
Person: (i) owns property whose fair salable value is greater than the amount
required to pay all of such Person's liabilities (including contingent
liabilities), (ii) is able to pay all of its liabilities as such liabilities
mature, and (iii) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage.
"Subsidiary" means any Person of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
"Subsidiary Guaranty Agreement" means a guaranty agreement
between a Subsidiary of the Company and the Agent, substantially in the form of
EXHIBIT E hereto.
"Subsidiary Manager" has the meaning assigned to such term in
Section 5.19.
"Subsidiary Security Agreement" means a Security Agreement
between a Subsidiary of the Company and the Agent, substantially in the form of
EXHIBIT F hereto.
"Temporary Cash Investment" means any Investment in: (i)
direct obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any
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<PAGE> 23
agency thereof, (ii) commercial paper rated at least A-1 by Standard & Poor's
Rating Group and P-1 by Moody's Investors Service, Inc., (iii) time deposits
with, including certificates of deposit issued by, any office located in the
United States of any bank or trust company which is organized under the laws of
the United States or any State thereof and has capital, surplus and undivided
profits aggregating at least $500,000,000 and which issues (or the parent of
which issues) certificates of deposit or commercial paper with a rating
described in clause (ii) above, (iv) repurchase agreements with respect to
securities described in clause (i) above entered into with an office of a bank
or trust company meeting the criteria specified in clause (iii) above, provided
in each case that such Investment matures within one year from the date of
acquisition thereof by the Company or any of its Subsidiaries or (v) any open
ended, redeemable money market or mutual fund that invests only in the
foregoing, the sponsor of which is nationally recognized as a responsible
sponsor.
"Third Party Payor" means any governmental entity, insurance
company, health maintenance organization, preferred provider organization or
similar entity that is obligated to make payments with respect to a Receivable.
"Total Debt Service" means, for any period, the sum of: (i)
the aggregate interest charges incurred by the Company and its Consolidated
Subsidiaries for such period, whether expensed or capitalized, including the
portion of any obligation under Capital Leases allocable to interest expense in
accordance with GAAP and the portion of any debt discount or premium (but not
expenses of issuance) that shall be amortized in such period, and (ii) the
aggregate amount of all scheduled principal payments on all Debt of the Company
and its Consolidated Subsidiaries for such period, including the portion of any
payment under Capital Leases that is allocable to principal.
"UCC" has the meaning set forth in the Security Agreements.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
"Warrantholders Rights Agreement" means the Warrantholders
Rights Agreement dated as of the date hereof between the Company and
NationsCredit, substantially in the form of EXHIBIT K.
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"Warrants" has the meaning set forth in Section 2.09(a).
"Working Capital Availability" has the meaning specified in
Section 2.01(b).
"Working Capital Loans" means Revolving Credit Loans made to
the Company pursuant to Section 2.01(b).
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time ("GAAP"), applied on a basis consistent (except for changes concurred
in by the Company's independent public accountants) with the most recent
audited consolidated financial statements of the Company and its Consolidated
Subsidiaries delivered to the Lenders; provided that, if the Company notifies
the Lenders that the Company wishes to amend any covenant in Article VI or the
definition of "Excess Cash Flow" or any related definition to eliminate the
effect of any change in GAAP on the operation of such covenant or the
determination of "Excess Cash Flow" (or if the Agent notifies the Company that
the Required Lenders wish to amend Article VI or the definition of "Excess Cash
Flow" or any related definition for such purpose), then the Company's
compliance with such covenant or "Excess Cash Flow", as the case may be, shall
be determined on the basis of GAAP in effect immediately before the relevant
change in GAAP became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to the Company and the Required
Lenders.
SECTION 1.03. OTHER DEFINITIONAL PROVISIONS. References in
this Agreement to "Articles", "Sections", "Schedules" or "Exhibits" shall be to
Articles, Sections, Schedules or Exhibits of or to this Agreement unless
otherwise specifically provided. Any of the terms defined in Section 1.01 may,
unless the context otherwise requires, be used in the singular or plural
depending on the reference. "Include", "includes" and "including" shall be
deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import. "Writing", "written" and
comparable terms refer to printing, typing and other means of reproducing words
in a visible form. References to any agreement or contract are to such
agreement or contract as amended, modified or supplemented from time to time in
accordance with the terms hereof and thereof. References to any Person include
the successors and assigns of such Person. References "from" or "through" any
date mean, unless otherwise specified, "from and including" or "through and
including", respectively.
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ARTICLE II
REVOLVING CREDIT LOANS
SECTION 2.01. REVOLVING CREDIT LOANS AND COMMITMENTS. (a)
Upon the terms and subject to the conditions set forth herein, from time to
time prior to the Availability Termination Date, each Lender severally and not
jointly agrees to make revolving credit loans ("REVOLVING CREDIT LOANS") from
time to time to the Company in an aggregate principal amount at any time
outstanding not to exceed such Lender's Revolving Credit Commitment. Such
Revolving Credit Loans shall constitute either Working Capital Loans or
Acquisition Loans.
(b) (i) Working Capital Loans shall be available for
the working capital needs of the Company and its Subsidiaries and shall not
exceed in aggregate principal amount at any time outstanding the least of (the
"WORKING CAPITAL AVAILABILITY"):
(A) $2,000,000,
(B) prior to the Availability Termination Date,
an amount equal to the Borrowing Base, and
(C) the Revolving Credit Commitment then in
effect, less the aggregate outstanding
principal amount of Acquisition Loans.
(ii) Each borrowing of Working Capital Loans
shall be in an aggregate amount of $100,000 or an integral multiple of $10,000
in excess thereof. No more than two borrowings of Working Capital Loans shall
be made within any week beginning on Monday of such week and ending on the last
Business Day of such week.
(c) (i) Acquisition Loans shall be available in the
sole good faith discretion of the Agent and the Required Lenders for the
purpose of financing Acquisitions by the Company and its Subsidiaries, in an
aggregate principal amount not to exceed at any time outstanding (the
"ACQUISITION AVAILABILITY") the Revolving Credit Commitment then in effect,
less the aggregate outstanding principal amount of Working Capital Loans.
(ii) Acquisition Loans may be made in such
amounts and at such times as the Agent and the Required Lenders shall agree in
good faith and upon such terms and conditions in addition to those specified
herein as the Agent and the Required Lenders shall require.
(iii) In connection with the Agent's and the
Required Lenders' approval of any Acquisition or any borrowing of Acquisition
Loans, the Company agrees to provide the Agent and the Lenders, as soon as
practicable following the execution thereof,
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with copies of any term sheet or commitment letter agreed to in connection with
such Acquisition. As promptly as practicable following receipt of such term
sheet and/or commitment letter, the Agent and the Required Lenders agree to
notify the Company whether they can consent to the proposed Acquisition as the
basic terms thereof are outlined in the documents provided. Such indication
shall be subject to approval of the definitive documentation and the results of
any due diligence performed in connection therewith. At the time of such
approval, the Agent shall notify the Company of any due diligence materials
that it wishes to review. Promptly upon the completion of the definitive
documentation and as soon as the due diligence materials required are
available, the Company shall furnish a copy of such documentation and/or such
materials to the Agent and the Agent and the Required Lenders agree to review
the same promptly and respond to the Company as promptly as practicable as to
whether they approve the Acquisition.
(d) Within the foregoing limits, to but excluding the
Availability Termination Date, the Company may borrow under this Section 2.01,
prepay or repay Revolving Credit Loans as required under Section 2.05(b) or to
the extent permitted by Section 2.06, and reborrow pursuant to this Section
2.01.
SECTION 2.02. REVOLVING CREDIT NOTES. The Revolving Credit
Loans of each Lender shall be evidenced by a single Revolving Credit Note,
substantially in the form of EXHIBIT A (each such note, a "REVOLVING CREDIT
NOTE"), dated the Agreement Date in an aggregate principal amount equal to the
amount of such Lender's Revolving Credit Commitment, duly executed and
delivered and payable to such Lender. Each Lender shall record the date and
amount of each Revolving Credit Loan made by it, whether such Revolving Credit
Loan was a Working Capital Loan or an Acquisition Loan, and the date and amount
of each payment of principal made by the Company with respect thereto, and
prior to any transfer of its Revolving Credit Note shall endorse on Schedule A
thereto (or any continuation thereof) forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such
Revolving Credit Loan then outstanding; provided that the failure of any Lender
to make any such recordation or endorsement shall not affect the obligations of
the Company hereunder or under the Revolving Credit Notes. Each Lender is
hereby irrevocably authorized by the Company so to endorse its Revolving Credit
Note and to attach to and make a part of its Revolving Credit Note a
continuation of any such schedule as and when required.
SECTION 2.03. INTEREST ON THE REVOLVING CREDIT LOANS. (a) The
Company shall pay interest on the Revolving Credit Loans to the Lenders monthly
in arrears on the first (1st) day of each calendar month immediately succeeding
the month for which such interest accrues, commencing with the first (1st) day
of the calendar month following the calendar month in which the Closing Date
occurs. In all cases accrued interest on all of the Revolving Credit Loans
shall be payable by the Company to the Lenders on the Commitment Termination
Date. Interest that accrues at the Default Rate shall be payable upon demand by
the Lenders. If any interest on any of the Revolving Credit Loans accrues or
remains payable after the
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Commitment Termination Date, such interest shall be payable by the Company upon
demand by the Lenders.
(b) The Company shall be obligated to pay interest to
the Lenders on the outstanding principal balance of each Revolving Credit Loan
from the date such Revolving Credit Loan is made until such Revolving Credit
Loan is repaid in full. Subject to Section 2.03(d), interest on all Loans
outstanding during any month shall accrue at a floating rate per annum equal to
the Index Rate plus four and one-quarter percentage points (4.25%).
(c) Each determination by the Agent of the interest rate
hereunder shall be presumed correct, absent convincing evidence to the
contrary.
(d) So long as any Event of Default shall have occurred
and be continuing, the interest rate applicable to the Loans or other
Obligations of the Company or any of its Subsidiaries under the Financing
Documents may be increased by the Required Lenders, at their option, by up to
two percentage points (2%) per annum above the rate otherwise applicable (the
"DEFAULT RATE").
SECTION 2.04. ADVANCING REVOLVING CREDIT LOANS. (a) Except
as provided in the last sentence of this Section 2.04(a), each Revolving Credit
Loan shall be made on notice by the Company to the Agent, given no later than
11:00 a.m. (New York time) on the Business Day of the proposed Revolving Credit
Loan. Such notice (each a "NOTICE OF BORROWING") shall be substantially in the
form of EXHIBIT B hereto, shall be duly completed and executed by an Authorized
Signatory, and shall specify therein the requested date and amount of such
Revolving Credit Loan, and such other information as may be required by the
Agent. Each Notice of Borrowing shall be given in writing (by telecopy, telex
or cable) or by telephone and confirmed immediately in writing. Notwithstanding
the foregoing, no Notice of Borrowing that requests an Acquisition Loan shall
be effective until the Agent notifies the Company that the Agent and the
Required Lenders have consented to the proposed Acquisition after having been
provided such information respecting the proposed Acquisition as is required to
be delivered pursuant to Section 3.02 or otherwise hereunder and such time to
review the same as the Agent and the Required Lenders shall reasonably deem
necessary.
(b) Not later than 1:00 p.m. (New York City time) on the date of
each borrowing (i) specified in a Notice of Borrowing (in the case of a Notice
of Borrowing that requests a borrowing of Working Capital Loans), (ii)
specified by the Agent following receipt of notice of approval of such
Acquisition from the Required Lenders (in the case of a Notice of Borrowing
that requests a borrowing of Acquisition Loans), each Lender shall make
available its ratable share of such borrowing of Revolving Credit Loans, in
immediately available funds, to the Company Account.
(c) The failure of any Lender to make a Loan on any date shall
not relieve any other Lender of its obligation, if any, hereunder to make its
Loan on that date. Neither the Agent nor
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any Lender shall be responsible for the failure of any other Person to make any
Loan hereunder on the date required therefor.
SECTION 2.05. MANDATORY REPAYMENTS AND PREPAYMENTS. (a) The
Revolving Credit Commitment of each Lender shall terminate at the opening of
business on December 31, 2002 (the "COMMITMENT TERMINATION DATE"), and there
shall become due and the Company shall pay on the Commitment Termination Date,
the entire outstanding principal amount of each Revolving Credit Loan, together
with accrued and unpaid interest thereon to but excluding the Commitment
Termination Date.
(b) If at any time (i) the aggregate unpaid principal
balance of the Working Capital Loans exceeds the Working Capital Availability,
or (ii) the aggregate unpaid principal balance of the Acquisition Loans exceeds
the Acquisition Availability, then, on the next succeeding Business Day, the
Company shall prepay Working Capital Loans and/or Acquisition Loans in an
aggregate principal amount equal to such excess.
(c) Commencing on April 1, 1999 (the "AMORTIZATION
COMMENCEMENT DATE") and continuing on each Quarterly Date thereafter, the
Company shall repay in equal quarterly installments in each year the percentage
of the aggregate principal amount of the Revolving Credit Loans outstanding on
the Amortization Commencement Date set forth opposite such year below:
<TABLE>
<CAPTION>
Calendar Year Percentage
------------- ----------
<S> <C>
1999 20%
2000 20%
2001 30%
2002 30%
</TABLE>
(d) There shall become due and payable, and the Company shall
prepay, on the earlier to occur of (i) the 5th day following its receipt of the
annual audit of the financial statements of the Company and (ii) the 90th day
following the last day of each Fiscal Year, an aggregate principal amount of
Revolving Credit Loans equal to fifty percent (50%) of the Excess Cash Flow for
such Fiscal Year, with the first such payment to be made in respect of the
Fiscal Year ending December 31, 1999.
SECTION 2.06. OPTIONAL PREPAYMENTS. The Company may prepay the
Revolving Credit Loans in whole or in part (in minimum principal amounts of
$100,000 or in any larger integral multiple of $10,000, or the total remaining
amount outstanding) upon at least three Business Days' prior irrevocable
written notice to the Lenders, without premium or penalty except as provided
pursuant to Section 2.08. The aggregate principal amount of the Revolving
Credit Loans designated for prepayment in any notice of optional prepayment
given
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pursuant to this section shall become due and payable on the date fixed for
prepayment as specified in such notice.
SECTION 2.07. APPLICATION OF PAYMENTS. Each payment or
prepayment of less than all the outstanding aggregate principal amount of the
Revolving Credit Loans shall be applied pro rata to the Revolving Credit Loans
of each Lender according to their respective outstanding principal amounts. The
principal amount of each payment on Revolving Credit Loans made on or after the
Amortization Commencement Date pursuant to Section 2.05(d) or Section 2.06
shall be applied to reduce the remaining payments required by Section 2.05(c)
in inverse order of the maturity thereof. Except as provided in the definition
of Excess Cash Flow, no payment of the principal amount of Revolving Credit
Loans pursuant to Section 2.05(b), 2.05(c) or 2.06 shall reduce the amount of
any payment required by 2.05(d). Each prepayment under Section 2.05(b) shall be
applied to the Working Capital Loans or the Acquisition Loans as provided in
such Section. Each other payment or prepayment shall be applied as directed by
the Company or if the Company shall fail to so direct, as directed by the
Agent.
SECTION 2.08. REDUCTION OF COMMITMENTS. (a) The Revolving
Credit Commitment shall reduce: (i) to the amount of the aggregate outstanding
principal amount of the Revolving Credit Loans on the Availability Termination
Date, (ii) after such date, by the amount of each payment made pursuant to
Section 2.06, and (iii) by the amount of each payment required pursuant to
Section 2.05 (c) and (d).
(b) The Company shall have the right at any time to terminate in
whole this Agreement, or from time to time, irrevocably to reduce in part the
amount of the Revolving Credit Commitment upon at least 15 days' prior written
notice to the Agent, in each case without penalty or premium, except that if
the Company terminates in whole this Agreement within the first twelve (12)
months following the Closing Date, the Company shall, subject to Section 8.08,
pay to the Lenders an amount equal to three percent (3.00%) of the maximum
Revolving Credit Commitment at any one time prior to such termination (the
"EARLY TERMINATION FEE"). Such notice shall be irrevocable on the part of the
Company and shall specify the effective date of such reduction or termination,
whether a termination or reduction is being made, and, in the case of any
reduction, the amount thereof shall be in an amount of Five Million Dollars
($5,000,000) or an integral multiple thereof. Upon any such reduction, the
Company shall simultaneously prepay any outstanding Revolving Credit Loans to
the extent necessary so that the aggregate outstanding principal amount of the
Revolving Credit Loans does not exceed the amount of the Revolving Credit
Commitment after giving effect to any partial reduction thereof. The aforesaid
prior notice requirement shall not apply to the Agent's exercise of remedies
under Section 7.01. In the event the Company exercises its rights under this
paragraph to prepay the Revolving Credit Loans and terminate this Agreement,
the Company agrees that such prepayment shall be accompanied by the payment by
the Company of all accrued and unpaid interest and all fees and other remaining
Obligations. The amount of the Revolving Credit Commitment may not be
reinstated if it is reduced or if this Agreement is terminated by the Company.
The Company acknowledges and
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agrees that (i) it would be difficult or impracticable to determine the
Lender's actual damages from any early termination of this Agreement, (ii) the
Early Termination Fee is intended to be a fair and reasonable approximation of
such damages and (iii) the Early Termination Fee is not intended to be a
penalty.
SECTION 2.09. WARRANTS. (a) On the Agreement Date, the
Company shall deliver to NationsCredit, in consideration for executing this
Agreement, warrants exercisable for 100,000 shares of Common Stock (the
"WARRANTS"). The Warrants shall be substantially in the form of EXHIBIT J
hereto, and shall be duly executed and registered in such name or names and in
such denominations as NationsCredit shall have notified the Company. The
Warrants shall be fully earned by NationsCredit by its execution hereof.
(b) The Company and NationsCredit agree that, for
Federal income tax purposes (i) the Warrants together with the Revolving Credit
Loans constitute an investment unit and (ii) the aggregate issue price of the
Revolving Credit Loans, is $14,990,000 and the aggregate purchase price of the
Warrants is $10,000. Neither of the Company nor any Lender shall voluntarily
take any action inconsistent with the agreement set forth in the immediately
preceding sentence.
ARTICLE III
CONDITIONS
SECTION 3.01. CONDITIONS TO CLOSING. The obligation of each
Lender to make Loans on the Closing Date shall be subject to the satisfaction
of the following conditions precedent:
(a) receipt by the Agent of counterparts hereof signed
by each of the parties hereto (or, in the case of any party as to
which an executed counterpart shall not have been received, receipt by
the Agent in form satisfactory to it of telegraphic, telex or other
written confirmation from such party of execution of a counterpart
hereof by such party);
(b) receipt by NationsCredit of a duly executed
Revolving Credit Note for its account, substantially in the form of
EXHIBIT A;
(c) receipt by NationsCredit of the Warrants described
in Section 2.09;
(d) receipt by the Agent of duly executed counterparts
of each Security Document required to be effective on the Closing Date
(including the Lockbox Agreements), together with evidence
satisfactory to it in its sole good faith discretion of the
effectiveness, priority and perfection of the security contemplated
thereby and the lien search reports and any additional documents
requested by the Agent;
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(e) receipt by the Agent of a duly executed Subsidiary
Guaranty Agreement in the form of EXHIBIT E, duly executed by each
Subsidiary of the Company other than the Excluded Subsidiaries;
(f) receipt by the Agent of the initial Borrowing Base
Certificate, in the form of EXHIBIT H, duly executed and completed by
the Company;
(g) receipt by the Agent of opinions of counsel for the
Company and its Subsidiaries for Tennessee, Texas, Florida and
Missouri, substantially in the forms of EXHIBIT I-1(A), EXHIBIT
I-1(B), EXHIBIT I-2(A), EXHIBIT I-2(B), EXHIBIT I-3(A), EXHIBIT
I-3(B), EXHIBIT I-4(A) and EXHIBIT I-4(B), respectively, and covering
such additional matters relating to the transactions contemplated
hereby as the Agent may reasonably request (by its execution and
delivery of this Agreement, the Company and each such Subsidiary
authorizes and directs such counsel to deliver such opinions to the
Agent);
(h) receipt by the Agent of an opinion of Kilpatrick
Stockton LLP, special counsel for the Agent, covering such matters
relating to the transactions contemplated hereby as NationsCredit may
reasonably request;
(i) receipt by NationsCredit, including in its capacity
as Agent, of all fees and any other amounts due and payable hereunder
(including fees and expenses payable pursuant to Section 8.04 of which
the Company has received notice);
(j) receipt by NationsCredit of any information it may
request concerning the financial condition, results of operations,
liabilities (contingent and otherwise, including environmental
liabilities and employee and retiree benefits) and prospects of, and
the financial reporting and accounting systems and the management
information systems of, the Company, and satisfaction of NationsCredit
in its sole good faith discretion with all such information;
(k) satisfaction of NationsCredit in its sole good faith
discretion as to the absence of any event, act, condition or
occurrence of whatever nature that constitutes, or that is reasonably
likely to result in, a Material Adverse Effect;
(l) receipt by NationsCredit of a certificate signed by
the chief financial officer or treasurer of the Company to the effect
that, both before and immediately after the making of the Loans, and
the other transactions contemplated to take place on the Closing Date,
(i) no Default shall have occurred and be continuing and (ii) the
representations and warranties of the Company and each of its
Subsidiaries made in or pursuant to the Financing Documents executed
by such Person are true in all material respects;
(m) receipt by NationsCredit of (i) the financial
statements and pro forma consolidated balance sheet referred to in
Sections 4.04(a) and (b), (ii) a statement of
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<PAGE> 32
sources and uses of funds covering all payments reasonably expected to
be made by the Company in connection with the transactions
contemplated by the Financing Documents to be consummated on or prior
to the Closing Date, including an itemized estimate of all fees,
expenses and other costs, and (iii) payment instructions with respect
to each wire transfer to be made by the Agent on the Closing Date
setting forth the amount of such transfer, the purpose of such
transfer, the name and number of the account to which such transfer is
to be made, the name and ABA number of the bank or other financial
institution where such account is located and the name and telephone
number of an individual that can be contacted to confirm receipt of
such transfer;
(n) receipt by the Agent of copies of the Key-Person
Life Insurance Policies, that are in form and substance satisfactory
to the Agent in its sole good faith discretion, and a duly-executed
instrument of assignment assigning the Key-Person Life Insurance
Policies to the Agent as collateral under the Security Documents;
(o) receipt by the Agent of evidence satisfactory to it
in its sole good faith discretion of the effectiveness of employment
contracts between the Company and each member of Senior Management
which are in form and substance satisfactory to the Agent in its sole
good faith discretion, to include cash and non-cash compensation and
non-compete provisions;
(p) receipt by the Agent of a certificate of the
treasurer of the Company showing in detail the capitalization of the
Company, including all issued and outstanding shares or rights to
equity securities or debt securities, the holders thereof and the
respective amounts of such holdings by each such Person;
(q) receipt by the Agent of all documents it may
reasonably request relating to the existence of the Company and its
Subsidiaries, the corporate authority for and the validity of the
Financing Documents, and any other matters relevant hereto, all in
form and substance satisfactory to the Agent in its sole good faith
discretion; and
(r) receipt by the Agent of complete copies of each
document executed or to be executed by the Company or any Subsidiary
in connection with an acquisition of an optometry or ophthalmology
practice, or the assets thereof, including any Management Agreement to
be executed in connection therewith, in form and substance
satisfactory to the Lenders in their good faith discretion.
The documents referred to in this Section shall be delivered to the Agent no
later than the Closing Date. The certificates and opinions referred to in this
Section shall be dated the Closing Date.
SECTION 3.02. CONDITIONS TO ACQUISITION LOANS. The obligation
of any Lender to make an Acquisition Loan on the occasion of any borrowing is
subject to the satisfaction of the following additional conditions:
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<PAGE> 33
(a) receipt by the Agent of a Notice of Borrowing in
accordance with Section 2.04;
(b) receipt by the Agent of all documents, instruments
and agreements to be delivered in connection with the Acquisition
and/or any financing therefor;
(c) completion of, and satisfaction of the Agent and the
Lenders with, such legal and/or business due diligence review of the
Acquisition, the structure and terms thereof, and the target thereof,
as the Agent and the Lenders reasonably shall deem relevant;
(d) evidence satisfactory to the Agent that all property
to be acquired in the Acquisition, including all property of any
Person that, following such Acquisition, is to become a Subsidiary,
will be pledged to the Agent and the Lenders as security for the
Obligations and that the Liens granted pursuant thereto will
constitute perfected Liens, subject only to Permitted Liens, and that
any Person that will become a Subsidiary as a result of such
Acquisition has executed a guaranty of the Obligations in form and
substance satisfactory to the Agent and the Required Lenders and
otherwise complied with the requirements of Section 6.07;
(e) receipt by the Agent and the Lenders of such
historical financial statements and information and such market
information respecting the target of the Acquisition as the Agent and
the Lenders reasonably shall deem relevant;
(f) receipt by the Agent and the Lenders of pro forma
financial statements showing the target and the Company on a
consolidated basis after giving effect to such Acquisition as of the
date of the closing thereof and a certificate of the chief financial
officer or treasurer of the Company demonstrating that the Company,
both before and after giving effect to the Acquisition, will be in
compliance with the financial and other covenants contained herein and
in the other Loan Documents; and
(g) such other information respecting the Acquisition,
the target or the Company as the Agent and the Lenders reasonably
shall deem relevant.
SECTION 3.03. CONDITIONS TO EACH LOAN. The obligation of any
Lender to make a Loan on the occasion of any borrowing thereof (including on
the Closing Date) is subject to the satisfaction of the following additional
conditions:
(a) receipt by the Agent of a Notice of Borrowing in
accordance with Section 2.04 and, in the case of a Working Capital
Loan, a Borrowing Base Certificate as of the close of business on the
Business Day immediately preceding the date of such borrowing;
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(b) the fact that, immediately before and after such
borrowing, no Default shall have occurred and be continuing; and
(c) the fact that the representations and warranties of
the Company contained in the Financing Documents shall be true in all
material respects on and as of the date of such borrowing, except for
such changes therein as are expressly permitted by the terms of this
Agreement.
Each borrowing hereunder shall be deemed to be a representation and warranty by
the Company on the date of such borrowing as to the facts specified in clauses
(b) and (c) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as to itself and each of
its Subsidiaries that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. The Company and
each Subsidiary is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of its organization, and the Company,
each Subsidiary and each Managed Practice has all corporate powers, if
applicable, and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and as will be
conducted (including, as applicable, accreditations and certifications as a
provider of health care services eligible to receive payment and compensation
and to participate under Medicare, Medicaid, CHAMPUS or CHAMPVA or any Blue
Cross/Blue Shield or equivalent program) except those licenses, authorizations,
consents and approvals, which the failure to have has not had, and is not
reasonably likely to result in, a Material Adverse Effect. The Company and each
Subsidiary is qualified to do business as a foreign corporation in each
jurisdiction in which the failure of the Company or such Subsidiary to be so
qualified could reasonably be expected to have a Material Adverse Effect.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the Company and each
of its Subsidiaries of the Financing Documents to which it is a party are
within the Company's or such Subsidiary's (as the case may be) corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official (other than the filing of UCC-1 financing statements, which have been
made and are in full force and effect) and do not contravene, or constitute a
default under, any provision of applicable law or regulation (including
specifically any applicable rule or regulation relating to the eligibility of
any Credit Party to receive payment and to participate as an accredited and
certified provider of health care services under Medicare, Medicaid, CHAMPUS,
CHAMPVA or any Blue Cross/Blue Shield or equivalent program or relating to the
licenses and permits required therein or in connection therewith) or of the
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certificate of incorporation or by-laws of the Company or any of its
Subsidiaries or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company, any of its Subsidiaries or any other
Credit Party or result in the creation or imposition of any Lien (other than
the Liens created by the Security Documents) on any asset of the Company, any
of its Subsidiaries or any other Credit Party.
SECTION 4.03. BINDING EFFECT; LIENS OF SECURITY DOCUMENTS.
(a) Each of the Financing Documents to which the Company is a party (other than
the Notes and the Warrants) constitutes a valid and binding agreement of the
Company, and each of the Notes and the Warrants, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations
of the Company, in each case enforceable in accordance with its respective
terms, subject to: (i) the effect of any applicable bankruptcy, fraudulent
transfer, moratorium, insolvency, reorganization or other similar laws
affecting the rights of creditors generally; and (ii) the effect of general
principles of equity whether applied by a court of equity or law. The Company
has reserved and will keep available for issuance upon exercise of the
Warrants, the Warrant Shares deliverable upon exercise of all Warrants from
time to time outstanding. The issuance of the Warrant Shares has been duly and
validly authorized and, when issued will be duly and validly issued, fully paid
and nonassessable and free of preemptive rights.
(b) Each of the Financing Documents to which any
Subsidiary of the Company or any other Credit Party is a party constitutes a
valid and binding agreement of such Subsidiary or Credit Party enforceable in
accordance with its terms, subject to: (i) the effect of any applicable
bankruptcy, fraudulent transfer, moratorium, insolvency, reorganization or
other similar laws affecting the rights of creditors generally; and (ii) the
effect of general principles of equity whether applied by a court of equity or
law.
(c) The Security Documents create valid security
interests in the Collateral purported to be covered thereby, which security
interests are perfected security interests, prior to all other Liens other than
Permitted Liens. Each of the representations and warranties made by the
Company, any of its Subsidiaries or any other Credit Party in the Security
Documents is true and correct.
SECTION 4.04. FINANCIAL INFORMATION.
(a) (i) The consolidated balance sheet of the Company
and its Consolidated Subsidiaries as of December 31, 1995 and the related
audited consolidated statements of operations and cash flows for the Fiscal
Year then ended, reported on by KPMG Peat Marwick, L.L.P., and (ii) the
unaudited consolidated balance sheet of the Company and its Consolidated
Subsidiaries as of November 30, 1996 and the related unaudited consolidated
statements of operations and cash flows for the eleven (11) months then ended,
copies of each of which ((i), and (ii)) have been delivered to each of the
Lenders, fairly present, in conformity with GAAP applied on a consistent basis
the consolidated financial position of the Company and its Consolidated
Subsidiaries as of such date and their consolidated results of
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<PAGE> 36
operations and cash flows for the periods then ended (subject, in the case of
the statements described in clause (ii), to normal year-end adjustments). As of
the date of the latest such balance sheet and the date hereof, neither the
Company nor any of its Subsidiaries had or has any material liabilities,
contingent or otherwise, including liabilities for taxes, long-term leases or
forward or long-term commitments, which are not properly reflected on such
balance sheets.
(b) The pro forma balance sheet of the Company and its
Consolidated Subsidiaries as of October 31, 1996, copies of which have been
delivered to each of the Lenders, fairly presents, in conformity with GAAP
applied on a basis consistent with the financial statements referred to in
Section 4.04(a), the consolidated financial position of the Company and its
Consolidated Subsidiaries as of such date, adjusted to give effect (as if such
events had occurred on such date) to (i) the making of the initial Loans and
the issuance of the Warrants, (ii) the application of the proceeds therefrom,
and (iii) the payment of all legal, accounting and other fees related thereto
to the extent known at the time of the preparation of such balance sheet. As of
the date of such balance sheet and the date hereof, neither the Company nor any
of its Subsidiaries had and has any material liabilities, contingent or
otherwise, including liabilities for taxes, long-term leases or forward or
long-term commitments, which are not properly reflected on such balance sheet.
(c) The information contained in the most recently
delivered Borrowing Base Certificate is complete and correct and the amounts
shown therein as Eligible Clinic Receivables, Eligible Non-Clinic Receivables
and Clinic Obligations have been determined as provided in the Financing
Documents.
(d) Since November 30, 1996, there has been no event,
act, condition or occurrence of whatever nature that constitutes, or that could
reasonably be expected to result in, a Material Adverse Effect.
SECTION 4.05. LITIGATION. There is no action, suit or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company, any of its Subsidiaries or any other Credit
Party before any court or arbitrator or any governmental body, agency or
official which, if adversely determined, could reasonably be expected to have a
Material Adverse Effect. There is no action, suit or proceeding pending
against, or to the knowledge of the Company threatened against or affecting,
any Credit Party before any court or arbitrator or any governmental body,
agency or official which in any manner draws into question the validity of any
of the Financing Documents. There is no pending investigation of any Credit
Party by HCFA or any other governmental authority, which investigation is not
otherwise conducted in the ordinary course of business and no criminal, civil
or administrative action, audit, or investigation by a fiscal intermediary or
by or on behalf of any governmental authority exists or, to the best knowledge
of the Company, is threatened with respect to any Credit Party which could
reasonably be expected to materially and adversely affect such Credit Party's
right to receive Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement to which
such Credit Party would otherwise be entitled, or right
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<PAGE> 37
to participate in the Medicare, Medicaid, CHAMPUS or CHAMPVA programs, or
otherwise have a material adverse effect on the receipt of Medicare, Medicaid,
CHAMPUS or CHAMPVA reimbursement by such Credit Party, and, to the best
knowledge of the Company, no Credit Party is subject to any pending but
unassessed Medicare, Medicaid, CHAMPUS or CHAMPVA claim payment adjustments,
except to the extent that such Credit Party is contesting such assessment in
good faith by appropriate proceedings diligently pursued and has established
and will maintain adequate reserves for such adjustments in accordance with
GAAP.
SECTION 4.06. OWNERSHIP OF PROPERTY, LIENS. On and as of the
Closing Date, the Company and each Subsidiary is the lawful owner of, has good
and marketable title to and is in lawful possession of, or has valid leasehold
interests in, all properties and other assets (real or personal, tangible,
intangible or mixed) purported to be owned or leased (as the case may be) by
such Person on the balance sheet referred to in Section 4.04(a), and none of
such Person's properties and assets is subject to any Liens, except Permitted
Liens and except in each case to the extent that the failure to be such an
owner to have such title and possession or to hold such leasehold interest, or
to the extent that the existence of any such Lien, singly or when aggregated
with all such similar events, could not reasonably be expected to have or
result in a Material Adverse Effect. The Company, its Subsidiaries and the
other Credit Parties conduct their business without infringement or claim of
infringement of any material license, patent, trademark, trade name, service
mark, copyright, trade secret or other intellectual property right of others
and there is no infringement or claim of infringement by others of any material
license, patent, trademark, trade name, service mark, copyright, trade secret
or other intellectual property right of the Company, any of its Subsidiaries or
any other Credit Party, except any such infringement or claimed infringement by
the Company, its Subsidiaries or the other Credit Parties, or by others, as
singly or in the aggregate could not reasonably be expected to have or result
in a Material Adverse Effect.
SECTION 4.07. NO DEFAULT. No Default has occurred and is
continuing and neither the Company nor any of its Subsidiaries or any other
Credit Party is in default under or with respect to any contract, agreement,
lease or other instrument to which it is a party or by which its property is
bound or affected, except any default under or with respect to any such
contract, agreement, lease or other instrument, which default, singly or in the
aggregate with any other such defaults, could not reasonably be expected to
have or result in a Material Adverse Effect. Neither the Company nor any other
Credit Party has received notification from any governmental authority that any
such governmental authority has taken or intends to take action to revoke,
terminate or adversely amend any license, certificate, accreditation or permit
of such Person to operate a healthcare facility or to participate under
Medicare, Medicaid, CHAMPUS or CHAMPVA, which revocation, termination or
amendment, singly or in the aggregate, with all other such events, could
reasonably be expected to have or result in a Materially Adverse Effect.
SECTION 4.08. NO BURDENSOME RESTRICTIONS. No contract, lease,
agreement or other instrument to which the Company, any of its Subsidiaries or
any other Credit Party is a party or by which any of its property is bound or
affected, no charge, corporate restriction,
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judgment, decree or order and no provision of applicable law or governmental
regulation is reasonably likely to have or result in a Material Adverse Effect.
SECTION 4.09. LABOR MATTERS. There are no strikes or other
labor disputes pending or, to the best knowledge of the Company, threatened,
against the Company, any of its Subsidiaries or any other Credit Party, which
strikes or labor disputes, singly or in the aggregate, could reasonably be
expected to have or result in a Material Adverse Effect. Hours worked and
payments made to the employees of the Company, its Subsidiaries and any other
Credit Party have not been in violation of the Fair Labor Standards Act or any
other applicable law dealing with such matters. All payments due from the
Company, any of its Subsidiaries or any other Credit Party, or for which any
claim may be made against any of them, on account of wages and employee and
retiree health and welfare insurance and other benefits have been paid or
accrued as a liability on their books, as the case may be. The consummation of
the transactions contemplated by the Financing Documents will not give rise to
a right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which it is a party or by which it is
bound.
SECTION 4.10. SUBSIDIARIES; OTHER EQUITY INVESTMENTS. Other
than as set forth on SCHEDULE 4.10, the Company has no Subsidiaries and there
are no other Credit Parties on the date hereof. Each such Subsidiary is, and,
in the case of any additional corporate Subsidiaries formed after the Closing
Date, each of such additional corporate Subsidiaries will be, at each time that
this representation is made or deemed to be made after the Closing Date, a
wholly-owned Subsidiary that is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as then conducted. Neither the Company nor any of its Subsidiaries is
engaged in any joint venture or partnership with any other Person except those
listed on SCHEDULE 4.10, as such Schedule shall be amended from time to time.
Neither the Company nor any Subsidiary is bound by, or owns or holds assets
that are bound by, a Physician Unwind Agreement, except as listed on SCHEDULE
4.10.
SECTION 4.11. INVESTMENT COMPANY ACT. The Company is not an
"investment company" as defined in the Investment Company Act of 1940, as
amended. The consummation of the transactions contemplated by the Financing
Documents do not and will not violate any provision of such Act or any rule,
regulation or order issued by the Securities and Exchange Commission
thereunder.
SECTION 4.12. MARGIN REGULATIONS. None of the proceeds from
the Loans have been or will be used, directly or indirectly, for the purpose of
purchasing or carrying any Margin Stock, for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
any Margin Stock or for any other purpose which might cause any of the loans
under this Agreement to be considered a "purpose credit" within the meaning of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve Board.
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SECTION 4.13. TAXES. The Company's federal tax identification
number is 13-3220466 and the federal tax identification number for each
Subsidiary and each other Credit Party is accurately listed for such Person on
SCHEDULE 4.10. All Federal, state and local tax returns, reports and statements
required to be filed by or on behalf of the Company and its Subsidiaries have
been filed with the appropriate governmental agencies in all jurisdictions in
which such returns, reports and statements are required to be filed, and all
taxes (including real property taxes) and other charges shown to be due and
payable have been timely paid prior to the date on which any fine, penalty,
interest, late charge or loss may be added thereto for nonpayment thereof,
except any of the foregoing as may be subject to a Permitted Contest and except
any of the foregoing, the failure to file or to pay which, singly or in the
aggregate with all such failures, could not reasonably be expected to have or
result in a Material Adverse Effect. All state and local sales and use taxes
required to be paid by the Company, any of its Subsidiaries or any other Credit
Party have been paid, except any of the foregoing as may be subject to a
Permitted Contest. All Federal and state returns have been filed by the
Company, its Subsidiaries and the other Credit Parties for all periods for
which returns were due with respect to employee income tax withholding, social
security and unemployment taxes, and the amounts shown thereon to be due and
payable have been paid in full or adequate provisions therefor have been made.
SECTION 4.14. COMPLIANCE WITH ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code with respect to each Plan. No member of the ERISA Group has (i) sought a
waiver of the minimum funding standard under Section 412 of the Code in respect
of any Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could
reasonably be expected to result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA.
SECTION 4.15. BROKERS. No broker, finder or other
intermediary has brought about the obtaining, making or closing of the
transactions contemplated by the Financing Documents, and the Company has and
will have no obligation to any Person in respect of any finder's or brokerage
fees in connection herewith or therewith.
SECTION 4.16. EMPLOYMENT, SHAREHOLDERS AND SUBSCRIPTION
AGREEMENTS. Except for the agreements described in SCHEDULE 4.16 (which
schedule may be updated from time to time by the Company with the consent of
the Agent which consent shall not be unreasonably withheld), true and complete
copies of which have been delivered to the Lenders, there are no (i) employment
agreements covering the management of the Company, any of its Subsidiaries or
any other Credit Party, (ii) collective bargaining agreements or other labor
agreements covering any group of employees of the Company, its Subsidiaries or
any other Credit Party or (iii) agreements regarding the Company or any of its
Subsidiaries, their
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respective assets or operations or any investment therein to which any of the
stockholders of the Company or its Subsidiaries is a party.
SECTION 4.17. FULL DISCLOSURE. None of the information
(financial or otherwise) furnished by or on behalf of the Company to the Agent
or any Lender in connection with the consummation of the transactions
contemplated by any of the Financing Documents contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements were made. All financial projections
delivered to the Lenders have been prepared on the basis of the assumptions
stated therein. Except as previously disclosed to the Agent in writing, such
projections represent the Company's best estimate of the Company's future
financial performance and such assumptions are believed by the Company to be
fair and reasonable in light of current business conditions at the time such
projections were delivered to the Agent.
SECTION 4.18. PRIVATE OFFERING. Neither the Company nor any
Person acting on its behalf has offered the Notes or the Warrants or any
similar securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with, any Person
other than the Lenders and not more than five other institutional investors.
Neither the Company nor any Person acting on its behalf has taken, or will
take, any action which would subject the issuance or sale of the Notes, the
Warrants or the Warrant Shares to Section 5 of the Securities Act, other than
as provided in the Warrants and Warrantholders Rights Agreement.
SECTION 4.19. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS; NO
HAZARDOUS MATERIALS. Except as provided on SCHEDULE 4.19 and except for any of
the following that has not had and could not reasonably be expected to have a
Material Adverse Effect:
(a) Other than generation in compliance with all
applicable Environmental Laws, no Hazardous Materials are located on
any properties now or previously owned, leased or operated by the
Company or any of its Subsidiaries or have been released into the
environment, or deposited, discharged, placed or disposed of at, on,
under or near any of such properties. No portion of any such property
is being used in, or has been used at any previous time, for the
disposal, storage, treatment, processing or other handling of
Hazardous Materials (other than processing or handling incidental to
the generation of Hazardous Materials in compliance with all
applicable Environmental Laws), nor is any such property affected by
any Hazardous Materials Contamination.
(b) No asbestos or asbestos-containing materials are
present on any of the properties now or previously owned, leased or
operated by the Company or any of its Subsidiaries.
(c) No polychlorinated biphenyls are located on or in
any properties now or previously owned, leased or operated by the
Company or any of its Subsidiaries, in the
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form of electrical transformers, fluorescent light fixtures with
ballasts, cooling oils or any other device or form.
(d) No underground storage tanks are located on any
properties now or previously owned, leased or operated by the Company
or any of its Subsidiaries, or were located on any such property and
subsequently removed or filled.
(e) Except as disclosed on SCHEDULE 4.19, no notice,
notification, demand, request for information, complaint, citation,
summons, investigation, administrative order, consent order and
agreement, litigation or settlement with respect to Hazardous
Materials or Hazardous Materials Contamination is in existence or, to
the Company's knowledge, proposed, threatened or anticipated with
respect to or in connection with the operation of any properties now
or previously owned, leased or operated by the Company or any of its
Subsidiaries. All such properties and their existing and prior uses
comply and at all times have complied with any applicable governmental
requirements relating to environmental matters or Hazardous Materials.
Except as disclosed on SCHEDULE 4.19 there is no condition on any of
such properties which is in violation of any applicable governmental
requirements relating to Hazardous Materials, and neither the Company
nor any of its Subsidiaries has received any communication from or on
behalf of any governmental authority that any such condition exists.
Except disclosed on SCHEDULE 4.19, none of such properties nor any
property to which the Company has, directly or indirectly, transported
or arranged for the transportation of any material is listed or, to
the Company's knowledge, proposed for listing on the National
Priorities List promulgated pursuant to CERCLA, on CERCLIS (as defined
in CERCLA) or on any similar federal, state or foreign list of sites
requiring investigation or cleanup, nor, to the knowledge of the
Company, is any such property anticipated or threatened to be placed
on any such list.
(f) There has been no environmental investigation,
study, audit, test, review or other analysis conducted of which the
Company has knowledge in relation to the current or prior business of
the Company or any property or facility now or previously owned,
leased or operated by the Company or any of its Subsidiaries which has
not been delivered to the Lenders at least five days prior to the date
hereof.
(g) For purposes of this Section 4.19, the terms
"Company" and "Subsidiary" shall include any business or business
entity (including a corporation) which is, in whole or in part, a
predecessor of the Company or any Subsidiary.
SECTION 4.20. REAL PROPERTY INTERESTS. Except for the
ownership, leasehold or other interests set forth in SCHEDULE 4.20, the Company
and its Subsidiaries have, as of the Agreement Date, no ownership, leasehold or
other interest in real property.
SECTION 4.21. THIRD PARTY REIMBURSEMENT . If any Credit Party
is or has been audited by Medicare, Medicaid, CHAMPUS, CHAMPVA or similar
governmental Third
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Party Payors, (i) none of such audits provides for adjustments in reimbursable
costs or asserts claims for reimbursement or repayment by such Credit Party of
costs and/or payments theretofore made by such governmental Third Party Payor
that, if adversely determined, could reasonably be expected to have or result in
a Material Adverse Effect and (ii) none of the Credit Parties have had requests
or assertions of claims for reimbursement or repayment by it of costs and/or
payments heretofore made by any other Third Party Payor that, if adversely
determined, could reasonably be expected to have or result in a Material Adverse
Effect.
SECTION 4.22. ADDITIONAL REPRESENTATIONS; SCHEDULES. All
certifications, information, statements, conclusions and the like contained in
any Borrowing Base Certificate, Receivables Report, certificate, financial
statement or other instrument delivered by or on behalf of the Company, any
Subsidiary or any other Credit Party pursuant to any of the Financing Documents
(including but not limited to any such made in or in connection with any
amendment to any of such documents) shall constitute representations and
warranties made under this Agreement. Wherever a representation and warranty
made under this Agreement refers to a schedule or an amended schedule, it shall
be deemed to refer to the schedule attached hereto or, if one or more amended
schedules have been furnished, the amended schedule most recently so furnished
prior to the date as of which the representation and warranty is made, and the
later delivery of an amended schedule shall not retroactively effect a
correction of any representation and warranty which was incorrect or untrue
when made.
ARTICLE V
AFFIRMATIVE COVENANTS
The Company agrees that, so long as any Lender has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER REPORTS. The
Company will maintain a system of accounting established and administered in
accordance with sound business practices to permit preparation of financial
statements in accordance with GAAP, and will deliver to each of the Lenders:
(a) as soon as practicable and in any event within 30
days after the end of each month, a consolidated and consolidating
balance sheet of the Company and its Consolidated Subsidiaries as at
the end of such month and the related consolidated and consolidating
statements of operations and cash flows for such month, and for the
portion of the Fiscal Year ended at the end of such month, setting
forth in each case in comparative form the figures for the
corresponding periods of the previous Fiscal Year and the figures for
such month and for such portion of the Fiscal Year ended at the end of
such month that are set forth in the annual operating and capital
expenditure budgets and cash flow forecast delivered pursuant to
Section 5.01(j), all in reasonable detail and certified by the chief
financial officer of the Company as fairly presenting the financial
condition and results of operations of the Company and its
Consolidated Subsidiaries
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and as having been prepared in accordance with GAAP applied on a basis
consistent with the audited financial statements of the Company,
subject to changes resulting from audit and normal year-end
adjustments;
(b) as soon as available and in any event within 90 days
after the end of each Fiscal Year, a consolidated and consolidating
balance sheet of the Company and its Consolidated Subsidiaries as of
the end of such Fiscal Year and the related consolidated and
consolidating statements of operations, stockholders' equity and cash
flows for such Fiscal Year, setting forth in each case in comparative
form the figures for the previous Fiscal Year and the figures for such
Fiscal Year that are set forth in the annual operating and capital
expenditure budgets and cash flow forecast delivered pursuant to
Section 5.01(j), certified (solely with respect to such consolidated
statements) without qualification by KPMG Peat Marwick, L.L.P., or
other independent public accountants of nationally recognized
standing;
(c) (i) together with each delivery of financial
statements pursuant to (a) and (b) above, an Officers' Certificate of
the Company stating that the officers executing such certificate have
reviewed the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail of the
transactions and condition of the Company and its Subsidiaries during
the accounting period covered by such financial statements and that
such review has not disclosed the existence during or at the end of
such accounting period, and that such officers do not have knowledge
of the existence as at the date of such Officers' Certificate, of any
Default, or, if any such Default existed or exists, specifying the
nature and period of existence thereof and what action the Company has
taken or is taking or proposes to take with respect thereto; (ii)
together with each delivery of financial statements for each month and
Fiscal Year, a compliance certificate of the chief financial officer
or treasurer of the Company (x) providing details of all transactions
between the Company and any Person referred to in Section 6.08, (y)
demonstrating in reasonable detail compliance during and at the end of
such accounting period with the covenants contained in Sections 6.12
through 6.17, and (z) if not specified in the financial statements
delivered pursuant to (a) or (b) above, as the case may be, specifying
the aggregate amount of interest paid or accrued and the aggregate
amount of depreciation and amortization charged, during such
accounting period; and (iii) beginning with the delivery of the fiscal
year end 1999 financial statements, together with each delivery of
financial statements pursuant to (b) above, a statement setting forth
in reasonable detail the computation of Excess Cash Flow, if any, for
such Fiscal Year, certified by the chief financial officer or
treasurer of the Company as having been prepared from such financial
statements in accordance with this Agreement;
(d) together with each delivery of financial statements
pursuant to (b) above, a written statement by the independent public
accountants giving the report thereon (i) stating that their audit
examination has included a review of the terms of this Agreement as it
relates to accounting matters, (ii) stating whether, in connection
with their audit examination, any Default has come to their attention,
and if such a condition
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or event has come to their attention, specifying the nature and period
of existence thereof, and (iii) stating that based on their audit
examination nothing has come to their attention which causes them to
believe that the information contained in the certificates delivered
therewith pursuant to (c) above is not correct and that the matters
set forth in the compliance certificate delivered therewith pursuant
to clause (ii) of (c) above for the applicable Fiscal Year are not
stated in accordance with the terms of this Agreement;
(e) promptly upon receipt thereof, copies of all reports
submitted to the Company by independent public accountants in
connection with each annual, interim or special audit of the financial
statements of the Company made by such accountants, including the
comment letter submitted by such accountants to management in
connection with their annual audit;
(f) promptly upon their becoming available, copies of
(i) all financial statements, reports, notices and proxy statements
sent or made available generally by the Company to its security
holders, (ii) all regular and periodic reports and all registration
statements and prospectuses filed by the Company with any securities
exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions and (iii)
all press releases and other statements made available generally by
the Company to the public concerning material developments in the
business of the Company;
(g) promptly upon any officer of the Company obtaining
knowledge (i) of the existence of any Default, or becoming aware that
the holder of any Debt of the Company, any Subsidiary or any other
Credit Party that singly, or when aggregated with all other Debt of
the Company, its Subsidiaries or any other Credit Party the holders of
which have taken similar action, equals or exceeds $200,000 in
principal amount outstanding has given any notice or taken any other
action with respect to a claimed default thereunder, (ii) of any
change in the Company's certified accountant, any resignation, or
decision not to stand for re-election, by any member of the Company's
board of directors or any resignation or change in any Person who is
part of the Company's Senior Management, (iii) that any Person has
given any notice to the Company, any Subsidiary or any other Credit
Party or taken any other action with respect to a claimed default
under any agreement or instrument (other than the Financing Documents)
to which the Company, any of its Subsidiaries or any other Credit
Party is a party or by which any of their assets are bound the
indebtedness or obligation under which either singly or when
aggregated with all other claims of Persons taking similar action, is
equal to or greater than $200,000 or (iv) of the institution of any
litigation or arbitration involving an alleged liability of the
Company, any of its Subsidiaries or any other Credit Party equal to or
greater than $200,000 or any adverse determination in any litigation
or arbitration proceedings that singly or when aggregated with all
other outstanding litigation or arbitration claims involve a potential
liability of the Company, any of its Subsidiaries or any other Credit
Party equal to or greater than $200,000, an Officers' Certificate of
the Company specifying the nature and period of existence of any such
condition or event, or specifying the
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notice given or action taken by such holder or Person and the nature
of such claimed default (including any Default), event or condition,
and what action the Company or any affected Subsidiary has taken, is
taking or proposes to take with respect thereto;
(h) if and when any member of the ERISA Group (i) gives
or is required to give notice to the PBGC of any "reportable event"
(as defined in Section 4043 of ERISA) with respect to any Plan which
might constitute grounds for a termination of such Plan under Title IV
of ERISA, or knows that the plan administrator of any Plan has given
or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to
the PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy
of such notice; (iii) receives notice from the PBGC under Title IV of
ERISA of an intent to terminate, impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or appoint a
trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the
Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such
notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any payment or contribution to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement or
makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of
a bond or other security, a certificate of the chief financial officer
or the chief accounting officer of the Company setting forth details
as to such occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or proposes to take;
(i) copies of any reports or notices (but excluding tax
returns) related to taxes and any other material reports or notices
received by the Company, any Subsidiary or any other Credit Party
from, or filed by the Company, any Subsidiary or any other Credit
Party with, any Federal, state or local governmental agency or body
regulating the activities of the Company or such Subsidiary or other
Credit Party;
(j) within 30 days prior to the conclusion of each
Fiscal Year, the Company's annual operating and capital expenditure
budgets and cash flow forecast for the following Fiscal Year presented
on a monthly basis, which shall be in a format reasonably consistent
with projections, budgets and forecasts theretofore provided to the
Lenders;
(k) together with each Notice of Borrowing and on the
first Business Day of each month, a Borrowing Base Certificate as of
the close of business of the last Business Day of the preceding month;
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(l) within two Business Days after any request therefor,
such information in such detail concerning the amount, composition and
manner of calculation of the Borrowing Base as any Lender may
reasonably request;
(m) within twenty days after the end of each month, a
report, in form and substance acceptable to the Required Lenders, as
to all Receivables of the Company, any of its Subsidiaries and any
other Credit Party outstanding as of the last day of such month (a
"RECEIVABLES REPORT"), which shall set forth in summary form an aging
of such Receivables and such other information as the Agent shall
reasonably request;
(n) together with the next delivery of a Receivables
Report after the Company becomes aware thereof, notice of any dispute
between any Third Party Payor and the Company, any Subsidiary or any
other Credit Party, with respect to any amounts due and owing that
singly, or when aggregated with all other similar disputes with other
Third Party Payors of the Company, the Subsidiaries and the other
Credit Parties, equals or exceeds $100,000, with an explanation in
reasonable detail of the reason for the dispute, all claims related
thereto and the amount in controversy;
(o) when required by such Section, the notices required
to be delivered to the Lender pursuant to Sections 5.08 and 5.09; and
(p) with reasonable promptness, such other information
and data with respect to the Company or any of its Subsidiaries or any
other Credit Party as from time to time may be reasonably requested by
any Lender.
SECTION 5.02. PAYMENT OF OBLIGATIONS. The Company (i) shall
pay and discharge, and cause each of its Subsidiaries to pay and discharge, at
or before maturity, all of their respective material obligations and
liabilities, including tax liabilities, except where the same may be the
subject of a Permitted Contest, (ii) shall maintain, and cause each of its
Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the
accrual of any of the same and (iii) shall not breach or permit any of its
Subsidiaries or any other Credit Party to breach, in any material respect, or
permit to exist any default under, the terms of any material lease, commitment,
contract, instrument or obligation to which it is a party, or by which its
properties or assets are bound, subject to Permitted Contests.
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF
EXISTENCE. The Company will continue, and will cause each of its Subsidiaries
to continue, to engage in business of the same general type as now conducted by
the Company and its Subsidiaries, and will preserve, renew and keep in full
force and effect, and will cause each Subsidiary to preserve, renew and keep in
full force and effect their respective corporate existence and their respective
rights, privileges and franchises necessary or desirable in the normal conduct
of business; provided that nothing contained in this Section shall be deemed to
prohibit any merger, consolidation or sale of assets that is otherwise
permitted under Section 6.06.
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SECTION 5.04. MAINTENANCE OF PROPERTY; INSURANCE. (a) The
Company will keep, and will cause each of its Subsidiaries to keep, all
property necessary in its business in good working order and condition,
ordinary wear and tear excepted.
(b) The Company will maintain, and will cause each of
its Subsidiaries and each other Credit Party to maintain, (i) physical damage
insurance on all real and personal property on an all risks basis (including
the perils of flood and earthquake where reasonably required and available at a
reasonable cost), covering the repair and replacement of all such property and
consequential loss coverage for business interruption and extra expense,
covering such risks, for amounts not less than those required by the Agent and
the Required Lenders from time to time in their sole good faith discretion, and
with deductible amounts not greater than those agreed to by the Agent and the
Required Lenders from time to time in their sole good faith discretion, (ii)
public liability insurance (including products/completed operations liability
coverage and professional malpractice insurance) covering such risks, for
amounts not less than those, and with deductible amounts not greater than
those, required by the Agent and the Required Lenders from time to time in
their sole good faith discretion, and (iii) such other insurance coverage in
such amounts and with respect to such risks as the Agent and Required Lenders
may reasonably request. All such insurance shall be provided by insurers having
an A.M. Best policyholders rating of not less than B+ or such other insurers as
the Agent and Required Lenders may approve in writing. The Company and each of
its Subsidiaries will cause each other Credit Party to comply with the
insurance requirements specified in the Management Agreement to which such
Credit Party is a party.
(c) On or prior to the Closing Date, the Company shall
cause the Agent to be named as an additional insured and loss payee on each
insurance policy required to be maintained pursuant to this Section 5.04. The
Company will deliver to the Lenders (i) on the Closing Date, a certificate from
the Company's insurance broker dated such date showing the amount of coverage
as of such date, and certifying that, in the opinion of such broker, such
amounts are reasonable and customary for companies of established repute
engaged in the same or a similar business, that such policies will include
effective waivers (whether under the terms of any such policy or otherwise) by
the insurer of all claims for insurance premiums against all loss payees and
additional insureds and all rights of subrogation against all loss payees and
additional insureds, and that if all or any part of such policy is canceled,
terminated or expires, the insurer will forthwith give notice thereof to each
additional insured and loss payee and that no cancellation, reduction in amount
or material change in coverage thereof shall be effective until at least 30
days after receipt by each additional insured and loss payee of written notice
thereof, (ii) upon the request of the Agent from time to time full information
as to the insurance carried, (iii) within five days of receipt of notice from
any insurer, a copy of any notice of cancellation, nonrenewal or material
change in coverage from that existing on the date of this Agreement and (iv)
forthwith, notice of any cancellation or nonrenewal of coverage by the Company,
any of its Subsidiaries or any other Credit Party.
(d) The Company will maintain a term life insurance
policy payable to the Agent for the ratable benefit of the Agent and the
Lenders in form and substance and issued by
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a life insurance company, in each case acceptable to the Agent in its sole good
faith discretion, with respect to the life of Thomas P. Lewis in an amount not
less than $2,000,000 and with respect to the life of Ronald L. Edmonds in the
amount of $1,000,000 (each a "KEY-PERSON LIFE INSURANCE POLICY"). Any proceeds
payable to the Company under each Key-Person Life Insurance Policy shall be
paid to the Agent for application against the Obligations in the manner
determined by the Agent.
SECTION 5.05. COMPLIANCE WITH LAWS. The Company will comply,
and will cause each of its Subsidiaries and each other Credit Party to comply,
with all applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including Environmental Laws, Healthcare Laws and
ERISA and the rules and regulations thereunder), except for such noncompliances
that, individually or when aggregated with all other noncompliances, could not
reasonably be expected to have a Material Adverse Effect.
SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The
Company will keep, and will cause each of its Subsidiaries to keep, proper
books of record and account in which full, true and correct entries shall be
made of all dealings and transactions in relation to its business and
activities and the business and activities of any Managed Practice; and will
permit, and will cause each of its Subsidiaries to permit, representatives of
any Lender, at the Lenders' expense, to visit and inspect any of their
respective properties including the site of any Managed Practice, to examine
and make abstracts or copies from any of their respective books and records
(including the books and records relating to any Managed Practice other than
confidential patient information), to conduct a collateral audit and analysis
of their respective inventories and accounts receivable and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants, all at such reasonable times and
as often as may reasonably be desired.
SECTION 5.07. USE OF PROCEEDS. The proceeds of Working
Capital Loans shall be used by the Company solely for working capital needs of
the Company and its Subsidiaries. The proceeds of Acquisition Loans shall be
used by the Company solely to fund Acquisitions consented to by the Agent and
the Lenders in their sole good faith discretion and to refund certain Debt
outstanding on the Closing Date. None of such proceeds will be used in
violation of any applicable law or regulation.
SECTION 5.08. FURTHER ASSURANCES. The Company will, and the
Company will cause each of its Subsidiaries and use its best efforts to cause
each other Credit Party to, at the Company's cost and expense, cause to be
promptly and duly taken, executed, acknowledged and delivered all such further
acts, documents and assurances (x) as may from time to time be necessary or as
the Required Lenders may from time to time reasonably request in order to carry
out the intent and purposes of the Financing Documents and the transactions
contemplated thereby, including all such actions to establish, preserve,
protect and perfect the estate, right, title and interest of the Lenders in and
to the Collateral (including Collateral acquired after the date hereof),
including first priority Liens thereon, subject only to Permitted Liens and (y)
as the Required Lenders may from time to time reasonably request, to
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establish, preserve, protect and perfect first priority Liens in favor of the
Lenders on any and all assets of the Company and its Subsidiaries (and on the
Receivables of the other Credit Parties whose Receivables are required to be
pledged to the Lenders under the Financing Documents), now owned or hereafter
acquired, that are not Collateral on the date hereof. The Company shall
promptly give notice to the Agent of the acquisition after the Agreement Date
by the Company or any Subsidiary of any real property (including leaseholds in
respect of real property), trademark, copyright or patent. The Company will
comply in all respects with its obligations under the Warrants and the
Warrantholders Rights Agreement and shall take all steps as shall be necessary
to insure that NationsCredit and any subsequent holder thereof receives all of
the benefits which it is intended to receive thereunder. Upon the release or
termination of the security interest in favor of Paul E. Garland, M.D. and Paul
E. Garland, M.D., P.A. in the outstanding shares of the capital stock of
Capital Eye Surgery Center, Inc. pledged by Omega Health Systems of Florida,
Inc. to such Persons, the Company shall cause such Subsidiary (or its
successors or assigns) to pledge such shares to the Agent as collateral under
the Security Documents, pursuant to such documents and instruments (including
delivery of the pledged share certificate(s) and irrevocable stock powers
executed in blank) as the Lenders may request, all in form and substance
reasonably satisfactory to the Agent.
SECTION 5.09. BOARD MEETINGS. The Company will notify the
Lenders of all meetings and actions by written consent of the board of
directors of the Company and each committee thereof at the same time and in the
same manner as notice of any meetings of such board or committee is required to
be given to its directors who do not waive such notice (or, if such action
requires no notice, then 10 days written notice thereof describing the matters
upon which action is to be taken). The Lenders shall have the right to send two
representatives selected by them to each such meeting, who shall be permitted
to attend such meeting and any adjournments thereof (other than any meeting or
portion of such meeting devoted to discussion of the Lenders solely in their
respective capacities as holders of the Notes).
SECTION 5.10. LENDERS' MEETINGS. Within 45 days after the end
of each fiscal quarter, the Company will conduct a meeting of the Lenders to
discuss such fiscal quarter's results and the financial condition of the
Company at which shall be present the chief executive officer and the chief
financial officer of the Company and such other officers of the Company as the
Company's chief executive officer shall designate. Such meetings shall be held
at a time and place convenient to the Lenders and to the Company.
SECTION 5.11. HEDGING FACILITIES. If the aggregate principal
amount of Revolving Credit Loans outstanding reaches at any time an amount
equal to or greater than $10,000,000, the Required Lenders may require that the
Company, at its sole cost and expense, enter into and thereafter maintain in
full force and effect one or more interest rate cap agreements in such amounts
and on such terms as shall reasonably be requested by the Agent and the
Required Lenders.
SECTION 5.12. HAZARDOUS MATERIALS; REMEDIATION. The Company
will (i) promptly give notice to the Lenders in writing of any complaint,
order, citation, notice or
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other written communication from any Person with respect to, or if the Company
becomes aware of, (x) the existence or alleged existence of a violation of any
applicable Environmental Law or the incurrence of any liability, obligation,
loss, damage, cost, expense, fine, penalty or sanction or the requirement to
commence any remedial action resulting from or in connection with any air
emission, water discharge, noise emission, Hazardous Material or any other
environmental, health or safety matter at, upon, under or within any of the
properties now or previously owned, leased or operated by the Company, any of
its Subsidiaries or any other Credit Party, or due to the operations or
activities of the Company, any Subsidiary or any other Person on or in
connection with any such property or any part thereof or (y) any release on any
of such properties of Hazardous Materials in a quantity that is reportable
under any applicable Environmental Law; (ii) promptly comply, subject to
Permitted Contests, with any governmental requirements requiring the removal,
treatment or disposal of such Hazardous Materials or Hazardous Materials
Contamination and provide evidence satisfactory to the Required Lenders of such
compliance; and (iii) provide the Lenders, within 30 days after demand therefor
by the Required Lenders, with a bond, letter of credit or similar financial
assurance evidencing to the reasonable satisfaction of the Required Lenders
that sufficient funds are available to pay the cost of removing, treating and
disposing of such Hazardous Materials or Hazardous Materials Contamination and
discharging any assessment which may be established on any such property as a
result thereof where the projected cost thereof exceeds $100,000.
SECTION 5.13. COLLATERAL REPORTS. The Company shall keep, and
shall cause each of its Subsidiaries to keep, accurate and complete records of
its accounts receivable and the accounts receivable of each other Credit Party
in at least so much detail as to enable the Company to provide the Receivables
Reports and other information described in Section 5.01.
SECTION 5.14. COLLECTIONS; RIGHT TO NOTIFY ACCOUNT DEBTORS.
At any time following the occurrence of an Event of Default and during the
continuance thereof, in addition to the Lenders' rights under the Security
Documents, the Company hereby authorizes the Agent, at any time, to (i) notify
any or all Account Debtors that the Receivables of the Company and its
Subsidiaries and the other Credit Parties who have executed any Security
Document have been assigned to the Agent and that the Agent has a security
interest therein and (ii) to the extent permitted by applicable law direct such
Account Debtors to make all payments due from them to the Company, its
Subsidiaries or such other Credit Parties upon such Receivables directly to the
Agent or to a lockbox designated by the Agent. The Agent shall promptly furnish
the Company with a copy of any such notice sent. Any such notice, in the
Agent's sole discretion, may be sent on the Company's, such Subsidiaries' or
such other Credit Parties' stationery, in which event the Company shall, or
shall cause such Subsidiary or such other Credit Party to, if requested by the
Agent, co-sign such notice with the Agent. At any subsequent time that no Event
of Default is continuing, the Agent will withdraw such notice at the Company's
request.
SECTION 5.15. EMPLOYMENT CONTRACTS; ENFORCEMENT OF COVENANTS
NOT TO COMPETE. The Company shall cause each Person who is or becomes a member
of senior
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management to execute and deliver a non-compete agreement that is in form and
substance satisfactory to the Agent in its sole good faith discretion. The
Company and each of its Subsidiaries shall preserve, protect and defend, to the
extent permitted by applicable law, all of its rights with respect to any such
agreement.
SECTION 5.16. LANDLORD AND WAREHOUSEMAN WAIVERS. Upon the
request of the Agent, the Company shall deliver to the Agent waivers of
contractual and statutory landlord's, landlord's mortgagee's and warehouseman's
Liens in form and substance satisfactory to the Agent under each existing
lease, warehouse agreement or similar agreement to which the Company or any
Subsidiary is a party; provided that such waivers will in any event be
incorporated when the existing lease, warehouse agreement or similar agreement
is amended, renewed or extended and the Company will obtain waivers of both
contractual and statutory landlord's, landlord's mortgagee's and warehouseman's
Liens in form and substance satisfactory to the Agent in connection with each
new lease, warehouse agreement or similar agreement entered into by the Company
or any Subsidiary.
SECTION 5.17. ADDITIONAL SUBSIDIARIES. Promptly after the
creation or acquisition of any Subsidiary by the Company, the Company shall
cause to be executed and delivered, (i) a Subsidiary Guaranty Agreement and a
Subsidiary Security Agreement from such Subsidiary, (ii) one or more
Professional Service Provider Security Agreements for the Managed Practices
acquired, if any, and (iii) such other related documents (including documents
relating to any additional Credit Parties) as the Lenders may request, all in
form and substance reasonably satisfactory to the Agent.
SECTION 5.18. ACCREDITATION AND LICENSING. The Company shall,
and shall cause each other Credit Party to, keep itself fully licensed with all
licenses required to operate such Person's business under applicable law and
maintain such Person's qualification for participation in, and payment under,
Medicare, Medicaid, CHAMPUS, CHAMPVA and any other federal, state or local
governmental program or private program providing for payment or reimbursement
for services rendered by such Person, except to the extent that the loss or
relinquishment of such qualification would not or could not reasonably be
expected to have or result in a Material Adverse Effect; provided, however,
that nothing in this Agreement shall require the Company or any other Credit
Party to participate in the CHAMPUS or CHAMPVA programs if it elects not to
accept patients covered by such programs. The Company will promptly furnish or
cause to be furnished to the Agent copies of all reports and correspondence it
or any Subsidiary or Credit Party sends or receives relating to any loss or
revocation (or threatened loss or revocation) of any qualification described in
this Section.
SECTION 5.19 CASH MANAGEMENT; UNDERTAKING RESPECTING
POST-CLOSING MATTERS.
(a) The Company will and will cause each of its
Subsidiaries and each other Credit Party to establish and maintain the cash
management system described below:
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(i) On or prior to the Date that is 90 days following
the Agreement Date (the "COMPLIANCE DATE"), each
Managed Practice that constitutes a Managed Practice
on the Agreement Date (an "EXISTING MANAGED
PRACTICE") shall have executed and delivered to the
Company and/or to the relevant Subsidiary that is
the manager of such practice (such Subsidiary and
each other Subsidiary that is the manager of a
Managed Practice, a "SUBSIDIARY MANAGER"), and there
shall thereafter at all times remain in full force
and effect, a Managed Practice Security Agreement
granting to the Company and/or the applicable
Subsidiary Manager a security interest in all of the
Receivables of such Managed Practice (such
Receivables and the Receivables of each other
Managed Practice, the "MANAGED PRACTICE
RECEIVABLES"). On or prior to the Compliance Date,
each Existing Managed Practice shall have executed
and delivered a Payment Direction in the form of
EXHIBIT M (a "PAYMENT DIRECTION") with respect to
the proceeds of such Managed Practice's Managed
Practice Receivables, and shall thereafter keep such
Payment Direction in full force and effect. On or
prior to the Compliance Date, each Existing Managed
Practice shall have also caused each bank at which
such Managed Practice maintains accounts into which
the proceeds of its Managed Practice Receivables are
initially deposited to have executed and delivered
to the Agent a Bank Acknowledgment in the form of
EXHIBIT N (a "BANK ACKNOWLEDGMENT"). From and after
the Compliance Date, each Existing Managed Practice
shall at all times maintain such bank accounts and
cause the deposit, in the form received, of all cash
proceeds of its Managed Practice Receivables, and no
other funds, into accounts that are the subject of a
fully executed Payment Direction and Bank
Acknowledgment that are in full force and effect, or
such Managed Practice shall have entered into a
Professional Service Provider Security Agreement or
other arrangements satisfactory to the Agent, and at
no time shall any Managed Practice take any action
inconsistent with such requirement.
(ii) On or prior to the Compliance Date, each Existing
Managed Practice shall have executed and delivered
to the Company and/or the relevant Subsidiary
Manager such Uniform Commercial Code Financing
Statements and other filings as shall be necessary
or reasonably desirable, in the judgment of the
Agent, to perfect the Company's and/or such
Subsidiary Manager's security interest therein as
granted pursuant to the Managed Practice Security
Agreement and to evidence and perfect the further
assignment
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thereof to the Agent pursuant to the Subsidiary
Security Agreement.
(iii) (x) To the extent not prohibited by Applicable
Law and except to the extent that the Agent and the
Required Lenders shall have otherwise agreed in
writing, the Company and/or each Subsidiary Manager
shall use its reasonable best efforts to cause each
Existing Managed Practice to execute and deliver to
the Agent a Professional Service Provider Security
Agreement on or before the Compliance Date, together
with all documents, instruments and exhibits
required to be delivered in connection therewith,
and all filings reasonably requested by the Agent to
perfect and protect the security interests created
thereunder for the benefit of the Agent and the
Lenders.
(y) To the extent not prohibited by Applicable
Law and except to the extent that the Agent and the
Required Lenders shall have otherwise agreed in
writing, the Company and/or each Subsidiary Manager
shall cause each Managed Practice that becomes a
Managed Practice on or after the Agreement Date to
execute and deliver to the Agent a Professional
Service Provider Security Agreement on the date such
Managed Practice becomes a Managed Practice,
together with all documents, instruments and
exhibits required to be delivered in connection
therewith, and all filings reasonably requested by
the Agent to perfect and protect the security
interests created thereunder for the benefit of the
Agent and the Lenders.
(iv) On or prior to the Compliance Date, and from and
after such date, each of the Company and each
Subsidiary Manager will cause all proceeds of
Managed Practice Receivables to be handled in
compliance with all applicable state and federal
laws, to the reasonable satisfaction of the Agent
and the Required Lenders.
(b) From and after the Compliance Date, the Company will
cause each Existing Managed Practice that is not currently organized as a
professional corporation or association, to reorganize in such form, or the
equivalent corporate form thereof under the applicable laws of the state in
which such Existing Managed Practice operates, and will cause each Existing
Managed Practice that is not currently subject to such restrictions to become
and remain subject to restrictions on the incurrence or existence of Liens and
Debt, which form of organization and restrictions shall in each case be in form
and in substance reasonably satisfactory to the Agent and the Required Lenders.
Each Managed Practice that becomes a Managed Practice on or after the Agreement
Date will be organized as a professional corporation or association or the
equivalent corporate form thereof under the applicable laws of the state in
which such Managed Practice operates, and each such Managed Practice will be,
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and at all times remain, subject to restrictions on the incurrence or existence
of Liens and Debt, which form of organization and restrictions on Debt and
Liens shall in each case be in form and in substance satisfactory to the Agent
and the Required Lenders.
(c) On or prior to the Compliance Date, the Company will
cause each Person who is an Existing Managed Practice, and each physician or
optometrist who is an employee of any Managed Practice (a "PROFESSIONAL
EMPLOYEE"), to execute, and at all times thereafter to remain subject to, a
non-compete agreement or a buyback arrangement or other arrangement, in each
case in form and substance satisfactory to the Agent and the Required Lenders,
and will cause each Existing Managed Practice that is a professional
corporation or association or similar entity, to cause to be assigned to the
relevant Subsidiary Manager, all such agreements or arrangements between such
Managed Practice and its Professional Employees upon such terms and conditions
as the Agent shall reasonably require. The Company and its Subsidiaries shall
cause each Person who becomes a Managed Practice on or after the Agreement Date
and each Professional Employee thereof to execute at the time such Person
becomes a Managed Practice or Professional Employee, and at all times
thereafter to remain subject to, a non-compete agreement or a buyback
arrangement or other arrangement, in each case in form and substance
satisfactory to the Agent and the Required Lenders. Each such agreement or
arrangement between a Managed Practice and any of its Professional Employees
shall be assigned to the relevant Subsidiary Manager upon such terms and
conditions as the Agent shall reasonably require.
(d) On or prior to the date which is fourteen (14) days
after the Agreement Date, the Company will, and will cause each of its
Subsidiaries to, to the extent not delivered to the Agent on or before the
Agreement Date, deliver to the Agent:
(i) copies of the Key-Person Life Insurance
Policies, in form and substance satisfactory to the Agent in
its sole good faith discretion, and a duly executed
instrument of assignment assigning the Key-Person Life
Insurance Policies to the Agent as collateral under the
Security Documents;
(ii) any and all Lockbox Agreements required
pursuant to the Security Agreements, in each case duly
executed by all parties thereto; and
(iii) the certificates of insurance required to
be delivered pursuant to Section 5.04(c).
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ARTICLE VI
NEGATIVE COVENANTS
The Company agrees that, so long as any Lender has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 6.01. DEBT. The Company will not, and will not permit
any of its Subsidiaries or any other Credit Party to, directly or indirectly,
create, incur, assume, guarantee or otherwise become or remain directly or
indirectly liable with respect to, any Debt, except for:
(a) Debt of the Company, any Subsidiary or any Credit
Party outstanding on the Agreement Date as set forth in SCHEDULE 6.01;
(b) Debt of the Company under the Financing Documents;
(c) Purchase money Debt of the Company, any of its
Subsidiaries or any other Credit Party incurred or assumed for the
purpose of financing all or any part of the cost of acquiring any
fixed asset (including through Capital Leases), in an aggregate
principal amount at any time outstanding not greater than $4,000,000
less the outstanding principal amount of Debt listed in Part A of
SCHEDULE 6.01;
(d) Debt of the Company, any of its Subsidiaries or any
other Credit Party to the Company, a wholly-owned Subsidiary of the
Company, or of any Subsidiary of the Company to the Company;
(e) Debt constituting liabilities under letters of
credit, surety bonds or similar instruments issued in the ordinary
course of business to secure bids, purchase orders, statutory
obligations such as workers compensation insurance or sales tax bonds,
operating leases and similar obligations (but not Debt), provided that
the aggregate outstanding obligation (whether fixed or contingent,
drawn or undrawn) of the Company, its Subsidiaries and the other
Credit Parties under all such instruments shall not at any time exceed
$500,000;
(f) Purchase money Debt of the Company incurred in
connection with an acquisition in accordance with the terms and
conditions of Section 6.07, which Debt shall be subordinated in all
respects to any and all Debt of the Company to the Agent and the
Lenders, upon terms and conditions satisfactory to the Lenders, and
the incurrence of which Debt does not result in a Default or an Event
of Default;
(g) Debt of any Existing Managed Practice in an
aggregate amount for all such Managed Practices not to exceed at any
time outstanding $500,000, provided that this Section 6.01 shall not
apply to, and there shall not be included in such aggregate
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limit, the amount of Debt of any individual Person that is a Managed
Practice so long as such Debt is not secured by a Lien on any asset of
the medical or optometry practice of such Person; and
(h) Other Debt of the Company and its Subsidiaries in an
aggregate principal amount (whether fixed or contingent, drawn or
undrawn) not to exceed at any time $50,000.
SECTION 6.02. NEGATIVE PLEDGE. None of the Company, any
Subsidiary or any other Credit Party will create, assume or suffer to exist any
Lien on any asset now owned or hereafter acquired by it, except the following
(collectively, the "PERMITTED LIENS"):
(a) any Lien on any asset securing Debt permitted under
Section 6.01(c) incurred or assumed for the purpose of financing all
or any part of the cost of acquiring such asset, provided that such
Lien attaches to such asset concurrently with or within 90 days after
the acquisition thereof, and provided further that the principal
amount of the Debt secured shall not be less than 70% of the value of
the asset subject to such Lien;
(b) Liens existing on the Agreement Date securing Debt
permitted by Section 6.01(a) to the extent described in SCHEDULE 6.01;
(c) Liens arising in the ordinary course of its business
which (i) do not secure Debt, (ii) do not secure any obligation in an
amount exceeding $50,000 and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use
thereof in the operation of its business;
(d) Liens on the assets of any Subsidiary or Managed
Practice securing Debt or other liabilities to the Company or one or
more wholly-owned Subsidiaries of the Company;
(e) Liens on the assets of a Managed Practice securing
Debt permitted by Section 6.01(g), provided that this Section 6.02
shall not apply to or restrict Liens on the assets of any individual
Person that is a Managed Practice so long as such Lien does not attach
to any asset used in, or any Receivable arising out of, the medical or
optometry practice of such Person; and
(f) Liens created by the Security Documents.
SECTION 6.03. CAPITAL STOCK. The Company will not permit any
Subsidiary to issue any shares of capital stock except shares of capital stock
issued by any Subsidiary to the Company which are delivered to the Agent in
pledge for the benefit of the Agent and the Lenders.
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SECTION 6.04. RESTRICTED PAYMENTS. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, declare, order, pay,
make or set apart any sum for any Restricted Payment; provided that the
foregoing shall not restrict or prohibit dividends or distributions by the
Company at such times or in such amounts as are necessary to permit purchases
of shares of (or options to purchase shares of) Common Stock from employees of
the Company, any Subsidiary or any Managed Practice upon their death,
termination or retirement, so long as, (x) before and after giving effect to
any such dividend or distribution for such purpose, no Default shall have
occurred and be continuing and (y) such purchases or payments after the date
hereof do not exceed in any one Fiscal Year $75,000.
SECTION 6.05. ERISA. The Company will not, and will not
permit any of its Subsidiaries to:
(a) engage in any transaction in connection with which
the Company or any of its Subsidiaries could be subject to any
material liability arising from either a civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975
of the Code;
(b) terminate any Plan in a manner, or take any other
action, which could result in any material liability of any member of
the ERISA Group to the PBGC;
(c) fail to make full payment when due of all amounts
which, under the provisions of any Plan, it is required to pay as
contributions thereto, or permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Plan;
(d) permit the present value of all benefit liabilities
under all Plans to exceed the fair market value of the assets of such
Plans; or
(e) fail to make any payments to any Multiemployer Plan
that it may be required to make under any agreement relating to such
Multiemployer Plan or any law pertaining thereto.
SECTION 6.06. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS.
The Company will not, and will not permit any of its Subsidiaries to, (i)
consolidate or merge with or into any other Person other than the merger of a
wholly-owned Subsidiary with and into the Corporation, with the Corporation the
surviving entity, or the merger of a wholly-owned Subsidiary with and into
another wholly-owned Subsidiary, or (ii) sell, lease or otherwise transfer,
directly or indirectly, any of its or their assets, other than (x) sales of
inventory in the ordinary course of their respective businesses, (y)
dispositions of Temporary Cash Investments and (z) other dispositions for cash
and fair value of assets that the board of directors of the Company determines
in good faith are no longer used or useful in the business of the Company and
its Subsidiaries, provided that immediately after any such disposition, the
aggregate fair market value of all such assets disposed of pursuant to this
clause (z) after the date hereof does not exceed $500,000 and the aggregate
fair market value of all such assets
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disposed of during the Fiscal Year in which such disposition is made does not
exceed $200,000.
SECTION 6.07. PURCHASE OF ASSETS, INVESTMENTS. The Company
will not, and will not permit any Subsidiary to, acquire any assets other than
in the ordinary course of business, or to make, acquire or own any Investment
in any Person other than (a) Temporary Cash Investments, (b) Investments in
wholly-owned Subsidiaries, (c) loans or advances to or for the benefit of
Managed Practices in the ordinary course of business, consistent with past
practice pursuant to Management Agreements upon the terms and conditions
specified therein (provided that the aggregate amount of such loans or advances
shall not exceed $500,000 at any time outstanding and such loans or advances
shall be evidenced by a note which shall be delivered to the Agent in pledge as
security for the Obligations), and (d) the acquisition of an optometry or
ophthalmology practice or practice group, or the assets thereof, approved by
the Required Lenders in their sole good faith discretion. Without limiting the
generality of the foregoing, the Company will not, and will not permit any
Subsidiary to, (i) acquire or create any Subsidiary without the consent of the
Required Lenders (except that such consent shall not be required to create a
corporate Subsidiary that is wholly owned by the Company and that is formed
solely for the purpose of an acquisition permitted pursuant to the preceding
sentence) and arrangements satisfactory to the Required Lenders for (w) a
pledge of the stock of such Subsidiary to the Agent for the benefit of the
Lenders, (x) such Subsidiary to execute a joinder to the Subsidiary Guaranty
Agreement, (y) such Subsidiary to execute a joinder to the Subsidiary Security
Agreement and all financing statements and other documents and instruments
required thereunder, and (z) cause each party to a Management Agreement with
such Subsidiary to execute a Professional Service Provider Security Agreement
and all financing statements, documents and instruments required in connection
therewith, or (ii) engage in any joint venture or partnership.
SECTION 6.08. TRANSACTIONS WITH AFFILIATES. The Company will
not, and will not permit any Subsidiary or any other Credit Party to, directly
or indirectly, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company, on terms that are less favorable to
the Company, such Subsidiary or such Credit Party, as the case may be, than
those which might be obtained at the time from a Person who is not an Affiliate
of the Company.
SECTION 6.09. AMENDMENTS OR WAIVERS. Without the prior
written consent of the Required Lenders, the Company will not, nor will it
permit any Subsidiary to, agree to (i) any amendment to or waiver of the
certificate of incorporation or Bylaws of the Company or any Financing Document
or (ii) any other amendment to or waiver of any material contract constituting
a part of the Collateral, including any Management Agreement in any manner that
could reasonably be expected to have a Material Adverse Effect.
SECTION 6.10. FISCAL YEAR. The Company shall not change its
fiscal year from a fiscal year ending December 31.
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SECTION 6.11. MANAGEMENT COMPENSATION. The Company shall not,
and shall not permit any Subsidiary to, directly or indirectly, pay or become
obligated to pay, any compensation for services in any form to or for the
account of any Person listed on SCHEDULE 3.01(O), except as expressly provided
on such Schedule. The limitation set forth in the preceding sentence shall not
apply to payments in the form of stock or stock options.
SECTION 6.12. INTEREST COVERAGE. The Company shall not permit
the ratio, calculated on the last day of any fiscal quarter for the number of
consecutive fiscal quarters then most recently ended since the Closing Date
(considered as a single accounting period, but not to exceed four quarters), of
(i) Consolidated Free Cash Flow to (ii) the aggregate interest charges incurred
by the Company and its Consolidated Subsidiaries for such period, whether
expensed or capitalized, including the portion of any obligation under Capital
Leases allocable to interest expense in accordance with GAAP and the portion of
any debt discount or premium (but not expenses of issuance) that shall be
amortized in such period, to be less than the ratio set forth below opposite
the period in which such last day shall fall:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
1997 3.0:1
1998 3.25:1
1999 and thereafter 3.50:1
</TABLE>
SECTION 6.13. CAPITAL EXPENDITURES. The aggregate amount of
Consolidated Capital Expenditures for any period of four consecutive fiscal
quarters shall not exceed 1% of the Consolidated Net Revenues of the Company
and its Consolidated Subsidiaries. Any amounts permitted to be spent for
Consolidated Capital Expenditures for any such period in excess of the amounts
actually expended during such period may be carried forward to the next period
of four fiscal quarters as permitted Consolidated Capital Expenditures during
such period.
SECTION 6.14. TOTAL DEBT SERVICE COVERAGE RATIO. The
percentage ratio, calculated on the last day of any fiscal quarter for the
number of consecutive fiscal quarters then most recently ended since the
Closing Date (considered as a single account period, but not to exceed four
quarters), of (i) Consolidated Free Cash Flow to (ii) Total Debt Service, shall
not be less than 1.10:1.
SECTION 6.15. DEBT TO CAPITALIZATION. The ratio of (i)
Consolidated Total Debt at any time to (ii) Consolidated Capitalization shall
not exceed the percentage shown below at any time during the period set forth
below opposite such percentage:
<TABLE>
<CAPTION>
FISCAL YEAR PERCENTAGE
<S> <C>
1997 50%
1998 45%
1999 40%
thereafter 25%
</TABLE>
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SECTION 6.16. TOTAL DEBT TO EBITDA. The ratio of (i)
Consolidated Total Debt at any time to (ii) EBITDA for the four consecutive
fiscal quarters then most recently ended (considered as a single accounting
period), shall not exceed the ratio 3.50:1.
SECTION 6.17. MINIMUM NET WORTH. At no time shall
Consolidated Net Worth be less than the sum of:
(i) the Consolidated Net Worth of the Company and the
Consolidated Subsidiaries as at December 31, 1996,
plus
(ii) 85% of the positive amount of Consolidated Net
Income for each fiscal period ended after December
31, 1996, plus
(iii) the Net Proceeds of Capital Stock received following
the Agreement Date.
SECTION 6.18. TRANSITION RULES. In delivering pro forma
covenant calculations for or including any entity that is the target of an
acquisition (whether such information is required pursuant to Section 3.02,
Section 6.04, Section 6.07 or otherwise) or when including an acquisition
target that has not been under management by the Company or one of its
Subsidiaries for an entire fiscal quarter in calculating financial covenant
compliance, the Company shall use the actual EBITDA for the target over the
relevant period, as if such target had been a Subsidiary of the Company during
such period. In calculating compliance with Section 6.16, to the extent such
target has been under management by the Company or one of its Subsidiaries for
one or more entire fiscal quarters but less than one year, the Company shall
calculate EBITDA and net revenues with respect to the target based on the
annualized actual performance of the target during the most recently ended
number of complete quarters that such target has been under management of the
Company or one of its Subsidiaries.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT. If any one or more of the
following events (each an "EVENT OF DEFAULT") shall occur and be continuing for
any reason whatsoever (whether voluntary or involuntary, by operation of law or
otherwise):
(a) the Company shall fail to pay any principal,
interest or premium on any Note, or any fees or any other amount
payable hereunder when due;
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(b) the Company shall fail to observe or perform any
covenant contained in Section 5.13, Section 5.19 or Article VI hereof,
or Section 3(B) of the Pledge Agreement or the Company, or any of its
Subsidiaries shall fail to perform or observe any covenant contained
in Section 5 or Sections 4(A), (E) or (I) of the Security Agreements;
(c) the Company, any of its Subsidiaries or any other
Credit Party shall fail to observe or perform any covenant or
agreement contained in the Financing Documents (other than those
covered by clause (a) or (b) above) for 30 days after notice thereof
has been given to the Company by the Agent;
(d) any representation, warranty, certification or
statement made by the Company, any of its Subsidiaries or any other
Credit Party in any Financing Document or in any certificate,
financial statement or other document delivered pursuant to the
Financing Documents shall prove to have been incorrect in any respect
(or in any material respect if such representation, warranty,
certification or statement is not by its terms already qualified as to
materiality) when made (or deemed made);
(e) the Company, any of its Subsidiaries or any other
Credit Party shall fail to make any payment in respect of any Debt
(other than the Notes) the aggregate outstanding principal amount of
which Debt, either singly or when aggregated with all other Debt with
respect to which the Company, any of its Subsidiaries or any other
Credit Party has failed to make a payment equals or exceeds $100,000
(such Debt, hereinafter "MATERIAL DEBT");
(f) any event or condition shall occur which (i) results
in the acceleration of the maturity of any Material Debt of the
Company, any of its Subsidiaries or any other Credit Party, or (ii)
enables (or, with the giving of notice or lapse of time or both, would
enable) the holder of such Debt or any Person acting on such holder's
behalf to accelerate the maturity thereof, or (iii) results in a
violation of, or a default under, any provision of the certificate of
incorporation of the Company, any of its Subsidiaries or any other
Credit Party;
(g) Company, any of its Subsidiaries or any other Credit
Party shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
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(h) an involuntary case or other proceeding shall be
commenced against the Company, any of its Subsidiaries or any other
Credit Party seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, and such involuntary case
or other proceeding shall remain undismissed and unstayed for a period
of 90 days; or an order for relief shall be entered against the
Company, any of its Subsidiaries or any other Credit Party under the
federal bankruptcy laws as now or hereafter in effect;
(i) any one or more members of the ERISA Group shall
fail to pay when due an amount or amounts aggregating in excess of
$100,000 which it shall have become liable to pay under Title IV of
ERISA; or notice of intent to terminate a Material Plan shall be filed
under Title IV of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose
liability (other than for premiums under Section 4007 of ERISA) in
respect of, or to cause a trustee to be appointed to administer any
Material Plan; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any Material
Plan must be terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a
current payment obligation in excess of $100,000;
(j) a judgment or order for the payment of money which
when aggregated with other such judgments or orders equals or exceeds
$100,000, shall be rendered against the Company, any of its
Subsidiaries or any other Credit Party and such judgment or order
shall continue unsatisfied and unstayed for a period of 10 days or any
judgment shall be rendered against the Company, any Subsidiary or any
other Credit Party that exceeds by more than $50,000 any insurance
coverage applicable thereto;
(k) except as the result of any transfer made pursuant
to the Pledge Agreement, the Company shall fail at any time to be the
record and beneficial owner of 100% of the issued and outstanding
capital stock any Subsidiary, free and clear of any Lien other than
inchoate tax Liens and Liens in favor of the Agent and the Lenders;
any person or group of persons (within the meaning of Rule 13d-3
promulgated by the Securities and Exchanges Commission under the
Securities Exchange Act of 1934, as amended), other than the current
owners, other employees of the Company and its Subsidiaries pursuant
to employee stock ownership plans and other than doctors who acquire
Common Stock as consideration for acquisitions, shall have acquired
beneficial ownership (within the meaning of such Rule 13d-3) of 5% or
more of the Common Stock of the Company; or Andrew W. Miller, Thomas
P. Lewis or Ronald L. Edmonds shall cease to perform the functions of
Chairman of the Board of Directors,
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the Chief Executive Officer or Chief Financial Officer, respectively,
of the Company, and a successor shall not have been appointed by the
Company and approved by the Required Lenders within 90 days
thereafter, or Andrew W. Miller or Thomas P. Lewis or any affiliate
thereof, shall cease to own beneficially at least two-thirds of the
shares (determined assuming the exercise of all options or warrants to
purchase Common Stock and adjusted for stock splits, combinations and
similar events) of each class of Common Stock owned by each such
Person on the Agreement Date; or, during any period of twelve
consecutive calendar months, individuals who were directors of the
Company on the first day of such period shall cease to constitute a
majority of the board of directors of the Company;
(l) (i) the auditor's report or reports on the audited
statements delivered pursuant to Section 5.01 shall include any
material qualification (including with respect to the scope of audit)
or exception;
(m) the Lien created by any of the Security Documents
shall at any time fail to constitute a valid and perfected Lien on any
portion of the Collateral purported to be secured thereby, subject to
no prior or equal Lien except Permitted Liens, or the Company, any of
its Subsidiaries or any other Credit Party shall so assert in writing;
(n) the Company, any of its Subsidiaries or any other
Credit Party shall be prohibited or otherwise restrained from
conducting the business theretofore conducted by it in any manner that
has or could reasonably expected to have or result in a Material
Adverse Effect by virtue of any determination, ruling, decision,
decree or order of any court or governmental authority of competent
jurisdiction and such determination, ruling, decision, decree or order
remains unstayed and in effect for any period of 10 days beyond any
period for which any business interruption insurance policy of the
Company, such Subsidiary or such Credit Party shall provide full
coverage to the such person of any losses and lost profits; or
(o) any of the Financing Documents shall for any reason
fail to constitute the valid and binding agreement of any party
thereto to the extent described in Section 4.03, or any such party
shall so assert in writing;
then, and in every such event and at any time thereafter during the continuance
of such event, the Agent shall if requested by the Required Lenders, (i) by
notice to the Company terminate the Commitments and they shall thereupon
terminate and/or (ii) by notice to the Company declare the Notes (together with
accrued interest thereon) to be, and the Notes shall thereupon become,
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company; provided
that in the case of any of the Events of Default specified in clause (g) or (h)
above with respect to the Company, without any notice to the Company or any
other act by the Agent or the Lenders, the Commitments shall thereupon
terminate and each Note (together with accrued interest thereon) shall become
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immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Company.
ARTICLE VIII
FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS
SECTION 8.01. FEES. (a) Participation Fees. On the Closing
Date, the Company shall pay to the Lenders a fee in an aggregate amount (for
all Lenders) equal to the sum of (i) $150,000, minus (ii) the balance, if any,
of the good faith deposit of $25,000 previously paid by the Company in
connection with the initial proposal letter and the fee previously paid by the
Company in connection with the Commitment Letter, in each case after payment of
all costs and expenses of the negotiation, preparation and execution of the
Financing Documents and the consummation of the transactions contemplated
thereby.
(b) Unused Commitment Fee. During the period from the
Agreement Date through the Availability Termination Date, the Company shall pay
the Agent for the ratable account of the Lenders a fee at the rate of 0.50% per
annum on the daily average amount by which the Revolving Credit Commitment
exceeds the aggregate outstanding principal amount of its Revolving Credit
Loans for each day. Accrued fees under this Section shall be payable quarterly
in arrears on each Quarterly Date prior to the Availability Termination Date
and on such date.
SECTION 8.02. COMPUTATION OF INTEREST AND FEES. Commitment
fees pursuant to Section 8.01(b) and all interest hereunder and under the Notes
shall be calculated on the basis of a 360-day year for the actual number of
days elapsed.
SECTION 8.03. GENERAL PROVISIONS REGARDING PAYMENTS. All
payments (including prepayments) to be made by the Company under any Financing
Document, including payments of principal of and premium and interest on the
Notes, fees, expenses and indemnities, shall be made without set-off or
counterclaim and in immediately available funds. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension. The Company shall make all payments in immediately
available funds to each Lender's Payment Account before 11:00 a.m. (New York
City time) on the date when due. Each payment (including prepayments) by the
Company on account of principal of and interest on any Loans shall be made pro
rata according to the respective outstanding principal amounts of Loans held by
each Lender. All amounts payable by the Company hereunder or under any other
Financing Document not paid when due (other than payments of principal and
interest on the Notes, which shall bear interest as set forth therein) shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the Default Rate.
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SECTION 8.04. EXPENSES. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to pay on demand
(i) all costs and expenses of preparation of this Agreement, the other
Financing Documents and of the Company's, each Subsidiary's and each other
Credit Party's performance of and compliance with all agreements and conditions
contained herein and therein, (ii) the reasonable fees, expenses and
disbursements of counsel to, and independent appraisers and consultants
retained by, the Lenders in connection with the negotiation, preparation,
execution and administration of this Agreement, the other Financing Documents
and any amendments hereto or thereto and waivers hereof and thereof, (iii) all
costs and expenses of creating, perfecting and/or maintaining the Liens
pursuant to the Financing Documents, including filing and recording fees and
expenses, the costs of any bonds required to be posted in respect of future
filing and recording fees and expenses, title investigations and fees and
expenses of such local counsel as the Agent shall reasonably request, (iv) the
fees, expenses and disbursements of independent accountants or other experts
retained by the Agent in connection with accounting and collateral audits or
reviews of the Company, its Subsidiaries and its and their affairs, provided
that, in the absence of the occurrence and continuance of an Event of Default
such audits and/or reviews shall be made upon reasonable prior notice to the
Company and shall be limited to one per year (it being expressly agreed that
audits and/or reviews conducted during an Event of Default shall not require
such notice or be so limited) and (v) if an Event of Default occurs, all
out-of-pocket expenses incurred by the Agent and each Lender, including fees
and disbursements of counsel based upon time spent, in connection with such
Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom.
SECTION 8.05. INDEMNITY. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to indemnify, pay
and hold harmless the Agent and each Lender and any subsequent holder of any of
the Notes, and the officers, directors, employees and agents of the Agent, each
Lender and such holders (collectively called the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including the fees and disbursements of counsel for
such Indemnitee) in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitee shall be designated a party
thereto and including any such proceeding initiated by or on behalf of the
Company, any Subsidiary or any other Credit Party, and the expenses of
investigation by engineers, environmental consultants and similar technical
personnel and any commission, fee or compensation claimed by any broker (other
than any broker retained by NationsCredit) asserting any right to payment for
the transactions contemplated hereby, which may be imposed on, incurred by or
asserted against such Indemnitee as a result of or in connection with the
transactions contemplated hereby or by the other Financing Documents (including
(i)(A) as a direct or indirect result of the presence on or under, or escape,
seepage, leakage, spillage, discharge, emission or release from, any property
now or previously owned, leased or operated by the Company or any of its
Subsidiaries of any Hazardous Materials or any Hazardous Materials
Contamination, (B) arising out of or relating to the offsite disposal of any
materials generated or present on any such property or (C) arising out of or
resulting from the environmental condition of any such property or the
applicability
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of any governmental requirements relating to Hazardous Materials, whether or
not occasioned wholly or in part by any condition, accident or event caused by
any act or omission of the Company or any of its Subsidiaries, and (ii)
proposed and actual extensions of credit under this Agreement) and the use or
intended use of the proceeds of the Notes, except that the Company shall have
no obligation hereunder to an Indemnitee with respect to any liability
resulting from the gross negligence or willful misconduct of such Indemnitee.
To the extent that the undertaking set forth in the immediately preceding
sentence may be unenforceable, the Company shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law to the payment
and satisfaction of all such indemnified liabilities incurred by the
Indemnitees or any of them. Without limiting the generality of any provision of
this Section, to the fullest extent permitted by law, the Company hereby waives
all rights for contribution or any other rights of recovery with respect to
liabilities, losses, damages, costs and expenses arising under or relating to
Environmental Laws that it might have by statute or otherwise against any
Indemnitee; except to the extent that any thereof are finally determined by a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnitee.
SECTION 8.06. TAXES. The Company agrees to pay all
governmental assessments, charges or taxes (except income or other similar
taxes imposed on any Lender or any holder of a Note), including any interest or
penalties thereon, at any time payable or ruled to be payable in respect of the
existence, execution or delivery of this Agreement, the other Financing
Documents, or the issuance of the Notes, the Warrants or the Warrant Shares,
and to indemnify and hold each Lender and each and every holder of the Notes,
the Warrants and the Warrant Shares harmless against liability in connection
with any such assessments, charges or taxes.
SECTION 8.07. FUNDING LOSSES. If the Company fails to borrow
any Loans after notice has been given to any Lender in accordance with Section
2.04 or fails to make any payment when due (including pursuant to a notice of
optional prepayment), the Company shall reimburse each Lender within 15 days
after demand for any resulting loss or expense incurred by it (or by an
existing or prospective participant in the related Loan), including any loss
incurred in obtaining, liquidating or employing deposits from third parties,
but excluding loss of margin for the period after any such payment or failure
to borrow; provided that such Lender shall have delivered to the Company a
certificate as to the amount of such loss or expense, which certificate shall
be conclusive in the absence of manifest error.
SECTION 8.08. MAXIMUM INTEREST. (a) In no event shall the
interest charged with respect to the Notes or any other obligations of the
Company or any Subsidiary under the Financing Documents exceed the maximum
amount permitted under the laws of the State of Georgia or of any other
applicable jurisdiction and notwithstanding anything to the contrary contained
in any of the Financing Documents, none of the terms and provisions of the
Financing Documents shall ever be construed to create a contract or obligation
to pay interest at a rate in excess of the maximum amount permitted under the
laws of the State of Georgia or of any other applicable jurisdiction.
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(b) Notwithstanding anything to the contrary herein or
elsewhere, if at any time the rate of interest payable for the account of any
Lender hereunder or under any Note or other Financing Document (the "STATED
RATE") would exceed the highest rate of interest permitted under any applicable
law to be charged by such Lender (the "MAXIMUM LAWFUL RATE"), then for so long
as the Maximum Lawful Rate would be so exceeded, the rate of interest payable
for the account of such Lender shall be equal to the Maximum Lawful Rate;
provided, that if at any time thereafter the Stated Rate is less than the
Maximum Lawful Rate, the Company shall, to the extent permitted by law,
continue to pay interest for the account of such Lender at the Maximum Lawful
Rate until such time as the total interest received by such Lender is equal to
the total interest which such Lender would have received had the Stated Rate
been (but for the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable for the account of such Lender shall be
the Stated Rate unless and until the Stated Rate again would exceed the Maximum
Lawful Rate, in which event this provision shall again apply.
(c) In determining whether the interest paid or payable,
under any specific contingency exceeds the Maximum Lawful Rate, the Company and
the Lenders shall, to the maximum extent permitted by applicable law, (i)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Lawful Rate at any time during the term of the Obligations;
provided, that, if the unpaid principal balance is paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received by any Lender for the actual period of existence thereof exceeds the
Maximum Lawful Rate, such Lender shall refund to the Company the amount of such
excess and, in such event, such Lender shall not be subject to any penalties
provided by applicable law for contracting for, charging, receiving, taking,
collecting, reserving or applying interest in excess of the Maximum Lawful
Rate.
(d) In no event shall the total interest received by any
Lender exceed the amount which such Lender could lawfully have received had the
interest been calculated for the full term hereof at the Maximum Lawful Rate
with respect to such Lender.
(e) In computing interest payable with reference to the
Maximum Lawful Rate applicable to any Lender, such interest shall be calculated
at a daily rate equal to the Maximum Lawful Rate divided by the number of days
in the year in which such calculation is made.
(f) If any Lender has received interest hereunder in
excess of the Maximum Lawful Rate with respect to such Lender, such excess
amount shall be applied to the reduction of the principal balance of its Loans
or to other amounts (other than interest) payable
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hereunder, and if no such principal or other amounts are then outstanding, such
excess or part thereof remaining shall be paid to the Company.
ARTICLE IX
THE AGENT
SECTION 9.01. APPOINTMENT AND AUTHORIZATION. Each Lender
irrevocably appoints and authorizes the Agent to enter into each of the
Security Documents on its behalf and to take such action as agent on its behalf
and to exercise such powers under the Financing Documents as are delegated to
the Agent by the terms thereof, together with all such powers as are reasonably
incidental thereto.
SECTION 9.02. AGENT AND AFFILIATES. NationsCredit shall have
the same rights and powers under the Financing Documents as any other Lender
and may exercise or refrain from exercising the same as though it were not the
Agent, and NationsCredit and its affiliates may lend money to and generally
engage in any kind of business with the Company or any Subsidiary or Affiliate
of the Company as if it were not the Agent hereunder.
SECTION 9.03. ACTION BY AGENT. The obligations of the Agent
hereunder are only those expressly set forth herein and under the other
Financing Documents. Without limiting the generality of the foregoing, the
Agent shall not be required to take any action with respect to any Default,
except as expressly provided in Article VII.
SECTION 9.04. CONSULTATION WITH EXPERTS. The Agent may
consult with legal counsel (who may be counsel for the Company), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 9.05. LIABILITY OF AGENT. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or not taken by it in connection with the Financing Documents (i) with
the consent or at the request of the Required Lenders or (ii) in the absence of
its own gross negligence or willful misconduct. Neither the Agent nor any of
its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with any Financing Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Company; (iii) the satisfaction of any condition specified in
Article III, except receipt of items required to be delivered to the Agent; or
(iv) the validity, effectiveness, sufficiency or genuineness of any Financing
Document or any other instrument or writing furnished in connection therewith.
The Agent shall not incur any liability by acting in reliance upon any notice,
consent, certificate, statement, or other writing (which may be a bank wire,
telex, facsimile transmission or similar writing) believed by it to be genuine
or to be signed by the proper party or parties.
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SECTION 9.06. INDEMNIFICATION. Each Lender shall, ratably in
accordance with its Revolving Credit Commitment (whether or not the Revolving
Credit Commitments have been terminated), indemnify the Agent (to the extent
not reimbursed by the Company) against any cost, expense (including counsel
fees and disbursements), claim, demand, action, loss or liability (except such
as result from the Agent's gross negligence or willful misconduct) that the
Agent may suffer or incur in connection with the Financing Documents or any
action taken or omitted by the Agent hereunder or thereunder.
SECTION 9.07. CREDIT DECISION. Each Lender acknowledges that
it has, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking any action under the Financing Documents.
SECTION 9.08. SUCCESSOR AGENT. The Agent may resign at any
time by giving written notice thereof to the Lenders and the Company. Upon any
such resignation, the Required Lenders shall have the right to appoint a
successor Agent which, absent the occurrence and continuance of a Default, must
be reasonably acceptable to the Company. If no successor Agent shall have been
so appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent gives notice of resignation, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be an institution organized or licensed under the laws of the United
States of America or of any State thereof, and which in the absence of the
occurrence and continuance of an Event of Default, shall be reasonably
acceptable to the Company. Upon the acceptance of its appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. SURVIVAL. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the other Financing Documents and the execution, sale and
delivery of the Notes, the Warrants and the Warrant Shares. The indemnities and
agreements set forth in Articles VIII and IX shall survive the payment of the
Notes, the exercise, redemption or expiration of the Warrants and the
termination of this Agreement.
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SECTION 10.02. NO WAIVERS. No failure or delay by the Agent
or any Lender in exercising any right, power or privilege under any Financing
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein and
therein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 10.03. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including prepaid
overnight courier, telex, facsimile transmission or similar writing) and shall
be given to such party at its address or telecopy or telex number set forth on
the signature pages hereof (or, in the case of any such Lender who becomes a
Lender after the date hereof, in a notice delivered to the Company and the
Agent by the assignee Lender forthwith upon such assignment) or at such other
address or telecopy or telex number as such party may hereafter specify for the
purpose by notice to the Agent and the Company. Each such notice, request or
other communication shall be effective (i) if given by telex or telecopy, when
such telex or telecopy is transmitted to the telex or telecopy number specified
in this Section and the appropriate answer back is received (in the case of
telex) or telephonic confirmation of receipt thereof is obtained (in the case
of telecopy) or (ii) if given by mail, prepaid overnight courier or any other
means, when received at the address specified in this Section or when delivery
at such address is refused.
SECTION 10.04. SEVERABILITY. In case any provision of or
obligation under this Agreement or the Notes or any other Financing Document
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
SECTION 10.05. AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Company and the Required Lenders
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the
Lenders, (i) increase or decrease any Revolving Credit Commitment of any Lender
(except for a ratable decrease in the Revolving Credit Commitments of all
Lenders) or subject any Lender to any additional obligation, (ii) reduce the
principal of or rate of interest on any Loan or fees hereunder, (iii) postpone
the date fixed for any payment of principal of any Loan, or of interest on any
Loan or any fees hereunder or for any termination of any Commitment or (iv)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes which shall be required for the Lenders or any of them to
take any action under this Section or any other provision of this Agreement.
SECTION 10.06. SUCCESSORS AND ASSIGNS; REGISTRATION. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns (including any
transferee of any Note), except that the
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Company may not assign or otherwise transfer any of its rights under this
Agreement without the prior written consent of all Lenders.
(b) The terms and provisions of this Agreement shall
inure to the benefit of any transferee or assignee of any Note or Warrant to
which the Company, in the absence of the occurrence and continuance of an Event
of Default (in which case no consent shall be required), shall have consented
(such consent not to be unreasonably withheld) and, in the event of such
transfer or assignment, the rights and privileges herein conferred upon the
assigning Lender shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. Any assignment
shall be for an equal percentage of such assignor Lender's Loans and its
Revolving Credit Commitment, and any such assignee Lender shall, upon its
registration in the Note Register referred to below, become a "Lender" for all
purposes hereunder. Upon any such assignment, the assignor Lender shall be
released from its Revolving Credit Commitment to the extent assigned to and
assumed by the assignee Lender.
(c) Upon any assignment of any Note(s), the assigning
Lender shall endorse its Note(s) to its assignee which shall present such Note
to the Company for registration of transfer, and, upon request of the assignee,
if any term of the Note has been amended, the Company will promptly execute and
deliver an amended and restated note or notes. In the event an amended and
restated note is created, the original Note will continue as evidence of the
Obligations hereunder so amended and restated.
(d) The Company shall maintain a register (the "NOTE
REGISTER") of the Lenders and all assignee Lenders that are the holders of all
the Notes issued pursuant to this Agreement. The Company will allow any Lender
to inspect and copy such list at the Company's principal place of business
during normal business hours. Prior to the due presentment for registration of
transfer of any Note, the Company may deem and treat the Person in whose name a
Note is registered as the absolute owner of such Note for the purpose of
receiving payment of principal of and premium and interest on such Note and for
all other purposes whatsoever, and the Company shall not be affected by notice
to the contrary.
(e) Each Lender (including any assignee Lender at the
time of such assignment) represents that it (i) is acquiring its Note solely
for investment purposes and not with a view toward, or for sale in connection
with, any distribution thereof, (ii) has received and reviewed such information
as it deems necessary to evaluate the merits and risks of its investment in the
Note, (iii) is an "accredited investor" within the meaning of Rule 501(a) under
the Securities Act and (iv) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment in the Note, including a complete loss of its investment.
(f) Each Lender understands that the Notes are being
offered only in a transaction not involving any public offering within the
meaning of the Securities Act, and that, if in the future such Lender decides
to resell, pledge or otherwise transfer any of the
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<PAGE> 72
Notes, such Note may be resold, pledged or transferred only (i) to the Company,
(ii) to a Person who such Lender reasonably believes is a qualified
institutional buyer that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that such resale, pledge
or transfer is being made in reliance on Rule 144A under the Securities Act or
(iii) pursuant to an exemption from registration under the Securities Act.
(g) Each Lender understands that the Notes will, unless
otherwise agreed by the Company and the holder thereof, bear a legend to the
following effect:
THIS SECURITY IS NOT BEING REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT
THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY
(1) TO THE COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT.
(h) If any Note becomes mutilated and is surrendered by
the Lender with respect thereto to the Company, or if any Lender claims that
its Note has been lost, destroyed or wrongfully taken, the Company shall
execute and deliver to such Lender a replacement Note, upon the affidavit of
such Lender attesting to such loss, destruction or wrongful taking with respect
to such Note and such lost, destroyed, mutilated, surrendered or wrongfully
taken Note shall be deemed to be canceled for all purposes hereof. Such
affidavit shall be accepted as satisfactory evidence of the loss, wrongful
taking or destruction thereof and no indemnity shall be required as a condition
of the execution and delivery of a replacement Note. Any costs and expenses of
the Company in replacing any such Note shall be for the account of such Lender.
SECTION 10.07. COLLATERAL. Each of the Lenders represents to
the Agent and each of the other Lenders that it in good faith is not relying
upon any Margin Stock as collateral in the extension or maintenance of the
credit provided for in this Agreement.
SECTION 10.08. HEADINGS. Headings and captions used in the
Financing Documents (including the Exhibits and Schedules hereto and thereto)
are included herein and therein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 10.09. GOVERNING LAW; SUBMISSION TO JURISDICTION.
THIS AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND
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<PAGE> 73
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA. THE COMPANY
HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF GEORGIA AND OF ANY GEORGIA COURT SITTING IN
THE CITY OF ATLANTA, GEORGIA FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE
COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
PARTIES HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED
FOR NOTICES IN SECTION 10.03. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF
ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
SECTION 10.10. NOTICE OF BREACH BY AGENT OR LENDER. The
Company agrees to give the Agent and the Lenders notice of any action or
inaction by the Agent or any Lender or any agent or attorney of the Agent or
any Lender in connection with this Agreement or any other Financing Document or
the obligations of the Company under this Agreement or any other Financing
Document that may be actionable against the Agent or any Lender or any agent or
attorney of the Agent or any Lender or a defense to payment of any obligations
of the Company under this Agreement or any other Financing Document for any
reason, including commission of a tort or violation of any contractual duty or
duty implied by law. The Company agrees, to the fullest extent that it may
lawfully do so, that unless such notice is given promptly (and in any event
within thirty (30) days after the Company has knowledge, or with the exercise
of reasonable diligence could have had knowledge, of any such action or
inaction), the Company shall not assert, and the Company shall be deemed to
have waived, any claim or defense arising therefrom to the extent that the
Agent or any Lender could have mitigated such claim or defense after receipt of
such notice.
SECTION 10.11. WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT
AND THE LENDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED THEREBY AND TO THE FULLEST EXTENT PERMITTED BY
LAW WAIVES ANY RIGHTS THAT IT MAY HAVE TO CLAIM OR RECEIVE CONSEQUENTIAL OR
SPECIAL DAMAGES IN CONNECTION WITH ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 10.12. COUNTERPARTS; ENTIRE AGREEMENT; EFFECTIVENESS.
This Agreement may be signed in any number of counterparts, each of which shall
be an original,
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<PAGE> 74
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement and the other Financing Documents constitute the
entire agreement and understanding among the parties hereto and supersede any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof. This Agreement and the other Financing Documents shall
become effective and shall be deemed duly executed, when duly executed
counterparts thereof shall have been received and accepted by the Agent at its
office in Atlanta, Georgia; such acceptance to be conclusively evidenced by its
return of the fully executed counterparts to the Company.
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<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
BORROWER:
OMEGA HEALTH SYSTEMS, INC.
By: /s/ Ronald L. Edmonds
----------------------------------------
Name: Ronald L. Edmonds
--------------------------------------
Title: Vice President
-------------------------------------
Address: 5100 Poplar Avenue, Suite 2100
Memphis, Tennessee 38137
Telecopy No.: (901) 537-1523
LENDERS:
NATIONSCREDIT COMMERCIAL
CORPORATION
By: /s/ Rebecca Carey
----------------------------------------
Name: Rebecca Carey
--------------------------------------
Title: Authorized Signatory
-------------------------------------
Address: 1050 Crown Pointe Parkway
Suite 720
Atlanta, Georgia 30338
Telecopy No.: (770) 551-2704
<PAGE> 76
AGENT:
NATIONSCREDIT COMMERCIAL
CORPORATION
By: /s/ Rebecca Carey
------------------------------------
Name: Rebecca Carey
----------------------------------
Title:
---------------------------------
Address: 1050 Crown Pointe Parkway
Suite 720
Atlanta, Georgia 30338
Telecopy No.: (770) 551-2704
<PAGE> 1
Exhibit 10(l)
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") is entered into as of the 1st day of
March, 1997, by and among SARAH JABLECKI HAYS, M.D., P.C., an Alabama
professional corporation ("SJH") and REFRACTIVE SURGERY CENTER OF BIRMINGHAM, A
Professional Corporation, an Alabama professional corporation ("RSCB") (both SJH
and RSCB sometimes hereinafter collectively referred to as the "Corporations,"
and individually as "Corporation"); OMEGA EYE ASSOCIATES OF BIRMINGHAM, INC., an
Alabama corporation ("Omega"); OMEGA HEALTH SYSTEMS, INC., a Delaware
corporation ("OHSI") and SARAH J. HAYS, M.D., a citizen and resident of Alabama
("Stockholder").
W I T N E S S E T H:
WHEREAS, Corporations are Alabama professional corporations, each of which
owns certain assets which are used by and/or result from Stockholder's practice
of providing eye care to patients;
WHEREAS, Stockholder is the sole stockholder of both Corporations and is an
ophthalmologist practicing medicine in the State of Alabama;
WHEREAS, Corporations, Omega and Stockholder intend that the transaction
consummated pursuant to this Agreement shall qualify as a reorganization
pursuant to ss. 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
("Code" or "I.R.C."); and
WHEREAS, the parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
ARTICLE I.
MERGER TRANSACTION
1.1 BASIC TRANSACTION. (a) Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.1(b)(i), the
Corporations shall be merged with and into Omega in accordance with this
Agreement and the separate corporate existence of each Corporation shall
thereupon cease (the "Merger"). Omega shall be the surviving corporation in
<PAGE> 2
the Merger (sometimes hereinafter referred to as the "Surviving Corporation").
The Merger shall have the effects specified in Section 10-28-11.06 of the
Alabama Business Corporation Act (the "ABCA"). By execution and delivery of this
Agreement, Stockholder hereby approves the Merger on the terms and subject to
the conditions set forth herein, which approval shall be effective as an action
without a meeting pursuant to the Corporations' bylaws and the ABCA.
(b) Effect of Merger.
(i) General. If all the conditions to the Merger set forth in Article
IV shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article XIV, the
parties hereto shall cause Articles of Merger meeting the requirements of
the ABCA to be properly executed, verified and delivered for filing in
accordance with the ABCA on the Closing Date set forth in Article III. The
Merger shall become effective upon the later of acceptance for filing of
the Articles by the Secretary of State of the State of Alabama or at such
later time which the parties hereto shall have agreed upon and designated
in the Articles of Merger in accordance with applicable law as in effect at
the time of the Merger (the "Effective Time"). The Surviving Corporation
may, at any time after the Effective Time, take any action (including
executing and delivering any document or instrument) in the name and on
behalf of Omega or the Corporations in order to carry out and effectuate
the transaction contemplated by this Agreement.
(ii) Certificate of Incorporation. The Articles of Incorporation of
Omega in effect at and as of the Effective Time will remain the Articles of
Incorporation of the Surviving Corporation without any modification or
amendment in the Merger.
(iii) Bylaws. The Bylaws of Omega in effect at and as of the Effective
Time will remain the Bylaws of the Surviving Corporation without any
modification or amendment in the Merger.
(iv) Directors and Officers. The directors and officers of Omega in
office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(v) Omega Shares. Each share of common stock of Omega Eye Associates
of Birmingham, Inc. (the "Omega Stock") issued and outstanding at and as of
the Effective Time will remain issued and outstanding.
1.2 COLLECTION OF ACCOUNTS RECEIVABLE. For a period of six (6) months
following the Effective Time (the "Collection Period"), Omega shall collect the
accounts receivable (the "Accounts") of the Corporations existing as of the
Closing Date. Every thirty (30) days beginning
2
<PAGE> 3
the first thirty (30) days after the Closing Date through the end of the
Collection Period, Omega shall pay to Stockholder any accounts so collected,
less four percent (4%) for such collection services (the "Collection Fee").
Beginning sixty (60) days after the Closing Date, and for the remainder of the
Collection Period, the Collection Fee shall be seven percent (7%). The
Collection Fee shall be computed based on the Accounts net of any remaining
accounts payable for goods or services purchased by the Corporations prior to
the Closing Date that are paid by Omega, and set off against the Accounts. After
the Collection Period, Omega shall cease collection efforts on the Accounts, and
will review with the Stockholder the remaining Accounts. Stockholder agrees to
cooperate with Omega in the collection of the Accounts. Stockholder understands
and acknowledges that Omega will exercise only its normal collection efforts to
collect the Accounts. Omega shall not exercise extraordinary efforts, including,
but not limited to, litigation to collect the Accounts.
1.3 SETTLEMENT FOR INTERIM OPERATIONS. While the parties anticipate that
the certain Management Agreement between Omega and S.J. Hays, M.D., P.C. is to
be effective March 1, 1997, and the Centers (as that term is defined in that
Management Agreement) are to be operated accordingly, the Merger is not
technically effective under Alabama law until the Articles of Merger and the
Plan of Merger are filed with the Alabama Secretary of State's office on or
about March 6, 1997. The parties will jointly calculate the revenues and
expenses from March 1 through March 6, 1997 and will make an appropriate payment
for the effect of such operations, consistent with the intent of said Management
Agreement.
ARTICLE II.
CONSIDERATION
2.1 CONSIDERATION. As consideration for the Merger, all shares of common
stock of both Corporations shall, without further action on the part of
Stockholder, be exchanged for (i) Seven Hundred Ten Thousand Nine Hundred Sixty
Dollars ($710,960.00) payable in immediately available funds, and (ii) shares of
voting common stock of OHSI (the "OHSI Stock") valued at Seven Hundred Fourteen
Thousand Four Hundred Fourteen Dollars ($714,414.00) to be issued to
Stockholder, subject to the Adjustment (hereinafter defined) set forth in
Section 2.2 (the "Consideration"). Each share of OHSI Stock shall be valued at
the average of the closing price of OHSI Stock for the twenty (20) trading days
ending February 28, 1997. No fractional share of OHSI Stock shall be issued. The
OHSI Stock shall not be registered under the Securities Act (as defined herein),
and will be restricted securities ("Restricted Securities"), as defined in Rule
144(a)(3) under the Securities Act of 1933 (the "1933 Act") that are not fully
transferable, except to the extent provided herein, and the certificates
reflecting the OHSI Stock shall bear a legend to that effect.
3
<PAGE> 4
2.2 TAX REPORTING. The Merger shall constitute a reorganization under
I.R.C. ss. 368(a)(1)(A). Each of the parties agrees to report this transaction
for financial and income tax purposes in accordance with the foregoing.
2.3 REGISTRATION RIGHTS. The Stockholder will be entitled to "piggyback"
registration rights for unregistered OHSI Stock, on registrations under the 1933
Act, of OHSI's stock or securities, subject to the right of OHSI and its
underwriters to reduce the number of shares of OHSI Stock proposed to be
registered in view of market conditions, and OHSI shall promptly advise the
Stockholder of any proposed registration. Such underwriter's "cutback" shall be
applied proportionately to all unregistered OHSI Stock or other securities and
unregistered warrants or stock options which are requesting registration at such
time pursuant to contractual rights. The costs of OHSI of registering such OHSI
Stock in a piggyback registration shall be borne by OHSI, except that
underwriting discounts and commissions on OHSI stock sold by Stockholder shall
be paid by the Stockholder, and the cost of Stockholder's counsel to be paid by
Stockholder.
2.4 TRANSFERABILITY OF OHSI STOCK. Provided any transferee under this
subsection acknowledges any restrictions placed on the OHSI Stock, nothing in
this Agreement shall prevent the OHSI Stock from being transferred in whole, or
in part, to one or more members of Stockholder's family, to a trust established
for Stockholder's benefit or the benefit of one or more of the members of the
Stockholder's family, to a family partnership (general or limited) established
by Stockholder or one or more of the members of Stockholder's family, or to any
other entity that is owned by Stockholder and one or more of the members of
Stockholder's family.
2.5 OHSI STOCK ADJUSTMENT. (a) As of February 28, 1999 (the "Adjustment
Date"), there shall be an adjustment (the "Adjustment") to the OHSI Stock based
on the event of certain changes between the Closing Value (hereinafter defined)
and the Adjustment Date Value (hereinafter defined) of the OHSI Stock. For
purposes of this Section 2.2, the "Closing Value" shall mean the value of the
average closing price of OHSI Stock for the twenty (20) trading days ending
February 28, 1997, which amount is $6.61 per share; and the "Adjustment Date
Value" shall mean the value of average closing price of OHSI Stock for the
twenty (20) trading days prior to the Adjustment Date; provided, however, that
the Adjustment Date Value shall neither exceed $10.50, nor be lower than $3.00.
(b) If, on the Adjustment Date, the Adjustment Date Value is greater than
the Maximum Price (hereinafter defined) then the Adjustment shall be an OHSI
Adjustment (hereinafter defined). If, on the Adjustment Date, the Adjustment
Date Value is less than the Minimum Price (hereinafter defined), then the
Adjustment shall be a Stockholder Adjustment (hereinafter defined). If, on the
Adjustment Date, the Adjustment Date Value is neither greater than the Maximum
Price, nor less than the Minimum Price, then there shall be no Adjustment.
4
<PAGE> 5
(c) For purposes of this Section 2.2, the "Maximum Price" shall be the
Closing Value plus twenty percent (20%). By way of example, if the Closing Value
is $6.61, then the Maximum Price would be:
$6.61 + ($6.61 x .20) = $7.93
Likewise, the "Minimum Price" shall be the Closing Value minus twenty percent
(20%). By way of example, if the Closing Value is $6.61, then the Minimum Price
would be:
$6.61 - ($6.61 x .20) = $5.29
(d) If the Adjustment is to be an "OHSI Adjustment" then Stockholder will
convey to OHSI a number of shares of OHSI Stock ("Stockholder Giveback")
computed with reference to the following formula:
Stockholder Giveback = Total Closing Shares (hereinafter defined)
x (Adjustment Date Value - Maximum Price)
------------------------------------------
Adjustment Date Value
For purposes of this Section 2.2, "Total Closing Shares" is equal to that
portion of the Consideration set forth in Section 2.1 that is to be paid in OHSI
Stock divided by the Closing Value. By way of example, if on the Adjustment
Date, the "Total Closing Shares" equal 108,081 ($714,400/$6.61 per share), the
Maximum Price is $7.93 and the Adjustment Date Value is $8.50 then:
Stockholder Giveback = 108,081 shares
x ($8.50 per share - $7.93 per
------------------------------
share) $8.50 per share
= 7,248 shares of OHSI Stock
The Stockholder Giveback will be withheld from those shares of OHSI Stock
designated as "Pledged Collateral" in that certain Stock Pledge and Escrow
Agreement, dated as of March 1, 1997, to which Stockholder, OHSI, and Omega are
parties (the "Stock Pledge Agreement").
(e) If the Adjustment is to be a "Stockholder Adjustment," then OHSI agrees
to convey to Stockholder an additional number of shares of OHSI Stock
("Additional Shares") computed with reference to the following formula:
Additional Shares = Total Closing Shares x (Minimum Price
-- Adjustment Date Value)
-------------------------
Adjustment Date Value
5
<PAGE> 6
By way of example, if on the Adjustment Date, the Total Closing Shares equal
108,081, the Minimum Price equals $5.29, and the Adjustment Date Value equals
$5.00 then:
Additional Shares = 108,081 shares x ($5.29 - $5.00)
-------------------------------
$5.00
= 6,269 shares of OHSI Stock
(f) Neither the Stockholder Giveback nor the Additional Shares shall
include any fractional share of OHSI Stock. The Additional Shares shall not be
registered, and will be Restricted Securities.
(g) In the event that, prior to the Adjustment Date, OHSI subdivides its
outstanding shares of OHSI voting common stock into a greater number of shares
by means of a stock split or stock dividend or effects a reclassification of its
common stock or issues a dividend on its common stock (a "Stock Event"), then
the parties agree to recalculate the Adjustment set forth in this Section 2.2 in
light of such Stock Event.
ARTICLE III.
THE CLOSING
The closing of the Merger contemplated herein (the "Closing") shall be
shall take place at such time and place as the parties hereto may agree in
writing (the "Closing Date"). The parties agree that the Closing Date shall be
extended, if required, to allow either party to fulfill any condition of this
Agreement, but in no event shall the Closing Date extend beyond March 30, 1997,
unless such extension is agreed to in writing by all of the parties.
ARTICLE IV.
ITEMS TO BE DELIVERED AT OR PRIOR TO CLOSING
4.1 BY STOCKHOLDER OR CORPORATIONS. Stockholder or Corporations, as
applicable, shall execute and deliver on the Closing Date:
(a) Certified resolutions of each Corporation authorizing the execution of
all documents and the consummation of all transactions contemplated hereby.
(b) Articles of Merger and a Plan of Merger under the ABCA which shall be
in the form attached hereto as Exhibit 4.1.1(a) and Exhibit 4.1.1(b),
respectively.
(c) Stock certificates representing ownership of all shares of each
Corporation, duly endorsed to Omega.
6
<PAGE> 7
(d) A Certificate, duly executed by Stockholder and the President of each
Corporation, stating that, as of the Closing Date, all representations and
warranties of Stockholder and each respective Corporation contained in this
Agreement or in any Exhibit or Schedule hereto are true and correct in all
material respects, all covenants and agreements contained in this Agreement to
be performed by Stockholder or either Corporation on or prior to the Closing
Date have been performed or complied with, and all conditions to Closing
contained in Section 4.3 hereof have been satisfied.
(e) An opinion of counsel for the Corporation and the Stockholder dated as
of the Closing Date, in form and substance reasonably satisfactory to Omega's
counsel, and where appropriate with reliance upon a certificate from each
Corporation and the Stockholder to the effect that:
(i) Each Corporation (A) is duly incorporated and validly existing
as a professional corporation under the Revised Alabama Professional
Corporation Act, (B) is in good standing as a professional corporation
under the laws of the State of Alabama, and (C) has the corporate power and
authority to hold and own its own properties and carry on its business as
now conducted and.
(ii) Each Corporation has the full corporate power and authority to
execute, deliver and perform this Agreement and all other agreements and
documents contemplated hereby to which such Corporation is a party and
which are necessary to consummate the transaction contemplated hereby and,
all action required of such Corporation necessary for such execution,
delivery and performance has been duly taken.
(iii) This Agreement and all agreements contemplated hereby to which
Corporation is a party have been duly executed and delivered by that
Corporation and constitute the valid and binding agreements of that
Corporation enforceable in accordance with their terms (subject as to
enforcement of remedies to the discretion of the courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium and similar laws effecting the rights of
creditors generally). This Agreement and all agreements contemplated hereby
to which Stockholder is a party have been duly executed and delivered by
Stockholder and constitute the valid and binding agreements of Stockholder
enforceable in accordance with their terms (subject as to enforcement of
remedies to the discretion of the courts in awarding equitable relief and
to applicable bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium and similar laws effecting the rights of creditors
generally). The execution and delivery by each Corporation of this
Agreement, and the performance of its obligations hereunder, do not
require, any action or consent (except for actions taken or consents
obtained on or prior to the delivery of such opinion) of any party other
than that Corporation pursuant to any contract, agreement or other
understanding of either Stockholder or that Corporation, or pursuant to any
order or decree to which either Stockholder or that Corporation is a
7
<PAGE> 8
party or to which that Corporation's properties or assets are subject and
will not violate any provisions of the articles of association or bylaws of
that Corporation or any order of any court or other agency of the
government.
(iv) To the best of such counsel's knowledge, and based solely on
certificates provided by the Corporations, with respect to both
Corporations (except for the matters included in Schedule 5.10 hereto),
there are no actions, suits, claims, proceedings or investigations pending
or threatened against either Corporation at law or in equity, or before or
by a federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
or any professional licensing or disciplinary authority which would
adversely affect the transactions contemplated herein or the right of
either Corporation or Stockholder to enter into this Agreement.
(v) Neither Stockholder nor the Corporations is in default with
respect to any order, writ, injunction or decree of any court or of any
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign which would
adversely affect the rights of either Stockholder or Corporations to enter
into and perform this Agreement.
(f) Such other instruments as may be reasonably requested by Omega or OHSI
in order to give effect to or carry out the intent of this Agreement.
4.2 BY OMEGA AND OHSI. Omega shall execute and deliver on the Closing
Date:
(a) Stock Certificates representing ownership by Stockholder of the OHSI
Stock set forth under Section 2.1.
(b) An opinion of counsel for Omega and OHSI dated as of the Closing Date,
in form and substance reasonably satisfactory to Corporations' and Stockholder's
counsel, and where appropriate with reliance upon a certificate from Omega or
OHSI to the effect that:
(i) Each of Omega and OHSI (A) is duly incorporated, validly
existing, and in good standing under the laws of the State of Alabama and
Delaware, respectively, (B) is duly qualified to transact business in their
respective states of incorporation, and is not required to be so qualified
in any other jurisdiction, and (C) has the corporate power and authority to
hold and own its own properties and carry on its business as now conducted
and as proposed to be conducted.
(ii) Each of Omega and OHSI has the full power and authority to
execute, deliver, and perform this Agreement and all other agreements and
documents contemplated hereof
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to which it is a party and which are necessary to consummate the
transaction contemplated hereby, and all corporate actions of Omega or OHSI
necessary for such execution, delivery and performance have been duly
taken.
(iii) This Agreement and all agreements related to this Agreement to
which Omega is a party have been duly authorized, executed and delivered by
Omega and constitute the legal, valid, and binding agreement of Omega
enforceable in accordance with their terms (subject as to enforcement of
remedies to the discretion of the courts in awarding equitable relief and
to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws effecting the rights of creditors generally). The execution
and delivery by Omega of this Agreement, and the performance of its
obligations hereunder, do not require any action or consent of any party
other than Omega pursuant to any contract, agreement or other understanding
of Omega, or pursuant to any order or decree to which Omega is a party or
to which its properties or assets are subject and will not violate any
provision of law, the articles of incorporation or bylaws of Omega or any
order of any court or other agency of the government. This Agreement and
all agreements related to this Agreement to which OHSI is a party have been
duly executed and delivered by OHSI and constitute the legal, valid and
binding agreement of OHSI enforceable in accordance with their terms
(subject as to enforcement of remedies to the discretion of the courts in
awarding equitable relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws effecting the rights of creditors
generally). The execution and delivery by OHSI of this Agreement, and the
performance of its obligations hereunder, do not require any action or
consent of any party other than OHSI pursuant to any contract, agreement or
other understanding of OHSI, or pursuant to any order or decree to which
OHSI is a party or to which its properties or assets are subject and will
not violate any provision of law, the certificate of incorporation or
bylaws of OHSI or any order of any court or agency of the government.
(iv) To the best of such counsel's knowledge, and based solely on
certificates provided by Omega and OHSI, with respect to Omega and OHSI
there are no actions, suits, claims, proceedings or investigations pending
or threatened against Omega or OHSI at law or in equity, or before or by a
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
professional licensing or disciplinary authority which would adversely
effect the transactions contemplated herein or the right of OHSI or Omega
to enter into this Agreement.
(v) Neither Omega nor OHSI is in default with respect to any order,
writ, injunction or decree of any court or of any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign
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which would affect the rights of Omega or OHSI to enter into and perform
this Agreement.
(vi) The OHSI Stock has been duly authorized and duly and validly
issued by OHSI, with the authorization and approval of OHSI's Board of
Directors, and such OHSI Stock is fully paid and non-assessable, and is
owned of record by Stockholder.
(vii) Omega is a wholly-owned subsidiary of OHSI.
(c) Articles of Merger and a Plan of Merger under the ABCA which shall be
in the form attached hereto as Exhibit 4.1.1(a) and Exhibit 4.1.1(b).
(d) A Certificate, duly executed by the President of Omega and OHSI,
stating that as of the Closing Date, all representations and warranties of Omega
and OHSI contained in this Agreement or in any Exhibit or Schedule hereto are
true and correct in all material respects, all covenants and agreements
contained in the Agreement to be performed by Omega and OHSI on or prior to the
Closing Date have been performed or complied with and all conditions to Closing
contained in Section 4.4 hereof have been satisfied.
(e) Such other instruments as may be reasonably requested by Stockholder in
order to give effect to or carry out the intent of this Agreement.
4.3 CONDITIONS TO OMEGA'S AND OHSI'S OBLIGATIONS. Omega's and OHSI's
obligation to consummate the transaction as provided in this Agreement shall be
conditioned upon the satisfaction of the following conditions at or prior to the
Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.1 hereof shall have been executed and delivered at Closing.
(b) No Material Adverse Change. Prior to the Closing Date, there shall be
no material adverse change in the assets or liabilities of the Corporations; the
business or condition, financial, or otherwise of the Corporations; or the
results of operations or prospects of the Corporations as a result of any
legislative or regulatory change or revocation of any license or rights of the
Corporations to do business.
(c) Truth of Representations and Warranties. The representations and
warranties of the Corporations and Stockholder contained in this Agreement, or
in any Exhibit or Schedule hereto, shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date. The
Corporations and Stockholder shall have the express obligation to update all
information contained
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in the Exhibits and Schedules hereto so that such Exhibits and Schedules shall
be true, correct and complete as of the Closing Date.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(e) Opinion of Corporations' Counsel. Omega shall have received an opinion
from the Corporations' and Stockholder's counsel, delivered under Section 4.1(e)
above.
(f) Securities Law Compliance. The issuance of the OHSI Stock to the
Stockholder will not violate the securities laws of any state or of the United
States.
(g) Third-Party Consents. Omega shall have received copies of all
third-party consents required to consummate the transaction contemplated by this
Agreement.
(h) Licenses, Permits, Qualification. Immediately prior to the Effective
Time, Stockholder and the Corporations shall have all licenses and permits
necessary to operate their respective businesses.
(i) Medical Malpractice Insurance. All physicians and employees of the
Corporations and Omega must be properly covered by medical malpractice insurance
reasonably satisfactory to OHSI, including, to the extent applicable, medical
malpractice tail insurance to cover prior occurrences.
(j) Distribution of Assets and Discharge of Liabilities. Prior to the
Effective Time, and as a condition to Closing, each Corporation shall have
distributed to Stockholder all of the assets listed on Exhibit 5.8 , which are
not owned by either Corporation and are not being acquired by Omega (the
"Excluded Assets"). Additionally, prior to the Effective Time, each Corporation
shall have paid or discharged all liabilities or charges for costs or fees owed
as a result of the transactions contemplated by this Agreement.
(k) Taxes. The Corporations shall have established an adequate reserve for
the payment of all taxes accrued with respect to taxable periods or portions
thereof ended as of the Effective Time of the Merger contemplated herein.
(l) Fred Setzer, O.D. The employment arrangement between Fred Setzer, O.D.
and Omega or its affiliates shall have been agreed to on terms mutually
satisfactory to both Omega and Stockholder;
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(m) Stancil Handley, O.D. Stockholder's arrangement with Stancil Handley,
O.D., in Alabaster, AL shall have been agreed to on terms mutually satisfactory
to Omega and Stockholder; and
(n) Children's Trust Assets. The Hays Children's Trust Dated December 27,
1992 (the "Children's Trust") shall have executed and delivered to Omega that
bill of sale, substantially in the form of Exhibit 4.3(n) attached hereto,
evidencing the purchase by Omega of certain assets owned by the Children's
Trust.
4.4 CONDITIONS TO STOCKHOLDER'S AND CORPORATION'S OBLIGATIONS.
Stockholder's and Corporations' obligations to consummate the transaction as
provided in this Agreement shall be conditioned upon the satisfaction of the
following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.2 hereof shall have been executed and delivered by Omega on the
Closing Date.
(b) Truth of Representations and Warranties. The representations and
warranties of Omega and OHSI contained in this Agreement, or in any Exhibit or
Schedule hereto, shall be true and correct in all material respects on and as of
the Closing Date with the same effect as though such representations and
warranties had been made as of such date.
(c) Opinion of Omega's and OHSI's Counsel. The Corporations and Stockholder
shall have received an opinion from Omega's and OHSI's counsel, delivered under
Section 4.2(b) above.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(e) Fred Setzer, O.D. The employment arrangement between Fred Setzer, O.D.
and Omega or its affiliates shall have been agreed to on terms mutually
satisfactory to both Omega and Stockholder; and
(f) Stancil Handley, O.D. Stockholder's arrangement with Stancil Handley,
O.D., in Alabaster, AL shall have been agreed to on terms mutually satisfactory
to Omega and Stockholder.
(g) Children's Trust Assets. The Children's Trust shall have received from
Omega the consideration recited in that bill of sale, substantially in the form
of Exhibit 4.3(n) attached hereto, evidencing the purchase by Omega of certain
assets owned by the Children's Trust.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDER AND THE CORPORATIONS
The Corporations and Stockholder jointly and severally represent, warrant,
covenant and agree with Omega and OHSI that:
5.1 OWNERSHIP OF STOCK. Stockholder is the owner of all of the issued and
outstanding stock of each Corporation, free and clear of all liens,
encumbrances, restrictions and claims of every kind. Stockholder has full legal
right, power and authority to enter into this Agreement.
5.2 EXISTENCE AND GOOD STANDING. Each Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Alabama. Each Corporation has the corporate power to own its property and to
carry on its business as now being conducted. Alabama is the only jurisdiction
in which the character or location of the properties owned or leased by either
Corporation or the nature of the business conducted by either Corporation makes
such qualification necessary.
5.3 CAPITAL STOCK. SJH has an authorized capitalization consisting of one
hundred (100) shares of common stock, $1.00 par value, of which one hundred
(100) are issued and outstanding and no shares are held in SJH's treasury. RSCB
has an authorized capitalization consisting of one thousand (1000) shares of
common stock, $1.00 par value, of which one thousand (1000) shares are issued
and outstanding and no shares are held in RSCB's treasury. All such outstanding
shares of the Corporations have been duly authorized and validly issued and are
fully paid and nonassessable. There are no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of the capital stock of either Corporation, other than as
contemplated by this Agreement.
5.4 SUBSIDIARIES AND INVESTMENTS. Neither Corporation owns, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity.
5.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. Each Corporation has
heretofore furnished Omega with unaudited balance sheets dated December 31,
1993, 1994, 1995 and September 30, October 31, November 30, and December 31,
1996, and unaudited income statements for the twelve month periods ending
December 31, 1993, 1994, 1995 and 1996, all of which are attached hereto as
Schedule 5.5. Such financial statements, including the notes thereto, except as
indicated therein, were prepared in accordance with cash basis federal income
tax principles consistent with past accounting practices of the Corporations and
accurately reflect the
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results of operations for the periods noted therein, and except as indicated
therein, reflect all claims against and all debts and liabilities of the
Corporations, fixed or contingent, as of the respective dates thereof. Since
November 30, 1996, there has been (i) no material adverse change in the assets
or liabilities, financial or otherwise, or in the results of operations of
either Corporation, and (ii) no fact or condition known to the Corporations or
Stockholder which exists or is contemplated or threatened which might cause such
a change in the future.
5.6 MATERIAL CONTRACTS. Except as set forth on Schedule 5.6, neither
Corporation is bound by (a) any agreement, contract, or commitment relating to
the employment of any person by either Corporation, or any loans, deferred
compensation, incentive compensation, pension, profit sharing, retirement, or
other employee benefit plan, (b) any loan or advance to, or investment in, any
other person or entity, or any agreement, contract, or commitment relating to
the making of any such loan, advance, or investment, (c) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any other
person or entity, (d) any agreement, contract, or commitment limiting the
freedom of either Corporation or any of its physicians to practice medicine in
any location or to compete with any other person or entity, or (e) any other
agreement, contract, or commitment which is material to the business of either
Corporation. Except as set forth in Schedule 5.6, to the best of Stockholder's
knowledge each contract or agreement set forth in Schedule 5.6 is in full force
and effect, and there exists no default or event of default or event,
occurrence, condition, or act which, with the giving of notice, the lapse of
time, or the happening of any other event or condition, would become a default
or event of default thereunder, which would have a material adverse effect upon
either Corporation. Except as set forth in Schedule 5.6, to the best of
Stockholder's knowledge neither Corporation has violated any of the terms or
conditions of any contract or agreement set forth in Schedule 5.6 in any
material respect, and to Stockholder's best knowledge, all of the covenants to
be performed by any other party thereto have been fully performed.
5.7 INSURANCE; MALPRACTICE. Schedule 5.7.1 is a list and brief description
of all the Corporations' policies or binders of fire, liability, product
liability, workers compensation, health and other forms of insurance policies or
binders currently in force insuring against risks which will remain in full
force and effect at least through the Closing Date. Schedule 5.7.2 contains a
description of all malpractice liability insurance policies of Stockholder, the
Corporations and each Corporation's professional employees since January 1,
1994. Except as set forth on Schedule 5.7.3, (i) neither the Corporations,
Stockholder, nor their professional employees have, in the last three (3) years,
filed a written application for any insurance coverage which has been denied by
an insurance agency or carrier; and (ii) each Corporation, each Corporation's
professional employees and Stockholder have been continuously insured for
professional malpractice claims during the same period. Schedule 5.7.3 also sets
forth a list of all claims for any insured loss in excess of Five Thousand
Dollars ($5,000.00) per occurrence filed by each Corporation, each Corporation's
professional employees or Stockholder since January 1, 1994, including, but not
limited to, workers compensation, general liability, environmental liability and
professional
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malpractice liability claims. To the best of Stockholder's knowledge, none of
either Corporation, either Corporation's professional employees nor Stockholder
is in material default with respect to any provision contained in any such
policy and none of them has failed to give any notice or present any claim under
any such policy in due and timely fashion, which failure would have a materially
adverse effect upon that Corporation.
5.8 NO CHANGES PRIOR TO CLOSING DATE. To the best knowledge of
Stockholder, during the period from December 31, 1996, through the date hereof,
neither Corporation has, and from the date hereof, neither Corporation shall
have (i) incurred any material uninsured liability or obligation of any nature
(whether accrued, absolute, contingent, or otherwise), except in the ordinary
course of business, or except with the prior written consent of Omega, such
consent not to be unreasonably withheld, (ii) written off as uncollectible any
notes or accounts receivable, except write-offs in the ordinary course of
business charged to applicable reserves, none of which individually or in the
aggregate is material to the Corporation, (iii) conducted its business in such a
manner so as to materially increase its accounts payable or so as to materially
decrease its accounts receivable, (iv) granted any increase in the rate of
wages, salaries, bonuses, or other remunerations of any employee, except in the
ordinary course of business, (v) cancelled or waived any claims or rights of
substantial value, (vi) made any change in any method of accounting, (vii)
otherwise conducted its business or entered into any transaction, except in the
usual and ordinary manner and in the ordinary course of business, (viii) agreed,
whether or not in writing, to do any of the foregoing, nor (ix) disposed of its
assets other than in the ordinary course of business, except for the disposition
of any Excluded Assets listed on Schedule 5.8.
5.9 PRACTICE ASSETS; TITLE; CONDITION. Schedule 5.9.1 contains a true and
complete list of all the non-cash assets of the Corporations at the Closing Date
(the "Practice Assets"). Each Corporation has good and marketable title to all
of its Practice Assets conveyed hereunder. Except as disclosed on Schedule 5.9.2
hereto, none of such Practice Assets is subject to a contract or other agreement
of sale or subject to security interests, mortgages, encumbrances, liens
(including income, personal property and other tax liens) or charges of any kind
or character, except for the lien of property taxes not yet due and payable.
Upon completion of the Merger, the Surviving Corporation shall own the Practice
Assets of the Corporations free and clear of all liens and encumbrances, except
for the lien of property taxes not yet due and payable.
5.10 LITIGATION. Except as listed on Schedule 5.10, to the best of
knowledge of Stockholder, there is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting the Corporations, or any of their respective Practice Assets, or any
physician or other health care professional associated with or employed by
either Corporation, and to the best of Stockholder's knowledge there is no basis
for any of the foregoing.
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5.11 PERMITS AND LICENSES. The Corporations and all physicians and other
health care professionals associated with or employed by the Corporations have
all material permits and licenses required by all applicable laws; have made all
material regulatory filings necessary for the conduct of the Corporations'
business; and are not in violation of any of said permitting or licensing
requirements the violation of which would have a materially adverse effect on
the Corporations. A list of such permits and licenses is attached hereto as
Schedule 5.11.
5.12 AUTHORITY. (a) The execution of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action, and this Agreement is a valid and binding agreement of the Corporations
enforceable in accordance with its terms (subject as to enforcement of remedies
to the discretion of the courts in awarding equitable relief, and to applicable
bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and
similar laws effecting the rights of creditors generally). Attached hereto as
Schedule 5.12 is a listing of all third-party consents which must be obtained
prior to the Closing Date as required under Section 4.3 of this Agreement.
(b) To the best knowledge of Stockholder, the execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby, and/or
compliance by the Corporations and Stockholder with any of the provisions
hereof, will not:
(i) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of, any lien, security interest, charge or encumbrance upon any of
the assets to be conveyed hereunder under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
agreement or other instrument or obligation to which the Corporations or
Stockholder are a party, or by which either the Corporations or Stockholder
or any of the assets to be conveyed hereunder is bound; or
(ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable either to the Corporations or Stockholder or any of
the assets to be conveyed hereunder.
5.13 TAX MATTERS. Except as set forth in Schedule 5.13, each Corporation
has filed or caused to be filed all federal, state and local tax returns which
are required to have been filed by that Corporation, including all income,
excise, franchise, and payroll tax returns, and each Corporation has paid or
established an adequate reserve for all taxes accrued through the Effective Time
and has otherwise complied with all federal, state, local and other tax laws
applicable to it.
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5.14 EMPLOYEE BENEFIT PLANS. (a) List of Plans. Set forth on Schedule 5.14
is an accurate and complete list of all employee benefit plans ("Employee
Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not any Employee
Benefit Plans are otherwise exempt from the provisions of ERISA, established,
maintained or contributed to by the Corporation (including all employers
(whether or not incorporated) which by reason of common control are treated
together with the Corporations and/or Stockholder as a single employer within
the meaning of Section 414 of the Code) since September 2, 1974.
(b) Status of Plans. Neither Corporation has maintained and does not now
maintain or contribute to any Employee Benefit Plan subject to ERISA which is
not in substantial compliance with ERISA, or which has incurred any accumulated
funding deficiency within the meaning of either Section 412 or 418B of ERISA, or
which has applied for or obtained a waiver from the Internal Revenue Service of
any minimum funding requirement under Section 412 of the Code or which is
subject to Title IV of ERISA. Neither Corporation has incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") in connection with any
Employee Benefit Plan covering any employees of that Corporation or ceased
operations at any facility or withdrawn from any such Plan in a manner which
could subject it to liability under Section 4062(f), 4063 or 4064 of ERISA, and
knows of no facts or circumstances which might give rise to any liability of
Corporation to the PBGC under Title IV of ERISA which could reasonably be
anticipated to result in any claims being made against the Surviving Corporation
by the PBGC. Neither Corporation has incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Sections 4201 and 4202 of ERISA, to any Employee Benefit Plan which is a
Multiemployer Plan (as defined in Section 4001 of ERISA), and no event has
occurred, and there exists no condition or set of circumstances, which represent
a material risk of the occurrence of any withdrawal from or the partition,
termination, reorganization or insolvency of any Multiemployer Plan which would
result in any liability to a Multiemployer Plan.
(c) Contributions. Full payment has been made of all amounts which the
Corporations are required, under applicable law or under any Employee Benefit
Plan or any agreement relating to any Employee Benefit Plan to which Corporation
is a party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date hereof.
The Corporations have made adequate provision for reserves to meet contributions
that have not been made because they are not yet due under the terms of any
Employee Benefit Plan or related agreements. Benefits under all Employee Benefit
Plans are as represented and have not been increased subsequent to the date as
of which documents have been provided.
(d) Tax Qualification. Each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code has been determined to be so qualified by the
Internal Revenue Service and
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nothing has occurred since the date of the last such determination which
resulted or is likely to result in the revocation of such determination.
(e) Transactions. Neither Corporation has engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a tax, penalty
or liability for prohibited transactions under ERISA or the Code nor have any of
its directors, officers or employees to the extent they or any of them are
fiduciaries with respect to such plans, breached any of their responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA or would result
in any claim being made under or by or on behalf of any such plans by any party
with standing to make such claim.
(f) Other Plans. Neither Corporation presently maintains any employee
benefit plans or any other foreign pension, welfare or retirement benefit plans
other than those listed on Schedule 5.14.
(g) Documents. Stockholder has delivered or caused to be delivered to
Omega and its counsel true and complete copies of (i) all Employee Benefit Plans
as in effect, together with all amendments thereto which will become effective
at a later date, as well as the latest Internal Revenue Service determination
letter obtained with respect to any such Employee Benefit Plan qualified under
Section 401 or 501 of the Code, and (ii) Form 5500 for the most recent completed
fiscal year for each Employee Benefit Plan required to file such form.
5.15 THIRD-PARTY RELATIONS. The Corporations and Stockholder are not aware
of any problem or disagreements with any third parties with which either
Corporation does business, and the Corporations and Stockholder will use their
respective best efforts from the date of this Agreement until the Closing Date
to operate Corporations' businesses in such a manner so as not to adversely
affect the goodwill of their patients, suppliers, employees, associated
physicians and other such persons or third parties with which the Corporations
do business.
5.16 LEASED PROPERTY. Schedule 5.16 contains a list of all property leases
held by each Corporation and, except as set forth on Schedule 5.16, no material
adverse claim against, or defect in, the interest purportedly leased or given
under or by any such instrument exists, and neither the lessor nor either
Corporation is in default under any of such leases, and neither the Corporations
nor Stockholder is aware of any fact which, with notice and/or the passage of
time, would constitute such a default.
5.17 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in Schedule 5.17,
and to the best knowledge of Stockholder, the Corporations have operated in
material compliance with all material federal, state, county and municipal laws,
constitutions, ordinances, statutes, rules, regulations and orders applicable
thereto ("Applicable Laws"). No item disclosed on Schedule 5.17 has a material
effect on the operations of either Corporation.
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5.18 EMPLOYEE COMPENSATION. The Corporations have paid or discharged or
will pay or discharge or assume all liabilities for compensation and benefits to
which all employees are entitled through the Effective Time, including but not
limited to all salaries, wages, bonuses, incentive compensation, payroll taxes,
hospitalization and medical expenses, deferred compensation, and vacation and
sick pay, as well as any severance pay becoming due as a result of the
termination of certain of each Corporation's employees.
5.19 ENVIRONMENTAL MATTERS. Each Corporation is in compliance in all
material respects with all federal, state and local environmental laws, rules,
regulations, standards and requirements, including, without limitation those
respecting chemical, radiographic, or biomedical wastes or any other hazardous
substances or materials, as defined in any applicable federal or state law or
regulation ("Hazardous Wastes"). Except as disclosed on Schedule 5.19, any
storage, holding, release, emission, discharge, generation, processing,
disposition, handling or transportation of any Hazardous Wastes from, into or on
any portion of the clinic premises is and has been at all times in compliance in
all material respects with all federal, state and local environmental laws,
rules, regulations, standards and requirements.
5.20 HEALTHCARE COMPLIANCE. Each Corporation is participating in or
otherwise authorized to receive reimbursement from or is a party to Medicare,
Medicaid, and other third-party payors. To the best knowledge of Stockholder,
all necessary certifications and contracts required for participation in such
programs are in full force and effect and have not been amended or otherwise
modified, rescinded, revoked or assigned as of the date hereof, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. To the best
knowledge of Stockholder, each Corporation is in compliance in all material
respects with the requirements of all such third-party payors applicable
thereto.
5.21 FRAUD AND ABUSE. Neither the Corporations nor Stockholder nor persons
and entities providing professional services for the Corporations have, to the
knowledge of either the Corporations or Stockholder, engaged in any activities
which are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations
promulgated thereunder pursuant to such statutes, or related state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including but not limited to the following:
(a) knowingly and willfully making or causing to be made a false statement
or representation of a material fact in any application for any benefit or
payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
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(c) failing to disclose knowledge by a claimant of the occurrence of any
event effecting the initial or continued right to any benefit or payment on its
own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment; or
(d) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay or receive such remuneration (i)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing or any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service or item for which payment may
be made in whole or in part by Medicare or Medicaid.
5.22 FACILITY COMPLIANCE. Each Corporation is duly licensed and is lawfully
operated in accordance with the material requirements of all applicable material
law and has all necessary authorizations for the use and operation, all of which
are in full force and effect. To the best knowledge of Stockholder, there are no
outstanding notices of deficiencies relating to either Corporation issued by any
governmental authority or third-party payor requiring conformity or compliance
with any applicable law or condition for participation of such governmental
authority or third-party payor, neither the Corporations nor Stockholder have
received notice or have any knowledge or reason to believe that such necessary
authorizations may be revoked or not renewed in the ordinary course of business.
5.23 RATES AND REIMBURSEMENT POLICIES. To the best knowledge of
Stockholder, the jurisdiction in which the Corporations are located does not
currently impose any restrictions or limitations on rates which may be charged
to private pay patients receiving services provided by either Corporation. To
the best knowledge of Stockholder, neither Corporation has any rate appeal
currently pending before any governmental authority or any administrator of any
third-party payor program. Neither the Corporation nor Stockholder has knowledge
of any applicable law, which has been enacted, promulgated or issued within the
eighteen (18) months preceding the date of this Agreement or any such legal
requirement proposed or currently pending in the jurisdiction in which the
Corporations are located, which could have a material adverse effect on either
Corporation or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at either Corporation or require either Corporation to obtain any necessary
authorization which either Corporation does not currently possess.
5.24 TRADE RELATIONS. To the best knowledge of Stockholder, there
exists no actual or threatened limitation of the business relationship of either
Corporation with any material customer, supplier or landlord or with any person
whose contracts with either Corporation would be material to the operations of
either Corporation. To the best knowledge of Stockholder, there exists no
condition or state of facts or circumstances which (i) are likely to produce a
material adverse
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effect with respect to either Corporation or (ii) prevent the Surviving
Corporation from conducting its business after the consummation of the
transactions contemplated by this Agreement as such business is conducted or
proposed to be conducted.
5.25 EXHIBITS. All the facts recited in Exhibits or Schedules annexed
hereto (as updated as of the Closing Date) shall be deemed to be representations
of fact by the Corporations and Stockholder as though recited in this Article V.
5.26 FULL DISCLOSURE. No representation or warranty made by either the
Corporations or Stockholder in this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading. For purposes of this Article V, the Corporations shall be presumed
to have knowledge of all matters of which the Stockholder or officers of the
Corporations have knowledge, actual or constructive.
5.27 LIABILITIES. Attached hereto as Schedule 5.27 is a list of each
Corporation's liabilities existing on the Closing Date. This list shall include
the Demand Promissory Note dated as of December 31, 1995 in the amount of
$119,040.16 made by SJH to the order of Stockholder. The parties agree that the
amount outstanding on said note is $89,040.16, which amount shall be repaid by
Omega to Stockholder, in cash, at the Closing. The Corporations have no other
material uninsured liabilities (whether asserted or unasserted, whether absolute
or contingent, whether accrued or unaccrued, and whether due or to become due.)
5.28 INVESTMENT INTENT. Stockholder and the Corporations acknowledge that
the OHSI Stock has not been registered under the 1933 Act, and that the OHSI
Stock, except as provided for in Section 2.3, may not be sold, pledged or
otherwise transferred absent such registration, or unless an exemption from
registration is available. The Stockholder is acquiring the OHSI Stock for her
own account, for investment purposes only and not with a view to distribution of
such OHSI Stock within the meaning of Section 2(11) of the 1933 Act. The
Stockholder qualifies as an "accredited investor", as defined in Rule 501(a)
pursuant to the Securities Act. The Stockholder has received from OHSI a copy of
OHSI's Form 10-K for 1994 and 1995, OHSI's 10-Q for the quarter ended September
30, 1996, OHSI's 8-Ks filed March 12, 1996 and September 25, 1996 and OHSI's
1994 and 1995 Annual Report to Shareholders. The Stockholder has had the
opportunity to ask questions of and receive answers from OHSI senior management
concerning OHSI and the terms and conditions of this investment by the
Stockholder. The Stockholder has had the opportunity to obtain other additional
information concerning OHSI from OHSI senior management.
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ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF OMEGA AND OHSI
Omega and OHSI jointly and severally represent, warrant, covenant and agree
with Corporation and Stockholder as follows:
6.1 ORGANIZATION. Omega is a corporation duly organized, validly existing
and in good standing under the laws of the State of Alabama. OHSI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Omega and OHSI have the full power to own their
respective property, to carry on their respective businesses as presently
conducted, to enter into this Agreement and to consummate the transactions
contemplated hereby.
6.2 AUTHORITY. Omega and OHSI have taken all necessary action to authorize
the execution, delivery and performance of this Agreement, as well as the
consummation of the transactions contemplated hereby, and at Closing Omega and
OHSI shall deliver an officer's certificate to such effect. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any provisions of the charter or the
bylaws of either Omega or OHSI or any indenture, mortgage, deed of trust, lien,
lease, agreement, arrangement, contract, instrument, license, order, judgment or
decree or result in the acceleration of any obligation thereunder to which
either Omega or OHSI is a party or by which either Omega or OHSI is bound.
6.3 ABSENCE OF LITIGATION. No action or proceeding by or before any court
or other governmental body has been instituted or is, to the best of Omega's and
OHSI's knowledge, threatened with respect to the transactions contemplated by
this Agreement.
6.4 Shares. Upon delivery of the certificates representing ownership of
the OHSI Stock, such OHSI Stock will be fully paid and nonassessable.
6.5 OMEGA HEALTH SYSTEMS, INc. Omega is a wholly-owned subsidiary of OHSI.
6.6 OHSI STOCK. OHSI has a sufficient number of authorized but unissued
and/or treasury shares of its OHSI Stock available for issuance to Stockholder
in accordance with the provisions of this Agreement. The OHSI Stock to be issued
pursuant to this Agreement will, when so delivered, be (i) duly and validly
issued, fully paid and nonassessable, and (ii) notified for listing on Nasdaq.
6.7 CAPITALIZATION. OHSI has an authorized capitalization of 25,000,000
shares of common stock ("OHSI Comon Stock"), par value $.06 per share, of which
6,879,978 shares are issued and outstanding. All of the issued and outstanding
shares of OHSI Common Stock have been duly and validly issued and are fully paid
and nonassessable. Except as described on
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Schedule 6.7, there are no options, warrants or similar rights granted by OHSI
or any other agreements to which OHSI is a party providing for the issuance or
sale by it of any additional securities. There is no liability for dividends
declared or accumulated but unpaid with respect to any shares of OHSI Common
Stock.
6.8 OMEGA COMMON STOCK. OHSI owns, beneficially and of record, all of the
issued and outstanding shares of Common Stock of Omega, which are validly issued
and outstanding, fully paid and nonassessable, free and clear of all liens and
encumbrances. OHSI has taken all such actions as may be required in its capacity
as the sole shareholder of Omega to approve this transaction.
6.9 OHSI DOCUMENTS. OHSI has heretofore furnished Seller with the
documents filed by OHSI since December 31, 1995, with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
which include OHSI's Form 10-K for 1994 and 1995, OHSI's 10-Q per the quarter
end September 30, 1996, OHSI's 8-Ks filed March 12, 1996 and September 25, 1996
and OHSI's 1994 and 1995 Annual Report to Shareholders' documents (the "OHSI
Documents"). The OHSI Documents, as filed, did not contain any untrue statements
of material facts or omit to state material facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Since the filing dates of the OHSI
Documents, OHSI has not experienced any material adverse change in its business
operations or financial condition. The financial statements contained in the
OHSI Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated, reflect all known liabilities of OHSI,
including all known contingent liabilities as of the end of each period
reflected therein, and present fairly the financial condition of OHSI, as
applicable, at said dates and the consolidated results of operations and cash
flows of OHSI for the periods then ended.
6.10 FRAUD AND ABUSE. To the actual knowledge of OHSI, neither OHSI nor
Omega has engaged in any activities which are prohibited under ss. 1320a-7b of
Title 42 of the United States Code or the regulations promulgated thereunder, or
related state or local statutes or regulations, or which are prohibited by rules
of professional conduct, including, but not limited to, the following: (i)
knowingly and willingly making or causing to be made a false statement or
representation of a material fact in any application for any benefit or payment;
(ii) knowingly and willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (iii) any failure by a claimant to disclose knowledge of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or payment; and (iv) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe or
rebate) directly or indirectly, overtly or covertly, in cash or in kind, or
offering to pay or receive such remuneration (A) in return for referring an
individual to
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a person for the furnishing or arranging for the furnishings of any item or
service for which payment may be made in whole or in part by Medicare or
Medicaid, or (B) in return for purchasing, leasing or ordering or arranging for,
or recommending, purchasing, lease or ordering any good, facility, service or
item for which payment may be made in whole or in part by Medicare or Medicaid.
6.11 LEGAL PROCEEDINGS. There is no material litigation, governmental
investigation or other proceeding pending or, so far as is known to OHSI
threatened against or relating to OHSI or Omega, their respective properties or
business, or the transaction contemplated by this Agreement and, so far as if
known to OHSI and Omega, no basis for any such action exists.
ARTICLE VII.
CONDUCT OF BUSINESS; REVIEW
7.1 CONDUCT OF BUSINESS OF CORPORATION. During the period from the date of
this Agreement to the Closing Date, each Corporation shall conduct its business
only in the ordinary and usual course of business, and the Corporations and
Stockholder shall use their respective best efforts to preserve intact each
Corporation's business organization, keep available the services of its
employees and maintain satisfactory relationships with patients and others
having business, medical or professional relationships with each Corporation.
The Corporations shall immediately notify Omega of any unexpected emergency or
other change in the normal course of its business or in the operation of its
properties and of any governmental complaints, investigations, hearings (or
communications indicating that the same may be contemplated), or adjudicatory
proceedings involving the business or practice of either the Corporations or any
physician employee of the Corporations, and the Corporations shall keep Omega
fully informed of such events and permit its representatives prompt access to
all materials prepared in connection therewith.
7.2 EXCLUSIVE DEALINGS. During the period from the date of this Agreement
to the Closing Date, or upon the earlier termination of this Agreement pursuant
to Article XIV, the Corporations shall refrain from taking any actions, directly
or indirectly, to encourage, initiate, or engage in discussions or negotiations
with, or provide any information to, any corporation, partnership, person, or
other entity or group, other than Omega, concerning the purchase of the
Corporations or their stock or assets, or any merger, joint venture or similar
transaction involving either Corporation and will not enter into any such
transaction. The parties agree that any information provided will be used solely
for the purpose of evaluating the transaction contemplated herein and will be
kept confidential and not disclosed to others. If the transaction contemplated
hereunder shall fail to close for any reason, then each party will promptly
redeliver to the other all written material containing or reflecting any
information concerning the Corporations, Omega or OHSI, regardless of by whom
prepared, and will not retain any copies, extracts or other reproductions in
whole or in part of such written material.
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7.3 REVIEW OF CORPORATION BY OMEGA. Omega, prior to the Closing Date,
through its representatives, may review the assets, books, and records of the
Corporations as well as their financial and legal condition as Omega deems
necessary or advisable to familiarize itself with such assets and other matters;
such review shall not, however, affect the representations and warranties made
by the Corporations herein and in the Exhibits and Schedules attached hereto.
The Corporations shall permit Omega and its representatives to have full access
to the premises and to all books and records of the Corporations during normal
business hours and to cause its officers and employees to furnish Omega with
such financial and operational data and other information with respect to the
business and assets of the Corporations as Omega shall from time to time
reasonably request.
ARTICLE VIII.
TRANSFERS AND FURTHER ASSURANCES
From time to time after the date hereof, at the request of a party hereto
(the "Requesting Party"), the other parties shall, without further
consideration, execute, acknowledge and deliver such further instruments of
transfer and other assurances and shall take such other action as the Requesting
Party reasonably may request in order to effectuate the Merger or any resulting
transfer of assets as a result of the Merger.
ARTICLE IX.
INDEMNIFICATION; SET-OFF
9.1 INDEMNIFICATION OF OMEGA AND OHSI. The Corporations and Stockholder
shall indemnify, defend and hold Omega, OHSI and their respective officers,
directors, shareholders, agents, employees, representatives, successors and
assigns harmless from and against any and all damage, loss, cost, obligation,
claims, demands, assessments, judgments or liability (whether based on contract,
tort, product liability, strict liability or otherwise), including taxes, and
all expenses (including interest, penalties and reasonable attorneys' and
accountants' fees and disbursements) incurred by any of the above-named persons,
resulting from or in connection with any one or more of the following:
(a) Misrepresentations, breach of warranties, failure to perform any
covenant or Agreement of either Corporation or Stockholder contained herein;
(b) Any liabilities or obligations of either Corporation existing as of
the Closing Date and not described on the December 31, 1996 balance sheet;
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(c) Any transaction, event or act that occurred on or prior to the Closing
Date that materially adversely affects the value of the Practice Assets;
(d) Claims, actions or suits by employees or former employees of either
Corporation; or
(e) Stockholder's failure to discharge pension or benefit plan
obligations.
Omega agrees to give prompt notice to Stockholder of the assertion of any claim,
or the threat or commencement of any suit, action, proceeding or other matter in
respect of which indemnity may be sought under this Section 9.1. Stockholder may
participate in the defense of any such suit, action, proceeding or other matter
at Stockholder's expense. Stockholder shall not be liable under this Section 9.1
for any settlement effected without Stockholder's consent of any claim, suit,
action, proceeding or other matter in respect of which indemnity may be sought
under this Section 9.1, which consent shall not be unreasonably withheld. The
indemnity to be paid to Omega under this Section 9.1 may be paid in either cash,
Omega Stock, or some combination of both, at the election of the Shareholder.
For purposes of this Section 9.1, Omega Stock used to pay any indemnity under
this section shall be valued according to the Omega Stock's fair value as
determined pursuant to Section 2 hereof.
9.2 GENERAL INDEMNIFICATION OF STOCKHOLDER AND CORPORATION. Omega and OHSI
shall indemnify, defend and hold the Corporations and their officers, directors,
Stockholder, agents, employees, representatives, successors and assigns harmless
from any and all damage, loss, cost, obligation, claims, demands, assessments,
judgments or liability (whether based on contract, tort, product liability,
strict liability or otherwise), including taxes and all expenses (including
interest, penalties and reasonable attorneys' and accountants' fees and
disbursements) incurred by any of the above-named persons, resulting from or in
connection with misrepresentations, breach of warranties or failure to perform
any covenant or agreement of Omega or OHSI contained herein. Stockholder agrees
to give prompt notice to Omega of the assertion of any claim, or the threat or
commencement of any suit, action, proceeding or other matter in respect of which
indemnity may be sought under this Section 9.2. Omega or OHSI may participate in
the defense of any such suit, action, proceeding or other matter at Omega's or
OHSI's expense. Neither Omega nor OHSI shall be liable under this Section 9.2
for any settlement effected without Omega's or OHSI's consent of any claim,
suit, action, proceeding or other matter in respect of which indemnity may be
sought under this Section 9.2, which consent shall not be unreasonably withheld.
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9.3 SURVIVAL. The representations and warranties of the Corporations,
Stockholder and Omega contained in this Agreement and the indemnifications
contained in this Article IX shall survive the Merger through April 30, 1999
(the "Indemnification Period"). Any matter to which an indemnification pertains
and with respect to which a claim has been asserted or threatened following the
Closing Date, and prior to the expiration of the Indemnification Period, shall
continue to be subject to the indemnifications under this Article IX until
finally terminated, settled, resolved, or adjudicated; and all terms, conditions
and stipulations of this Article IX shall likewise continue to apply.
9.4 SECURITY FOR INDEMNITY. The Corporations and Stockholder hereby agree
that in the event either Omega or OHSI is entitled to indemnification pursuant
to the provisions of this Article IX and either the Corporations or Stockholder
does not pay to Omega or OHSI the amount due hereunder, then Omega or OHSI shall
be entitled to exercise those rights set forth in that certain Stock Pledge and
Escrow Agreement, dated as of March 1, 1997, by and among Omega, OHSI, and
Stockholder.
9.5 LIMITATIONS. The parties agree that no claims for indemnification will
be asserted against the indemnifying party unless and until the aggregate amount
of such claims shall equal or exceed Twenty-five Thousand Dollars ($25,000).
Moreover, the parties agree that the maximum aggregate liability of Stockholder
for payments made pursuant to this Article IX shall not exceed One Million
Dollars ($1,000,000).
9.6 INDEMNIFICATION PROCEDURE. (a) Within sixty (60) days after the
party indemnified under Section 9.1 or Section 9.2 (the "Indemnified Party")
receives written notice of the commencement of any claim, suit, action,
proceeding or other matter in respect of which indemnity may be sought under
Section 9.1 or Section 9.2, or within such lesser time as may be provided by law
for the defense of such claim, suit, action, proceeding or other matter, the
Indemnified Party shall notify the indemnifying party (the "Indemnitor").
(b) If any claim, suit, action, proceeding or other matter shall be
brought against any Indemnified Party, the Indemnitor shall, upon written notice
given within a reasonable time following receipt by the Indemnitor of such
notice from the Indemnified Party, be entitled to assume the defense of such
claim, suit, action, proceeding or other matter with counsel chosen by the
Indemnitor; provided, however, that the Indemnified Party may retain separate
counsel at its own expense to participate in such defense.
(c) Notwithstanding the foregoing, the Indemnified Party shall have the
right to employ separate counsel at Indemnitor's expense and to control its own
defense of any claim, suit, action, proceeding or other matter if, in the
reasonable opinion of counsel to the Indemnified Party that:
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(i) there are or may be legal defenses available to the Indemnified
Party that are different from or additional to those available to
the Indemnitor and which could not be adequately advanced by
counsel chosen by the Indemnitor; or
(ii) a conflict or potential conflict exists between the Indemnitor
and the Indemnified Party that would make separate representation
advisable.
Provided, however, that in no event shall the Indemnitor be required to pay fees
and expenses for more than one (1) firm of attorneys in any jurisdiction in any
one claim, suit, proceeding or other matter.
(d) The Indemnitor shall not be liable under this Article IX for any
settlement effected without Indemnitor's consent of any claim, suit, action,
proceeding or other matter in respect of which indemnity may be sought under
this Article IX, which consent shall not be unreasonable withheld.
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ARTICLE X.
BUYBACK EVENT; REIMBURSEMENT PAYMENT
10.1 BUYBACK EVENT. (a) Should a Buyback Event (hereinafter defined) occur,
then the provisions of this Section 10.1 shall apply. For purposes of this
Section, a "Buyback Event" shall occur upon either of (i) written notice by
Stockholder to P.C., with a copy to Omega of an intent not to perform under
Section 6.9 of the Employment Agreement, or (ii) written notice to Stockholder
from Omega, or from P.C., of nonperformance by Stockholder under Section 6.9 of
the Employment Agreement, and the continuation of such nonperformance for a
period of thirty (30) days (other than as a result of death or Disability as
defined in Section 14.2 of the Employment Agreement of Stockholder, or as a
result of a breach by Omega under Section 6.1 or Section 6.3 of the Management
Agreement) (the written notices described in (i) and (ii) being hereinafter
referred to as the "Buyback Notice").
(b) Should a Buyback Event occur on or before February 28, 1998, then Omega
is obligated to sell, and Stockholder is obligated to buy Stockholder's Practice
(hereinafter defined) (the "Buyback") for an amount (the "Buyback Amount") equal
to One Million One Hundred Fifty Thousand Dollars ($1,150,000).
(c) After February 28, 1998, and through February 28, 1999, upon the
occurrence of a Buyback Event, the Buyback Amount shall equal Nine Hundred
Thousand Dollars ($900,000).
(d) The provisions of this Section 10.1 shall not apply after February 28,
1999.
(e) For purposes of this Section 10.1, the "Practice" shall include the
supplies, inventory, equipment and furniture, and all other tangible personal
property (cash, accounts receivable, and other intangible assets shall be
excluded from such Buyback) acquired by Omega in the Merger and by purchase from
the Hays Children's Trust Dated December 27, 1992 and any replacement assets and
replacement liabilities of Omega then existing and relating to Omega's ownership
of the Merger Assets.
(f) The Buyback Amount shall be tendered within thirty (30) days of the
Buyback Notice (the "Closing"), and shall be payable in cash, OHSI common stock,
a note from Stockholder to Omega or some combination thereof. The OHSI common
stock shall be valued at $6.61 per share. Any note of Stockholder shall not
exceed Two Hundred Fifty Thousand Dollars ($250,000) and shall be at an interest
rate of prime plus 1% payable in amortized monthly installments over thirty-six
(36) months. At the Closing, Omega shall deliver to Stockholder a bill of sale
and assignment transferring all title to the Practice to Stockholder, subject to
the liabilities related to the Practice which shall then be assumed by
Stockholder as a part of the
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Buyback. The parties agree that to the extent Stockholder shall be required to
assume such liabilities, the Buyback Amount shall be reduced by an amount equal
to the sum of such liabilities.
10.2 REIMBURSEMENT PAYMENT. (a) After February 28, 1999 and through
February 28, 2002, Stockholder shall pay to Omega a Reimbursement Payment
(hereinafter defined) upon either of (i) written notice by Stockholder to P.C.,
with a copy to Omega of an intent not to perform under Section 6.9 of the
Employment Agreement, or (ii) written notice to Stockholder from Omega, or from
P.C., of nonperformance by Stockholder under Section 6.9 of the Employment
Agreement, and the continuation of such nonperformance for a period of thirty
(30) days (other than as a result of death or Disability as defined in Section
14.2 of the Employment Agreement of Stockholder, or as a result of a breach by
Omega under Section 6.1 or Section 6.3 of the Management Agreement) (the written
notices described in (i) and (ii) being hereinafter referred to as the
"Reimbursement Notice"). The parties agree that the Reimbursement Payment is an
amount reasonable and necessary to enable Omega to obtain the services of
another qualified ophthalmologist to provide services at the Centers.
(b) Should a Reimbursement Notice be given on or before February 28, 2000,
then the Reimbursement Payment shall equal Five Hundred Thousand Dollars
($500,000). After February 28, 2000, and through February 28, 2002, the
Reimbursement Payment shall equal Four Hundred Thousand Dollars ($400,000).
(c) The provisions of this Section 10.2 shall not apply after February 28,
2002.
(d) The Reimbursement Amount shall be tendered within thirty (30) days of
the Reimbursement Notice (the "Closing"), and shall be payable, at Stockholder's
option in cash, or OHSI common stock, or some combination thereof. The OHSI
common stock shall be valued at $6.61 per share.
ARTICLE XI.
MEDIATION AND ARBITRATION
11.1 MEDIATION. In the event a dispute arises out of or relating to this
Agreement, or the breach thereof, and if said dispute cannot be settled through
negotiation, the parties agree to attempt in good faith to settle the dispute by
mediation under the Commercial Mediation Rules of the American Arbitration
Association. Unless the parties reach an agreement reduced to writing, this
mediation will be non-binding, but the parties must participate in good faith in
non-binding mediation, before resorting to binding arbitration.
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11.2 BINDING ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or its breach, not satisfied through either
negotiation or mediation, shall be settled by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction.
As soon as reasonably practical after submission of a demand for binding
arbitration, the parties shall select one arbitrator, agreeable to all parties.
This arbitrator will be selected from lists prepared by the American Arbitration
Association. From the American Arbitration Association list the parties will
submit to the American Arbitration Association a ranked list of arbitrators
which are acceptable. The highest ranking acceptable candidate will be selected
by the American Arbitration Association. If no arbitrators from the list
composed by the American Arbitration Association are acceptable by either of the
parties, the American Arbitration Association will compile a second list. This
procedure will be followed until the parties have selected an arbitrator. The
results of the arbitrator's finding will be binding on the parties.
ARTICLE XII.
EXPENSES
Each of the parties shall pay their own costs and expenses incurred or to
be incurred by it in negotiating and preparing this Agreement and in Closing and
carrying out the transactions contemplated by this Agreement. Prior to the
Closing Date, the Corporations shall pay or satisfy any obligation for such
expenses.
ARTICLE XIII.
COSTS
Should any mediation or binding arbitration ("Dispute Resolution") arising
out of this Agreement be instituted by any party to this Agreement against
another party, the party prevailing in such Dispute Resolution shall be
entitled, in addition to such other damages and relief as the mediator or
arbitrator shall award, to reimbursement of reasonable attorneys' fees, costs
and other expenses incurred in the prosecution or defense of such Dispute
Resolution.
ARTICLE XIV.
TERMINATION
Notwithstanding any of the foregoing provisions, this Agreement may be
terminated at any time prior to the Effective Time:
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(a) By mutual written consent of all the parties hereto;
(b) By written notice from Omega or OHSI to a Corporation if any of the
representations and warranties made by that Corporation and Stockholder in this
Agreement or in the Exhibits and Schedules annexed hereto are reasonably
determined by Omega or OHSI to be untrue or inaccurate in any material respect;
or
(c) By written notice from the Corporations or Stockholder to Omega if any
of the representations and warranties made by Omega or OHSI in this Agreement
are reasonably determined by Corporation to be untrue or inaccurate in any
material respect.
ARTICLE XV.
NOTICES
Any notices hereunder shall be deemed to have been given by one party to
the other if it is in writing and it is (a) delivered or tendered in person or
(b) deposited in the United States mail in a sealed envelope, with postage
prepaid, (c) sent by Federal Express, or comparable overnight package service,
or (d) transmitted by facsimile or telecopier to a number given by the
addressee, in any case addressed as follows:
If to Omega or OHSI: Omega Eye Associates of Birmingham, Inc.
5100 Poplar Avenue, Suite 2100
Memphis, Tennessee 38137
Attn: Thomas P. Lewis
with a copy to: Baker, Donelson, Bearman & Caldwell, P.C.
2000 First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
Attn: Robert Walker
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If to the Corporations
or Stockholder: Sarah J. Hays, M.D.
700 18th Street South, Suite 404
Birmingham, Alabama 35233
with a copy to: Walston, Wells, Anderson & Bains, LLP
505 20th Street North, Suite 500
Birmingham, Alabama 35203
Attn: Ronald A. Levitt
or to such other address as the party addressed shall have previously designated
by notice to the serving party, given in accordance with this Article XV.
Notices shall be deemed to have been duly given (i) on the date of delivery if
delivered personally; (ii) or on the third day after mailing if mailed as
provided above (iii) when signed for and accepted, if sent by Federal Express,
or comparable overnight package service, or (iv) when received and confirmed, if
sent by facsimile or telecopier; provided, however, that a notice not given as
above shall, if it is in writing, be deemed given if and when actually received
by a party.
ARTICLE XVI.
AMENDMENT AND WAIVER
The parties hereto may by mutual agreement amend this Agreement in any
respect. Any party hereto may extend the time for the performance of any of the
obligations of the other, waive any inaccuracies in representations by the other
contained in this Agreement or in any document delivered pursuant hereto, which
inaccuracies would constitute a breach of this Agreement, waive compliance by
the other with any of the covenants contained in this Agreement and performance
of any obligations by the other, and waive the fulfillment of any condition that
is precedent to the performance by the party so waiving any of its obligations
under this Agreement. Any agreement on the part of any party for any such
amendment, extension or waiver must be in writing and signed by the party
agreeing to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
ARTICLE XVII.
EMPLOYEES - EMPLOYEE BENEFITS
17.1 AFFECTED EMPLOYEES. "Affected Employees" shall mean medical employees,
a list of which is attached hereto as Schedule 17.1, of the Corporations on the
Closing Date.
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17.2 RESPONSIBILITIES. Prior to the Closing Date, each Corporation agrees
to satisfy, or cause its insurance carriers to satisfy, all claims for medical,
health and hospital benefits, whether insured or otherwise (including, but not
limited to, workers' compensation, life insurance, medical and disability
programs), under that Corporation's employee benefit plans brought by, or in
respect of, Affected Employees and former employees of that Corporation prior to
the Closing Date, in accordance with the terms and conditions of such employee
benefit plans or applicable workers compensation statutes without interruption
as a result of the employment by the Surviving Corporation of any such employees
after the Closing Date.
17.3 TERMINATION BENEFITS. The Corporations and Stockholder shall be solely
responsible for, and shall pay or cause to be paid, severance payments and other
termination benefits, if any, to Affected Employees who may become entitled to
such benefits by reason of any events occurring prior to the Closing Date. If
any action on the part of either Corporation prior to the Closing, or if the
Merger pursuant to this Agreement shall result in any liability or claim of
liability for severance payments or termination benefits, or any liability,
forfeiture, fine or other obligation by virtue of any state, federal or local
law, such liability or claim of liability shall be the sole responsibility of
Stockholder, and Stockholder shall indemnify and hold harmless the Surviving
Corporation from any losses resulting directly or indirectly from such liability
or claim.
17.4 EMPLOYEE BENEFIT PLANS. (a) On or prior to the Closing Date,
Stockholder shall cause the Corporations to either terminate any employee
benefit plans maintained by Corporation or cause another entity to assume their
sponsorship through merger, consolidation or transfer of plan assets as
described in ss.414(i) of the Internal Revenue Code of 1986, as amended. Should
the time needed to effect such termination, merger, consolidation, or transfer
extend beyond the Closing Date, any and all costs of such shall be the sole
responsibility of the Stockholder.
(b) The parties acknowledge that the Sarah Jablecki Hays, M.D., P.C.
Profit Sharing Plan (the "Plan") is being terminated in connection with this
transaction and that a request for a determination letter from the Internal
Revenue Service is being made in connection with such termination. Omega and
OHSI shall cooperate with Dr. Hays in connection with the termination of the
Plan and the request for the determination letter.
ARTICLE XVIII.
MISCELLANEOUS
18.1 PRESS RELEASE. Except as required by law, neither the Corporations nor
Stockholder shall make any press releases or other public announcements relating
to this Agreement or the transactions contemplated hereby, without the prior
written consent of Omega.
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18.2 BINDING EFFECT. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto, their successors and assigns.
18.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes any
prior agreements and understandings of the parties in connection therewith.
18.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Alabama. Any mediation or
binding arbitration with respect to this Agreement shall be conducted in
Jefferson County, Alabama.
18.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
18.6 HEADINGS. The subject headings of the Articles, Sections and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
18.7 FINDERS. Each party warrants to the other that no finder or broker has
been engaged by it in this transaction and that no finder's or brokerage fees
are due to any person as a result of this Agreement.
18.8 NO THIRD-PARTY BENEFIT. Except as otherwise expressly provided,
nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any person other than the parties hereto, any right,
remedy, or claim, legal or equitable, under or by reason of this Agreement or
any provision thereof.
18.9 ASSIGNMENT. Neither this Agreement nor any of the rights or duties of
any party hereto may be transferred or assigned to any person except by a
written agreement executed by each of the parties hereto, except that Omega or
OHSI reserves the right to assign this Agreement to any affiliate or successor
of either Omega or OHSI.
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year hereinabove first set forth.
OMEGA:
OMEGA EYE ASSOCIATES OF
BIRMINGHAM, INC.
By:
---------------------------------------
Ronald L. Edmonds, Executive Vice President
OHSI:
OMEGA HEALTH SYSTEMS, INC.
By:
---------------------------------------
Ronald L. Edmonds, Executive Vice President
SJH:
SARAH JABLECKI HAYS, M.D., P.C.
By:
---------------------------------------
Sarah J. Hays, M.D., President
RSCB:
REFRACTIVE SURGERY CENTER OF
BIRMINGHAM,
A PROFESSIONAL CORPORATION
By:
---------------------------------------
Sarah J. Hays, M.D., President
STOCKHOLDER:
------------------------------------------
SARAH J. HAYS, M.D.
36
<PAGE> 1
Exhibit 10(p)
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") is entered into as of this the
29th day of August, 1997, by and among DILLMAN EYE CARE OPTICAL DEPARTMENT,
INC. an Illinois corporation (the "Corporation"); OMEGA HEALTH SYSTEMS OF
ILLINOIS, INC., an Illinois corporation ("Omega"); OMEGA HEALTH SYSTEMS, INC.,
a Delaware corporation ("OHSI") and DAVID M. DILLMAN, M.D., a citizen and
resident of Illinois ("Stockholder").
W I T N E S S E T H:
WHEREAS, Corporation is an Illinois corporation, which owns certain
assets which are used by and/or result from Stockholder's practice of providing
eye care to patients;
WHEREAS, Stockholder is the sole stockholder of Corporation and is an
ophthalmologist practicing medicine in the State of Illinois;
WHEREAS, Corporation, Omega and Stockholder intend that the
transaction consummated pursuant to this Agreement shall qualify as a
reorganization pursuant to ss. 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended ("Code" or "I.R.C."); and
WHEREAS, the parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties, it is
agreed as follows:
ARTICLE I.
MERGER TRANSACTION
1.1 BASIC TRANSACTION. (a) Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.1(b)(i)), Corporation
shall be merged with and into Omega in accordance with this Agreement and the
separate corporate existence of Corporation shall thereupon cease (the
"Merger"). Omega shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"). The Merger shall have
the effects specified in Section 5/11.52 of the Illinois Business Corporation
Act (the "IBCA"). By execution and delivery of this Agreement, Stockholder
hereby approves the Merger on the terms and subject to the conditions set forth
herein, which approval shall be effective as an action without a meeting
pursuant to Corporation's bylaws and the IBCA.
<PAGE> 2
(b) Effect of Merger.
(i) General. If all the conditions to the Merger set forth
in Article IV shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as provided
in Article XIII, the parties hereto shall cause Articles of Merger
meeting the requirements of the IBCA to be properly executed, verified
and delivered for filing in accordance with the IBCA on the Closing
Date set forth in Article III. The Merger shall become effective upon
the later of acceptance for filing of the Articles by the Secretary of
State of the State of Illinois or at such later time which the parties
hereto shall have agreed upon and designated in the Articles of Merger
in accordance with applicable law as in effect at the time of the
Merger (the "Effective Time"). The Surviving Corporation may, at any
time after the Effective Time, take any action (including executing and
delivering any document or instrument) in the name and on behalf of
Omega or the Corporation in order to carry out and effectuate the
transaction contemplated by this Agreement.
(ii) Certificate of Incorporation. The Articles of
Incorporation of Omega in effect at and as of the Effective Time will
remain the Articles of Incorporation of the Surviving Corporation
without any modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of Omega in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment in the Merger.
(iv) Directors and Officers. The directors and officers of
Omega in office at and as of the Effective Time will remain the
directors and officers of the Surviving Corporation (retaining their
respective positions and terms of office).
(v) Omega Shares. Each share of common stock of Omega Health
Systems of Illinois, Inc. (the "Omega Stock") issued and outstanding
at and as of the Effective Time will remain issued and outstanding.
ARTICLE II.
CONSIDERATION
2.1 CONSIDERATION. As consideration for the Merger, all shares of
common stock of Corporation shall, without further action on the part of
Stockholder, be exchanged for shares of voting common stock of OHSI (the "OHSI
Stock") valued at Five Hundred Thousand Dollars ($500,000) to be issued to
Stockholder (the "Consideration"). Each share of OHSI Stock shall be valued at
the average of the closing price of OHSI Stock for the twenty (20)
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<PAGE> 3
trading days immediately prior to July 28, 1997. No fractional share of OHSI
Stock shall be issued. The OHSI Stock shall not be registered under the
Securities Act of 1933 (the "1933 Act") and will be restricted securities, as
defined in Rule 144(a)(3) under the 1933 Act that are not fully transferable,
except to the extent provided herein, and the certificates reflecting the OHSI
Stock shall bear a legend to that effect.
2.2 TAX REPORTING. The Merger shall constitute a reorganization under
I.R.C. ss. 368(a)(1)(A). Each of the parties agrees to report this transaction
for financial and income tax purposes in accordance with the foregoing.
2.3 REGISTRATION RIGHTS. The Stockholder will be entitled to
"piggyback" registration rights for unregistered OHSI Stock, on registrations
under the 1933 Act, of OHSI's stock or securities, subject to the right of OHSI
and its underwriters to reduce the number of shares of OHSI Stock proposed to
be registered in view of market conditions, and OHSI shall promptly advise the
Stockholder of any proposed registration. Such underwriter's "cutback" shall be
applied proportionately to all unregistered OHSI Stock or other securities and
unregistered warrants or stock options which are requesting registration at
such time pursuant to contractual rights. The costs of OHSI of registering such
OHSI Stock in a piggyback registration shall be borne by OHSI, except that
underwriting discounts and commissions on OHSI stock sold by Stockholder shall
be paid by the Stockholder, and the cost of Stockholder's counsel to be paid by
Stockholder.
2.4 TRANSFERABILITY OF OHSI STOCK. Provided any transferee under this
subsection acknowledges any restrictions placed on the OHSI Stock, nothing in
this Agreement shall prevent the OHSI Stock from being transferred in whole, or
in part, to one or more members of Stockholder's family, to a trust established
for Stockholder's benefit or the benefit of one or more of the members of the
Stockholder's family, to a family partnership (general or limited) established
by Stockholder or one or more of the members of Stockholder's family, or to any
other entity that is owned by Stockholder and one or more of the members of
Stockholder's family.
ARTICLE III.
THE CLOSING
The closing of the Merger contemplated herein (the "Closing") shall
take place at such time and place as the parties hereto may agree in writing
(the "Closing Date"). The parties agree that the Closing Date shall be
extended, if required, to allow either party to fulfill any condition of this
Agreement, but in no event shall the Closing Date extend beyond August 31,
1997, unless such extension is agreed to in writing by all of the parties.
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<PAGE> 4
ARTICLE IV.
ITEMS TO BE DELIVERED AT OR PRIOR TO CLOSING
4.1 BY STOCKHOLDER OR CORPORATION. Stockholder or Corporation, as
applicable, shall execute and deliver on the Closing Date:
(a) Certified resolutions of Corporation authorizing the execution of
all documents and the consummation of all transactions contemplated hereby.
(b) Articles of Merger and a Plan of Merger under the IBCA which shall
be in the form attached hereto as Exhibit 4.1.1(a) and Exhibit 4.1.1(b),
respectively.
(c) Stock certificates representing ownership of all shares of
Corporation, duly endorsed to Omega.
(d) A Certificate, duly executed by Stockholder and the President of
Corporation, stating that, as of the Closing Date, all representations and
warranties of Stockholder and Corporation contained in this Agreement or in any
Exhibit or Schedule hereto are true and correct in all material respects, all
covenants and agreements contained in this Agreement to be performed by
Stockholder or Corporation on or prior to the Closing Date have been performed
or complied with, and all conditions to Closing contained in Section 4.3 hereof
have been satisfied.
(e) An opinion of counsel for the Corporation and the Stockholder
dated as of the Closing Date, in form and substance reasonably satisfactory to
Omega's counsel, and where appropriate with reliance upon a certificate from
Corporation and the Stockholder to the effect that:
(i) Corporation (A) is duly incorporated and validly existing
as a business corporation under the Illinois Business Corporation Act,
(B) is in good standing as a business corporation under the laws of
the State of Illinois, and (C) has the corporate power and authority
to hold its own properties and carry on its business as now conducted.
(ii) Corporation has the full corporate power and authority
to execute, deliver and perform this Agreement and all other
agreements and documents contemplated hereby to which Corporation is a
party and which are necessary to consummate the transaction
contemplated hereby and, all action required of Corporation necessary
for such execution, delivery and performance will have been duly
taken.
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<PAGE> 5
(iii) This Agreement and all agreements contemplated hereby
to which Corporation is a party have been duly executed and delivered
by Corporation and constitute the valid and binding agreements of
Corporation enforceable in accordance with their terms (subject as to
enforcement of remedies to the discretion of the courts in awarding
equitable relief and to applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium and similar laws
effecting the rights of creditors generally). The execution and
delivery by Corporation of this Agreement, and the performance of its
obligations hereunder, do not require, any action or consent of any
party other than Corporation pursuant to any contract, agreement or
other understanding of either Stockholder or Corporation, or pursuant
to any order or decree to which either Stockholder or Corporation is a
party or to which Corporation's properties or assets are subject and
will not violate any provisions of the articles of association or
bylaws of Corporation or any order of any court or other agency of the
government.
(iv) To the best of such counsel's knowledge, with respect to
Corporation (except for the matters included in Schedule 5.10 hereto),
there are no actions, suits, claims, proceedings or investigations
pending or threatened against Corporation at law or in equity, or
before or by a federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any professional licensing or disciplinary
authority which would adversely affect the transactions contemplated
herein or the right of Corporation or Stockholder to enter into this
Agreement.
(v) Neither Stockholder nor Corporation is in default with
respect to any order, writ, injunction or decree of any court or of
any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign which would adversely affect the rights of either Stockholder
or Corporations to enter into and perform this Agreement.
(f) Such other instruments as may be reasonably requested by Omega or
OHSI in order to give effect to or carry out the intent of this Agreement.
4.2 BY OMEGA AND OHSI. Omega shall execute and deliver on the Closing
Date:
(a) Stock Certificates representing ownership of the OHSI Stock set
forth under Section 2.1.
(b) An opinion of counsel for Omega and OHSI dated as of the Closing
Date, in form and substance reasonably satisfactory to Corporation's and
Stockholder's counsel, and where appropriate with reliance upon a certificate
from Omega or OHSI to the effect that:
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<PAGE> 6
(i) Each of Omega and OHSI (A) is duly incorporated, validly
existing, and in good standing under the laws of the State of Alabama
and Delaware, respectively, (B) is duly qualified to transact business
in their respective states of incorporation, and is not required to be
so qualified in any other jurisdiction, and (C) has the corporate
power and authority to hold and own its own properties and carry on
its business as now conducted and as proposed to be conducted.
(ii) Each of Omega and OHSI has the full power and authority
to execute, deliver, and perform this Agreement and all other
agreements and documents contemplated hereof to which it is a party
and which are necessary to consummate the transaction contemplated
hereby, and all corporate actions of Omega or OHSI necessary for such
execution, delivery and performance have been duly taken.
(iii) This Agreement and all agreements related to this
Agreement to which Omega is a party have been duly authorized,
executed and delivered by Omega and constitute the legal, valid, and
binding agreement of Omega enforceable in accordance with their terms
(subject as to enforcement of remedies to the discretion of the courts
in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws effecting the
rights of creditors generally). The execution and delivery by Omega of
this Agreement, and the performance of its obligations hereunder, do
not require any action or consent of any party other than Omega
pursuant to any contract, agreement or other understanding of Omega,
or pursuant to any order or decree to which Omega is a party or to
which its properties or assets are subject and will not violate any
provision of law, the articles of incorporation or bylaws of Omega or
any order of any court or other agency of the government.
(iv) To the best of such counsel's knowledge, and based
solely on certificates provided by Omega and OHSI, with respect to
Omega and OHSI there are no actions, suits, claims, proceedings or
investigations pending or threatened against Omega or OHSI at law or
in equity, or before or by a federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any professional licensing or
disciplinary authority which would adversely effect the transactions
contemplated herein or the right of OHSI or Omega to enter into this
Agreement.
(v) Neither Omega nor OHSI is in default with respect to any
order, writ, injunction or decree of any court or of any federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign which would
affect the rights of Omega or OHSI to enter into and perform this
Agreement.
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<PAGE> 7
(vi) The OHSI Stock has been duly authorized and duly and
validly issued by OHSI, with the authorization and approval of OHSI's
Board of Directors, and such OHSI Stock is fully paid and
non-assessable, and is owned of record by Stockholder.
(c) Articles of Merger and a Plan of Merger under the IBCA which shall
be in the form attached hereto as Exhibit 4.1.1(a) and Exhibit 4.1.1(b).
(d) A Certificate, duly executed by the President of Omega and OHSI,
stating that as of the Closing Date, all representations and warranties of
Omega and OHSI contained in this Agreement or in any Exhibit or Schedule hereto
are true and correct in all material respects, all covenants and agreements
contained in the Agreement to be performed by Omega and OHSI on or prior to the
Closing Date have been performed or complied with and all conditions to Closing
contained in Section 4.4 hereof have been satisfied.
(e) Such other instruments as may be reasonably requested by
Stockholder in order to give effect to or carry out the intent of this
Agreement.
4.3 CONDITIONS TO OMEGA'S AND OHSI'S OBLIGATIONS. Omega's and OHSI's
obligation to consummate the transaction as provided in this Agreement shall be
conditioned upon the satisfaction of the following conditions at or prior to
the Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.1 hereof shall have been executed and delivered at Closing.
(b) No Material Adverse Change. Prior to the Closing Date, there shall
be no material adverse change in the assets or liabilities of Corporation; the
business or condition, financial, or otherwise of Corporation; or the results
of operations or prospects of Corporation as a result of any legislative or
regulatory change or revocation of any license or rights of Corporation to do
business.
(c) Truth of Representations and Warranties. The representations and
warranties of Corporation and Stockholder contained in this Agreement, or in
any Exhibit or Schedule hereto, shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
Corporation and Stockholder shall have the express obligation to update all
information contained in the Exhibits and Schedules hereto so that such
Exhibits and Schedules shall be true, correct and complete as of the Closing
Date.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
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<PAGE> 8
(e) Opinion of Corporation's Counsel. Omega shall have received an
opinion from the Corporation's and Stockholder's counsel, delivered under
Section 4.1(e) above.
(f) Securities Law Compliance. The issuance of the OHSI Stock to the
Stockholder will not violate the securities laws of any state or of the United
States.
(g) Third-Party Consents. Omega shall have received copies of all
third-party consents required to consummate the transaction contemplated by
this Agreement.
(h) Licenses, Permits, Qualification. Immediately prior to the
Effective Time, Stockholder and Corporation shall have all licenses and permits
necessary to operate its business.
(i) Distribution of Assets and Discharge of Liabilities. Prior to the
Effective Time, and as a condition to Closing, Corporation shall have
distributed to Stockholder all of the assets listed on Schedule 5.8 , which are
not being acquired by Omega (the "Excluded Assets"). Additionally, prior to the
Effective Time, Corporation shall have paid or discharged all liabilities or
charges for costs or fees owed as a result of the transactions contemplated by
this Agreement.
(j) Taxes. Corporation shall have established an adequate reserve for
the payment of all taxes accrued with respect to taxable periods or portions
thereof ended as of the Effective Time of the Merger contemplated herein.
(k) Stock Purchase Agreement. Omega and Stockholder shall have
executed and delivered to Omega and OHSI that certain Stock Purchase Agreement,
dated as of August 29, 1997, by and between Omega and Stockholder (the "Stock
Purchase Agreement"), substantially in the form of Exhibit4.3(k), attached
hereto.
4.4 CONDITIONS TO STOCKHOLDER'S AND CORPORATION'S OBLIGATIONS.
Stockholder's and Corporation's obligations to consummate the transaction as
provided in this Agreement shall be conditioned upon the satisfaction of the
following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.2 hereof shall have been executed and delivered by Omega on the
Closing Date.
(b) Truth of Representations and Warranties. The representations and
warranties of Omega and OHSI contained in this Agreement, or in any Exhibit or
Schedule hereto, shall be true and correct in all material respects on and as
of the Closing Date with the same effect as though such representations and
warranties had been made as of such date.
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<PAGE> 9
(c) Opinion of Omega's and OHSI's Counsel. The Corporations and
Stockholder shall have received an opinion from Omega's and OHSI's counsel,
delivered under Section 4.2(b) above.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(e) Stock Purchase Agreement. Omega and Stockholder shall have
executed and delivered to Stockholder and Corporation the Stock Purchase
Agreement, substantially in the form of Exhibit 4.3(k) attached hereto.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDER AND CORPORATION
Corporation and Stockholder represent, warrant, covenant and agree
with Omega and OHSI that:
5.1 OWNERSHIP OF STOCK. Stockholder is the owner of all of the issued
and outstanding stock of Corporation, free and clear of all liens,
encumbrances, restrictions and claims of every kind. Stockholder has full legal
right, power and authority to enter into this Agreement.
5.2 EXISTENCE AND GOOD STANDING. Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois. Corporation has the power to own its property and to carry on its
business as now being conducted. Illinois is the only jurisdiction in which the
character or location of the properties owned or leased by Corporation or the
nature of the business conducted by Corporation makes such qualification
necessary.
5.3 CAPITAL STOCK. Corporation has an authorized capitalization
consisting of One Thousand (1,000) shares of common stock, no par value, of
which Sixty (60) are issued and outstanding and no shares are held in
Corporation's treasury. All such outstanding shares of Corporation have been
duly authorized and validly issued and are fully paid and nonassessable. There
are no outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
providing for the purchase, issuance or sale of any shares of the capital stock
of Corporation, other than as contemplated by this Agreement.
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<PAGE> 10
5.4 SUBSIDIARIES AND INVESTMENTS. Corporation does not own, directly
or indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity.
5.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. Corporation has
heretofore furnished Omega with unaudited financial statements dated December
31, 1994, 1995 and 1996, all of which are attached hereto as Schedule 5.5. Such
financial statements, including the notes thereto, except as indicated therein,
were prepared on a basis consistent with past accounting practices of
Corporation and accurately reflect the results of operations for the periods
noted therein, The balance sheets of Corporation heretofore delivered (or to be
delivered) by Corporation to Omega fairly present the financial condition of
Corporation at the respective dates thereof, and except as indicated therein,
reflect all claims against and all debts and liabilities of Corporation, fixed
or contingent, as of the respective dates thereof. Since December 31, 1996,
there has been (i) no material adverse change in the assets or liabilities,
financial or otherwise, or in the results of operations of Corporation, and
(ii) no fact or condition known to Corporation or Stockholder which exists or
is contemplated or threatened which might cause such a change in the future.
5.6 MATERIAL CONTRACTS. Except as set forth on Schedule 5.6,
Corporation is not bound by (a) any agreement, contract, or commitment relating
to the employment of any person by Corporation, or any loans, deferred
compensation, incentive compensation, pension, profit sharing, retirement, or
other employee benefit plan, (b) any loan or advance to, or investment in, any
other person or entity, or any agreement, contract, or commitment relating to
the making of any such loan, advance, or investment, (c) any guarantee or other
contingent liability in respect of any indebtedness or obligation of any other
person or entity, (d) any agreement, contract, or commitment limiting the
freedom of Corporation or any of its physicians to practice medicine in any
location or to compete with any other person or entity, or (e) any other
agreement, contract, or commitment which is material to the business of
Corporation. Except as set forth in Schedule5.6, to the best of Stockholder's
knowledge each contract or agreement set forth in Schedule 5.6 is in full force
and effect, and there exists no default or event of default or event,
occurrence, condition, or act which, with the giving of notice, the lapse of
time, or the happening of any other event or condition, would become a default
or event of default thereunder, which would have a material adverse effect upon
Corporation. Except as set forth in Schedule 5.6, to the best of Stockholder's
knowledge neither Corporation has not violated any of the terms or conditions
of any contract or agreement set forth in Schedule 5.6 in any material respect,
and to Stockholder's best knowledge, all of the covenants to be performed by
any other party thereto have been fully performed.
5.7 INSURANCE. Schedule 5.7.1 is a list and brief description of all
Corporation's policies or binders of fire, liability, product liability,
workers compensation, health and other forms of insurance policies or binders
currently in force insuring against risks which will
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remain in full force and effect at least through the Closing Date. Except as
set forth on Schedule 5.7.2, neither Corporation, Stockholder, nor their
employees have, in the last three (3) years, filed a written application for
any insurance coverage which has been denied by an insurance agency or carrier.
Schedule 5.7.2 also sets forth a list of all claims for any insured loss in
excess of Five Thousand Dollars ($5,000.00) per occurrence filed by
Corporation, Corporation's employees or Stockholder since January 1, 1994,
including, but not limited to, workers' compensation, general liability, and
environmental liability claims. To the best of Stockholder's knowledge, neither
Corporation, Corporation's employees nor Stockholder is in material default
with respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
5.8 NO CHANGES PRIOR TO CLOSING DATE. To the best knowledge of
Stockholder, during the period from December 31, 1996, through the date hereof,
Corporation has not, and from the date hereof, Corporation shall not have (i)
incurred any liability or obligation of any nature (whether accrued, absolute,
contingent, or otherwise), except in the ordinary course of business, or except
with the prior written consent of Omega, such consent not to be unreasonably
withheld, (ii) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, none of which individually or in the aggregate is material to the
Corporation, (iii) conducted its business in such a manner so as to materially
increase its accounts payable or so as to materially decrease its accounts
receivable, (iv) granted any increase in the rate of wages, salaries, bonuses,
or other remunerations of any employee, except in the ordinary course of
business, (v) canceled or waived any claims or rights of substantial value,
(vi) made any change in any method of accounting, (vii) otherwise conducted its
business or entered into any transaction, except in the usual and ordinary
manner and in the ordinary course of business, (viii) agreed, whether or not in
writing, to do any of the foregoing, (ix) disposed of its assets other than in
the ordinary course of business, except for the disposition of any Excluded
Assets listed on Schedule 5.8; nor (x) allowed inventory levels to fall below
$55,000.
5.9 PRACTICE ASSETS; TITLE; CONDITION. Schedule 5.9.1 contains a true
and complete list of all the non-cash assets of the Corporation at the Closing
Date (the "Practice Assets"). Corporation has good and marketable title to all
of its Practice Assets conveyed hereunder. Except as disclosed on Schedule
5.9.2 hereto, none of such Practice Assets is subject to a contract or other
agreement of sale or subject to security interests, mortgages, encumbrances,
liens (including income, personal property and other tax liens) or charges of
any kind or character. Upon completion of the Merger, the Surviving Corporation
shall own the Practice Assets of the Corporation free and clear of all liens
and encumbrances.
5.10 LITIGATION. Except as listed on Schedule 5.10, to the best of
knowledge of Stockholder, there is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or
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threatened against, or affecting Corporation, or any of its Practice Assets, or
any physician or other health care professional associated with or employed by
Corporation, and to the best of Stockholder's knowledge there is no basis for
any of the foregoing.
5.11 PERMITS AND LICENSES. Corporation and all physicians and other
health care professionals associated with or employed by the Corporations have
all material permits and licenses required by all applicable laws; have made
all material regulatory filings necessary for the conduct of the Corporations'
business; and are not in violation of any of said permitting or licensing
requirements the violation of which would have a materially adverse effect on
the Corporations. A list of such permits and licenses is attached hereto as
Schedule 5.11.
5.12 AUTHORITY. (a) The execution of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action, and this Agreement is a valid and binding agreement of
Corporation enforceable in accordance with its terms (subject as to enforcement
of remedies to the discretion of the courts in awarding equitable relief, and
to applicable bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium and similar laws effecting the rights of creditors generally).
Attached hereto as Schedule 5.12 is a listing of all third-party consents which
must be obtained prior to the Closing Date as required under Section 4.3 of
this Agreement.
(b) To the best knowledge of Stockholder, the execution and delivery
of this Agreement, the consummation of the transactions contemplated hereby,
and/or compliance by Corporation and Stockholder with any of the provisions
hereof, will not:
(i) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in the creation of, any lien, security interest, charge or
encumbrance upon any of the assets to be conveyed hereunder under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, agreement or other instrument or
obligation to which Corporation or Stockholder is a party, or by which
either Corporation or Stockholder or any of the assets to be conveyed
hereunder is bound; or
(ii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable either to the Corporations or
Stockholder or any of the assets to be conveyed hereunder.
5.13 TAX MATTERS. Except as set forth in Schedule 5.13, Corporation
has filed or caused to be filed all federal, state and local tax returns which
are required to have been filed by Corporation, including all income, excise,
franchise, and payroll tax returns, and Corporation has paid or established an
adequate reserve for all taxes accrued through the
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Effective Time and has otherwise complied with all federal, state, local and
other tax laws applicable to it.
5.14 EMPLOYEE BENEFIT PLANS. (a) List of Plans. Set forth on Schedule
5.14 is an accurate and complete list of all employee benefit plans ("Employee
Benefit Plans") within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not any Employee
Benefit Plans are otherwise exempt from the provisions of ERISA, established,
maintained or contributed to by the Corporation (including all employers
(whether or not incorporated) which by reason of common control are treated
together with Corporation and/or Stockholder as a single employer within the
meaning of Section 414 of the Code) since September 2, 1974.
(b) Status of Plans. Corporation has never maintained and does not now
maintain or contribute to any Employee Benefit Plan subject to ERISA which is
not in substantial compliance with ERISA, or which has incurred any accumulated
funding deficiency within the meaning of either Section 412 or 418B of ERISA,
or which has applied for or obtained a waiver from the Internal Revenue Service
of any minimum funding requirement under Section 412 of the Code or which is
subject to Title IV of ERISA. Corporation has not incurred any liability to the
Pension Benefit Guaranty Corporation ("PBGC") in connection with any Employee
Benefit Plan covering any employees of that Corporation or ceased operations at
any facility or withdrawn from any such Plan in a manner which could subject it
to liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no
facts or circumstances which might give rise to any liability of Corporation to
the PBGC under Title IV of ERISA which could reasonably be anticipated to
result in any claims being made against the Surviving Corporation by the PBGC.
Corporation has not incurred any withdrawal liability (including any contingent
or secondary withdrawal liability) within the meaning of Sections 4201 and 4202
of ERISA, to any Employee Benefit Plan which is a Multiemployer Plan (as
defined in Section 4001 of ERISA), and no event has occurred, and there exists
no condition or set of circumstances, which represent a material risk of the
occurrence of any withdrawal from or the partition, termination, reorganization
or insolvency of any Multiemployer Plan which would result in any liability to
a Multiemployer Plan.
(c) Contributions. Full payment has been made of all amounts which
Corporation is required, under applicable law or under any Employee Benefit
Plan or any agreement relating to any Employee Benefit Plan to which
Corporation is a party, to have paid as contributions thereto as of the last
day of the most recent fiscal year of such Employee Benefit Plan ended prior to
the date hereof. Corporation has made adequate provision for reserves to meet
contributions that have not been made because they are not yet due under the
terms of any Employee Benefit Plan or related agreements. Benefits under all
Employee Benefit Plans are as represented and have not been increased
subsequent to the date as of which documents have been provided.
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(d) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code has been determined to be so
qualified by the Internal Revenue Service and nothing has occurred since the
date of the last such determination which resulted or is likely to result in
the revocation of such determination.
(e) Transactions. Corporation has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a tax, penalty
or liability for prohibited transactions under ERISA or the Code nor have any
of its directors, officers or employees to the extent they or any of them are
fiduciaries with respect to such plans, breached any of their responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA or would result
in any claim being made under or by or on behalf of any such plans by any party
with standing to make such claim.
(f) Other Plans. Corporation presently does not maintain any employee
benefit plans or any other foreign pension, welfare or retirement benefit plans
other than those listed on Schedule 5.14.
(g) Documents. Stockholder has delivered or caused to be delivered to
Omega and its counsel true and complete copies of (i) all Employee Benefit
Plans as in effect, together with all amendments thereto which will become
effective at a later date, as well as the latest Internal Revenue Service
determination letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) Form 5500 for the most
recent completed fiscal year for each Employee Benefit Plan required to file
such form.
5.15 THIRD-PARTY RELATIONS. Corporation and Stockholder are not aware
of any problem or disagreements with any third parties with which Corporation
does business, and Corporation and Stockholder will use their respective best
efforts from the date of this Agreement until the Closing Date to operate
Corporation's business in such a manner so as not to adversely affect the
goodwill of its patients, suppliers, employees, and other such persons or third
parties with which the Corporation does business.
5.16 LEASED PROPERTY. Schedule 5.16 contains a list of all property
leases held by Corporation and, except as set forth on Schedule 5.16, no
material adverse claim against, or defect in, the interest purportedly leased
or given under or by any such instrument exists, and neither the lessor nor
Corporation is in default under any of such leases, and Corporation and
Stockholder are not aware of any fact which, with notice and/or the passage of
time, would constitute such a default.
5.17 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in Schedule
5.17, and to the best knowledge of Stockholder, the Corporation has operated in
material compliance with all material federal, state, county and municipal
laws, constitutions, ordinances, statutes, rules,
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regulations and orders applicable thereto ("Applicable Laws"). No item
disclosed on Schedule 5.17 has a material effect on the operations of
Corporation.
5.18 EMPLOYEE COMPENSATION. Corporation has paid or discharged or will
pay or discharge or assume all liabilities for compensation and benefits to
which all employees are entitled through the Effective Time, including but not
limited to all salaries, wages, bonuses, incentive compensation, payroll taxes,
hospitalization and medical expenses, deferred compensation, and vacation and
sick pay, as well as any severance pay becoming due as a result of the
termination of certain of Corporation's employees.
5.19 ENVIRONMENTAL MATTERS. Corporation is in compliance in all
material respects with all federal, state and local environmental laws, rules,
regulations, standards and requirements, including, without limitation those
respecting chemical, radiographic, or biomedical wastes or any other hazardous
substances or materials, as defined in any applicable federal or state law or
regulation ("Hazardous Wastes"). Except as disclosed on Schedule 5.19, any
storage, holding, release, emission, discharge, generation, processing,
disposition, handling or transportation of any Hazardous Wastes from, into or
on any portion of the clinic premises is and has been at all times in
compliance in all material respects with all federal, state and local
environmental laws, rules, regulations, standards and requirements.
5.20 FRAUD AND ABUSE. Neither Corporation nor Stockholder nor persons
and entities providing professional services for Corporation has, to the
knowledge of Corporation or Stockholder, engaged in any activities which are
prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct,
including but not limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) failing to disclose knowledge by a claimant of the occurrence of
any event effecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment; or
(d) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay or receive such remuneration
(i) in return for referring an individual to a person for the furnishing or
arranging for the furnishing or any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
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purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service or item for which payment may
be made in whole or in part by Medicare or Medicaid.
5.21 FACILITY COMPLIANCE. Corporation is duly licensed and is lawfully
operated in accordance with the material requirements of all applicable
material law and has all necessary authorizations for the use and operation,
all of which are in full force and effect. To the best knowledge of
Stockholder, there are no outstanding notices of deficiencies relating to
Corporation issued by any governmental authority or third-party payor requiring
conformity or compliance with any applicable law or condition for participation
of such governmental authority or third-party payor, neither the Corporation
nor Stockholder has received notice or has any knowledge or reason to believe
that such necessary authorizations may be revoked or not renewed in the
ordinary course of business.
5.22 RATES AND REIMBURSEMENT POLICIES. To the best knowledge of
Stockholder, the jurisdiction in which the Corporation is located does not
currently impose any restrictions or limitations on rates which may be charged
to private pay patients receiving services provided by Corporation. To the best
knowledge of Stockholder, neither Corporation has any rate appeal currently
pending before any governmental authority or any administrator of any
third-party payor program. Neither the Corporation nor Stockholder have
knowledge of any applicable law, which has been enacted, promulgated or issued
within the eighteen (18) months preceding the date of this Agreement or any
such legal requirement proposed or currently pending in the jurisdiction in
which Corporation is located, which could have a material adverse effect on
Corporation or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted
patients at Corporation or require Corporation to obtain any necessary
authorization which Corporation does not currently possess.
5.23 TRADE RELATIONS. To the best knowledge of Stockholder, there
exists no actual or threatened limitation of the business relationship of
Corporation with any material customer, supplier or landlord or with any person
whose contracts with Corporation would be material to the operations of
Corporation. To the best knowledge of Stockholder, there exists no condition or
state of facts or circumstances which (i) are likely to produce a material
adverse effect with respect to either Corporation or (ii) prevent the Surviving
Corporation from conducting its business after the consummation of the
transactions contemplated by this Agreement as such business is conducted or
proposed to be conducted.
5.24 EXHIBITS. All the facts recited in Exhibits or Schedules annexed
hereto (as updated as of the Closing Date) shall be deemed to be
representations of fact by Corporation and Stockholder as though recited in
this Article V.
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5.25 FULL DISCLOSURE. No representation or warranty made by the
Corporation or Stockholder in this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein or therein not
misleading. For purposes of this Article V, Corporation shall be presumed to
have knowledge of all matters of which the Stockholder or officers of the
Corporation have knowledge, actual or constructive.
5.26 LIABILITIES. Attached hereto as Schedule 5.26 is a list of
Corporation's liabilities existing on the Closing Date. Corporation has no
other liabilities (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, and whether due or to become due).
5.27 INVESTMENT INTENT. Stockholder and Corporation acknowledge that
the OHSI Stock has not been registered under the 1933 Act, and that the OHSI
Stock, except as provided for in Section 2.3 and Section 2.4, may not be sold,
pledged or otherwise transferred absent such registration, or unless an
exemption from registration is available. The Stockholder is acquiring the OHSI
Stock for his own account, for investment purposes only and not with a view to
distribution of such OHSI Stock within the meaning of Section 2(11) of the 1933
Act. The Stockholder qualifies as an "accredited investor", as defined in Rule
501(a) pursuant to the 1933 Act. The Stockholder has received from OHSI a copy
of OHSI's Form 10-K for 1995 and 1996, OHSI's 10-Q filed ______________, 1997,
OHSI's 8-Ks filed ___________, 1997 and OHSI's 1994, 1995, and 1996 Annual
Report to Shareholders. The Stockholder has had the opportunity to ask
questions of and receive answers from OHSI senior management concerning OHSI
and the terms and conditions of this investment by the Stockholder. The
Stockholder has had the opportunity to obtain other additional information
concerning OHSI from OHSI senior management.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF OMEGA AND OHSI
Omega and OHSI represent, warrant, covenant and agree with Corporation
and Stockholder as follows:
6.1 ORGANIZATION. Omega is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois. OHSI is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Omega and OHSI have the full power to own their
respective property, to carry on their respective businesses as presently
conducted, to enter into this Agreement and to consummate the transactions
contemplated hereby.
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6.2 AUTHORITY. Omega and OHSI have taken all necessary action to
authorize the execution, delivery and performance of this Agreement, as well as
the consummation of the transactions contemplated hereby, and at Closing Omega
and OHSI shall deliver an officer's certificate to such effect. The execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of the
charter or the bylaws of either Omega or OHSI or any indenture, mortgage, deed
of trust, lien, lease, agreement, arrangement, contract, instrument, license,
order, judgment or decree or result in the acceleration of any obligation
thereunder to which either Omega or OHSI is a party or by which either Omega or
OHSI is bound.
6.3 ABSENCE OF LITIGATION. No action or proceeding by or before any
court or other governmental body has been instituted or is, to the best of
Omega's and OHSI's knowledge, threatened with respect to the transactions
contemplated by this Agreement.
6.4 SHARES. Upon delivery of the certificates representing ownership
of the OHSI Stock, such OHSI Stock will be fully paid and nonassessable.
6.5 OMEGA HEALTH SYSTEMS, INC. Omega is a wholly-owned subsidiary of
OHSI.
6.6 FRAUD AND ABUSE. Neither OHSI nor Omega has engaged in any
activities which are prohibited under ss. 1320a-7b of Title 42 of the United
States Code or the regulations promulgated thereunder, or related state or
local statutes or regulations, or which are prohibited by rules of professional
conduct, including, but not limited to, the following: (i) knowingly and
willingly making or causing to be made a false statement or representation of a
material fact in any application for any benefit or payment; (ii) knowingly and
willfully making or causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit or payment; (iii)
any failure by a claimant to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with the intent to fraudulently secure such
benefit or payment; and (iv) knowingly and willfully soliciting or receiving
any remuneration (including any kickback, bribe or rebate) directly or
indirectly, overtly or covertly, in cash or in kind, or offering to pay or
receive such remuneration (A) in return for referring an individual to a person
for the furnishing or arranging for the furnishings of any item or service for
which payment may be made in whole or in part by Medicare or Medicaid, or (B)
in return for purchasing, leasing or ordering or arranging for, or
recommending, purchasing, lease or ordering any good, facility, service or item
for which payment may be made in whole or in part by Medicare or Medicaid.
ARTICLE VII.
CONDUCT OF BUSINESS; REVIEW
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7.1 CONDUCT OF BUSINESS OF CORPORATION. During the period from the
date of this Agreement to the Closing Date, Corporation shall conduct its
business only in the ordinary and usual course of business, and Corporation and
Stockholder shall use their respective best efforts to preserve intact
Corporation's business organization, keep available the services of its
employees and maintain satisfactory relationships with patients and others
having business, medical or professional relationships with Corporation.
Corporation shall immediately notify Omega of any unexpected emergency or other
change in the normal course of its business or in the operation of its
properties and of any governmental complaints, investigations, hearings (or
communications indicating that the same may be contemplated), or adjudicatory
proceedings involving the business or practice of Corporation or any employee
of Corporation, and Corporation shall keep Omega fully informed of such events
and permit its representatives prompt access to all materials prepared in
connection therewith.
7.2 EXCLUSIVE DEALINGS. During the period from the date of this
Agreement to the Closing Date, or upon the earlier termination of this
Agreement pursuant to Article XIII, Corporation shall refrain from taking any
actions, directly or indirectly, to encourage, initiate, or engage in
discussions or negotiations with, or provide any information to, any
corporation, partnership, person, or other entity or group, other than Omega,
concerning the purchase of Corporation or its stock or assets, or any merger,
joint venture or similar transaction involving Corporation and will not enter
into any such transaction. The parties agree that any information provided will
be used solely for the purpose of evaluating the transaction contemplated
herein and will be kept confidential and not disclosed to others. If the
transaction contemplated hereunder shall fail to close for any reason, then
each party will promptly redeliver to the other all written material containing
or reflecting any information concerning Corporation, Omega or OHSI, regardless
of by whom prepared, and will not retain any copies, extracts or other
reproductions in whole or in part of such written material.
7.3 REVIEW OF CORPORATION BY OMEGA. Omega, prior to the Closing Date,
through its representatives, may review the assets, books, and records of
Corporation as well as its financial and legal condition as Omega deems
necessary or advisable to familiarize itself with such assets and other
matters; such review shall not, however, affect the representations and
warranties made by Corporation herein and in the Exhibits and Schedules
attached hereto. Corporation shall permit Omega and its representatives to have
full access to the premises and to all books and records of Corporation during
normal business hours and to cause its officers and employees to furnish Omega
with such financial and operational data and other information with respect to
the business and assets of Corporation as Omega shall from time to time
reasonably request.
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ARTICLE VIII.
TRANSFERS AND FURTHER ASSURANCES
From time to time after the date hereof, at the request of a party
hereto (the "Requesting Party"), the other parties shall, without further
consideration, execute, acknowledge and deliver such further instruments of
transfer and other assurances and shall take such other action as the
Requesting Party reasonably may request in order to effectuate the Merger or
any resulting transfer of assets as a result of the Merger.
ARTICLE IX.
INDEMNIFICATION; SET-OFF
9.1 INDEMNIFICATION OF OMEGA AND OHSI. Corporation and Stockholder
shall indemnify, defend and hold Omega, OHSI and their respective officers,
directors, shareholders, agents, employees, representatives, successors and
assigns harmless from and against any and all damage, loss, cost, obligation,
claims, demands, assessments, judgments or liability (whether based on
contract, tort, product liability, strict liability or otherwise), including
taxes, and all expenses (including interest, penalties and reasonable
attorneys' and accountants' fees and disbursements) incurred by any of the
above-named persons, resulting from or in connection with any one or more of
the following:
(a) Misrepresentations, breach of warranties, failure to perform any
covenant or Agreement of either Corporation or Stockholder contained herein;
(b) Any liabilities or obligations of either Corporation existing as
of the Closing Date and not described on the December 31, 1996 balance sheet;
(c) Any transaction, event or act that occurred on or prior to the
Closing Date that materially adversely affects the value of the Practice
Assets;
(d) Claims, actions or suits by employees or former employees of
Corporation; or
(e) Stockholder's failure to discharge pension or benefit plan
obligations.
Omega agrees to give prompt notice to Stockholder of the assertion of any
claim, or the threat or commencement of any suit, action, proceeding or other
matter in respect of which indemnity may be sought under this Section 9.1.
Stockholder may participate in the defense of any such suit, action, proceeding
or other matter at Stockholder's expense. Stockholder shall not be liable under
this Section 9.1 for any settlement effected without Stockholder's consent of
any claim, suit, action, proceeding or other matter in respect of which
indemnity may be
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sought under this Section 9.1, which consent shall not be unreasonably
withheld. The indemnity to be paid to Omega under this Section 9.1 may be paid
in either cash, OHSI Stock, or some combination of both, at the election of the
Shareholder. For purposes of this Section 9.1, OHSI Stock used to pay any
indemnity under this section shall be valued according to the OHSI Stock's fair
value as determined pursuant to Section 2 hereof.
9.2 GENERAL INDEMNIFICATION OF STOCKHOLDER AND CORPORATION. Omega and
OHSI shall indemnify, defend and hold Corporation and its officers, directors,
Stockholder, agents, employees, representatives, successors and assigns
harmless from any and all damage, loss, cost, obligation, claims, demands,
assessments, judgments or liability (whether based on contract, tort, product
liability, strict liability or otherwise), including taxes and all expenses
(including interest, penalties and reasonable attorneys' and accountants' fees
and disbursements) incurred by any of the above-named persons, resulting from
or in connection with misrepresentations, breach of warranties or failure to
perform any covenant or agreement of Omega or OHSI contained herein.
Stockholder agrees to give prompt notice to Omega of the assertion of any
claim, or the threat or commencement of any suit, action, proceeding or other
matter in respect of which indemnity may be sought under this Section 9.2.
Omega or OHSI may participate in the defense of any such suit, action,
proceeding or other matter at Omega's or OHSI's expense. Neither Omega nor OHSI
shall be liable under this Section 9.2 for any settlement effected without
Omega's or OHSI's consent of any claim, suit, action, proceeding or other
matter in respect of which indemnity may be sought under this Section 9.2,
which consent shall not be unreasonably withheld.
9.3 SURVIVAL. The representations and warranties of the Corporation,
Stockholder and Omega contained in this Agreement and the indemnifications
contained in this Article IX shall survive the Merger through August 29, 1999,
except for (i) any matters involving fraud, which shall have no time
limitation, (ii) any matters involving tax claims which shall terminate on the
expiration of the applicable statute of limitations of the taxing authority,
and (iii) any matters involving environmental or ERISA matters, which shall
terminate August 29, 2002 (the "Indemnification Period"). Any matter to which
an indemnification pertains and with respect to which a claim has been asserted
or threatened following the Closing Date, and prior to the expiration of the
Indemnification Period, shall continue to be subject to the indemnifications
under this Article IX until finally terminated, settled, resolved, or
adjudicated; and all terms, conditions and stipulations of this Article IX
shall likewise continue to apply.
9.4 SECURITY FOR INDEMNITY. The Corporation and Stockholder hereby
agree that in the event either Omega or OHSI is entitled to indemnification
pursuant to the provisions of this Article IX and either the Corporation or
Stockholder does not pay to Omega or OHSI the amount due hereunder, then Omega
or OHSI shall be entitled to exercise those rights set forth
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in that certain Stock Pledge and Escrow Agreement, dated as of August 29, 1997,
by and among Omega, OHSI, and Stockholder.
ARTICLE X.
MEDIATION AND ARBITRATION
10.1 MEDIATION. In the event a dispute arises out of or relating to
this Agreement, or the breach thereof, and if said dispute cannot be settled
through negotiation, the parties agree to attempt in good faith to settle the
dispute by mediation under the Commercial Mediation Rules of the American
Arbitration Association. Unless the parties reach an agreement reduced to
writing, this mediation will be non-binding, but the parties must participate
in good faith in non-binding mediation, before resorting to binding
arbitration.
10.2 BINDING ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or its breach, not satisfied through either
negotiation or mediation, shall be settled by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction.
As soon as reasonably practical after submission of a demand for
binding arbitration, the parties shall select one arbitrator, agreeable to all
parties. This arbitrator will be selected from lists prepared by the American
Arbitration Association. From the American Arbitration Association list the
parties will submit to the American Arbitration Association a ranked list of
arbitrators which are acceptable. The highest ranking acceptable candidate will
be selected by the American Arbitration Association. If no arbitrators from the
list composed by the American Arbitration Association are acceptable by either
of the parties, the American Arbitration Association will compile a second
list. This procedure will be followed until the parties have selected an
arbitrator. The results of the arbitrator's finding will be binding on the
parties.
ARTICLE XI.
EXPENSES
Each of the parties shall pay their own costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in Closing
and carrying out the transactions contemplated by this Agreement. Prior to the
Closing Date, Corporation shall pay or satisfy any obligation for such
expenses.
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<PAGE> 23
ARTICLE XII.
COSTS
Should any mediation or binding arbitration ("Dispute Resolution")
arising out of this Agreement be instituted by any party to this Agreement
against another party, the party prevailing in such Dispute Resolution shall be
entitled, in addition to such other damages and relief as the mediator or
arbitrator shall award, to reimbursement of reasonable attorneys' fees, costs
and other expenses incurred in the prosecution or defense of such Dispute
Resolution.
ARTICLE XIII.
TERMINATION
Notwithstanding any of the foregoing provisions, this Agreement may be
terminated at any time prior to the Effective Time:
(a) By mutual written consent of all the parties hereto;
(b) By written notice from Omega or OHSI to Corporation if any of the
representations and warranties made by Corporation and Stockholder in this
Agreement or in the Exhibits and Schedules annexed hereto are reasonably
determined by Omega or OHSI to be untrue or inaccurate in any material respect;
or
(c) By written notice from Corporation or Stockholder to Omega if any
of the representations and warranties made by Omega or OHSI in this Agreement
are reasonably determined by Corporation to be untrue or inaccurate in any
material respect.
ARTICLE XIV.
NOTICES
Any notices hereunder shall be deemed to have been given by one party
to the other if it is in writing and it is (a) delivered or tendered in person
or (b) deposited in the United States mail in a sealed envelope, with postage
prepaid in any case addressed as follows:
If to Omega or OHSI: Omega Health Systems of
Illinois, Inc.
5100 Poplar Avenue, Suite 2100
Memphis, Tennessee 38137
Attn: Thomas P. Lewis
23
<PAGE> 24
with a copy to: Baker, Donelson, Bearman & Caldwell, P.C.
2000 First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
Attn: Robert Walker
If to Corporation
or Stockholder: David M. Dillman, M.D.
Ocular Care Associates, S.C.
600 North Logan
Danville, Illinois 61820
with a copy to: Erwin, Martinkus, Cole & Ansel
411 West University
Champaign, Illinois 35203
Attn: Sam Erwin
or to such other address as the party addressed shall have previously
designated by notice to the serving party, given in accordance with this
Article XIV. Notices shall be deemed to have been duly given (i) on the date of
delivery if delivered personally; (ii) or on the third day after mailing if
mailed as provided above; provided, however, that a notice not given as above
shall, if it is in writing, be deemed given if and when actually received by a
party.
ARTICLE XV.
AMENDMENT AND WAIVER
The parties hereto may by mutual agreement amend this Agreement in any
respect. Any party hereto may extend the time for the performance of any of the
obligations of the other, waive any inaccuracies in representations by the
other contained in this Agreement or in any document delivered pursuant hereto,
which inaccuracies would constitute a breach of this Agreement, waive
compliance by the other with any of the covenants contained in this Agreement
and performance of any obligations by the other, and waive the fulfillment of
any condition that is precedent to the performance by the party so waiving any
of its obligations under this Agreement. Any agreement on the part of any party
for any such amendment, extension or waiver must be in writing and signed by
the party agreeing to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.
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ARTICLE XVI.
EMPLOYEES - EMPLOYEE BENEFITS
16.1 AFFECTED EMPLOYEES. "Affected Employees" shall mean employees, a
list of which is attached hereto as Schedule 16.1, of Corporation on the
Closing Date.
16.2 RESPONSIBILITIES. Prior to the Closing Date, Corporation agrees
to satisfy, or cause its insurance carriers to satisfy, all claims for medical,
health and hospital benefits, whether insured or otherwise (including, but not
limited to, workers compensation, life insurance, medical and disability
programs), under Corporation's employee benefit plans brought by, or in respect
of, Affected Employees and former employees of Corporation prior to the Closing
Date, in accordance with the terms and conditions of such employee benefit
plans or applicable workers compensation statutes without interruption as a
result of the employment by the Surviving Corporation of any such employees
after the Closing Date.
16.3 TERMINATION BENEFITS. Corporation and Stockholder shall be solely
responsible for, and shall pay or cause to be paid, severance payments and
other termination benefits, if any, to Affected Employees who may become
entitled to such benefits by reason of any events occurring prior to the
Closing Date. If any action on the part of Corporation prior to the Closing, or
if the Merger pursuant to this Agreement shall result in any liability or claim
of liability for severance payments or termination benefits, or any liability,
forfeiture, fine or other obligation by virtue of any state, federal or local
law, such liability or claim of liability shall be the sole responsibility of
Stockholder, and Stockholder shall indemnify and hold harmless the Surviving
Corporation from any losses resulting directly or indirectly from such
liability or claim.
16.4 EMPLOYEE BENEFIT PLANS. On or prior to the Closing Date,
Stockholder shall cause the Corporation to either terminate any employee
benefit plans maintained by Corporation or cause another entity to assume their
sponsorship through merger, consolidation or transfer of plan assets as
described in ss.414(i) of the Internal Revenue Code of 1986, as amended. Should
the time needed to effect such termination, merger, consolidation, or transfer
extend beyond the Closing Date, any and all costs of such shall be the sole
responsibility of the Stockholder.
ARTICLE XVII.
MISCELLANEOUS
17.1 PRESS RELEASE. Except as required by law, neither the Corporation
nor Stockholder shall make any press releases or other public announcements
relating to this
25
<PAGE> 26
Agreement or the transactions contemplated hereby, without the prior written
consent of Omega.
17.2 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto, their successors and assigns.
17.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes any
prior agreements and understandings of the parties in connection therewith.
17.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois. Any mediation
or binding arbitration with respect to this Agreement shall be conducted in
Vermilion County, Illinois.
17.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
17.6 HEADINGS. The subject headings of the Articles, Sections and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
17.7 FINDERS. Each party warrants to the other that no finder or
broker has been engaged by it in this transaction and that no finder's or
brokerage fees are due to any person as a result of this Agreement.
17.8 NO THIRD-PARTY BENEFIT. Except as otherwise expressly provided,
nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any person other than the parties hereto, any right,
remedy, or claim, legal or equitable, under or by reason of this Agreement or
any provision thereof.
17.9 ASSIGNMENT. Neither this Agreement nor any of the rights or
duties of any party hereto may be transferred or assigned to any person except
by a written agreement executed by each of the parties hereto, except that
Omega or OHSI reserves the right to assign this Agreement to any affiliate or
successor of either Omega or OHSI.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year hereinabove first set forth.
OMEGA:
OMEGA HEALTH SYSTEMS OF ILLINOIS, INC.
By:
------------------------------------
Ronald L. Edmonds, Vice
President
OHSI:
OMEGA HEALTH SYSTEMS, INC.
By:
------------------------------------
Ronald L. Edmonds, Executive Vice
President and Chief Financial Officer
CORPORATION:
DILLMAN EYE CARE OPTICAL DEPARTMENT, INC.
By:
------------------------------------
David M. Dillman, M.D., President
STOCKHOLDER:
---------------------------------------
DAVID M. DILLMAN, M.D.
27
<PAGE> 1
Exhibit 10(q)
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made and entered into as
of this 29th day of August , 1997 by and between DAVID M. DILLMAN, M.D., a
citizen and resident of Illinois ("Seller"), and OMEGA HEALTH SYSTEMS OF
ILLINOIS, INC., an Illinois corporation ("Buyer").
RECITALS
WHEREAS, Seller is the sole shareholder in Dillman Eye Care Associates,
Inc., an Illinois corporation (the "Corporation");
WHEREAS, Seller has agreed to sell all of Seller's stock (the "Shares")
in the Corporation, and Buyer has agreed to purchase the Shares; and
WHEREAS, in connection with that certain Management Agreement, dated as
of August 29, 1997, and entered into by and between Buyer and Ocular Care
Associates, S.C., an Illinois service corporation (the "Management Agreement");
Seller desires Buyer to provide and Buyer has agreed to provide management
services to Ocular Care Associates, S.C.;
NOW, THEREFORE, in consideration of the Recitals (which are
incorporated into and deemed a part of this Agreement), the covenants and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are acknowledged by the
parties, the parties agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES
1.1 AGREEMENT TO PURCHASE AND SELL. Effective as of August 29, 1997,
and upon the terms and subject to the conditions set forth in this Agreement,
Seller shall sell, assign, transfer, convey and deliver the Shares to Buyer, and
Buyer shall accept the Shares.
1.2 COLLECTION OF ACCOUNTS RECEIVABLE. For a period of six (6) months
following the Closing Date (as defined herein) (the "Collection Period"), Omega
shall collect the accounts receivable (the "Accounts") of the Corporation
existing as of the Closing Date. Every thirty (30) days through the end of the
Collection Period, Omega shall pay to Seller, any Accounts so collected, less
twenty percent (20%) for such collection services (the "Collection Fee"). After
the Collection Period, Omega shall cease collection efforts on the Accounts, and
will review with the Seller the remaining Accounts. Seller agrees to cooperate
with Omega in the collection of the Accounts. Seller understands and
acknowledges that Omega will exercise only its normal collection efforts to
collect the Accounts. Omega shall not exercise extraordinary efforts, including,
but not limited to, litigation to collect the Accounts.
<PAGE> 2
1.3 CLOSING DATE. The closing of the purchase and sale and the exchange
contemplated herein (the "Closing") shall take place at such time and place as
the parties hereto may agree in writing (the "Closing Date"). The parties agree
that the Closing Date shall be extended, if required, to allow either party to
fulfill any condition of this Agreement, but in no event shall the Closing be
extended beyond August 31, 1997, unless agreed in writing by Seller and Buyer.
1.4 TRANSFER OF THE SHARES. Effective as of the Closing Date, Seller
shall sell, transfer, assign, grant, deliver and convey to Buyer all of Seller's
right, title and interest in and to the Shares, free and clear of any lien,
pledge, charge, security interest or encumbrance of any nature ("Lien") by
delivery by Seller to the Buyer of the stock certificates representing the
Shares duly endorsed in blank for transfer or accompanied by appropriate stock
powers duly executed in blank, with all transfer taxes, direct or indirect,
attributable to the transfer of the Shares paid or provided for.
1.5 EVIDENCE OF TRANSFER. At the Closing and thereafter, as Buyer may
from time to time request, Seller shall execute and deliver to the Buyer such
documents and instruments of conveyance as may be appropriate and shall take or
cause to be taken such actions as Buyer may reasonably request in order to
accomplish the transfer of the Shares, and the consummation of the matters
contemplated by this Agreement. All such documents shall be in form reasonably
satisfactory to Buyer.
1.6 PAYMENT OF PURCHASE PRICE. At the Closing, in consideration for the
Shares, Buyer shall pay to Seller the Purchase Price set forth in Section 2
hereof.
SECTION 2. CONSIDERATION
2.1 AMOUNT OF CONSIDERATION. The purchase price for the Shares shall be
(i) Seven Hundred Twenty-five Thousand Dollars ($725,000) in the form of either
a wire transfer or certified funds payable at the Closing; and (ii) Three
Hundred Seventy-five Thousand Dollars ($375,000) represented by Buyer's 7%
Subordinated Note, dated as of August 29, 1997, substantially in the form
attached hereto as Exhibit 2 (the "Promissory Note") and (iii) the net value of
the Accounts collected as provided in Section 1.2 hereof (the "Purchase Price").
2.2 REFERRALS. The parties agree that nothing in this Agreement is
intended to violate state or federal health care laws or regulations including,
but not limited to, those listed in Section 3.8 herein, nor shall any portion of
the consideration be construed as a payment for or inducement of the referral of
patients. Seller shall be free to refer patients to whomever it sees fit in the
exercise of professional judgment, according to the convenience or preference of
the patient, or otherwise.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER
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<PAGE> 3
Seller represents, warrants and agrees with Buyer that:
3.1 NUMBER OF, TITLE TO THE SHARES. The entire authorized capital stock
of the Corporation consists of One Thousand (1,000) shares, no par value, of
which Ten (10) shares are issued and outstanding. All of the issued and
outstanding Shares have been duly authorized, are validly issued, fully paid,
and nonassessable, and are held of record by Seller. Seller owns beneficially
and of record, and has good and marketable title to, the Shares and shall convey
the Shares to Buyer free and clear of all Liens. As of the Closing Date, Buyer
will acquire good and marketable title to the Shares, free and clear of all
Liens. Seller further warrants that the Corporation is no longer organized as a
service corporation under Illinois law, that the Corporation is now a business
corporation organized under Illinois law, and that the Shares may be legally
transferred to Buyer.
3.2 OPTIONS AND OTHER RIGHTS. There are no outstanding options,
warrants, agreements, calls, conversion rights or other rights to subscribe for,
purchase or otherwise acquire any of the Shares.
3.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Seller has the full
legal right, power and capacity, and all authority and approval required to
enter into, execute and deliver this Agreement and to perform and observe fully
Seller's obligations hereunder and to perform the transactions contemplated
hereby. This Agreement has been fully executed and delivered by Seller and is
the valid and binding obligation of Seller enforceable in accordance with its
terms.
3.4 TAXES. (a) Seller has paid, or will pay on or prior to any
applicable due date, all income, employment and other taxes and duties accrued
or owed by Seller in connection with the Shares.
(b) The Corporation has filed all federal, state, local, municipal or
other tax returns ("Tax Returns") that it was required to file. All such Tax
Returns were correct and complete in all material respects. All federal, state,
local, municipal, or other income, employment, and other taxes ("Taxes") owed by
the Corporation (whether or not shown on any Tax Return) through the Closing
Date have been duly paid or accrued. The Corporation is not the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Corporation does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no Liens on any of the assets of the Corporation that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) The Corporation has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
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<PAGE> 4
3.5 LITIGATION. Except as set forth on Schedule 3.5 hereto, there are
no judgments unsatisfied against Seller or Corporation or consent decrees or
injunctions to which Seller or Corporation is subject. Neither Seller nor
Corporation is a party to any pending action, suit, proceeding or investigation,
at law or in equity, or otherwise in, for or by any court or governmental board,
commission, agency, department or officer arising from the acts of Seller or of
Corporation or initiation thereof by Seller or Corporation. Neither Seller nor
Corporation is subject to any order, judgment, decree or governmental
restriction which adversely affects the either the Shares or which would prevent
the transactions contemplated by this Agreement. Neither Seller nor Corporation
is in violation of any law, order, writ, injunction or decree of any court,
governmental department or instrumentality (including, without limitation,
applicable environmental protection legislation and regulations). There is no
claim, action or proceeding now pending or, to the knowledge of Seller,
threatened against Seller or Corporation which will, or could, prevent or delay
consummation of the transactions contemplated by this Agreement.
3.6 CONTRACTS OR OTHER AGREEMENTS. Neither the execution or delivery of
this Agreement nor the consummation of this transaction will: (i) conflict with,
constitute a breach, violation or termination of any provision of any contract
or other agreement to which either the Seller or Corporation is a party or by
which either the Seller or Corporation is bound; (ii) result in the creation or
imposition of any Lien against the Shares; or (iii) violate any law, regulation,
judgment, rule, order or any other restriction of any kind or character
applicable to the Seller, Corporation, or the Shares.
3.7 HEALTHCARE COMPLIANCE. Either the Seller or the Corporation is
participating in or otherwise authorized to receive reimbursement from or is a
party to Medicare, Medicaid, and other third-party payor programs. Except as
listed on Schedule 3.7, all necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned as of the date
hereof, and to the best knowledge of Seller no condition exists or event has
occurred which in itself or with the giving of notice or the lapse of time or
both would result in the suspension, revocation, impairment, forfeiture, or
non-renewal of any such third-party payor program. To the best of Seller's
knowledge, Seller and the Corporation are in full compliance with the
requirements of all such third-party payor programs applicable thereto.
3.8 FRAUD AND ABUSE. Seller and persons and entities providing
professional services for Seller have not, to the knowledge of Seller, engaged
in any activities which are prohibited under 42 U.S.C. ss. 1320a-7b, or the
regulations promulgated thereunder pursuant to such statutes, or related state
or local statues or regulations, or which are prohibited by rules of
professional conduct, including but not limited to the following:
(a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application
for any benefit or payment;
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<PAGE> 5
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) failing to disclose knowledge by a claimant of the
occurrence of any event effecting the initial or continued right to any
benefit or payment on his own behalf or on behalf of another, with
intent to fraudulently secure such benefit or payment; or
(d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or
indirectly, overtly or covertly, in cash or in kind or offering to pay
or receive such remuneration (i) in return for referring an individual
to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by
Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or
ordering any good, facility, service or item for which payment may be
made in whole or in part by Medicaid or Medicare.
3.9 ACCURACY AND MATERIALITY. No representation or warranty of Seller
contained in this Agreement or any other document prepared by Seller and
delivered to Buyer in connection with this Agreement contains any untrue
statement of a material fact, or fails to state any material fact necessary in
order to make the statements made in this Agreement or such document not
misleading. Each of the representations, warranties and covenants contained in
this Section 3 shall be deemed to be material to and have been relied upon by
Buyer, and shall be binding and enforceable, notwithstanding any independent
investigation made by Buyer.
3.10 REVIEW AND CONSULTATION. Seller has had access to and reviewed
such information and has consulted with all legal counsel, tax counsel,
accountants and other experts and advisors deemed necessary by Seller in
connection with the transactions contemplated herein.
3.11 BROKER FEES. Neither Seller nor the Corporation has utilized the
services of a broker in connection with this transaction, and neither Seller nor
the Corporation has any liability or obligation to pay any fee or commission to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
3.12 PRACTICE ASSETS. Attached hereto as Schedule 3.12 is a true and
complete list of all of the non-cash assets, including leases to which
Corporation is a party, of Corporation at Closing Date (the "Practice Assets").
Corporation has and at the Closing will have good title, unencumbered by any
Lien, to all of the Practice Assets. The Practice Assets will be updated at
Closing, and supplies and inventories at Closing will be at levels greater than
or equal to the Closing Date levels.
3.13 ACCOUNTS RECEIVABLE. Attached hereto as Schedule 3.13 is a true
and complete list of all accounts receivable of Corporation at the Closing Date
(the "Accounts Receivable"). Prior
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<PAGE> 6
to the Closing there shall be no change in the Accounts Receivable except for
transactions in the normal course of the Corporation's business. The Accounts
Receivable will be updated at the Closing.
3.14 FINANCIAL STATEMENTS. Attached hereto as collective Exhibit 3.14
are unaudited financial statements of Corporation at December 31, 1996, 1995 and
1994, including balance sheets and income statements for the periods then ended.
Such financial statements accurately reflect the condition and results of
operations of Corporation at such dates and for such periods. Since December 31,
1996 there has not been, and prior to the Closing Date there will not be any
material adverse change in the assets or business condition, financial or
otherwise, of Corporation or the Practice Assets.
3.15 LIABILITIES. Attached hereto as Schedule 3.15 is a true and
complete list at the Closing Date of Corporation's debts, liabilities, or
obligations, whether contingent, nonasserted, or nonaccrued, of any type or
nature, including obligations on contracts, leases, written or oral, employee
benefits, or state or federal tax obligations (the "Corporate Liabilities").
Except for the Corporate Liabilities, Corporation does not have, and at the
Closing Date will not have, any debts or obligations, contingent or otherwise,
related to the conduct of the Corporation's business prior to the Closing Date,
except as may be reserved for on Schedule 3.15.
3.16 MALPRACTICE CLAIMS. Since January 1, 1993, Corporation and its
professional employees have been continuously insured for professional
malpractice claims. Attached hereto as Schedule 3.16 is a list of all insurance
claims filed by Corporation or any of its professional employees since December
31, 1993. Neither Corporation nor any of its professional employees is in
violation or default of any provision contained in any insurance policy for
their benefit, and neither has failed to give any required notice or timely
present any claim under any such policy. Seller and Corporation hereby agree to
promptly cause its professional liability insurance carrier to furnish to Buyer
a list of professional liability claims known to such insurance carrier, or
otherwise currently pending or threatened against Seller or Corporation.
3.17 GOVERNMENTAL APPROVALS. Corporation and all professionals employed
by it have all permits and licenses required by all applicable laws and
regulations and are not in violation of any such applicable laws or regulations.
Corporation is duly licensed, and Corporation and its clinics, offices and
facilities are lawfully operated in accordance with the requirements of all
applicable laws and certificates of need and has all necessary authorizations
and certificates of need for their use and operation, all of which are in full
force and effect. There are no outstanding notices of deficiencies relating to
Corporation or any physician employed thereby issued by any governmental
authority or third party payor requiring conformity or compliance with any
applicable law or condition for participation of such governmental authority or
third party payor, and after reasonable and independent inquiry and due
diligence and investigation, Corporation has knowledge or reason to believe that
such necessary authorizations may be revoked or not renewed in the ordinary
course of business.
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<PAGE> 7
3.18 THIRD-PARTY RELATIONS. Neither Seller nor Corporation is aware of
any problem or disagreements with any third parties with which it does business
and the Corporation will use its best efforts from the date of this Agreement
until the Closing Date to operate its business in such a manner so as not to
adversely affect the goodwill of their patients, suppliers, employees,
associated physicians and other such persons or third parties with which
Corporation does business.
3.19 TRADE RELATIONS. There exists no actual or threatened limitation
of the business relationship of Corporation with any material customer, supplier
or landlord or with any person whose contracts or projected contracts with
Corporation would be material to the operations of Corporation. There exists no
condition or state of facts or circumstances which could result in the
occurrence of a material adverse effect with respect to Corporation or prevent
Buyer from conducting its business after the consummation of the transactions
contemplated by this Agreement as such business is conducted or proposed to be
conducted.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents, warrants and agrees with Seller that:
4.1 CONTRACTS OR OTHER AGREEMENTS. Neither the execution or delivery of
this Agreement nor the consummation of this transaction will: (i) conflict with,
constitute a breach, violation or termination of any provision of any contract
or other agreement to which Buyer is a party or by which it is bound; or (ii)
violate any law, regulation, judgment, rule, order or any other restriction of
any kind or character applicable to Buyer.
4.2 REVIEW AND CONSULTATION. Buyer has had access to and reviewed such
information and has consulted with all legal counsel, tax counsel, accountants
and other experts and advisors deemed necessary by Buyer in connection with the
transactions contemplated herein.
4.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Buyer has the full
legal right, power and capacity, and all authority and approval required to
enter into, execute and deliver this Agreement and to perform and observe fully
Buyer's obligations hereunder and to perform the transactions contemplated
hereby. This Agreement has been fully executed and delivered by Buyer and is the
valid and binding obligation of Buyer enforceable in accordance with its terms.
4.4 OWNERSHIP. Buyer is a wholly-owned subsidiary of Omega Health
Systems, Inc.
4.5 FRAUD AND ABUSE. Buyer and persons and entities providing
professional services for Buyer, have not, to the knowledge of Buyer, engaged in
any activities which are prohibited under 42 U.S.C. ss. 1320a-7b, or the
regulations promulgated thereunder pursuant to such statutes, or related state
or local statues or regulations, or which are prohibited by rules of
professional conduct, including but not limited to the following:
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<PAGE> 8
(a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application
for any benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in
determining rights to any benefit or payment;
(c) failing to disclose knowledge by a claimant of the
occurrence of any event effecting the initial or continued right to any
benefit or payment on his own behalf or on behalf of another, with
intent to fraudulently secure such benefit or payment; or
(d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or
indirectly, overtly or covertly, in cash or in kind or offering to pay
or receive such remuneration (i) in return for referring an individual
to a person for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by
Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or
ordering any good, facility, service or item for which payment may be
made in whole or in part by Medicaid or Medicare.
4.6 LITIGATION. Other than that set forth on Schedule 4.6, there is no
suit, action, proceeding at law or in equity, arbitration, administrative
proceeding or other proceeding by any governmental entity pending or to the best
of Buyer's knowledge, threatened against, or affecting Buyer, and to the best of
Buyer's knowledge there is no basis for any of the foregoing.
4.7 AUTHORITY TO ISSUE OMEGA STOCK. Omega has the full legal right,
power and capacity, and all authority and approval required to issue the Omega
Stock, which stock shall be fully paid and non-assessable.
SECTION 5. CONDITIONS AND ADDITIONAL AGREEMENTS.
5.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The Closing and all
obligations of Buyer pursuant to this Agreement shall be conditioned upon the
following:
(a) All representations and warranties contained in Section 3
shall be true and correct as of the date of this Agreement and as of
the Closing Date;
(b) There shall have been no material change in the Practice
Assets, Corporate Liabilities, financial condition or business of the
Corporation from the date of this Agreement through the Closing Date;
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<PAGE> 9
(c) Seller shall have executed and delivered to the Buyer the
stock certificates pursuant to Section 1.3 of this Agreement;
(d) Seller shall have performed all of his obligations under
this Agreement required to be performed as of the Closing Date,
including, but not limited to delivery of all documents set forth in
Section 5.4;
(e) Seller shall have executed and delivered to the Buyer
originals of the Merger Agreement, the Management Agreement, the
Employment Agreement, the Stock Pledge and Escrow Agreement, the
Professional Service Provider Agreement, and the Noncompetition and
Nonsolicitation Agreement;
(f) Any licenses required by law for the operation of the
Corporation shall be in good standing and all regulatory requirements
shall have been met in connection with the sale of the Shares to ensure
the continued operation of Corporation following the sale of the
Shares; and
(g) Buyer shall be satisfied with its "due diligence" review
of each Corporation.
In the event Buyer reasonably believes prior to the Closing Date that
any of the foregoing conditions is not satisfied, then Buyer shall notify Seller
in writing and Seller shall cure such to the reasonable satisfaction of Buyer.
If Seller does not cure in thirty (30) days, then Buyer may, at its option,
terminate this Agreement, in which event Buyer shall be relieved of all
obligations hereunder and this Agreement shall be deemed null, void and of no
force or effect.
5.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. Closing and all
obligations of Seller pursuant to this Agreement shall be conditioned upon the
following:
(a) All representations and warranties contained in Section 4
shall be true and correct as of the date of this Agreement and as of
the Closing Date;
(b) Buyer shall have delivered the Purchase Price recited in
Section 2.1 hereof;
(c) Buyer shall have performed all of its obligations under
this Agreement required to be performed as of the Closing Date,
including, but not limited to delivery of all documents set forth in
Section 5.3;
(d) Buyer shall have executed and delivered to the Seller
originals of the Merger Agreement, the Management Agreement, the
Employment Agreement, the Stock Pledge and Escrow Agreement, the
Professional Service Provider Agreement and the Noncompetition and
Nonsolicitation Agreement.
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<PAGE> 10
In the event Seller reasonably believes prior to the Closing Date that
any of the foregoing conditions is not satisfied, then Seller shall notify Buyer
in writing and Buyer shall cure such to the reasonable satisfaction of Seller.
If Buyer does not cure in thirty (30) days then Seller may, at its option,
terminate this Agreement in which event Seller shall be relieved of all
obligations hereunder and this Agreement shall be deemed null, void and of no
force or effect.
5.3 BUYER'S DELIVERIES. At or prior to the Closing, Buyer shall deliver
to Seller the following documents:
(a) Corporate Resolutions. A copy of directors' resolutions of Buyer,
certified by its corporate secretary or assistant secretary as having been duly
and validly adopted and as being in full force and effect on the Closing Date,
authorizing the execution and delivery by Buyer of this Agreement, the other
instruments to be executed and delivered by Buyer as provided herein, and the
performance by Buyer of the transactions contemplated hereby;
(b) Consideration. The consideration described in Section 2.1;
(c) Opinion of Counsel for Buyer. An opinion of counsel from Buyer
dated as of the Closing, in form and substance reasonably satisfactory to
Seller's counsel, and where appropriate with reliance upon a certificate from
Buyer or the owner of Buyer to the effect that:
(1) Buyer is (i) duly incorporated, validly existing, and in
good standing under the laws of the State of Illinois, (ii) duly
qualified to transact business in Illinois, and is not required to be
so qualified in any other jurisdiction, and (iii) duly empowered and
authorized to hold and own its properties and carry on its business as
now conducted and as proposed to be conducted. Buyer has the corporate
power and authority to execute, deliver and perform this Agreement and
all other agreements contemplated hereby.
(2) Buyer has the full power and authority to execute,
deliver, and perform this Agreement and all other agreements and
documents necessary to consummate the contemplated transaction, and,
upon the requisite approvals thereof, all corporate actions of Buyer
necessary for such execution, delivery and performance will have been
duly taken.
(3) This Agreement and all agreements related to this
Agreement have been duly executed and delivered by Buyer and
constitutes the legal, valid, and binding agreement of Buyer
enforceable in accordance with their terms (subject as to enforcement
of remedies to the discretion of the courts in awarding equitable
relief and to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws effecting the rights of creditors
generally). The execution and delivery by Buyer of this Agreement, and
the performance of its obligations hereunder, do not require any action
or consent of any party other than Buyer pursuant to any contract,
agreement or other understanding of Buyer, or pursuant
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<PAGE> 11
to any order or decree to which Buyer is a party or to which its
properties or assets are subject and will not violate any provision of
law, the articles of incorporation or bylaws of Buyer or any order of
any court or other agency of the government.
(4) To the best of such counsel's knowledge, with respect to
Buyer there are no actions, suits, claims, proceedings or
investigations pending or, to such counsel's knowledge, threatened
against Buyer at law or in equity, or before or by a federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any professional
licensing or disciplinary authority which would adversely effect the
transactions contemplated herein or any party's right to enter into
this Agreement; and
(5) Buyer is not in default with respect to any order, writ,
injunction or decree of any court or of any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign which would effect the rights of
Buyer to enter into and perform this Agreement
(d) Officer's Certificate. A Certificate of Buyer's President and
Secretary confirming the matters in Section 5.2(a); and
(e) Other Purchase Documents. All such documents and instruments Seller
and its counsel may reasonably request in connection with the consummation of
the transactions contemplated by this Agreement.
5.4 SELLER'S DELIVERIES. At or prior to the Closing, Seller shall
deliver to Buyer the following documents:
(a) Stock Certificates. Certificates, representing the Shares duly
endorsed by Seller for transfer;
(b) Executed Contracts. Copies of all executed contracts or other
material agreements entered into by or on behalf of each Corporation;
(c) Copy of Leases. Copies of all real estate and equipment leases
pertaining to each Corporation;
(d) Opinion of Counsel for Seller. Buyer shall have received an opinion
from counsel for Seller dated as of the Closing, in form and substance
reasonably satisfactory to Buyer's counsel, and where appropriate with reliance
upon a certificate from Seller or the Corporations to the effect that:
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<PAGE> 12
(1) Corporation is (i) duly formed and validly existing as a
business corporation under the Illinois Business Corporation Act, (ii)
in good standing as a business corporation under the laws of the State
of Illinois, (iii) duly empowered and authorized to hold and own its
own properties and carry on its business as now conducted and as
proposed to be conducted; and (iv) is no longer organized as a service
corporation under Illinois law, and that Corporation is now a business
corporation organized under Illinois law.
(2) Seller has the full power and authority to execute,
deliver and perform this Agreement and all other agreements and
documents contemplated hereby to which Seller is a party and which are
necessary to consummate the contemplated transaction to which Seller is
a party; and, all action required of Seller necessary for such
execution, delivery and performance will have been duly taken.
(3) This Agreement and all agreements related to this
Agreement to which Seller is a party have been duly executed and
delivered by Seller and constitute the valid and binding agreement of
Seller enforceable in accordance with their terms (subject as to
enforcement of remedies to the discretion of the courts in awarding
equitable relief and to applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium and similar laws
effecting the rights of creditors generally). The execution and
delivery by Seller of this Agreement, and the performance of its
obligations thereunder, do not require, any action or consent of any
party other than Seller pursuant to any contract, agreement or other
understanding of Seller, or pursuant to any order or decree to which
Seller is a party or to which his properties or assets are subject and
will not violate any provisions of the articles of association or
bylaws of either Corporation or any order of any court or other agency
of the government.
(4) To the best of such counsel's knowledge, with respect to
Seller (except for the matters included in Schedule 3.5 hereto), there
are no actions, suits, claims, proceedings or investigations pending or
threatened against Seller at law or in equity, or before or by a
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or any
professional licensing or disciplinary authority which would adversely
effect the transactions contemplated herein or any party's right to
enter into this Agreement.
(5) Seller is not in default with respect to any order, writ,
injunction or decree of any court or of any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign which would effect the rights of
Seller to enter into and perform this Agreement.
(e) Seller's Certificate. A certificate from Seller confirming the
matters in Section 5.1(a) hereof.
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<PAGE> 13
(f) Other Purchase Documents. All such documents and instruments Buyer
and its counsel may substantially request in connection with the consummation of
the transactions contemplated by this Agreement.
SECTION 6. INDEMNIFICATION; SET-OFF.
6.1 INDEMNIFICATION OF BUYER. Seller shall indemnify, defend and hold
Buyer and its officers, directors, shareholders, agents, employees,
representatives, successors and assigns harmless from and against any and all
damage, loss, cost, obligation, claims, demands, assessments, judgments or
liability (whether based on contract, tort, product liability, strict liability
or otherwise), including taxes, and all expenses (including interest, penalties
and reasonable attorneys' and accountants' fees and disbursements) incurred by
any of the above-named persons, resulting from or in connection with any one or
more of the following:
(a) Misrepresentations, breach of warranties, failure to perform any
covenant or agreement of Corporation contained herein;
(b) Debts, commitments, obligations of Corporation (except those
specifically assumed by Buyer), any transaction, event or act that occurred on
or prior to the Closing that materially adversely affects the value of the
Practice Assets;
(c) Claims, actions or suits by former employees of Corporation; or
(d) Corporation's failure to discharge pension or benefit plan
obligations.
Buyer agrees to give prompt notice to Seller of the assertion of any claim, or
the threat or commencement of any suit, action, proceeding or other matter in
respect of which indemnity may be sought under this Section 6.1. Seller may
participate in the defense of any such suit, action, proceeding or other matter
at Seller's expense. Seller shall not be liable under this Section 6.1 for any
settlement effected without Seller's consent of any claim, suit, action,
proceeding or other matter in respect of which indemnity may be sought under
this Section 6.1, which consent shall not be unreasonably withheld.
6.2 INDEMNIFICATION OF SELLER. Buyer and Omega shall indemnify, defend
and hold Seller harmless from any and all damage, loss, cost, obligation,
claims, demands, assessments, judgments or liability (whether based on contract,
tort, product liability, strict liability or otherwise), including taxes and all
expenses (including interest, penalties and reasonable attorneys' and
accountants' fees and disbursements) incurred by Seller, resulting from or in
connection with misrepresentations, breach of warranties or failure to perform
any covenant or Agreement of Buyer contained herein. Seller agrees to give
prompt notice to Buyer of the assertion of any claim, or the threat or
commencement of any suit, action, proceeding or other matter in respect of which
indemnity may be sought under this Section 6.2. Buyer may participate in the
defense
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<PAGE> 14
of any such suit, action, proceeding or other matter at Buyer's expense. Buyer
shall not be liable under this Section 6.2 for any settlement effected without
Buyer's consent of any claim, suit, action, proceeding or other matter in
respect of which indemnity may be sought under this Section 6.2, which consent
shall not be unreasonably withheld.
6.3 SECURITY FOR INDEMNITY. To secure the indemnity under this
Agreement and certain other agreements, Buyer is entitled to exercise its rights
set forth in that certain Stock Pledge and Escrow Agreement, dated as of August
29, 1997, to which both Buyer and Seller are parties.
7. AMENDMENT AND WAIVER.
The parties hereto may by mutual agreement amend this Agreement in any
respect. Any party hereto may extend the time for the performance of any of the
obligations of the other, waive any inaccuracies and representations by the
other contained in this Agreement or in any document delivered pursuant hereto
which inaccuracies would constitute a breach of this Agreement, waive compliance
by the other with any of the covenants contained in this Agreement and
performance of any obligations by the other, waive the fulfillment of any
condition that is precedent to the performance by the party so waiving any of
its obligations under this Agreement. Any agreement on the part of any party for
any such amendment, extension or waiver must be in writing and signed by the
party agreeing to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
8. TERMINATION AND ABANDONMENT.
8.1 METHODS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by the mutual written consent of Seller and Buyer;
(b) by Buyer, if all of the conditions set forth in Section
5.1 of this Agreement shall not have been satisfied or waived on or
prior to the Closing; or
(c) by Seller if all of the conditions set forth in Section
5.2 of this Agreement shall not have been satisfied or waived on or
prior to the Closing.
The following provisions notwithstanding, this Agreement will terminate on
August 31, 1997, unless an extension of time is mutually agreed to, as evidenced
by written consent of Seller and Buyer. If this Agreement is terminated pursuant
to this Section 8.1, it shall become null and void and of no further force or
effect, except as provided in Section 8.2.
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<PAGE> 15
8.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment of this Agreement by Seller or Buyer pursuant to Section 8.1 hereof,
written notice thereof shall forthwith be given to the other party or parties as
provided herein and this Agreement shall terminate and the transactions
contemplated hereby shall be abandoned, without further action by Seller or
Buyer, and Seller and Buyer shall each return to the other party any documents
or copies thereof in possession of such party furnished by such other party in
connection with the transaction contemplated by this Agreement. If this
Agreement is terminated as provided herein, no party to this Agreement shall
have any liability or further obligation to any other party to this Agreement
with respect to this Agreement or the transactions contemplated hereby except as
provided in this Section 8.2; provided, however, that no termination of this
Agreement pursuant to the provisions of this Section 8 shall relieve any party
of liability for breach of any provision of this Agreement occurring prior to
such termination; and provided, further, that any and all confidential or
proprietary information obtained from either party must be returned to that
party, and each party hereto agrees to maintain any and all confidential or
proprietary information obtained from the other party in strictest confidence
and not to divulge such information to any third party, except as may be
permitted or required by law.
SECTION 9. PATIENT REFERRALS.
The parties agree that nothing in this Agreement is intended to violate
state or federal health care laws or regulations including, but not limited to,
those listed in Section 3.8 herein, nor shall any portion of the consideration
be construed as a payment for or inducement of the referral of patients. Seller
shall be free to refer patients to whomever it sees fit in the exercise of
professional judgment, according to the convenience or preference of the
patient, or otherwise.
SECTION 10. GENERAL PROVISIONS.
10.1 PARTIES IN INTEREST AND ASSIGNMENT.
(a) This Agreement is binding upon, and is for the benefit of,
the parties hereto and their respective successors and authorized
assigns. Except as otherwise expressly provided, nothing in this
Agreement, express or implied, is intended or shall be construed to
confer upon any person other than the parties hereto, any right,
remedy, or claim, legal or equitable, under or by reason of this
Agreement or any provision thereof.
(b) Neither this Agreement nor any of the rights or duties of
any party hereto may be transferred or assigned to any person except by
a written agreement executed by each of the parties hereto, except that
Buyer reserves the right to assign this Agreement to any affiliate or
successor of itself.
10.2 CHOICE OF LAW; VENUE. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
Illinois. Any mediation or
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<PAGE> 16
binding arbitration brought with respect to this Agreement shall be conducted in
Vermilion County, Illinois.
10.3 ENTIRE AGREEMENT. This Agreement shall embody the entire agreement
between the parties hereto with respect to acquisition of the Shares and cancels
and supersedes all other previous agreements and understandings relating to the
subject matter of this Agreement, written or oral, between the parties hereto.
There are no agreements, representations or warranties between the parties
hereto as to the subject matter hereof other than those set forth or provided
herein. All Schedules called for by this Agreement and delivered to the parties
shall be considered a part hereof with the same force and effect as if the same
had been specifically set forth in this Agreement.
10.4 SURVIVAL. The covenants, representations and warranties contained
in this Agreement shall survive the Closing.
10.5 SECTION HEADINGS. The subject headings contained in this Agreement
are included for purposes of convenience only, and shall not affect the
construction or interpretation of its provisions.
10.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
10.7 CONFIDENTIALITY. The parties agree to maintain confidential the
terms and conditions of this Agreement and not to disclose any of such terms and
conditions to any third-party without the prior written consent of the other
party.
10.8 GENDER. Masculine pronouns used in this Agreement shall be
construed to include feminine and neuter pronouns, and words in the singular
shall include the plural, unless the context requires otherwise.
10.9 NOTICES. Any notices hereunder shall be deemed to have been given
by one party to the other if it is in writing and it is (a) delivered or
tendered in person, or (b) deposited in the United States Mail in a sealed
envelope, with postage prepaid, in either case addressed as follows:
If to Buyer: Omega Health Systems of Illinois, Inc.
5100 Poplar Avenue, Suite 2100
Memphis, Tennessee 38137
Attn: Thomas P. Lewis
With a copy to: Baker, Donelson, Bearman & Caldwell
2000 First Tennessee Building
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<PAGE> 17
Memphis, Tennessee 38103
Attn: Robert Walker
If to Seller: David M. Dillman, M.D.
Ocular Care Associates, S.C.
600 North Logan
Danville, Illinois 61832
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<PAGE> 18
With a copy to: Erwin, Martinkus, Cole & Ansel
411 West University
Champaign, Illinois 61820
Attn: Sam Erwin
or to such other address as the parties shall have previously designated by
notice to the serving party, given in accordance with this Section 10.9. Notices
shall be deemed to have been given on the date of delivery if delivered
personally, or on the third day after mailing as provided above; provided,
however, that a notice not given as above shall, if it is in writing, be deemed
given if and when actually received by a party.
10.10 MEDIATION AND ARBITRATION. In the event a dispute arises out of
or relating to this Agreement, or the breach thereof, and if said dispute cannot
be settled through negotiation, the parties agree to attempt in good faith to
settle the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association. Unless the parties reach an agreement reduced
to writing, This mediation will be non-binding, but the parties must participate
in good faith in non-binding mediation, before resorting to binding arbitration.
Any controversy or claim arising out of or relating to this Agreement, or its
breach, not satisfied through either negotiation or mediation, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. As soon as
reasonably practicable after submission of a demand for binding arbitration,
Buyer and Seller shall select one arbitrator, agreeable to both parties. This
arbitrator will be selected from lists prepared by the American Arbitration
Association. From the American Arbitration Association list the parties will
submit to the American Arbitration Association a ranked list of arbitrators
which are acceptable. The highest ranking acceptable candidate will be selected
by the American Arbitration Association. If no arbitrators from the list
composed by the American Arbitration Association are acceptable by either of the
parties, the American Arbitration Association will compile a second list. This
procedure will be followed until the parties have selected an arbitrator. The
results of the arbitrator's finding will be binding on the parties.
10.11 PREVAILING PARTY. The parties agree that if either party should
institute arbitration proceedings to enforce or interpret any provisions of this
Agreement, the prevailing party in such arbitration shall be entitled to
receive, in addition to any other relief awarded such party, reasonable
attorneys' fees and expenses for the prosecution or defense of such arbitration.
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<PAGE> 19
10.12 EXPENSES. Except as otherwise provided herein, each of the
parties shall pay its own costs and expenses incurred or to be incurred by it in
negotiating and preparing this Agreement and in consummating the transactions
contemplated by this Agreement.
IN WITNESS THEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
BUYER:
OMEGA HEALTH SYSTEMS OF ILLINOIS,
INC.
By:
------------------------------------
Ronald L. Edmonds,
Vice President
SELLER:
---------------------------------------
DAVID M. DILLMAN, M.D.
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<PAGE> 20
JOINDER AND GUARANTEE
OMEGA HEALTH SYSTEMS, INC., which has been represented by counsel in
connection with this transaction, and has read this Agreement and discussed it
with counsel, for good and valuable consideration joins in this Agreement for
purposes of (i) guaranteeing the payment of the consideration set forth in
Section 2, (ii) confirming and guaranteeing the representations and warranties
relating to Omega Health Systems, Inc. in this Agreement, (iii) confirming and
guaranteeing the representations and warranties made by Buyer, and (iv)
confirming and guaranteeing the performance of the indemnity obligations of
Buyer and Omega Health Systems, Inc.
DATED: August 29, 1997 OMEGA HEALTH SYSTEMS, INC.
By:
-------------------------------
Ronald L. Edmonds,
Executive Vice President
and Chief Financial Officer
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<PAGE> 1
Exhibit 10(r)
LEASE AGREEMENT
THIS AGREEMENT entered into this 29th day of August, 1997, between
WATSON REAL ESTATE HOLDINGS, L.P., A COLORADO LIMITED PARTNERSHIP, hereinafter
designated as "Owner" and OMEGA HEALTH SYSTEMS OF ILLINOIS, INC., A CORPORATION,
hereinafter designated as "Lessee";
WITNESSETH:
WHEREAS, the Owner owns real estate which is presently improved with a
building suitable for an Eye Care Center,
WHEREAS, the Owner desires to lease the premises to the Lessee, named
herein; and
WHEREAS, the Lessee desires to lease the premises in accordance with
the terms contained herein.
NOW THEREFORE, it is agreed by and between the parties as follows:
1. Lease Term: The term of this Lease shall commence on September 1,
1997, and the original term shall continue for a period of ten (10) years, the
premises to be occupied and leased by the Lessee for an Eye Care Center, and for
any purposes related thereto or incidental thereto.
2. Premises Leased: The premises leased hereunder are commonly known as
600 North Logan, Danville, Illinois, and are legally described as:
Lots 1, 2, 3, 4, 5, 6, and 7 in J. H. Converse's Third Addition to
Danville, Vermilion County, Illinois.
3. Rent: Lessee shall pay to Owner at Owner's address at 600 North
Logan, Danville, Illinois, or at such other place as is designated from time to
time by Owner, rental payments during the original term of the Lease as follows:
(a) Fixed Rental: The sum of One Million Six Hundred Twenty Thousand
Dollars ($1,620,000.00) for the original term of the Lease payable in
monthly installments of Thirteen Thousand Five Hundred Dollars
($13,500.00) per month commencing September 1, 1997, and a like sum
each and every month thereafter.
<PAGE> 2
4. Services: Owner shall not be obligated to furnish and Lessee shall
be obligated to furnish all heat, electricity, water, gas, refuse hauling, and
any other services required by Lessee in conducting Lessee's business on the
premises, all at Lessee's expense.
5. Owner's Title: Nothing herein contained shall empower Lessee to do
any act which can, may or shall cloud or encumber Owner's title. Lessee's rights
are and shall always be subordinate to the lien of any mortgage or mortgages now
or hereafter placed upon the premises and to all advances made or hereafter to
be made upon the security thereof, and Lessee shall execute such further
instruments subordinating this Lease to the lien or liens of any such mortgage
or mortgages or to any such underlying lease or leases as shall be requested by
Owner. Lessee hereby irrevocably appoints owner as Attorney-in-Fact for Lessee
with full authority to execute and deliver in the name of Lessee any such
instrument or instruments. Owner agrees that it will not place a first mortgage
lien on the premises which will call for monthly payments exceeding the amount
of the fixed monthly rental payment. If Owner should default on any mortgage
payment, Lessee may divert its rental payments to the mortgage company for the
purpose of preventing a default under the mortgage and for the purpose of
protecting its position as Lessee.
It is agreed and understood that an essential part of this Lease
Agreement includes the covenant of quiet enjoyment of the leased premises by
Lessee.
6. Reserved Rights: Owner reserves the following rights:
(a) To enter the premises or any part thereof at reasonable hours to
make inspections, and such reasonably necessary repairs, alterations or
additions in or to the premises or the improvements thereon, as are
necessary to the profitable conduct of the Lessee's business
operations, to exhibit the premises to prospective tenants, purchasers,
or others, and to perform any acts related to the safety, protection,
preservation, reletting, sale or improvements of the premises or the
improvements thereon; and
(b) During the last ninety (90) days of the original term or any
renewal thereof, if during or prior to that time Lessee vacates the
premises, or at any time after Lessee abandons the premises, to enter
and decorate, remodel, repair, alter or otherwise prepare the premises
for reoccupancy. The exercise of any reserved right by Owner shall
never be deemed an eviction or disturbance of Lessee's use and
possession of the premises and shall never render Owner liable in any
manner to Lessee or to any other person.
7. Waiver of Claims: Owner and Owner's agents and servants shall not be
liable, and Lessee waives all claims against such persons, for damage to person
or property sustained by Lessee or any occupant of the premises resulting from
the premises or any improvement built thereon, becoming
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<PAGE> 3
out of repair, or resulting from any accident in or about the premises, or
resulting directly or indirectly from any act or neglect of any tenant or
occupant of the premises or of any other person, including Owner's agents and
servants. This Section shall apply specifically, but not exclusively, to the
flooding of surface areas, and to damage caused by sprinkling devices,
air-conditioning apparatus, water, snow, frost, steam, excessive heat or cold,
falling plaster, broken glass, sewage, gas, odors or noise, or the bursting or
leaking of pipes or plumbing fixtures, and shall apply equally whether any such
damage results from the act or neglect of Owner or of Lessee, or any other
occupants of the premises and whether such damage be caused or result from
anything or circumstance abovementioned or referred to, or any other thing or
circumstance whether of a like nature or of a wholly different nature. If any
such damage, whether to the demised premises or to the improvements thereon or
any part thereof, or whether to Owner or to other persons, result from any acts
or neglect of Lessee, the Owner may, at Owner's option, repair such damage and
Lessee shall, upon demand by Owner, reimburse Owner forthwith for the total cost
of such repairs. All Property belonging to Lessee that is on the premises or in
the improvements thereon, shall be there at the risk of Lessee and the Owner
shall not be liable for damage thereto or theft or misappropriation thereof. Any
and all property which may be removed from the premises by Owner pursuant to the
authority of this Lease or of law, to which Lessee is or may be entitled, may be
handled or removed by Owner at the risk, cost and expense of Lessee, and Owner
shall in no event be responsible as warehousemen, bailee or otherwise for any
property left in the premises or the improvements thereon by Lessee, or for the
value, preservation or safekeeping thereof. Lessee shall pay to Owner, upon
demand, any and all expenses incurred in any such removal of Lessee's property.
This Section specifically does not apply to claims for damages to person or
property which might accrue to Lessee against any person, firm or corporation
who shall furnish labor and/or materials in the course of construction of the
building to be constructed on the leased premises or against Owner's architect
arising from the design and supervision of construction of such building.
8. Holding Over: Lessee shall pay to Owner, as liquidated damages, for
each day that Lessee retains possession of the premises or any part thereof
after termination of the term of this Lease or extension thereof by lapse of
time or otherwise, an amount equal to double the per diem fixed rent specified
in paragraph 3.(a) above, and interest thereon from the date of termination
until paid; or if and only if Owner serves written notice upon Lessee of Owner's
election thereof, such holding over shall constitute renewal of this Lease for
one (1) year. Owner's acceptance of any rent after holding over begins does not
renew this Lease. This provision does not waive Owner's right of re-entry or any
other right hereunder.
9. Subletting or Assignment: Lessee shall not, without the prior
written consent of owner, which consent shall not be unreasonably withheld,
allow or permit any transfer of this Lease or any interest under it or any lien
upon Lessee's interest by operation of law, or assign or convey this Lease or
any interest under it, or sublet the premises or any part thereof, or permit the
use or occupancy of the premises or any part thereof by anyone other than
Lessee.
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<PAGE> 4
10. Condition of the Premises: Lessee will, prior to taking possession
of the premises, be satisfied with the condition thereof, and the taking of
possession shall be conclusive evidence as against Lessee that the premises were
in good order and satisfactory condition when Lessee took possession hereunder.
No promise of the Owner to alter, remodel, improve, repair, or decorate the
premises or any part thereof, and no representation respecting the condition of
the premises of the improvements thereon, has been made by the Owner to Lessee,
unless the same is contained herein or made a part hereof. The Owner does agree
to present the premises to Lessee in "broom clean" condition, with all walls,
ceilings and floors to be in normal condition, ordinary wear and tear excepted,
it being recognized that the previous tenant has occupied the premises for
several years. At the termination of this Lease by lapse of time or otherwise,
Lessee shall return the premises, the improvements thereon, and the fixtures
therein in as good condition as when Lessee took possession, ordinary wear and
tear excepted, failing which Owner may restore the premises, improvements, and
fixtures to such condition and Lessee shall pay the cost thereof upon request.
11. Alterations: Lessee shall not make any alteration in or additions
to the premises, without Owner's advance written consent in each and every
instance. Whenever such consent is sought and before any contract is let or any
work is done or any materials are delivered on the premises, Lessee shall comply
with Owner's request for plans, specifications, names and addresses or
contractors, copies of contracts, necessary permits and indemnification in form
and amount satisfactory to Owner against liens, costs, damages and expenses of
all kinds, and Lessee shall permit Owner to supervise construction alterations.
Owner's decision to refuse any consent shall be conclusive. Lessee shall pay the
cost of all such installations, alterations and additions, if permitted by Owner
in the expense of the maintenance and operation thereof. All installations,
additions, hardware non-trade fixtures and improvements, temporary or permanent,
in and upon the premises, whenever and whether placed there by Lessee or Owner,
shall be and become Owner's property and shall remain upon the premises upon
termination of the term by lapse of time or otherwise, all without compensation,
allowance or credit to Lessee; provided, however, if prior to such termination
or within ten (10) days thereafter, Owner so directs by notice, Lessee shall
promptly remove the installations, additions, hardware, non-trade fixtures and
improvements which were placed on the premises by Lessee and which are
designated in the notice, failing which, Owner may remove the same and Lessee
shall pay the costs thereof. Any damage caused by Lessee to the premises by the
removal of any of the aforenamed items, or any other item, will be repaired in
such a way as to restore the improvements to their original condition prior to
the installation of the items removed, at Lessee's expense. If Lessee does not
remove Lessee's furniture, window treatments, trade fixtures or other personal
property of all kinds from the premises prior to the end of the term, however
ended, Lessee shall be conclusively presumed to have conveyed the same to Owner
under this Lease as a Bill of Sale without further payment or credit by Owner to
Lessee.
12. Use of the Premises: Lessee will occupy and use the premises for
the purpose above specified and none other, conducting Lessee's customary
business activities therein during reasonable hours for the business in the
vicinity where located, except when prevented by strikes,
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<PAGE> 5
fire, casualty or other causes beyond Lessee's reasonable control and except
during reasonable periods for repairing, cleaning and decorating the premises.
Lessee shall not sell, store or give away any alcoholic liquor, as defined in
the Illinois Liquor Control Act, unless Lessee has first obtained Dram Shop
Insurance showing coverage to the full statutory amount for the Lessee and for
the Owner, and the Owner in this regard, shall be named as an insured party.
Lessee shall not exhibit, sell or offer for sale, use, rent or exchange on the
premises or in the improvements thereon, any article, thing or service except
those ordinarily embraced within the stated use of the premises; and will not
make or permit any use of the premises which, directly or indirectly, is
forbidden by public law, ordinance or governmental or municipal regulation or
order, or which may be dangerous to life, limb or property, or which may
invalidate any policy of insurance carried on the premises or covering business
operation on the premises.
Lessee shall maintain the premises in a clean and orderly and
attractive condition. Lessee shall not make or permit any noise or odor that is
objectionable to the public to emanate from the premises and shall not create or
maintain a nuisance thereon. Lessee shall not overload any floor. Lessee shall
maintain the heat at a temperature sufficient to prevent the freezing of water
and plumbing fixtures and all other damage caused by low temperatures.
13. Repairs and Maintenance: (a) Lessee shall, during the original term
and renewal thereof, at Lessee's own expense, keep the premises and the
improvements thereon in good order, condition and repair. If Lessee does not
make repairs promptly and adequately, the Owner may but need not, make repairs,
and Lessee shall pay promptly the reasonable cost thereof, including overtime
and other expense if Owner makes such repairs, at times other than ordinary
business hours. At any time or times, Owner, either voluntarily or pursuant to
governmental requirement, may, at Owner's expense, make such repairs,
alterations or improvements in and to the premises, or the improvements thereon,
as may be reasonably necessary to the conduct of Lessee's business operations or
required by governmental authority, such operations to be conducted so as to
minimize interference with the conduct of Lessee's business operations and Owner
shall not be liable to Lessee by reason of interference, inconvenience,
annoyance or loss of business arising therefrom.
(b) Notwithstanding any other provision in this Agreement, the Owner
shall be responsible to maintain, repair, and as necessary replace (i) the
heating, ventilation, and air conditioning systems; (ii) the parking lot and
related exterior areas; and (iii) the roof, the foundation, and the overall
structural integrity of the building.
14. Insurance and Untenantability: The Lessee agrees, at Lessee's
expense, to maintain fire and casualty insurance on the premises, including all
improvements thereon and including the contents therein, which shall provide
insurance coverage in an amount not less than ninety (90) percent of the
replacement cost of said building and improvements and the contents therein,
with an insurance company acceptable to the Owner, and said policy or policies
shall show the Owner as an
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<PAGE> 6
insured party. In addition, any lender holding a valid mortgage lien against the
premises shall be shown as an additional insured party.
In addition thereto, the Lessee agrees to maintain, at Lessee's
expense, liability insurance coverage in an amount of not less than
$500,000.00/$1,000,000.00, and to name the Owner as an additional insurance
party in the event of claims resulting from the ownership of said property.
If the improvements on the premises are made wholly untenantable by
fire or other casualty, the Owner may elect to terminate this Lease as of the
date of the fire or casualty by notice to Lessee within thirty (30) days after
that date, and the proceeds of the fire and casualty insurance coverage covering
the improvements and permanent fixtures shall be assigned to Owner, or to take
the proceeds from the insurance policy or policies and repair, restore, or
rehabilitate the improvements on the premises at Owner's expense, within one
hundred twenty (120) days after Owner is able to take possession of the premises
and to undertake reconstruction or repairs, in which latter event, the Lease
shall not terminate but rent shall be abated on a per diem basis while the
premises are untenantable. If Owner so elects to repair, restore, or
rehabilitate, Owner shall send notice to Lessee within twenty (20) days after
its election notifying Lessee of its intent and shall state the date upon which
the one hundred twenty (120) day period commenced (the date upon which Owner
took possession for the purpose of repair). If Owner elects so to repair,
restore or rehabilitate the improvements on the premises, and does not
substantially complete the work within the one hundred twenty (120) days period,
either party can terminate this Lease as of the date of the fire or casualty by
notice to the other party not later than one hundred thirty (130) days after
Owner is able to take possession of the injured premises and to undertake
reconstruction or repairs. If the demised premises shall be partially damaged by
fire or other casualty without the fault or neglect of Lessee, Lessee's
servants, employees, agents, visitors or licensees, the premises shall be
repaired, restored or rehabilitated, by use of the proceeds from the insurance
policy or policies, and rent until the damaged portion of the premises is ready
for occupancy by Lessee shall be apportioned according to the part of the
demised premises which is usable by Lessee. In all cases, due allowance shall be
made for reasonable delay which may be caused by adjustment of insurance,
strikes, labor difficulties or any cause beyond Owner's control.
If Lessee adds an addition to the building being leased, and if Owner
elects not to repair, restore or rehabilitate, it is agreed and understood that
the Lessee shall be entitled to a pro rata share of the proceeds based on its
addition to the building, if Lessee has maintained sufficient insurance to cover
ninety (90) percent of the replacement cost of the building and improvements,
including Lessee's addition.
15. Eminent Domain: If the whole or any substantial part of the demised
premises shall be taken or condemned by any competent authority for any public
use or purpose, the term of this Lease shall end upon, and not before, the date
when the possession of the part so taken shall be required for such use or
purpose, and without apportionment of the award. Current rent shall be
apportioned
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<PAGE> 7
as of the date of such termination. But Lessee shall be entitled to any award
for actual Tenant damages.
16. Taxes: Lessee shall pay, at Lessee's expense, all general real
estate taxes levied against the demised premises. In addition, all special
assessments, levied against the demised premises and assessed during the term of
the Lease shall be paid by Lessee making all installment payments accruing
during the term of the Lease or any renewals thereof. The general real estate
taxes for the year in which this lease term begins and Lessee actually takes
possession, shall be pro-rated so that the Owner pays for the general real
estate taxes up to the time of Lessee taking possession and Lessee pays for the
general real estate taxes thereafter and for each and every year thereafter
during the term of this lease, and any renewal thereof.
17. Remedies: All rights and remedies of Owner herein enumerated shall
be cumulative, and none shall exclude any other right or remedy allowed by law.
(a) In the event that Lessee be by any Court adjudged bankrupt, or
insolvent, or upon the Lessee's making an assignment for the benefit of
creditors, then and in any such event Owner may, if Owner so elects but not
otherwise, and with or without notice of such election, and with or without
entry or other action by Owner, forthwith terminate this Lease, and
notwithstanding any other provisions of this Lease, Owner shall forthwith upon
such termination be entitled to recover damages in an amount equal to the then
present value of the rent reserved under the provisions of Section 3 of this
Lease for the residue of the stated term hereof, less the fair rental value of
the premises for the residue of the stated term actually realized by Owner.
(b) If Lessee defaults in the payment of rent or in the full
performance of any other provision of this Lease and such default shall continue
for twenty-one (21) days after written notice of the nature of such default from
Owner to Lessee, Owner may, if Owner so elects, but not otherwise, and upon
further written notice to Lessee of such election, forthwith terminate this
Lease and Lessee's right to possession of the premises. If the leasehold
interest of Lessee be levied upon under execution or be attached by process of
law, or if Lessee makes an assignment for the benefit of creditors, or if Lessee
abandons the premises, then and in any such event Owner may, if Owner so elects
but not otherwise, and with or without notice of such election and with or
without any demand whatsoever, forthwith terminate this Lease and Lessee's right
to possession.
(c) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Lessee's right to possession without
termination of this Lease, Lessee shall surrender possession and vacate the
premises immediately, and deliver possession thereof to Owner, and hereby grants
to Owner full and free license to enter into and upon the premises in such event
with or without process of law and to repossess the premises and to remove
Lessee and any others who may be occupying the premises and to remove any and
all property therefrom, without being deemed guilty of trespass, eviction or
forcible entry and detainer, and without relinquishing Owner's right
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<PAGE> 8
to rent or any other right given to Owner hereunder or by operation of law.
Except as described in paragraph b of this section, Lessee expressly waives the
service of any demand for the payment of rent or for possession and the service
of any notice of Owner's election to terminate this Lease or to re-enter the
premises, including any and every form of demand and notice prescribed by any
statute and agrees that the simple breach of any provision of this Lease by
Lessee shall, of itself, without the service of any notice or demand, constitute
a forceable detainer by Lessee of the premises within the meaning of the
statutes of the State of Illinois.
(d) If Lessee abandons the premises or otherwise entitles Owner so to
elect, and Owner elects to terminate Lessee's right to possession only, without
terminating the Lease, Owner may at Owner's option enter the premises, remove
Lessee's property, and take and hold possession thereof as in paragraph (c) of
this Section provided, without such entry and possession terminating the Lease
or releasing Lessee, in whole or in part from Lessee's obligation to pay the
rent hereunder for the full term, and in any such case, Lessee shall pay
forthwith to Owner an amount equal to the then present value of the rent
reserved under the provision of Section 3 of this Lease for the residue of the
stated term hereof, less the fair rental value of the premises for the residue
of the stated term actually realized by Owner, plus any other sums then due
hereunder. Upon and after entry and the possession without termination of this
Lease, the Owner may, but need not, relet the premises or any part thereof for
the account of Lessee to any person other than Lessee for such rent, for such
time and upon such terms as Owner, in Owner's sole discretion shall determine.
Owner shall not be required to accept any tenant offered by Lessee or to observe
any instructions given by Lessee about such reletting. If the consideration
collected by Owner upon any such reletting for Lessee's account is not
sufficient to pay monthly the full amount of the rent reserved in this Lease,
together with the cost of any repairs or alterations, Lessee shall pay to the
Owner the amount of each monthly deficiency upon demand plus any such expenses.
(e) Lessee shall pay upon demand all Owner's costs, charges and
expenses, including the fees of counsel, agents and others retained by Owner,
incurred in successfully enforcing Lessee's obligations hereunder or incurred by
Owner in any litigation, negotiation or transaction in which Lessee causes
Owner, without Owner's fault, to become involved or concerned. In the same
manner, Owner shall be obligated to pay to Lessee any fees of counsel, agents or
others retained by Lessee to enforce Owner's obligations hereunder, or incurred
by Lessee in any litigation, negotiation or transaction in which Owner causes
Lessee, without Lessee's fault, to become involved or concerned.
(f) In the event any lien upon Owner's title results from any act or
neglect of Lessee, and Lessee fails to remove said lien within ten (10) days
after Owner's notice to do so, or post bond or other security in an amount
sufficient to satisfy such lien, Owner may remove the lien by paying the full
amount thereof or otherwise and without any investigation or contest or the
validity thereof, and Lessee shall pay Owner upon request the amount paid out by
Owner including Owner's costs, expenses and counsel fees.
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<PAGE> 9
(g) This Lease shall constitute an agreement by the parties that grants
Owner a security interest in all present and future personal property,
improvements, trade fixtures, and non-trade fixture items installed or placed on
the premises, unless Owner specifically waives such security interest, or agrees
to take a subordinate security interest.
18. Option for Renewal Terms: The Owner agrees that Lessee shall have
and is hereby granted two successive options to extend the term of this lease
for any period or time not exceeding five (5) years on each such option, such
renewal term to begin respectively upon the expiration of the original term of
this Lease or upon the end of the first renewal term, and all the terms,
covenants and provisions of this Lease shall apply to each and such renewal
term. If the Lessee shall elect to exercise the aforesaid options, it shall do
so by giving to the Owner notice in writing of its intention to do so not later
than 120 days prior to expiration of the original term or the renewal term, and
in said notice shall state the date to which it elects to extend the renewal
term of this Lease.
In the event the Lessee exercises its option to renew the Lease, it is
agreed and understood that the rent will be adjusted in accordance with
increases in the Consumer Price Index from the commencement date of the original
term to the end of the original term, and in the same manner, any increase in
the Consumer Price Index from the beginning of the first renewal term to the end
of the first renewal term. The percentage increase of the Consumer Price Index
for those two periods will be applied to the most recent rental amount, and said
percentage amount shall be added to the original rent, and the total will
constitute the new rent for each renewal term.
19. General: No receipt of money by the Owner from Lessee after the
termination of this Lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of the
premises, shall renew, reinstate, continue or extend the term of this Lease or
affect any such notice, demand or suit. No waiver of any default by Lessee
hereunder shall be implied from any omission by Owner to take any action on
account of such default if such default persists or be repeated, and no express
waivers shall affect any default other than the default specified in the express
waiver and that only for the time and to the extent therein completed. The
invalidity or enforceability of any provision hereof shall not affect or impair
any other provision. Each provision of this Lease Agreement shall extend to and
shall, as the case may require, bind and inure to the benefit of Owner and
Lessee and their respective heirs, legal representatives, successors
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<PAGE> 10
and assigns, and shall bind assigns in the event this Lease has been assigned
with the express written consent of Owner. The headings of the Sections are for
convenience only and do not define, limit or construe the contents of the
Section.
IN WITNESS WHEREOF, the Owner and Lessee have duly executed and affixed
their respective signatures to this Lease on the day and year first written
above.
OWNER:
WATSON REAL ESTATE HOLDINGS, L.P.:
By:
--------------------------------------------
David M. Dillman, General Partner.
By:
--------------------------------------------
Cheryl Vergin, General Partner.
LESSEE:
OMEGA HEALTH SYSTEMS OF ILLINOIS, INC.:
By:
--------------------------------------------
Ronald L. Edmonds, Executive Vice President.
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<PAGE> 1
Exhibit 10(s)
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Agreement") is entered into as of the 26 day of
September, 1997, by and among GOLDEN EYE SURGEONS AND CONSULTANTS, LTD., a
Wisconsin service corporation ("Golden Wisconsin") and EYE SURGEONS AND
CONSULTANTS, INC., an Illinois corporation ("Golden Illinois"; Golden Wisconsin
and Golden Illinois are referred to herein collectively as the "Corporation");
OMEGA HEALTH SYSTEMS OF THE GREAT LAKES, INC., an Illinois corporation
("Omega"); OMEGA HEALTH SYSTEMS, INC., a Delaware corporation ("OHSI") and BRUCE
GOLDEN, M.D., F.A.C.S., a citizen and resident of Illinois ("Stockholder").
W I T N E S S E T H:
WHEREAS, Golden Wisconsin is a Wisconsin service corporation, which
owns certain assets which are used by and/or result from Stockholder's practice
of providing eye care to patients in Wisconsin;
WHEREAS, Golden Illinois is an Illinois corporation, which owns certain
assets which are used by and/or result from Stockholder's practice of providing
eye care to patients in Illinois;
WHEREAS, Stockholder is the sole stockholder of Corporation and is an
Ophthalmologist practicing medicine in the States of Wisconsin and Illinois;
WHEREAS, Omega is a wholly-owned subsidiary of OHSI;
WHEREAS, Corporation, Omega and Stockholder intend that the transaction
consummated pursuant to this Agreement shall qualify as a reorganization
pursuant to ss. 368(a)(1)(A) and ss. 368(a)(l)(E)(i) of the Internal Revenue
Code of 1986, as amended ("Code" or "I.R.C."); and
WHEREAS, the parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, it is agreed as
follows:
<PAGE> 2
ARTICLE I
MERGER TRANSACTION
1.1 BASIC TRANSACTION. (a) Subject to the terms and conditions of this
Agreement, at the closing (as defined in Section 1.1(b)(i)), each of Golden
Wisconsin and Golden Illinois shall be merged with and into Omega in accordance
with this Agreement and the separate corporate existence of each Corporation
shall thereupon cease (the "Merger"). Omega shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in Section 180.1101
et seq. Subchapter XI of the Wisconsin Bus. Corp. Law ("WBCL") as amended and
Section 5/11.05 et seq. of the Illinois Business Corporation Act ("IBCA") as
amended. By execution and delivery of this Agreement, Stockholder hereby
approves the Merger on the terms and subject to the conditions set forth herein,
which approval shall be effective as an action without a meeting pursuant to
Corporation's bylaws and the WBCL.
(b) Effect of Merger.
(i) General. If all the conditions to the Merger set forth
in Article IV shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as
provided in Article XIII, the parties hereto shall cause
Articles of Merger meeting the requirements of the WBCL and IBCA to be
properly executed, verified and delivered for filing in accordance
with the WBCL and IBCA on the Closing Date set forth in Article
III. The Merger shall become effective upon the later of acceptance
for filing of the Articles by the Secretaries of State of the States
of Wisconsin and Illinois or at such later time which the parties
hereto shall have agreed upon and designated in the Articles of Merger
in accordance with applicable law as in effect at the time of the
Merger (the "Closing"). The Surviving Corporation may, at any time
after the Closing, take any action (including executing and delivering
any document or instrument) in the name and on behalf of Omega or the
Corporation in order to carry out and effectuate the transaction
contemplated by this Agreement.
(ii) Certificate of Incorporation. The Articles of
Incorporation of Omega in effect at and as of the Closing will remain
the Articles of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of Omega in effect at and as of the
Closing will remain the Bylaws of the Surviving Corporation without any
modification or amendment in the Merger.
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<PAGE> 3
(iv) Directors and Officers. The directors and officers of
Omega in office at and as of the Closing will remain the directors and
officers of the Surviving Corporation (retaining their respective
positions and terms of office).
(v) Omega Shares. Each share of common stock of Omega (the
"Omega Stock") issued and outstanding at and as of the Closing will
remain issued and outstanding.
ARTICLE II
CONSIDERATION
2.1 CONSIDERATION. As consideration for the Merger, all shares of
common stock of Corporation shall, without further action on the part of
Stockholder, be exchanged (a) for cash in an amount determined by the following
calculation: (i) from the agreed upon base amount of $497,700 (ii) add an amount
equal to $175,000.00 representing the estimated value of the Purchased Accounts
Receivable listed in Schedule 5.10.1, and (iii) subtract from the sum of (i) and
(ii) the amount of the liabilities and indebtedness assumed by the Surviving
Corporation and set forth in Schedule 5.27.1, and (b) for shares of voting
common stock of OHSI (the "OHSI Stock") valued at Six Hundred Seventy-Two
Thousand Seven Hundred Dollars ($672,700) to be issued to Stockholder (the
"Consideration"). Each share of OHSI Stock shall be valued at the average of the
closing price of OHSI Stock for the twenty (20) trading days immediately prior
to the three business days preceding the Closing Date; provided, however, the
value of the OHSI Stock for purposes of this transaction shall not in any event
exceed Seven Dollars and Fifty Cents ($7.50). No fractional share of OHSI Stock
shall be issued. The OHSI Stock shall not be registered under the Securities Act
of 1933 (the "1933 Act") and will be restricted securities, as defined in Rule
144(a)(3) under the 1933 Act that are not fully transferable, except to the
extent provided herein, and the certificates reflecting Stockholder's ownership
in the OHSI Stock shall bear a legend to that effect. The amount set forth above
in 2.1(ii) representing the value of the Purchased Accounts Receivable as of
September 30, 1997, is to be adjusted on or before March 31, 1998, positively or
negatively, for the actual collected amount of the Purchased Accounts
Receivable, and the amount set forth above in 2.1(iii) and on Schedule 5.27.1
representing the amount of the accounts payable and other liabilities as of
September 30, 1997, is to be adjusted on or before December 31, 1997, positively
or negatively, for the actual amount of such accounts payable and other
liabilities of the Corporation as of September 30, 1997. The adjusted amounts
determined in accordance with the foregoing sentence shall be paid in cash to
the appropriate party (OHSI or Stockholder) on or before the dates set forth for
adjustment, respectively. Omega shall use its reasonable efforts to collect the
Purchased Accounts Receivable prior to March 31, 1998, which efforts shall be
limited to normal collection monitoring and activities, conducted in accordance
with sound business practices. Any accounts receivable not collected by Omega
prior to March 31, 1998 shall become the exclusive property of Stockholder, who
shall have the sole option to collect or write off same for his own benefit.
3
<PAGE> 4
2.2 TAX REPORTING. The Merger shall constitute a reorganization under
I.R.C. ss. 368(a)(1)(A) and I.R.C. ss. 368(a)(l)(E)(i). Each of the parties
agrees to report this transaction for financial and income tax purposes in
accordance with the foregoing.
2.3 REGISTRATION RIGHTS. The Stockholder will be entitled to
"piggyback" registration rights for unregistered OHSI Stock, on registrations
under the 1933 Act, of OHSI's stock or securities, subject to the right of OHSI
and its underwriters to reduce the number of shares of OHSI Stock proposed to be
registered in view of market conditions, and OHSI shall advise the Stockholder
at least thirty (30) days prior to any proposed registration. Such underwriter's
"cutback" shall be applied proportionately to all unregistered OHSI Stock or
other securities and unregistered warrants or stock options which are requesting
registration at such time pursuant to contractual rights. The costs incurred by
OHSI in the registration of such OHSI Stock in a piggyback registration shall be
borne by OHSI, except that underwriting discounts and commissions on OHSI stock
sold by Stockholder shall be paid by the Stockholder, and any cost associated
with Stockholder's counsel are to be paid by Stockholder.
2.4 TRANSFERABILITY OF OHSI STOCK. Provided any transferee under this
subsection acknowledges any restrictions placed on the OHSI Stock, nothing in
this Agreement shall prevent the OHSI Stock from being transferred in whole, or
in part, to one or more members of Stockholder's family, to a trust established
for Stockholder's benefit or the benefit of one or more of the members of the
Stockholder's family, to a family partnership (general or limited) established
by Stockholder or one or more of the members of Stockholder's family, or to any
other entity that is owned by Stockholder or one or more of the members of
Stockholder's family.
ARTICLE III
THE CLOSING
The closing of the Merger contemplated herein (the "Closing") shall
take place at such time and place as the parties hereto may agree in writing
(the "Closing Date"). The parties agree that the Closing Date shall be extended,
if required, to allow either party to fulfill any condition of this Agreement,
but in no event shall the Closing Date extend beyond September 30, 1997, unless
such extension is agreed to in writing by all of the parties.
ARTICLE IV
ITEMS TO BE DELIVERED AT OR PRIOR TO CLOSING
4.1 BY STOCKHOLDER OR CORPORATION. Stockholder or Corporation, as
applicable, shall execute and deliver on the Closing Date:
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<PAGE> 5
(a) Certified resolutions of Corporation authorizing the execution of
all documents and the consummation of all transactions contemplated hereby.
(b) Articles of Merger and a Plan of Merger under the WBCL and IBCA
which shall be in the form attached hereto as Exhibit 4.1.1(a) and Exhibit
4.1.1(b), respectively.
(c) Stock certificates representing ownership of all shares of
Corporation, duly endorsed to Omega.
(d) A Certificate, duly executed by Stockholder and the President of
Corporation, stating that, as of the Closing Date, all representations and
warranties of Stockholder and Corporation contained in this Agreement or in any
Exhibit or Schedule hereto are true and correct in all material respects, all
covenants and agreements contained in this Agreement to be performed by
Stockholder or Corporation on or prior to the Closing Date have been performed
or complied with in all material respects, and all conditions to Closing
contained in Section 4.3 hereof have been satisfied.
(e) An opinion of counsel for the Corporation and the Stockholder
dated as of the Closing Date, in form and substance reasonably satisfactory to
Omega's counsel, and where appropriate with reliance upon a certificate from
Corporation and the Stockholder.
(f) Such other instruments as may be reasonably requested by Omega or
OHSI in order to give effect to or carry out the intent of this Agreement.
4.2 BY OMEGA AND OHSI. Omega shall execute and deliver on the Closing
Date:
(a) Stock Certificates representing ownership of the OHSI Stock set
forth under Section 2.1.
(b) An opinion of counsel for Omega and OHSI dated as of the Closing
Date, in form and substance reasonably satisfactory to Corporation's and
Stockholder's counsel, and where appropriate with reliance upon a certificate
from Omega or OHSI.
(c) Articles of Merger and a Plan of Merger under the WBCL which shall
be in the form attached hereto as Exhibit 4.1.1(a) and Exhibit 4.1.1(b).
(d) A Certificate, duly executed by the President of Omega and OHSI,
stating that as of the Closing Date, all representations and warranties of Omega
and OHSI contained in this Agreement or in any Exhibit or Schedule hereto are
true and correct in all material respects, all covenants and agreements
contained in the Agreement to be performed by Omega and OHSI on or prior to the
Closing Date have been performed or complied with in all material respects, and
all conditions to Closing contained in Section 4.4 hereof have been satisfied.
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(e) Such other instruments as may be reasonably requested by
Stockholder in order to give effect to or carry out the intent of this
Agreement.
4.3 CONDITIONS TO OMEGA'S AND OHSI'S OBLIGATIONS. Omega's and OHSI's
obligation to consummate the transaction as provided in this Agreement shall be
conditioned upon the satisfaction of the following conditions at or prior to the
Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.1 hereof shall have been executed and delivered at Closing.
(b) No Material Adverse Change. Prior to the Closing Date, there shall
be no material adverse change in the assets or liabilities of Corporation; the
business or condition, financial, or otherwise of Corporation; or the results of
operations or prospects of Corporation as a result of any legislative or
regulatory change or revocation of any license or rights of Corporation to do
business.
(c) Truth of Representations and Warranties. The representations and
warranties of Corporation and Stockholder contained in this Agreement, or in any
Exhibit or Schedule hereto, shall be true and correct in all material respects
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date. Corporation
and Stockholder shall have the express obligation to update all information
contained in the Exhibits and Schedules hereto so that such Exhibits and
Schedules shall be true, correct and complete as of the Closing Date.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(e) Opinion of Corporation's Counsel. Omega shall have received an
opinion from the Corporation's and Stockholder's counsel, delivered under
Section 4.1(e) above.
(f) Securities Law Compliance. The issuance of the OHSI Stock to the
Stockholder will not violate the securities laws of any state or of the United
States.
(g) Third-Party Consents. Omega shall have received copies of all
third-party consents required to consummate the transaction contemplated by this
Agreement.
(h) Licenses, Permits, Qualification. Immediately prior to the Closing,
Stockholder and Corporation shall have all licenses and permits to operate its
business, the absence of which would have a material adverse effect on such
business.
(i) Distribution of Assets and Discharge of Liabilities. Prior to the
Closing, and as a condition to Closing, Corporation shall have distributed to
Stockholder all of the assets listed on
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Schedule 5.8 , which are not being acquired by Omega (the "Excluded Assets").
Additionally, prior to the Closing, Corporation shall have paid or discharged
all liabilities or charges for costs or fees owed as a result of the
transactions contemplated by this Agreement.
(j) Taxes. Corporation shall have established an adequate reserve for
the payment of all taxes accrued with respect to taxable periods or portions
thereof ended as of the Closing of the Merger contemplated herein.
4.4 CONDITIONS TO STOCKHOLDER'S AND CORPORATION'S OBLIGATIONS.
Stockholder's and Corporation's obligations to consummate the transaction as
provided in this Agreement shall be conditioned upon the satisfaction of the
following conditions at or prior to Closing:
(a) Delivery of Documents. The documents and other items set forth in
Section 4.2 hereof shall have been executed and delivered by Omega on the
Closing Date.
(b) Truth of Representations and Warranties. The representations and
warranties of Omega and OHSI contained in this Agreement, or in any Exhibit or
Schedule hereto, shall be true and correct in all material respects on and as of
the Closing Date with the same effect as though such representations and
warranties had been made as of such date.
(c) Opinion of Omega's and OHSI's Counsel. The Corporations and
Stockholder shall have received an opinion from Omega's and OHSI's counsel,
delivered under Section 4.2(b) above.
(d) No Litigation Threatened. No action or proceeding shall have been
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(e) Securities Law Compliance. the issuance of the OHSI Stock to
the Stockholder will not violate the securities laws of any state or of the
United States.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF STOCKHOLDER AND CORPORATION
Corporation and Stockholder represent, warrant, covenant and agree with
Omega and OHSI that:
5.1 OWNERSHIP OF STOCK. Stockholder is the owner of all of the issued
and outstanding stock of Corporation, free and clear of all liens, encumbrances,
restrictions and claims of every kind. Stockholder has full legal right, power
and authority to enter into this Agreement.
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5.2 EXISTENCE AND GOOD STANDING. Golden Wisconsin is a service
corporation duly organized, validly existing and in current status under the
laws of the State of Wisconsin. Golden Illinois is a corporation duly organized,
validly existing and in current status under the laws of the State of Illinois.
Corporation has the power to own its property and to carry on its business as
now being conducted. Wisconsin or Illinois, as the case may be, is the only
jurisdiction in which the character or location of the properties owned or
leased by Corporation or the nature of the business conducted by Corporation
makes such qualification necessary.
5.3 CAPITAL STOCK. Golden Wisconsin has an authorized capitalization
consisting of fifty-six thousand (56,000) shares of common stock, $1.00 par
value, of which fifty-six thousand (56,000) shares are issued and outstanding
and no shares are held in treasury. Golden Illinois has an authorized
capitalization consisting of one hundred thousand (100,000) shares of common
stock, $1.00 par value, of which one thousand (1,000) shares are issued and
outstanding and no shares are held in treasury. All such outstanding shares of
Corporation have been duly authorized and validly issued and are fully paid and
nonassessable, except as may be provided by WBCL ss. 180.0622 relating to Golden
Wisconsin. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase, issuance or sale of any shares of the
capital stock of Corporation, other than as contemplated by this Agreement.
5.4 SUBSIDIARIES AND INVESTMENTS. Corporation does not own, directly or
indirectly, any capital stock or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity.
5.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. Corporation has
heretofore furnished Omega with unaudited financial statements dated
December 31, 1994, 1995 and 1996, and April 30, 1997, all of which are attached
hereto as Schedule 5.5. Such financial statements, including the notes thereto,
except as indicated therein, were prepared on a basis consistent with past
accounting practices of Corporation and accurately reflect the results of
operations for the periods noted therein. The balance sheets of Corporation
heretofore delivered (or to be delivered) by Corporation to Omega fairly present
the financial condition of Corporation at the respective dates thereof, and
except as indicated therein, reflect all claims against and all debts and
liabilities of Corporation, fixed or contingent, as of the respective dates
thereof. Since April 30, 1997, there has been (i) no material adverse change in
the assets or liabilities, financial or otherwise, or in the results of
operations of Corporation, and (ii) no fact or condition known to Corporation or
Stockholder which exists or is contemplated or threatened which might cause such
a change in the future.
5.6 MATERIAL CONTRACTS. Except as set forth on Schedule 5.6,
Corporation is not bound by (a) any agreement, contract, or commitment relating
to the employment of any person by Corporation, or any loans, deferred
compensation, incentive compensation, pension, profit sharing, retirement, or
other employee benefit plan, (b) any loan or advance to, or investment in, any
other person or entity, or any agreement, contract, or commitment relating to
the making of any such loan,
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advance, or investment, (c) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any other person or entity, (d) any
agreement, contract, or commitment limiting the freedom of Corporation or any of
its physicians to practice medicine in any location or to compete with any other
person or entity, or (e) any other agreement, contract, or commitment which is
material to the business of Corporation. Except as set forth in Schedule 5.6, to
the best of Stockholder's knowledge each contract or agreement set forth in
Schedule 5.6 is in full force and effect, and there exists no default or event
of default or event, occurrence, condition, or act which, with the giving of
notice, the lapse of time, or the happening of any other event or condition,
would become a default or event of default thereunder, which would have a
material adverse effect upon Corporation. Except as set forth in Schedule 5.6,
to the best of Stockholder's knowledge, Corporation has not violated any of the
terms or conditions of any contract or agreement set forth in Schedule 5.6 in
any material respect, and to Stockholder's best knowledge, all of the covenants
to be performed by any other party thereto have been fully performed.
5.7 INSURANCE. Schedule 5.7.1 is a list and brief description of all
Corporation's policies or binders of fire, liability, product liability, workers
compensation, health and other forms of insurance policies or binders currently
in force insuring against risks which will remain in full force and effect at
least through the Closing Date. Except as set forth on Schedule 5.7.2, neither
Corporation nor Stockholder, have, in the last three (3) years, filed a written
application for any insurance coverage which has been denied by an insurance
agency or carrier. Schedule 5.7.2 also sets forth a list of all claims against
any policy or predecessor policy listed on Schedule 5.7.1 for any insured loss
in excess of Five Thousand Dollars ($5,000.00) per occurrence filed by
Corporation, Corporation's employees or Stockholder since January 1, 1994,
including, but not limited to, workers' compensation, general liability, and
environmental liability claims. To the best of Stockholder's knowledge, neither
Corporation, Corporation's employees nor Stockholder is in material default with
respect to any provision contained in any such policy and none of them has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
5.8 NO CHANGES PRIOR TO CLOSING DATE. To the best knowledge of
Stockholder, during the period from April 30, 1997, through the date hereof,
Corporation has not, and from the date hereof, Corporation shall not have (i)
incurred any liability or obligation of any nature (whether accrued, absolute,
contingent, or otherwise), except in the ordinary course of business, or except
with the prior written consent of Omega, such consent not to be unreasonably
withheld, (ii) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, none of which individually or in the aggregate is material to the
Corporation, (iii) conducted its business in such a manner so as to materially
increase its accounts payable or so as to materially decrease its accounts
receivable, (iv) granted any increase in the rate of wages, salaries, bonuses,
or other remunerations of any employee, except in the ordinary course of
business, (v) cancelled or waived any claims or rights of substantial value,
(vi) made any change in any method of accounting, (vii) other than the
transaction contemplated herein, otherwise conducted its business or entered
into any transaction, except in the usual and ordinary manner and in the
ordinary course of business, (viii) agreed, whether or not in writing, to do any
of the foregoing,
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nor (ix) disposed of its assets other than in the ordinary course of business,
except for the disposition of any Excluded Assets listed on Schedule 5.8.
5.9 PRACTICE ASSETS; TITLE; CONDITION. Schedule 5.9.1 contains a true
and complete list of all the non-cash assets (excluding Accounts Receivable) of
the Corporation at the Closing Date (the "Practice Assets"). Corporation has
good and marketable title to all of its Practice Assets conveyed hereunder.
Except as disclosed on Schedule 5.9.2 hereto, none of such Practice Assets is
subject to a contract or other agreement of sale or subject to security
interests, mortgages, encumbrances, liens (including income, personal property
and other tax liens) or charges of any kind or character, other than taxes and
other assessments not yet due and payable. Upon completion of the Merger, the
Surviving Corporation shall own the Practice Assets of the Corporation free and
clear of all liens and encumbrances.
5.10 ACCOUNTS RECEIVABLE. Schedule 5.10 contains a true and complete
list of substantially all accounts receivable of the Corporation at the Closing
Date (Purchased Accounts Receivable). All documents and agreements relating to
the Purchased Accounts Receivable that have been delivered to OHSI are true and
correct to the best of Stockholder's and Corporation's knowledge. Corporation
has delivered to such account debtor all requested supporting claim documents
with respect to such Purchased Accounts Receivable and all information set forth
in the bill and supporting claim documents are to the best of Corporation's
knowledge true and correct. The Purchased Accounts Receivable are each
exclusively owned by the Corporation free and clear of any liens, security
interest claims and encumbrances of any kind except as set forth on Schedule
5.10.2; are in the aggregate payable in an amount not less than their face
amount (less reductions generally applied by the Medicare or Medicaid programs,
or pursuant to any contract listed on Schedule 5.6), and are based on an actual
and bonafide rendition of services or sale of goods to the patient in the
ordinary course of business, and are not in any material amount subject to any
action, suit, proceeding or pursuit (pending or , to the best of Stockholder's
and Corporation's knowledge, threatened) set-off, counter claim, defense,
abatement, suspension, deferment, deductible, reduction or termination by the
account debtor other than routine adjustments made in the ordinary course of
business and each account receivable requires no further act or circumstances on
the part of the Corporation to make the Purchased Account Receivable payable by
the account debtor. To the best of Stockholder's and Corporation's knowledge,
the Accounts Receivable represent charges for services constituting usual,
customary and reasonable fees charged by the similar medical services providers
in the Corporation's community for the same or similar service and the sale of
the Purchased Accounts Receivable hereunder is in good faith by the Corporation
and without knowledge of any bankruptcy or other payment disability of the
account debtor that would constitute a reduction in the Purchased Accounts
Receivable.
5.11 LITIGATION. Except as listed on Schedule 5.11, to the best
knowledge of Stockholder, there is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting the Corporation, or any of its Practice Assets, or any physician or
other health care professional
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employed by the Corporation, and to the best of Stockholder's knowledge there is
no basis for any of the foregoing.
5.12 PERMITS AND LICENSES. To the best of Corporation's and
Stockholder's knowledge, Corporation and all physicians and other health care
professionals employed by Corporation have all material permits and licenses
required by all applicable laws; have made all material regulatory filings
necessary for the conduct of Corporation's business; and are not in violation of
any of said permitting or licensing requirements the violation of which would
have a materially adverse effect on Corporation. A list of such permits and
licenses is attached hereto as Schedule 5.12.
5.13 AUTHORITY. (a) The execution of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action, and this Agreement is a valid and binding agreement of
Corporation enforceable in accordance with its terms (subject to enforcement of
remedies to the discretion of the court in awarding equitable relief, and to
applicable bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium and similar laws effecting the rights of creditors generally).
Attached hereto as Schedule 5.13 is a listing of all third-party consents which
must be obtained prior to the Closing Date as required under Section 4.3 of this
Agreement.
(b) To the best knowledge of Stockholder, the execution and delivery
of this Agreement, the consummation of the transactions contemplated hereby,
and/or compliance by Corporation and Stockholder with any of the provisions
hereof, will not:
(i) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or
result in the creation of, any lien, security interest, charge or
encumbrance upon any of the assets to be conveyed hereunder under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, agreement or other instrument or
obligation to which Corporation or Stockholder is a party, or by which
either Corporation or Stockholder or any of the assets to be conveyed
hereunder is bound; or
(ii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable either to the Corporations or Stockholder
or any of the assets to be conveyed hereunder.
5.14 TAX MATTERS. Except as set forth in Schedule 5.14, Corporation has
filed or caused to be filed all federal, state and local tax returns which are
required to have been filed by Corporation, including all income, excise,
franchise, and payroll tax returns, and Corporation has paid or established an
adequate reserve for all taxes accrued through the Closing and has otherwise
complied with all federal, state, local and other tax laws applicable to it.
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5.15 EMPLOYEE BENEFIT PLANS. Set forth on Schedule 5.15 is an accurate
and complete list of all employee benefit plans ("Employee Benefit Plans")
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), whether or not any Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by the Corporation (including all employers (whether or not
incorporated) which by reason of common control are treated together with
Corporation and/or Stockholder as a single employer within the meaning of
Section 414 of the Code) since September 2, 1974.
(a) Status of Plans. Corporation has never maintained and does not now
maintain or contribute to any Employee Benefit Plan subject to ERISA which is
not in substantial compliance with ERISA, or which has incurred any accumulated
funding deficiency within the meaning of either Section 412 or 418B of ERISA, or
which has applied for or obtained a waiver from the Internal Revenue Service of
any minimum funding requirement under Section 412 of the Code or which is
subject to Title IV of ERISA. Corporation has not incurred any liability to the
Pension Benefit Guaranty Corporation ("PBGC") in connection with any Employee
Benefit Plan covering any employees of that Corporation or ceased operations at
any facility or withdrawn from any such Plan in a manner which could subject it
to liability under Section 4062(f), 4063 or 4064 of ERISA, and knows of no facts
or circumstances which might give rise to any liability of Corporation to the
PBGC under Title IV of ERISA which could reasonably be anticipated to result in
any claims being made against the Surviving Corporation by the PBGC. Corporation
has not incurred any withdrawal liability (including any contingent or secondary
withdrawal liability) within the meaning of Sections 4201 and 4202 of ERISA, to
any Employee Benefit Plan which is a Multiemployer Plan (as defined in Section
4001 of ERISA), and no event has occurred, and there exists no condition or set
of circumstances, which represent a material risk of the occurrence of any
withdrawal from or the partition, termination, reorganization or insolvency of
any Multiemployer Plan which would result in any liability to a Multiemployer
Plan.
(b) Contributions. Full payment has been made of all amounts which
Corporation is required, under applicable law or under any Employee Benefit Plan
or any agreement relating to any Employee Benefit Plan to which Corporation is a
party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date hereof.
Corporation has made adequate provision for reserves to meet contributions that
have not been made because they are not yet due under the terms of any Employee
Benefit Plan or related agreements. Benefits under all Employee Benefit Plans
are as represented and have not been increased subsequent to the date as of
which documents have been provided.
(c) Tax Qualification. Each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code has been determined to be so
qualified by the Internal Revenue Service and nothing has occurred since the
date of the last such determination which resulted or is likely to result in the
revocation of such determination.
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(d) Transactions. Corporation has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a tax, penalty
or liability for prohibited transactions under ERISA or the Code nor have any of
its directors, officers or employees to the extent they or any of them are
fiduciaries with respect to such plans, breached any of their responsibilities
or obligations imposed upon fiduciaries under Title I of ERISA or would result
in any claim being made under or by or on behalf of any such plans by any party
with standing to make such claim.
(e) Other Plans. Corporation presently does not maintain any employee
benefit plans or any other foreign pension, welfare or retirement benefit plans
other than those listed on Schedule 5.15.
(f) Documents. Stockholder has delivered or caused to be delivered to
Omega and its counsel true and complete copies of (i) all Employee Benefit Plans
as in effect, together with all amendments thereto which will become effective
at a later date, as well as the latest Internal Revenue Service determination
letter obtained with respect to any such Employee Benefit Plan qualified under
Section 401 or 501 of the Code, and (ii) Form 5500 for the most recent completed
fiscal year for each Employee Benefit Plan required to file such form.
5.16 THIRD-PARTY RELATIONS. Corporation and Stockholder are not aware
of any problem or disagreements with any third parties with which Corporation
does business, and Corporation and Stockholder will use their respective best
efforts from the date of this Agreement until the Closing Date to operate
Corporation's business in such a manner so as not to adversely affect the
goodwill of its patients, suppliers, employees, and other such persons or third
parties with which the Corporation does business.
5.17 LEASED PROPERTY. Schedule 5.17 contains a list of all property
leases held by Corporation and, except as set forth on Schedule 5.17, no
material adverse claim against, or material defect in, the interest purportedly
leased or given under or by any such instrument exists, and neither the lessor
(to the best knowledge of Stockholder and Corporation) nor Corporation is in
material default under any of such leases, and Corporation and Stockholder are
not aware of any fact which, with notice and/or the passage of time, would
constitute such a default.
5.18 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in Schedule
5.18, and to the best knowledge of Stockholder, the Corporation has operated in
material compliance with all material federal, state, county and municipal laws,
constitutions, ordinances, statutes, rules, regulations and orders applicable
thereto ("Applicable Laws"). No item disclosed on Schedule 5.18 has a material
effect on the operations of Corporation.
5.19 EMPLOYEE COMPENSATION. Corporation has paid or discharged or will
pay or discharge or assume all liabilities for compensation and benefits to
which all employees are entitled through the Closing, including but not limited
to all salaries, wages, bonuses, incentive compensation, payroll taxes,
hospitalization and medical expenses, deferred compensation, and vacation and
sick
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pay, as well as any severance pay becoming due as a result of the termination of
certain of Corporation's employees.
5.20 ENVIRONMENTAL MATTERS. Corporation is in compliance in all
material respects with all federal, state and local environmental laws, rules,
regulations, standards and requirements, including, without limitation those
respecting chemical, radiographic, or biomedical wastes or any other hazardous
substances or materials, as defined in any applicable federal or state law or
regulation ("Hazardous Wastes"). Except as disclosed on Schedule 5.20, any
storage, holding, release, emission, discharge, generation, processing,
disposition, handling or transportation of any Hazardous Wastes from, into or on
any portion of the clinic premises is and has been at all times in compliance in
all material respects with all federal, state and local environmental laws,
rules, regulations, standards and requirements.
5.21 FRAUD AND ABUSE. Neither Corporation nor Stockholder nor persons
and entities providing professional services for Corporation has, to the
knowledge of Corporation or Stockholder, engaged in any activities which are
prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local statutes or
regulations, or which are prohibited by rules of professional conduct, including
but not limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) failing to disclose knowledge by a claimant of the occurrence of
any event effecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment; or
(d) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay or receive such remuneration
(i) in return for referring an individual to a person for the furnishing or
arranging for the furnishing or any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service or item for which payment may
be made in whole or in part by Medicare or Medicaid.
5.22 FACILITY COMPLIANCE. Corporation is duly licensed and is lawfully
operated in accordance with the material requirements of all applicable material
law and has all necessary authorizations for the use and operation, all of which
are in full force and effect. To the best knowledge of Stockholder, there are no
outstanding notices of deficiencies relating to Corporation issued by any
governmental authority or third-party payor requiring conformity or compliance
with
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any applicable law or condition for participation of such governmental authority
or third-party payor, neither the Corporation nor Stockholder has received
notice or has any knowledge or reason to believe that such necessary
authorizations may be revoked or not renewed in the ordinary course of business.
5.23 RATES AND REIMBURSEMENT POLICIES. To the best knowledge of
Stockholder, the jurisdiction in which the Corporation is located does not
currently impose any restrictions or limitations on rates which may be charged
to private pay patients receiving services provided by Corporation. To the best
knowledge of Stockholder, Corporation has no rate appeal currently pending
before any governmental authority or any administrator of any third-party payor
program. Neither the Corporation nor Stockholder have knowledge of any
applicable law, which has been enacted, promulgated or issued within the
eighteen (18) months preceding the date of this Agreement or any such legal
requirement proposed or currently pending in the jurisdiction in which
Corporation is located, which could have a material adverse effect on
Corporation or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at Corporation or require Corporation to obtain any necessary authorization
which Corporation does not currently possess.
5.24 TRADE RELATIONS. To the best knowledge of Stockholder, there
exists no actual or threatened limitation of the business relationship of
Corporation with any material customer, supplier or landlord or with any person
whose contracts with Corporation would be material to the operations of
Corporation. To the best knowledge of Stockholder, there exists no condition or
state of facts or circumstances which (i) are likely to produce a material
adverse effect with respect to either Corporation or (ii) prevent the Surviving
Corporation from conducting its business after the consummation of the
transactions contemplated by this Agreement as such business is conducted or
proposed to be conducted.
5.25 EXHIBITS. All the facts recited in Exhibits or Schedules annexed
hereto (as updated as of the Closing Date) shall be deemed to be representations
of fact by Corporation and Stockholder as though recited in this Article V.
5.26 FULL DISCLOSURE. No representation or warranty made by the
Corporation or Stockholder in this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading. For
purposes of this Article V, Corporation shall be presumed to have knowledge of
all matters of which the Stockholder or officers of the Corporation have
knowledge, actual or constructive.
5.27 LIABILITIES AND INDEBTEDNESS. Attached hereto as Schedule 5.27.1
is a list of Corporation's liabilities and indebtedness existing on the Closing
Date and to be assumed by the Surviving Corporation. The liabilities and
indebtedness of the Corporation on the Closing Date not assumed are listed as
Excluded Debt on Schedule 5.27.2. Except for the indebtedness listed on
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Schedules 5.27.1 and 5.27.2, Corporation has no other liabilities (whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, and whether due or to become due).
5.28 INVESTMENT INTENT. Stockholder and Corporation acknowledge that
the OHSI Stock has not been registered under the 1933 Act, and that the OHSI
Stock, except as provided for in Section 2.3 and Section 2.4, may not be sold,
pledged or otherwise transferred absent such registration, or unless an
exemption from registration is available. The Stockholder is acquiring the OHSI
Stock for his own account, for investment purposes only and not with a view to
distribution of such OHSI Stock within the meaning of Section 2(11) of the 1933
Act. The Stockholder qualifies as an "accredited investor", as defined in Rule
501(a) pursuant to the 1933 Act. The Stockholder has received from OHSI a copy
of OHSI's Form 10-K for 1995 and 1996, OHSI's 10-Q for the quarter ended March
31, 1997, and OHSI's 1994 and 1995 Annual Report to Shareholders. The
Stockholder has had the opportunity to ask questions of and receive answers from
OHSI senior management concerning OHSI and the terms and conditions of this
investment by the Stockholder. The Stockholder has had the opportunity to obtain
other additional information concerning OHSI from OHSI senior management.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF OMEGA AND OHSI
Omega and OHSI represent, warrant, covenant and agree with Corporation
and Stockholder as follows:
6.1 ORGANIZATION. Omega is a corporation duly organized, validly
existing and in current status under the laws of the State of Illinois. OHSI is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Omega and OHSI have the full power to own their
respective property, to carry on their respective businesses as presently
conducted, to enter into this Agreement and to consummate the transactions
contemplated hereby.
6.2 AUTHORITY. Omega and OHSI have taken all necessary action to
authorize the execution, delivery and performance of this Agreement, as well as
the consummation of the transactions contemplated hereby, and at Closing Omega
and OHSI shall deliver an officer's certificate to such effect. The execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of the charter
or the bylaws of either Omega or OHSI or any indenture, mortgage, deed of trust,
lien, lease, agreement, arrangement, contract, instrument, license, order,
judgment or decree or result in the acceleration of any obligation thereunder to
which either Omega or OHSI is a party or by which either Omega or OHSI is bound.
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<PAGE> 17
6.3 ABSENCE OF LITIGATION. No action or proceeding by or before any
court or other governmental body has been instituted or is, to the best of
Omega's and OHSI's knowledge, threatened with respect to the transactions
contemplated by this Agreement.
6.4 SHARES. Upon delivery of the certificates representing ownership of
the OHSI Stock, such OHSI Stock will be fully paid and nonassessable.
6.5 OMEGA HEALTH SYSTEMS, INC. Omega is a wholly-owned subsidiary of
OHSI.
6.6 FRAUD AND ABUSE. Neither OHSI nor Omega has engaged in any
activities which are prohibited under ss. 1320a-7b of Title 42 of the United
States Code or the regulations promulgated thereunder, or related state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including, but not limited to, the following: (i) knowingly and
willingly making or causing to be made a false statement or representation of a
material fact in any application for any benefit or payment; (ii) knowingly and
willfully making or causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit or payment;
(iii) any failure by a claimant to disclose knowledge of the occurrence of any
event affecting the initial or continued right to any benefit or payment on its
own behalf or on behalf of another, with the intent to fraudulently secure such
benefit or payment; and (iv) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate) directly or indirectly,
overtly or covertly, in cash or in kind, or offering to pay or receive such
remuneration (A) in return for referring an individual to a person for the
furnishing or arranging for the furnishings of any item or service for which
payment may be made in whole or in part by Medicare or Medicaid, or (B) in
return for purchasing, leasing or ordering or arranging for, or recommending,
purchasing, lease or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid.
ARTICLE VII
CONDUCT OF BUSINESS; REVIEW
7.1 CONDUCT OF BUSINESS OF CORPORATION. During the period from the date
of this Agreement to the Closing Date, Corporation shall conduct its business
only in the ordinary and usual course of business, and Corporation and
Stockholder shall use commercially reasonable efforts to preserve intact
Corporation's business organization, keep available the services of its
employees and maintain satisfactory relationships with patients and others
having business, medical or professional relationships with Corporation.
Corporation shall promptly notify Omega upon learning of any unexpected
emergency or other change in the normal course of its business or in the
operation of its properties and of any governmental complaints, investigations,
hearings (or communications indicating that the same may be contemplated), or
adjudicatory proceedings specifically involving Corporation or any employee of
Corporation, and Corporation shall keep Omega fully informed of
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<PAGE> 18
such events and permit its representatives prompt access to all materials
prepared in connection therewith.
7.2 EXCLUSIVE DEALINGS. During the period from the date of this
Agreement to the Closing Date, or upon the earlier termination of this Agreement
pursuant to Article XIII, Corporation shall refrain from taking any actions,
directly or indirectly, to encourage, initiate, or engage in discussions or
negotiations with, or provide any information to, any corporation, partnership,
person, or other entity or group, other than Omega, concerning the purchase of
Corporation or its stock or assets, or any merger, joint venture or similar
transaction involving Corporation and will not enter into any such transaction.
The parties agree that any information provided will be used solely for the
purpose of evaluating the transaction contemplated herein and will be kept
confidential and not disclosed to others. If the transaction contemplated
hereunder shall fail to close for any reason, then each party will promptly
redeliver to the other all written material containing or reflecting any
information concerning Corporation, Omega or OHSI, regardless of by whom
prepared, and will not retain any copies, extracts or other reproductions in
whole or in part of such written material.
7.3 REVIEW OF CORPORATION BY OMEGA. Omega, prior to the Closing Date,
through its representatives, may review the assets, books, and records of
Corporation as well as its financial and legal condition as Omega deems
necessary or advisable to familiarize itself with such assets and other matters;
such review shall not, however, affect the representations and warranties made
by Corporation herein and in the Exhibits and Schedules attached hereto. Upon
reasonable notice by Omega, Corporation shall permit Omega and its
representatives to have full access to the premises and to all books and records
of Corporation during normal business hours and to cause its officers and
employees to furnish Omega with such financial and operational data and other
information with respect to the business and assets of Corporation as Omega
shall from time to time reasonably request.
ARTICLE VIII
TRANSFERS AND FURTHER ASSURANCES
From time to time after the date hereof, at the request of a party
hereto (the "Requesting Party"), the other parties shall, without further
consideration, execute, acknowledge and deliver such further instruments of
transfer and other assurances and shall take such other action as the Requesting
Party reasonably may request in order to effectuate the Merger or any resulting
transfer of assets as a result of the Merger.
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<PAGE> 19
ARTICLE IX
INDEMNIFICATION; SET-OFF
9.1 INDEMNIFICATION OF OMEGA AND OHSI. Corporation and Stockholder
shall indemnify, defend and hold Omega, OHSI and their respective officers,
directors, shareholders, agents, employees, representatives, successors and
assigns harmless from and against any and all damage, loss, cost, obligation,
claims, demands, assessments, judgments or liability (whether based on contract,
tort, product liability, strict liability or otherwise), including taxes, and
all expenses (including interest, penalties and reasonable attorneys' and
accountants' fees and disbursements) incurred by any of the above-named persons,
resulting from or in connection with any one or more of the following:
(a) Misrepresentations, breach of warranties, failure to perform any
covenant or Agreement of either Corporation or Stockholder contained herein;
(b) Any liabilities or obligations of Corporation existing as of the
Closing Date which are not being specifically assumed hereunder;
(c) Any transaction, event or act that occurred on or prior to the
Closing Date that materially adversely affects the value of the Practice Assets
or the Corporation;
(d) Claims, actions or suits by employees or former employees of
Corporation based on conduct or events occurring prior to the Closing Date; or
(e) Stockholder's failure to discharge pension or benefit plan
obligations.
Omega agrees to give prompt notice to Stockholder of the assertion of any claim,
or the threat or commencement of any suit, action, proceeding or other matter in
respect of which indemnity may be sought under this Section 9.1. Stockholder may
participate in the defense of any such suit, action, proceeding or other matter
at Stockholder's expense. Stockholder shall not be liable under this Section 9.1
for any settlement effected without Stockholder's consent of any claim, suit,
action, proceeding or other matter in respect of which indemnity may be sought
under this Section 9.1, which consent shall not be unreasonably withheld. The
indemnity to be paid to Omega under this Section 9.1 may be paid in either cash,
Omega Stock, or some combination of both, at the election of the Stockholder.
For purposes of this Section 9.1, Omega Stock used to pay any indemnity under
this section shall be valued according to the Omega Stock's then current fair
market value, determined using the method described in Section 2.1, provided
that the value of OHSI stock shall not be limited to Seven Dollars Fifty Cents
($7.50) per share for purposes of this indemnification.
Notwithstanding the foregoing, the liability of Corporation and
Stockholder, in the aggregate, under this Section 9.1 shall not exceed One
Million One Hundred Fifty Thousand ($1,150,000)
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<PAGE> 20
Dollars. Also, the indemnity obligations of Corporation and Stockholder shall
not take effect until the aggregate amount of such obligations exceeds Ten
thousand Dollars ($10,000), at which time such indemnity obligations may be
pursued only for any amounts exceeding $10,000.
9.2 GENERAL INDEMNIFICATION OF STOCKHOLDER AND CORPORATION. Omega and
OHSI shall indemnify, defend and hold Corporation and its officers, directors,
Stockholder, agents, employees, representatives, successors and assigns harmless
from any and all damage, loss, cost, obligation, claims, demands, assessments,
judgments or liability (whether based on contract, tort, product liability,
strict liability or otherwise), including taxes and all expenses (including
interest, penalties and reasonable attorneys' and accountants' fees and
disbursements) incurred by any of the above-named persons, resulting from or in
connection with misrepresentations, breach of warranties or failure to perform
any covenant or agreement of Omega or OHSI contained herein. Stockholder agrees
to give prompt notice to Omega of the assertion of any claim, or the threat or
commencement of any suit, action, proceeding or other matter in respect of which
indemnity may be sought under this Section 9.2. Omega or OHSI may participate in
the defense of any such suit, action, proceeding or other matter at Omega's or
OHSI's expense. Neither Omega nor OHSI shall be liable under this Section 9.2
for any settlement effected without Omega's or OHSI's consent of any claim,
suit, action, proceeding or other matter in respect of which indemnity may be
sought under this Section 9.2, which consent shall not be unreasonably withheld.
9.3 SURVIVAL. The representations and warranties of the Corporation,
Stockholder, OHSI, and Omega contained in this Agreement and the
indemnifications contained in this Article IX shall survive the Merger through
September 30, 1999, except for (i) any matters involving fraud which shall have
no time limitation, (ii) any matters involving tax claims which shall terminate
on the expiration of the applicable statute of limitations of the taxing
authority, and (iii) any matters involving environmental or ERISA matters, which
shall terminate September 30, 2002 (the "Indemnification Period"). Any matter to
which an indemnification pertains and with respect to which a claim has been
asserted or threatened following the Closing Date, and prior to the expiration
of the Indemnification Period, shall continue to be subject to the
indemnifications under this Article IX until finally terminated, settled,
resolved, or adjudicated; and all terms, conditions and stipulations of this
Article IX shall likewise continue to apply.
9.4 SECURITY FOR INDEMNITY. The Corporation and Stockholder hereby
agree that in the event either Omega or OHSI is entitled to indemnification
pursuant to the provisions of this Article IX and either the Corporation or
Stockholder does not pay to Omega or OHSI the amount due hereunder, then Omega
or OHSI shall be entitled to exercise those rights set forth in that certain
Stock Pledge and Escrow Agreement, dated as of September 30, 1997, by and among
Omega, OHSI, and Stockholder.
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ARTICLE X
MEDIATION AND ARBITRATION
10.1 MEDIATION. In the event a dispute arises out of or relating to
this Agreement, or the breach thereof, and if said dispute cannot be settled
through negotiation, the parties agree to attempt in good faith to settle the
dispute by mediation under the Commercial Mediation Rules of the American
Arbitration Association. Unless the parties reach an agreement reduced to
writing, this mediation will be non-binding, but the parties must participate in
good faith in non-binding mediation, before resorting to binding arbitration.
10.2 BINDING ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or its breach, not satisfied through either
negotiation or mediation, shall be settled by binding arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction.
As soon as reasonably practical after submission of a demand for
binding arbitration, the parties hereto shall select one arbitrator, agreeable
to all parties. This arbitrator will be selected from lists prepared by the
American Arbitration Association. From the American Arbitration Association
list, the parties will submit to the American Arbitration Association a ranked
list of arbitrators which are acceptable. The highest ranking acceptable
candidate will be selected by the American Arbitration Association. If no
arbitrators from the list composed by the American Arbitration Association are
acceptable by either of the parties, the American Arbitration Association will
compile a second list. This procedure will be followed until the parties have
selected an arbitrator. The results of the arbitrator's finding will be binding
on the parties. As part of any award, the arbitrator may include an award of
attorneys fees to the prevailing party.
ARTICLE XI
EXPENSES
Each of the parties shall pay their own costs and expenses incurred or
to be incurred by it in negotiating and preparing this Agreement and in Closing
and carrying out the transactions contemplated by this Agreement. Prior to the
Closing Date, Corporation shall pay or satisfy its obligation, if any, for such
expenses.
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ARTICLE XII
COSTS
Should any mediation or binding arbitration ("Dispute Resolution")
arising out of this Agreement be instituted by any party to this Agreement
against another party, the party prevailing in such Dispute Resolution shall be
entitled, in addition to such other damages and relief as the mediator or
arbitrator shall award, to reimbursement of reasonable attorneys' fees, costs
and other expenses incurred in the prosecution or defense of such Dispute
Resolution.
ARTICLE XIII
TERMINATION
Notwithstanding any of the foregoing provisions, this Agreement may be
terminated at any time prior to the Closing Date:
(a) By mutual written consent of all the parties hereto;
(b) By written notice from Omega or OHSI to Corporation if any of the
representations and warranties made by Corporation and Stockholder in this
Agreement or in the Exhibits and Schedules annexed hereto are reasonably
determined by Omega or OHSI to be untrue or inaccurate in any material respect;
or
(c) By written notice from Corporation or Stockholder to Omega if any
of the representations and warranties made by Omega or OHSI in this Agreement
are reasonably determined by Corporation to be untrue or inaccurate in any
material respect.
ARTICLE XIV
NOTICES
Any notices hereunder shall be deemed to have been given by one party
to the other if it is in writing and it is (a) delivered or tendered in person
or (b) deposited in the United States mail in a sealed envelope, with postage
prepaid in any case addressed as follows:
If to Omega or OHSI: Omega Health Systems of
The Great Lakes, Inc.
5100 Poplar Avenue, Suite 2100
Memphis, Tennessee 38137
Attn: Thomas P. Lewis
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with a copy to: Baker, Donelson, Bearman & Caldwell, P.C.
2000 First Tennessee Building
165 Madison Avenue
Memphis, Tennessee 38103
Attn: Robert Walker
If to Corporation
or Stockholder: Bruce Golden, M.D., F.A.C.S.
5416 N. State Road 184
Janesville, Wisconsin 53545
with a copy to: Mr. John R. Mills, Esq.
Michael Best & Friedrich
100 East Wisconsin Avenue
Milwaukee, Wisconsin 55202
or to such other address as the party addressed shall have previously designated
by notice to the serving party, given in accordance with this Article XIV.
Notices shall be deemed to have been duly given (i) on the date of delivery if
delivered personally; (ii) or on the third day after mailing if mailed as
provided above; provided, however, that a notice not given as above shall, if it
is in writing, be deemed given if and when actually received by a party.
ARTICLE XV
AMENDMENT AND WAIVER
The parties hereto may by mutual agreement amend this Agreement in any
respect. Any party hereto may extend the time for the performance of any of the
obligations of the other, waive any inaccuracies in representations by the other
contained in this Agreement or in any document delivered pursuant hereto, which
inaccuracies would constitute a breach of this Agreement, waive compliance by
the other with any of the covenants contained in this Agreement and performance
of any obligations by the other, and waive the fulfillment of any condition that
is precedent to the performance by the party so waiving any of its obligations
under this Agreement. Any agreement on the part of any party for any such
amendment, extension or waiver must be in writing and signed by the party
agreeing to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a continuing
waiver.
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ARTICLE XVI
EMPLOYEES - EMPLOYEE BENEFITS
16.1 AFFECTED EMPLOYEES. "Affected Employees" shall mean employees, a
list of which is attached hereto as Schedule 16.1, of Corporation on the Closing
Date.
16.2 RESPONSIBILITIES. Prior to the Closing Date, Corporation agrees
to satisfy, or cause its insurance carriers to satisfy, all claims for medical,
health and hospital benefits, whether insured or otherwise (including, but not
limited to, workers compensation, life insurance, medical and disability
programs), under Corporation's employee benefit plans brought by, or in respect
of, Affected Employees and former employees of Corporation prior to the Closing
Date, in accordance with the terms and conditions of such employee benefit plans
or applicable workers compensation statutes without interruption as a result of
the employment by the Surviving Corporation of any such employees after the
Closing Date.
16.3 TERMINATION BENEFITS. Corporation and Stockholder shall be solely
responsible for, and shall pay or cause to be paid, severance payments and other
termination benefits, if any, to Affected Employees who may become entitled to
such benefits by reason of any events occurring prior to the Closing Date. If
any action on the part of Corporation prior to the Closing, or if the Merger
pursuant to this Agreement shall result in any liability or claim of liability
for severance payments or termination benefits, or any liability, forfeiture,
fine or other obligation by virtue of any state, federal or local law, such
liability or claim of liability shall be the sole responsibility of Stockholder,
and Stockholder shall indemnify and hold harmless the Surviving Corporation from
any losses resulting directly or indirectly from such liability or claim.
16.4 EMPLOYEE BENEFIT PLANS. On or prior to the Closing Date,
Stockholder shall cause the Corporation to either terminate any employee benefit
plans maintained by Corporation or cause another entity to assume their
sponsorship through merger, consolidation or transfer of plan assets as
described in ss.414(i) of the Internal Revenue Code of 1986, as amended. Should
the time needed to effect such termination, merger, consolidation, or transfer
extend beyond the Closing Date, any and all costs of such shall be the sole
responsibility of the Stockholder.
ARTICLE XVII
MISCELLANEOUS
17.1 PRESS RELEASE. Except as required by law, no party shall make
any press releases or other public announcements relating to this Agreement or
the transactions contemplated hereby, without the prior written consent of the
other party.
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17.2 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto, their successors and assigns.
17.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes any
prior agreements and understandings of the parties in connection therewith.
17.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin. Any mediation
or binding arbitration with respect to this Agreement shall be conducted in Cook
County, Illinois.
17.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
17.6 HEADINGS. The subject headings of the Articles, Sections and
subparagraphs of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
17.7 FINDERS. Each party warrants to the other that no finder or broker
has been engaged by it in this transaction and that no finder's or brokerage
fees are due to any person as a result of this Agreement.
17.8 NO THIRD-PARTY BENEFIT. Except as otherwise expressly provided,
nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon any person other than the parties hereto, any right,
remedy, or claim, legal or equitable, under or by reason of this Agreement or
any provision thereof.
17.9 ASSIGNMENT. Neither this Agreement nor any of the rights or duties
of any party hereto may be transferred or assigned to any person except by a
written agreement executed by each of the parties hereto, except that Omega or
OHSI reserves the right to assign this Agreement to any affiliate or successor
of either Omega or OHSI.
*****
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year hereinabove first set forth.
CORPORATION: OMEGA:
GOLDEN EYE SURGEONS OMEGA HEALTH SYSTEMS OF
& CONSULTANTS, LTD. THE GREAT LAKES, INC.
By: By:
----------------------------- ---------------------------------
Bruce Golden, M.D., President Ronald L. Edmonds, Vice President
-----------------------------
EYE SURGEONS AND
CONSULTANTS, INC.
By:
-----------------------------
Bruce Golden, M.D., President
OHSI:
STOCKHOLDER: OMEGA HEALTH SYSTEMS, INC.
By:
- -------------------------------- ----------------------------------
Bruce Golden, M.D., F.A.C.S. Ronald L. Edmonds, Executive Vice
President
26
<PAGE> 1
Exhibit 10(x)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of August 1, 1996, between OMEGA HEALTH
SYSTEMS, INC., a DELAWARE corporation (the "Company"), and THOMAS P. LEWIS
("Employee").
RECITALS
WHEREAS, Employee and the Company wish to set out the terms and
conditions under which Employee will continue to be employed by the Company;
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel;
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist
and that such possibility and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders;
WHEREAS, the Board of Directors of the Company has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of Company's management to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change of control of the Company, although no
such change is now contemplated and also to state the comprehensive rights and
duties of the parties hereto; and
WHEREAS, the Company and Employee agree that this Agreement supercedes
and replaces that certain Employment Agreement by and between Company and
Employee dated May 7, 1993 and any other agreements, practices, and
understandings related to his employment.
NOW THEREFORE, in consideration of the preceding and the agreements
hereinafter contained, Employee and the Company agree as follows:
1. EMPLOYMENT. For several years Employee has served as the President
and Chief Executive Officer of the Company, and the employee's compensation has
not been adjusted since 1993. The Company hereby continues the employment of
Employee as the President and Chief Executive Officer of the Company with such
duties as may be assigned by the Company's Board of Directors for a term
beginning August 1, 1996 and ending December 31, 1997 ("Initial Term") and
shall automatically renew for successive one year periods ("Renewal Term(s)").
After December 31, 1997, this Agreement may be terminated
<PAGE> 2
by either party upon one hundred eighty (180) days' prior written notice or by
the Company pursuant to Paragraph 8B hereof or by Employee pursuant to
Paragraph 8A hereof. Employee hereby accepts such employment.
2. BEST EFFORTS. Employee agrees to perform faithfully and
industriously all the duties which Company may require of him, and will devote
his full time and attention to the furtherance of Company's business. Employee
agrees that he will be subject to Company's instructions, direction and control
in business policies established by Company.
3. COMPENSATION.
A. Base Salary. Employee's annual base salary will be $150,000 per
year ("Base Salary"), paid bi-weekly or more frequently as Company may
determine. The Compensation Committee of the Board of Directors ("Compensation
Committee") will annually determine whether, in such Committee's sole
discretion, Employee may be paid a bonus based upon the Company's earnings,
growth, and other relevant factors.
B. Salary Increases. Employee's Base Salary shall increase by $50,000
("Salary Increase") if and when the net earnings of the Company on a fully
diluted basis reach $0.30 per share in any twelve (12) month period ("First
Triggering Event"). Employee shall notify in writing the Compensation Committee
of said First Triggering Event. Upon receipt of such notice and confirmation of
said First Triggering Event, the Compensation Committee shall authorize the
Salary Increase, to be effective the pay period immediately following the First
Triggering Event.
C. Options. As of August 1, 1996, Employee is hereby granted options
to purchase 100,000 shares of the common stock of the Company at an exercise
price of $5.75 per share, which is the fair market vaue on the date of grant.
Such options shall not vest the first two years from the date of such grant and
shall vest 33.3% each year beginning August 1, 1999, and such options are
otherwise subject to the terms, conditions and provisions of the Stock Option
Agreement attached hereto and incorporated herein by reference.
D. Contingent Options. Employee shall be granted options to purchase
100,000 shares of the common stock of the Company at an exercise price equal to
the fair market value on the date of grant when and if the net earnings of the
Company on a fully diluted basis reach $0.80 per share in any consecutive
twelve (12) month period ("Second Triggering Event"). Such options shall vest
33.3% each year beginning on the first anniversary date of the Second
Trigggering Event, and such options are otherwise subject to the terms,
conditions and provisions of the Stock Option Agreement attached hereto and
incorporated herein by reference.
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<PAGE> 3
E. Other Employee Benefits. Employee shall also be eligible to
participate in all other employee benefit programs and plans established by
Company at any time for other employees, including but not limited to medical
and/or dental insurance plans, pension or other deferred compensation plans.
Employee shall be entitled to a $3,000 annual reimbursement allowance for
disability insurance premiums, and Company shall maintain for the benefit of
Employee's estate a $1,000,000 term life insurance policy (collectively
"Welfare Benefits").
The total amounts paid pursuant to preceding subsections A, B, C, D,
and E and Section 5 hereof are Employee's "Annual Compensation."
4. EXPENSES. Company shall promptly reimburse Employee for all
expenses reasonably incurred by him in connection with his duties hereunder. In
the event that Employee uses his own automobile to conduct business of the
Company, Employee, at his expense, shall obtain and furnish to Company proof of
public liability insurance issued by an insurance company approved by Company
with minimum coverage of $100,000/$300,000 per occurrence.
5. VACATION. Company agrees that Employee will be entitled to take
four weeks paid vacation per year, provided that no more than two weeks are
taken per departure. Up to five days of unused vacation may be carried over to
the next year.
6. ANNUAL PHYSICAL EXAMINATION. Company will reimburse Employee for
the cost of an annual routine physical examination to a maximum of $400.
7. CHANGE OF CONTROL AND GOOD REASON FOR TERMINATION.
A. Change in Control of the Company. For purposes of this Agreement, a
change in control of the Company ("Change in Control") shall be deemed to have
occurred if (1) any "person" as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended ( the "Exchange Act"), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of the
Company representing 33% or more of the combined voting power of the Company's
then outstanding securities regardless of whether the Board shall have approved
such Change in Control; or (2) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board and any
new director (other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction described in
clause (A) (3) (i) and (ii) of this section) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any
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<PAGE> 4
reason to constitute a majority thereof; or (3) stockholders of the Company
approve (i) a merger or consolidation of the Company with any other corporation
regardless of which entity is the surviving company, 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) at least 66 2/3% of the combined voting power of the
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
B. Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, that without Employee's express written consent, any of the following
circumstances occur, unless, in the case of following subsections (1), (5),
(6), (7), (8) or (9), such circumstances are fully corrected prior to the date
of termination specified in any notice of termination given in respect thereof:
(1) assignment to Employee of any duties inconsistent with
his current status as an executive officer of the Company or a
substantial adverse alteration in the nature or status of Employee's
responsibilities from those in effect immediately following execution
of this Agreement;
(2) reduction by the Company in Employee's Base Salary in
effect on the date hereof or as the same may be increased from time to
time, except for across-the-board salary reductions similarly
affecting all Company executives and all executives of any person in
control of Company;
(3) relocation of Company's principal executive offices after
a Change in Control to a location more than 50 miles from the location
of such offices immediately prior to a Change in Control or Company's
requiring Employee to be based anywhere other than the location of
Company's principal executive office, except for travel on Company's
business to an extent substantially consistent with Employee's present
business travel obligations;
(4) failure by Company, without Employee's consent, to pay
Employee any portion of Employee's compensation, except pursuant to an
across-the-board compensation deferral similarly affecting all Company
executives and all executives of any person in control of the Company,
or to pay Employee any portion of an installment of deferred
compensation under any Company deferred compensation program, within
30 days of the date such compensation is due;
(5) failure by the Company to continue in effect any
compensation plan in which Employee is participating immediately prior
to a Change in Control which is
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<PAGE> 5
material to Employee's total compensation, unless an equitable
arrangement has been made with respect to such plan, or failure by the
Company to continue Employee's participation therein on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of Employee's participation relative to other
participants, as existed immediately prior to a Change in Control;
(6) failure by Company after a Change in Control to continue
to provide Employee with benefits substantially similar to those
enjoyed by Employee under any of Company's pension, savings and
retirement plan, life insurance, medical, health and accident, or
disability plans in which Employee was participating at the time of
the Change in Control, action by Company, which would materially
reduce directly or indirectly any of such benefits or deprive Employee
of any material fringe benefit enjoyed by Employee at the time of the
Change in Control, or failure by the Company to provide Employee with
the number of paid vacation days to which Employee is entitled
hereunder or if greater on the Company's normal vacation policy in
effect at the time of the Change in Control of the Company;
(7) failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement;
(8) any purported termination of Employee's employment by the
Company, not pursuant to a Notice of Termination, defined hereinafter,
satisfying the requirements of this Agreement; or
(9) Employee is not able to negotiate a new employment
agreement on terms as favorable to Employee as the terms of this
Agreement.
Employee's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by his incapacity due to
physical or mental illness.
8. TERMINATION AND SEVERANCE PAYMENT.
A. Severance Payment. In the event that (i) Company and Employee do
not extend or renew this Agreement or replace this Agreement with a new
employment agreement and this Agreement expires, or (ii) upon termination of
Employee's employment by Company at any time after December 31, 1997, other
than for Cause, Disability or Retirement, then Employee shall be paid by
Company Employee's Base Salary and all Welfare Benefits for six (6) months, and
any stock options that have vested by their normal terms as of the date of
termination may be exercised by Employee within six (6) months of such date of
termination. Upon termination of Employee's employment hereunder by Employee
for Good Reason, or (3) by Employee during the two years following the
occurrence of a Change of Control during the term of this Agreement, then (i)
not later than ninety (90) days after such termination, the
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<PAGE> 6
Company will pay the Employee a cash severance payment ("Lump Sum Severance
Payment") of one times the Employee's Base Salary for the final year of
employment under this Agreement, and (ii) the Company will continue to pay for
and provide to Employee all Welfare Benefits, except pension and other similar
compensation-based plans for a period of up to two years from the last date of
employment if Employee does not accept employment elsewhere, and (iii) the
stock options previously granted to Employee as of such date shall immediately
vest in full.
B. Termination for Cause. Company may discharge Employee for Cause
immediately, at any time by a written notice specifying the effective date of
and reason for termination ("Notice of Termination"). In that event, Employee
shall not be eligible for either the Lump Sum Severance Payment, the Continuing
Base Salary Payments, immediate vesting of stock options, or, except as
required by law, the Welfare Benefits. "Cause" is not intended to include
disagreements over management philosophy or other such intangibles. As used
herein, "Cause" shall include, but not be limited to, the following:
(1) Material violation by Employee of any of the terms of
this Agreement; or
(2) Willful and continued failure or gross negligence of
Employee materially to perform his duties with the Company (other than
due to physical or mental illness), provided that Employee has
received a written notice of same from the Board of Directors
specifically identifying the manner in which the Board of Directors
believes Employee has engaged in such failure or misconduct, approved
by two-thirds of the Directors entitled to vote thereon, and the
Employee continues to engage in such conduct after ten (10) days
following receipt of such notice; or
(3) Conviction of or guilty plea by Employee to committing a
felony or an act of moral turpitude or any similar act; or
(4) Conversion or misappropriation by Employee of any monies
or other property of the Company as determined by the Board of
Directors or
(5) Employee's habitual use of illegal drugs or Employee's
drug or alcohol addiction.
C. Voluntary Resignation. Employee shall be entitled to terminate his
employment by voluntary resignation given in writing at any time (1) during the
two years following the occurrence of a Change in Control of the Company, or
(2) for Good Reason. Such resignation shall not be deemed a breach of any
employment contract between Employee and the Company. Notice of such
resignation shall specify a date Employee's employment will terminate, not less
than 180 days in the future and shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and
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<PAGE> 7
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
D. Death. If Employee dies during his employment, Employee's
beneficiaries shall be paid:
(1) the Base Salary which would otherwise have been payable
to Employee up to the end of the month in which death occurred; and
(2) any employee benefit payment pro rata to the end of the
month in which death occurred, based on the percentage of the fiscal
year for which Employee was compensated at Base Salary, payable on the
date such benefits are normally paid.
E. Retirement. "Retirement" shall mean termination of employment at
age 65 (or later) with ten years of service or retirement in accordance with
any retirement contract between Company and Employee.
F. Disability. "Disability" shall mean an illness, injury or physical
or mental condition of the Employee which results in the Employee's inability
to substantially perform the material duties and responsibilities required of
his position under this Agreement for a period of one hundred twenty (120)
consecutive days or for any one hundred fifty (150) days during any
twelve-month period during the term of the Agreement.
9. PROTECTION OF COMPANY'S ASSETS.
A. Confidential Information. "Confidential Information" means all
information, data, knowledge and secrets whether developed or originated by,
disclosed to or acquired by Employee as a consequence of his employment by the
Company, relating to the Company, its affiliates and subsidiaries, not
generally known in the industry in which the Company is or may become engaged,
relating to the Company's trade secrets, software, financial information,
customers, products, techniques, processes and services, including information
relating to research, development, invention, manufacture, purchasing,
accounting, engineering, marketing, merchandising and selling.
B. Fiduciary Capacity. Employee shall hold in a fiduciary capacity for
the benefit of the Company all Confidential Information.
C. Return of Property Upon Termination. Upon termination of employment
for any reason, Employee shall return to the Company all property of the
Company, including but not limited to customer lists, records, software,
documents, notes, tapes and other repositories of Confidential Information in
the possession of Employee; whether prepared by Employee or by others,
including copies thereof. Employee shall be responsible for any property loss
or
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<PAGE> 8
damage suffered by the Company due to delay in the return of such property.
Employee represents and warrants that he shall not use any of the aforesaid
items in any future business with which he shall become involved as an employee
or otherwise.
D. Covenants Against Competition. In consideration of his employment
hereunder, Employee hereby expressly covenants and agrees that, unless
otherwise approved in advance in writing by the Company's Board of Directors,
he will not for any reason, including expiration of this Agreement, either
directly or indirectly, by or for himself or on behalf of or in conjunction
with any other person, company, partnership, corporation or other entity in the
United States of America, including the District of Columbia and the
territories for a period of one year following the date of termination of
employment with the Company except, however, said period shall extend to two
years upon the occurrence of the First Triggering Event:
(1) Call upon, solicit or attempt to contact any customer or
customers of the Company for direct gain or to aid a competitor of the
Company in damaging the relationship between the Company and its
customers, or in competing with the Company;
(2) Own, manage, operate, control, be employed by,
participate in or be connected in any manner with the ownership,
management, operation or control of any business which is similar to
the types of businesses conducted by the Company or which has products
or services similar to those handled or being developed by the Company
at the time of termination of this Agreement, and which has or will
call on firms which are customers of the Company including without
limitation integrated eyecare services, ophthalmology or optometric
practice management, managed eyecare programs, eye surgical
facilities, excimer laser refractive surgery programs or ophthalmic or
optometric specialty supplies and equipment distribution;
(3) Take with him, disclose, or furnish to anyone other than
the Company or its agents any of the Company's Confidential
Information ; or
(4) Solicit any then current Company employee to leave his or
her employment with the Company for any reason.
E. Remedies. Employee acknowledges and agrees that a breach of any of
the preceding covenants of this Section 9 would cause Company irreparable harm
for which a remedy at law would be inadequate and that, Company shall be
entitled to an injunction restraining Employee from the actions constituting
such breach and that Company also may pursue any other remedies against
Employee, including the recovery of damages.
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<PAGE> 9
10. WAIVER. A waiver or indulgence by Company of a breach of any
provision of this Agreement of Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
11. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provision.
12. MODIFICATION. This Agreement may be modified or amended only by an
instrument in writing signed by both Company and Employee.
13. CHOICE OF LAW. The validity, interpretation and construction of
this Agreement shall be governed by the laws of the State of Tennessee without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Tennessee or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Tennessee.
14. ARBITRATION.
Except as noted hereafter, any controversy or claim arising out of or
relating to this Agreement, or its breach, shall be settled by arbitration in
Memphis, Tennessee, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction; provided, however,
that Employee shall be entitled to seek specific performance of Employee's
right to be paid until the date of termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Within thirty (30) days after submission of a demand for arbitration,
Employee and the Company shall select one arbitrator, agreeable to all parties.
This arbitrator will be selected from lists prepared by the American
Arbitration Association. From the American Arbitration Association list, the
parties will submit to the American Arbitration Association a ranked list of
acceptable arbitrators. The highest ranking acceptable candidate will be
selected by the American Arbitration Association. If no arbitrators from the
list composed by the American Arbitration Association are acceptable by either
of the parties, the American Arbitration Association will compile a second
list. This procedure will be followed until the parties have selected an
arbitrator. The results of the arbitrator's finding will be binding on the
parties.
The arbitration provisions in this Agreement shall not apply to a suit
instituted by the Company to enforce Section 9 of this Agreement.
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<PAGE> 10
15. SURVIVAL AND BINDING EFFECT.
A. The rights and obligations of the parties hereto shall inure to the
benefit of and shall be binding upon their heirs, executors, administrators,
successors, and permitted assigns.
B. The covenants contained in Sections 8, 9, 13 and 14 of this
Agreement shall be construed as independent of any other agreements between the
parties and shall survive termination of employment.
C. The existence of any claim or action of Employee against Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Company of such covenants. Further, the existence
of any claim or cause of action of Company against Employee, whether predicated
on this Agreement or otherwise, shall not constitute justification of
non-payment of the benefits provided hereby.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the day and year above first written.
OMEGA HEALTH SYSTEMS, INC.
BY:
----------------------
- ----------------------------- ANDREW W. WILLER, CHAIRMAN
THOMAS P. LEWIS
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<PAGE> 1
Exhibit 10(y)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of January 1, 1997, between OMEGA HEALTH
SYSTEMS, INC., a DELAWARE corporation (the "Company"), and RONALD L. EDMONDS
("Employee").
RECITALS
WHEREAS, Employee has been employed by Company as Chief Financial
Officer pursuant to an Employment Agreement effective September 1, 1992 (the
"Prior Agreement"), which Prior Agreement is hereby amended and replaced by
this Agreement, and Employee and the Company wish by this Agreement to set out
the terms and conditions under which Employee will continue to be employed by
the Company;
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel;
WHEREAS, the Company recognizes that, as is the case with many
publicly held corporations, the possibility of a change in control may exist
and that such possibility and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders;
WHEREAS, the Board of Directors of the Company has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of Company's management to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change of control of the Company, although no
such change is now contemplated and also to state the comprehensive rights and
duties of the parties hereto; and
WHEREAS, the Company and Employee agree that this Agreement supersedes
and replaces the Prior Agreement and any other agreements, practices, and
understandings related to his employment.
NOW THEREFORE, in consideration of the preceding and the agreements
hereinafter contained, Employee and the Company agree as follows:
1. EMPLOYMENT. For several years Employee has served as the
Senior Vice President and Chief Financial Officer of the Company, and the
employee's compensation has not been adjusted since January 1995. The Company
hereby continues the employment of Employee as the Executive Vice President and
Chief Financial Officer of the Company with such duties as may be assigned by
the Company's Board of Directors for a term beginning
<PAGE> 2
January 1, 1997 and ending December 31, 1997 ("Initial Term") and shall
automatically renew for four (4) successive one year periods ("Renewal
Term(s)"), said Renewal Terms ending December 31, 2001. After December 31,
1997, this Agreement may be terminated by either party upon one hundred twenty
(120) days' prior written notice. At any time this Agreement may be terminated
by the Company pursuant to Paragraph 8B hereof or by Employee pursuant to
Paragraph 8A hereof. Employee hereby accepts such employment.
2. BEST EFFORTS. Employee agrees to perform faithfully and
industriously all the duties which Company may require of him, and will devote
his full time and attention to the furtherance of Company's business. Employee
agrees that he will be subject to Company's instructions, direction and control
in business policies established by Company.
3. COMPENSATION.
A. Base Salary. Employee's annual base salary will be $115,000
per year ("Base Salary") for calendar year 1997, paid bi-weekly or more
frequently as Company may determine. The Compensation Committee of the Board
of Directors ("Compensation Committee") will annually determine whether, in
such Committee's sole discretion, Employee may be paid a bonus based upon the
Company's earnings, growth, and other relevant factors.
B. Salary Increases. Employee's Base Salary shall increase by
$15,000 ("Salary Increase") for calendar year 1998. Thereafter Salary
Increases, if any, shall be determined by the Compensation Committee, in its
sole discretion.
C. Options. Effective January 1, 1997, Employee is hereby
granted options to purchase 25,000 shares of the common stock of the Company at
an exercise price of $6.50 per share, which is the fair market value on the
date of grant. Such options shall expire December 31, 2002, and shall not vest
the first two years from the date of such grant, and shall vest 33.3% each year
beginning January 1, 1999, and such options are otherwise subject to the terms,
conditions and provisions of the Stock Option Agreement attached hereto and
incorporated herein by reference.
D. Other Employee Benefits. Employee shall be entitled to term
life insurance payable by Employer on Employee's life in the amount of Five
Hundred Thousand Dollars ($500,000.00), health insurance for Employee and his
family through a group health plan of Employer's selection and an allowance not
to exceed Three Thousand Dollars ($3,000.00) per year for premiums for
disability insurance on Employee. Employee shall also be eligible to
participate in all other employee benefit programs and plans established by
Company at any time for other employees, including but not limited to medical
and/or dental insurance plans, pension or other deferred compensation plans.
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<PAGE> 3
The total amounts paid pursuant to preceding subsections A, B, C, and
D and Section 5 hereof are Employee's "Annual Compensation."
4. EXPENSES. Company shall promptly reimburse Employee for all
expenses reasonably incurred by him in connection with his duties hereunder.
In the event that Employee uses his own automobile to conduct business of the
Company, Employee, at his expense, shall obtain and furnish to Company proof of
public liability insurance issued by an insurance company approved by Company
with minimum coverage of $100,000/$300,000 per occurrence.
5. VACATION. Company agrees that Employee will be entitled to
take four weeks paid vacation per year, provided that no more than two weeks
are taken per departure. Up to five days of unused vacation may be carried
over to the next year.
6. ANNUAL PHYSICAL EXAMINATION. Company will reimburse Employee
for the cost of an annual routine physical examination to a maximum of $400.
7. CHANGE OF CONTROL AND GOOD REASON FOR TERMINATION.
A. Change in Control of the Company. For purposes of this
Agreement, a change in control of the Company ("Change in Control") shall be
deemed to have occurred if (1) any "person" as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ( the
"Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of securities of the Company representing 33% or more of the
combined voting power of the Company's then outstanding securities regardless
of whether the Board shall have approved such Change in Control; or (2) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board and any new director (other than a director
designated by a person who shall have entered into an agreement with the
Company to effect a transaction described in clause (A) (3) (i) and (ii) of
this section) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or (3)
stockholders of the Company approve (i) a merger or consolidation of the
Company with any other corporation regardless of which entity is the surviving
company, 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) at least 66 2/3% of the combined voting
power of the securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a plan
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<PAGE> 4
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.
B. Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, that without Employee's express written consent, any of the
following circumstances occur, unless, in the case of following subsections
(1), (5), (6), (7), (8) or (9), such circumstances are fully corrected prior to
the date of termination specified in any notice of termination given in respect
thereof:
(1) assignment to Employee of any duties inconsistent with
his current status as an executive officer of the Company or a
substantial adverse alteration in the nature or status of Employee's
responsibilities from those in effect immediately following execution
of this Agreement;
(2) reduction by the Company in Employee's Base Salary in
effect on the date hereof or as the same may be increased from time to
time, except for across-the-board salary reductions similarly
affecting all Company executives and all executives of any person in
control of Company;
(3) relocation of Company's principal executive offices after
a Change in Control to a location more than 50 miles from the location
of such offices immediately prior to a Change in Control or Company's
requiring Employee to be based anywhere other than the location of
Company's principal executive office, except for travel on Company's
business to an extent substantially consistent with Employee's present
business travel obligations;
(4) failure by Company, without Employee's consent, to pay
Employee any portion of Employee's compensation, except pursuant to an
across-the-board compensation deferral similarly affecting all Company
executives and all executives of any person in control of the Company,
or to pay Employee any portion of an installment of deferred
compensation under any Company deferred compensation program, within
30 days of the date such compensation is due;
(5) failure by the Company to continue in effect any
compensation plan in which Employee is participating immediately prior
to a Change in Control which is material to Employee's total
compensation, unless an equitable arrangement has been made with
respect to such plan, or failure by the Company to continue Employee's
participation therein on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of
Employee's participation relative to other participants, as existed
immediately prior to a Change in Control;
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<PAGE> 5
(6) failure by Company after a Change in Control to continue
to provide Employee with benefits substantially similar to those
enjoyed by Employee under any of Company's pension, savings and
retirement plan, life insurance, medical, health and accident, or
disability plans in which Employee was participating at the time of
the Change in Control, action by Company, which would materially
reduce directly or indirectly any of such benefits or deprive Employee
of any material fringe benefit enjoyed by Employee at the time of the
Change in Control, or failure by the Company to provide Employee with
the number of paid vacation days to which Employee is entitled
hereunder or if greater on the Company's normal vacation policy in
effect at the time of the Change in Control of the Company;
(7) failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement;
(8) any purported termination of Employee's employment by the
Company, not pursuant to a Notice of Termination, defined hereinafter,
satisfying the requirements of this Agreement; or
(9) Employee is not able to negotiate a new employment
agreement on terms as favorable to Employee as the terms of this
Agreement.
Employee's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by his incapacity due to
physical or mental illness.
8. TERMINATION AND SEVERANCE PAYMENT.
A. Severance Payment. In the event that (i) Company and Employee
do not extend or renew this Agreement or replace this Agreement with a new
employment agreement and this Agreement expires, or (ii) upon termination of
Employee's employment by Company at any time after December 31, 1997, other
than for Cause, Disability or Retirement, then Employee shall be paid by
Company Employee's Base Salary and all Welfare Benefits for four (4) months,
and any stock options that have vested by their normal terms as of the date of
termination may be exercised by Employee within six (6) months of such date of
termination. Upon termination of Employee's employment hereunder by Employee
for Good Reason, or by Employee during the two years following the occurrence
of a Change of Control during the term of this Agreement, then (i) not later
than ninety (90) days after such termination, the Company will pay the Employee
a cash severance payment ("Lump Sum Severance Payment") of one times the
Employee's Base Salary for the final year of employment under this Agreement,
and (ii) the Company will continue to pay for and provide to Employee all
Welfare Benefits, except pension and other similar compensation-based plans for
a period of up to one (1) year from the last date of employment if Employee
does not accept employment
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<PAGE> 6
elsewhere, and (iii) the stock options previously granted to Employee as of
such date shall immediately vest in full.
B. Termination for Cause. Company may discharge Employee for
Cause immediately, at any time by a written notice specifying the effective
date of and reason for termination ("Notice of Termination"). In that event,
Employee shall not be eligible for either the Lump Sum Severance Payment, the
Continuing Base Salary Payments, immediate vesting of stock options, or, except
as required by law, the Welfare Benefits. "Cause" is not intended to include
disagreements over management philosophy or other such intangibles. As used
herein, "Cause" shall include, but not be limited to, the following:
(1) Material violation by Employee of any of the terms of
this Agreement; or
(2) Willful and continued failure or gross negligence of
Employee materially to perform his duties with the Company (other than
due to physical or mental illness), provided that Employee has
received a written notice of same from the Board of Directors
specifically identifying the manner in which the Board of Directors
believes Employee has engaged in such failure or misconduct, approved
by two-thirds of the Directors entitled to vote thereon, and the
Employee continues to engage in such conduct after ten (10) days
following receipt of such notice; or
(3) Conviction of or guilty plea by Employee to committing a
felony or an act of moral turpitude or any similar act; or
(4) Conversion or misappropriation by Employee of any monies
or other property of the Company as determined by the Board of
Directors; or
(5) Employee's habitual use of illegal drugs or Employee's
drug or alcohol addiction.
C. Voluntary Resignation. Employee shall be entitled to
terminate his employment by voluntary resignation given in writing at any time
(1) during the two years following the occurrence of a Change in Control of the
Company, or (2) for Good Reason. Such resignation shall not be deemed a breach
of any employment contract between Employee and the Company. Notice of such
resignation shall specify a date Employee's employment will terminate, not less
than 120 days in the future, and shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of Employee's employment under the provision so indicated.
D. Death. If Employee dies during his employment, Employee's
beneficiaries shall be paid:
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<PAGE> 7
(1) the Base Salary which would otherwise have been
payable to Employee up to the end of the month in which death
occurred; and
(2) any employee benefit payment pro rata to the end
of the month in which death occurred, based on the percentage
of the fiscal year for which Employee was compensated at Base
Salary, payable on the date such benefits are normally paid.
E. Retirement. "Retirement" shall mean termination of employment
at age 65 (or later) with ten years of service or retirement in accordance with
any retirement contract between Company and Employee.
F. Disability. "Disability" shall mean an illness, injury or
physical or mental condition of the Employee which results in the Employee's
inability to substantially perform the material duties and responsibilities
required of his position under this Agreement for a period of one hundred
twenty (120) consecutive days or for any one hundred fifty (150) days during
any twelve-month period during the term of the Agreement.
9. PROTECTION OF COMPANY'S ASSETS.
A. Confidential Information. "Confidential Information" means
all information, data, knowledge and secrets whether developed or originated
by, disclosed to or acquired by Employee as a consequence of his employment by
the Company, relating to the Company, its affiliates and subsidiaries, not
generally known in the industry in which the Company is or may become engaged,
relating to the Company's trade secrets, software, financial information,
customers, products, techniques, processes and services, including information
relating to research, development, invention, manufacture, purchasing,
accounting, engineering, marketing, merchandising and selling.
B. Fiduciary Capacity. Employee shall hold in a fiduciary
capacity for the benefit of the Company all Confidential Information.
C. Return of Property Upon Termination. Upon termination of
employment for any reason, Employee shall return to the Company all property of
the Company, including but not limited to customer lists, records, software,
documents, notes, tapes and other repositories of Confidential Information in
the possession of Employee; whether prepared by Employee or by others,
including copies thereof. Employee shall be responsible for any property loss
or damage suffered by the Company due to delay in the return of such property.
Employee represents and warrants that he shall not use any of the aforesaid
items in any future business with which he shall become involved as an employee
or otherwise.
D. Covenants Against Competition. In consideration of his
employment hereunder, Employee hereby expressly covenants and agrees that,
unless otherwise approved in advance
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<PAGE> 8
in writing by the Company's Board of Directors, he will not for any reason,
including expiration of this Agreement, either directly or indirectly, by or
for himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or other entity in the United States of America,
including the District of Columbia and the territories for a period of one (1)
year following the date of termination of employment with the Company except:
(1) Call upon, solicit or attempt to contact any
customer or customers of the Company for direct gain or to aid
a competitor of the Company in damaging the relationship
between the Company and its customers, or in competing with
the Company;
(2) Own, manage, operate, control, be employed by,
participate in or be connected in any manner with the
ownership, management, operation or control of any business
which is similar to the types of businesses conducted by the
Company or which has products or services similar to those
handled or being developed by the Company at the time of
termination of this Agreement, and which has or will call on
firms which are customers of the Company including without
limitation integrated eyecare services, ophthalmology or
optometric practice management, managed eyecare programs, eye
surgical facilities, excimer laser refractive surgery programs
or ophthalmic or optometric specialty supplies and equipment
distribution;
(3) Take with him, disclose, or furnish to anyone
other than the Company or its agents any of the Company's
Confidential Information; or
(4) Solicit any then current Company employee to leave
his or her employment with the Company for any reason.
E. Remedies. Employee acknowledges and agrees that a breach of
any of the preceding covenants of this Section 9 would cause Company
irreparable harm for which a remedy at law would be inadequate and that,
Company shall be entitled to an injunction restraining Employee from the
actions constituting such breach and that Company also may pursue any other
remedies against Employee, including the recovery of damages.
10. WAIVER. A waiver or indulgence by Company of a breach of any
provision of this Agreement of Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
11. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall in no way affect the validity or
enforceability of any other provision.
12. MODIFICATION. This Agreement may be modified or amended only by
an instrument in writing signed by both Company and Employee.
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13. CHOICE OF LAW. The validity, interpretation and construction of
this Agreement shall be governed by the laws of the State of Tennessee without
giving effect to any choice or conflict of law provision or rule (whether of
the State of Tennessee or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Tennessee.
14. ARBITRATION. Except as noted hereafter, any controversy or claim
arising out of or relating to this Agreement, or its breach, shall be settled
by arbitration in Memphis, Tennessee, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction; provided, however, that Employee shall be entitled to seek
specific performance of Employee's right to be paid until the date of
termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
Within thirty (30) days after submission of a demand for arbitration,
Employee and the Company shall select one arbitrator, agreeable to all parties.
This arbitrator will be selected from lists prepared by the American
Arbitration Association. From the American Arbitration Association list, the
parties will submit to the American Arbitration Association a ranked list of
acceptable arbitrators. The highest ranking acceptable candidate will be
selected by the American Arbitration Association. If no arbitrators from the
list composed by the American Arbitration Association are acceptable by either
of the parties, the American Arbitration Association will compile a second
list. This procedure will be followed until the parties have selected an
arbitrator. The results of the arbitrator's finding will be binding on the
parties.
The arbitration provisions in this Agreement shall not apply to a suit
instituted by the Company to enforce Section 9 of this Agreement.
15. SURVIVAL AND BINDING EFFECT.
A. The rights and obligations of the parties hereto shall inure to
the benefit of and shall be binding upon their heirs, executors,
administrators, successors, and permitted assigns.
B. The covenants contained in Sections 8, 9, 13 and 14 of this
Agreement shall be construed as independent of any other agreements between the
parties and shall survive termination of employment.
C. The existence of any claim or action of Employee against Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Company of such covenants. Further, the
existence of any claim or cause of action of Company against Employee, whether
predicated on this Agreement or otherwise, shall not constitute justification
of non-payment of the benefits provided hereby.
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<PAGE> 10
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the day and year above first written.
OMEGA HEALTH SYSTEMS, INC.
BY:
------------------------------
THOMAS P. LEWIS, PRESIDENT
- ----------------------------------------
RONALD L. EDMONDS
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<PAGE> 1
Exhibit 10(z)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of January 1, 1997, between THE EYE HEALTH
NETWORK, INC., a Colorado corporation (the "Company"), and DONALD A. HOOD,
O.D. ("Employee").
RECITALS
WHEREAS, Employee has been employed by Company as Chief Executive
Officer pursuant to an Employment Agreement effective January 1, 1994 (the
"Prior Agreement"), which Prior Agreement terminated effective
December 31, 1996, and Employee and the Company wish to set out by this
Agreement the terms and conditions under which Employee will continue to be
employed by the Company;
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel;
WHEREAS, the Company recognizes that, as is the case with affiliates of
many publicly held corporations, the possibility of a change in control may
exist and that such possibility and the uncertainty and questions which it may
raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders;
WHEREAS, the Board of Directors of the Company has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of Company's management to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change of control of the Company, although no
such change is now contemplated and also to state the comprehensive rights and
duties of the parties hereto; and
WHEREAS, the Company and Employee agree that this Agreement supersedes
and replaces the Prior Agreement and any other agreements, practices, and
understandings related to his employment.
NOW THEREFORE, in consideration of the preceding and the agreements
hereinafter contained, Employee and the Company agree as follows:
1. EMPLOYMENT. For several years Employee has served as the President
of the Company, and the employee's compensation has not been adjusted since
1994. The
<PAGE> 2
Company hereby continues the employment of Employee as the President and Chief
Executive Officer of the Company with such duties as may be assigned by the
Company's Board of Directors for a term beginning January 1, 1997 and continuing
until the Board of Directors appoints a replacement President and Chief
Executive Officer ("Phase 1"), thereafter as the Chairman of the Board of
Directors of the Company for a period not to exceed December 31, 2001 ("Phase
2"). After December 31, 1997, this Agreement may be terminated by either party
upon one hundred twenty (120) days' prior written notice. At any time this
Agreement may be terminated by the Company pursuant to Paragraph 8B hereof or by
Employee pursuant to Paragraph 8A hereof. Employee hereby accepts such
employment.
2. BEST EFFORTS. Employee agrees to perform faithfully and
industriously all the duties which Company may require of him, and will devote
his time and attention to the furtherance of Company's business, and during
Phase I Employee shall devote at least four (4) days per week, and during Phase
II Employee shall devote at least two (2) days per week to such duties. Employee
agrees that he will be subject to Company's instructions, direction and control
in business policies established by Company.
3. COMPENSATION.
A. Base Salary. Employee's annual base salary for Phase 1 shall be
$125,000 per year ("Base Salary"), paid bi-weekly or more frequently as Company
may determine. Employee's Base Salary for Phase 2 shall be $80,000.00.
B. Bonus. Employee's annual bonus shall be a percentage of the
Company's pre-tax net earnings, as defined in Exhibit A attached hereto; which
shall be paid within sixty (60) days of each respective year end, as follows:
year 1 - 10%
year 2 - 8%
year 3 - 6%
year 4 - 4% and
year 5 - 2%
C. Options. As of January 1, 1997, Employee is hereby granted options
to purchase 25,000 shares of the common stock of Omega Health Systems, Inc. at
an exercise price of $6.50 per share, which is the fair market value on the date
of grant. Such options shall expire December 31, 2002, and shall not vest the
first two years from the date of such grant and shall vest 33.3% each year
beginning January 1, 1999, and such options are otherwise subject to the terms,
conditions and provisions of the Stock Option Agreement attached hereto and
incorporated herein by reference.
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<PAGE> 3
D. Other Employee Benefits. Employee shall be entitled to term life
insurance payable by Employer on Employee's life in the amount of Two Hundred
and Fifty Thousand Dollars ($250,000.00), health insurance for Employee and his
family through a group health plan of Employer's selection and an allowance not
to exceed Twenty-Five Hundred Dollars ($2,500.00) per year for premiums for
disability insurance on employee. Employee shall be entitled to an allowance not
to exceed Twenty-Five Hundred Dollars ($2,500.00) per year for professional due
and subscriptions.
The total amounts paid pursuant to preceding subsections A, B, C, and D
and Section 5 hereof are Employee's "Annual Compensation."
4. EXPENSES. Company shall promptly reimburse Employee for all expenses
reasonably incurred by him in connection with his duties hereunder. In the event
that Employee uses his own automobile to conduct business of the Company,
Employee, at his expense, shall obtain and furnish to Company proof of public
liability insurance issued by an insurance company approved by Company with
minimum coverage of $100,000/$300,000 per occurrence.
5. VACATION. Employee shall be entitled to four (4) weeks of vacation
per calendar year and up to one (1) week of unused vacation may be rolled over
to the following calendar years; however, Employee's vacation may never exceed
five (5) weeks per calendar year. Employee shall also be entitled to an
allowance of one (1) week per calendar year for continuing education purposes
such as professional conventions and a monetary allowance not to exceed
Twenty-Five Hundred Dollars ($2,500.00) for related expenses including travel
and tuition.
6. ANNUAL PHYSICAL EXAMINATION. Company will reimburse Employee for the
cost of an annual routine physical examination to a maximum of $400.
7. CHANGE OF CONTROL AND GOOD REASON FOR TERMINATION.
A. Change in Control of the Company. For purposes of this Agreement, a
change in control of the Company ("Change in Control") shall be deemed to have
occurred if (1) any "person" as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ( the "Exchange Act"), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly of securities of the
Company representing 33% or more of the combined voting power of the Company's
then outstanding securities regardless of whether the Board shall have approved
such Change in Control; or (2) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who shall have entered
into an agreement with the Company to effect a
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<PAGE> 4
transaction described in clause (A) (3) (i) and (ii) of this section) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (3) stockholders of the Company
approve (i) a merger or consolidation of the Company with any other corporation
regardless of which entity is the surviving company, 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) at least 66 2/3% of the combined voting power of the
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or (ii) a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.
B. Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, that without Employee's express written consent, any of the following
circumstances occur, unless, in the case of following subsections (1), (5), (6),
(7), (8) or (9), such circumstances are fully corrected prior to the date of
termination specified in any notice of termination given in respect thereof:
(1) assignment to Employee of any duties inconsistent with his
current status as an executive officer of the Company or a substantial
adverse alteration in the nature or status of Employee's
responsibilities from those in effect immediately following execution
of this Agreement;
(2) reduction by the Company in Employee's Base Salary in
effect on the date hereof or as the same may be increased from time to
time, except for across-the-board salary reductions similarly affecting
all Company executives and all executives of any person in control of
Company;
(3) requiring Employee to be based anywhere other than the
location of Company's principal executive office, except for travel on
Company's business to an extent substantially consistent with
Employee's present business travel obligations;
(4) failure by Company, without Employee's consent, to pay
Employee any portion of Employee's compensation, except pursuant to an
across-the-board compensation deferral similarly affecting all Company
executives and all executives of any person in control of the Company,
or to pay Employee any portion of an installment of deferred
compensation under any Company deferred compensation program, within 30
days of the date such compensation is due;
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<PAGE> 5
(5) failure by the Company to continue in effect any
compensation plan in which Employee is participating immediately prior
to a Change in Control which is material to Employee's total
compensation, unless an equitable arrangement has been made with
respect to such plan, or failure by the Company to continue
Employee's participation therein on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of Employee's participation relative to other participants, as
existed immediately prior to a Change in Control;
(6) failure by Company after a Change in Control to continue
to provide Employee with benefits substantially similar to those
enjoyed by Employee under any of Company's pension, savings and
retirement plan, life insurance, medical, health and accident, or
disability plans in which Employee was participating at the time of the
Change in Control, action by Company, which would materially reduce
directly or indirectly any of such benefits or deprive Employee of any
material fringe benefit enjoyed by Employee at the time of the Change
in Control, or failure by the Company to provide Employee with the
number of paid vacation days to which Employee is entitled hereunder or
if greater on the Company's normal vacation policy in effect at the
time of the Change in Control of the Company;
(7) failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement;
(8) any purported termination of Employee's employment by the
Company, not pursuant to a Notice of Termination, defined hereinafter,
satisfying the requirements of this Agreement; or
(9) Employee is not able to negotiate a new employment
agreement on terms as favorable to Employee as the terms of this
Agreement.
Employee's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by his incapacity due to physical or
mental illness.
8. TERMINATION AND SEVERANCE PAYMENT.
A. Severance Payment. In the event that (i) Company and Employee do not
extend or renew this Agreement or replace this Agreement with a new employment
agreement and this Agreement expires, or (ii) upon termination of Employee's
employment by Company at any time after January 1, 1997, other than for Cause,
Disability or Retirement, then Employee shall be paid by Company Employee's Base
Salary and all Welfare Benefits for six (6) months, and any stock options that
have vested by their normal terms as of the date of termination may be exercised
by Employee within six (6) months of such date of termination. Upon termination
of Employee's employment hereunder by Employee for Good Reason, or by
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<PAGE> 6
Employee during the twelve months following the occurrence of a Change of
Control during the term of this Agreement, then (i) not later than ninety (90)
days after such termination, the Company will pay the Employee a cash severance
payment ("Lump Sum Severance Payment") of one times the Employee's Base Salary
for the final year of employment under this Agreement, and (ii) the Company will
continue to pay for and provide to Employee all Welfare Benefits, except pension
and other similar compensation-based plans for a period of up to two years from
the last date of employment if Employee does not accept employment elsewhere,
and (iii) the stock options previously granted to Employee as of such date shall
immediately vest in full.
B. Termination for Cause. Company may discharge Employee for Cause
immediately, at any time by a written notice specifying the effective date of
and reason for termination ("Notice of Termination"). In that event, Employee
shall not be eligible for either the Lump Sum Severance Payment, the Continuing
Base Salary Payments, immediate vesting of stock options, or, except as required
by law, the Welfare Benefits. "Cause" is not intended to include disagreements
over management philosophy or other such intangibles. As used herein, "Cause"
shall include, but not be limited to, the following:
(1) Material violation by Employee of any of the terms of this
Agreement; or
(2) Willful and continued failure or gross negligence of
Employee materially to perform his duties with the Company (other than
due to physical or mental illness), provided that Employee has received
a written notice of same from the Board of Directors specifically
identifying the manner in which the Board of Directors believes
Employee has engaged in such failure or misconduct, approved by
two-thirds of the Directors entitled to vote thereon, and the Employee
continues to engage in such conduct after ten (10) days following
receipt of such notice; or
(3) Conviction of or guilty plea by Employee to committing a
felony or an act of moral turpitude or any similar act; or
(4) Conversion or misappropriation by Employee of any monies
or other property of the Company as determined by the Board of
Directors; or
(5) Employee's habitual use of illegal drugs or Employee's
drug or alcohol addiction.
C. Voluntary Resignation. Employee shall be entitled to terminate his
employment by voluntary resignation given in writing at any time (1) during the
twelve months following the occurrence of a Change in Control of the Company, or
(2) for Good Reason. Such resignation shall not be deemed a breach of any
employment contract between Employee and the Company. Notice of such resignation
shall specify a date Employee's employment will terminate, not less than 120
days in the future, and shall indicate the specific termination
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<PAGE> 7
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated.
D. Death. If Employee dies during his employment, Employee's
beneficiaries shall be paid:
(1) the Base Salary which would otherwise have been payable to
Employee up to the end of the month in which death occurred; and
(2) any employee benefit payment pro rata to the end of the
month in which death occurred, based on the percentage of the fiscal
year for which Employee was compensated at Base Salary, payable on the
date such benefits are normally paid.
E. Retirement. "Retirement" shall mean termination of employment at age
65 (or later) with ten years of service or retirement in accordance with any
retirement contract between Company and Employee.
F. Disability. "Disability" shall mean an illness, injury or physical
or mental condition of the Employee which results in the Employee's inability to
substantially perform the material duties and responsibilities required of his
position under this Agreement for a period of one hundred twenty (120)
consecutive days or for any one hundred fifty (150) days during any twelve-month
period during the term of the Agreement.
9. PROTECTION OF COMPANY'S ASSETS.
A. Confidential Information. "Confidential Information" means all
information, data, knowledge and secrets whether developed or originated by,
disclosed to or acquired by Employee as a consequence of his employment by the
Company, relating to the Company, its affiliates and subsidiaries, not generally
known in the industry in which the Company is or may become engaged, relating to
the Company's trade secrets, software, financial information, customers,
products, techniques, processes and services, including information relating to
research, development, invention, manufacture, purchasing, accounting,
engineering, marketing, merchandising and selling.
B. Fiduciary Capacity. Employee shall hold in a fiduciary capacity for
the benefit of the Company all Confidential Information.
C. Return of Property Upon Termination. Upon termination of employment
for any reason, Employee shall return to the Company all property of the
Company, including but not limited to customer lists, records, software,
documents, notes, tapes and other repositories of Confidential Information in
the possession of Employee; whether prepared by Employee or by
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<PAGE> 8
others, including copies thereof. Employee shall be responsible for any property
loss or damage suffered by the Company due to delay in the return of such
property. Employee represents and warrants that he shall not use any of the
aforesaid items in any future business with which he shall become involved as an
employee or otherwise.
D. Covenants Against Competition.
(a) During the term of this Agreement and for a period of
three (3) years from the termination date of his employment, Employee will not,
within the Noncompetition Area (as that term is defined below), either singly or
collectively, directly or indirectly, for himself or as agent, or in behalf of,
or in conjunction with, any person, firm, association, partnership or
corporation, or as a partner of any partnership, or as a shareholder of any
corporation, establish, own, operate, engage in, become associated with, or
contract to provide management or consulting services to any business which
provides the same services as Employer, its affiliates or subsidiaries. However,
if Employee is terminated without cause, the period shall be for one (1) year
from the termination date of his employment.
(b) During the term of this Agreement and for a period of
three (3) years from the termination date of his employment, Employee will not,
either singly or collectively, directly or indirectly, for himself or as agent,
or in behalf of, or in conjunction with, any person, firm, association,
partnership or corporation, or as a shareholder of any corporation or as a
partner of any partnership, contact any of Employer's, its affiliates' or
subsidiaries' customers (excluding patients) for the purpose of soliciting,
diverting or taking away any customer from Employer, its affiliates or
subsidiaries. However, if Employee is terminated without cause, the period shall
be for one (1) year from the termination date of his employment.
(c) During the term of this Agreement and for a period of
three (3) years from the termination date of his employment, Employee will not,
either singly or collectively, directly or indirectly, for himself or as agent,
or in behalf of, or in conjunction with, any person, firm, association,
partnership or corporation, or as a shareholder of any corporation or as a
partner of any partnership, contact any person who has been engaged as an
employee, representative or in any capacity by Employer, its affiliates of
subsidiaries for the purpose of influencing or inducing such person to terminate
any relationship with Employer, its subsidiaries or affiliates or for the
purpose of employing or retaining such person. However, if Employee is
terminated without cause, the period shall be for one (1) year from the
termination date of his employment.
(d) The Noncompetition Area shall include:
(i) all the area within a fifty (50) mile radius of
all cities within the United States in which Employer, its affiliates or
subsidiaries have (or may during the term of
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<PAGE> 9
this agreement have obtained executed or active payor or provider contracts,
or both, or have completed substantial negotiations with payors or providers to
obtain such contracts; and
(ii) all the area within the State of Colorado.
(e) The Noncompetition Area shall not include any area in
which Employer, its affiliates and subsidiaries have ceased to engage in
business and have not not operated in such area for a period of twelve (12)
consecutive months.
(f) Employee acknowledges that the term, scope and geographic
area of this covenant not to compete are reasonable. If, however, any judicial
proceeding or court shall refuse to enforce all or any part of the covenants
contained in this Section 9, any unenforceable covenant shall be deemed
eliminated from the provisions thereof for the purposes of such proceeding to
the extent necessary to permit the remaining separate covenants to be enforced.
The scope, duration and geographical coverage of any covenant may be limited by
a court to the extent necessary to permit the enforcement of such covenant. It
is the intent and understanding of the parties in this agreement that each of
the covenants contained in this Section 9 is to be deemed severable and that it
will not violate the intent of the parties to this agreement if any court should
determine accordingly. The invalidity or illegality of any such covenant which
is not to be implemented is not intended by the parties to be considered if
relief pursuant to another covenant is sought.
(g) The parties agree that any available remedy at law for any
breach by Employee of any of the covenants contained in this Section 9 shall be
inadequate; therefore, Employer or any successor shall be entitled in addition
to all other remedies, to injunctive relief (including temporary restraining
orders) for enforcement of this Section 9.
(h) If Employee fails to abide by this Section 9, Employee
agrees that Employer may seek compensation for its damages. Employer and
Employee expressly agree that it is difficult to know what actual damages would
be incurred by Employer in the event of the Employee's breach of this covenant.
The Parties expressly agree and stipulate that if this covenant is breached
within one (1) year of the termination of employment, liquidated damages in the
amount of One Hundred Thousand Dollars ($100,000.00) is a reasonable amount for
Employee to pay the Employer and neither party will challenge the reasonableness
of this liquidated damages amount. This liquidated damages amount is not a
penalty; it is, agreed by the Parties, as an estimate of the net present value
of the loss in profits which would be incurred by the Employer as a
result of a breach of this Section 9 by Employee within one (1) year of
termination of employment or until Employer notifies Employee to cease such
breach, whichever is sooner. This liquidated damages amount is not sufficient
damages for continued breach of this Section 9 by Employee beyond the date that
Employer notifies Employee to cease such breach or one (1) year from termination
of employment, which is sooner. Employer may pursue such other remedies as may
be available at law or equity.
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<PAGE> 10
(i) It is understood that this Section 9 and the covenants
contained herein do not limit Employee's ability to practice Optometry and to
participate as a shareholder or owner of Vision Care Specialists, P.C.
E. Remedies. Employee acknowledges and agrees that a breach of any of
the preceding covenants of this Section 9 would cause Company irreparable harm
for which a remedy at law would be inadequate and that, Company shall be
entitled to an injunction restraining Employee from the actions constituting
such breach and that Company also may pursue any other remedies against
Employee, including the recovery of damages.
10. WAIVER. A waiver or indulgence by Company of a breach of any
provision of this Agreement of Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
11. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provision.
12. MODIFICATION. This Agreement may be modified or amended only by an
instrument in writing signed by both Company and Employee.
13. CHOICE OF LAW. The validity, interpretation and construction of
this Agreement shall be governed by the laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
14. ARBITRATION. Except as noted hereafter, any controversy or claim
arising out of or relating to this Agreement, or its breach, shall be settled by
arbitration in Denver, Colorado, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction; provided,
however, that Employee shall be entitled to seek specific performance of
Employee's right to be paid until the date of termination during the pendency of
any dispute or controversy arising under or in connection with this Agreement.
Within thirty (30) days after submission of a demand for arbitration,
Employee and the Company shall select one arbitrator, agreeable to all parties.
This arbitrator will be selected from lists prepared by the American Arbitration
Association. From the American Arbitration Association list, the parties will
submit to the American Arbitration Association a ranked list of acceptable
arbitrators. The highest ranking acceptable candidate will be selected by the
American Arbitration Association. If no arbitrators from the list composed by
the American Arbitration Association are acceptable by either of the parties,
the American Arbitration
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<PAGE> 11
Association will compile a second list. This procedure will be followed until
the parties have selected an arbitrator. The results of the arbitrator's finding
will be binding on the parties.
The arbitration provisions in this Agreement shall not apply to a suit
instituted by the Company to enforce Section 9 of this Agreement.
15. SURVIVAL AND BINDING EFFECT.
A. The rights and obligations of the parties hereto shall inure to the
benefit of and shall be binding upon their heirs, executors, administrators,
successors, and permitted assigns.
B. The covenants contained in Sections 8, 9, 13 and 14 of this
Agreement shall be construed as independent of any other agreements between the
parties and shall survive termination of employment.
C. The existence of any claim or action of Employee against Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Company of such covenants. Further, the existence
of any claim or cause of action of Company against Employee, whether predicated
on this Agreement or otherwise, shall not constitute justification of
non-payment of the benefits provided hereby.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the day and year above first written.
THE EYE HEALTH NETWORK, INC.
BY:
---------------------------------
THOMAS P. LEWIS, CHAIRMAN
- ----------------------------------
DONALD A. HOOD, O.D.
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<PAGE> 1
Exhibit 10(aa)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, effective as of May 1, 1997, between PRIMARY EYECARE
NETWORK, INC., a California corporation (the "Company"), and ALLEN LECK
("Employee").
RECITALS
WHEREAS, the Company is a wholly-owned subsidiary of Omega Health
Systems, Inc. a Delaware corporation with its principal place of business in
Memphis, Tennessee ("Omega");
WHEREAS, Employee has been employed by Company as President, and
Employee and the Company wish to set out by this Agreement the terms and
conditions under which Employee will continue to be employed by the Company;
WHEREAS, Omega and the Company consider it essential to the best
interests of the Company to foster the continuous employment of key management
personnel;
WHEREAS, the Board of Directors of the Company and of Omega have
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of Company's management to their
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change of control of the
Company, although no such change is now contemplated and also to state the
comprehensive rights and duties of the parties hereto; and
WHEREAS, the Company and Employee agree that this Agreement supersedes
and replaces any other agreements, practices, and understandings related to his
employment.
NOW THEREFORE, in consideration of the preceding and the agreements
hereinafter contained, Employee and the Company agree as follows:
1. EMPLOYMENT. For several years Employee has served as the President
of the Company. The Company hereby continues the employment of Employee as the
President of the Company with such duties as may be assigned by the Company's
Board of Directors, or the President of Omega, for a term beginning May 1, 1997
and continuing for five (5) years (the "Initial Term"), and renewing thereafter
for additional terms of one (1) year (a "Subsequent Term"), unless and until
terminated pursuant to Section 1, Section 6 or Section 7
<PAGE> 2
herein. After May 1, 2000, this Agreement may be terminated by Employee upon one
hundred fifty (150) days prior written notice. After May 1, 2000, this Agreement
may be terminated by the Company upon one hundred fifty (150) days prior written
notice.
2. BEST EFFORTS. Employee agrees to perform faithfully and
industriously all the duties which Company may require of him, and will devote
his time and attention to the furtherance of Company's business. Employee agrees
that he will be subject to Company's instructions, direction and control in
business policies established by Company.
3. COMPENSATION.
A. Base Salary. Employee's annual base salary shall be One Hundred
Sixty-five Thousand Dollars ($165,000) per year ("Base Salary"), paid in
bi-weekly payments of Six Thousand Eight Hundred Seventy-five Dollars ($6,875),
or more frequently as Company may determine.
B. Bonus. Employee's annual bonus shall be (i) fifteen percent (15%) of
the first $300,000 of Annual Net Earnings (defined below), plus (ii) five
percent (5%) of the Annual Net Earnings, if any, that exceed $300,000. The
parties agree that the bonus amount shall be calculated quarterly, on a calendar
quarter basis, using pro-rations of the above formula, and the bonus shall be
payable on each April 20, July 20, October 20, and January 20 for the preceding
calendar quarter. The annual bonus shall be adjusted for any changes in the
Company's pre-tax net income resulting from the independent annual audit of the
Company's financials. For calendar year 1997, the parties acknowledge that
Employee has received a bonus through the time period ended April 30, 1997, and
Employee's bonus for 1997 under this Agreement shall be pro-rated accordingly.
"Annual Net Earnings" for purposes of this Agreement shall mean the pre-tax net
income of the Company computed in accordance with generally accepted accounting
principles, consistently applied, including as operating expenses Employee's
Base Salary of $165,000 and the annual management fee of $370,000 payable to
Omega, but before payment of the bonuses provided for in this Section 3B.
C. Options. As of May 1, 1997, Employee is hereby granted options to
purchase fifteen thousand (15,000) shares of the common stock of Omega at an
exercise price of $6.50 per share, which is the fair market value on the date of
grant. Such options shall expire May 1, 2003, and shall not vest the first two
years from the date of such grant and shall vest 33.3% each year beginning May
1, 1999, and such options are otherwise subject to the terms, conditions and
provisions of the Stock Option Agreement attached hereto and incorporated herein
by reference. As of May 1, 2000, if Employee is still employed by the Company,
employee shall be granted additional options to purchase ten thousand (10,000)
shares of the common stock of Omega at an exercise price equal to the then fair
market value on the date of grant. Such options shall expire after six years,
shall not vest the first two years from the date
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of grant, and shall vest 1/3 each year beginning May 1, 2003, and such options
are otherwise subject to the terms conditions, and provisions of the standard
stock option agreement then used by Omega. In the event the Company terminates
Employee's employment not for cause, then all stock options previously granted
to Employee as of such date shall immediately vest in full.
D. Other Employee Benefits. Employee shall be entitled to term life
insurance payable by Employer on Employee's life in the amount of Two Hundred
and Fifty Thousand Dollars ($250,000), health insurance for Employee and his
family through a group health plan of Employer's selection, and an allowance not
to exceed One Thousand Dollars ($1,000.00) per year for premiums for disability
insurance on Employee. Employee shall be entitled to an allowance not to exceed
Twenty-Five Hundred Dollars ($2,500.00) per year for continuing education
expenses (including travel expenses and tuition), professional dues and
subscriptions.
4. EXPENSES. Company shall promptly reimburse Employee for all expenses
reasonably incurred by him in connection with his duties hereunder. In addition,
Company shall provide Employee with an automobile, and shall pay all reasonable
expenses of such automobile, including insurance, gasoline and maintenance
expenses. At the point where Employee must replace the current Company vehicle,
Company shall have the option of substituting additional compensation in lieu of
a replacement vehicle. Such increase in compensation shall be equal to the
reasonable value of a Company provided vehicle.
5. VACATION. Employee shall be entitled to three (3) weeks of vacation
per calendar year and up to one (1) week of unused vacation may be rolled over
to the following calendar years; however, Employee's vacation may never exceed
four (4) weeks per calendar year, and Employee may not be absent for more than
two (2) weeks at a time. Employee shall also be entitled to an allowance of one
(1) week per calendar year for continuing education purposes such as
professional conventions.
6. CHANGE OF CONTROL AND GOOD REASON FOR TERMINATION.
A. For purposes of this Agreement, a change in control of the Company
("Change in Control") shall be deemed to have occurred if (1) any "person" as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended ( the "Exchange Act"), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly of securities of the Company representing 33% or more of
the combined voting power of the Company's then outstanding securities
regardless of whether the Board shall have approved such Change in Control; or
(2) during any period of two consecutive years, individuals who at the beginning
of such period constitute the Board and any new director (other than a director
designated by a person who shall have entered into
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an agreement with the Company to effect a transaction described in clause (A)
(3) (i) and (ii) of this section) whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
or (3) stockholders of the Company approve (i) a merger or consolidation of the
Company with any other corporation regardless of which entity is the surviving
company, 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) at least 66 2/3% of the combined voting
power of the securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
B. For purposes of this Agreement, "Good Reason" shall mean, that
without Employee's express written consent, any of the following circumstances
occur, unless such circumstances are fully corrected prior to the date of
termination specified in any notice of termination given in respect thereof:
(1) assignment to Employee of any duties inconsistent with his
current status as an executive officer of the Company or a substantial
adverse alteration in the nature or status of Employee's
responsibilities from those in effect immediately following execution
of this Agreement;
(2) reduction by the Company in Employee's Base Salary in
effect on the date hereof or as the same may be increased from time to
time, except for across-the-board salary reductions similarly affecting
all Company executives and all executives of any person in control of
Company;
(3) requiring Employee to be based anywhere other than the
location of Company's principal executive office, except for travel on
Company's business to an extent substantially consistent with
Employee's present business travel obligations;
(4) failure by Company, without Employee's consent, to pay
Employee any portion of Employee's compensation, except pursuant to an
across-the-board compensation deferral similarly affecting all Company
executives and all executives of any person in control of the Company,
or to pay Employee any portion of an installment of deferred
compensation under any Company deferred compensation program, within
thirty (30) days of the date such compensation is due;
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(5) failure by the Company to continue in effect any
compensation plan in which Employee is participating which is material
to Employee's total compensation, unless an equitable arrangement has
been made with respect to such plan, or failure by the Company to
continue Employee's participation therein on a basis not materially
less favorable, both in terms of the amount of benefits provided and
the level of Employee's participation relative to other participants;
(6) action by Company which would deprive Employee of any
material fringe benefit enjoyed by Employee; or
(7) failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement.
7. TERMINATION AND SEVERANCE PAYMENT.
A. Severance Payment. Upon termination of Employee's employment
hereunder (i) by Employee for Good Reason, or (ii) by Employer prior to May 1,
2000 for other than Cause as described in Paragraph B of this Section, or (iii)
by Employee within twelve months of a Change in Control, then (a) not later than
ninety (90) days after such termination, the Company will pay the Employee a
cash severance payment ("Lump Sum Severance Payment") of one times the
Employee's Base Salary for the final year of employment under this Agreement,
and (b) the stock options previously granted to Employee as of such date shall
immediately vest in full.
B. Termination for Cause. Company may discharge Employee for Cause
immediately, at any time by a written notice specifying the effective date of
and reason for termination ("Notice of Termination"). In that event, Employee
shall not be eligible for either the Lump Sum Severance Payment, the Continuing
Base Salary Payments, or immediate vesting of stock options. "Cause" is not
intended to include disagreements over management philosophy or other such
intangibles. As used herein, "Cause" shall include, but not be limited to, the
following:
(1) Material violation by Employee of any of the terms of this
Agreement; or
(2) Willful and continued failure or gross negligence of
Employee materially to perform his duties with the Company (other than
due to physical or mental illness), provided that Employee has received
a written notice of same from the Board of Directors specifically
identifying the manner in which the Board of Directors believes
Employee has engaged in such failure or misconduct, approved by
two-thirds of the Directors entitled to vote thereon, and the Employee
continues to engage in such conduct after ten (10) days following
receipt of such notice; or
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(3) Conviction of or guilty plea by Employee to committing a
felony or an act of moral turpitude or any similar act; or
(4) Conversion or misappropriation by Employee of any
monies or other property of the Company as determined by the Board of
Directors; or
(5) Employee's habitual use of illegal drugs or Employee's
drug or alcohol addiction, such that such use or addiction
significantly interferes with Employee's performance of his duties and
such activity cannot be reasonably accommodated as required by the
California Fair Employment and Housing Act and the California Labor
Code.
C. Voluntary Resignation. Employee shall be entitled to terminate his
employment by voluntary resignation given in writing as permitted by the third
sentence of Paragraph 1 hereof or at any time for Good Reason or in the event of
a Change in Control. Such resignation shall not be deemed a breach of any
employment contract between Employee and the Company. Notice of such resignation
shall specify a date Employee's employment will terminate, not less than one
hundred twenty (120) days in the future, and shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Employee's employment under the provision so indicated.
D. Death. If Employee dies during his employment, Employee's
beneficiaries shall be paid:
(1) the Base Salary which would otherwise have been payable to
Employee up to the end of the month in which death occurred; and
(2) any employee benefit payment pro rata to the end of the
month in which death occurred, based on the percentage of the fiscal
year for which Employee was compensated at Base Salary, payable on the
date such benefits are normally paid.
In addition, any options then granted to Employee but not vested shall
vest in full and may be exercised by Employee's estate within ninety (90) days
of the date of death.
E. Retirement. "Retirement" shall mean termination of employment at age
65 (or later) with ten (10) years of service or retirement in accordance with
any retirement contract between Company and Employee.
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F. Disability. "Disability" shall mean an illness, injury or physical
or mental condition of the Employee which results in the Employee's inability to
substantially perform the material duties and responsibilities required of his
position under this Agreement, with reasonable accommodation from the Company,
for a period of one hundred twenty (120) consecutive days or for any one hundred
fifty (150) days during any twelve-month period during the term of the
Agreement.
G. In the event this Agreement is terminated under Paragraph B of this
Section 7, or pursuant to the third sentence of Section 1 hereof, the parties
shall immediately institute the Contractor's Agreement, attached hereto as
Exhibit B and incorporated herein. The Contractor's Agreement shall continue for
a period of time equal to the remaining portion of the five year term of this
Agreement.
8. PROTECTION OF COMPANY'S ASSETS.
A. Confidential Information. "Confidential Information" means all
information, data, knowledge and secrets whether developed or originated by,
disclosed to or acquired by Employee as a consequence of his employment by the
Company, relating to the Company, its affiliates and subsidiaries, not generally
known in the industry in which the Company is or may become engaged, relating to
the Company's trade secrets, software, financial information, customers,
products, techniques, processes and services, including information relating to
research, development, invention, manufacture, purchasing, accounting,
engineering, marketing, merchandising and selling.
B. Fiduciary Capacity. Employee shall hold in a fiduciary capacity for
the benefit of the Company all Confidential Information.
C. Return of Property Upon Termination. Upon termination of employment
for any reason, Employee shall return to the Company all property of the
Company, including but not limited to customer lists, records, software,
documents, notes, tapes and other repositories of Confidential Information in
the possession of Employee; whether prepared by Employee or by others, including
copies thereof. Employee shall be responsible for any property loss or damage
suffered by the Company due to delay in the return of such property. Employee
represents and warrants that he shall not use any of the aforesaid items in any
future business with which he shall become involved as an employee or otherwise.
D. Remedies. Employee acknowledges and agrees that a breach of any of
the preceding covenants of this Section 8 would cause Company irreparable harm
for which a remedy at law would be inadequate and that, Company shall be
entitled to an injunction restraining Employee from the actions constituting
such breach and that Company also may pursue any other remedies against
Employee, including the recovery of damages.
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E. All references in this Agreement to "confidential" information,
records or the like shall include the following:
"Confidential Information" means proprietary techniques and
confidential information that the Company has or will develop,
compile, or own, or that the Company receives under conditions
of confidentiality. Confidential Information includes not only
information disclosed by the Company (including its employees,
agents, and independent contractors) or its Clients to
Employee in the course of employment, but also information
(including Inventions) developed or learned by Employee during
the course of employment with the Company. Confidential
Information is to be broadly defined and includes (i) all
information that has or could have commercial value or other
utility in the business in which the Company or clients are
engaged or in which they contemplate engaging and (ii) all
information that, if disclosed without authorization, could be
detrimental to the interest of the Company or clients, whether
or not such information is identified as Confidential
Information by the Company or Clients. By example and without
limitation, Confidential Information includes all information
on forms and substance of reports, teaching techniques,
processes,, formulas, trade secrets, inventions, discoveries,
improvements, research or development data, know-how, formats,
marketing plans, business plans, strategies, forecasts,
unpublished.
9. WAIVER. A waiver or indulgence by Company of a breach of any
provision of this Agreement of Employee shall not operate or be construed as a
waiver of any subsequent breach by Employee.
10. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall in no way affect the validity or enforceability of any
other provision.
11. MODIFICATION. This Agreement may be modified or amended only by an
instrument in writing signed by both Company and Employee.
12. CHOICE OF LAW. The validity, interpretation and construction of
this Agreement shall be governed by the laws of the State of California without
giving effect to any choice or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of California.
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13. ARBITRATION. Except as noted hereafter, any controversy or claim
arising out of or relating to this Agreement, or its breach, shall be settled by
arbitration in Walnut Creek, California, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction; provided, however, that Employee shall be entitled to seek
specific performance of Employee's right to be paid until the date of
termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
Within thirty (30) days after submission of a demand for
arbitration, Employee and the Company shall select one arbitrator, agreeable to
all parties. This arbitrator will be selected from lists prepared by the
American Arbitration Association. From the American Arbitration Association
list, the parties will submit to the American Arbitration Association a ranked
list of acceptable arbitrators. The highest ranking acceptable candidate will
be selected by the American Arbitration Association. If no arbitrators from the
list composed by the American Arbitration Association are acceptable by either
of the parties, the American Arbitration Association will compile a second
list. This procedure will be followed until the parties have selected an
arbitrator. The results of the arbitrator's finding will be binding on the
parties.
The arbitration provisions in this Agreement shall not apply to a
suit for injunctive relief instituted by the Company to enforce Section 8 of
this Agreement.
14. SURVIVAL AND BINDING EFFECT.
A. The rights and obligations of the parties hereto shall inure to the
benefit of and shall be binding upon their heirs, executors, administrators,
successors, and permitted assigns.
B. The covenants contained in Sections 7, 8, and 13 of this Agreement
shall be construed as independent of any other agreements between the parties
and shall survive termination of employment.
C. The existence of any claim or action of Employee against Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Company of such covenants. Further, the existence
of any claim or cause of action of Company against Employee, whether predicated
on this Agreement or otherwise, shall not constitute justification of
non-payment of the benefits provided hereby.
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IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the day and year above first written.
COMPANY:
PRIMARY EYECARE NETWORK, INC.
By:
-------------------------
Thomas P. Lewis, Chairman
EMPLOYEE:
-----------------------------
ALLEN LECK
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Exhibit 10(ab)
CONSULTING SERVICES AGREEMENT
THIS AGREEMENT is entered as of the August 8, 1997 (the "Effective
Date"), by and between the party of the first part, consisting of OMEGA HEALTH
SYSTEMS, INC., a Delaware business corporation ("Omega") and DAVID DILLMAN,
M.D. ("Dr. Dillman") an individual residing in the State of Illinois.
WITNESSETH
WHEREAS, Omega requires the services of an individual who is
knowledgeable and experienced in the professional practice of ophthalmology to
serve as Omega's National Medical Director;
WHEREAS, Omega wishes to engage Dr. Dillman as Omega's National
Medical Director; and
WHEREAS, Dr. Dillman wishes to be so engaged;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual promises and covenants hereinafter set forth the parties agree as
follows:
1. SCOPE OF ENGAGEMENT
1.1. MEDICAL DIRECTOR SERVICES. (a) Dr. Dillman agrees to
serve as Omega's National Medical Director. The
duties of the National Medical Director shall be to
assist, on an as-needed basis, in the medical
management and administration of Omega's business,
including but not limited to:
(1) acting as liaison between Omega and
professionals practicing within the Omega
Health System;
(2) establishing, in conjunction with Omega
management and representatives of
professionals practicing within the Omega
Health Systems, protocol, criteria, sand
standards for utilization management and
quality assurance of services provided by
such professionals;
(3) credentialing and peer review; and
(4) coordinating all professional and allied
health services provided within the Omega
Health System.
No part of the duties of Dr. Dillman as Medical Director shall include the
delivery of professional medical services to patients.
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1.1(b). The parties agree that the compensation for services
provided herein is based on a total of 24 days per
year. The parties will re-evaluate the compensation
level if this amount of time proves to be
unsatisfactory.
1.2 SCHEDULING. Subject to specific time commitments
specified above, the parties understand and agree
that Dr. Dillman is to perform services under this
Agreement on a part-time, as-is needed basis, with
no schedule of fixed or definite hours. Dr.
Dillman's availability to provide services under
this Agreement shall be jointly determined from time
to time by Omega and Dr. Dillman, and shall
accommodate the reasonable needs of System in
obtaining the services called for under this
Agreement. All services of Dr. Dillman called for
under this Agreement shall be performed by Dr.
Dillman, or such other duly qualified professional
employee as shall be approved by Omega in its sole
discretion.
2. COMPENSATION FOR SERVICES AND PAYMENT OF EXPENSES.
2.1 DIRECT COMPENSATION. As direct compensation for
services provided by Dr. Dillman under this
Agreement; Omega shall pay to Dr. Dillman the sum of
$50,000 per year. Such amount shall be payable in
monthly increments on the first day of each month
during the term of this Agreement.
2.2. PAYMENT OF EXPENSES. In addition to the foregoing,
Dr. Dillman shall be entitled to reimbursement from
Omega for ordinary and necessary business expenses
reasonably incurred by Dr. Dillman in performing the
services called for under this Agreement.
Reimbursable expenses shall include, but shall not
be limited to: long distance telephone calls;
photocopies; facsimile transmissions; delivery and
courier services; travel expenditures for air fare,
car expenses related to business use on a lease or
mileage basis, servicing and use expenses; meals,
lodging. All Reimbursement requests shall be
accompanied by appropriate receipts.
2.3. EMPLOYMENT-RELATED TAXES AND EXPENSES. Omega shall
bear no responsibility for any taxes or expense
which may arise out of the relationship between the
parties under this Agreement, including but not
limited to the taxes imposed by the Federal
Insurance Contribution Act (FICA), the Federal
Unemployment Tax Act (FUTA), Federal income tax
withholding, worker's compensation insurance, or any
other employment-related tax or expense. Such taxes
and expenses, to the extent applicable, shall be the
sole responsibility of Dr. Dillman.
2.4. NAME AND ADDRESS OF PAYEE. The benefits conferred on
Dr. Dillman under this Agreement shall be paid or
delivered, at the address provided at the end of
this Agreement for notices to be sent, or such other
address as may be provided by Dr. Dillman to Omega
by proper written notice under this Agreement.
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3. TERM AND TERMINATION.
3.1. TERM. The initial term of this Agreement shall be
from September 1, 1997 through September 1, 2002.
This Agreement shall renew automatically for one
year terms thereafter. This Agreement may be
terminated by either party for any reason with 120
days written notice of termination.
4. INSURANCE.
Omega shall maintain throughout the term of this Agreement, at its
sole expense, comprehensive professional and general liability insurance
coverage for itself and its officers, directors, employees and agents,
including National Medical Director. Such general liability insurance coverage
shall be provided in the amount of not less than one million dollars
($1,000,000.00), combined single limit. Such professional liability insurance
coverage shall be provided in the amount of not less than three million dollars
($3,000,000.00) per occurrence, five million dollars ($5,000,000.00) annual
aggregate.
5. CONFIDENTIALITY OF PROPRIETARY AND PATIENT INFORMATION.
5.1. Proprietary Information. (a) "Proprietary
Information" as that term is used in this Agreement,
shall be understood to refer to any and all
information regarding the business, assets,
patients, technology, know how, or trade secrets of
Omega or its affiliates, including but not limited
to clinical, pricing information, financial and
budgeting information, and other information
relating to the business of Omega or its affiliates,
whether now existing or hereafter developed.
(b) Omega acknowledges and agrees that any and all
Proprietary Information that has been or is
hereafter obtained by Dr. Dillman in carrying out
the terms of this Agreement shall be held in
confidence and shall not be disclosed by Consolation
except to Omega, its affiliates, and their agonies
or employees in the proper course of its engagement
hereunder or with the express written permission of
Omega, unless such information was at the time of
the disclosure: (1) information relating to a
patient with whom Dr. Dillman has established a
physician-patient relationship under Section 2.1 of
this Agreement, in which case such disclosure shall
be strictly limited in scope and content to that
which necessary an appropriate according to Dr.
Dillman's sound medical judgment and permitted by
law; (2) generally available from public or
published sources, provided that publication did not
take place in violation of this Agreement or through
the error or omission of Dr. Dillman; (3) lawfully
obtained from a source under no obligation of
confidentiality to Omega or Dr. Dillman; (4)
previously disclosed to the public with the written
approval of Omega; or (5) required to be disclosed
pursuant to public law, in which case such
disclosure shall be strictly limited in scope and
content to that which is required by law.
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(c) Upon termination of this Agreement, Dr. Dillman shall
promptly deliver to Omega all documents, files, data or other
materials belonging to Omega or otherwise relating to the
operations and business of Omega.
(d) The provisions of this Section 5.1 shall survive termination
of this Agreement for any reason.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the day and year first written above.
"Omega" "Dr. Dillman"
OMEGA HEALTH SYSTEMS, INC. DAVID DILLMAN, M.D.
By: By:
------------------------ --------------------------
Thomas P. Lewis David Dillman, M.D.
DATE: DATE:
----------------------- -------------------------
Address for notices to be sent: Address for notices to be sent:
Omega Health Systems, Inc. Dillman Eye Care
Attention: Mr. Thomas P. Lewis Attention: Dr. David Dillman
5100 Poplar Ave., Ste. 2100 600 N. Logan
Memphis, TN 38137 Danville, IL 61832
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Exhibit 24(a)
KPMG Peat Marwick LLP
The Board of Directors
Omega Health Systems, Inc.:
We consent to the use of our reports included herein and to reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Memphis, Tennessee
October 24, 1997
