UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 2, 1997
OMEGA HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-19283
(Commission File Number)
63-0858713
(I.R.S. Employer Identification No.)
5100 Poplar Avenue, Suite 2100, Memphis, Tennessee 38137
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 901-683-7868
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
-1-
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Acquisition or Disposition of Assets.
On May 2, 1997, Omega Health Systems of Indiana , Inc. (Omega-Indiana) , a
wholly-owned subsidiary of the Registrant, merged with Faust Eye Center, P.C.,
an Indiana professional corporation which had practiced ophthalmology.
Subsequent to the merger, Omega-Indiana entered into a long-term management
agreement with a new professional corporation owned by Joseph Faust, M.D. to
carry on the practice formerly conducted by Faust Eye Center, P.C. The
consideration for the merger consisted of 169,000 shares of the Registrant's
common stock and cash of approximately $460,000.
Also on May 2, 1997, Omega-Indiana and Outpatient Surgery Center of Indiana,
Inc.(OSCII), an Indiana corporation owned by Dr. Faust, formed an Indiana
limited liability partnership. In connection with the formation of the LLP,
Omega-Indiana contributed $1,241,000 in cash and OSCII contributed the assets of
its surgery center with an agreed upon value of $2,481,000. The Partnership then
made a distribution to OSCII equal to $1,241,000. After these transactions,
Omega-Indiana owns a 50% interest in the LLP and OSCII owns a 50% interest.
Omega-Indiana is managing partner under the terms of the partnership agreement.
On May 2, 1997, Omega Acquisition Subsidiary, Inc. (OASI), a wholly-owned
subsidiary of the Registrant, completed a merger with Primary Eyecare Network
(PEN) and P.E.N. Resources, Inc. (Resources). PEN and Resources provide products
and services to independent optometrists, enhancing their ability to practice
successfully in a competitive eye care marketplace. The consideration for the
merger consisted of $1.9 million in cash and 195,000 shares of the Registrant's
common stock.
The Registrant financed the cash portion of these transactions with borrowings
under its Revolving Credit Facility with NationsCredit Commercial Corporation
Item 2. Financial Statements and Exhibits.
(a) Financial Statements of the Business Acquired and Pro Forma
Financial Statements
To be filed by amendment within 60 days of the date that this
report is due.
(b) Exhibits
2.1 Press Release dated May 6 , 1997
2.2 Press Release dated May 5, 1997
2.3 Merger Agreement by and among Faust Eye Center, P.C., Omega Health
Systems of Indiana, Inc., Omega Health Systems, Inc. and Joseph
Faust, M.D.
2.4 Partnership Agreement of Outpatient Surgery Center of Indiana, LLP
2.5 Merger Agreement by and between Leonard Osias, O.D., Irene Osias,
both as Trustees of the Osias Family Trust dated August 18, 1988,
Primary Eyecare Network, P.E.N. Resources, Inc., Omega Health
Systems, Inc. and Omega Acquisition Subsidiary, Inc.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMEGA HEALTH SYSTEMS, INC.
Date: May 16, 1997 By: /S/ RONALD L. EDMONDS
-----------------------
Ronald L. Edmonds
Executive Vice President and
Chief Financial Officer
-3-
EXHIBIT 2.1
-----------
OMEGA COMPLETES ADDITION OF
FAUST-GELVIN EYE CENTER IN INDIANA
Memphis, Tenn - May 6, 1997 - Omega Health Systems, Inc. (Nasdaq: OHSI) today
announced that it has completed the acquisition of the assets of the
ophthalmology practice of Joseph F. Faust, MD, known as Faust-Gelvin Eye Center
and a 50% interest in the associated ambulatory surgery center. Omega also
entered into long-term agreements to manage both the practice and surgery
center. The Faust-Gelvin Eye Center has offices in Marion, Indiana and Fort
Wayne, Indiana. The ambulatory surgery center is located in Marion.
Dr. Faust is board-certified in ophthalmology. He received his medical degree
from Indiana University in 1977 and completed his residency in ophthalmology in
1981. He is a fellow of the American Academy of Surgeons and is board-certified
in ophthalmology. Three doctors associated with the practice, John Gelvin, O.D.,
Karen Skurner, O.D. and Dr. Faust are all adjunct assistant professors of the
Indiana University School of Optometry.
The practice and the ambulatory surgery center had combined revenues of
approximately $2.7 million in 1996. In connection with the transactions, Omega
issued 169,000 shares of its common stock and paid $1.7 million in cash. The
transaction will be accounted for as a purchase.
Thomas P. Lewis, president and chief executive officer of Omega, commented on
the addition of the Faust practice, "We are delighted to have added this large
successful practice to the Omega network. This practice is an excellent fit as
we expand in the Midwest. This is the fourth acquisition we have completed in
1997. We now have practices in 16 markets with 78 points of service and five
ambulatory surgery centers. These practices are staffed by 37 ophthalmologists
and 31 optometrists."
Omega Health Systems is an integrated eye care services company providing a full
range of services to optometry and ophthalmology practices, including management
services, managed care programs, purchasing and marketing services and practice
acquisition opportunities. Additional information about Omega can be found on
the world wide web at www.omegahealth.com.
-4-
EXHIBIT 2.2
-----------
OMEGA COMPLETES MERGER WITH
PRIMARY EYECARE NETWORK
MEMPHIS, Tenn., May 5 -- Omega Health Systems, Inc. (Nasdaq: OHSI) today
announced that it has completed a merger with Primary Eyecare Network.
Primary Eyecare Network (PEN), based in San Ramon, California, provides products
and services to independent optometrists, enhancing their ability to practice
successfully in a competitive eye care marketplace. These support services
include management, purchasing, education, training and publications. PEN, which
was founded by Leonard Osias, OD, FAAO, in 1984, currently provides services to
over 1,000 optometrists with over 700 practice locations and had revenues of
approximately $36 million in 1996. In connection with the merger, Omega issued
195,000 shares of its common stock to the shareholders of PEN and paid $1.9
million in cash. PEN will be operated as a subsidiary under the leadership of
its president, Allen Leck.
Thomas P. Lewis, president and chief executive officer of Omega, commented on
the merger with PEN, "With the PEN transaction and the other acquisitions we
have completed to date, our revenue run rate is now over $86 million, double our
1996 revenues. The merger with PEN adds another important dimension to Omega
Health Systems and we believe it will help lead our future growth. It is good
cultural fit and allows us to strengthen our relationship with optometry by
providing optometric practices with high quality management services. PEN will
have access to the resources of the entire Omega organization to provide
additional services to its member practices."
Omega Health Systems is an integrated eye care services company providing a full
range of services to optometry and ophthalmology practices, including management
services, managed care programs, purchasing and marketing services and practice
acquisition opportunities. Additional information about Omega can be found on
the World Wide Web at www.omegahealth.com.
-5-
EXHIBIT 2.3
-----------
MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT ("Agreement") is entered into as of the 1st day of
May, 1997, by and among FAUST EYE CENTER, P.C. an Indiana professional
corporation (the "Corporation"); OMEGA HEALTH SYSTEMS OF INDIANA, INC., an
Indiana corporation ("Omega"); OMEGA HEALTH SYSTEMS, INC., a Delaware
corporation ("OHSI") and JOSEPH FAUST, M.D., a citizen and resident of Indiana
("Stockholder").
W I T N E S S E T H:
WHEREAS, Corporation is an Indiana 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 Indiana;
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 (beta) 368(a)(1)(A) and (beta) 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:
ARTICLE I.
----------
MERGER TRANSACTION
I.1 BASIC TRANSACTION (a) Subject to the terms and conditions of this
Agreement, at the closing (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 23-1-40, ET SEQ. of the Indiana Bus. Corp. Law (IBCL) as amended. By
-6-
<PAGE>
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 IBCL.
(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 IBCL to be properly executed, verified and delivered for filing in
accordance with the IBCL 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 Indiana 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.
(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 Health
Systems of Indiana, Inc. (the "Omega Stock") issued and outstanding at
and as of the Closing will remain issued and outstanding.
ARTICLE II.
-----------
CONSIDERATION
-------------
II.1 CONSIDERATION. As consideration for the Merger, all shares of common
stock of Corporation shall, without further action on the part of Stockholder,
-7-
<PAGE>
be exchanged (a) for cash in an amount determined by the following calculation:
(i) from the agreed upon base amount of $427,600 (ii) add an amount equal to
$150,000.00 representing the 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 that exceeds $175,000, and (b) for shares of voting
common stock of OHSI (the "OHSI Stock") valued at One Million One Hundred Twelve
Thousand Four Hundred Dollars ($1,112,400) 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 April 25, 1997; provided, however, the value of the OHSI Stock shall not in
any event exceed Seven Dollars ($7.00) per share. 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 March 31, 1997, is to be adjusted on or before October
1, 1997, positively or negatively, for the actual collected amount of the April
30, 1997 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 March 31, 1997, is to be adjusted on or before July
1, 1997, positively or negatively, for the actual amount of such accounts
payable and other liabilities of the Corporation as of April 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 efforts in
good faith to collect the Purchased Accounts Receivable prior to October 1,
1997. Any cash payment made by OHSI shall be an advance to Omega and shall be
represented by a note in the same form as set out in the paragraph below.
As a part of the Consideration above, at the Closing the Surviving
Corporation shall give and deliver to OHSI a promissory note in the amount of
$175,000 in the form of Exhibit 2.1 attached hereto, and the principal and
interest payments on such note shall be a Direct Operating Expense of the Center
as such terms are defined in and pursuant to the Management Agreement of even
date between Omega and Referral Eye Center, P.C., an Indiana professional
corporation.
II.2 TAX REPORTING. The Merger shall constitute a reorganization under
I.R.C. (beta) 368(a)(1)(A) and I.R.C. (beta) 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.
-8-
<PAGE>
II.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.
II.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 April 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
--------------------------------------------
IV.1 BY STOCKHOLDER OR CORPORATIONBY 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 IBCL 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.
-9-
<PAGE>
(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.
(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.
(g) A signed Contract of Employment for Center Director between John
Gelvin, O.D. and Omega as contemplated by Section 3.11 of the Management
Agreement between Omega and Referral Eye Center, P.C. dated as of May 1, 1997.
IV.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 IBCL 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.
IV.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.
-10-
<PAGE>
(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 necessary to
operate its 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 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.
IV.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.
-11-
<PAGE>
(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:
V.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.
V.2 EXISTENCE AND GOOD STANDING. Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Indiana. Corporation has the power to own its property and to carry on its
business as now being conducted. Indiana 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.
V.3 CAPITAL STOCK. Corporation has an authorized capitalization consisting
of one thousand (1,000) shares of common stock, no par value, of which one
hundred (100) shares 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.
-12-
<PAGE>
V.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.
V.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. Corporation has
heretofore furnished Omega with unaudited financial statements dated December
31, 1995 and 1996, and unaudited financial statements of Dr. Faust's
ophthalmology practice (then operated as a sole proprietorship) dated December
31, 1994, 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.
V.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 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.
V.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
-13-
<PAGE>
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.
V.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) 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.
V.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. Upon completion of the Merger, the Surviving
Corporation shall own the Practice Assets of the Corporation free and clear of
all liens and encumbrances.
V.10 ACCOUNTS RECEIVABLE. Schedule 5.10.1 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. Faust P.C. 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 Faust P.C.'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, 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 threatened) set-off, counter claim, defense, abatement, suspension,
-14-
<PAGE>
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. The Accounts Receivable in the aggregate 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 in the aggregate constitute
a material reduction in the Purchased Accounts Receivable. For purposes of this
Section 5.10 "material" shall be any amount exceeding ten percent (10%) of
agreed value of the Purchased Accounts Receivable set forth in Section 2.1(ii)
of this Agreement.
V.11 LITIGATIONLITIGATION. Except as listed on SCHEDULE 5.11, 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 Corporation, or any of its Practice Assets, or any physician or
other health care professional associated with or employed by the Corporation,
and to the best of Stockholder's knowledge there is no basis for any of the
foregoing.
V.12 PERMITS AND LICENSES. To the best of Corporation's and Stockholder's
knowledge, Corporation and all physicians and other health care professionals
associated with or 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.
V.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
-15-
<PAGE>
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.
V.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.
V.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.
-16-
<PAGE>
(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.
(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.
V.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.
V.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 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.
-17-
<PAGE>
V.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.
V.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 pay, as well
as any severance pay becoming due as a result of the termination of certain of
Corporation's employees.
V.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.
V.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. (beta) 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
-18-
<PAGE>
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.
V.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 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.
V.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.
V.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.
V.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.
V.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.
-19-
<PAGE>
V.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 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).
V.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 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.
ARTICLE VI.
-----------
REPRESENTATIONS AND WARRANTIES OF OMEGA AND OHSI
------------------------------------------------
Omega and OHSI represent, warrant, covenant and agree with Corporation and
Stockholder as follows:
VI.1 ORGANIZATION. Omega is a corporation duly organized, validly existing
and in good standing under the laws of the State of Indiana. 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.
VI.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,
-20-
<PAGE>
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.
VI.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.
VI.4 SHARES. Upon delivery of the certificates representing ownership of
the OHSI Stock, such OHSI Stock will be fully paid and nonassessable.
VI.5 OMEGA HEALTH SYSTEMS, INC. Omega is a wholly-owned subsidiary of
OHSI.
VI.6 FRAUD AND ABUSE. Neither OHSI nor Omega has engaged in any activities
which are prohibited under (beta) 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
---------------------------
VII.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.
-21-
<PAGE>
VII.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.
VII.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.
ARTICLE VIII.
------------
TRANSFERS AND FURTHER ASSURANCESS
---------------------------------
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
------------------------
IX.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,
-22-
<PAGE>
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.
Notwithstanding the foregoing, the liability of Corporation and
Stockholder, in the aggregate, under this Section 9.1 shall not exceed Two
Million Two Hundred Thousand ($2,200,000) Dollars. Also, the indemnity
obligations of Corporation and Stockholder shall not take effect until the
aggregate amount of such obligations exceeds Fifty thousand Dollars ($50,000),
at which time such indemnity obligations may be pursued for the initial $50,000,
plus any amounts exceeding $50,000.
IX.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
-23-
<PAGE>
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.
IX.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
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.
IX.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 May 1, 1997, by and among Omega, OHSI, and
Stockholder.
-24-
<PAGE>
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 its obligation, if any, for such
expenses.
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.
-25-
<PAGE>
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.
------------
This section left blank intentionally.
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 in any case addressed as follows:
If to Omega or OHSI: Omega Health Systems of
Indiana, Inc.
5100 Poplar Avenue, Suite 2100
Memphis, Tennessee 38137
Attn: Thomas P. Lewis
-26-
<PAGE>
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: Joseph Faust, M.D.
Faust Eye Center, P.C.
711 Gardner Drive
Marion, Indiana 46952
with a copy to: Mr. Charles A. Cohen
Mantel, Cohen, Garelick,
Reiswerg & Fishman, P.C.
Suite 800, Keystone Crossing
8888 Keystone Crossing Blvd. Plaza
Indianapolis, Indiana 46240-4636
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; 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.
-27-
<PAGE>
ARTICLE XVII.
-------------
EMPLOYEES - EMPLOYEE BENEFITS
-----------------------------
XVII.1 AFFECTED EMPLOYEES. "Affected Employees" shall mean employees, a
list of which is attached hereto as Schedule 17.1, of Corporation on the Closing
Date.
XVII.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.
XVII.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.
XVII.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 (beta)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.
-28-
<PAGE>
ARTICLE XVIII.
--------------
MISCELLANEOUS
-------------
XVIII.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 Agreement or the transactions contemplated hereby, without the
prior written consent of Omega.
XVIII.2 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto, their successors and assigns.
XVIII.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.
XVIII.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana. Any mediation or
binding arbitration with respect to this Agreement shall be conducted in Grant
County, Indiana.
XVIII.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.
XVIII.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.
XVIII.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.
XVIII.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.
XVIII.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.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year hereinabove first set forth.
CORPORATION: OMEGA:
FAUST EYE CENTER, P.C. OMEGA HEALTH SYSTEMS OF
INDIANA, INC.
By: By:
----------------------------------- ----------------------------------
Joseph Faust, M.D., President Ronald L. Edmonds, Executive
Vice President
OHSI:
STOCKHOLDER: OMEGA HEALTH SYSTEMS, INC.
By:
----------------------------------
Joseph Faust, M.D. Ronald L. Edmonds, Executive
Vice President
-30-
EXHIBIT 2.4
-----------
PARTNERSHIP AGREEMENT
OF
OUTPATIENT SURGERY CENTER OF INDIANA, LLP
-----------------------------------------
OMEGA HEALTH SYSTEMS OF INDIANA, INC., an Indiana corporation ("Omega"),
and THE OUTPATIENT SURGERY CENTER OF INDIANA, INC., an Indiana corporation
("OSCI") (Omega and OSCI are sometimes hereinafter collectively referred to as
the "Partners" and individually referred to as a "Partner"), hereby form an
Indiana limited liability partnership by entering into this Partnership
Agreement of OUTPATIENT SURGERY CENTER OF INDIANA, LLP, dated to be effective as
of May 1, 1997.
ARTICLE I - DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms shall, for purposes of this Agreement, have the meanings designated in
this ARTICLE I:
Section I.1 ACT. The term "Act" shall mean: the Uniform Partnership Act,
Indiana Code Section 23-4-1-1 et seq., as from time to time amended.
Section I.2 AFFILIATE. The term "Affiliate" shall mean: any Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with another Person
Section I.3 AGREEMENT. The term "Agreement" shall mean: this Limited
Liability Partnership Agreement of Outpatient Surgery Center of Indiana, LLP, as
originally executed and as subsequently amended from time to time.
Section I.4 BANKRUPTCY. The term "Bankruptcy" shall mean: bankruptcy under
the Federal Bankruptcy Code or insolvency under any state insolvency act.
Section I.5 BUSINESS DAY. The term "Business Day" shall mean: any day
other than a Saturday, Sunday and those legal public holidays specified in
U.S.C. (beta) 6103(a), as amended from time to time.
Section I.6 CAPITAL ACCOUNT. The term "Capital Account" shall mean: the
Capital Account maintained for each Partner pursuant to SECTION 6.5 of this
Agreement.
Section I.7 CAPITAL CONTRIBUTION. The term "Capital Contribution" shall
mean: the total amount of cash or property contributed to the Partnership by all
the Partners or any one Partner, as the case may be.
-31-
<PAGE>
Section I.8 CODE. The term "Code" shall mean: the Internal Revenue Code of
1986, as it has been and may be amended.
Section I.9 INTEREST. The term "Interest" shall mean: all rights and
interests of a Partner under this Agreement and the Act, including (i) the right
of a Partner, expressed as a percentage in SECTION 6.3A, to receive
distributions of revenues, allocations of income and loss and distributions of
liquidation proceeds under this Agreement, and (ii) all management rights,
voting rights or rights to consent.
Section I.10 MANAGING PARTNER. The term "Managing Partner" shall mean
Omega until such time, if any, as the Partners designate another Partner as
such.
Section I.11 OMEGA. The term "Omega" shall mean: Omega Health Systems of
Indiana, Inc., an Indiana corporation, which is one of the Partners under this
Agreement.
Section I.12 NOTIFICATION. The term "Notification" shall mean: a writing
containing any information required by this Agreement to be communicated to any
Person, which may be personally delivered, sent by registered or certified mail,
postage prepaid, to such Person, at the last known address of such Person on the
Partnership records. Any such Notification shall be deemed to be given (i) when
delivered, in the case of personal delivery, and (ii) on the earlier of actual
receipt by the addressee or three (3) days following the date on which it is
deposited in a regularly maintained receptacle for the deposit of United States
mail, addressed and sent as aforesaid, in the case of mail. Any communication
containing information sent to any Person other than as required by the
foregoing sentences, but which is actually received by such Person, shall
constitute Notification as of the date of such receipt for all purposes of this
Agreement.
Section I.13 PARTNERS. The term "Partners" shall mean: at any time, the
Persons who then own Interests in the Partnership. The initial Partners are:
Omega and OSCI.
Section I.14 PARTNERSHIP. The term "Partnership" shall mean: Outpatient
Surgery Center of Indiana, LLP, an Indiana limited liability partnership, as
said limited liability partnership may from time to time be constituted.
Section I.15 PARTNERSHIP PROPERTY OR PROPERTIES. The term "Partnership
Property" and the term "Partnership Properties" shall mean: all interests,
properties and rights of any type owned by the Partnership, whether owned by the
Partnership at the date of its formation or thereafter acquired.
Section I.16 PERSON. The term "Person" shall mean: Any natural person,
limited liability company, limited liability partnership, general partnership,
limited partnership, corporation, joint venture, trust, business trust,
cooperative or association.
-32-
<PAGE>
Section I.17 OSCI. The term "OSCI" shall mean: The Outpatient Surgery
Center of Indiana, Inc., an Indiana corporation, which is one of the Partners
under this Agreement.
Section I.18 TRANSFER. The term "Transfer" shall mean: Any change in the
record ownership of an Interest, whether made voluntarily or involuntarily by
operation of law, including, but not limited to, the following:
A. a sale or gift to any Person;
B. if a Partner of the Partnership is an individual, a transfer to
the personal representative of the estate of such individual upon such
individual's death, and any subsequent transfer from such personal
representative to the heirs or devisees of the deceased individual under
such individual's will or by the applicable laws of descent and
distribution;
C. if a Partner of the Partnership is an individual, a transfer to a
judicially appointed personal representative as a result of the
adjudication by a court of competent jurisdiction that the transferor
individual is mentally incompetent to manage his person or property;
D. if a Partner of the Partnership is an individual, a transfer, to
the extent permitted by law, to the transferor individual's spouse or
former spouse, or heirs of such spouse or former spouse, in connection
with a division of their community or other property upon the death of the
transferor individual, divorce or the death of such spouse;
E. a general assignment for the benefit of creditors, or any
assignment to a creditor resulting from the creditor's foreclosure upon or
execution against such Interest;
F. the filing by the transferor Partner of a voluntary Bankruptcy
petition; or
G. the entry of a judicial order granting the relief requested by
the petitioner in an involuntary Bankruptcy proceeding filed against the
transferor Partner.
Section 1.18 GOVERNING BOARD. The term "Governing Board" shall mean a
three member committee chosen by the Partners in accordance with the provision
of this Agreement to assure patient care quality, compliance with statutory and
regulatory health requirements, and to appoint a Chief of Staff.
Section I.19 CHIEF OF STAFF. The term "Chief of Staff" shall mean a
physician holding an unlimited license to practice medicine in Indiana,
specializing in ophthalmology.
-33-
<PAGE>
Section I.20 TRANSFER DATE. The term "Transfer Date" shall mean the date
upon which the necessary licenses and approvals for the Partnership to operate
the Ambulatory Surgery Center (the "ASC") operated by OSCI on the date of this
Agreement are obtained by the Partnership.
ARTICLE II - THE PARTNERSHIP
Section II.1 FORMATION OF PARTNERSHIP. The Partners hereby form,
constitute and establish a limited liability partnership pursuant to the Act
and, as provided below, subject to the terms of this Agreement. Except as herein
stated, the Act shall govern the rights and liabilities of the Partners.
Section II.2 QUALIFICATION IN OTHER JURISDICTIONS. Prior to the
Partnership conducting business in any jurisdiction other than Indiana, the
Managing Partner shall cause the Partnership to comply with all requirements, if
any, necessary to qualify the Partnership as a foreign partnership in that
jurisdiction.
Section II.3 TERM. Pursuant to the Act, the term of the Partnership shall
commence effective as of the date first above written. The Partnership shall
exist until April 30, 2037, unless sooner terminated in accordance with this
Agreement.
Section II.4 MERGER. The Partnership may merge with or into another
partnership (general or limited) or other entity, or enter into an agreement to
do so with the consent of all of the Partners.
Section 2.5 REGISTRATION. The Managing Partner is hereby authorized to
execute and file a Certificate of Registration on behalf of the Partnership with
the Indiana Secretary of State as evidence of the intention of the Partnership
to act as an Indiana limited liability partnership, and to do all such other
things as execute and file all such other documents and instruments as may be
deemed necessary by the Partners for the Partnership to become and remain an
Indiana limited liability partnership.
Section 2.6 REGISTERED AGENT, REGISTERED OFFICE. The registered agent of
the Partnership for service of process shall be Joseph F. Faust, whose address
is 711 Gardner Drive, Marion, Indiana 46952. The registered agent will notify
Omega promptly upon receipt of any notice received in his capacity as registered
agent.
ARTICLE III - NAME; PLACE OF BUSINESS; PRINCIPAL OFFICE
Section III.1 NAME. The name of the Partnership is Outpatient Surgery
Center of Indiana, LLP.
Section III.2 ASSUMED NAMES. The Managing Partner may cause the
Partnership to do business under one or more assumed names. In connection with
the use of any such assumed names, the Managing Partner shall cause the
Partnership to comply with Indiana law.
-34-
<PAGE>
Section III.3 PRINCIPAL OFFICE AND OTHER OFFICES. The principal office of
the Partnership shall be located at 711 Gardner Drive, Marion, Indiana, 46952,
or such other place as the Managing Partner may designate from time to time, and
the Partnership shall maintain records there or in Memphis, Tennessee. The
Partnership may have such other offices as the Partners may designate from time
to time.
ARTICLE IV - PURPOSES
Section IV.1 PARTNERSHIP PURPOSES. The purpose of the Partnership is to
engage in the business of operating an ambulatory surgical center (the ASC), and
to do all acts or things necessary or appropriate to accomplish such purpose.
ARTICLE V - PARTNERS
Section V.1 INITIAL PARTNERS. The names and addresses of the initial
Partners of the Partnership are as set forth on SCHEDULE 5.1 of this Agreement.
At the date hereof, there are no other Partners of the Partnership and no other
Person has any right to take part in the ownership or management of the
Partnership.
Section V.2 ADMISSION OF ADDITIONAL PARTNERS. Additional Partners of the
Partnership may be admitted as follows:
A. ACQUISITION FROM THE PARTNERSHIP. If the proposed additional
Partner desires to purchase his Interest from the Partnership, such
purchase may be made and the admission of the additional Partner shall
become effective only if the identity of the proposed additional Partner
and the amount of the Capital Contribution to be made by him in exchange
for his Interest is first unanimously approved by the existing Partners.
B. ACQUISITION FROM A PARTNER. If the proposed additional Partner
desires to acquire his Interest in a Transfer from an existing Partner,
such Transfer may be made and the admission of the additional Partner
shall become effective only in accordance with SECTION 11.2 and ARTICLE
XVI hereof. All other attempted Transfers of any interest or right, or any
part thereof, in or in respect of the Partnership shall be null and void
ab initio.
ARTICLE VI - CAPITAL CONTRIBUTIONS AND INTERESTS
Section VI.1 INITIAL CAPITAL CONTRIBUTIONS. The Initial Capital
Contributions which have been delivered concurrently with the execution of this
Agreement by the Partners is cash in the amount of Two hundred Dollars ($200.00)
representing a contribution of One Hundred Dollars ($100.00) each by OSCI and
Omega.
-35-
<PAGE>
Section VI.2 ADDITIONAL CAPITAL CONTRIBUTIONS. The Additional Capital
Contributions (herein so called) of each Partner shall be made on the Transfer
Date set forth in Section 1.20 of this Agreement in accordance with the joint
instructions of Omega and OSCI to Mantel, Cohen, Garelick, Reiswerg & Fishman,
P.C., Indianapolis, Indiana, the Escrow Agent for the Partnership (the "Escrow
Agent"), and shall be as follows:
A. CONTRIBUTION OF OMEGA. The Additional Capital Contribution of
Omega, which has been delivered to the Escrow Agent, concurrently with the
execution of this Agreement by the Partners, is cash in the amount of One
Million Two Hundred Forty-One Thousand U.S. Dollars ($1,241,000.00); and,
B. CONTRIBUTION OF OSCI. The Additional Capital Contribution of
OSCI, which has been delivered to the Escrow Agent, concurrently with the
execution of this Agreement by the Partners, consists of a Bill of Sale to
the Partnership for substantially all the assets of the ASC owned by OSCI,
as set forth on SCHEDULE 6.2B(1), excepting those assets that are
excluded, as set forth on SCHEDULE 6.2B(2), and certain liabilities of
OSCI , as set forth on SCHEDULE 6.2B(3), which liabilities are acquired
and assumed by the Partnership, all of which assets and liabilities have a
net fair market value, as agreed to by the Partners, of Two Million Four
Hundred Eighty-Two Thousand U.S.
Dollars ($2,482,000.00).
Section VI.3 INTERESTS. The following provisions shall apply with regard
to Interests in the Partnership:
A. PERCENTAGE INTERESTS. Upon making the respective Initial Capital
Contribution specified in SECTION 6.1, each Partner shall own the
percentage Interest set forth opposite such Partner's name as follows:
Partner Interest
------- --------
Omega Health Systems of Indiana, Inc. 50%
The Outpatient Surgery Center of Indiana, Inc. 50%
The respective percentage Interest of each Partner may not be reduced without
such Partner's express written consent.
B. CERTIFICATES REPRESENTING INTERESTS. The Interests of the
Partners may be evidenced by certificates issued by the Partnership,
which, if issued, shall be in such form and incorporate such legends,
recitals and provisions as the Partners shall deem necessary or advisable.
If certificates are issued, the Partners shall establish reasonable
-36-
<PAGE>
procedures for the delivery and reissuance of certificates in connection
with Transfers of Interests, split-ups or combinations of certificates,
loss or destruction of certificates and other eventualities. Among other
matters, such procedures may set forth required fees, indemnifications,
documentation and signatures (including guarantees thereof) to be obtained
from parties requesting reissuance of certificates. Such procedures need
not be incorporated into this Agreement, but a copy thereof shall be
delivered to all Partners.
Section VI.4 NO FURTHER CAPITAL CONTRIBUTIONS. Without the approval of all
the Partners, no Partner shall be obligated or allowed to make any Capital
Contribution other than the respective Initial Capital Contribution and
Additional Capital Contribution of each Partner as set forth in SECTION 6.1 and
SECTION 6.2. This provision of this Agreement may not be amended without the
express written consent of all Partners.
Section VI.5 CAPITAL ACCOUNTS. A capital account shall be established and
maintained for each Partner. Each Partner's capital account (a) shall be
increased by (i) the amount of money contributed by that Partner to the
Partnership, (ii) the fair market value of property contributed by that Partner
to the Partnership (net of liabilities secured by the contributed property that
the Partnership is considered to assume or take subject to Section 752 of the
Code), and (iii) allocations to that Partner of Partnership income and gain (or
items thereof), including income and gain exempt from tax and income and gain
described in Treas. Reg. 1.704-1(b)(2)(iv)(g), but excluding income and gain
described in Treas. Reg. 1.704-1(b)(4)(i), and (b) shall be decreased by (i) the
amount of money distributed to that Partner by the Partnership, (ii) the fair
market value of property distributed to that Partner by the Partnership (net of
liabilities secured by the distributed property that the Partner is considered
to assume or take subject to Section 752 of the Code), (iii) allocations to that
Partner of expenditures of the Partnership described in Section 705(a)(2)(B) of
the Code, and (iv) allocations of Partnership loss and deduction (or items
thereof), including loss and deduction described in Treas. Reg.
1.704-1(b)(2)(iv)(g), but excluding items described in clause (b)(iii) above and
loss or deduction described in Treas. Reg. 1.704-1(b)(4)(i) or
1.704-1(b)(4)(iii). The Partners' capital accounts also shall be maintained and
adjusted as permitted by the provisions of Treas. Reg. 1.704-1(b)(2)(iv)(f) and
as required by the other provisions of Treas. Reg. 1.704-1(b)(2)(iv) and
1.704-l(b)(4), including adjustments to reflect the allocations to the Partners
of depreciation, depletion, amortization, and gain or loss as computed for book
purposes rather than the allocation of the corresponding items as computed for
tax purposes, as required by Treas. Reg. 1.704-1(b)(2)(iv)(g). A Partner that
has more than one Interest shall have a single capital account that reflects all
its Interests, regardless of the class of Interests owned by that Partner and
regardless of the time or manner in which those Interests were acquired. On the
transfer of all or part of an Interest, the capital account of the transferor
that is attributable to the transferred Interest or part thereof shall carry
over to the transferee Partner in accordance with the provisions of Treas.
Reg. 1.704-1(b)(2)(iv)(1).
-37-
<PAGE>
Section VI.6 RETURN OF CAPITAL CONTRIBUTIONS. Anything in this Agreement
to the contrary notwithstanding, upon the receipt by the Partnership of the
Additional Capital Contribution of both Partners from the Escrow Agent, the
Partnership shall distribute to OSCI cash in the amount of One Million Two
Hundred Forty-One Thousand U.S. Dollars ($1,241,000.00); otherwise, the Capital
Contributions of the Partners shall not be subject to withdrawal except with the
approval of all of the Partners, or upon dissolution of the Partnership.
Distributions of Partnership net profits, if any, that are not to be applied to
the business of the Partnership, shall be made to the Partners in accordance
with their respective Distributive Shares. Except as otherwise provided herein
or in the Act, no Partner shall have the right to withdraw, or receive any
return of, such Partner's Capital Contribution.
Section VI.7 INTEREST. No interest shall be paid by the Partnership on
Capital Contributions or on balances in Partners' Capital Accounts.
Section VI.8 LOANS FROM PARTNERS. Loans by a Partner to the Partnership
shall not be considered Capital Contributions. If any Partner shall advance
funds to the Partnership in excess of the amounts required hereunder to be
contributed by such Partner to the capital of the Partnership, the making of
such advances shall not result in any increase in the amount of the Capital
Account of such Partner. The amounts of any such advances shall be a debt of the
Partnership to such Partner and shall be payable or collectible only out of the
Partnership assets in accordance with the terms and conditions upon which such
advances are made. Any advances made to the Partnership pursuant to this Section
6.7 shall bear interest until repaid at the rate charged by Huntington National
Bank of Indiana, in Indianapolis, to its best corporate customers (the "Prime
Rate") plus one percentage point; for example, if the Prime Rate is 8%, interest
on such advances made pursuant to this SECTION 6.7 shall be at 9%. The repayment
of loans from a Partner to the Partnership upon liquidation shall be subject to
the order of priority set forth in SECTION 13.4A hereof. The Partnership debts
provided for in SECTION 7.9 hereof shall not be governed by this SECTION 6.8.
ARTICLE VII - ALLOCATIONS AND DISTRIBUTIONS
Section VII.1 ALLOCATION OF INCOME AND LOSS. Except as otherwise provided
for herein, the following provisions shall apply with regard to the allocation
of income and loss of the Partnership:
A. ALLOCATIONS GENERALLY. Except as may be required by Section
704(c) of the Code and Treas. Reg. 1.704-1(b)(2)(iv)(f)(4), the income,
gains, losses, deductions and credits (or items thereof) of the
Partnership shall be shared by the Partners in accordance with their
respective percentage Interests. It is the intention of the Partners that
allocations of income, gains, losses, deductions and credits (or items
thereof) pursuant to this SECTION 7.1 be in accordance with the Partners'
Interests for tax purposes.
-38-
<PAGE>
B. Allocations with respect to Transferred Interests. All items of
income, gain, loss, deduction, and credit allocable to any Interest that
may have been transferred shall be allocated between the transferor and
the transferee based on the portion of the calendar year during which each
was recognized as owning that Interest, without regard to the results of
Partnership operations during any particular portion of that calendar year
and without regard to whether cash distributions were made to the
transferor or the transferee during that calendar year; provided, however,
that this allocation must be made in accordance with a method permissible
under Section 706 of the Code and the regulations thereunder.
Section VII.2 DETERMINATION OF INCOME AND LOSS. At the end of each fiscal
year of the Partnership, income, gain, loss, deduction and credit (or items
thereof) shall be determined by the Managing Partner pursuant to this Agreement
for the accounting period then ending and shall be allocated to the Partners in
accordance with SECTION 7.1.
Section VII.3 CASH DISTRIBUTIONS. Commencing no later than the end of the
Partnership's first fiscal quarter, the Managing Partner shall, at least
quarterly, balance the Partnership's accounts and distribute to the Partners, in
accordance with their respective Interests, the amount by which cash on hand
exceeds the amount necessary to meet the current costs, expenses and liabilities
of the Partnership (including, without limitation, the certain debts listed in
Section 7.9 hereof, and a reasonably adequate reserve for working capital and
contingencies). The Partnership shall not make any distribution to the Partners
if, immediately after giving effect to the distribution, all liabilities of the
Partnership, other than liabilities to Partners with respect to their Interests
and liabilities for which the recourse of creditors is limited to specified
property of the Partnership, exceed the fair value of Partnership Property,
except that the fair value of Partnership Property that is subject to a
liability for which recourse of creditors is limited shall be included in the
Partnership assets only to the extent that the fair value of that Partnership
Property exceeds that liability.
Section VII.4 DISTRIBUTIONS OF OTHER PROPERTY. From time to time, the
Managing Partner also may cause property of the Partnership other than cash to
be distributed to the Partners, which distribution must be made in accordance
with their respective Interests and may be made subject to existing liabilities
and obligations. Immediately prior to such distribution, the capital accounts of
the Partners shall be adjusted as provided in Treas. Reg. 1.704-1(b)(2)(iv)(f).
Section VII.5 MINIMUM GAIN LIMITATIONS/QUALIFIED INCOME OFFSET.
A. MINIMUM GAIN DEFINED. The term "Minimum Gain" means the amount
determined by computing, with respect to each nonrecourse liability of the
Partnership, the amount of gain (of whatever character), if any, that
would be realized by the Partnership if the Partnership disposed of (in a
taxable transaction) the Partnership Property subject to such nonrecourse
liability in full satisfaction thereof, and by then aggregating the
amounts so computed.
-39-
<PAGE>
B. NONRECOURSE DEDUCTIONS DEFINED. The term "Nonrecourse Deduction"
means, for a taxable year, an amount of the net increase, if any, in the
amount of Minimum Gain of the Partnership during that taxable year plus
the amount, if any, by which the net increase in Minimum Gain of the
Partnership during any prior taxable year exceeds the total amount of
items of Partnership loss, deduction and expenditures set forth in Section
705(a)(2)(B) of the Code for such year. The nonrecourse deductions for a
taxable year shall consist first of depreciation or cost recovery
deductions, if any, with respect to items of Partnership Property subject
to one or more nonrecourse liabilities of the Partnership to the extent of
the increase in the Minimum Gain attributable to the nonrecourse
liabilities to which each such item of property is subject, with the
remainder Nonrecourse Deductions, if any, made up of a pro rata portion of
the Partnership's other items of deduction, loss and expenditures set
forth in Section 705(a)(2)(B) of the Code for that year.
C. DEFICIT CAPITAL ACCOUNT DEFINED. For purposes of this
SECTION 7.5, the term "Deficit Capital Account" means the deficit
balance, if any, of a Partner's Capital Account as determined pursuant
to SECTION 6.4 adjusted by (i) adding (crediting) to such Capital
Account the amount of such Partner's share of the Minimum Gain, and
(ii) subtracting (debiting) from such Capital Account the amount of
such Partner's share of the items described in Treas. Reg.
1.704-l(b)(2)(ii)(d)(4), (5), and (6).
D. PARTNER'S SHARE OF MINIMUM GAIN. A Partner's share of Minimum
Gain of the Partnership at the end of any Partnership taxable year equals
the aggregate Nonrecourse Deductions allocated to such Partner (and such
Partner's predecessor in interest) up to that time, less such Partner's
(and such Partner's predecessor in interest) aggregate share of the net
decreases in Minimum Gain of the Partnership up to that time. A Partner's
share of the net decrease in Minimum Gain of the Partnership during a
Partnership taxable year equals an amount that bears the same relation to
the net decrease in Minimum Gain of the Partnership during such year as
such Partner's share of Minimum Gain of the Partnership at the end of the
prior taxable year of the Partnership bears to the amount of Minimum Gain
of the Partnership at the end of such prior taxable year.
E. LIMITATION ON LOSS ALLOCATIONS. Notwithstanding anything in this
Article VII to the contrary, any allocation of loss or deduction of the
Partnership (other than a Nonrecourse Deduction) shall be allocated to a
Partner only to the extent that such allocation does not cause such
Partner to have a Deficit Capital Account.
F. MINIMUM GAIN CHARGEBACK. Notwithstanding anything in the
foregoing sections of this Article VII to the contrary, in the event that
there is a net decrease in Minimum Gain of the Partnership during the
Partnership's taxable year, all Partners with a Deficit Capital Account
-40-
<PAGE>
will be allocated, before any other allocations of Partnership items for
such taxable year under this Agreement, items of income and gain for such
year (and, if necessary, subsequent years) in an amount needed to
eliminate such deficit as quickly as possible. The Minimum Gain chargeback
allocated in any taxable year shall consist first of gains recognized from
the disposition of items of Partnership Property subject to one or more
nonrecourse liabilities of the Partnership to the extent of the decrease
in Minimum Gain attributable to the disposition of such items of property
with the remainder of such Minimum Gain chargeback, if any, made up of a
pro rata portion of the Partnership's other items of income and gain for
that year.
G. QUALIFIED INCOME OFFSET. Notwithstanding anything in the
foregoing sections of this ARTICLE VII to the contrary, in the event that
any Partner unexpectedly receives any adjustments, allocations, or
distributions described in Treas. Reg. 1.704-1(b)(2)(ii)(d)(4), (5) or
(6), which causes a deficit balance in such Partner's Capital Account (or
causes an increase in an existing deficit balance in such Partner's
Capital Account), items of income and gain shall be allocated to such
Partner in an amount and manner sufficient to eliminate the deficit
balance in such Partner's Capital Account as quickly as possible;
provided, however, that allocations of income or gain shall only be
required pursuant to this Subsection G of SECTION 7.5 if and to the extent
that the foregoing adjustments, allocations or distributions cause a
Deficit Capital Account of the Partners receiving such adjustments,
allocations, or distributions determined at the end of the taxable year of
the Partnership to which such allocations relate.
Section VII.6 COMPLIANCE WITH SECTION 704 OF THE CODE. The provisions of
this Agreement relating to maintenance of Capital Accounts and the computation
and allocation of net income, gains, and losses are intended to comply with
Section 704 of the Code and the Regulations thereunder (including, without
limitation, the provisions regarding substantial economic effect, qualified
income offset, allocations of nonrecourse deductions, minimum gain chargeback,
and other considerations under Section 704 of the Code and the Regulations
thereunder), and shall be interpreted and applied in a manner consistent with
Section 704 of the Code and such Regulations in order to achieve the agreed
allocation of cash among the Partners. In the event the Partners determine that
it is prudent or necessary to modify the manner in which the Capital Accounts,
or any debits or credits thereto, are computed or allocated in order to comply
with Section 704 of the Code and/or the Regulations thereunder and/or to make
any optional elections thereunder, the Partnership may make such modification
and/or election, including an amendment to this Agreement if the Partners deem
it necessary. The Partners shall also make any appropriate modifications to this
Agreement in the event unanticipated events might otherwise cause this Agreement
not to comply with Section 704 of the Code and/or the Regulations thereunder.
Further, notwithstanding anything to the contrary contained in this Agreement,
if the Regulations thereunder require an allocation of net income, gains, and
losses in a manner different from that set forth in ARTICLE VII (other than this
SECTION 7.6) of this Agreement, such allocations shall be taken into account for
the purpose of equitably adjusting subsequent allocations of net income, gains,
and losses so that the net cumulative allocations, in the aggregate, allocated
-41-
<PAGE>
to each Partner pursuant to ARTICLE VII of this Agreement, including this
SECTION 7.6 shall, as quickly as possible and to the extent possible, and
without violating the constraints contained in this Section 7.6, be the same as
if no such allocations had been made under this SECTION 7.6 so that the agreed
upon allocation of cash among the Partners will be respected.
Section VII.7 SAVINGS CLAUSE. The tax allocation provisions contained in
ARTICLE VII of this Agreement are intended to produce final Capital Account
balances that are at levels ("Target Final Balances") which permit liquidating
distributions that are made in accordance with such final Capital Account
balances to be equal to distributions that would occur on final liquidation of
the Partnership. To the extent that the tax allocation provisions contained in
ARTICLE VII of this Agreement would not produce the Target Final Balances, the
provisions of this Agreement shall be amended to produce such Target Final
Balances. Notwithstanding the other provisions of this Agreement, allocations of
net income, gains, and losses shall be made prospectively as necessary to
produce such Target Final Balances (and, to the extent such prospective
allocations would not reach such result, the prior tax returns of the
Partnership shall be amended to reallocate Partnership net income, gains, and
losses to produce such Target Final Balances).
Section VII.8 DEPRECIATION RECAPTURE. To the extent not inconsistent with
the foregoing provisions of this ARTICLE VII, any gain of the Partnership
attributable to depreciation recapture shall be allocated among the Partners in
proportion with the depreciation deductions previously allowable to the Partners
with respect to the assets generating such recapture.
Section VII.9 CERTAIN DEBTS OF THE PARTNERSHIP. Omega Health Systems, Inc.
("OHSI") will loan to the Partnership certain amounts for payments to OSCI in
satisfaction of OSCI's obligation to pay to Dr. Joseph Faust the 1997 earnings
of OSCI prior to May 1, 1997 in the estimated amount of $15,830.00 and to
satisfy certain outstanding liabilities of OSCI noted on SCHEDULE 6.2B(3) HEREOF
in the amount of $263,030.98. Accordingly, the Partnership shall execute a note
in the amount of $278,860.98 in favor of OHSI in the form and under the terms
set forth in Exhibit 7.9.1 attached hereto. The principal and interest payments
on such note shall be paid by the Partnership as an operating expense of the
Partnership and before any allocation or distribution to the Partners of any
cash or other distributions from the Partnership pursuant to this Agreement. The
estimated amount set forth in this SECTION 7.9 representing OSCI's 1997 earnings
shall be adjusted on or before July 1, 1997, to reflect the actual 1997 earnings
amount as of April 30, 1997. The difference, if any, between the adjusted amount
determined as of April 30, 1997 and the amount referred to above and provided
for in the promissory note attached in Exhibit 7.9.1 shall be paid in cash to
the appropriate party on or before July 1, 1997. The OSCI 1997 earnings shall be
net after tax earnings of OSCI calculated in accordance with generally accepted
accounting prinicples, consistently applied.
-42-
<PAGE>
ARTICLE VIII - OWNERSHIP OF PARTNERSHIP PROPERTY
Section VIII.1 PARTNERSHIP PROPERTY. Partnership Property shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership Property or
any portion thereof. Title to any or all Partnership Property may be held in the
name of the Partnership or one or more nominees, as the Partners may determine.
All Partnership Property shall be recorded as the property of the Partnership on
its books and records, irrespective of the name in which legal title to such
Partnership Property is held.
ARTICLE IX - FISCAL MATTERS; BOOKS AND RECORDS
Section IX.1 BANK ACCOUNTS; INVESTMENTS. Capital Contributions, revenues
and any other Partnership funds shall be deposited in a bank account established
by the Managing Partner in the name of the Partnership, or shall be invested by
the Managing Partner in furtherance of the purposes of the Partnership. No other
funds shall be deposited into Partnership bank accounts or commingled with
Partnership investments. Funds deposited in the Partnership's bank accounts may
be withdrawn only to be invested in furtherance of the Partnership purposes, to
pay Partnership debts or obligations or to be distributed to the Partners
pursuant to this Agreement.
Section IX.2 RECORDS REQUIRED; RIGHT OF INSPECTION. During the term of the
Partnership and for a period of four (4) years thereafter, the Managing Partner
shall maintain in the Partnership's principal office in the United States
specified in SECTION 3.3 hereof all records of the Partnership, including,
without limitation, a current list of the names, addresses and Interests held by
each of the Partners (including the dates on which each of the Partners became a
Partner), copies of federal, state and local information or income tax returns
for each of the Partnership's six (6) most recent tax years, copies of this
Agreement, including all amendments or restatements, and correct and complete
books and records of account of the Partnership. On written request to the
Managing Partner stating the purpose, a Partner or an assignee of a Partner's
Interest (an "eligible Person") may examine and copy in person or by the
eligible Person's representative, at any reasonable time, for any proper
purpose, and at the eligible Person's expense, records required to be maintained
and such other information regarding the business, affairs and financial
condition of the Partnership as is just and reasonable for the eligible Person
to examine and copy. Upon written request by any eligible Person, the Managing
Partner shall provide to the eligible Person without charge true copies of (i)
this Agreement and all amendments or restatements, and (ii) any of the tax
returns of the Partnership described above.
Section IX.3 BOOKS AND RECORDS OF ACCOUNT. The Managing Partner shall
maintain adequate books and records of account for the Partnership that shall be
maintained on the cash method of accounting and on a basis consistent with
appropriate provisions of the Code, containing, among other entries, a Capital
Account for each Partner.
-43-
<PAGE>
Section IX.4 TAX RETURNS AND INFORMATION. The Partners intend for the
Partnership to be treated as a partnership for tax purposes. The Managing
Partner shall prepare or cause to be prepared and filed all federal, state and
local income and other tax returns that the Partnership is required to file.
Within the shorter of (i) such period as may be required by applicable law or
regulation, or (ii) seventy-five (75) days after the end of each calendar year,
the Managing Partner shall send or deliver to each Person who was a Partner at
any time during such year such tax information as shall be reasonably necessary
for the preparation by such Person of his federal income tax return and state
income and other tax returns.
Section IX.5 DELIVERY OF FINANCIAL STATEMENTS TO PARTNERS. As to each
fiscal year of the Partnership and as to each month during such fiscal year of
the Partnership, the Managing Partner shall send to each Partner a copy of (i) a
balance sheet of the Partnership as of the end of such period, (ii) an income
statement of the Partnership for such period, and (iii) a statement showing the
revenues distributed by the Partnership to Partners in respect of such period.
Such financial statements shall be delivered by no later than ninety (90) days
following the end of the fiscal year to which the statements apply and no later
than thirty (30) days following the end of the month to which such financial
statements apply. Unless a Partner requests in writing prior to the end of the
fiscal year to which the financial statements apply that the financial
statements shall be audited (in which case SECTION 9.6 below shall apply), such
statements need not be audited.
Section IX.6 AUDITS AT REQUEST OF PARTNER. Any Partner shall have the
right at all reasonable times during usual business hours to audit, examine and
make copies of or extracts from any and all records of the Partnership. At any
time during the term of this Agreement, or within a reasonable time after the
termination of this Agreement, but no more often than annually, any Partner
shall have the right to have KPMG Peat Marwick LLP, or another nationally
recognized accounting firm reasonably acceptable to the other Partner(s) conduct
an audit during normal business hours upon reasonable notice to Managing
Partner. The cost and related expenses of such audit shall be paid for by the
Partner requesting the audit, provided, however, in the event any such audit
discloses an annual underpayment to the Partners exceeding $25,000, then
Managing Partner shall promptly pay such underpayment to the Partners in
accordance with this Agreement and shall reimburse the Partner requesting the
audit for the cost of such audit. Managing Partner shall have the right to
review the auditor's preliminary draft report and to discuss any indicated
underpayment with such auditor.
Section IX.7 FISCAL YEAR. The Partnership's fiscal year shall end on
December 31 of each calendar year.
Section IX.8 TAX ELECTIONS. The Managing Partner shall make the following
elections on the appropriate tax returns of the Partnership:
A. to adopt the calendar year as the Partnership's fiscal year;
-44-
<PAGE>
B. to adopt the cash method of accounting and to keep the
Partnership's books and records on the income-tax method;
C. if a distribution of Partnership property as described in Section
734 of the Code occurs or if a transfer of Interest as described in
Section 743 of the Code occurs, on written request of any Partner, to
elect, pursuant to Section 754 of the Code, to adjust the basis of
Partnership properties subject to the agreement of the Partners;
D. to elect to amortize the organizational expenses of the
Partnership ratably over a period of sixty (60) months as permitted by
Section 709(b) of the Code; and
E. any other election the Managing Partner may deem appropriate and
in the best interests of the Partners and/or the Partnership.
Neither the Partnership nor any Partner may make an election for the Partnership
to be excluded from the application of the provisions of subchapter K of chapter
1 of subtitle A of the Code or any similar provisions of applicable state law.
Section IX.9 "TAX MATTERS PARTNER". The Managing Partner shall be the "tax
matters partner" of the Partnership pursuant to Section 6231 (a)(7) of the Code.
The Managing Partner shall take such action as may be necessary to cause each
other Partner to become a "notice partner" within the meaning of Section 6223 of
the Code. The Managing Partner shall inform each other Partner of all
significant matters that may come to its attention in its capacity as "tax
matters partner" by giving notice thereof on or before the fifth Business Day
after becoming aware thereof and, within that time, shall forward to each other
Partner copies of all significant written communications it may receive in that
capacity. The Managing Partner may not take any action contemplated by Sections
6222 through 6232 of the Code without the consent of the Partners.
ARTICLE X - MANAGEMENT OF THE PARTNERSHIP
Section X.1 MANAGEMENT. The following shall apply with respect to the
management of the Partnership:
A. PARTNERS. The powers of the Partnership shall be exercised by or
under the authority of, and the business and affairs of the Partnership
shall be managed under the direction of, the Managing Partner. Any Person
dealing with the Partnership, other than a Partner, may rely on the
authority of the Managing Partner and its managers and officers in taking
any action in the name of the Partnership without inquiry into the
provisions or compliance herewith, regardless of whether that action is
actually taken in accordance with the provisions of this Agreement.
-45-
<PAGE>
B. OFFICERS. The Managing Partner may designate one or more
individuals as officers of the Partnership, who shall have such titles and
exercise and perform such powers and duties as shall be assigned to them
from time to time. Officers need not be Partners or residents of the State
of Indiana. Any officer may be removed by the Managing Partner at any
time, with or without cause. Each officer shall hold office until his or
her successor shall be duly designated and shall qualify or until the
earlier of the officer's death, resignation or removal. Any number of
offices may be held by the same Person. The salaries or other
compensation, if any, of the officers and agents of the Partnership shall
be fixed by the Managing Partner with the prior consent of the Partners
holding eighty percent (80%) of the Partnership Interests.
Section X.2 POWERS OF THE MANAGING PARTNER GENERALLY. Except with the
written consent of Partners holding eighty percent (80%) of the Partnership
Interests, the Managing Partner shall have no power to cause the Partnership to
do any act outside the purpose of the Partnership as set forth in ARTICLE IV
hereof. Subject to the foregoing limitation and all other limitations in this
Agreement, the Managing Partner shall have full, complete and exclusive power to
manage and control the Partnership, and shall have the authority to take any
action it deems to be necessary, convenient or advisable in connection with the
management of the Partnership (but solely for Partnership purposes as set forth
in SECTION 4.1), including, but not limited to, the power and authority on
behalf of the Partnership:
A. to expend the Partnership's Capital Contributions and revenues
and to execute and deliver all checks, drafts, endorsements and other
orders for the payment of Partnership funds for individual expenditures or
a series of related expenditures not exceeding Ten Thousand Dollars
($10,000.00) each;
B. to employ agents, employees, accountants, lawyers, clerical help,
and such other assistance and services as may seem proper, and to pay
therefor such remuneration as is reasonable and appropriate;
C. to purchase, lease, rent, or otherwise acquire or obtain the use
of office equipment, materials, supplies, and all other kinds and types of
real or personal property, and to incur expenses for travel, telephone,
telegraph and for such other things, services and facilities, as may be
deemed necessary, convenient or advisable for carrying on the business of
the Partnership not exceeding Five Thousand Dollars ($5,000.00);
D. to carry, at the expense of the Partnership, insurance of the
kinds and in the amounts that is advisable or make other arrangements for
payment of losses or liabilities to protect the Partnership or the
Partners, officers, agents and employees of the Partnership against loss
or liability;
-46-
<PAGE>
E. to do all acts, take part in any proceedings, and exercise all
rights and privileges as could an absolute owner of Partnership Property,
subject to the limitations expressly stated in this Agreement and the
faithful performance of the Managing Partner's fiduciary obligations to
the Partnership and the Partners;
F. to borrow money in the name of the Partnership and to pledge
Partnership Property as collateral therefor, provided, that the aggregate
outstanding principal amount of loans in the name of the Partnership
(excluding the loans provided for in SECTION 7.9 HEREOF) shall not at any
time exceed One Hundred Thousand Dollars ($100,000.00) unless consented to
by Partners holding eighty percent (80%) of the Partnership Interests;
and,
G. to take such other action and perform such other acts as the
Managing Partner deems reasonably necessary, convenient or advisable in
carrying out the business of the Partnership.
The enumeration of powers in this Agreement shall not limit the general or
implied powers of the Managing Partner or any additional powers provided by law.
Section 10.3 LIMITATION OF THE POWERS OF THE MANAGING PARTNER.
Notwithstanding the foregoing, the Managing Partner may NOT cause the
Partnership to do any of the following without the express written consent of
Partners holding eighty percent (80%) of the Partnership Interests:
A. Purchase any real property for or on behalf of the Partnership;
B. Sell any real property owned by the Partnership;
C. Merge with or into another partnership, corporation, limited
liability company or other entity, regardless of whether the Partnership
is the surviving entity of such merger;
D. Reorganize the Partnership;
E. Take any action in contravention of this Agreement or the Act;
F. Make an assignment for the benefit of creditors of the
Partnership or file a voluntary petition under the federal Bankruptcy Code
or any state insolvency law on behalf of the Partnership;
G. Confess any judgment against the Partnership;
H. Dispose or otherwise transfer any name, trademark, trade name,
service mark, or any other intangible asset used in the business of the
Partnership;
-47-
<PAGE>
I. Borrow money in the name of the Partnership or pledge Partnership
Property as collateral therefor if such borrowing causes the aggregate
outstanding principal amount of all loans in the name of the Partnership
(excluding the loans provided for in SECTION 7.9 hereof) at such time to
exceed One Hundred Thousand Dollars ($100,000.00);
J. Assign, transfer, pledge, compromise or release any individual
claim of or debt owing to the Partnership that is in excess of Five
Thousand Dollars ($5,000.00) except for payment in full;
K. Convey, sell or assign any Partnership property;
L. Do any act that would make it impossible to carry on the normal
and ordinary business of the Partnership; or
M. Amend, modify, supplement or otherwise change any of the terms or
conditions of the "Management Agreement" (defined in SECTION 17.1).
ARTICLE XI - RIGHTS POWERS AND OBLIGATIONS OF PARTNERS
Section XI.1 AUTHORITY. Except as otherwise specifically provided in this
Agreement, no Partner has the authority or power to act for or on behalf of the
Partnership, to do any act that would be binding on the Partnership, or to file
a withdrawal notice with the Indiana Secretary of State or take any other action
or execution or file any other document or instrument which would revoke or
otherwise adversely affect the status of the Partnership as an Indiana limited
liability partnership.
Section XI.2 RIGHT OF FIRST REFUSAL. In the event that Omega or its
parent, OHSI, in an isolated transaction (not involving a change of control or
sale of OHSI) desire (i) to sell substantially all of the assets of Omega
located in Marion and Fort Wayne, Indiana and any other location serviced by
Referral Eye Center, P.C., (ii) to sell Omega's interest in the Partnership to
an unrelated third party, or (iii) to merge or consolidate Omega into an
unrelated third party, then such proposed transaction shall be in writing and
signed by the third party and Omega or OHSI. Omega shall deliver to OSCI a copy
of such written proposal, and OSCI shall have forty-five (45) days to determine
whether it wishes to enter into such transaction with Omega or OHSI at the same
price and terms as offered to the third party. In the event that OSCI accepts
such purchase proposal, Omega or OHSI and OSCI shall close such sale within
thirty (30) days of the acceptance by OSCI. In the event that OSCI does not
accept such purchase proposal, then Omega or OHSI may proceed to consummate the
proposed sale to the third party on the price and terms as previously noticed to
OSCI. In the event that Omega or OHSI desires to modify the price or terms in a
manner that is more favorable to the third party buyer, then Omega or OHSI shall
give to OSCI the notice required above.
Section XI.3 TIME; OUTSIDE ACTIVITIES. Each Partner shall be required to
spend such time on Partnership matters as is reasonably required for the
purposes of the Partnership. All Partners shall be free to devote their
remaining time and attention to any other business matters. Each of the Partners
-48-
<PAGE>
hereto may engage in whatever other activities such Partner chooses, provided
that such activities, including the activities of an affiliate of such Partner,
are not directly or indirectly in competition with the business of the
Partnership within forty (40) miles of the ambulatory surgical center operated
by the Partnership which is, at the time of the execution of this Agreement,
located at 711 Gardner Drive, Marion, Indiana. Except as provided herein,
nothing shall be deemed to prevent such Partners from engaging in such permitted
activities, individually, jointly with others, or as a part of any other limited
or general partnership, joint venture, or other entity to which such Partner is
or may become a party, or from dealing with the Partnership as independent
parties or through any other entity in which such Partner may be interested.
Section 11.4 TERMINATION BY OSCI IN EVENT OF DEFAULT BY OMEGA. In the
event of a default in that certain Management Agreement between the Partnership
and Omega provided for in SECTION 17 hereof, which default is not timely cured,
OSCI shall have the right to terminate the Management Agreement or in its
discretion to act in the name of the Partnership for purposes of such
termination or to otherwise act in the Partnership's best interest with respect
to the Management Agreement.
ARTICLE XII - MEETINGS OF PARTNERS
Section XII.1 PLACE OF MEETINGS. All meetings of Partners shall be held in
Marion, Indiana, during usual and customary business hours, or at such other
time or location as may be agreed to by the Partners.
Section XII.2 ANNUAL MEETING. Commencing with the calendar year next
following the calendar year in which the Partnership was organized, annual
meetings of the Partners shall be held on the first Tuesday in May each year at
such hour as may be designated in the notice of the meeting, if such day is a
Business Day, and if not a Business Day, then on the next following day that is
a Business Day. If the annual meeting is not held on the date above specified,
the Managing Partner shall cause a meeting in lieu to be shall be held as soon
thereafter as convenient, and any business transacted or election held at that
meeting shall be as valid as if held at the annual meeting. Failure to hold the
annual meeting at the designated time shall not work a dissolution of the
Partnership.
Section XII.3 SPECIAL MEETINGS. Special meetings of the Partners may be
called by resolution of the Partners holding ten percent (10%) or more of the
Interests, for the purpose of addressing any matter upon which the Partners may
vote under this Agreement. Partners may call a meeting by delivering to the
other Partners one or more written requests signed by the requisite number of
Partners, stating that the signing Partners wish to call a meeting and
indicating the specific purpose for which the meeting is to be held. Action at
the meeting shall be limited to those matters specified in the call of the
meeting.
-49-
<PAGE>
Section XII.4 NOTICE. A Notification of all meetings, stating the place,
day, and hour of the meeting and in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the meeting to each Partner
entitled to vote.
Section XII.5 WAIVER OF NOTICE. Attendance of a Partner at a meeting shall
constitute a waiver of Notification of the meeting, except where such Partner
attends for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened. Notification
of a meeting may also be waived in writing. Attendance at a meeting is not a
waiver of any right to object to the consideration of matters required to be
included in the Notification of the meeting but not so included, if the
objection is expressly made at the meeting.
Section XII.6 QUORUM. A quorum at any meeting of the Partners shall exist
if there is present at such meeting, whether present in person or by proxy,
Partners representing more than fifty percent (50%) of the total percentage
Interests.
Section XII.7 VOTING. Voting of the Partners with respect to issues
relative to the Partnership shall be as follows:
A. VOTING AND VOTING POWER. All Partners shall be entitled to vote
at meetings. Partners may vote either in person or by proxy at any
meeting. Each Partner's percentage voting power at a meeting shall be in
proportion to his percentage Interest except as provided in Section 13.1,
hereof.
B. VOTING ON MATTERS. With respect to any matter for which the
affirmative vote of Partners owning a specified portion of the Interests
is required by the Act or this Agreement, the affirmative vote of the
Partners owning such specified portion at a meeting at which a quorum is
present shall be the act of the Partners.
C. CHANGE IN VOTING PERCENTAGES. No provision of this Agreement
requiring that any action be taken only upon approval of Partners holding
a specified percentage of Interests may be modified, amended or repealed
unless such modification, amendment or repeal is approved by Partners
holding at least such percentage of Interests.
Section XII.8 CONDUCT OF MEETINGS. The Partners shall designate a Person
to serve as chairman of any meeting and shall further designate a Person to take
minutes of any meeting.
Section XII.9 ACTION BY WRITTEN CONSENT. Any action that may be taken at a
meeting of the Partners may be taken without a meeting if a consent in writing,
setting forth the action to be taken, shall be signed by Partners holding the
percentage of Interests required to approve such action under the Act or this
Agreement. Such consent shall have the same force and effect as a vote of the
-50-
<PAGE>
signing Partners at a meeting duly called and held pursuant to this ARTICLE XII.
No prior notice from the signing Partners to the other Partners shall be
required in connection with the use of a written consent pursuant to this
Section. Notification of any action taken by means of a written consent of less
than all of the Partners shall, however, be sent, within a reasonable time after
the date of the consent, to all of the Partners who did not sign the consent.
Section XII.10 PROXIES. A Partner may vote either in person or by proxy
executed in writing by the Partner. A facsimile, telegram, telex, cablegram or
similar transmission by the Partner, or a photographic, photostatic, facsimile
or similar reproduction of a writing executed by the Partner shall be treated as
an execution in writing for purposes of this Section. Proxies for use at any
meeting of Partners or in connection with the taking of any action by written
consent shall be filed with the Managing Partner, before or at the time of the
meeting or execution of the written consent, as the case may be. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the Managing Partner who shall decide all questions touching upon
the qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions. No proxy shall be valid after eleven (11)
months from the date of its execution unless otherwise provided in the proxy. A
proxy shall be revocable unless the proxy form conspicuously states that the
proxy is irrevocable and the proxy is coupled with an interest. Should a proxy
designate two or more Persons to act as proxies, unless such instrument shall
provide to the contrary, a majority of such Persons present at any meeting at
which their powers thereunder are to be exercised shall have and may exercise
all the powers of voting or giving consents thereby conferred, or if only one be
present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, the Partnership
shall not be required to recognize such proxy with respect to such issue if such
proxy does not specify how the Interests that are the subject of such proxy are
to be voted with respect to such issue.
Section XII.11 INFORMATION. In addition to the other rights specifically
set forth in this Agreement, each Partner is entitled to all information
relating to the business of the Partnership.
ARTICLE XIII - GOVERNING BOARD AND CHIEF OF STAFF
Section 13.1 PURPOSE AND SELECTION. In accordance with the regulatory
requirements of the State of Indiana, the Partners shall nominate a three-member
Governing Board which shall have patient care oversight of the ambulatory
surgical center. Omega shall nominate two members of the Governing Board and
OSCI shall nominate one member of the Governing Board.
-51-
<PAGE>
Section 13.2 DUTIES OF THE GOVERNING BOARD. The Governing Board shall:
A. Meet at least four times a year and function as an organized
board in accordance with the terms of this Agreement and maintain a written
record of its proceedings.
B. Adopt and maintain a listing of procedures that may be performed
by the Center.
C. Approve the Bylaws, Rules and Regulations of the medical staff.
D. Appoint members of the medical staff and assign privileges
consistent with their individual qualifications on an annual basis upon
recommendation of the medical staff.
E. Maintain a written transfer agreement with one or more hospitals
in proximity to the ASC immediate acceptance of patients who develop
complications or require postoperative confinement.
F. Provide for the periodic review of the ASC its operation by a
utilization review or other committee composed of three or more duly licensed
physicians having no financial interest in the facility.
G. Maintain liaison with the medical staff of the ASC.
H. Assure that in the event the ASC is not established under the
aegis of physicians, a physician holding an unlimited license to practice in
Indiana shall be appointed Chief of Staff and shall be responsible for
monitoring of procedures and care provided in the ASC.
I. Provide a physical plant that meets statutory requirements and
provisions of applicable regulations of the Indiana State Department of Health.
In addition to patient service areas, space and equipment shall be provided for
administrative and business offices, private admitting area, public lobby and
toilets, medical records storage area, personnel facilities, and storage
facilities for patients' clothing and valuables.
Section 13.3 CHIEF OF STAFF. A Chief of Staff shall be selected by the
Governing Board who shall be responsible to the Governing Board and the
Partnership for monitoring the medical procedures and care provided by the
ambulatory surgical center. The initial Chief of Staff shall be Joseph Faust,
M.D.
ARTICLE XIV - DISSOLUTION AND WINDING UP
Section XIV.1 EVENTS CAUSING DISSOLUTION. The Partnership shall be
dissolved upon the first of the following events to occur:
-52-
<PAGE>
A. the expiration of the term of the Partnership set forth in
SECTION 2.3 of this Agreement;
B. the written consent of all Partners at any time to dissolve and
wind up the affairs of the Partnership;
C. the Bankruptcy or dissolution of a Partner or the occurrence of
any other event that terminates the continued membership of a Partner in
the Partnership, unless (i) there are at least two remaining Partners and
the business of the Partnership is continued by the consent of all
remaining Partners, or (ii) within ninety (90) days of the occurrence of
such event, all remaining Partners agree in writing to continue the
business of the Partnership; or
D. the occurrence of any other event that causes the dissolution of
a partnership under the Act.
Section XIV.2 WINDING UP. If the Partnership is dissolved pursuant to
SECTION 13.1, the Partnership's affairs shall be wound up as soon as reasonably
practicable in the manner set forth below.
A. APPOINTMENT OF LIQUIDATOR. The winding up of the Partnership's
affairs shall be supervised by a Liquidator. The Liquidator shall be
selected by the Partners or, if the Partners prefer, a liquidator or
liquidating committee selected by the Partners.
B. POWERS OF LIQUIDATOR. In winding up the affairs of the
Partnership, the Liquidator shall have full right and unlimited
discretion, for and on behalf of the Partnership:
1. to prosecute and defend civil, criminal or administrative
suits;
2. to collect Partnership assets, including obligations owed
to the Partnership;
3. to settle and close the Partnership's business;
4. to dispose of and convey all Partnership Property for cash,
and in connection therewith to determine the time, manner and terms
of any sale or sales of Partnership Property, having due regard for
the activity and condition of the relevant market and general
financial and economic conditions;
5. to pay all reasonable selling costs and other expenses
incurred in connection with the winding up out of the proceeds of
the disposition of Partnership Property;
-53-
<PAGE>
6. to discharge the Partnership's known liabilities and, if
necessary, to set up, for a period not to exceed five (5) years
after the date of dissolution, such cash reserves as the Liquidator
may deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Partnership;
7. to distribute any remaining proceeds from the sale of
Partnership Property to the Partners;
8. to prepare, execute, acknowledge and file any certificates,
tax returns or instruments necessary or advisable under any
applicable law to effect the winding up and termination of the
Partnership; and
9. to exercise, without further authorization or consent of
any of the parties hereto or their legal representatives or
successors in interest, all of the powers conferred upon a Partner
under the terms of this Agreement to the extent necessary or
desirable in the good faith judgment of the Liquidator to perform
its duties and functions. The Liquidator shall not be liable as a
partner to the Partners and shall, while acting in such capacity on
behalf of the Partnership, be entitled to the indemnification rights
set forth in the Act and in ARTICLE XV hereof
Section XIV.3 COMPENSATION OF LIQUIDATOR. The Liquidator appointed as
provided herein shall be entitled to receive such reasonable compensation for
its services as shall be agreed upon by the Liquidator and the Partners.
Section XIV.4 DISTRIBUTION OF PARTNERSHIP PROPERTY AND PROCEEDS OF SALE
THEREOF. The distribution of Partnership Property and the proceeds from the sale
thereof shall be in accordance with the following:
A. ORDER OF DISTRIBUTION. Upon completion of all desired sales of
Partnership Property, and after payment of all selling costs and expenses,
the Liquidator shall distribute the proceeds of such sales, and any
Partnership Property that is to be distributed in kind, to the following
groups in the following order of priority:
1. to the extent permitted by law, to satisfy Partnership
liabilities to creditors, including Partners who are creditors
(other than for past due Partnership distributions), whether by
payment or establishment of reserves;
2. to satisfy Partnership obligations to Partners to pay past
due Partnership distributions;
-54-
<PAGE>
3. to the Partners in accordance with their respective
Interests.
B. INSUFFICIENT ASSETS. The claims of each priority group specified
above shall be satisfied in full before satisfying any claims of a lower
priority group. If the assets available for disposition are insufficient
to dispose of all of the claims of a priority group, the available assets
shall be distributed in proportion to the amounts owed to each creditor or
the respective Capital Account balances or Interests of each Partner in
such group.
Section XIV.5 FINAL AUDIT. Within a reasonable time following the
completion of the liquidation, the Liquidator shall supply to each of the
Partners a statement which shall set forth the assets and the liabilities of the
Partnership as of the date of complete liquidation and each Partner's pro rata
portion of distributions pursuant to SECTION 14.4.
Section XIV.6 DEFICIT CAPITAL ACCOUNTS. Notwithstanding anything to the
contrary contained in this Agreement, to the extent that the deficit, if any, in
the Capital Account of any Partner results from or is attributable to deductions
and losses of the Partnership (including non-cash items such as depreciation),
or distributions of money pursuant to this Agreement, such deficit shall not be
an asset of the Partnership and such Partners shall not be obligated to
contribute such amount to the Partnership to bring the balance of such Partner's
Capital Account to zero.
ARTICLE XV - LIABILITY, INDEMNIFICATION AND INSURANCE
Section XV.1 LIABILITY OF PARTNERS. No Partner nor any shareholder,
director, officer, agent, affiliate or employee of any Partner shall be liable,
responsible or accountable in damages or otherwise to the Partnership or any
other Partner for any action taken or failure to act on behalf of the
Partnership within the scope of the authority conferred on such Partner by this
Agreement or by law unless such act or omission constituted willful or wanton
misconduct or was performed or omitted fraudulently or in bad faith or
constituted gross negligence. No Partner nor any shareholder, director, officer,
agent, affiliate or employee of any Partner shall be personally liable for the
return or repayment of all or any portion of the capital or profits of any other
Partner (or transferee thereof), it being expressly agreed that any such return
of capital or profits made pursuant to this Agreement shall be made solely from
the assets of the Partnership. Nothing herein shall be interpreted to (i) limit
the liability of any Partner with respect to debts and obligations to third
parties under the Act, (ii) limit the obligation of any Partner to transfer to
the Partnership the full amount of such Partner's Initial Capital Contribution
and subsequent capital contributions, if any, or (iii) limit the liability of
any Partner with respect to the fiduciary duty of such Partner to the
Partnership or to the other Partners.
Section XV.2 REIMBURSEMENT AND INDEMNIFICATION OF PARTNERS. The
Partnership shall promptly reimburse and indemnify each Partner in respect of
reasonable payments made and personal liabilities reasonably incurred by such
Partner for services performed for the benefit of or on behalf of the
-55-
<PAGE>
Partnership business, or for the preservation of the Partnership's business or
property. Without limiting the generality of the foregoing, in any threatened,
pending, or contemplated action, suit or proceeding to which a Partner and/or
any officer, director, shareholder, agent, affiliate or employee of such Partner
(collectively, the "Indemnified Parties"), was or is a party or is threatened to
be made a party by reason or because of the fact that such Partner is or was a
Partner in the Partnership (including any action by or in the right of the
Partnership), the Partnership shall indemnify the Indemnified Parties against
expenses, including attorneys' fees, judgments and amounts paid in settlement
incurred by the Indemnified Parties in connection with such action, suit or
proceeding if the Indemnified Parties acted in accordance with the standards set
forth in the Act. The termination of any action, suit or proceeding by judgment,
order or settlement shall not, of itself, create a presumption that the
Indemnified Parties did not act in accordance with such standards. Nothing
herein shall be interpreted to indemnify or limit the liability of any Partner
with respect to debts or obligations of the Partnership. Nothing herein shall be
considered to guarantee that the Partnership or any of the Partners shall gain
or derive any profit or benefit from the operations of the Partnership's
business or that such operations shall result in any particular outcome.
Section XV.3 LIMIT ON LIABILITY OF PARTNERS. The indemnification set forth
in this ARTICLE XV shall in no event cause the Partners to incur any personal
liability beyond their total Capital Contributions.
Section XV.4 INSURANCE. To the extent not prohibited by applicable law,
the Partnership may purchase and maintain insurance or another arrangements on
behalf of any Person who is or was an Indemnified Party against any liability
asserted against him or incurred by him in such a capacity or arising out of his
status as an Indemnified Party.
Section XV.5 Nothing contained in this Article XV shall apply to the
conduct of the Managing Partner pursuant to the Management Agreement between the
Managing Partner and the Partnership (as defined in Section 17.1), and nothing
contained in this Article XV shall alter or affect in any way the obligations,
rights and liabilities of the Managing Partner or the Partnership provided in
the Management Agreement.
ARTICLE XVI - RESTRICTIONS ON TRANSFER OF
INTEREST; AND PURCHASE OF OSCI INTEREST
Section XVI.1 ARTICLE XVI DEFINITIONS. Solely for purposes of this ARTICLE
XVI, the following terms shall have the meanings indicated:
A. "Annual Net Earnings" means (i) the gross receipts of the
Partnership received in the ordinary course of business during the
calendar year in question (the "Annual Period"), computed in accordance
with generally accepted accounting principles using a cash method of
accounting, minus (ii) the operating expenses of the Partnership paid in
the ordinary course of business during the Annual Period, computed in
accordance with generally accepted accounting principles, consistently
-56-
<PAGE>
applied, using a cash method of accounting, including all amounts paid to
Omega with respect to the Annual Period pursuant to the "Management
Agreement" (as defined in SECTION 17.1 hereof).
B. "Buyout Amount" means an amount equal to five and fifteen one
hundredths (5.15) times the average Annual Net Earnings of the Partnership
Interest being sold based upon the Partnership's Annual Net Earnings for
each of the two (2) calendar years immediately preceding the "Trigger
Date" (hereinafter defined).
C. "Disability" means, as applied to Dr. Faust, the physical or
mental inability of Dr. Faust to perform, for a period of ninety (90)
consecutive days, the material duties of such person's occupation or any
covenant or duty of Dr. Faust required by that certain Professional
Employment Agreement of even date between Referral Eye Center, P.C. and
Joseph Faust, M.D.
D. "Dr. Faust" means Joseph Faust, M.D.
E. "Employment Agreement" means that certain Professional Employment
Agreement by and between Referral Eye Center, P.C. and Dr. Faust dated as
of May 1, 1997.
F. "Trigger Date" means the date that the first of the following
events occur: (a) the death of Dr. Faust, (b) the Disability of Dr. Faust,
(c) the retirement of Dr. Faust or (d) the termination of employment of
Dr. Faust pursuant to Section 14 of the Employment Agreement.
Section XVI.2 RESTRICTIONS ON OSCI INTEREST PRIOR TO APRIL 30, 2002. Prior
to April 30, 2002, OSCI shall not sell, encumber, or transfer all, or any part
of, its Interest in the Partnership, except (i) with the consent of all of the
Partners, or (ii) upon the occurrence of an event specified in SECTION 16.3.
Section XVI.3 MANDATORY SALE AND PURCHASE FROM EVENT INVOLVING DR. FAUST.
Upon the occurrence of any one of the following events: (i) the death of Dr.
Faust; (ii) the Disability of Dr. Faust; or (iii) the retirement of Dr. Faust,
or (iv) the termination of employment of Dr. Faust pursuant to Section 14 of the
Employment Agreement, OSCI is obligated to sell, and Omega is obligated to buy
OSCI's Interest. Upon the expiration of sixty (60) days following the Trigger
Date, Omega shall purchase from OSCI, and OSCI shall sell to Omega, at the
Buyout Amount, the Interest that OSCI is required to sell, and that Omega is
required to buy, under the provisions of this SECTION 16.3. Notwithstanding the
foregoing, in the event that Dr. Faust has given notice of his retirement as
provided in the Employment Agreement and is able to sell his stock in said
corporation to an ophthalmologist or ophthalmologists reasonably acceptable to
Omega within the time period prescribed in the Management Agreement, then OSCI
may sell its Interest to such ophthalmologist or ophthalmologists on the closing
date of the sale of Dr. Faust's stock; however, if Dr. Faust is unable to sell
his stock in said corporation within such time period, then Omega shall purchase
OSCI's Interest as provided above.
-57-
<PAGE>
Upon the termination of that certain Management Agreement between Referral
Eye Center, P.C. and Omega dated May 1, 1997, by Referral Eye Center, P.C. prior
to May 1, 2002, pursuant to Sections 6.1 or 6.2 thereof, Omega shall be
obligated to sell and OSCI shall be obligated to purchase Omega's Interest upon
the expiration of sixty (60) days after such termination at the Buyout Amount.
Upon the termination of that certain Management Agreement between Referral Eye
Center, P.C. and Omega dated May 1, 1997, by Referral Eye Center, P.C. after May
1, 2002, pursuant to Section 6.1 or 6.2 thereof, OSCI shall have the option, but
not the obligation, to purchase Omega's Interest upon the expiration of sixty
(60) days after such termination at the Buyout Amount.
Section XVI.4 PAYMENT OF THE BUYOUT AMOUNT. The Buyout Amount shall be
paid by Omega to OSCI by delivery to OSCI (i) an amount of cash equal to fifty
percent (50%) of the Buyout Amount, and (ii) an amount equal to the difference
between the Buyout Amount minus the amount of cash paid to OSCI under (i) of
this SECTION 16.4 which shall, at the option of Omega, be paid in cash, in
unregistered common stock (the "Stock") of Omega Health Systems, Inc., or in a
combination of both. For purposes of this SECTION 16.4, the Stock shall be
valued at the average of the closing price of the common stock of OHSI for the
twenty (20) trading days prior to the date that the certificates representing
the Stock are required to be delivered to OSCI.
ARTICLE XVII - MANAGEMENT AGREEMENT
Section XVII.1 Concurrently with the execution of this Agreement by the
Partners, the Partnership has entered into a Management Agreement with Omega, in
the form attached hereto as EXHIBIT 17 (the "Management Agreement"). Anything in
this Agreement to the contrary notwithstanding, after the Partnership has
entered into the Management Agreement, none of the terms or conditions of the
Management Agreement shall be amended, modified, supplemented or otherwise
changed except with the prior written consent of the Partners holding eighty
percent (80%) of the Partnership Interests.
Section XVII.2 In the event a majority of the non-managing partners has
determined that the Manager is in default under the provisions of such
Management Agreement, this majority of the non-managing partners may notify
Omega of its determination and Omega may exercise its rights to cure such
default or be subject to the default provisions of the Management Agreement, or
dispute the occurrence of a default. In the event of a dispute the majority of
non-managing partners may submit the dispute to mediation and arbitration in
accordance with the provisions of Article 18 of this Agreement. In such event,
if the determination of the arbitrators is that a default has occurred
triggering the termination provisions of the Management Agreement, the Partners
shall agree to sell the Partnership assets or if they cannot agree upon the
terms of a sale, the Partners shall dissolve the Partnership in accordance with
the provisions of Article XIV of this Agreement.
-58-
<PAGE>
ARTICLE XVIII - ARBITRATION AND MEDIATION
Section XVIII.1 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. This mediation will be non-binding, but the parties must
participate in good faith in non-binding mediation, before resorting to
arbitration, litigation, or some other dispute resolution procedure.
Section XVIII.2 Except as noted hereafter, any controversy or claim
arising out of or relating to this Agreement, or its breach, 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, Omega and OSCI shall select one arbitrator, agreeable to all
parties. The 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 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 XIXI- MISCELLANEOUS PROVISIONS
Section XIX.1 Entire Agreement. This Agreement contains the entire
agreement among the Partners relating to the subject matter hereof and all prior
agreements relative hereto which are not contained herein are terminated.
Section XIX.2 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the local, internal laws of the State of Indiana.
In particular, this Agreement is intended to comply with the requirements of the
Act. In the event of a direct conflict between the provisions of this Agreement
and the mandatory provisions of the Act, the Act will control. The venue of any
mediation, arbitration or litigation hereunder shall be Marion County, Indiana.
Section XIX.3 CONFERENCE TELEPHONE MEETINGS. Meetings of the Partners may
be held by means of conference telephone or similar communications equipment so
long as all Persons participating in the meeting can hear each other.
Participation in a meeting by means of conference telephone shall constitute
presence in person at such meeting, except where a Person participates in the
meeting for the express purpose of objecting to the transaction of any business
thereat on the ground that the meeting is not lawfully called or convened.
-59-
<PAGE>
Section XIX.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the Partners and their respective heirs, legal
representatives, successors and assigns.
Section XIX.5 SEVERABILITY. This Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Agreement or the
application thereof to any Person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, but the extent of such invalidity or
unenforceability does not destroy the basis of the bargain among the Partners as
expressed herein, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby, but
rather shall be enforced to the greatest extent permitted by law.
Section XIX.6 AMENDMENT. Except as expressly provided herein, this
Agreement may be amended only by a written amendment hereto executed by all of
the Partners.
Section XIX.7 HEADINGS. The Article, Section and Subsection headings
appearing in this Agreement are for convenience of reference only and are not
intended, to any extent or for any purpose, to limit or define the text of any
Article, Section or Subsection.
Section XIX.8 CONSTRUCTION. Whenever required by the context, as used in
this Agreement, the singular number shall include the plural, and vice versa,
and the gender of all words used shall include the masculine, feminine and the
neuter. Unless expressly stated herein, all references to Articles, Sections
and/or Subsections refer to Articles, Sections and/or Subsections of this
Agreement, and all references to Schedules and/or Exhibits are to Schedules
and/or Exhibits attached hereto, each of which is made a part hereof for all
purposes.
Section XIX.9 OFFSET. Whenever the Partnership is to pay any sum to any
Partner, any amounts that Partner owes the Partnership may be deducted from that
sum before payment.
Section XIX.10 EFFECT OF WAIVER OR CONSENT. A waiver or consent, express
or implied, to or of any breach or default by any Person in the performance by
that Person of its obligations with respect to the Partnership is not a consent
or waiver to or of any other breach or default in the performance by that Person
of the same or any other obligations of that Person with respect to the
Partnership. Failure on the part of a Person to complain of any act of any
Person or to declare any Person in default with respect to the Partnership,
irrespective of how long that failure continues, does not constitute a waiver by
that Person of its rights with respect to that default until the applicable
statute-of-limitations period has run.
-60-
<PAGE>
Section XIX.11 FURTHER ASSURANCES. In connection with this Agreement and
the transactions contemplated hereby, each Partner shall execute and deliver any
additional documents and instruments and perform any additional acts that may be
necessary or appropriate to effectuate and perform the provisions of this
Agreement and those transactions.
Section XIX.12 INVESTMENT REPRESENTATIONS; RESTRICTIONS ON Transfer. Each
Partner, by such Partner's execution of this Agreement, represents and agrees
that such Partner is purchasing such Partner's Interest in the Partnership for
investment purposes only, and without a view toward the distribution or resale
thereof. Pursuant to SECTION 11.2 and ARTICLE XVI hereof, Interests in the
Partnership shall be nontransferable except in accordance therewith; and, no
assignee of a Partnership Interest in the Partnership shall become a substitute
Partner without the consent of the transferor and Partners holding eighty
percent (80%) of the Partnership Interests.
Section XIX.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which taken
together shall constitute a single document. This Agreement shall be binding
upon each Partner upon execution, regardless of whether any other Partner has
executed the same or a different counterpart. A photocopy or telecopy of an
executed counterpart of this Agreement shall be sufficient to bind the
Partner(s) whose signature(s) appear thereon.
IN WITNESS WHEREOF, the Partners have executed this Agreement to be
effective as of the date first above written.
THE OUTPATIENT SURGERY CENTER OF OMEGA HEALTH SYSTEMS OF INDIANA,
INDIANA, INC., an Indiana Corporation INC., an Indiana Corporation
By: /s/ Joseph F. Faust By: /s/ Ronald L. Edmonds
-------------------------------------- -----------------------------
Joseph F. Faust, M.D., President Ronald L. Edmonds,
Executive Vice-President
-61-
EXHIBIT 2.5
-----------
MERGER AGREEMENT
----------------
THIS MERGER AGREEMENT ("Agreement") is made and entered into as of this
30th day of April, 1997 by and between LEONARD OSIAS, O.D., a citizen and
resident of the State of California ("Dr. Osias"), and IRENE OSIAS, wife of Dr.
Osias and a citizen and resident of the State of California, both as Trustees of
the OSIAS FAMILY TRUST DATED AUGUST 18, 1988 (the "Trust") (collectively
referred to herein as "Stockholder"), PRIMARY EYECARE NETWORK, a California
corporation ("PEN"); P.E.N. RESOURCES, INC. ("PEN Resources") (collectively
referred to herein as "Corporations," and individually as "Corporation");OMEGA
HEALTH SYSTEMS, INC., a Delaware corporation ("OHSI"), and OMEGA ACQUISITION
SUBSIDIARY, INC., a California corporation ("Omega").
WITNESSETH
WHEREAS, Stockholder is the sole shareholder in PEN and PEN Resources,
which Corporations are dedicated to the support of optometry through education,
training, publication and vendor programs; and
WHEREAS, Stockholder has agreed to merge each of the Corporations into
Omega (sometimes referred to hereinafter as the "Surviving Corporation"), with
Stockholder receiving OHSI common stock and cash in exchange for Stockholder's
stock in the Corporations; 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 is hereby acknowledged by the parties, it is agreed as
follows:
SECTION 1. 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 will be merged with and into Omega in accordance with this
Agreement, and the separate existence of the Corporations shall thereupon cease
(the "Merger"). Omega shall be the Surviving Corporation in the Merger. The
Merger shall have the effects specified in SECTION 1100 ET SEQ. of the
California Corporations Code (the "Code"). 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 Code.
-62-
<PAGE>
(b) EFFECT OF MERGER.
(i) GENERAL. If all the conditions to the Merger set forth in
SECTION 5 shall have been fulfilled or waived in accordance herewith and
this Agreement shall not have been terminated as provided in SECTION 8,
the parties hereto shall cause an Agreement of Merger meeting the
requirements of the Code and substantially in the form of Schedule I
attached hereto (the "Articles of Merger") to be properly executed,
verified and delivered for filing in accordance with the Code on the
Closing Date set forth in SECTION 1.2. The Merger shall become effective
upon the later of acceptance for filing of the Articles by the Secretary
of State of the State of California 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) ARTICLES 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, except that the name of Omega shall be changed to
"Primary Eyecare Network, Inc.".
(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
Acquisition Subsidiary, Inc. (the "Omega Stock") issued and outstanding
at and as of the Effective Time will remain issued and outstanding.
1.2 CLOSING DATE. The closing of the Merger (the "Closing") shall take
place at the Corporation's principal office in San Ramon, California, at 10:00
a.m. local time on April 30, 1997 or 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 be
extended beyond May 10, 1997, unless agreed in writing by Stockholder and Omega.
-63-
<PAGE>
1.3 TRANSFER OF THE SHARES. Effective as of the Closing Date, each
Stockholder shall transfer, assign, grant, deliver and convey to Omega all of
Stockholder's right, title and interest in and to the shares of the
Corporations, free and clear of any lien, pledge, charge, security interest or
encumbrance of any nature ("Lien") by delivery by each Stockholder to Omega of
the stock certificates representing the shares of the Corporations 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 of the Corporations paid or provided for. As a result of
the Merger the outstanding shares of the Corporations shall be cancelled and the
Stockholder shall have the right to receive the consideration provided for in
Section 2.1 hereof.
1.4 EVIDENCE OF TRANSFER. At the Closing and thereafter, as Omega may from
time to time request, each Corporation shall execute and deliver to Omega such
documents and instruments of conveyance as may be appropriate and shall take or
cause to be taken such actions as Omega may reasonably request in order to
accomplish the transfer of the shares of the Corporations and the consummation
of the matters contemplated by this Agreement. All such documents shall be in
form reasonably satisfactory to Omega.
SECTION 2. CONSIDERATION
2.1 CONSIDERATION. As consideration for the Merger, all shares of common
stock of the Corporations shall, without further action on the part of
Stockholder, be exchanged for: (i) One Million Four Hundred Eighteen Thousand
Five Hundred Eighteen Dollars ($1,418,518) payable in immediately available
funds by wire transfer paid by Omega to Stockholder at the Closing; and (ii)
voting common stock of Omega Health Systems, Inc. (the "OHSI Stock") valued at
One Million Two Hundred Seventy-five Thousand Nine Hundred Twenty-eight Dollars
($1,275,928) to be issued to Stockholder (hereinafter items (i) and (ii) are
collectively referred to as the "Consideration"). In addition, PEN shall pay to
Mr. Allen Leck ("Mr. Leck") (a) Four Hundred Eighty One Thousand Four Hundred
Eighty Two Dollars ($481,482) payable in immediately available funds at the
Closing, in satisfaction of the obligation set forth in the employment agreement
between Dr. Osias and Mr. Leck, attached hereto as SCHEDULE 2.1.1 and (b) Five
Hundred Thousand Dollars ($500,000) represented by Omega's promissory note,
guaranteed by OHSI, in consideration of Mr. Leck's agreements under the
Employment Agreement attached as Exhibit 5.1.3 and Mr. Leck's consent to this
Merger, which promissory note shall be in the form of Schedule 2.1.2 hereto.
Each share of OHSI Stock shall be valued at the average of the closing price of
OHSI Stock for the thirty (30) trading days ending three (3) business days prior
to the Closing Date, and excluding the five (5) highest and five (5) lowest
daily closing prices. The maximum value of this per-share calculation shall be
Seven and 1/8 Dollars ($7.125). No fractional share of OHSI Stock shall be
issued. The OHSI Stock shall not be registered, and will be restricted
securities that are not freely transferable, except to the extent provided
herein, and the certificates reflecting the OHSI Stock shall bear a legend to
that effect.
-64-
<PAGE>
2.2 "PIGGYBACK" REGISTRATION RIGHTS. (a) The Stockholder will be entitled
to "piggyback" registration rights for unregistered OHSI Stock on registrations
of OHSI stock or securities, subject to the right of Omega 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 to OHSI of registering such OHSI
Stock in a piggyback registration shall be borne by OHSI, except that
underwriting discounts and commissions shall be paid by the Stockholder, and the
costs of Stockholder's counsel shall be paid by the Stockholder.
2.3 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 any Stockholder's family, to a trust
established for any Stockholder's benefit or the benefit of one or more of the
members of any Stockholder's family, to a family partnership (general or
limited) established by any Stockholder's or one or more of the members of any
Stockholder's family, or to any other entity that is owned by any Stockholder
and one or more of the members of any Stockholder's family. In the event that
the OHSI Stock is transferred to any permitted transferee in accordance with
this SECTION 2.3, such permitted transferee shall be entitled to all of the
rights of Stockholder pursuant to this Agreement. In addition, nothing in this
Agreement shall prevent the Omega Stock that is not subject to the
indemnification and escrow arrangement provided for in the Stock Pledge and
Escrow Agreement from being sold or transferred, in whole or in part, to an
unrelated third party so long as the applicable registration and qualifications
requirements of the federal and state securities laws are complied with or such
sale or transfer is exempt from such registration and qualification
requirements.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF CORPORATIONS AND STOCKHOLDER
The Corporations and the Stockholder represent and warrant with Omega and
OHSI that, except as set forth in the disclosure schedule accompanying this
Agreement:
3.1 NUMBER OF, TITLE TO AND TRANSFERABILITY OF THE SHARES. The entire
authorized capital stock of PEN consists of 1,000,000 shares of common stock, of
which 1,000 shares are issued and outstanding. The entire authorized capital
stock of PEN Resources consists of 100,000 shares, of which 10,000 shares are
issued and outstanding. All of the issued and outstanding shares of each of the
Corporations have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by Stockholder as set forth on SCHEDULE
3.1 hereof. Stockholder owns beneficially and of record, and has good and
marketable title to, all of the issued and outstanding shares of each
Corporation, and Omega in the Merger shall acquire ownership of the assets of
the Corporations, free and clear of all Liens, except for the liabilities or
obligations listed in the Disclosure Schedules.
-65-
<PAGE>
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 of the Corporations or to acquire any
stock or any other equity interest in the Corporations.
3.3 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Stockholder 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
Stockholder's obligations hereunder and to perform the transactions contemplated
hereby. This Agreement has been fully executed and delivered by each Stockholder
and is the valid and binding obligation of Stockholder 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, moratorium and similar laws affecting the rights of
creditors generally.
3.4 TAXES.
(a) Each Corporation has filed all federal, state, local, municipal or
other tax returns ("Tax Returns") that it was required to file, on or before the
Closing Date. 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 Corporations (whether or not shown on any Tax
Return) through the Closing Date have been duly paid or accrued. The
Corporations are not the beneficiary of any extension of time within which to
file any Tax Return. The Corporations have not received notice of any claim made
by an authority in a jurisdiction where the Corporations do 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 Corporations that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) The Corporations have withheld and paid all Taxes, if any, required to
have been withheld and paid, on or before the Closing Date, in connection with
amounts paid or owing to any employee.
3.5 LITIGATION. Except as set forth on SCHEDULE 3.5 hereto, there are no
judgments unsatisfied against Corporations. Stockholder and Corporations are not
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 office arising from the acts of Stockholder or
Corporations or initiation thereof by Stockholder or Corporations that relates
to the business or operations of the Corporations. Stockholder and Corporations
are not subject to any order, judgment, decree or governmental restriction which
adversely affects the shares of the Corporations or which would prevent the
consummation of the transactions contemplated by this Agreement. Stockholder and
Corporations are not in material violation of any law, order, writ, injunction
-66-
<PAGE>
or decree, injunction of any court, governmental department or instrumentality
(including, without limitation, applicable environmental protection legislation
and regulations) that relates to the business or operations of the Corporations.
There is no claim, action or proceeding now pending or, to the knowledge of
Stockholder, threatened against Stockholder or Corporations which will, or
could, prevent or delay consummation of the transactions contemplated by this
Agreement.
3.6 MEMBERS. Attached as SCHEDULE 3.6.1 is a list of all of the
Corporations' members as of March 31, 1997, for whom the Corporations provide
services (the "Members"). Attached as SCHEDULE 3.6.2 is a sample application PEN
enters into with the Members (the "Member Application").
3.7 VENDORS. Attached as SCHEDULE 3.7.1 is a list as of March 31, 1997, of
all of the Corporations' vendors who are currently providing products to the
members of PEN Members, (the "Vendors"). Attached as SCHEDULE 3.7.2 are the
contracts the Corporations entered into with the same Vendors (the "Vendor
Contracts"). Except as described on SCHEDULE 3.7.3, or in the Membership
Application materials, the Corporations have no other compensation arrangements
of any sort with Vendors, the terms of which are not substantially similar to
the terms of SCHEDULE 3.7.2.
3.8 EMPLOYEES AND INDEPENDENT CONTRACTORS. Attached as SCHEDULE 3.8.1 is a
list as of March 31, 1997, of all of the Corporations' employees and independent
contractors, including, but not limited to, manufacturers' representatives and
salespersons. Attached as SCHEDULE 3.8.2 and SCHEDULE 3.8.3 are sample contracts
Corporations enters into with such employees and independent contractors. Except
as described on SCHEDULE 3.8.4, the Corporations has no other compensation
arrangements of any sort with any person listed on SCHEDULE 3.8.1, the terms of
which are not substantially similar to the terms of SCHEDULE 3.8.2 or SCHEDULE
3.8.3.
3.9 CONTRACTS OR OTHER AGREEMENTS. Attached as SCHEDULE 3.9 is a list of
written contracts (other than the Member Applications, Vendor Contracts and
those contracts with persons listed on SCHEDULE 3.8.1) the Corporations has with
any third-party ("Other Agreements"). SCHEDULE 3.9 also sets forth a written
description of any verbal agreements that the Corporations have with any
third-party that provide for payments to or from the Corporations in excess of
$10,000 per annum.
3.10 FRAUD AND ABUSE. (a) Corporations and persons and entities providing
professional services for Corporations have not, to the knowledge of Dr. Osias
and Mr. Leck, engaged in any activities which are prohibited under 42 U.S.C.
(beta) 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; and
(b) To the knowledge of Dr. Osias and Mr. Leck, the Corporations are in
substantial compliance with the regulations, found at 42 Code of Federal
Regulations (beta) 1001.952(h), related to the furnishing of "discounts" (as
thAT term is defined in the regulations) in the sale of goods and services by
Corporations to the Members.
-67-
<PAGE>
3.11 LABS. The Corporations neither own, nor operate under a management
services or other similar contract, any diagnostic labs of any sort, nor are
under any contract to furnish any diagnostic laboratory services to any Member.
3.12 NO MEDICAL SERVICES. The Corporations neither provide, directly or
indirectly, professional medical services of any kind, including, but not
limited to optometry or ophthalmology; nor do the Corporations engage in,
directly or indirectly, the practice of opticianry, including but not limited
to, the sale, fitting, or repair of glasses or contact lenses.
3.13 ACCURACY AND MATERIALITY. No representation or warranty of
Stockholder or the Corporations contained in this Agreement or any other
document prepared by Corporations and delivered to Omega 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 and
warranties contained in this SECTION 3 shall be deemed to be material to and
have been relied upon by Omega.
3.14 REVIEW AND CONSULTATION. Stockholder 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 Stockholder in
connection with the transactions contemplated herein.
3.15 BROKER FEES. Neither Stockholder nor the Corporations has utilized
the services of a broker in connection with this transaction, and neither
Stockholder nor the Corporations 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.
3.16 TANGIBLE ASSETS. Attached hereto as SCHEDULE 3.16 is a true and
complete list of all of the non-cash assets, to which each Corporation is a
party, of the Corporations at the Closing Date (the "Assets"). Each Corporation
has and at the Closing Date will have good title, unencumbered by any Lien, to
all of the Assets. The Assets will be updated at the Closing Date, and cash,
accounts receivables, accounts payable, and debt at the Closing Date will be
substantially similar to the amounts of such items existing as of November 30,
1996.
3.17 ACCOUNTS RECEIVABLE. Attached hereto as SCHEDULE 3.17.1 is a true and
complete list as of March 31, 1997, of all accounts receivable of the
Corporations and the amount of Corporations' reserve for bad debts at the
Closing Date. Prior to the Closing there shall be no material adverse change in
the accounts receivable or the reserve, except for transactions in the normal
course of the Corporations' business. In addition, attached as SCHEDULE 3.17.2
is a list of all accounts receivable that have been written off as
"uncollectible" or as "bad debt," since May 1, 1995. The accounts receivable are
-68-
<PAGE>
each exclusively owned by the Corporations free and clear of any liens, security
interest claims and encumbrances of any kind; are payable in an amount not less
than their face amount, and are based on an actual and bona fide rendition of
services or sale of goods in the ordinary course of business, and are not
subject to any action, suit, proceeding or pursuit (pending or 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 Corporations to make the account
receivable payable by the account debtor. Neither the Corporations, Dr. Osias,
nor Mr. Leck have actual knowledge of any bankruptcy or other payment disability
of any account debtor.
3.18 FINANCIAL STATEMENTS. Attached hereto as collective SCHEDULE 3.18.1
are audited financial statements of PEN at April 30, 1994, April 30, 1995, April
30, 1996 and the seven (7) months ended November 30, 1996, including balance
sheets and income statements for the periods then ended. Attached hereto as
Schedule 3.18.2 are unaudited financial statements of PEN Resources at December
31, 1995 and 1996, including balance sheets and income statements for the
periods then ended. Such financial statements accurately reflect the condition
and results of operations of the Corporations at such dates and for such
periods. Since November 30, 1996 there has not been, and prior to the Closing
Date there will not be, any material adverse change in the Assets or business or
financial condition of the Corporations.
3.19 UNDISCLOSEDLIABILITIES. To the knowledge of the Corporations, except
as set forth in SCHEDULE 3.19, the Corporations have no debt, liability or
obligation except for (i) debts, liabilities or obligations set forth on,
accrued or reserved against in, the March 31, 1997 balance sheet of the
Corporations or included in any notes thereto, (ii) debts, liabilities or
obligations that have arisen in the ordinary course of business, or (iii) debts,
liabilities or obligations disclosed in the audited financial statements of the
Corporations for the period ended November 30, 1996.
3.20 GOVERNMENTAL APPROVALS. The Corporations have all permits and
licenses required by all applicable laws and regulations and are not in
violation of any such applicable laws or regulations. The Corporations are duly
licensed, and the Corporations, their offices and facilities are lawfully
operated in all material respects in accordance with the requirements of all
applicable laws, including any federal or state antitrust, price discrimination,
or illegal brokerage laws, and have all necessary authorizations, all of which
are in full force and effect in all material respects. There are no outstanding
notices of deficiencies relating to the Corporations issued by any governmental
authority requiring conformity or compliance with any applicable law or
condition, and the Corporations and Stockholder have no knowledge that such
necessary authorizations may be revoked or not renewed in the ordinary course of
business.
3.21 THIRD-PARTY RELATIONS. Neither Dr. Osias nor Mr. Leck is aware
of any problem or disagreement with any third parties with which the
Corporations do business, which problem or disagreement has had a material
-69-
<PAGE>
adverse effect on the Corporation's businesses or is reasonably likely to
have a material adverse effect on the Corporation's businesses. Dr. Osias
and Mr. Leck will use their best efforts from the date of this Agreement to
operate the business in such a manner so as not to materially adversely
affect the goodwill of its Members, Vendors, suppliers, employees, and other
such persons or third parties with which the Corporations do business.
3.22 TRADE RELATIONS. There exists no actual or threatened limitation of
the business relationship of Corporations with any Member, Vendor or landlord,
with any Member Application or Other Agreements, which actual or threatened
limitations to such contracts or projected contracts with Corporations would be
material to the operations of Corporations. There exists no condition or state
of facts or circumstances which could result in the occurrence of a material
adverse effect with respect to the Assets, financial condition, or business of
the Corporations or prevent Omega from conducting the Corporations' business
after the consummation of the transactions contemplated by this Agreement as
such business is currently conducted.
3.23 EMPLOYEE BENEFIT PLANS. (a) LIST OF PLANS. Set forth on SCHEDULE 3.23
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 Corporations (including all employers
(whether or not incorporated) which by reason of common control are treated
together with 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. Corporations have 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 of the Code 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. Corporations have not incurred any
liability to the Pension Benefit Guaranty Corporations ("PBGC") in connection
with any Employee Benefit Plan covering any employees of Corporations 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
Stockholder knows of no facts or circumstances which might give rise to any
liability of Corporations to the PBGC under Title IV of ERISA which could
reasonably be anticipated to result in any claims being made against the Omega
by the PBGC. Corporations have 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.
-70-
<PAGE>
(c) CONTRIBUTIONS. Full payment has been made of all amounts which
Corporations are required, under applicable law or under any Employee Benefit
Plan or any agreement relating to any Employee Benefit Plan to which
Corporations are 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. 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 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. Corporations have 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. Corporations presently does not maintain any employee
benefit plans or any other foreign pension, welfare or retirement benefit plans
other than those listed on EXHIBIT 3.23.
(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.
3.24 INVESTMENT INTENT. Stockholder acknowledges that the OHSI Stock has
not been registered under the Securities Act, and that the OHSI Stock, except as
provided for in SECTION 2.2, AND SECTION 2.3 , may not be sold, pledged or
otherwise transferred absent such registration, or unless an exemption from
registration is available. Stockholder is acquiring the OHSI Stock for its 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 Securities Act.
Stockholder qualifies as an "accredited investor", as defined in Rule 501(a)
pursuant to the Securities Act. Stockholder has received from OHSI a copy of
OHSI's Form 10-K for 1994, 1995, and 1996, OHSI's 10-Q for the quarter ended
-71-
<PAGE>
September 30, 1996, and OHSI's 1994 and 1995 Annual Report to Shareholders.
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 Stockholder. Stockholder has had the opportunity to obtain other
additional information concerning OHSI from OHSI senior management. This
representation by Stockholder does not limit or qualify in any respect any of
the representations or warranties made by OHSI in this Agreement.
3.25 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 each 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 3.25 is a listing of all third-party
consents in connection with the Merger which must be obtained prior to the
Effective Time.
(b) To the knowledge of Stockholder and Dr. Osias, 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 creation
of, any lien, security interest, charge or encumbrance upon any of the
assets of the Corporations 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 either the
Corporations, Stockholder or Dr. Osias is a party, or by which either the
Corporations, Stockholder, Dr. Osias or any of the assets of the
Corporations is bound; or
(ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable either to the Corporations, Stockholder, or Dr.
Osias or any of the assets to be conveyed hereunder; or
(iii) conflict with or constitute a breach, violation, or
termination of any provision of any Vendor Contract, any Member
Application, any Other Agreement, or any contract with the persons listed
on Schedule 3.8.1.
-72-
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF OMEGA AND OHSI.
Omega and OHSI represent and warrant to the Stockholder that:
4.1 CORPORATE STATUS. Each of Omega and OHSI is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with full corporate power and authority to
carry on its business as now conducted and to own or lease and operate its
properties as, and in the places where, such business is now conducted and such
properties are owned, leased and operated.
4.2 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 SCHEDULE 4.2, 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. Omega is a wholly-owned
subsidiary of OHSI.
4.3 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 Omega 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 Omega.
4.4 REVIEW AND CONSULTATION. Omega 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 Omega in connection with the
transactions contemplated herein.
4.5 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Omega has the full legal
right, power and capacity, and all authority and approval, including approval by
Omega's Board of Directors, required to enter into, execute and deliver this
Agreement and to perform and observe fully Omega's obligations hereunder and to
perform the transactions contemplated hereby. This Agreement has been fully
executed and delivered by Omega and is the valid and binding obligation of Omega
enforceable in accordance with its terms. To the knowledge of Omega and OHSI,
the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereby, and compliance by Omega and OHSI 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 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
either Omega or OHSI is a party, or by which either Omega or OHSI or any
of their assets are bound; or
-73-
<PAGE>
(ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable either to Omega or OHSI.
4.6 OHSI STOCK. The shares of OHSI Stock to be issued to the Stockholder
pursuant to this Agreement, when so issued and delivered, will be duly and
validly authorized and issued, fully paid and nonassessable, free and clear of
any and all Liens, and free of restrictions on transfer other than restrictions
on transfer under this Agreement and under applicable state and federal
securities laws, with no personal liability attaching to the ownership thereof.
4.7 CONSENTS AND APPROVALS. No notice to, declaration, filing or
registration with, or authorization, consent or approval of, or license or
permit from, any domestic or foreign governmental or regulatory body or
authority, or any other person or entity, is necessary in connection with the
execution and delivery of this Agreement by Omega or OHSI and the Merger as
contemplated by this Agreement.
4.8 SEC REPORTS AND FINANCIAL STATEMENTS.
(a) OHSI has previously furnished to Stockholder complete and
correct copies of: (i) its Annual Reports on Form 10-K for the periods ended
December 31, 1994, 1995, and 1996, (ii) its proxy materials for the two (2) most
recently held meetings of stockholders, and (iii) its 1994 and 1995 Annual
Reports to Shareholders (collectively, the "SEC Filings").
(b) As of their respective filing dates or the date of any amendment
thereto, none of the SEC Filings contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except to the extent corrected by a
subsequently filed SEC filing.
(c) Since December 31, 1996, OHSI has filed with the Securities and
Exchange Commission ("SEC") all reports and registration statements and all
other filings required to be filed with the SEC.
(d) The audited consolidated financial statements and unaudited
interim financial statements included in the reports or other filings referred
to in SECTION 4.8(A) hereof were prepared in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position of OHSI and its subsidiaries as of the dates thereof and the
consolidated results of operations and changes in cash flows and stockholders'
-74-
<PAGE>
equity of OHSI and its subsidiaries for the periods shown therein, subject, in
the case of unaudited interim financial statements, to normal year-end
adjustments and the absence of certain footnote disclosures.
(e) For three (3) years following the Closing Date, Omega and OHSI
will supply to Stockholder all SEC Filings made after the Closing Date and
copies of all press releases issued by OHSI.
4.9 UNDISCLOSED LIABILITIES. Except as disclosed on SCHEDULE 4.9, neither
OHSI nor any of its subsidiaries has any liability or obligation, secured or
unsecured (whether absolute, accrued, contingent or otherwise, and whether due
or to become due) which is material to the business of OHSI and its
subsidiaries, taken as a whole, except for any such liability and obligation
which (i) is accrued or reserved against in the consolidated balance sheet as of
December 31, 1996 contained in OHSI's report on Form 10-K for the period then
ended, or (ii) is of a normally recurring nature and was incurred after November
30 , 1996 in the ordinary course of business and consistent with past practice.
4.10 ABSENCE OF CERTAIN CHANGES. Since December 31, 1996 to the date
hereof, there has not occurred or arisen any events having individually or in
the aggregate a material adverse effect on the business, financial condition,
operation, prospects, net worth, assets or liabilities of OHSI and its
subsidiaries, taken as a whole, except any such events described in the SEC
Filings filed by OHSI since December 31, 1996 to the date hereof and which were
provided to the Stockholder by OHSI.
4.11 TAXES. (a) Each of OHSI and Omega has filed all federal, state,
local, municipal or other tax returns ("Tax Returns") that it was required to
file, on or before the Closing Date. 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 Omega or OHSI
(whether or not shown on any Tax Return) through the Closing Date have been duly
paid or accrued. Neither OHSI nor Omega is the beneficiary of any extension of
time within which to file any Tax Return. Neither OHSI nor Omega has received
notice of any claim made by an authority in a jurisdiction where Omega 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 Omega that arose in connection with
any failure (or alleged failure) to pay any Tax.
(b) Each of Omega and OHSI has withheld and paid all Taxes, if any,
required to have been withheld and paid, on or before the Closing Date, in
connection with amounts paid or owing to any employee.
4.12 LITIGATION. Except as set forth on SCHEDULE 4.12 hereto, there are no
judgments unsatisfied against either Omega or OHSI. Neither Omega nor OHSI 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 either Omega or OHSI or
initiation thereof by Omega or OHSI that relates to the business or operations
of either Omega or OHSI. Neither Omega nor OHSI is subject to any order,
judgment, decree or governmental restriction which adversely affects the OHSI
Stock or which would prevent the consummation of the transactions contemplated
by this Agreement. Neither Omega nor OHSI is in material violation of any law,
-75-
<PAGE>
order, writ, injunction or decree, injunction of any court, governmental
department or instrumentality (including, without limitation, applicable
environmental protection legislation and regulations) that relates to the
business or operations of either Omega or OHSI. There is no claim, action or
proceeding now pending or, to the knowledge of either Omega or OHSI, threatened
against either Omega or OHSI which will, or could, prevent or delay consummation
of the transactions contemplated by this Agreement.
4.13 FRAUD AND ABUSE. Neither Omega nor OHSI, nor persons and entities
providing professional services for Omega or OHSI have, to the knowledge of
Omega or OHSI engaged in any activities which are prohibited under 42 U.S.C.
(beta) 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.
4.14 THIRD-PARTY RELATIONS. Neither Omega nor OHSI is aware of any problem
or disagreement with any third parties with which the they do business, which
problem or disagreement has had a material adverse effect on their businesses or
is reasonably likely to have a material adverse effect on their businesses.
Omega and OHSI will use their best efforts from the date of this Agreement to
operate the business in such a manner so as not to materially adversely affect
the goodwill of its Members, Vendors, suppliers, employees, and other such
persons or third parties with which the Corporations do business.
4.15 BROKER FEES. Neither OHSI nor Omega has utilized the services of a
broker in connection with this transaction, and neither 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.
4.16 GOVERNMENTAL APPROVALS. Omega and OHSI have all permits and licenses
required by all applicable laws and regulations and are not in violation of any
such applicable laws or regulations. Each of OHSI and Omega is duly licensed,
and Omega, OHSI and their offices and facilities are lawfully operated in all
material respects in accordance with the requirements of all applicable laws,
including any federal or state antitrust, price discrimination, or illegal
brokerage laws, and has all necessary authorizations, all of which are in full
force and effect in all material respects. There are no outstanding notices of
deficiencies relating to Omega or OHSI issued by any governmental authority
requiring conformity or compliance with any applicable law or condition, and
neither OHSI nor Omega have any knowledge that such necessary authorizations may
be revoked or not renewed in the ordinary course of business.
-76-
<PAGE>
4.17 EMPLOYEE BENEFIT PLANS. (a) LIST OF PLANS. Set forth on EXHIBIT 4.16
is an accurate and complete list of all employee benefit plans ("Employee
Benefit Plans") within the meaning of Section 3(3) of ERISA, whether or not any
Employee Benefit Plans are otherwise exempt from the provisions of ERISA,
established, maintained or contributed to by Omega or OHSI (including all
employers (whether or not incorporated) which by reason of common control are
treated together with Omega or OHSI as a single employer within the meaning of
Section 414 of the Code) since September 2, 1974.
(b) STATUS OF PLANS. Neither Omega nor OHSI 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 of the
Code 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 Omega or OHSI has
incurred any liability to the PBGC in connection with any Employee Benefit Plan
covering any employees of Omega or OHSI 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 neither Omega nor OHSI knows
of any facts or circumstances which might give rise to any liability of Omega or
OHSI to the PBGC under Title IV of ERISA which could reasonably be anticipated
to result in any claims being made against Omega or OHSI by the PBGC. Neither
Omega nor OHSI 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 Omega
or OHSI is required, under applicable law or under any Employee Benefit Plan or
any agreement relating to any Employee Benefit Plan to which Omega or OHSI 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.
Omega or OHSI 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.
(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.
-77-
<PAGE>
(e) TRANSACTIONS. Neither Omega nor OHSI 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 Omega nor OHSI presently maintains any employee
benefit plans or any other foreign pension, welfare or retirement benefit plans
other than those listed on SCHEDULE 4.16.
4.18 ACCURACY AND MATERIALITY. No representation or warranty of Omega or
OHSI contained in this Agreement or any other document prepared by Omega or OHSI
and delivered to Stockholder, the Corporations or Leck 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 and
warranties contained in this SECTION 4 shall be deemed to be material to and
have been relied upon by Stockholder.
4.19 OFFERING. Subject to the truth and accuracy of Stockholder's
representations set forth in SECTION 3 of this Agreement, the offer, sale and
issuance of the shares of OHSI Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act of 1933, as
amended, and neither Omega, OHSI, nor any authorized agent acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
SECTION 5. CONDITIONS AND ADDITIONAL AGREEMENTS.
5.1 CONDITIONS PRECEDENT TO OMEGA'S AND OHSI OBLIGATIONS. The Closing and
all obligations of Omega and OHSI 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 adverse change in the accounts
receivable, assets, liabilities, financial condition or business of the
Corporations from November 30, 1996, through the Closing Date;
(c) Stockholder shall have executed and delivered to Omega the stock
certificates representing the Shares pursuant to SECTION 1.3 of this
Agreement;
(d) Stockholder shall have performed all of its obligations under
this Agreement required to be performed as of the Closing Date;
-78-
<PAGE>
(e) Dr. Osias shall have executed and delivered to Omega a
Noncompetition and Nonsolicitation Agreement, dated as of May 1, 1997, by
and among Dr. Osias, the Corporations and OHSI, and substantially in the
form of EXHIBIT 5.1.1, attached hereto (the "Noncompete Agreement");
(f) Mr. Leck shall have executed and delivered to Omega a
Contractor's Agreement and Confidentiality Agreement, dated as of May 1,
1997, by and among, Mr. Leck, the Corporations, and OHSI, and
substantially in the form of EXHIBIT 5.1.2 attached hereto (the
"Contractor's Agreement");
(g) Mr. Leck shall have executed and delivered to OHSI the
Employment Agreement, substantially in the form of EXHIBIT 5.1.3, attached
hereto;
(h) Dr. Osias shall have executed and delivered to OHSI the
Consulting Agreement, substantially in the form of EXHIBIT 5.1.4, attached
hereto;
(i) Stockholder shall have executed and delivered to OHSI the Stock
Pledge and Escrow Agreement in the form of EXHIBIT 5.1.5 attached hereto;
and
(j) Any licenses required by law for the operation of the
Corporations shall be in good standing and all regulatory requirements
shall have been met in connection with the Merger to ensure the continued
operation of the surviving Corporation in the Merger.
In the event Omega reasonably believes prior to the Closing Date
that any of the foregoing conditions is not satisfied, then OHSI shall
notify Stockholder in writing and Stockholder shall cure such to the
reasonable satisfaction of OHSI. If Stockholder does not cure in thirty
(30) days, then OHSI may, at its option, terminate this Agreement, in
which event Omega and OHSI shall be relieved of all obligations hereunder
and this Agreement shall be deemed null, void and of no force or effect;
except that SECTION 12.7 shall survive termination of this Agreement
pursuant to this SECTION 5.1.
5.2 CONDITIONS PRECEDENT TO STOCKHOLDER'S OBLIGATIONS. The Closing and all
obligations of Stockholder, the Corporations and Leck 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) OHSI shall have delivered the Purchase Price set forth in
SECTION 2 hereof and the documents set forth in SECTION 5.3;
-79-
<PAGE>
(c) Omega and OHSI shall have performed all of its obligations under
this Agreement required to be performed as of the Closing Date;
(d) OHSI shall have executed and delivered to Dr. Osias the
Noncompete Agreement, substantially in the form of EXHIBITS 5.1.1,
attached hereto;
(e) OHSI shall have executed and delivered to Mr. Leck the
Contractor's Agreement, substantially in the form of EXHIBIT 5.1.2,
attached hereto;
(f) OHSI shall have executed and delivered to Mr. Leck the
Employment Agreement, substantially in the form of EXHIBIT 5.1.3, attached
hereto;
(g) OHSI shall have executed and delivered to Dr. Osias the
Consulting Agreement, substantially in the form of EXHIBIT 5.1.4, attached
hereto;
(h) Omega and OHSI shall have executed and delivered to Mr. Leck the
promissory note in the form of Schedule 2.1.2 hereof.
(i) There shall have been no material adverse change in the
financial condition or business of OHSI since December 31, 1996; and
(j) There shall not be in effect (i) any judgment, decree or order
issued by any federal, state or local court of competent jurisdiction, or
(ii) any statute, rule or regulation enacted or promulgated by any
federal, state or local or legislative, administrative or regulatory body
of competent jurisdiction, that in either of cases (i) or (ii) challenges
the consummation of the proposed transactions under this Agreement.
In the event Stockholder reasonably believes prior to the Closing Date
that any of the foregoing conditions is not satisfied, then Stockholder shall
notify OHSI in writing and OHSI shall cure such to the reasonable satisfaction
of Stockholder. If OHSI does not cure in thirty (30) days then Stockholder may,
at its option, terminate this Agreement in which event Stockholder shall be
relieved of all obligations hereunder and this Agreement shall be deemed null,
void and of no force or effect, except that SECTION 12.14 and SECTION 12.7 shall
survive termination of this Agreement pursuant to this Section 5.2.
5.3 OMEGA'S AND OHSI DELIVERIES. At or prior to the Closing, Omega and
OHSI shall deliver to Stockholder the following documents:
(a) CORPORATE RESOLUTIONS. A copy of directors' resolutions of Omega and
OHSI, certified by its respective 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 Omega and OHSI of
this Agreement, the other instruments to be executed and delivered by Omega and
OHSI as provided herein, and the performance by Omega and OHSI of the
transactions contemplated hereby;
-80-
<PAGE>
(b) CONSIDERATION. The Consideration described in SECTION 2;
(c) NONCOMPETE AND NONSOLICITATION AGREEMENTS. The Noncompete Agreement
among Dr. Osias, the Corporations and OHSI and the Contractor's Agreement among
Mr. Leck, the Corporations and Omega;
(d) EMPLOYMENT AGREEMENT. The Employment Agreement between Mr. Leck and
PEN;
(e) CONSULTING AGREEMENT. The Consulting Agreement between Dr. Osias and
PEN;
(f) OPINION OF COUNSEL FOR OMEGA AND OHSI. An opinion of counsel for Omega
and OHSI dated as of the Closing Date, in form and substance reasonably
satisfactory to Stockholders' counsel, and where appropriate with reliance upon
a certificate from Omega and OHSI to the effect that:
(1) Each of OHSI and Omega is (i) duly incorporated and validly
existing as a business corporation under the jurisdiction of its
incorporation, (ii) in good standing as a business corporation under the
laws of the jurisdiction of its incorporation, 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.
(2) Each of OHSI and Omega has the full power and authority to
execute, deliver, and perform this Agreement and all other agreements and
documents contemplated hereby to which OHSI or Omega, as applicable, is a
party and which are necessary to consummate the contemplated transaction
to which OHSI or Omega, as applicable, is a party, and all corporate
actions of OHSI and Omega necessary for such execution, delivery and
performance will have been duly taken.
(3) This Agreement and all agreements related to this Agreement to
which either OHSI or Omega is a party have been duly executed and
delivered by each of OHSI and Omega, as applicable, and constitute the
legal, valid, and binding agreement of each of OHSI and 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 affecting the rights of creditors generally). The execution and
delivery by each of OHSI and Omega of this Agreement, and the performance
of their respective obligations hereunder, do not require any action or
consent of any party other than Omega or OHSI pursuant to any contract,
agreement or other understanding of Omega, or pursuant to any order or
decree to which Omega or OHSI is a party or to which its properties or
assets are subject and will not violate any provision of, the articles of
incorporation or bylaws of Omega or OHSI or any order of any court or
other agency of the government.
-81-
<PAGE>
(4) To the best of such counsel's knowledge, with respect to Omega
or OHSI there are no actions, suits, claims, proceedings or investigations
pending or, to such counsel's knowledge, 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 any party's right to enter into this Agreement.
(5) Neither OHSI nor Omega 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 OHSI and Omega to enter into and perform this Agreement;
(6) The shares of OHSI Stock issued to Stockholder have been duly
and validly issued by OHSI, with the authorization and approval of OHSI
Board of Directors, and such OHSI Stock is duly paid and non-assessable
free and clear of all liens and free of all restrictions, including
transfer restrictions other than those imposed under this Agreement or
under applicable federal and state securities laws.
(g) OFFICER'S CERTIFICATE. A Certificate of each of OHSI's and Omega's
President and Secretary confirming the matters in SECTION 5.2(A); and
(h) OTHER MERGER DOCUMENTS. All such documents and instruments Stockholder
and its counsel may reasonably request in connection with the consummation of
the transactions contemplated by this Agreement.
5.4 STOCKHOLDERS' DELIVERIES. At or prior to the Closing, Stockholder
shall deliver to the Corporations and Leck, Omega and OHSI, as applicable, the
following documents:
(a) CORPORATE AND SHAREHOLDER RESOLUTIONS. A copy of director's
resolutions of PEN and PEN resources and a copy of the Shareholder's resolution
certified by its respective 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 PEN and PEN Resources of
this Agreement, the other instruments to be executed and delivered by PEN and
PEN Resources as provided herein, and the performance by PEN and PEN Resources
of the transactions contemplated hereby;
-82-
<PAGE>
(b) STOCK CERTIFICATES. Stock certificates, representing the shares of
each Corporation, duly endorsed by Stockholder for transfer or accompanied by
appropriate stock powers;
(c) EXECUTED CONTRACTS. Copies of all executed contracts or other
material agreements entered into by or on behalf of the Corporations in excess
of $10,000;
(d) COPY OF LEASES. Copies of all real estate and equipment leases
pertaining to the Corporations in excess of $10,000;
(e) NONCOMPETE AND NONSOLICITATION AGREEMENTS. The Noncompete Agreement
among Dr. Osias, the Corporations and OHSI; and the Contractor's Agreement among
Mr. Leck, the Corporations and Omega;
(f) EMPLOYMENT AGREEMENT. The Employment Agreement between Mr. Leck and
PEN;
(g) CONSULTING AGREEMENT. The Consulting Agreement between Dr. Osias,
PEN and OHSI;
(h) STOCK PLEDGE AGREEMENT. The Stock Pledge and Escrow Agreement
between the Stockholder and OHSI;
(i) OPINION OF COUNSEL FOR CORPORATIONS AND STOCKHOLDER . An opinion of
counsel for the Corporations and Stockholder dated as of the Closing Date, in
form and substance reasonably satisfactory to Omega's counsel.
(j) OPINION OF COUNSEL FOR MR. LECK. An opinion of counsel for Mr. Leck
confirming the enforceability of the Contractor's Agreement and the Employment
Agreement.
(k) OFFICER'S CERTIFICATE. A certificate from officers of the
Corporations confirming the matters in SECTION 5.1(A) hereof; and
(l) OTHER MERGER DOCUMENTS. All such documents and instruments Omega and
its counsel may reasonably request in connection with the consummation of the
transactions contemplated by this Agreement.
SECTION 6. INDEMNIFICATION; SET-OFF.
6.1 INDEMNIFICATION OF OMEGA. Stockholder shall indemnify, defend and hold
Omega 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
-83-
<PAGE>
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 Stockholder contained herein, which has not been waived
in writing by Omega;
(b) Any liabilities or obligations of Corporations existing as of the
Closing Date and not disclosed on the November 30, 1996 balance sheet or on the
disclosure schedule;
(c) Claims, actions or suits by former employees of Corporations arising
out of events that took place on or before the Closing Date; or
(d) Corporations' 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 6.1. 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 6.1
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 6.1, which consent shall not be unreasonably withheld.
6.2 INDEMNIFICATION OF STOCKHOLDER. Omega shall indemnify, defend and hold
Stockholder and its respective agents, representatives, heirs, 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-names persons,
resulting from or in connection with misrepresentations, breach of warranties or
failure to perform any covenant or Agreement of Omega contained herein.
Stockholder agree 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 6.2. Omega may
participate in the defense of any such suit, action, proceeding or other matter
at Omega's expense. Omega shall not be liable under this SECTION 6.2 for any
settlement effected without Omega'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, Omega and OHSI are entitled to exercise their
rights set forth in that certain Stock Pledge and Escrow Agreement, dated as of
the Closing Date, to which OHSI, Omega and Stockholder are parties.
-84-
<PAGE>
6.4 LIMITATION ON INDEMNITY. Neither Stockholder nor Corporations shall
have the obligation to indemnify Omega and its affiliates under this Agreement
for any amount until the aggregate indemnification amount which Omega and its
affiliates are entitled to exceeds Ten Thousand Dollars ($10,000). Once that
threshold has been exceeded, the indemnification obligation in favor of Omega
and its affiliates shall apply as to all amounts in excess of the $10,000
threshold; but such amounts shall not exceed Six Hundred Fifty Thousand
($650,000) Dollars; provided, however that with regard to the types of claims
specified in (ii), (iii), and (iv) of Section 6.5 hereof, there shall be no
dollar limitation. While OHSI Stock owned by the Osias Trust is pledged pursuant
to the Stock Pledge and Escrow Agreement, then during such time Omega and OHSI
agree that any claim hereunder shall be limited to the value of such pledged
stock.
6.5 The indemnity obligations provided for in Sections 6.1 and 6.2 hereof
shall terminate May 1, 1998, except for (i) any matters noticed prior to such
date, in accordance with the Stock Pledge and Escrow Agreement and the
provisions of Section 6.1 or 6.2 hereof, (ii) any matters involving fraud which
shall have no time limitation, (iii) any matters involving tax claims which
shall terminate on the expiration of the applicable statute of limitations of
the taxing authority, and (iv) any matters involving environmental or ERISA
matters, which shall terminate May 1, 2000.
SECTION 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, or 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.
SECTION 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 Stockholder and OHSI;
(b) by OHSI, 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
-85-
<PAGE>
(c) by Stockholder 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 after
May 15, 1997, unless an extension of time is mutually agreed to, as evidenced by
written consent of Stockholder and OHSI. 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.
8.2 PROCEDURE UPON TERMINATION. In the event of termination and
abandonment of this Agreement by Stockholder or Omega 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
Stockholder or Omega, and Stockholder and Omega 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 as set forth in SECTION 12.7; and
no termination shall release any party from its responsibility to pay expenses
as set forth in SECTION 12.14 herein.
SECTION 9. BOARD OF DIRECTORS MEETINGS.
For a period of two (2) years following the Closing Date, Mr. Leck and one
(1) representative member of the Corporations (the "Representative") will be
invited to attend all of OHSI's Board of Directors meetings, as guests of the
Board of Directors. The Representative will be designated by Dr. Osias, subject
to the approval of OHSI, which approval shall not be unreasonably withheld. Mr.
Leck and the Representative shall be subject to the same insider trading,
confidentiality and disclosure requirements as other of OHSI's Board Members. In
addition, if an opening becomes available for an OHSI board seat held by an
optometrist, which opening results either from a vacancy or an expansion of the
Board, then Dr. Osias has a one-time right to nominate a PEN member to fill such
board seat. The nomination is subject to the approval of OHSI's Board of
Directors, which approval shall not be unreasonably withheld.
-86-
<PAGE>
SECTION 10. 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 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 practicable after submission of a demand for binding
arbitration, OHSI and Stockholder 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.
SECTION 11. EMPLOYEES; EMPLOYEE BENEFITS.
11.1 AFFECTED EMPLOYEES. "Affected Employees" shall mean employees, a list
of which is attached hereto as EXHIBIT 11.1, of Corporations on the Closing
Date.
11.2 RESPONSIBILITIES. Prior to the Closing Date Corporations agree 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 Corporations' employee benefit plans brought by, or in respect
of, Affected Employees and former employees of Corporations prior to the Closing
Date.
11.3 TERMINATION BENEFITS. Corporations 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 Corporations prior to the Closing, or if the transactions
contemplated in this Agreement shall result in any liability or claim of
-87-
<PAGE>
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 Omega from any
losses resulting directly or indirectly from such liability or claim.
11.4 EMPLOYEE BENEFIT PLANS. Within 90 days of Closing Date, Stockholder
and the Surviving Corporation shall use their respective best efforts to cause
Corporations to either terminate any employee benefit plans maintained by
Corporations or cause another entity to assume their sponsorship through merger,
consolidation or transfer of plan assets as described in (beta)414(i) of the
Internal Revenue Code of 1986, as amended.
SECTION 12. GENERAL PROVISIONS.
12.1 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
Omega reserves the right to assign this Agreement to any affiliate or
successor of itself provided, however, that in such event OHSI shall
guarantee the payment and performance of any obligations of such
affiliate.
12.2 CHOICE OF LAW; VENUE. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of the State of
California. Any mediation or binding arbitration brought with respect to this
Agreement shall be conducted in Contra Costa County, California.
12.3 ENTIRE AGREEMENT. This Agreement shall embody the entire agreement
between the parties hereto with respect to the Merger 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
Exhibits and 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.
12.4 SURVIVAL. The covenants, representations and warranties contained in
this Agreement shall survive the Closing Date for a period of one (1) year
following the Closing Date, except that for matters relating to (ii), (iii) and
(iv) of Section 6.5, such covenants, representations, and warranties shall
extend for the respective periods specified in Section 6.5 hereof.
-88-
<PAGE>
12.5 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.
12.6 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.
12.7 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. Omega and OHSI will keep confidential any information (except as required
to be discussed by law and/or unless ascertainable from public sources) obtained
from Corporations in connection herewith and in the event this agreement is
terminated, will return to PEN all documents, work papers and other written
material obtained from or relating to Corporations.
12.8 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.
12.9 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 Omega or OHSI: Omega Health Systems, 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
Memphis, Tennessee 38103
Attn: Robert Walker
If to Stockholder or the Corporations:
Leonard and Irene Osias
49 Tennis Club Drive
Danville, California 94526
And to: Allen Leck
Primary EyeCare Network
125 Ryan Industrial Center, Suite 101
San Ramon, California 94583-1548
-89-
<PAGE>
With a copy to: Allen, Matkins, Leck, Gamble & Mallory, LLP
501 West Broadway, Suite 900
San Diego, California 92101
Attn: Joe M. Davidson
And to: Ms. Kathleen O'Blennis
The Castleman Law Firm
5870 Stoneridge Mall Rd., Suite 207
Pleasanton, California 94588
or to such other address as the parties shall have previously designated by
notice to the serving party, given in accordance with this SECTION 12.9. 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.
12.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offering term in any other situation or in any other
jurisdiction.
12.11 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.
12.12 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.
12.13 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 arbitration shall award, to reimbursement of reasonable attorneys' fees,
costs and other expenses incurred in the prosecution or defense of such Dispute
Resolution.
12.14 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
-90-
<PAGE>
contemplated by this Agreement, except that the Corporations will pay the fees
and expenses incurred by Stockholder, the Corporations and Allen Leck in
connection with the transactions contemplated in this Agreement, up to a maximum
of Eighty Thousand Dollars ($80,000).
IN WITNESS THEREOF the parties hereto have executed this Agreement as of
the day and year first above written.
OMEGA:
OMEGA ACQUISITION SUBSIDIARY, INC.
By: /s/ Todd Smith By: /s/ Ronald L. Edmonds
------------------------------ -----------------------------------------
Todd Smith, Assistant Secretary Ronald L. Edmonds, Executive Vice President
OMEGA HEALTH SYSTEMS, INC.
By: /s/ Todd Smith By: /s/ Ronald L. Edmonds
------------------------------ -----------------------------------------
Todd Smith, Assistant Secretary Ronald L. Edmonds, Executive Vice President
STOCKHOLDER:
OSIAS FAMILY TRUST
DATED AUGUST 18, 1988
By: /s/ LEONARD OSIAS
-----------------------------------------
LEONARD OSIAS, O.D., TRUSTEE
By: /s/ IRENE OSIAS
-----------------------------------------
IRENE OSIAS, TRUSTEE
CORPORATIONS:
PRIMARY EYECARE NETWORK
By: /s/ Irene Osias By: /s/ Allen Leck
------------------------------ ----------------------------------------
Irene Osias, Secretary Allen Leck, President
P.E.N. RESOURCES, INC.
By: /s/ Irene Osias By: /s/ Allen Leck
------------------------------ -----------------------------------------
Irene Osias, Secretary Allen Leck, President
-91-
<PAGE>
JOINDER
LEONARD OSIAS, O.D., joins in this Agreement for the purpose of (i)
guaranteeing the representations and warranties of the Corporations set forth in
SECTION 3 hereof and (ii) personally guaranteeing the payment of any sums owed
under SECTION 6.1 or SECTION 6.3 hereof, subject to the limitations of Section
6.4 and 6.5 hereof.
April 30, 1997
LEONARD OSIAS, O.D.
JOINDER
ALLEN LECK joins in this Agreement for the purpose of (i) acknowledging
the payment to him recited in SECTION 2.1 of this Agreement is in satisfaction
of Dr. Osias' obligation to him under the employment agreement by and between
Mr. Leck and Dr. Osias, attached hereto as SCHEDULE 2.1.1, (ii) acknowledging
that the employment agreement attached as SCHEDULE 2.1.1 to this Agreement has
been terminated and is of no further force or effect, (iii) acknowledging
receipt of the original Promissory Note delivered by Omega pursuant to Section
2.1 hereof, and (iv) confirming those representations and warranties in SECTION
3 in which he is specifically named.
April 30, 1997
ALLEN LECK
- -92-
